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

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MINNEAPOLIS, July 26, 2023--(BUSINESS WIRE)--Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $9.1 million for the second quarter of 2023, or $0.45 per diluted common share, compared to net income of $8.2 million, or $0.40 per diluted common share, for the first quarter of 2023, and net income of $9.3 million, or $0.52 per diluted common share, for the second quarter of 2022.

CEO Comments

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

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

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

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

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

Second Quarter Highlights

  • Return on average tangible common equity(1) of 13.71%, compared to 12.58% for the first quarter of 2023

  • Return on average common equity of 10.14%, compared to 9.17% for the first quarter of 2023

  • Return on average total assets of 0.96%, compared to 0.88% for the first quarter of 2023

  • Repurchased $3.0 million of the Company’s outstanding stock, reducing common shares outstanding by 170,046 at quarter end

  • Increased quarterly dividend by 5.6% to $0.19 per share

  • Loan to deposit ratio as of June 30, 2023 was 88.8%, compared to 83.8% as of December 31, 2022

  • Common equity tier 1 capital to risk weighted assets as of June 30, 2023 was 13.30%, compared to 13.39% as of December 31, 2022

  • Noninterest expense was $36.4 million, compared to $37.9 million for the first quarter of 2023

  • Efficiency ratio improved to 72.79% compared to 74.53% for the first quarter of 2023

  • Noninterest income was 53.69% of total revenue, compared to 51.63% for the first quarter of 2023

  • Allowance for credit losses to total loans was 1.41% compared to 1.27% as of December 31, 2022

  • Net recoveries to average loans of 0.07% compared to net charge-offs to average loans of 0.03% for the first quarter of 2023

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

Selected Financial Data (unaudited)

As of and for the

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

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

2023

2023

2022

2023

2022

Performance Ratios

Return on average total assets

0.96

%

0.88

%

1.14

%

0.92

%

1.20

%

Return on average common equity

10.14

%

9.17

%

11.93

%

9.66

%

11.85

%

Return on average tangible common equity (1)

13.71

%

12.58

%

15.25

%

13.15

%

14.97

%

Noninterest income as a % of revenue

53.69

%

51.63

%

56.20

%

52.65

%

56.91

%

Net interest margin (tax-equivalent)

2.52

%

2.70

%

2.98

%

2.61

%

2.91

%

Efficiency ratio (1)

72.79

%

74.53

%

74.72

%

73.67

%

73.50

%

Net charge-offs/(recoveries) to average loans

(0.07

)

%

0.03

%

0.07

%

(0.02

)

%

0.02

%

Dividend payout ratio

42.22

%

45.00

%

34.62

%

43.53

%

30.91

%

Per Common Share

Earnings per common share - basic

$

0.45

$

0.41

$

0.53

$

0.86

$

1.11

Earnings per common share - diluted

$

0.45

$

0.40

$

0.52

$

0.85

$

1.10

Dividends declared per common share

$

0.19

$

0.18

$

0.18

$

0.37

$

0.34

Book value per common share

$

17.96

$

17.90

$

17.75

Tangible book value per common share (1)

$

14.60

$

14.50

$

14.93

Average common shares outstanding - basic

20,033

20,028

17,297

20,030

17,271

Average common shares outstanding - diluted

20,241

20,246

17,532

20,243

17,517

Other Data

Retirement and benefit services assets under administration/management

$

35,052,652

$

33,404,342

$

31,749,157

Wealth management assets under administration/management

$

3,857,710

$

3,675,684

$

4,147,763

Mortgage originations

$

111,261

$

77,728

$

269,397

$

188,989

$

456,159

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

Results of Operations

Net Interest Income

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

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

Noninterest Income

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

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

Noninterest Expense

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

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

Financial Condition

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

Loans

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

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

June 30,

March 31,

December 31,

September 30,

June 30,

(dollars in thousands)

