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Alerus Financial Corporation Reports First Quarter 2023 Net Income of $8.2 Million

Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $8.2 million for the first quarter of 2023, or $0.40 per diluted common share, compared to net income of $10.9 million, or $0.53 per diluted common share, for the fourth quarter of 2022, and net income of $10.2 million, or $0.57 per diluted common share, for the first quarter of 2022.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “Alerus’ highly diversified business model is a unique differentiator in this challenging economic environment with fee income making up over 50.0% of total revenues, our banking franchise is anchored by a strong foundation of capital, risk management, and diversification. Our common equity tier 1 capital ratio at the end of the first quarter was 13.3% and our nearly all-core granular deposit based increased balances by 4.0% during the quarter. Our liquidity position is strong, with total available liquidity to uninsured and not collateralized deposits of 286%. The Company’s loan portfolio remains well diversified by sector and geography, with limited exposure to commercial office borrowers at 3.9% of total loans. The allowance for credit losses to was 1.4% to total loans and 1,675% of non-performing loans. Credit quality remains pristine with net charge-offs of 3 basis points, below the Company’s historical net charge-off rates of 0.27%.

Financial results for the first quarter were impacted by continuing margin pressure and headwinds in the mortgage sector. We are focused on improving long-term profitability and shareholder returns through ongoing restructuring and efficiency enhancing opportunities. We continue to have success in the transformation of our organic growth model and synergistic expansion as we added core holistic relationships in banking and wealth management. Our momentum in talent acquisition continued in the first quarter with key talent adds to the banking and treasury management teams. Thank you to our Alerus employees for your dedication and constant focus on building relationships with clients by bringing value to every interaction and together taking Alerus to new heights.”

Quarterly Highlights

  • Total deposits were $3.0 billion as of March 31, 2023, an increase of $116.5 million, or 4.0%, from December 31, 2022
  • Loan to deposit ratio as of March 31, 2023 was 82.0%, compared to 83.8% as of December 31, 2022
  • Common equity tier 1 capital to risk weighted assets as of March 31, 2023 was 13.30%, compared to 13.39% as of December 31, 2022
  • Return on average total assets of 0.88%, compared to 1.17% for the fourth quarter of 2022
  • Return on average common equity of 9.17%, compared to 12.37% for the fourth quarter of 2022
  • Return on average tangible common equity(1) of 12.58%, compared to 16.63% for the fourth quarter of 2022
  • Net interest margin (tax-equivalent) was 2.70%, compared to 3.09% for the fourth quarter of 2022
  • Noninterest expense was $37.9 million, no change compared to $37.9 million for the fourth quarter of 2022
  • Noninterest income was 51.63% of total revenue, compared to 48.62 for the fourth quarter of 2022
  • Allowance for credit losses to total loans was 1.41% compared to 1.27% as of December 31, 2022
  • Expanded the Company’s commercial banking team with the addition of four highly experienced mid-market and treasury management professionals
  • The Board of Directors previously declared a regular quarterly cash dividend of $0.18 per share, which was paid on April 14, 2023 to shareholders of record as of March 15, 2023. As previously reported, this dividend represents a 12.5% increase over the dividend declared during the first quarter 2022.

(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

 

 

 

March 31,

 

December 31,

 

March 31,

 

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

 

2023

 

2022

 

2022

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.88

%

 

1.17

 

%

 

1.26

 

%

Return on average common equity

 

 

9.17

%

 

12.37

 

%

 

11.78

 

%

Return on average tangible common equity (1)

 

 

12.58

%

 

16.63

 

%

 

14.72

 

%

Noninterest income as a % of revenue

 

 

51.63

%

 

48.62

 

%

 

57.62

 

%

Net interest margin (tax-equivalent)

 

 

2.70

%

 

3.09

 

%

 

2.83

 

%

Efficiency ratio (1)

 

 

74.53

%

 

69.62

 

%

 

72.25

 

%

Net charge-offs/(recoveries) to average loans

 

 

0.03

%

 

(0.03

)

%

 

(0.03

)

%

Dividend payout ratio

 

 

45.00

%

 

