Alerus Financial Corporation Reports First Quarter 2022 Net Income of $10.2 Million

GRAND FORKS, N.D.–(BUSINESS WIRE)–Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $10.2 million for the first quarter of 2022, or $0.57 per diluted common share, compared to net income of $12.7 million, or $0.72 per diluted common share, for the fourth quarter of 2021, and net income of $15.2 million, or $0.86 per diluted common share, for the first quarter of 2021.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “Alerus entered the new year with upward momentum and finished the quarter strong, producing net income of $10.2 million and return on average tangible common equity of 14.72%. We had strong production in our business and consumer segments, focused on serving our clients holistically with our diverse product offerings. Mortgage application volume remained steady, however, the lack of housing inventory put pressure on origination volume. Credit quality remains pristine with another quarter of net recoveries and continued low levels of non-performing loans. Our company continues to achieve sound expense management, despite the pressure on wages and continued investment in talent. We successfully attracted a five-person commercial real estate team, specializing in financing local, regional and national development and commercial construction projects. We believe this team will further enhance our expertise in the commercial banking space and our growing brand and presence in the Twin Cities. We believe our ability to execute talent lift-outs, acquisitions and continued, strong organic performance will create continued value for our shareholders.”

Quarterly Highlights

  • Return on average total assets of 1.26%, compared to 1.50% for the fourth quarter of 2021
  • Return on average common equity of 11.78%, compared to 14.12% for the fourth quarter of 2021
  • Return on average tangible common equity(1) of 14.72%, compared to 17.36% for the fourth quarter of 2021
  • Net interest margin (tax-equivalent) was 2.83%, compared to 2.84% for the fourth quarter of 2021
  • Allowance for loan losses to total loans was 1.74%, compared to 1.80% as of December 31, 2021
  • Efficiency ratio(1) of 72.25%, compared to 71.06% for the fourth quarter of 2021
  • Noninterest income for the first quarter of 2022 was 57.62% of total revenue, compared to 59.67% for the fourth quarter of 2021
  • Mortgage originations totaled $186.8 million, a 47.7% decrease from the fourth quarter of 2021
  • Loans held for sale decreased $24.6 million, or 53.0%, since December 31, 2021
  • Loans held for investment increased $60.0 million, or 3.4%, since December 31, 2021; excluding Paycheck Protection Program, or PPP loans, loans held for investment increased $80.5 million, or 4.7%, since December 31, 2021
  • Deposits decreased $28.3 million, or 1.0%, since 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

 

 

March 31,

December 31,

March 31,

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

 

2022

2021

2021

Performance Ratios

 

 

 

 

 

 

 

Return on average total assets

 

 

1.26

%

 

1.50

%

 

2.02

%

Return on average common equity

 

 

11.78

%

 

14.12

%

 

18.46

%

Return on average tangible common equity (1)

 

 

14.72

%

 

17.36

%

 

23.03

%

Noninterest income as a % of revenue

 

 

57.62

%

 

59.67

%

 

64.97

%

Net interest margin (tax-equivalent)

 

 

2.83

%

 

2.84

%

 

3.12

%

Efficiency ratio (1)

 

 

72.25

%

 

71.06

%

 

66.43

%

Net charge-offs/(recoveries) to average loans

 

 

(0.03

)%

 

(0.22

)%

 

0.10

%

Dividend payout ratio

 

 

28.07

%

 

22.22

%

 

17.44

%

Per Common Share

 

 

 

 

 

 

 

Earnings per common share – basic

 

$

0.58

 

$

0.73

 

$

0.87

 

Earnings per common share – diluted

 

$

0.57

 

$

0.72

 

$

0.86

 

Dividends declared per common share

 

$

0.16

 

$

0.16

 

$

0.15

 

Book value per common share

 

$

19.00

 

$

20.88

 

$

19.15

 

Tangible book value per common share (1)

 

$

16.07

 

$

17.87

 

$

15.95

 

Average common shares outstanding – basic

 

 

17,244

 

 

17,210

 

 

17,145

 

Average common shares outstanding – diluted

 

 

17,500

 

 

17,480

 

 

17,465

 

Other Data

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

35,333,131

 

$

36,732,938

 

$

34,774,650

 

Wealth management assets under administration/management

 

$

4,584,856

 

$

4,039,931

 

