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Alerus Financial Corporation Reports First Quarter 2024 Net Income of $6.4 Million

Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $6.4 million for the first quarter of 2024, or $0.32 per diluted common share, compared to a net loss of $14.8 million, or ($0.73) per diluted common share, for the fourth quarter of 2023, and net income of $8.2 million, or $0.40 per diluted common share, for the first quarter of 2023.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “Our momentum continues into 2024 as we started the year with strong production and client acquisition in our commercial wealth bank and national retirement businesses. Deposit growth and inflows were robust at over 6%, adjusted net interest margin expanded another 7 basis points and our loan to deposit ratio trended down to 85.2%. We leveraged the Bank Term Funding Program as a strategic arbitrage which was additive to net interest income during the quarter and helped drive over 3% sequential growth. The company’s fee income, which accounted for 53.3% of total revenues, increased across each diversified business line. Our adjusted efficiency ratio decreased slightly, despite the inflationary headwinds, as we continue to manage expenses prudently. Maintaining our fortress balance sheet remained a priority and we ended the quarter with an allowance for credit losses to total loans of 1.31%, a CET1 capital ratio of 11.86%, and growth in tangible book value per common share of 7.8% over the prior year. We continue to make progress in returning the company to top tier performance and remain focused on the long-term success of the company. I would like to thank our team members for all they do to create value for our clients, our communities, and our shareholders.”

First Quarter Highlights

  • Total deposits were $3.3 billion as of March 31, 2024, an increase of $189.4 million, or 6.1%, from December 31, 2023
  • Total loans were $2.8 billion as of March 31, 2024, an increase of $39.9 million, or 1.4%, from December 31, 2023
  • The loan to deposit ratio as of December 31, 2024 was 85.2%, compared to 89.1% as of December 31, 2023; brokered deposits remained at $0
  • Net interest margin (on a tax equivalent basis) was 2.30% in the first quarter of 2024, compared to 2.37% in the fourth quarter of 2023. Adjusted net interest margin (on a tax-equivalent basis) (non-GAAP) increased 7 basis points from 2.37% in the fourth quarter of 2023 to 2.44% in the first quarter of 2024
  • Net interest income increased 3.1%, from $21.6 million in the fourth quarter of 2023 to $22.2 million in the first quarter of 2024
  • Total assets under administration/management at March 31, 2024 were $42.7 billion, a 5.0% increase from December 31, 2023
  • Net charge-offs to average loans of 0.01% for the first quarter of 2024, compared to net recoveries to average loans of 0.04% for the fourth quarter of 2023
  • Total nonperforming assets were $7.3 million as of March 31, 2024, a decrease of $1.4 million, or 16.2%, from December 31, 2023
  • Allowance for credit losses to nonperforming loans increased from 410% as of December 31, 2023 to 498% as of March 31, 2024
  • Tangible book value per common share (non-GAAP) was $15.63 as of March 31, 2024, a 1.1% increase from December 31, 2023
  • Common equity tier 1 capital to risk weighted assets as of March 31, 2024 was 11.86%, compared to 11.82% as of December 31, 2023, and continues to be well above the minimum threshold to be “well capitalized” of 6.50%
  • Borrowed $355.0 million from the Bank Term Funding Program (“BTFP”), earning 52 basis points of risk free return resulting in $0.3 million in net interest income for the first quarter of 2024

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)

 

2024

 

2023

 

2023

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.63

%

 

(1.51)

%

 

0.88

%

Return on average common equity

 

 

7.04

%

 

(16.75)

%

 

9.17

%

Return on average tangible common equity (1)

 

 

9.78

%

 

(18.85)

%

 

12.58

%

Noninterest income as a % of revenue

 

 

53.26

%

 

3.54

%

 

51.63

%

Net interest margin (tax-equivalent)

 

 

2.30

%

 

2.37

%

 

2.70

%

Adjusted net interest margin (tax-equivalent) (1)

 

 

2.44

%

 

2.37

%

 

2.70

%

Efficiency ratio (1)

 

 

78.88

%

 

165.40

%

 

74.53

%

Adjusted efficiency ratio (1)

 

 

78.88

%

 

79.07

%

 

74.53

%

Net charge-offs/(recoveries) to average loans

 

 

0.01

%

 

(0.04)

%

 

0.03

%

Dividend payout ratio

 

 

59.38

%

 

(26.03)