33.96

 

%

 

28.07

 

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.41

 

$

0.54

 

 

$

0.58

 

 

Earnings per common share - diluted

 

$

0.40

 

$

0.53

 

 

$

0.57

 

 

Dividends declared per common share

 

$

0.18

 

$

0.18

 

 

$

0.16

 

 

Book value per common share

 

$

17.90

 

$

17.85

 

 

$

19.00

 

 

Tangible book value per common share (1)

 

$

14.50

 

$

14.37

 

 

$

16.07

 

 

Average common shares outstanding - basic

 

 

20,028

 

 

19,988

 

 

 

17,244

 

 

Average common shares outstanding - diluted

 

 

20,246

 

 

20,232

 

 

 

17,500

 

 

Other Data

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

33,404,342

 

$

32,122,520

 

 

$

35,333,131

 

 

Wealth management assets under administration/management

 

$

3,675,684

 

$

3,582,648

 

 

$

4,584,856

 

 

Mortgage originations

 

$

77,728

 

$

126,254

 

 

$

186,762

 

 

(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 first quarter of 2023 was $23.7 million, a $3.3 million, or 12.3%, decrease from the fourth quarter of 2022. Net interest income increased $2.0 million, or 9.2%, from $21.7 million for the first quarter of 2022. The linked quarter decrease in net interest income was primarily driven by a $5.3 million, or 59.9%, increase in interest expense, partially offset by a $2.0 million, or 5.6%, increase in interest income. The increase in interest expense was primarily driven by a $3.4 million increase in interest expense paid on deposits and $1.8 million in interest expense paid on short-term borrowings. The increase in interest expense paid on deposits was primarily due to the rapid increase in short-term rates and heightened deposit competition. Short-term borrowings expense increased as interest rates have increased and the average balance of fed funds purchased and short-term borrowings increased $105.3 million as compared to the fourth quarter of 2022. This increase was primarily driven by a $97.4 million increase in average loan balances, and a $29.9 million decline in average deposit balances, partially offset by a $12.2 million decline in average investment securities balance.

Net interest margin (tax-equivalent), was 2.70% for the first quarter of 2023, a 39 basis point decrease from 3.09% for the fourth quarter of 2022, and a 13 basis point decrease from 2.83% in the first quarter of 2022. The linked quarter decrease was primarily driven by a 78 basis point increase in the average rate paid on interest-bearing liabilities, partially offset by a 21 basis point increase in interest earning asset yields. The increase in the average rate paid on interest-bearing liabilities was the result of a 100 basis point increase in the average rate paid on fed funds purchased and short-term borrowings as well as a 65 basis point increase in the rate paid on interest-bearing deposits.

Noninterest Income

Noninterest income for the first quarter of 2023 was $25.3 million, a $264 thousand, or 1.0%, decrease from the fourth quarter of 2022. The quarter over quarter decrease was primarily driven by decreases of $1.1 million in retirement and benefit services revenue and $453 thousand in mortgage banking revenue, partially offset by a $1.2 million increase in other noninterest income. The decrease in retirement and benefit services revenue was primarily the result of seasonal decreases in administration fees, ESOP transaction fees and loan and distribution fees. Mortgage banking revenue decreased primarily due to a $48.5 million, or 38.4%, decrease in mortgage originations due to the rising interest rate environment and seasonality. Other noninterest income increased primarily due to a $1.2 million increase in proceeds received on a bank-owned life insurance claim.

Noninterest income for the first quarter of 2023 decreased $4.2 million, or 14.3%, from $29.5 million in the first quarter of 2022. The decrease in noninterest income was primarily due to a $3.2 million decrease in mortgage banking revenue and a $2.2 million decrease in retirement and benefit services revenue, partially offset by a $1.4 million increase in other noninterest income. Mortgage banking revenue decreased primarily due to a $109.0 million, or 58.4% decrease in mortgage originations, driven by the rising interest rate environment and a reduction in mortgage personnel. Retirement and benefit services revenue decreased primarily due to a decrease in asset based fees as assets under administration/management decreased $1.9 billion, or 5.5%. Additionally, retirement and benefit services revenue experienced decreases of $528 thousand in payroll service fees resulting from the exit of payroll services and $310 thousand in plan document restatement fees. Other noninterest income increased for reasons previously stated.