$

3,357,530

 

Mortgage originations

 

$

186,762

 

$

356,821

 

$

518,014

 

(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 2022 was $21.7 million, a $1.1 million, or 4.9%, decrease from the fourth quarter of 2021. Net interest income decreased $365 thousand, or 1.7%, from $22.0 million for the first quarter of 2021. The linked quarter decrease in net interest income was primarily driven by a $2.1 million decrease in interest income from loans, the largest component of which was a $1.6 million decrease in interest and loan fees recognized on PPP loans. This decrease was partially offset by a $971 thousand increase in interest income from investment securities. During the first quarter of 2022, average interest earning assets decreased $73.2 million, primarily due to decreases of $126.9 million in interest-bearing deposits with banks and $14.4 million in average loans. If PPP loans were excluded, average loans would have increased $29.7 million. Partially offsetting these decreases, was a $96.9 million increase in average investment securities as a result of a change in our balance sheet mix.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.83% for the first quarter of 2022, a modest 1 basis point decrease from 2.84% for the fourth quarter of 2021, and a 29 basis point decrease from 3.12% in the first quarter of 2021. If PPP loans were excluded, net interest margin was 2.77% for the first quarter of 2022, a 15 basis point increase from 2.62% for the fourth quarter of 2021, and a 12 basis point decrease from 2.89% in the first quarter of 2021.

Noninterest Income

Noninterest income for the first quarter of 2022 was $29.5 million, a $4.2 million, or 12.6%, decrease from the fourth quarter of 2021. The linked quarter decrease was primarily a result of decreases of $3.0 million in mortgage banking revenue, $906 thousand in retirement and benefit services revenue and $307 thousand in wealth management revenue. Mortgage banking revenue decreased primarily as a result of a $170.1 million decrease in mortgage originations. Retirement and benefit services revenue decreased primarily as a result of decreases of $533 thousand in non-asset based fees and $372 thousand in asset based fees. These decreases were primarily a result of a seasonal reduction of $255 thousand in ESOP fees, a $236 thousand decrease in plan document fees, and a $1.4 billion, or 3.8%, decrease in assets under administration/management. Wealth management revenue decreased primarily due to a $115 thousand decrease in fee revenue from dimension accounts.

Noninterest income for the first quarter of 2022 decreased $11.4 million, or 27.9%, from $40.9 million in the first quarter of 2021. The year over year decrease was primarily due to a $12.2 million decrease in mortgage banking revenue, a result of a $331.3 million, or 63.9%, decrease in mortgage originations. The decrease in mortgage originations also resulted in a gain on sale margin decrease of 37 basis points to 2.80% for the first quarter of 2022. This decrease was partially offset by increases of $391 thousand in retirement and benefit services revenue and $340 thousand in wealth management revenue. Retirement and benefit services revenue increased primarily due to a $588 thousand increase in non-asset based fees, partially offset by a $196 thousand decrease in asset based fees. Wealth management fees increased as a result of increases of $209 thousand in fee revenue earned from dimension accounts and $280 thousand in revenue earned from blueprint accounts.

Noninterest Expense

Noninterest expense for the first quarter of 2022 was $38.1 million, a decrease of $3.2 million, or 7.8%, compared to the fourth quarter of 2021. The decrease in noninterest expense was primarily driven by decreases of $3.0 million in compensation expense, $296 thousand in business services, software and technology expense, $272 thousand in marketing and business development expense, and $267 thousand in professional fees and assessments. The decrease in compensation expense was primarily due to a decrease in mortgage related compensation and incentives.

Noninterest expense for the first quarter of 2022 decreased $5.0 million, or 11.5%, from $43.0 million in the first quarter of 2021. The year over year decrease was primarily driven by decreases of $4.6 million in compensation expense and $646 thousand in mortgage and lending expenses. Partially offsetting these decreases were increases of $349 thousand in employee and benefits expense and $153 thousand in travel expenses. The decreases in compensation expense and mortgage and lending expenses were primarily due to the decrease in mortgage originations as previously stated. Employee taxes and benefits expense increased primarily due to an increase in group insurance.