%

 

45.00

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.32

 

$

(0.74)

 

$

0.41

 

Earnings per common share - diluted

 

$

0.32

 

$

(0.73)

 

$

0.40

 

Dividends declared per common share

 

$

0.19

 

$

0.19

 

$

0.18

 

Book value per common share

 

$

18.79

 

$

18.71

 

$

17.90

 

Tangible book value per common share (1)

 

$

15.63

 

$

15.46

 

$

14.50

 

Average common shares outstanding - basic

 

 

19,739

 

 

19,761

 

 

20,028

 

Average common shares outstanding - diluted

 

 

19,986

 

 

19,996

 

 

20,246

 

Other Data

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

38,488,523

 

$

36,682,425

 

$

33,404,342

 

Wealth management assets under administration/management

 

$

4,242,408

 

$

4,018,846

 

$

3,675,684

 

Mortgage originations

 

$

54,101

 

$

65,488

 

$

77,728

 

____________________

(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 2024 was $22.2 million, a $667.0 thousand, or 3.1%, increase from the fourth quarter of 2023. The increase was due to interest income on increased cash balances from deposit growth and BTFP borrowings, as well as increased loan balances and lower interest expense on borrowings due to lower borrowing balances. The increase was partially offset by an increase in interest expense on deposits, driven by higher deposit balances.

Net interest income decreased $1.4 million, or 6.1%, from $23.7 million for the first quarter of 2023 due to heightened deposit competition, the impact of higher short-term interest rates on indexed money market deposits, and clients moving deposits out of noninterest bearing products into interest-bearing products. Interest income increased $11.2 million, or 29.7%, from the first quarter of 2023, primarily driven by higher yields on new loans and strong organic loan growth, in addition to interest income on higher cash balances due to the Company’s excess cash position. The increase in interest income was offset by a $12.7 million, or 89.5%, increase in interest expense, primarily due to an increase in rates paid on interest-bearing deposits and higher short-term borrowing balances.

Net interest margin (on a tax-equivalent basis), was 2.30% for the first quarter of 2024, a 7 basis point decrease from 2.37% for the fourth quarter of 2023, and a 40 basis point decrease from 2.70% for the first quarter of 2023. The decrease in net interest margin (on a tax-equivalent basis) was mainly attributable to higher earning assets at lower yields resulting from the BTFP opportunity. Adjusted net interest margin (on a tax-equivalent basis) (non-GAAP), which excludes BTFP borrowings, was 2.44% for the first quarter of 2024, a 7 basis point increase from 2.37% for the fourth quarter of 2023, and a 26 basis point decrease from 2.70% for the first quarter of 2023. The increase in adjusted net interest margin (on a tax-equivalent basis) (non-GAAP) from the prior quarter reflected higher yields on new loans, partially offset by higher cost of funds from continued growth on interest-bearing deposits.

Noninterest Income

Noninterest income for the first quarter of 2024 was $25.3 million, a $24.5 million increase from the fourth quarter of 2023. The quarter over quarter increase was primarily driven by the balance sheet repositioning in the fourth quarter of 2023. Adjusted noninterest income (non-GAAP) for the first quarter of 2024 was $25.3 million, a 0.4% decrease from the fourth quarter of 2023. Retirement and benefit services revenue increased $0.3 million, a 2.2% increase from fourth quarter of 2023 results, primarily due to the growth in both asset-based revenue and transaction-based revenue. Assets under administration/management in retirement and benefit services increased 4.9% from December 31, 2023, due to improved equity and bond markets. Wealth management revenues increased $0.2 million during the first quarter of 2024, a 3.0% increase from the fourth quarter of 2023, as assets under administration/management increased 5.6% during that same period. Mortgage saw a $0.4 million increase in mortgage banking revenue with mortgage originations of $54.1 million for the first quarter of 2024, compared to originations of $65.5 million in the fourth quarter of 2023, primarily driven by an increase in the marked to market derivative.

Noninterest income for the first quarter of 2024 was $25.3 million, an increase of $71 thousand, or 0.3%, from the first quarter of 2023. While overall noninterest income was stable year over year, wealth management revenues increased $0.9 million, or 17.8%, in the first quarter of 2024 as assets under administration/management increased 15.4% during that same period. Offsetting this increase, other revenue decreased $1.1 million, or 41.7%, from $2.6 million in the first quarter of 2023, primarily due to $1.2 million in proceeds received on a bank-owned life insurance claim in the first quarter of 2023.