Noninterest Expense

Noninterest expense for both the first quarter of 2023 and the fourth quarter of 2022 was $37.9 million. The minor linked quarter changes in noninterest expense included a $983 thousand decrease in other noninterest expense and a $302 thousand decrease in professional fees and assessments, partially offset by an increase of $966 thousand in employee taxes and benefits, $919 thousand increase in business services, software and technology. Compensation expense remained flat quarter over quarter, despite the first quarter including one-time expenses of $484 thousand in severance costs and $415 thousand related to talent acquisition. The decrease in other noninterest expense was primarily driven by a reduction of the provision for unfunded commitments which is now being reported within the provision for credit losses, as the Company adopted the new Current Expected Credit Loss, or CECL, accounting standard on January 1, 2023. Professional fees and assessments declined, primarily due to a decrease in the legal fees and mergers and acquisition expenses associated with the acquisition of Metro Phoenix Bank, which was completed in the third quarter of 2022. Employee taxes and benefits increased primarily due to seasonality. Business services, software and technology expense increased primarily due to the recognition of the benefits of renegotiated contracts at lower rates in the fourth quarter.

Noninterest expense for the first quarter of 2023 decreased $202 thousand, or 0.5%, from $38.1 million in the first quarter of 2022. The year over year decrease in noninterest expense was primarily driven by a $389 thousand decrease in professional fees and assessments, partially offset by a $400 thousand increase in business services, software and technology expense. Professional fees and assessments decreased primarily due to a $284 thousand decrease in recruitment expenses. Business services, software and technology expense increased primarily due to increased technology expenses associated with the acquisition and integration of Metro Phoenix Bank.

Financial Condition

Total assets were $3.9 billion as of March 31, 2023, an increase of $107.1 million, or 2.8%, from December 31, 2022. The increase in assets included increases of $86.9 million in cash and cash equivalents, $42.6 million in loans held for investment, partially offset by a $19.8 million decrease in investment securities from December 31, 2022.

Loans

Total loans were $2.5 billion as of March 31, 2023, an increase of $42.6 million, or 1.7%, from December 31, 2022. The increase in total loans was primarily due to increases of $52.7 million in commercial real estate loans, $11.0 million in real estate construction loans and $20.3 million in residential real estate loans, partially offset by a $30.3 million decrease in commercial and industrial loans.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

(dollars in thousands)

 

2023

 

2022

 

2022

 

2022

 

2022

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

553,578

 

$

583,876

 

$

564,655

 

$

484,426

 

$

467,449

Real estate construction

 

 

108,776

 

 

97,810

 

 

89,215

 

 

48,870

 

 

41,604

Commercial real estate

 

 

934,324

 

 

881,670

 

 

819,068

 

 

599,737

 

 

602,158

Total commercial

 

 

1,596,678

 

 

1,563,356

 

 

1,472,938

 

 

1,133,033

 

 

1,111,211

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

698,002

 

 

679,551

 

 

649,818

 

 

568,571

 

 

522,489

Residential real estate junior lien

 

 

152,281

 

 

150,479

 

 

143,681

 

 

135,255

 

 

130,604

Other revolving and installment

 

 

39,664

 

 

50,608

 

 

51,794

 

 

53,384

 

 

53,738

Total consumer

 

 

889,947

 

 

880,638

 

 

845,293

 

 

757,210

 

 

706,831

Total loans

 

$

2,486,625

 

$

2,443,994

 

$

2,318,231

 

$

1,890,243

 