2023

2023

2022

2022

2022

Commercial

Commercial and industrial

$

551,860

$

553,578

$

583,876

$

564,655

$

484,426

Real estate construction

78,428

108,776

97,810

89,215

48,870

Commercial real estate

1,003,821

934,324

881,670

819,068

599,737

Total commercial

1,634,109

1,596,678

1,563,356

1,472,938

1,133,033

Consumer

Residential real estate first mortgage

707,630

698,002

679,551

649,818

568,571

Residential real estate junior lien

157,231

152,281

150,479

143,681

135,255

Other revolving and installment

34,552

39,664

50,608

51,794

53,384

Total consumer

899,413

889,947

880,638

845,293

757,210

Total loans

$

2,533,522

$

2,486,625

$

2,443,994

$

2,318,231

$

1,890,243

Deposits

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

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

June 30,

March 31,

December 31,

September 30,

June 30,

(dollars in thousands)

2023

2023

2022

2022

2022

Noninterest-bearing demand

$

715,534

$

792,977

$

860,987

$

905,228

$

764,808

Interest-bearing

Interest-bearing demand

753,194

817,675

706,275

653,216

642,641

Savings accounts

93,557

99,742

99,882

101,820

97,227

Money market savings

986,403

1,076,166

1,035,981

1,079,520

914,423

Time deposits

304,167

245,418

212,359

222,027

200,451

Total interest-bearing

2,137,321

2,239,001

2,054,497

2,056,583

1,854,742

Total deposits

$

2,852,855

$

3,031,978

$

2,915,484

$

2,961,811

$

2,619,550

Asset Quality

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

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

As of and for the three months ended

June 30,

March 31,

December 31,

September 30,

June 30,

(dollars in thousands)

2023

2023

2022

2022

2022

Nonaccrual loans

$

2,233

$

2,118

$

3,794

$

4,303

$

4,370

Accruing loans 90+ days past due

347

—

—

1,000

—

Total nonperforming loans

2,580

2,118

3,794

5,303

4,370

OREO and repossessed assets

—

—

30

904

860

Total nonperforming assets

$

2,580

$

2,118

$

3,824

$

6,207

$

5,230

Net charge-offs/(recoveries)

(403

)

170

(178

)

405

340

Net charge-offs/(recoveries) to average loans

(0.07

)

%

0.03

%

(0.03

)

%

0.07

%

0.07

%

Nonperforming loans to total loans

0.10

...

%

0.09

%

0.16

%

0.23

%

0.23

%

Nonperforming assets to total assets

0.07

%

0.05

%

0.10

%

0.17

%

0.16

%

Allowance for credit losses on loans to total loans

1.41

%

1.41

%

1.27

%

1.34

%

1.66

%

Allowance for credit losses on loans to nonperforming loans

1,384

%

1,657

%

821

%

584

%

718

%

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

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

Capital

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

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

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

June 30,

December 31,

June 30,

2023

2022

2022

Capital Ratios(1)

Alerus Financial Corporation Consolidated

Common equity tier 1 capital to risk weighted assets

13.30

%

13.39

%

14.19

%

Tier 1 capital to risk weighted assets

13.60

%

13.69

%

14.56

%

Total capital to risk weighted assets

16.49

%

16.48

%

17.95

%

Tier 1 capital to average assets

11.15

%

11.25

%

10.80

%

Tangible common equity / tangible assets (2)

7.72

%

7.74

%

7.96

%

Alerus Financial, N.A.