Noninterest Expense

Noninterest expense for the fourth quarter of 2024 was $39.0 million, a $0.4 million, or 0.9%, increase from the fourth quarter of 2023. Employee taxes and benefits expense increased $1.6 million, a 35.2% increase from the fourth quarter of 2023, primarily due to seasonality. This was partially offset by decreases in professional fees and assessments, business services, software and technology expense, and marketing and business development expense totaling $1.0 million compared to the fourth quarter of 2023. Professional fees and assessments expense decreased $0.4 million, or 15.0%, from the fourth quarter of 2023, primarily driven by higher fees resulting from increased audit, examination, and other professional fees in the fourth quarter of 2023. Business services, software and technology expense decreased $0.3 million, or 6.0%, from the fourth quarter of 2023, primarily driven by seasonally higher contract renewals due to inflationary pressures and equipment purchases in the fourth quarter of 2023. Marketing and business development expense decreased $0.3 million, or 31.6%, from the fourth quarter of 2023 due to a one-time donation resulting in tax credits in the fourth quarter of 2023.

Noninterest expense for the first quarter of 2024 increased $1.2 million, or 3.0%, from $37.9 million in the first quarter of 2023. The increase was primarily driven by higher professional fees and assessments due to an increase in Federal Deposit Insurance Corporation (“FDIC”) assessments and an increase in recruitment expense driven by talent acquisitions in the first quarter of 2024.

Financial Condition

Total assets were $4.3 billion as of March 31, 2024, an increase of $430.4 million, or 11.0%, from December 31, 2023. The increase was primarily due to a $415.9 million increase in cash and cash equivalents and a $39.9 million increase in loans, partially offset by a decrease of $17.5 million in investment securities. The increase in cash and cash equivalents was primarily driven by the proceeds from BTFP borrowings.

Loans

Total loans were $2.8 billion as of March 31, 2024, an increase of $39.9 million, or 1.4%, from December 31, 2023. The increase was primarily driven by a $26.0 million increase in commercial real estate loans, a $13.4 million increase commercial and industrial loans, a $2.7 million increase in residential real estate junior lien loans, and a $1.9 million increase in real estate construction loans, partially offset by a $4.7 million decrease in residential real estate first mortgage 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)

 

2024

 

2023

 

2023

 

2023

 

2023

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

611,695

 

$

598,321

 

$

582,387

 

$

551,860

 

$

553,578

Real estate construction

 

 

125,966

 

 

124,034

 

 

97,742

 

 

78,428

 

 

108,776

Commercial real estate

 

 

1,152,948

 

 

1,126,912

 

 

1,025,014

 

 

1,003,821

 

 

934,324

Total commercial

 

 

1,890,609

 

 

1,849,267

 

 

1,705,143

 

 

1,634,109

 

 

1,596,678

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

722,151

 

 

726,879

 

 

717,793

 

 

707,630

 

 

698,002

Residential real estate junior lien

 

 

156,882

 

 

154,134

 

 

152,677

 

 

157,231

 

 

152,281

Other revolving and installment

 

 

29,833

 

 

29,303

 

 

30,817

 

 

34,552

 

 

39,664

Total consumer

 

 

908,866

 

 

910,316

 

 

901,287

 

 

899,413

 

 

889,947

Total loans

 

$

2,799,475

 

$

2,759,583

 

$

2,606,430

 

$

2,533,522

 

$

2,486,625

Deposits

Total deposits were $3.3 billion as of March 31, 2024, an increase of $189.4 million, or 6.1%, from December 31, 2023. Interest-bearing deposits increased $224.9 million, while noninterest-bearing deposits decreased $35.6 million, from December 31, 2023. The increase in total deposits was due to both seasonal inflows of public funds deposit balances and expanded commercial deposit relationships, along with time deposit and synergistic deposit growth. Synergistic deposits were $882.8 million as of March 31, 2024, an increase of $31.3 million, or 3.7%, from December 31, 2023. The Company continued to have $0 of brokered deposits as of March 31, 2024.