$

1,818,042

Deposits

Total deposits were $3.0 billion as of March 31, 2023, an increase of $116.5 million, or 4.0%, from December 31, 2022. Interest-bearing deposits increased $184.5 million, while noninterest-bearing deposits decreased $68.0 million in the first quarter of 2023. The increase in interest-bearing deposits included increases of $111.4 million in interest-bearing demand deposits, $40.2 million in money market savings accounts and $33.1 million in time deposits. Interest-bearing deposits increased primarily due to an increase in our synergistic, commercial and public funds deposits. Synergistic deposits, which include deposits from our retirement and benefit services and wealth management segments including HSA deposits, increased $66.4 million. Excluding synergistic deposits, commercial transaction deposits including public funds increased $65.0 million, while consumer transaction deposits decreased $48.8 million in the first quarter of 2023. Noninterest bearing deposits as a percentage of total deposits was 26.2% as of March 31, 2023, compared to 29.5% as of December 31, 2022.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

(dollars in thousands)

 

2023

 

2022

 

2022

 

2022

 

2022

Noninterest-bearing demand

 

$

792,977

 

$

860,987

 

$

905,228

 

$

764,808

 

$

831,558

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

817,675

 

 

706,275

 

 

653,216

 

 

642,641

 

 

760,321

Savings accounts

 

 

99,742

 

 

99,882

 

 

101,820

 

 

97,227

 

 

99,299

Money market savings

 

 

1,076,166

 

 

1,035,981

 

 

1,079,520

 

 

914,423

 

 

976,905

Time deposits

 

 

245,418

 

 

212,359

 

 

222,027

 

 

200,451

 

 

224,184

Total interest-bearing

 

 

2,239,001

 

 

2,054,497

 

 

2,056,583

 

 

1,854,742

 

 

2,060,709

Total deposits

 

$

3,031,978

 

$

2,915,484

 

$

2,961,811

 

$

2,619,550

 

$

2,892,267

Asset Quality

Effective January 1, 2023, the Company adopted the new CECL accounting standard. The adoption of CECL resulted in the Company’s allowance for credit losses increasing by approximately $5.9 million relative to the allowance held as of December 31, 2022. The adoption of CECL resulted in additional allowance of $3.9 million in the allowance for credit losses on loans and $1.9 million in additional allowance for credit losses on unfunded commitments. Total nonperforming assets were $2.1 million as of March 31, 2023, a decrease of $1.7 million, or 44.6%, from December 31, 2022. As of March 31, 2023, the allowance for credit losses on loans was $35.1 million, or 1.41% of total loans, compared to $31.1 million, or 1.27% of total loans, as of December 31, 2022. In addition, the fair value mark on the acquired Metro Phoenix Bank loan portfolio was $6.9 million and $7.1 million, as of March 31, 2023 and December 31, 2022, respectively.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

 

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

(dollars in thousands)

 

2023

 

2022

 

2022

 

2022

 

2022

 

Nonaccrual loans

 

$

2,118

 

 

$

3,794

 

 

$

4,303

 

 

$

4,370

 

 

$

4,069

 

 

Accruing loans 90+ days past due

 

 

 

 

 

 

 

 

1,000

 

 

 

 

 

 

146

 

 

Total nonperforming loans

 

 

2,118

 

 

 

3,794

 

 

 

5,303

 

 

 

4,370

 

 

 

4,215

 

 

OREO and repossessed assets

 

 

 

 

 

30

 

 

 

904

 

 

 

860

 

 

 

865

 

 

Total nonperforming assets

 

$

2,118

 

 

$

3,824

 

 

$

6,207

 

 

$

5,230

 

 

$

5,080

 

 

Net charge-offs/(recoveries)

 

 

170

 

 

 

(178

)

 

 

405

 

 

 

340

 

 

 

(141

)

 

Net charge-offs/(recoveries) to average loans

 

 

0.03

 

%

 

(0.03

)

%

 

0.07

 

%

 

0.07

 

%

 

(0.03

)

%

Nonperforming loans to total loans

 

 

0.09

 

%

 

0.16

 

%

 

0.23

 

%

 

0.23

 

%

 

0.23

 

%

Nonperforming assets to total assets

 

 

0.05

 

%

 

0.10

 

%

 

0.17

 

%

 

0.16

 

%

 

0.15

 

%

Allowance for credit losses on loans to total loans

 

 

1.41

 

%

 

1.27

 

%

 

1.34

 

%

 

1.66

 

%

 

1.74

 

%

Allowance for credit losses on loans to nonperforming loans

 

 

1,657

 

%

 

821

 

%

 

584

 

%

 

718

 

%

 

752

 

%

For the first quarter of 2023, the Company had net charge-offs of $170 thousand compared to net recoveries of $178 thousand for the fourth quarter of 2022 and $141 thousand of net recoveries for the first quarter of 2022.