Financial Condition

Total assets were $3.3 billion as of March 31, 2022, a decrease of $56.5 million, or 1.7%, from December 31, 2021. The overall change in assets included decreases of $109.5 million in cash and cash equivalents, $11.9 million in investment securities held-to-maturity, and $24.6 million in loans held for sale. Partially offsetting these decreases, was an increase in assets due to a $60.0 million increase in loans held for investment and a $12.7 million increase in investments available-for-sale. If PPP loans were excluded, loans held for investment would have increased $80.5 million, or 4.7%, from December 31, 2021.

Loans

Total loans were $1.8 billion as of March 31, 2022, an increase of $60.0 million, or 3.4%, from December 31, 2021. This increase was primarily a result of increases of $30.7 million in commercial and industrial loans, $3.3 million in commercial real estate loans, and $25.1 million in consumer loans. If PPP loans were excluded, commercial and industrial loans increased $51.1 million, or 12.7%, from December 31, 2021, primarily as a result of increased credit line utilization.

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)

 

2022

 

2021

 

2021

 

2021

 

2021

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial (1)

 

$

467,449

 

$

436,761

 

$

506,599

 

$

572,734

 

$

678,029

Real estate construction

 

 

41,604

 

 

40,619

 

 

37,751

 

 

36,549

 

 

40,473

Commercial real estate

 

 

602,158

 

 

598,893

 

 

573,518

 

 

567,987

 

 

569,451

Total commercial

 

 

1,111,211

 

 

1,076,273

 

 

1,117,868

 

 

1,177,270

 

 

1,287,953

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

522,489

 

 

510,716

 

 

501,339

 

 

470,822

 

 

454,958

Residential real estate junior lien

 

 

130,604

 

 

125,668

 

 

130,243

 

 

130,180

 

 

130,299

Other revolving and installment

 

 

53,738

 

 

45,363

 

 

50,936

 

 

57,040

 

 

64,135

Total consumer

 

 

706,831

 

 

681,747

 

 

682,518

 

 

658,042

 

 

649,392

Total loans

 

$

1,818,042

 

$

1,758,020

 

$

1,800,386

 

$

1,835,312

 

$

1,937,345

 

(1)

Includes PPP loans of $13.1 million at March 31, 2022, $33.6 million at December 31, 2021, $103.5 million at September 30, 2021, $165.0 million at June 30, 2021 and $256.8 million at March 31, 2021.

Deposits

Total deposits were $2.9 billion as of March 31, 2022, a decrease of $28.3 million, or 1.0%, from December 31, 2021. Interest-bearing deposits increased $79.0 million, while noninterest-bearing deposits decreased $107.3 million in the first quarter of 2022. The increase in interest-bearing deposits included increases of $45.7 million in interest-bearing demand deposits, $39.6 million in money market accounts, and $2.5 million in savings accounts, partially offset by an $8.7 million decrease in time deposits. Synergistic deposits decreased $26.1 million from December 31, 2021. Excluding synergistic deposits, commercial transaction deposits decreased $16.7 million, or 1.3%, partially offset by a $21.7 million increase in consumer transaction deposits. Noninterest-bearing deposits as a percentage of total deposits was 28.8% as of March 31, 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:

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

(dollars in thousands)

 

2022

 

2021

 

2021

 

2021

 

2021

Noninterest-bearing demand

 

$

831,558

 

$

938,840

 

$

797,062

 

$

758,820

 

$

775,434

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

760,321

 

 

714,669

 

 

673,916

 

 

736,043

 

 

674,466

Savings accounts

 

 

99,299

 

 

96,825

 

 

92,632

 

 

89,437

 

 

87,492

Money market savings

 

 

976,905

 

 

937,305

 

 

924,678

 

 

920,831

 

 

967,273

Time deposits

 

 

224,184

 

 

232,912

 

 

224,800

 

 

205,809

 

 

212,908

Total interest-bearing

 

 

2,060,709

 

 

1,981,711

 

 

1,916,026

 

 

1,952,120

 

 

1,942,139

Total deposits

 

$

2,892,267

 

$

2,920,551

 

$

2,713,088

 

$

2,710,940

 

$

2,717,573

Asset Quality

Total nonperforming assets were $5.1 million as of March 31, 2022, an increase of $2.0 million, or 64.8%, from December 31, 2021. As of March 31, 2022, the allowance for loan losses was $31.7 million, or 1.74% of total loans, compared to $31.6 million, or 1.80% of total loans, as of December 31, 2021. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 1.76% at March 31, 2022, compared to 1.83% 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

