ALRS
$22.68
Alerus Financial
($.26)
(1.13%)
Earnings Details
2nd Quarter June 2022
Wednesday, July 27, 2022 5:17:00 PM
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Summary

Alerus Financial (ALRS) Recent Earnings

Alerus Financial (ALRS) reported 2nd Quarter June 2022 earnings of $0.57 per share on revenue of $53.7 million. The consensus earnings estimate was $0.61 per share on revenue of $54.6 million. Revenue fell 9.6% compared to the same quarter a year ago.

Alerus Financial Corporation is a diversified financial services company headquartered in Grand Forks, ND.

Results
Reported Earnings
$0.57
Earnings Whisper
-
Consensus Estimate
$0.61
Reported Revenue
$53.7 Mil
Revenue Estimate
$54.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Alerus Financial Corporation Reports Second Quarter 2022 Net Income of $9.3 Million

MINNEAPOLIS--(BUSINESS WIRE)--Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $9.3 million for the second quarter of 2022, or $0.52 per diluted common share, compared to net income of $10.2 million, or $0.57 per diluted common share, for the first quarter of 2022, and net income of $11.7 million, or $0.66 per diluted common share, for the second quarter of 2021.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “In the second quarter, we reported earnings per share of $0.53, which included a merger expense impact of $(0.05) related to the acquisition of Metro Phoenix Bank. Excluding the impact of this merger related expense, our underlying core ROE was 12.7% which is consistent with our long-term strategic performance and continued goal of achieving a ROE greater than 12%. We continue to see robust loan growth which drove solid net interest income growth. Despite the challenging mortgage and equity markets, we saw the value of our diversified business model as we expanded our client base in both retirement services and wealth management through consistent execution of our One Alerus Growth Strategy.

Our credit quality remains strong and our allowance for loan loss reserve is 1.66% to total loans. We are well positioned for any potential economic volatility, with a common tier 1 ratio of 14.19%. With the closing of the Metro Phoenix Bank acquisition and the continued recruiting successes, Alerus is poised to expand its commercial presence especially in the faster growing parts of our footprint. As we continue to grow and position ourselves for the long term, I want to thank our talented team members for their hard work and dedication to serving in the best interest of our clients.”

Quarterly Highlights

  • Return on average total assets of 1.14%, compared to 1.26% for the first quarter of 2022
  • Return on average common equity of 11.93%, compared to 11.78% for the first quarter of 2022
  • Return on average tangible common equity(1) of 15.25%, compared to 14.72% for the first quarter of 2022
  • Net interest margin (tax-equivalent) was 2.98%, compared to 2.83% for the first quarter of 2022
  • Allowance for loan losses to total loans was 1.66%, compared to 1.80% as of December 31, 2021
  • Noninterest income for the second quarter of 2022 was 56.20% of total revenue, compared to 57.62% for the first quarter of 2022
  • Loans held for investment increased $132.2 million, or 7.5%, since December 31, 2021; excluding Paycheck Protection Program, or PPP loans, loans held for investment increased $158.8 million, or 9.2%, since December 31, 2021
  • Common equity tier 1 capital to risk weighted assets was 14.19%, compared to 14.65% as of December 31, 2021

(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)

 

2022

 

2022

 

2021

 

2022

 

2021

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

1.14

%

 

1.26

%

 

1.50

%

 

1.20

%

 

1.76

%

Return on average common equity

 

 

11.93

%

 

11.78

%

 

13.82

%

 

11.85

%

 

16.11

%

Return on average tangible common equity (1)

 

 

15.25

%

 

14.72

%

 

17.36

%

 

14.97

%

 

20.15

%

Noninterest income as a % of revenue

 

 

56.20

%

 

57.62

%

 

63.48

%

 

56.91

%

 

64.26

%

Net interest margin (tax-equivalent)

 

 

2.98

%

 

2.83

%

 

2.88

%

 

2.91

%

 

3.00

%

Efficiency ratio (1)

 

 

74.72

%

 

72.25

%

 

71.46

%

 

73.50

%

 

68.84

%

Net charge-offs/(recoveries) to average loans

 

 

0.07

%

 

(0.03)

%

 

%

 

0.02

%

 

0.05

%

Dividend payout ratio

 

 

34.62

%

 

28.07

%

 

24.24

%

 

30.91

%

 

20.39

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.53

 

$

0.58

 

$

0.67

 

$

1.11

 

$

1.54

 

Earnings per common share - diluted

 

$

0.52

 

$

0.57

 