The Company recorded a provision for credit losses expense of $550 thousand in the three months ended March 31, 2023, a $550 thousand increase compared to both the three months ended December 31, 2022, and March 31, 2022. The provision for credit losses expense for the three months ended March 31, 2023, included $269 thousand in provision for credit losses on loans and $230 thousand in provision for credit losses on unfunded commitments. The increase in provision for credit losses was primarily a result of a change in forecasting assumptions in the new methodology with the adoption of CECL.

Capital

Total stockholders’ equity was $359.1 million as of March 31, 2023, an increase of $2.2 million, or 0.6%, from December 31, 2022. While stockholders’ equity remained relatively flat, the Company saw decreases of $4.5 million in retained earnings as a result of the adoption of CECL, partially offset by a $2.3 million decrease in the amount of other comprehensive loss. Tangible book value per common share, a non-GAAP financial measure, increased to $14.50 as of March 31, 2023, from $14.37 as of December 31, 2022. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.62% as of March 31, 2023, from 7.74% as of December 31, 2022. Common equity tier 1 capital to risk weighted assets decreased to 13.30% as of March 31, 2023, from 13.39% as of December 31, 2022.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2023

 

2022

 

2022

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

13.30

%

 

13.39

%

 

14.27

%

Tier 1 capital to risk weighted assets

 

 

13.60

%

 

13.69

%

 

14.66

%

Total capital to risk weighted assets

 

 

16.51

%

 

16.48

%

 

18.12

%

Tier 1 capital to average assets

 

 

11.00

%

 

11.25

%

 

10.30

%

Tangible common equity / tangible assets (2)

 

 

7.62

%

 

7.74

%

 

8.46

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

12.67

%

 

12.76

%

 

13.52

%

Tier 1 capital to risk weighted assets

 

 

12.67

%

 

12.76

%

 

13.52

%

Total capital to risk weighted assets

 

 

13.87

%

 

13.83

%

 

14.77

%

Tier 1 capital to average assets

 

 

10.24

%

 

10.48

%

 

9.50

%

(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, April 27, 2023, to discuss its financial results. The call can be accessed via telephone at (844) 200-6205, using access code 057461. 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 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 the Company calculates these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

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

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following: interest rate risks associated with our business, including the effects of recent and anticipated rate increases by the Federal Reserve; our ability to successfully manage credit risk and maintain an adequate level of allowance for credit losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including continued rising rates of inflation; 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 and Signature Bank that resulted in the failure of those institutions; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of Metro Phoenix Bank which we acquired in 2022; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; 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 and may withdraw deposits to diversify their exposure; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions, including the acquisition of Metro Phoenix Bank; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes, including in response to the recent failures of Silicon Valley Bank and Signature Bank; fluctuations in the values of the securities held in our securities portfolio, including as a result of rising interest rates, which has resulted in unrealized losses in our portfolio; governmental monetary, trade and fiscal policies; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic; acts of war or terrorism, including the Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; developments and uncertainty related to the future use and availability of some reference rates, such as the expected discontinuation of the London Interbank Offered Rate, as well as the development and implementation of other alternative reference rates; changes to U.S. or state tax laws, regulations and guidance, including the new 1.0% excise tax on stock buybacks by publicly traded companies; talent and labor shortages and employee turnover; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

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

 

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

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

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2023

 

2022

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

145,181

 

 

$

58,242

 

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

705,825

 

 

 

717,324

 

Held-to-maturity, at carrying value (allowance for credit losses of $223 at March 31, 2023)

 

 

313,648

 

 

 

321,902

 

Loans held for sale

 

 

16,900

 

 

 

9,488

 

Loans

 

 

2,486,625

 

 

 

2,443,994

 