Common equity tier 1 capital to risk weighted assets

12.93

%

12.76

%

13.64

%

Tier 1 capital to risk weighted assets

12.93

%

12.76

%

13.64

%

Total capital to risk weighted assets

14.14

%

13.83

%

14.89

%

Tier 1 capital to average assets

10.59

%

10.48

%

10.12

%

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

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

Conference Call

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

About Alerus Financial Corporation

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

Non-GAAP Financial Measures

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

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

Forward-Looking Statements

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

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

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

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

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

June 30,

December 31,

2023

2022

Assets

(Unaudited)

(Audited)

Cash and cash equivalents

$

65,471

$

58,242

Investment securities

Available-for-sale, at fair value

677,454

717,324

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

308,416

321,902

Loans held for sale

20,893

9,488

Loans

2,533,522

2,443,994

Allowance for credit losses on loans

(35,696

)

(31,146

)

Net loans

2,497,826

2,412,848

Land, premises and equipment, net

17,488

17,288

Operating lease right-of-use assets

6,440

5,419

Accrued interest receivable

13,587

12,869

Bank-owned life insurance

32,793

33,991

Goodwill

47,087

47,087

Other intangible assets

19,806

22,455

Servicing rights

2,351

2,643

Deferred income taxes, net

43,709

42,369

Other assets

79,657

75,712

Total assets

$

3,832,978

$

3,779,637

Liabilities and Stockholders’ Equity

Deposits

Noninterest-bearing

$

715,534

$

860,987

Interest-bearing

2,137,321

2,054,497

Total deposits

2,852,855

2,915,484

Short-term borrowings

492,060

378,080

Long-term debt

58,900

58,843

Operating lease liabilities

6,746

5,902

Accrued expenses and other liabilities

64,732

64,456

Total liabilities

3,475,293

3,422,765

Stockholders’ equity

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

—

—

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

19,915

19,992

Additional paid-in capital

152,673

155,095

Retained earnings

285,839

280,426

Accumulated other comprehensive income (loss)

(100,742

)

(98,641

)