$

0.66

 

$

1.10

 

$

1.52

 

Dividends declared per common share

 

$

0.18

 

$

0.16

 

$

0.16

 

$

0.34

 

$

0.31

 

Book value per common share

 

$

17.75

 

$

19.00

 

$

20.03

 

 

 

 

 

 

 

Tangible book value per common share (1)

 

$

14.93

 

$

16.07

 

$

16.89

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

17,297

 

 

17,244

 

 

17,194

 

 

17,271

 

 

17,170

 

Average common shares outstanding - diluted

 

 

17,532

 

 

17,500

 

 

17,497

 

 

17,517

 

 

17,482

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

31,749,157

 

$

35,333,131

 

$

36,964,961

 

 

 

 

 

 

 

Wealth management assets under administration/management

 

$

4,147,763

 

$

4,584,856

 

$

3,538,959

 

 

 

 

 

 

 

Mortgage originations

 

$

269,397

 

$

186,762

 

$

545,437

 

$

456,159

 

$

1,063,451

 

(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 2022 was $22.8 million, a $1.1 million, or 5.1%, increase from the first quarter of 2022. Net interest income increased $1.6 million, or 7.7%, from $21.1 million for the second quarter of 2021. The linked quarter increase in net interest income was primarily driven by increases of $696 thousand in interest income from loans and $625 thousand in interest income from investment securities, partially offset by a $259 thousand increase in interest expense. Interest expense increased due to an increase in short-term borrowings because of corresponding decrease in deposits. Interest income from loans increased primarily due to a $70.4 million increase in average loans.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.98% for the second quarter of 2022, a 15 basis point increase from 2.83% for the first quarter of 2022, and a 10 basis point increase from 2.88% in the second quarter of 2021, primarily due to an increase in earning asset yields and a change in balance sheet mix given strong growth in the loan portfolio.

Noninterest Income

Noninterest income for the second quarter of 2022 was $29.2 million, a $244 thousand, or 0.8%, decrease from the first quarter of 2022. This linked quarter decrease was primarily driven by a $1.4 million decrease in retirement and benefit services revenue, partially offset by a $1.1 million increase in mortgage banking revenue. Retirement and benefit services revenue decreased primarily due to decreases of $685 thousand in non-asset based fees and $668 thousand in asset based fees. The decreases in non-asset based fees were primarily the result of seasonally lower revenues in the health and welfare and payroll businesses. Asset based fees for retirement and benefit services revenue decreased primarily as a result of a $3.6 billion, or 10.1%, decrease in the market value of assets under administration/management primarily due to market value decreases in the bond and equity markets. Mortgage banking revenue increased primarily due to an $82.6 million, or 44.2%, increase in mortgage originations as well as a 64 basis point increase in the gain on sale margin.

Noninterest income for the second quarter of 2022 decreased $7.5 million, or 20.5%, from $36.7 million in the second quarter of 2021. This year over year decrease was primarily the result of a $6.2 million decrease in mortgage banking revenue as well as a $1.6 million decrease in retirement and benefit services revenue, partially offset by a $410 thousand increase in wealth management revenue. Mortgage banking revenue decreased primarily due to a $276.0 million decrease in mortgage originations as well as a 29 basis point decrease in gain on sale margin. Retirement and benefit services revenue decreased primarily due to decreases of $912 thousand in asset based fees and $667 thousand in non-asset based fees. The asset based fees for retirement and benefit services decreased primarily due to a $5.2 billion, or 14.1%, decrease in assets under administration/management. Non-asset based fees decreased primarily due to a $316 thousand decrease in plan document fees. Wealth management revenue increased primarily due to a $608.8 million increase in assets under management.

Noninterest Expense

Noninterest expense for the second quarter of 2022 was $40.0 million, a $1.9 million, or 5.0%, increase compared to the first quarter of 2022. The quarter over quarter increase was primarily driven by increases of $2.2 million in compensation expense and $705 thousand in professional fees and assessments. Partially offsetting these increases were decreases of $375 thousand in employee taxes and benefits and $314 thousand in occupancy and equipment expense. The increase in compensation expense was primarily due to an increase in mortgage originations. Professional fees and assessments increased primarily due to $814 thousand in merger related expenses from our acquisition of MPB BHC, Inc. The decrease in employee taxes and benefits was primarily due to seasonally higher payroll taxes in the first quarter. Occupancy and equipment expensed decreased primarily as a result of a decrease in depreciation expense, a result of assets being fully depreciated.