Allowance for credit losses on loans

 

 

(35,102

)

 

 

(31,146

)

Net loans

 

 

2,451,523

 

 

 

2,412,848

 

Land, premises and equipment, net

 

 

17,631

 

 

 

17,288

 

Operating lease right-of-use assets

 

 

5,122

 

 

 

5,419

 

Accrued interest receivable

 

 

12,983

 

 

 

12,869

 

Bank-owned life insurance

 

 

32,583

 

 

 

33,991

 

Goodwill

 

 

47,087

 

 

 

47,087

 

Other intangible assets

 

 

21,131

 

 

 

22,455

 

Servicing rights

 

 

2,421

 

 

 

2,643

 

Deferred income taxes, net

 

 

41,620

 

 

 

42,369

 

Other assets

 

 

73,118

 

 

 

75,712

 

Total assets

 

$

3,886,773

 

 

$

3,779,637

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

792,977

 

 

$

860,987

 

Interest-bearing

 

 

2,239,001

 

 

 

2,054,497

 

Total deposits

 

 

3,031,978

 

 

 

2,915,484

 

Short-term borrowings

 

 

372,145

 

 

 

378,080

 

Long-term debt

 

 

58,872

 

 

 

58,843

 

Operating lease liabilities

 

 

5,545

 

 

 

5,902

 

Accrued expenses and other liabilities

 

 

59,115

 

 

 

64,456

 

Total liabilities

 

 

3,527,655

 

 

 

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: 20,066,807 and 19,991,681 issued and outstanding

 

 

20,067

 

 

 

19,992

 

Additional paid-in capital

 

 

154,818

 

 

 

155,095

 

Retained earnings

 

 

280,540

 

 

 

280,426

 

Accumulated other comprehensive income (loss)

 

 

(96,307

)

 

 

(98,641

)

Total stockholders’ equity

 

 

359,118

 

 

 

356,872

 

Total liabilities and stockholders’ equity

 

$

3,886,773

 

 

$

3,779,637

 

       

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

 

December 31,

 

March 31,

 

 

2023

 

2022

 

2022

Interest Income

 

(Unaudited)

 

 

(Unaudited)

 

 

(Unaudited)

 

Loans, including fees

 

$

30,933

 

 

$

29,248

 

 

$

17,292

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

5,951

 

 

 

5,813

 

 

 

5,440

 

Exempt from federal income taxes

 

 

190

 

 

 

210

 

 

 

216

 

Other

 

 

735

 

 

 

541

 

 

 

116

 

Total interest income

 

 

37,809

 

 

 

35,812

 

 

 

23,064

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

9,104

 

 

 

5,675

 

 

 

829

 

Short-term borrowings

 

 

4,393

 

 

 

2,545

 

 

 

 

Long-term debt

 

 

654

 

 

 

628

 

 

 

562

 

Total interest expense

 

 

14,151

 

 

 

8,848

 

 

 

1,391

 

Net interest income

 

 

23,658

 

 

 

26,964

 

 

 

21,673

 

Provision for credit losses

 

 

550

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

 

23,108

 

 

 

26,964

 

 

 

21,673

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

15,482

 

 

 

16,599

 

 

 

17,646

 

Wealth management

 

 

5,194

 

 

 

5,144

 

 

 

5,326

 

Mortgage banking

 

 

1,717

 

 

 

2,170

 

 

 

4,931

 

Service charges on deposit accounts

 

 

301

 

 

 

282

 

 

 

363

 

Other

 

 

2,559

 

 

 

1,322

 

 

 

1,204

 

Total noninterest income

 

 

25,253

 

 

 

25,517

 

 

 

29,470

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

19,158

 

 

 

19,189

 

 

 

19,051

 

Employee taxes and benefits

 

 

5,853

 

 

 

4,887

 

 

 

6,162

 

Occupancy and equipment expense

 

 

1,899

 

 

 

1,892

 

 

 

2,051

 

Business services, software and technology expense

 

 

5,324

 

 

 

4,405

 

 

 

4,924

 

Intangible amortization expense

 

 

1,324

 

 

 