 

 

March 31,

December 31,

September 30,

June 30,

March 31,

(dollars in thousands)

 

2022

2021

2021

2021

2021

Nonaccrual loans

 

$

4,069

 

$

2,076

 

$

6,229

 

$

6,960

 

$

4,756

 

Accruing loans 90+ days past due

 

 

146

 

 

121

 

 

 

 

 

 

 

Total nonperforming loans

 

 

4,215

 

 

2,197

 

 

6,229

 

 

6,960

 

 

4,756

 

OREO and repossessed assets

 

 

865

 

 

885

 

 

862

 

 

858

 

 

139

 

Total nonperforming assets

 

$

5,080

 

$

3,082

 

$

7,091

 

$

7,818

 

$

4,895

 

Net charge-offs/(recoveries)

 

 

(141

)

 

(1,006

)

 

(302

)

 

(6

)

 

488

 

Net charge-offs/(recoveries) to average loans

 

 

(0.03

)%

 

(0.22

)%

 

(0.06

)%

 

%

 

0.10

%

Nonperforming loans to total loans

 

 

0.23

%

 

0.12

%

 

0.35

%

 

0.38

%

 

0.25

%

Nonperforming assets to total assets

 

 

0.15

%

 

0.09

%

 

0.22

%

 

0.25

%

 

0.16

%

Allowance for loan losses to total loans

 

 

1.74

%

 

1.80

%

 

1.78

%

 

1.84

%

 

1.74

%

Allowance for loan losses to nonperforming loans

 

 

752

%

 

1,437

%

 

515

%

 

485

%

 

710

%

For the first quarter of 2022, we had net recoveries of $141 thousand compared to net recoveries of $1.0 million for the fourth quarter of 2021 and $488 thousand of net charge-offs for the first quarter of 2021.

There was no provision expense recorded for the first quarter of 2022, compared to a $1.5 million reversal of provision expense in the fourth quarter of 2021, and no provision expense in the first quarter of 2021. Management saw modest net recoveries in the first quarter of 2022 which supported the determination that no additional provision expense should be recognized.

Capital

Total stockholders’ equity was $328.5 million as of March 31, 2022, a decrease of $30.9 million, or 8.6%, from December 31, 2021. The decrease in stockholders’ equity was primarily due to a $38.1 million decrease in other comprehensive income, a result of rising interest rates that resulted in a lower fair value on our investment securities available-for-sale. Management expects that we could see a continued decline in other comprehensive income if the Federal Reserve continues to raise interest rates. Tangible book value per common share, a non-GAAP financial measure, decreased to $16.07 as of March 31, 2022, from $17.87 as of December 31, 2021. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 8.46% as of March 31, 2022, from 9.21% as of December 31, 2021.

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

 

 

March 31,

December 31,

March 31,

 

 

2022

2021

2021

Capital Ratios(1)

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

14.27

%

 

14.65

%

 

13.48

%

Tier 1 capital to risk weighted assets

 

 

14.66

%

 

15.06

%

 

13.88

%

Total capital to risk weighted assets

 

 

18.12

%

 

18.64

%

 

17.54

%

Tier 1 capital to average assets

 

 

10.30

%

 

9.79

%

 

9.59

%

Tangible common equity / tangible assets (2)

 

 

8.46

%

 

9.21

%

 

8.86

%

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

13.52

%

 

13.87

%

 

12.80

%

Tier 1 capital to risk weighted assets

 

 

13.52

%

 

13.87

%

 

12.80

%

Total capital to risk weighted assets

 

 

14.77

%

 

15.12

%

 

14.06

%

Tier 1 capital to average assets

 

 

9.50

%

 

9.01

%

 

8.85

%

(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. (“MPHX”) (OTCPK: MPHX), the bank holding company for Metro Phoenix Bank, the largest full-service community bank headquartered in Phoenix. The proposed acquisition would be the Company’s twenty-fifth since 2000 and would significantly increase the Alerus presence in Arizona. If the transaction is consummated, Alerus will have the fifth largest deposit market share in the Phoenix metropolitan statistical area (MSA) among community banks. On a pro forma basis, Alerus will operate three branch locations in Arizona (Phoenix, Scottsdale and Mesa). The combined company’s Arizona operation will have approximately $439 million in total loans and approximately $483 million in total deposits.