Noninterest expense for the second quarter of 2022 decreased $2.6 million, or 6.0%, from $42.6 million in the second quarter of 2021. The year over year decrease in noninterest expense was primarily due to a $3.1 million decrease in compensation expense as well as a $717 thousand decrease in mortgage and lending expenses, partially offset by a $737 thousand increase in professional fees and assessments. The decreases in compensation expense and mortgage and lending expenses were primarily due to a $276.0 million decrease in mortgage originations. Professional fees and assessments increased primarily due to the acquisition of Metro Phoenix Bank.

Financial Condition

Total assets were $3.3 billion as of June 30, 2022, a decrease of $97.6 million, or 2.9%, from December 31, 2021. The overall change in assets included decreases of $205.3 million in cash and cash equivalents and $75.2 million in investment securities. Partially offsetting these decreases were increases of $132.2 million in loans held for investment and $21.2 million in deferred tax assets. Deferred tax assets increased primarily due to the impact of unrealized losses attributed to available-for-sale investment securities. If PPP loans were excluded, loans held for investment would have increased $158.8 million, or 9.2%, from December 31, 2021.

Loans

Total loans were $1.9 billion as of June 30, 2022, an increase of $132.2 million, or 7.5%, from December 31, 2021. This increase was primarily a result of increases of $57.9 million in residential real estate first mortgages and $47.7 million in commercial and industrial loans. If PPP loans were excluded, commercial and industrial loans would have increased $74.3 million, or 18.4%, from December 31, 2021, primarily as a result of organic growth.

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)

 

2022

 

2022

 

2021

 

2021

 

2021

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial (1)

 

$

484,426

 

$

467,449

 

$

436,761

 

$

506,599

 

$

572,734

Real estate construction

 

 

48,870

 

 

41,604

 

 

40,619

 

 

37,751

 

 

36,549

Commercial real estate

 

 

599,737

 

 

602,158

 

 

598,893

 

 

573,518

 

 

567,987

Total commercial

 

 

1,133,033

 

 

1,111,211

 

 

1,076,273

 

 

1,117,868

 

 

1,177,270

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

568,571

 

 

522,489

 

 

510,716

 

 

501,339

 

 

470,822

Residential real estate junior lien

 

 

135,255

 

 

130,604

 

 

125,668

 

 

130,243

 

 

130,180

Other revolving and installment

 

 

53,384

 

 

53,738

 

 

45,363

 

 

50,936

 

 

57,040

Total consumer

 

 

757,210

 

 

706,831

 

 

681,747

 

 

682,518

 

 

658,042

Total loans

 

$

1,890,243

 

$

1,818,042

 

$

1,758,020

 

$

1,800,386

 

$

1,835,312

(1)

Includes PPP loans of $6.9 million at June 30, 2022, $13.1 million at March 31, 2022, $33.6 million at December 31, 2021, $103.5 million at September 30, 2021 and $165.0 million at June 30, 2021.

Deposits

Total deposits were $2.6 billion as of June 30, 2022, a decrease of $301.0 million, or 10.3%, from December 31, 2021. Interest-bearing deposits decreased $127.0 million, while noninterest-bearing deposits decreased $174.0 million in the second quarter of 2022. The decrease in interest-bearing deposits included decreases of $72.0 million in interest-bearing demand deposits, $32.5 million in time deposits and $22.9 million in money market savings deposits. The decrease in interest-bearing demand deposits decreased due to a seasonal decrease in our public unit deposits. Time deposits decreased primarily due to clients shifting balances to more liquid accounts. Synergistic deposits decreased $82.1 million from December 31, 2021, primarily due to year-end seasonally higher temporary balances from retirement plan terminations. Excluding synergistic deposits, commercial transaction deposits decreased $178.0 million and consumer transaction deposits decreased $10.1 million. Noninterest-bearing deposits as a percentage of total deposits were 29.2% as of June 30, 2022, compared to 32.1% as of December 31, 2021.