1,324

 

 

 

1,053

 

Professional fees and assessments

 

 

1,152

 

 

 

1,454

 

 

 

1,541

 

Marketing and business development

 

 

686

 

 

 

950

 

 

 

600

 

Supplies and postage

 

 

460

 

 

 

634

 

 

 

646

 

Travel

 

 

248

 

 

 

356

 

 

 

179

 

Mortgage and lending expenses

 

 

497

 

 

 

606

 

 

 

686

 

Other

 

 

1,268

 

 

 

2,251

 

 

 

1,178

 

Total noninterest expense

 

 

37,869

 

 

 

37,948

 

 

 

38,071

 

Income before income taxes

 

 

10,492

 

 

 

14,533

 

 

 

13,072

 

Income tax expense

 

 

2,306

 

 

 

3,624

 

 

 

2,888

 

Net income

 

$

8,186

 

 

$

10,909

 

 

$

10,184

 

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.41

 

 

$

0.54

 

 

$

0.58

 

Diluted earnings per common share

 

$

0.40

 

 

$

0.53

 

 

$

0.57

 

Dividends declared per common share

 

$

0.18

 

 

$

0.18

 

 

$

0.16

 

Average common shares outstanding

 

 

20,028

 

 

 

19,988

 

 

 

17,244

 

Diluted average common shares outstanding

 

 

20,246

 

 

 

20,232

 

 

 

17,500

 
 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2023

 

2022

 

2022

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

359,118

 

$

356,872

 

$

328,505

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

31,490

 

Less: Other intangible assets

 

 

21,131

 

 

22,455

 

 

19,197

 

Tangible common equity (a)

 

 

290,900

 

 

287,330

 

 

277,818

 

Total assets

 

 

3,886,773

 

 

3,779,637

 

 

3,336,199

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

31,490

 

Less: Other intangible assets

 

 

21,131

 

 

22,455

 

 

19,197

 

Tangible assets (b)

 

 

3,818,555

 

 

3,710,095

 

 

3,285,512

 

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

 

 

7.62

%

 

7.74

%

 

8.46

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

359,118

 

$

356,872

 

$

328,505

 

Less: Goodwill

 

 

47,087

 

 

47,087

 

 

31,490

 

Less: Other intangible assets

 

 

21,131

 

 

22,455

 

 

19,197

 

Tangible common equity (c)

 

 

290,900

 

 

287,330

 

 

277,818

 

Total common shares issued and outstanding (d)

 

 

20,067

 

 

19,992

 

 

17,289

 

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

 

$

14.50

 

$

14.37

 

$

16.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2023

 

2022

 

2022

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8,186

 

$

10,909

 

$

10,184

 

Add: Intangible amortization expense (net of tax)

 

 

1,046

 

 

1,046

 

 

832

 

Net income, excluding intangible amortization (e)

 

 

9,232

 

 

11,955

 

 

11,016

 

Average total equity

 

 

361,857

 

 

349,812

 

 

350,545

 

Less: Average goodwill

 

 

47,087

 

 

46,283

 

 

31,490

 

Less: Average other intangible assets (net of tax)

 

 

17,209

 

 

18,243

 

 

15,569

 

Average tangible common equity (f)

 

 

297,561

 

 

285,286

 

 

303,486

 

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

 

 

12.58

%

 

16.63

%

 

14.72

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

37,869

 

$

37,948

 

$

38,071

 

Less: Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,053

 

Adjusted noninterest expense (g)

 

 

36,545

 

 

36,624

 

 

37,018

 

Net interest income

 

 

23,658

 

 

26,964

 

 

21,673

 

Noninterest income

 

 

25,253

 

 

25,517

 

 

29,470

 

Tax-equivalent adjustment

 

 

124

 

 

124

 

 

94

 

Total tax-equivalent revenue (h)

 

 

49,035

 

 

52,605

 

 

51,237

 

Efficiency ratio (g)/(h)

 

 

74.53

%

 

69.62

%

 

72.25

%

 

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2023

 

December 31, 2022

 

March 31, 2022

 

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

41,947

 

3.23

%

 