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)

 

2024

 

2023

 

2023

 

2023

 

2023

Noninterest-bearing demand

 

$

692,500

 

$

728,082

 

$

717,990

 

$

715,534

 

$

792,977

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

938,751

 

 

840,711

 

 

759,812

 

 

753,194

 

 

817,675

Savings accounts

 

 

82,727

 

 

82,485

 

 

88,341

 

 

93,557

 

 

99,742

Money market savings

 

 

1,114,262

 

 

1,032,771

 

 

959,106

 

 

986,403

 

 

1,076,166

Time deposits

 

 

456,729

 

 

411,562

 

 

346,935

 

 

304,167

 

 

245,418

Total interest-bearing

 

 

2,592,469

 

 

2,367,529

 

 

2,154,194

 

 

2,137,321

 

 

2,239,001

Total deposits

 

$

3,284,969

 

$

3,095,611

 

$

2,872,184

 

$

2,852,855

 

$

3,031,978

Asset Quality

Total nonperforming assets were $7.3 million as of March 31, 2024, a decrease of $1.4 million, or 16.2%, from December 31, 2023. As of March 31, 2024, the allowance for credit losses on loans was $36.6 million, or 1.31% of total loans, compared to $35.8 million, or 1.30% of total loans, as of December 31, 2023.

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)

 

2024

 

2023

 

2023

 

2023

 

2023

 

Nonaccrual loans

 

$

7,345

 

$

8,596

 

$

9,007

 

$

2,233

 

$

2,118

 

Accruing loans 90+ days past due

 

 

 

 

139

 

 

 

 

347

 

 

 

Total nonperforming loans

 

 

7,345

 

 

8,735

 

 

9,007

 

 

2,580

 

 

2,118

 

OREO and repossessed assets

 

 

3

 

 

32

 

 

3

 

 

 

 

 

Total nonperforming assets

 

$

7,348

 

$

8,767

 

$

9,010

 

$

2,580

 

$

2,118

 

Net charge-offs/(recoveries)

 

 

58

 

 

(238)

 

 

(594)

 

 

(403)

 

 

170

 

Net charge-offs/(recoveries) to average loans

 

 

0.01

%

 

(0.04)

%

 

(0.09)

%

 

(0.07)

%

 

0.03

%

Nonperforming loans to total loans

 

 

0.26

%

 

0.32

%

 

0.35

%

 

0.10

%

 

0.09

%

Nonperforming assets to total assets

 

 

0.17

%

 

0.22

%

 

0.23

%

 

0.07

%

 

0.05

%

Allowance for credit losses on loans to total loans

 

 

1.31

%

 

1.30

%

 

1.39

%

 

1.41

%

 

1.41

%

Allowance for credit losses on loans to nonperforming loans

 

 

498

%

 

410

%

 

403

%

 

1,384

%

 

1,657

%

For the first quarter of 2024, the Company had net charge-offs of $58 thousand, compared to net recoveries of $238 thousand for the fourth quarter of 2023 and net charge-offs of $170 thousand for the first quarter of 2023.

The Company recorded no provision for credit losses for the first quarter of 2024, compared to a provision of $1.5 million for the fourth quarter of 2023 and a provision of $550 thousand for the first quarter of 2023. The unearned fair value adjustments on the acquired Metro Phoenix Bank loan portfolio were $4.7 million as of March 31, 2024, $5.2 million as of December 31, 2023, and $6.9 million as of March 31, 2023.

Capital

Total stockholders’ equity was $371.6 million as of March 31, 2024, an increase of $2.5 million from December 31, 2023. This change was primarily driven by an increase in retained earnings of $2.7 million. Tangible book value per common share (non-GAAP) increased to $15.63 as of March 31, 2024, from $15.46 as of December 31, 2023. Tangible common equity to tangible assets (non-GAAP) decreased to 7.23% as of March 31, 2024, from 7.94% as of December 31, 2023. Common equity tier 1 capital to risk weighted assets increased to 11.86% as of March 31, 2024, from 11.82% as of December 31, 2023.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2024

 

2023

 

2023

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

11.86

%

 

11.82

%

 

13.30

%

Tier 1 capital to risk weighted assets

 

 

12.13

%

 

12.10

%

 

13.60

%

Total capital to risk weighted assets

 

 

14.79

%

 

14.76

%

 

16.51

%

Tier 1 capital to average assets

 

 

9.89

%

 

10.57

%

 

11.00

%

Tangible common equity / tangible assets (2)

 

 

7.23

%

 

7.96

%

 

7.62

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

11.71

%

 

11.40

%

 