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)

 

2022

 

2022

 

2021

 

2021

 

2021

Noninterest-bearing demand

 

$

764,808

 

$

831,558

 

$

938,840

 

$

797,062

 

$

758,820

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

642,641

 

 

760,321

 

 

714,669

 

 

673,916

 

 

736,043

Savings accounts

 

 

97,227

 

 

99,299

 

 

96,825

 

 

92,632

 

 

89,437

Money market savings

 

 

914,423

 

 

976,905

 

 

937,305

 

 

924,678

 

 

920,831

Time deposits

 

 

200,451

 

 

224,184

 

 

232,912

 

 

224,800

 

 

205,809

Total interest-bearing

 

 

1,854,742

 

 

2,060,709

 

 

1,981,711

 

 

1,916,026

 

 

1,952,120

Total deposits

 

$

2,619,550

 

$

2,892,267

 

$

2,920,551

 

$

2,713,088

 

$

2,710,940

Asset Quality

Total nonperforming assets were $5.2 million as of June 30, 2022, an increase of $2.1 million, or 69.7%, from December 31, 2021. As of June 30, 2022, the allowance for loan losses was $31.4 million, or 1.66% of total loans, compared to $31.6 million, or 1.80% of total loans, as of December 31, 2021.

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)

 

2022

 

2022

 

2021

 

2021

 

2021

 

Nonaccrual loans

 

$

4,370

 

$

4,069

 

$

2,076

 

$

6,229

 

$

6,960

 

Accruing loans 90+ days past due

 

 

 

 

146

 

 

121

 

 

 

 

 

Total nonperforming loans

 

 

4,370

 

 

4,215

 

 

2,197

 

 

6,229

 

 

6,960

 

OREO and repossessed assets

 

 

860

 

 

865

 

 

885

 

 

862

 

 

858

 

Total nonperforming assets

 

$

5,230

 

$

5,080

 

$

3,082

 

$

7,091

 

$

7,818

 

Net charge-offs/(recoveries)

 

 

340

 

 

(141)

 

 

(1,006)

 

 

(302)

 

 

(6)

 

Net charge-offs/(recoveries) to average loans

 

 

0.07

%

 

(0.03)

%

 

(0.22)

%

 

(0.06)

%

 

%

Nonperforming loans to total loans

 

 

0.23

%

 

0.23

%

 

0.12

%

 

0.35

%

 

0.38

%

Nonperforming assets to total assets

 

 

0.16

%

 

0.15

%

 

0.09

%

 

0.22

%

 

0.25

%

Allowance for loan losses to total loans

 

 

1.66

%

 

1.74

%

 

1.80

%

 

1.78

%

 

1.84

%

Allowance for loan losses to nonperforming loans

 

 

718

%

 

752

%

 

1,437

%

 

515

%

 

485

%

For the second quarter of 2022, we had net charge-offs of $340 thousand compared to net recoveries of $141 thousand for the first quarter of 2022 and $6 thousand of net recoveries for the second quarter of 2021.

There was no provision expense recorded for the three months ended June 30, 2022, no change compared to the three months ended March 31, 2022, and no change compared to the three months ended June 30, 2021. Although nonperforming assets increased, management continues to see an overall decrease in criticized loan volume, which includes substandard and special mention loans, supported the decision that no additional provision expense should be recognized.

Capital

Total stockholders’ equity was $307.2 million as of June 30, 2022, a decrease of $52.2 million, or 14.5%, from December 31, 2021. The decrease in stockholders’ equity was primarily due to a $66.2 million decrease in other comprehensive loss, due to rising interest rates, which resulted in a lower fair value of our available-for-sale investment securities. Management expects that we could see a continued decline in other comprehensive loss if the Federal Reserve continues to raise interest rates. Tangible book value per common share, a non-GAAP financial measure, decreased to $14.93 as of June 30, 2022, from $17.87 as of December 31, 2021. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.96% as of June 30, 2022, from 9.21% as of December 31, 2021. Common equity tier 1 capital to risk weighted assets decreased to 14.19% as of June 30, 2022, from 14.65% as of December 31, 2021.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2022

 

2021

 

2021

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

14.19

%

 

14.65

%

 

14.30

%

Tier 1 capital to risk weighted assets

 

 

14.56

%

 

15.06

%

 

14.71

%

Total capital to risk weighted assets

 

 

17.95

%

 

18.64

%

 

18.43

%

Tier 1 capital to average assets

 

 

10.80

%

 

9.79

%

 

9.62

%

Tangible common equity / tangible assets (2)

 

 

7.96

%

 

9.21

%

 

9.36

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

13.64

%

 

13.87

%

 

13.57

%

Tier 1 capital to risk weighted assets

 

 

13.64

%

 

13.87

%

 

13.57

%

Total capital to risk weighted assets

 

 

14.89

%

 

15.12

%

 

14.82

%

Tier 1 capital to average assets

 

 

10.12

%

 

9.01

%

 

8.98

%

(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.”