Total stockholders’ equity

357,685

356,872

Total liabilities and stockholders’ equity

$

3,832,978

$

3,779,637

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2023

2023

2022

2023

2022

Interest Income

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Loans, including fees

$

33,267

$

30,933

$

17,988

$

64,200

$

35,280

Investment securities

Taxable

6,125

5,951

6,068

12,076

11,508

Exempt from federal income taxes

186

190

213

376

429

Other

762

735

157

1,497

273

Total interest income

40,340

37,809

24,426

78,149

47,490

Interest Expense

Deposits

12,678

9,104

813

21,782

1,642

Short-term borrowings

4,763

4,393

278

9,156

278

Long-term debt

665

654

559

1,319

1,121

Total interest expense

18,106

14,151

1,650

32,257

3,041

Net interest income

22,234

23,658

22,776

45,892

44,449

Provision for credit losses

—

550

—

550

—

Net interest income after provision for credit losses

22,234

23,108

22,776

45,342

44,449

Noninterest Income

Retirement and benefit services

15,890

15,482

16,293

31,372

33,939

Wealth management

5,450

5,194

5,548

10,644

10,874

Mortgage banking

2,905

1,717

6,038

4,622

10,969

Service charges on deposit accounts

311

301

412

612

775

Other

1,222

2,559

935

3,781

2,139

Total noninterest income

25,778

25,253

29,226

51,031

58,696

Noninterest Expense

Compensation

18,847

19,158

21,248

38,005

40,299

Employee taxes and benefits

4,724

5,853

5,787

10,577

11,949

Occupancy and equipment expense

1,837

1,899

1,737

3,736

3,788

Business services, software and technology expense

5,269

5,324

4,785

10,593

9,709

Intangible amortization expense

1,324

1,324

1,053

2,648

2,106

Professional fees and assessments

1,530

1,152

2,246

2,682

3,787

Marketing and business development

648

686

814

1,334

1,414

Supplies and postage

406

460

572

866

1,218

Travel

306

248

356

554

535

Mortgage and lending expenses

215

497

482

712

1,168

Other

1,267

1,268

904

2,535

2,082

Total noninterest expense

36,373

37,869

39,984

74,242

78,055

Income before income taxes

11,639

10,492

12,018

22,131

25,090

Income tax expense

2,535

2,306

2,725

4,841

5,613

Net income

$

9,104

$

8,186

$

9,293

$

17,290

$

19,477

Per Common Share Data

Earnings per common share

$

0.45

$

0.41

$

0.53

$

0.86

$

1.11

Diluted earnings per common share

$

0.45

$

0.40

$

0.52

$

0.85

$

1.10

Dividends declared per common share

$

0.19

$

0.18

$

0.18

$

0.37

$

0.34

Average common shares outstanding

20,033

20,028

17,297

20,030

17,271

Diluted average common shares outstanding

20,241

20,246

17,532

20,243

17,517

Alerus Financial Corporation and Subsidiaries

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

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

June 30,

March 31,

December 31,

June 30,

2023

2023

2022

2022

Tangible Common Equity to Tangible Assets

Total common stockholders’ equity

$

357,685

$

359,118

$

356,872

$

307,158

Less: Goodwill

47,087

47,087

47,087

31,337

Less: Other intangible assets

19,806

21,131

22,455

17,511

Tangible common equity (a)

290,792

290,900

287,330

258,310

Total assets

3,832,978

3,886,773

3,779,637

3,295,065

Less: Goodwill

47,087

47,087

47,087

31,337

Less: Other intangible assets

19,806

21,131

22,455

17,511

Tangible assets (b)

3,766,085

3,818,555

3,710,095

3,246,217

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

7.72

%

7.62

%

7.74

%

7.96

%

Tangible Book Value Per Common Share

Total common stockholders’ equity

$

357,685

$

359,118

$

356,872

$

307,158

Less: Goodwill

47,087

47,087

47,087

31,337

Less: Other intangible assets

19,806

21,131

22,455

17,511

Tangible common equity (c)

290,792

290,900

287,330

258,310

Total common shares issued and outstanding (d)

19,915

20,067

19,992

17,306

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

$

14.60

$

14.50

$

14.37

$

14.93

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2023

2023

2022

2023

2022

Return on Average Tangible Common Equity

Net income

$

9,104

$

8,186

$

9,293

$

17,290

$

19,477

Add: Intangible amortization expense (net of tax)

1,046

1,046

832

2,092

1,664

Net income, excluding intangible amortization (e)

10,150

9,232

10,125

19,382

21,141

Average total equity

360,216

361,857

312,515

361,032

331,425

Less: Average goodwill

47,087

47,087

31,488

47,087

31,489

Less: Average other intangible assets (net of tax)

16,153

17,209

14,737

16,678

15,151

Average tangible common equity (f)

296,976

297,561

266,290

297,267

284,785

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

13.71

%

12.58

%

15.25

%

13.15

%

14.97

%

Efficiency Ratio

Noninterest expense

$

36,373

$

37,869

$

39,984

$

74,242

$

78,055

Less: Intangible amortization expense

1,324

1,324

1,053

2,648

2,106

Adjusted noninterest expense (g)

35,049

36,545

38,931

71,594

75,949

Net interest income

22,234

23,658

22,776

45,892

44,449

Noninterest income

25,778

25,253

29,226

51,031

58,696

Tax-equivalent adjustment

140

124

100

264

194

Total tax-equivalent revenue (h)

48,152

49,035

52,102

97,187

103,339

Efficiency ratio (g)/(h)

72.79

%

74.53

%

74.72

%

73.67

%

73.50

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

Three months ended

Six months ended

June 30, 2023

March 31, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Average

Average

Average

Average

Average

Average

Yield/

Average

Yield/

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Interest Earning Assets

Interest-bearing deposits with banks

$

36,418

4.00

%

$

41,947

3.23

%

$

28,920

0.39

%

$

39,167

3.59

%

$

67,111

0.22

%

Investment securities (1)

1,007,792

2.53

%

1,034,288

2.43

%

1,164,625

2.18

%

1,020,967

2.48

%

1,190,298

2.04

%

Loans held for sale

14,536

5.22

%

10,345

4.98

%

31,878

3.15

%

12,452

5.12

%

28,287

2.90

%

Loans

Commercial:

Commercial and industrial

545,357

6.90

%

559,416

6.09

%

463,215

4.38

%

552,348

6.49

%

449,014

4.52

%

Real estate construction

87,905

7.43

%

103,099

6.56

%

44,627

4.04

%

95,460

6.96

%

42,893

3.97

%

Commercial real estate

956,828

5.09

%

911,634

4.95

%

601,765

3.80

%

934,356

5.02

%

601,397

3.72

%

Total commercial

1,590,090

5.84

%

1,574,149

5.46

%

1,109,607

4.05

%

1,582,164

5.65

%

1,093,304

4.06

%

Consumer

Residential real estate first mortgage

698,288

3.76

%

688,754

3.76

%

543,023

3.29

%

693,547

3.76

%

528,952

3.39

%

Residential real estate junior lien

156,276

7.44

%

149,720

7.21

%

132,082

4.64

%

153,016

7.33

%

129,056

4.55

%

Other revolving and installment

37,759

6.03

%

44,531

5.86

%

53,919

4.40

%

41,126

5.94

%

52,311

4.39

%

Total consumer

892,323

4.50

%

883,005

4.45

%

729,024

3.62

%

887,689

4.48

%

710,319

3.67

%

Total loans (1)

2,482,413

5.36

%

2,457,154

5.10

%

1,838,631

3.88

%

2,469,853

5.23

%

1,803,623

3.91

%

Federal Reserve/FHLB stock

23,724

6.76

%

23,668

6.87

%

10,564

4.90

%

23,697

6.82

%

8,536

4.70

%

Total interest earning assets

3,564,883

4.55

%

3,567,402

4.31

%

3,074,618

3.20

%

3,566,136

4.43

%

3,097,855

3.10

%

Noninterest earning assets

220,604

224,134

184,037

222,358

174,799

Total assets

$

3,785,487

$

3,791,536

$

3,258,655

$

3,788,494

$

3,272,654

Interest-Bearing Liabilities

Interest-bearing demand deposits

$

775,818

1.26

%

$

746,660

0.87

%

$

703,365

0.12

%

$

761,319

1.07

%

$

708,888

0.12

%

Money market and savings deposits

1,145,335

2.81

%

1,165,269

2.17

%

1,041,898

0.14

%

1,155,247

2.49

%

1,042,660

0.14

%

Time deposits

270,121

3.29

%

231,959

2.23

%

211,787

0.43

%

251,145

2.80

%

219,592

0.44

%

Fed funds purchased

360,033

5.31

%

290,187

4.85

%

81,506

1.18

%

325,303

5.10

%

40,978

1.18

%

Short-term borrowings

—

—

%

80,000

4.69

%

9,615

1.59

%

39,779

4.69

%

4,834

1.59

%

Long-term debt

58,886

4.52

%

58,858

4.51

%

58,876

3.81

%

58,872

4.51

%

58,892

3.84

%

Total interest-bearing liabilities

2,610,193

2.78

%

2,572,933

2.23

%

2,107,047

0.31

%

2,591,665

2.51

%

2,075,844

0.30

%

Noninterest-Bearing Liabilities and Stockholders' Equity

Noninterest-bearing deposits

748,942

789,134

783,367

768,927

807,271

Other noninterest-bearing liabilities

66,136

67,612

55,726

66,870

58,114

Stockholders’ equity

360,216

361,857

312,515

361,032

331,425

Total liabilities and stockholders’ equity

$

3,785,487

$

3,791,536

$

3,258,655

$

3,788,494

$

3,272,654

Net interest income (1)

Net interest rate spread

1.77

%

2.08

%

2.89

%

1.92

%

2.80

%

Net interest margin, tax-equivalent (1)

2.52

%

2.70

%

2.98

%

2.61

%

2.91

%

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726487813/en/

Contacts

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

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