12.67

%

Tier 1 capital to risk weighted assets

 

 

11.71

%

 

11.40

%

 

12.67

%

Total capital to risk weighted assets

 

 

12.87

%

 

12.51

%

 

13.87

%

Tier 1 capital to average assets

 

 

9.30

%

 

9.92

%

 

10.24

%

____________________

(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 25, 2024, to discuss its financial results. The call can be accessed via telephone at 1-(833)-470-1428, using access code 557480. 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 (Nasdaq: ALRS) is a commercial wealth bank and national retirement services provider with corporate offices in Grand Forks, North Dakota, and the Minneapolis-St. Paul, Minnesota metropolitan area. Through its subsidiary, Alerus Financial, National Association, Alerus provides diversified and comprehensive financial solutions to business and consumer clients, including banking, wealth services, and retirement and benefits plans and services. Alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight, and sound advice supported by digital solutions designed to meet the clients’ needs. Alerus has banking and wealth offices in Grand Forks and Fargo, North Dakota, the Minneapolis-St. Paul, Minnesota metropolitan area, and Phoenix and Scottsdale, Arizona. Alerus Retirement and Benefits serves advisors, brokers, employers, and plan participants across the United States.

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, adjusted tangible common equity to tangible assets, tangible book value per common share, return on average tangible common equity, efficiency ratio, adjusted efficiency ratio, adjusted noninterest income, net interest margin (tax-equivalent), and adjusted net interest margin (tax-equivalent). Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

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

Forward-Looking Statements

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

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following: interest rate risk, including the effects of significant rate increases by the Federal Reserve since 2020; our ability to successfully manage credit risk and maintain an adequate level of allowance for credit losses; new or revised accounting standards; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including high 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 that resulted in recent bank failures; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of Metro Phoenix Bank which the Company acquired in 2022; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our or our third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; our ability to successfully manage liquidity risk, including our need to access higher cost sources of funds such as fed funds purchased and short-term borrowings; the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which the Company may become subject; potential impairment to the goodwill the Company recorded in connection with our past acquisitions, including the acquisition of Metro Phoenix Bank; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes, including in response to recent bank failures; 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; acts of war or terrorism, including the ongoing Israeli-Palestinian conflict and the Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; changes to U.S. or state tax laws, regulations and guidance, including the 1.0% excise tax on stock buybacks by publicly traded companies; potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; talent and labor shortages and employee turnover; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

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

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

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

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2024

 

2023

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

545,772

 

$

129,893

Investment securities

 

 

 

 

 

 

Trading, at fair value

 

 

4,553

 

 

Available-for-sale, at fair value

 

 

472,272

 

 

486,736

Held-to-maturity, at amortized cost (with an allowance for credit losses on investments of $207 and $213, respectively)

 

 

291,932

 

 

299,515

Loans held for sale

 

 

10,625

 

 

11,497

Loans

 

 

2,799,475

 

 

2,759,583

Allowance for credit losses on loans

 

 

(36,584)

 

 

(35,843)

Net loans

 

 

2,762,891

 

 

2,723,740

Land, premises and equipment, net

 

 

18,162

 

 

17,940

Operating lease right-of-use assets

 

 

5,112

 

 

5,436

Accrued interest receivable

 

 

16,149

 

 

15,700

Bank-owned life insurance

 

 

33,396

 

 

33,236

Goodwill

 

 

46,783

 

 

46,783

Other intangible assets

 

 

15,834

 

 

17,158

Servicing rights

 

 

1,983

 

 

2,052

Deferred income taxes, net

 

 

34,796

 

 

34,595

Other assets

 

 

77,833

 

 

83,432

Total assets

 

$

4,338,093

 

$

3,907,713

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

692,500

 

$

728,082

Interest-bearing

 

 

2,592,469

 

 

2,367,529

Total deposits

 

 

3,284,969

 

 

3,095,611

Short-term borrowings

 

 

555,000

 

 

314,170

Long-term debt

 

 

58,985

 

 

58,956

Operating lease liabilities

 

 

5,420

 

 

5,751

Accrued expenses and other liabilities

 

 

62,084

 

 

64,098

Total liabilities

 

 

3,966,458

 

 

3,538,586

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: 19,776,786 and 19,734,077 issued and outstanding

 

 

19,777

 

 

19,734

Additional paid-in capital

 

 

150,740

 

 

150,343

Retained earnings

 

 