Metro Phoenix Bank Acquisition

On December 8, 2021, the Company announced the signing of a definitive agreement and plan of merger to acquire MPB BHC, Inc. (OTCPK: MPHX), the bank holding company for Metro Phoenix Bank, the largest full-service community bank headquartered in Phoenix.

The merger was completed on July 1, 2022, the Company’s twenty fifth since 2000, and significantly increases the Alerus presence in Arizona. Alerus currently intends to merge Metro Phoenix Bank into Alerus Financial, N.A. in September of this year, subject to regulatory approval.

As a result of the merger, Alerus now has the fifth largest deposit market share in the Phoenix metropolitan statistical area (MSA) among community banks and operates three branch locations in Arizona (Phoenix, Scottsdale and Mesa). The combined company’s Arizona operation has approximately $423 million in total loans and approximately $466 million in total deposits.

Conference Call

The Company will host a conference call at 11:00 a.m. Central Time on Thursday, July 28, 2022, to discuss its financial results. The call can be accessed via telephone at (844) 200-6205, using access code 874956. 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., Alerus 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. Alerus 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. Alerus 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 Benefits 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 we calculate 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 the 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 the forward-looking statements include, among others, the following: the negative effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the pandemic; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan 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 rising rates of inflation; 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; 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; 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 other Fintech companies; our ability to successfully manage liquidity risk, especially in light of recent excess liquidity at the Bank; 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; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; interest rate risks associated with our business, including the effects of recent and anticipated rate increases by the Federal Reserve; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; 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; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative rates; changes to U.S. or state tax laws, regulations and guidance, including recent proposals to increase the federal corporate tax rate; talent and labor shortages and employee turnover; possible federal mask and vaccine mandates; 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,

 

 

2022

 

2021

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

37,043

 

$

242,311

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

798,797

 

 

853,649

Held-to-maturity, at carrying value

 

 

331,741

 

 

352,061

Loans held for sale

 

 

54,363

 

 

46,490

Loans

 

 

1,890,243

 

 

1,758,020

Allowance for loan losses

 

 

(31,373)

 

 

(31,572)

Net loans

 

 

1,858,870

 

 

1,726,448

Land, premises and equipment, net

 

 

17,180

 

 

18,370

Operating lease right-of-use assets

 

 

3,439

 

 

3,727

Accrued interest receivable

 

 

9,155

 

 

8,537

Bank-owned life insurance

 

 

33,564

 

 

33,156

Goodwill

 

 

31,337

 

 

31,490

Other intangible assets

 

 

17,511

 

 

20,250

Servicing rights

 

 

2,064

 

 

1,880

Deferred income taxes, net

 

 

32,814

 

 

11,614

Other assets

 

 

67,187

 

 

42,708

Total assets

 

$

3,295,065

 

$

3,392,691

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

764,808

 

$

938,840

Interest-bearing

 

 

1,854,742

 

 

1,981,711

Total deposits

 

 

2,619,550

 

 

2,920,551

Short-term borrowings

 

 

242,350

 

 

Long-term debt

 

 

58,870

 

 

58,933

Operating lease liabilities

 

 

3,856

 

 

4,275

Accrued expenses and other liabilities

 

 

63,281

 

 

49,529

Total liabilities

 

 

2,987,907

 

 

3,033,288

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: 17,306,237 and 17,212,588 issued and outstanding

 

 

17,306

 

 

17,213

Additional paid-in capital

 

 

93,129

 

 

92,878

Retained earnings

 

 

267,128

 

 

253,567

Accumulated other comprehensive income (loss)

 

 

(70,405)

 

 

(4,255)

Total stockholders’ equity

 

 

307,158

 

 

359,403

Total liabilities and stockholders’ equity

 

$

3,295,065

 

$

3,392,691

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,

 

 

2022

 

2022

 

2021

 

2022

 

2021

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

17,988

 

$

17,292

 

$

19,324

 

$

35,280

 

$

39,891

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

6,068

 

 

5,440

 

 

2,897

 

 

11,508

 

 

5,298

Exempt from federal income taxes

 

 

213

 

 

216

 

 

233

 

 

429

 

 

469

Other

 

 

157

 

 

116

 

 

130

 

 

273

 

 

247

Total interest income

 

 

24,426

 

 

23,064

 

 

22,584

 

 

47,490

 

 

45,905

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

813

 

 

829

 

 

906

 

 

1,642

 

 

1,901

Short-term borrowings

 

 

278

 

 

 

 

 

 

278

 

 

Long-term debt

 

 

559

 

 

562

 

 

538

 

 

1,121

 