The agreement and plan merger was approved by the boards of directors of Alerus and MPHX. Completion of the merger is subject to customary closing conditions, including receipt of required regulatory approvals and the approval by the shareholders of MPHX at a special shareholders’ meeting, which is scheduled for April 29, 2022. The transaction has been subject to regulatory delays but is expected to close in the second quarter of 2022. Alerus currently intends to merge Metro Phoenix Bank into Alerus Financial, N.A. following the closing of the holding company merger.

Conference Call

The Company will host a conference call at 9:00 a.m. Central Time on Thursday, April 28, 2022, to discuss its financial results. The call can be accessed via telephone at (844) 200-6205, using access code 164479. 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 headquartered in Grand Forks, ND. 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 Financial banking and wealth management offices are located in Grand Forks and Fargo, ND, the Minneapolis-St. Paul, MN metropolitan area, and Scottsdale and Mesa, AZ. Alerus Retirement and Benefits plan administration offices are located in St. Paul, MN, East Lansing, MI, and Littleton, CO.

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 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)

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2022

 

2021

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

132,832

 

$

242,311

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

866,333

 

 

853,649

Held-to-maturity, at carrying value

 

 

340,150

 

 

352,061

Loans held for sale

 

 

21,864

 

 

46,490

Loans

 

 

1,818,042

 

 

1,758,020

Allowance for loan losses

 

 

(31,713)

 

 

(31,572)

Net loans

 

 

1,786,329

 

 

1,726,448

Land, premises and equipment, net

 

 

17,619

 

 

18,370

Operating lease right-of-use assets

 

 

3,360

 

 

3,727

Accrued interest receivable

 

 

8,516

 

 

8,537

Bank-owned life insurance

 

 

33,358

 

 

33,156

Goodwill

 

 

31,490

 

 

31,490

Other intangible assets

 

 

19,197

 

 

20,250

Servicing rights

 

 

1,771

 

 

1,880

Deferred income taxes, net

 

 

23,517

 

 

11,614

Other assets

 

 

49,863

 

 

42,708

Total assets

 

$

3,336,199

 

$

3,392,691

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

831,558

 

$

938,840

Interest-bearing

 

 

2,060,709

 

 

1,981,711

Total deposits

 

 

2,892,267

 

 

2,920,551

Long-term debt

 

 

58,902

 

 

58,933

Operating lease liabilities

 

 

3,850

 

 

4,275

Accrued expenses and other liabilities

 

 

52,675

 

 

49,529

Total liabilities

 

 

3,007,694

 

 

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: 17,288,575 and 17,212,588 issued and outstanding

 

 

17,289

 

 

17,213

Additional paid-in capital

 

 

92,573

 

 

92,878

Retained earnings

 

 

260,967

 

 

253,567

Accumulated other comprehensive income (loss)

 

 

(42,324)

 

 

(4,255)

Total stockholders’ equity

 

 

328,505

 

 

359,403

Total liabilities and stockholders’ equity

 

$

3,336,199

 

$

3,392,691

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,

 

 

2022

 

2021

 

2021

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

17,292

 

$

19,354

 

$

20,567

Investment securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

5,440

 

 

4,454

 

 

2,401

Exempt from federal income taxes

 

 

216

 

 

231

 

 

236

Other

 

 

116

 

 

166

 

 

117

Total interest income

 

 

23,064

 

 

24,205

 

 

23,321

Interest Expense

 

 

 

 

 

 

 

 

 

Deposits

 

 

829

 

 

880

 

 

995

Long-term debt

 

 

562

 

 

536

 

 

288

Total interest expense

 

 

1,391

 

 

1,416

 

 

1,283

Net interest income

 

 

21,673

 

 

22,789

 

 

22,038

Provision for loan losses

 

 

 

 

(1,500)

 

 

Net interest income after provision for loan losses

 

 

21,673

 

 

24,289

 

 

22,038

Noninterest Income

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

17,646

 

 

18,552

 

 

17,255

Wealth management

 

 

5,326

 

 

5,633

 

 

4,986

Mortgage banking

 

 

4,931

 

 

7,967

 

 

17,132

Service charges on deposit accounts

 

 

363

 

 

370

 