275,374

 

 

272,705

Accumulated other comprehensive loss

 

 

(74,256)

 

 

(73,655)

Total stockholders’ equity

 

 

371,635

 

 

369,127

Total liabilities and stockholders’ equity

 

$

4,338,093

 

$

3,907,713

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,

 

 

2024

 

2023

 

2023

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

39,294

 

$

37,731

 

$

30,933

Investment securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

4,568

 

 

6,040

 

 

5,951

Exempt from federal income taxes

 

 

174

 

 

182

 

 

190

Other

 

 

5,002

 

 

742

 

 

735

Total interest income

 

 

49,038

 

 

44,695

 

 

37,809

Interest Expense

 

 

 

 

 

 

 

 

 

Deposits

 

 

20,152

 

 

17,169

 

 

9,104

Short-term borrowings

 

 

5,989

 

 

5,292

 

 

4,393

Long-term debt

 

 

678

 

 

682

 

 

654

Total interest expense

 

 

26,819

 

 

23,143

 

 

14,151

Net interest income

 

 

22,219

 

 

21,552

 

 

23,658

Provision for credit losses

 

 

 

 

1,507

 

 

550

Net interest income after provision for credit losses

 

 

22,219

 

 

20,045

 

 

23,108

Noninterest Income

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

15,655

 

 

15,317

 

 

15,482

Wealth management

 

 

6,118

 

 

5,940

 

 

5,194

Mortgage banking

 

 

1,670

 

 

1,279

 

 

1,717

Service charges on deposit accounts

 

 

389

 

 

341

 

 

301

Net gains (losses) on investment securities

 

 

 

 

(24,643)

 

 

Other

 

 

1,491

 

 

2,557

 

 

2,559

Total noninterest income

 

 

25,323

 

 

791

 

 

25,253

Noninterest Expense

 

 

 

 

 

 

 

 

 

Compensation

 

 

19,332

 

 

19,214

 

 

19,158

Employee taxes and benefits

 

 

6,188

 

 

4,578

 

 

5,853

Occupancy and equipment expense

 

 

1,906

 

 

1,858

 

 

1,899

Business services, software and technology expense

 

 

5,345

 

 

5,686

 

 

5,324

Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,324

Professional fees and assessments

 

 

1,993

 

 

2,345

 

 

1,152

Marketing and business development

 

 

685

 

 

1,002

 

 

686

Supplies and postage

 

 

528

 

 

521

 

 

460

Travel

 

 

292

 

 

313

 

 

248

Mortgage and lending expenses

 

 

441

 

 

501

 

 

497

Other

 

 

985

 

 

1,312

 

 

1,268

Total noninterest expense

 

 

39,019

 

 

38,654

 

 

37,869

Income (loss) before income tax expense (benefit)

 

 

8,523

 

 

(17,818)

 

 

10,492

Income tax expense (benefit)

 

 

2,091

 

 

(3,064)

 

 

2,306

Net income (loss)

 

$

6,432

 

$

(14,754)

 

$

8,186

Per Common Share Data

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share

 

$

0.32

 

$

(0.74)

 

$

0.41

Diluted earnings (loss) per common share

 

$

0.32

 

$

(0.73)

 

$

0.40

Dividends declared per common share

 

$

0.19

 

$

0.19

 

$

0.18

Average common shares outstanding

 

 

19,739

 

 

19,761

 

 

20,028

Diluted average common shares outstanding

 

 

19,986

 

 

19,996

 

 

20,246

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,

 

 

 

2024

 

2023

 

2023

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

371,635

 

$

369,127

 

$

359,118

 

Less: Goodwill

 

 

46,783

 

 

46,783

 

 

47,087

 

Less: Other intangible assets

 

 

15,834

 

 

17,158

 

 

21,131

 

Tangible common equity (a)

 

 

309,018

 

 

305,186

 

 

290,900

 

Total assets

 

 

4,338,093

 

 

3,907,713

 

 

3,886,773

 

Less: Goodwill

 

 

46,783

 

 

46,783

 

 

47,087

 

Less: Other intangible assets

 

 

15,834

 

 

17,158

 

 

21,131

 

Tangible assets (b)

 

 

4,275,476

 

 

3,843,772

 

 

3,818,555

 

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

 

 

7.23

%

 

7.94

%

 

7.62

%

Adjusted Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

Tangible assets (b)

 