 

826

Total interest expense

 

 

1,650

 

 

1,391

 

 

1,444

 

 

3,041

 

 

2,727

Net interest income

 

 

22,776

 

 

21,673

 

 

21,140

 

 

44,449

 

 

43,178

Provision for loan losses

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

 

22,776

 

 

21,673

 

 

21,140

 

 

44,449

 

 

43,178

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

16,293

 

 

17,646

 

 

17,871

 

 

33,939

 

 

35,126

Wealth management

 

 

5,548

 

 

5,326

 

 

5,138

 

 

10,874

 

 

10,124

Mortgage banking

 

 

6,038

 

 

4,931

 

 

12,287

 

 

10,969

 

 

29,419

Service charges on deposit accounts

 

 

412

 

 

363

 

 

330

 

 

775

 

 

668

Net gains (losses) on investment securities

 

 

 

 

 

 

 

 

 

 

114

Other

 

 

935

 

 

1,204

 

 

1,122

 

 

2,139

 

 

2,178

Total noninterest income

 

 

29,226

 

 

29,470

 

 

36,748

 

 

58,696

 

 

77,629

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

21,248

 

 

19,051

 

 

24,309

 

 

40,299

 

 

48,007

Employee taxes and benefits

 

 

5,787

 

 

6,162

 

 

5,572

 

 

11,949

 

 

11,385

Occupancy and equipment expense

 

 

1,737

 

 

2,051

 

 

1,918

 

 

3,788

 

 

4,149

Business services, software and technology expense

 

 

4,785

 

 

4,924

 

 

4,958

 

 

9,709

 

 

9,934

Intangible amortization expense

 

 

1,053

 

 

1,053

 

 

1,088

 

 

2,106

 

 

2,239

Professional fees and assessments

 

 

2,246

 

 

1,541

 

 

1,509

 

 

3,787

 

 

2,981

Marketing and business development

 

 

814

 

 

600

 

 

769

 

 

1,414

 

 

1,445

Supplies and postage

 

 

572

 

 

646

 

 

503

 

 

1,218

 

 

1,034

Travel

 

 

356

 

 

179

 

 

36

 

 

535

 

 

62

Mortgage and lending expenses

 

 

482

 

 

686

 

 

1,199

 

 

1,168

 

 

2,531

Other

 

 

904

 

 

1,178

 

 

689

 

 

2,082

 

 

1,825

Total noninterest expense

 

 

39,984

 

 

38,071

 

 

42,550

 

 

78,055

 

 

85,592

Income before income taxes

 

 

12,018

 

 

13,072

 

 

15,338

 

 

25,090

 

 

35,215

Income tax expense

 

 

2,725

 

 

2,888

 

 

3,644

 

 

5,613

 

 

8,306

Net income

 

$

9,293

 

$

10,184

 

$

11,694

 

$

19,477

 

$

26,909

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.53

 

$

0.58

 

$

0.67

 

$

1.11

 

$

1.54

Diluted earnings per common share

 

$

0.52

 

$

0.57

 

$

0.66

 

$

1.10

 

$

1.52

Dividends declared per common share

 

$

0.18

 

$

0.16

 

$

0.16

 

$

0.34

 

$

0.31

Average common shares outstanding

 

 

17,297

 

 

17,244

 

 

17,194

 

 

17,271

 

 

17,170

Diluted average common shares outstanding

 

 

17,532

 

 

17,500

 

 

17,497

 

 

17,517

 

 

17,482

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,

 

 

 

2022

 

2022

 

2021

 

2021

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

307,158

 

$

328,505

 

$

359,403

 

$

344,391

 

Less: Goodwill

 

 

31,337

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

17,511

 

 

19,197

 

 

20,250

 

 

23,680

 

Tangible common equity (a)

 

 

258,310

 

 

277,818

 

 

307,663

 

 

290,510

 

Total assets

 

 

3,295,065

 

 

3,336,199

 

 

3,392,691

 

 

3,157,229

 

Less: Goodwill

 

 

31,337

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

17,511

 

 

19,197

 

 

20,250

 

 

23,680

 

Tangible assets (b)

 

 

3,246,217

 

 

3,285,512

 

 

3,340,951

 

 

3,103,348

 

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

 

 

7.96

%

 

8.46

%

 

9.21

%

 

9.36

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

307,158

 

$

328,505

 

$

359,403

 

$

344,391

 

Less: Goodwill

 

 

31,337

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

17,511

 

 

19,197

 

 

20,250

 

 

23,680

 