 

338

Net gains (losses) on investment securities

 

 

 

 

 

 

114

Other

 

 

1,204

 

 

1,196

 

 

1,056

Total noninterest income

 

 

29,470

 

 

33,718

 

 

40,881

Noninterest Expense

 

 

 

 

 

 

 

 

 

Compensation

 

 

19,051

 

 

22,088

 

 

23,698

Employee taxes and benefits

 

 

6,162

 

 

5,590

 

 

5,813

Occupancy and equipment expense

 

 

2,051

 

 

1,936

 

 

2,231

Business services, software and technology expense

 

 

4,924

 

 

5,220

 

 

4,976

Intangible amortization expense

 

 

1,053

 

 

1,053

 

 

1,151

Professional fees and assessments

 

 

1,541

 

 

1,808

 

 

1,472

Marketing and business development

 

 

600

 

 

872

 

 

676

Supplies and postage

 

 

646

 

 

778

 

 

531

Travel

 

 

179

 

 

206

 

 

26

Mortgage and lending expenses

 

 

686

 

 

488

 

 

1,332

Other

 

 

1,178

 

 

1,237

 

 

1,136

Total noninterest expense

 

 

38,071

 

 

41,276

 

 

43,042

Income before income taxes

 

 

13,072

 

 

16,731

 

 

19,877

Income tax expense

 

 

2,888

 

 

4,026

 

 

4,662

Net income

 

$

10,184

 

$

12,705

 

$

15,215

Per Common Share Data

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.58

 

$

0.73

 

$

0.87

Diluted earnings per common share

 

$

0.57

 

$

0.72

 

$

0.86

Dividends declared per common share

 

$

0.16

 

$

0.16

 

$

0.15

Average common shares outstanding

 

 

17,244

 

 

17,210

 

 

17,145

Diluted average common shares outstanding

 

 

17,500

 

 

17,480

 

 

17,465

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,

 

 

2022

2021

2021

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

328,505

 

$

359,403

 

$

329,234

 

Less: Goodwill

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

19,197

 

 

20,250

 

 

24,768

 

Tangible common equity (a)

 

 

277,818

 

 

307,663

 

 

274,265

 

Total assets

 

 

3,336,199

 

 

3,392,691

 

 

3,151,756

 

Less: Goodwill

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

19,197

 

 

20,250

 

 

24,768

 

Tangible assets (b)

 

 

3,285,512

 

 

3,340,951

 

 

3,096,787

 

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

 

 

8.46

%

 

9.21

%

 

8.86

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

328,505

 

$

359,403

 

$

329,234

 

Less: Goodwill

 

 

31,490

 

 

31,490

 

 

30,201

 

Less: Other intangible assets

 

 

19,197

 

 

20,250

 

 

24,768

 

Tangible common equity (c)

 

 

277,818

 

 

307,663

 

 

274,265

 

Total common shares issued and outstanding (d)

 

 

17,289

 

 

17,213

 

 

17,190

 

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

 

$

16.07

 

$

17.87

 

$

15.95

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

December 31,

March 31,

 

 

2022

2021

2021

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

Net income

 

$

10,184

 

$

12,705

 

$

15,215

 

Add: Intangible amortization expense (net of tax)

 

 

832

 

 

832

 

 

909

 

Net income, excluding intangible amortization (e)

 

 

11,016

 

 

13,537

 

 

16,124

 

Average total equity

 

 

350,545

 

 

357,084

 

 

334,188

 

Less: Average goodwill

 

 

31,490

 

 

30,930

 

 

30,201

 

Less: Average other intangible assets (net of tax)

 

 

15,569

 

 

16,843

 

 

19,995

 

Average tangible common equity (f)

 

 

303,486

 

 

309,311

 

 

283,992

 

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

 

 

14.72

%

 

17.36

%

 

23.03

%

Efficiency Ratio

 

 

 

 

 

 

 

Noninterest expense

 

$

38,071

 

$

41,276

 

$

43,042

 

Less: Intangible amortization expense

 

 

1,053

 

 

1,053

 

 

1,151

 

Adjusted noninterest expense (g)

 

 

37,018

 

 

40,223

 

 

41,891

 

Net interest income

 

 

21,673

 

 

22,789

 

 

22,038

 

Noninterest income

 

 

29,470

 