$

4,275,476

 

$

3,843,772

 

$

3,818,555

 

Less: Cash proceeds from BTFP

 

 

355,000

 

 

 

 

 

Adjusted tangible assets (c)

 

 

3,920,476

 

 

3,843,772

 

 

3,818,555

 

Adjusted tangible common equity to tangible assets (a)/(c)

 

 

7.88

%

 

7.94

%

 

7.62

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

371,635

 

$

369,127

 

$

359,118

 

Less: Goodwill

 

 

46,783

 

 

46,783

 

 

47,087

 

Less: Other intangible assets

 

 

15,834

 

 

17,158

 

 

21,131

 

Tangible common equity (d)

 

 

309,018

 

 

305,186

 

 

290,900

 

Total common shares issued and outstanding (e)

 

 

19,777

 

 

19,734

 

 

20,067

 

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

 

$

15.63

 

$

15.46

 

$

14.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2024

 

2023

 

2023

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,432

 

$

(14,754)

 

$

8,186

 

Add: Intangible amortization expense (net of tax)

 

 

1,046

 

 

1,046

 

 

1,046

 

Net income (loss), excluding intangible amortization (f)

 

 

7,478

 

 

(13,708)

 

 

9,232

 

Average total equity

 

 

367,248

 

 

349,382

 

 

361,857

 

Less: Average goodwill

 

 

46,783

 

 

46,783

 

 

47,087

 

Less: Average other intangible assets (net of tax)

 

 

13,018

 

 

14,067

 

 

17,209

 

Average tangible common equity (g)

 

 

307,447

 

 

288,532

 

 

297,561

 

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

 

 

9.78

%

 

(18.85)

%

 

12.58

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

39,019

 

$

38,654

 

$

37,869

 

Less: Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,324

 

Adjusted noninterest expense (h)

 

 

37,695

 

 

37,330

 

 

36,545

 

Net interest income

 

 

22,219

 

 

21,552

 

 

23,658

 

Noninterest income

 

 

25,323

 

 

791

 

 

25,253

 

Tax-equivalent adjustment

 

 

247

 

 

226

 

 

123

 

Total tax-equivalent revenue (i)

 

 

47,789

 

 

22,569

 

 

49,034

 

Efficiency ratio (h)/(i)

 

 

78.88

%

 

165.40

%

 

74.53

%

Adjusted Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

39,019

 

$

38,654

 

$

37,869

 

Less: Intangible amortization expense

 

 

1,324

 

 

1,324

 

 

1,324

 

Adjusted noninterest expense (j)

 

 

37,695

 

 

37,330

 

 

36,545

 

Net interest income

 

 

22,219

 

 

21,552

 

 

23,658

 

Noninterest income

 

 

25,323

 

 

791

 

 

25,253

 

Tax-equivalent adjustment

 

 

247

 

 

226

 

 

123

 

Less: Net gains (losses) on investment securities

 

 

 

 

(24,643)

 

 

 

Total tax-equivalent revenue (k)

 

 

47,789

 

 

47,212

 

 

49,034

 

Adjusted efficiency ratio (j)/(k)

 

 

78.88

%

 

79.07

%

 

74.53

%

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2024

 

2023

 

2023

 

Adjusted Noninterest Income

 

 

 

 

 

 

 

 

 

 

Noninterest income

 

$

25,323

 

$

791

 

$

25,253

 

Add: Net gains (losses) on investment securities

 

 

 

 

(24,643)

 

 

 

Adjusted noninterest income

 

$

25,323

 

$

25,434

 

$

25,253

 

Adjusted Net Interest Margin (Tax-Equivalent)

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

22,219

 

$

21,552

 

$

23,658

 

Less: BTFP cash interest income

 

 

3,615

 

 

 

 

 

Add: BTFP interest expense

 

 

3,266

 

 

 

 

 

Net interest income excluding BTFP impact

 

 

21,870

 

 

21,552

 

 

23,658

 

Add: Tax equivalent adjustment for loans and securities

 

 

247

 

 

226

 

 

124

 

Adjusted net interest income (l)

 

$

22,117

 

$

21,778

 

$

23,782

 

Interest earning assets

 

 

3,921,529

 

 

3,645,184

 

 

3,567,402

 

Less: Average cash proceeds balance from BTFP

 

 

269,176

 

 

 

 

 

Adjusted interest earning assets (m)

 