Tangible common equity (c)

 

 

258,310

 

 

277,818

 

 

307,663

 

 

290,510

 

Total common shares issued and outstanding (d)

 

 

17,306

 

 

17,289

 

 

17,213

 

 

17,198

 

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

 

$

14.93

 

$

16.07

 

$

17.87

 

$

16.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

 

 

2022

 

2022

 

2021

 

2022

 

2021

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,293

 

$

10,184

 

$

11,694

 

$

19,477

 

$

26,909

 

Add: Intangible amortization expense (net of tax)

 

 

832

 

 

832

 

 

860

 

 

1,664

 

 

1,769

 

Net income, excluding intangible amortization (e)

 

 

10,125

 

 

11,016

 

 

12,554

 

 

21,141

 

 

28,678

 

Average total equity

 

 

312,515

 

 

350,545

 

 

339,439

 

 

331,425

 

 

336,830

 

Less: Average goodwill

 

 

31,488

 

 

31,490

 

 

30,201

 

 

31,489

 

 

30,201

 

Less: Average other intangible assets (net of tax)

 

 

14,737

 

 

15,569

 

 

19,123

 

 

15,151

 

 

19,556

 

Average tangible common equity (f)

 

 

266,290

 

 

303,486

 

 

290,115

 

 

284,785

 

 

287,073

 

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

 

 

15.25

%

 

14.72

%

 

17.36

%

 

14.97

%

 

20.15

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

39,984

 

$

38,071

 

$

42,550

 

$

78,055

 

$

85,592

 

Less: Intangible amortization expense

 

 

1,053

 

 

1,053

 

 

1,088

 

 

2,106

 

 

2,239

 

Adjusted noninterest expense (g)

 

 

38,931

 

 

37,018

 

 

41,462

 

 

75,949

 

 

83,353

 

Net interest income

 

 

22,776

 

 

21,673

 

 

21,140

 

 

44,449

 

 

43,178

 

Noninterest income

 

 

29,226

 

 

29,470

 

 

36,748

 

 

58,696

 

 

77,629

 

Tax-equivalent adjustment

 

 

100

 

 

94

 

 

135

 

 

194

 

 

278

 

Total tax-equivalent revenue (h)

 

 

52,102

 

 

51,237

 

 

58,023

 

 

103,339

 

 

121,085

 

Efficiency ratio (g)/(h)

 

 

74.72

%

 

72.25

%

 

71.46

%

 

73.50

%

 

68.84

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 2022

 

March 31, 2022

 

June 30, 2021

 

June 30, 2022

 

June 30, 2021

 

 

 

 

 

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

 

$

28,920

 

0.39

%

 

$

105,726

 

0.18

%

 

$

191,695

 

0.12

%

 

$

67,111

 

0.22

%

 

$

188,056

 

0.12

%

Investment securities (1)

 

 

1,164,625

 

2.18

%

 

 

1,216,256

 

1.90

%

 

 

800,812

 

1.60

%

 

 

1,190,298

 

2.04

%

 

 

731,995

 

1.62

%

Loans held for sale

 

 

31,878

 

3.15

%

 

 

24,656

 

2.57

%

 

 

71,447

 

2.26

%

 

 

28,287

 

2.90

%

 

 

76,818

 

2.19

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

463,215

 

4.38

%

 

 

434,656

 

4.68

%

 

 

627,613

 

4.55

%

 

 

449,014

 

4.52

%

 

 

651,143

 

4.64

%

Real estate construction

 

 

44,627

 

4.04

%

 

 

41,139

 

3.89

%

 

 

42,511

 

4.28

%

 

 

42,893

 

3.97

%

 

 

43,880

 

4.25

%

Commercial real estate

 

 

601,765

 

3.80

%

 

 

601,024

 

3.64

%

 

 

568,827

 

3.71

%

 

 

601,397

 

3.72

%

 

 

564,928

 

3.75

%

Total commercial

 

 

1,109,607

 

4.05

%

 

 

1,076,819

 

4.07

%

 

 

1,238,951

 

4.15

%

 

 

1,093,304

 

4.06

%

 

 

1,259,951

 

4.23

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

543,023

 

3.29

%

 

 

514,724

 

3.49

%

 

 

459,278

 

3.53

%

 

 

528,952

 

3.39

%

 

 

458,584

 

3.65

%

Residential real estate junior lien

 

 

132,082

 

4.64

%

 

 

125,997

 

4.45

%

 

 

129,544

 

4.58

%

 

 