 

33,718

 

 

40,881

 

Tax-equivalent adjustment

 

 

94

 

 

99

 

 

143

 

Total tax-equivalent revenue (h)

 

 

51,237

 

 

56,606

 

 

63,062

 

Efficiency ratio (g)/(h)

 

 

72.25

%

 

71.06

%

 

66.43

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2022

 

December 31, 2021

 

March 31, 2021

 

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

105,726

 

0.18

%

 

$

232,650

 

0.16

%

 

$

184,376

 

0.12

%

Investment securities (1)

 

 

1,216,256

 

1.90

%

 

 

1,119,370

 

1.68

%

 

 

662,413

 

1.65

%

Loans held for sale

 

 

24,656

 

2.57

%

 

 

53,357

 

2.33

%

 

 

82,249

 

2.13

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

434,656

 

4.68

%

 

 

471,262

 

5.61

%

 

 

674,935

 

4.72

%

Real estate construction

 

 

41,139

 

3.89

%

 

 

41,573

 

3.89

%

 

 

45,264

 

4.22

%

Commercial real estate

 

 

601,024

 

3.64

%

 

 

587,542

 

3.90

%

 

 

560,986

 

3.79

%

Total commercial

 

 

1,076,819

 

4.07

%

 

 

1,100,377

 

4.63

%

 

 

1,281,185

 

4.30

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

514,724

 

3.49

%

 

 

504,997

 

3.30

%

 

 

457,882

 

3.76

%

Residential real estate junior lien

 

 

125,997

 

4.45

%

 

 

129,238

 

4.52

%

 

 

137,745

 

4.86

%

Other revolving and installment

 

 

50,686

 

4.38

%

 

 

48,045

 

4.53

%

 

 

68,625

 

4.38

%

Total consumer

 

 

691,407

 

3.73

%

 

 

682,280

 

3.62

%

 

 

664,252

 

4.05

%

Total loans (1)

 

 

1,768,226

 

3.94

%

 

 

1,782,657

 

4.25

%

 

 

1,945,437

 

4.21

%

Federal Reserve/FHLB stock

 

 

6,486

 

4.38

%

 

 

6,496

 

4.34

%

 

 

5,780

 

4.49

%

Total interest earning assets

 

 

3,121,350

 

3.01

%

 

 

3,194,530

 

3.02

%

 

 

2,880,255

 

3.30

%

Noninterest earning assets

 

 

165,459

 

 

 

 

 

159,370

 

 

 

 

 

167,006

 

 

 

Total assets

 

$

3,286,809

 

 

 

 

$

3,353,900

 

 

 

 

$

3,047,261

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

714,472

 

0.12

%

 

$

754,432

 

0.13

%

 

$

642,832

 

0.16

%

Money market and savings deposits

 

 

1,043,430

 

0.14

%

 

 

1,039,492

 

0.14

%

 

 

1,030,348

 

0.16

%

Time deposits

 

 

227,485

 

0.44

%

 

 

225,497

 

0.46

%

 

 

210,719

 

0.66

%

Fed funds purchased

 

 

 

%

 

 

 

%

 

 

 

%

Long-term debt

 

 

58,908

 

3.87

%

 

 

58,938

 

3.61

%

 

 

25,677

 

4.55

%

Total interest-bearing liabilities

 

 

2,044,295

 

0.28

%

 

 

2,078,359

 

0.27

%

 

 

1,909,576

 

0.27

%

Noninterest-Bearing Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

831,441

 

 

 

 

 

851,210

 

 

 

 

 

731,680

 

 

 

Other noninterest-bearing liabilities

 

 

60,528

 

 

 

 

 

67,247

 

 

 

 

 

71,817

 

 

 

Stockholders’ equity

 

 

350,545

 

 

 

 

 

357,084

 

 

 

 

 

334,188

 

 

 

Total liabilities and stockholders’ equity

 

$

3,286,809

 

 

 

 

$

3,353,900

 

 

 

 

$

3,047,261

 

 

 

Net interest rate spread

 

 

 

 

2.73

%

 

 

 

 

2.75

%

 

 

 

 

3.03

%

Net interest margin, tax-equivalent (1)

 

 

 

 

2.83

%

 

 

 

 

2.84

%

 

 

 

 

3.12

%

 

(1)

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

 

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