$

3,652,353

 

$

3,645,184

 

$

3,567,402

 

Adjusted net interest margin (tax-equivalent) (l)/(m)

 

 

2.44

%

 

2.37

%

 

2.70

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2024

 

December 31, 2023

 

March 31, 2023

 

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

352,038

 

5.33

%

 

$

33,920

 

3.22

%

 

$

41,947

 

3.23

%

Investment securities (1)

 

 

775,305

 

2.48

 

 

 

921,555

 

2.70

 

 

 

1,034,288

 

2.43

 

Loans held for sale

 

 

9,014

 

5.67

 

 

 

11,421

 

6.01

 

 

 

10,345

 

4.98

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

599,456

 

6.93

 

 

 

573,174

 

6.89

 

 

 

559,416

 

6.09

 

Real estate construction

 

 

127,587

 

8.04

 

 

 

117,765

 

8.12

 

 

 

103,099

 

6.56

 

Commercial real estate

 

 

1,134,540

 

5.58

 

 

 

1,053,812

 

5.47

 

 

 

911,634

 

4.95

 

Total commercial

 

 

1,861,583

 

6.18

 

 

 

1,744,751

 

6.12

 

 

 

1,574,149

 

5.46

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

723,315

 

4.05

 

 

 

724,110

 

4.00

 

 

 

688,754

 

3.76

 

Residential real estate junior lien

 

 

154,781

 

7.86

 

 

 

155,137

 

7.86

 

 

 

149,720

 

7.21

 

Other revolving and installment

 

 

28,835

 

6.43

 

 

 

29,510

 

6.33

 

 

 

44,531

 

5.86

 

Total consumer

 

 

906,931

 

4.77

 

 

 

908,757

 

4.73

 

 

 

883,005

 

4.45

 

Total loans (1)

 

 

2,768,514

 

5.72

 

 

 

2,653,508

 

5.64

 

 

 

2,457,154

 

5.10

 

Federal Reserve/FHLB stock

 

 

16,658

 

8.14

 

 

 

24,780

 

7.48

 

 

 

23,668

 

6.87

 

Total interest earning assets

 

 

3,921,529

 

5.05

 

 

 

3,645,184

 

4.89

 

 

 

3,567,402

 

4.31

 

Noninterest earning assets

 

 

217,524

 

 

 

 

 

223,022

 

 

 

 

 

224,134

 

 

 

Total assets

 

$

4,139,053

 

 

 

 

$

3,868,206

 

 

 

 

$

3,791,536

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

869,060

 

1.97

%

 

$

798,634

 

1.65

%

 

$

746,660

 

0.87

%

Money market and savings deposits

 

 

1,186,900

 

3.77

 

 

 

1,092,656

 

3.53

 

 

 

1,165,269

 

2.17

 

Time deposits

 

 

431,679

 

4.46

 

 

 

383,715

 

4.27

 

 

 

231,959

 

2.23

 

Fed funds purchased and Bank Term Funding Program

 

 

282,614

 

4.99

 

 

 

189,568

 

5.71

 

 

 

290,187

 

4.85

 

Short-term borrowings

 

 

200,000

 

4.99

 

 

 

200,000

 

5.09

 

 

 

80,000

 

4.69

 

Long-term debt

 

 

58,971

 

4.62

 

 

 

58,943

 

4.59

 

 

 

58,858

 

4.51

 

Total interest-bearing liabilities

 

 

3,029,224

 

3.56

 

 

 

2,723,516

 

3.37

 

 

 

2,572,933

 

2.23

 

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

675,926

 

 

 

 

 

719,895

 

 

 

 

 

789,134

 

 

 

Other noninterest-bearing liabilities

 

 

66,655

 

 

 

 

 

75,413

 

 

 

 

 

67,612

 

 

 

Stockholders’ equity

 

 

367,248

 

 

 

 

 

349,382

 

 

 

 

 

361,857

 

 

 

Total liabilities and stockholders’ equity

 

$

4,139,053

 

 

 

 

$

3,868,206

 

 

 

 

$

3,791,536

 

 

 

Net interest income (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest rate spread

 

 

 

 

1.49

%

 

 

 

 

1.52

%

 

 

 

 

2.08

%

Net interest margin, tax-equivalent (1)

 

 

 

 

2.30

%

 

 

 

 

2.37

%

 

 

 

 

2.70

%

(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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