129,056

 

4.55

%

 

 

133,622

 

4.72

%

Other revolving and installment

 

 

53,919

 

4.40

%

 

 

50,686

 

4.38

%

 

 

60,213

 

4.31

%

 

 

52,311

 

4.39

%

 

 

64,396

 

4.35

%

Total consumer

 

 

729,024

 

3.62

%

 

 

691,407

 

3.73

%

 

 

649,035

 

3.81

%

 

 

710,319

 

3.67

%

 

 

656,602

 

3.93

%

Total loans (1)

 

 

1,838,631

 

3.88

%

 

 

1,768,226

 

3.94

%

 

 

1,887,986

 

4.04

%

 

 

1,803,623

 

3.91

%

 

 

1,916,553

 

4.13

%

Federal Reserve/FHLB stock

 

 

10,564

 

4.90

%

 

 

6,486

 

4.38

%

 

 

6,528

 

4.36

%

 

 

8,536

 

4.70

%

 

 

6,156

 

4.42

%

Total interest earning assets

 

 

3,074,618

 

3.20

%

 

 

3,121,350

 

3.01

%

 

 

2,958,468

 

3.08

%

 

 

3,097,855

 

3.10

%

 

 

2,919,578

 

3.19

%

Noninterest earning assets

 

 

184,037

 

 

 

 

 

165,459

 

 

 

 

 

161,272

 

 

 

 

 

174,799

 

 

 

 

 

164,124

 

 

 

Total assets

 

$

3,258,655

 

 

 

 

$

3,286,809

 

 

 

 

$

3,119,740

 

 

 

 

$

3,272,654

 

 

 

 

$

3,083,702

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

703,365

 

0.12

%

 

$

714,472

 

0.12

%

 

$

697,789

 

0.14

%

 

$

708,888

 

0.12

%

 

$

670,462

 

0.15

%

Money market and savings deposits

 

 

1,041,898

 

0.14

%

 

 

1,043,430

 

0.14

%

 

 

1,015,358

 

0.14

%

 

 

1,042,660

 

0.14

%

 

 

1,022,812

 

0.15

%

Time deposits

 

 

211,787

 

0.43

%

 

 

227,485

 

0.44

%

 

 

208,338

 

0.56

%

 

 

219,592

 

0.44

%

 

 

209,521

 

0.61

%

Fed funds purchased

 

 

81,506

 

1.18

%

 

 

 

%

 

 

 

%

 

 

40,978

 

1.18

%

 

 

 

%

Short-term borrowings

 

 

9,615

 

1.59

%

 

 

 

%

 

 

 

%

 

 

4,834

 

1.59

%

 

 

 

%

Long-term debt

 

 

58,876

 

3.81

%

 

 

58,908

 

3.87

%

 

 

58,996

 

3.66

%

 

 

58,892

 

3.84

%

 

 

42,429

 

3.93

%

Total interest-bearing liabilities

 

 

2,107,047

 

0.31

%

 

 

2,044,295

 

0.28

%

 

 

1,980,481

 

0.29

%

 

 

2,075,844

 

0.30

%

 

 

1,945,224

 

0.28

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

783,367

 

 

 

 

 

831,441

 

 

 

 

 

755,773

 

 

 

 

 

807,271

 

 

 

 

 

743,793

 

 

 

Other noninterest-bearing liabilities

 

 

55,726

 

 

 

 

 

60,528

 

 

 

 

 

44,047

 

 

 

 

 

58,114

 

 

 

 

 

57,855

 

 

 

Stockholders’ equity

 

 

312,515

 

 

 

 

 

350,545

 

 

 

 

 

339,439

 

 

 

 

 

331,425

 

 

 

 

 

336,830

 

 

 

Total liabilities and stockholders’ equity

 

$

3,258,655

 

 

 

 

$

3,286,809

 

 

 

 

$

3,119,740

 

 

 

 

$

3,272,654

 

 

 

 

$

3,083,702

 

 

 

Net interest rate spread

 

 

 

 

2.89

%

 

 

 

 

2.73

%

 

 

 

 

2.79

%

 

 

 

 

2.80

%

 

 

 

 

2.91

%

Net interest margin, tax-equivalent (1)

 

 

 

 

2.98

%

 

 

 

 

2.83

%

 

 

 

 

2.88

%

 

 

 

 

2.91

%

 

 

 

 

3.00

%

(1)

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

 

Alan A. Villalon, Chief Financial Officer
952.417.3733 (Office)

Source: Alerus Financial Corporation