$

26,510

 

2.16

%

 

$

105,726

 

0.18

%

Investment securities (1)

 

 

1,034,288

 

2.43

%

 

 

1,046,441

 

2.30

%

 

 

1,216,256

 

1.90

%

Fed funds sold

 

 

 

%

 

 

7,119

 

3.40

%

 

 

 

%

Loans held for sale

 

 

10,345

 

4.98

%

 

 

14,505

 

4.54

%

 

 

24,656

 

2.57

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

559,416

 

6.09

%

 

 

561,252

 

5.80

%

 

 

434,656

 

4.68

%

Real estate construction

 

 

103,099

 

6.56

%

 

 

96,189

 

6.02

%

 

 

41,139

 

3.89

%

Commercial real estate

 

 

911,634

 

4.95

%

 

 

838,466

 

4.85

%

 

 

601,024

 

3.64

%

Total commercial

 

 

1,574,149

 

5.46

%

 

 

1,495,907

 

5.28

%

 

 

1,076,819

 

4.07

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

688,754

 

3.76

%

 

 

665,135

 

3.64

%

 

 

514,724

 

3.49

%

Residential real estate junior lien

 

 

149,720

 

7.21

%

 

 

146,912

 

6.46

%

 

 

125,997

 

4.45

%

Other revolving and installment

 

 

44,531

 

5.86

%

 

 

51,836

 

5.62

%

 

 

50,686

 

4.38

%

Total consumer

 

 

883,005

 

4.45

%

 

 

863,883

 

4.24

%

 

 

691,407

 

3.73

%

Total loans (1)

 

 

2,457,154

 

5.10

%

 

 

2,359,790

 

4.90

%

 

 

1,768,226

 

3.94

%

Federal Reserve/FHLB stock

 

 

23,668

 

6.87

%

 

 

19,603

 

6.80

%

 

 

6,486

 

4.38

%

Total interest earning assets

 

 

3,567,402

 

4.31

%

 

 

3,473,968

 

4.10

%

 

 

3,121,350

 

3.01

%

Noninterest earning assets

 

 

224,134

 

 

 

 

 

232,754

 

 

 

 

 

165,459

 

 

 

Total assets

 

$

3,791,536

 

 

 

 

$

3,706,722

 

 

 

 

$

3,286,809

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

746,660

 

0.87

%

 

$

692,217

 

0.50

%

 

$

714,472

 

0.12

%

Money market and savings deposits

 

 

1,165,269

 

2.17

%

 

 

1,185,502

 

1.39

%

 

 

1,043,430

 

0.14

%

Time deposits

 

 

231,959

 

2.23

%

 

 

214,264

 

1.20

%

 

 

227,485

 

0.44

%

Fed funds purchased

 

 

290,187

 

4.85

%

 

 

86,350

 

3.78

%

 

 

 

%

Short-term borrowings

 

 

80,000

 

4.69

%

 

 

178,533

 

3.82

%

 

 

 

%

Long-term debt

 

 

58,858

 

4.51

%

 

 

58,830

 

4.24

%

 

 

58,908

 

3.87

%

Total interest-bearing liabilities

 

 

2,572,933

 

2.23

%

 

 

2,415,696

 

1.45

%

 

 

2,044,295

 

0.28

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

789,134

 

 

 

 

 

870,948

 

 

 

 

 

831,441

 

 

 

Other noninterest-bearing liabilities

 

 

67,612

 

 

 

 

 

70,266

 

 

 

 

 

60,528

 

 

 

Stockholders’ equity

 

 

361,857

 

 

 

 

 

349,812

 

 

 

 

 

350,545

 

 

 

Total liabilities and stockholders’ equity

 

$

3,791,536

 

 

 

 

$

3,706,722

 

 

 

 

$

3,286,809

 

 

 

Net interest income (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest rate spread

 

 

 

 

2.08

%

 

 

 

 

2.65

%

 

 

 

 

2.73

%

Net interest margin, tax-equivalent (1)

 

 

 

 

2.70

%

 

 

 

 

3.09

%

 

 

 

 

2.83

%

(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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