Press Release

Alerus Financial Corporation Reports First Quarter 2020 Net Income of $5.4 Million

Company Release - 4/28/2020 4:00 PM ET

GRAND FORKS, N.D.--(BUSINESS WIRE)-- Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $5.4 million for the first quarter of 2020, or $0.30 per diluted common share, compared to $7.7 million of net income, or $0.43 per diluted common share, for the fourth quarter of 2019, and net income of $6.4 million, or $0.46 per diluted common share, for the first quarter of 2019.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “The first quarter of 2020 ended much differently than it began. Like many of our clients, we too are navigating unprecedented times responding to COVID-19. As our nation and communities come together, so does our Alerus team, with a sharp focus on continuing to serve clients. For years, we’ve served with a shared philosophy and purpose to work in our clients’ best interests. Now more than ever, our purpose guides us as we support and advise clients. This includes helping clients access critical funding with the new Paycheck Protection Program, answering questions regarding retirement plans and the numerous changes following the passing of the CARES Act, and supporting clients facing financial hardship with loan modifications. We have a sense of urgency and continue to modify our business to adapt to the ever-changing environment.

Equally important to serving our clients is taking care of our employees. We swiftly moved the vast majority of our team to a work from home setting in a matter of days, took proactive steps to limit the potential spread of COVID-19 by closing our lobbies and serving clients only through digital technology or our drive-ups, introduced relief pay to ensure our employees will continue to be paid should they become ill or need to care for a family member, and added on-site hazard pay for those employees who must work from one of our offices to continue business operations. These actions reinforce our commitment to ensuring the safety and well-being of our employees and clients.

Although significant uncertainty lies ahead, Alerus has entered the current crisis from a position of strength. We have robust capital levels from our recent initial public offering, a diversified business model and a diversified loan portfolio. Due to the uncertain economic impact and duration of COVID-19, we prudently increased our allowance for loan losses this past quarter from 1.39% of total loans at December 31, 2019, to 1.54% of total loans at March 31, 2020. In addition, strong deposit growth continued to contribute to our significant on and off-balance sheet liquidity. Our diversified business model results in nearly 60% of our revenue earned from noninterest income, a key driver for our strong core operating earnings. Over the last several years, we have transformed our organization through a strategy we call “One Alerus”. Through this strategy, we have made significant investments in talent, technology and digital applications. With this infrastructure and team in place, we believe we are well positioned to serve clients in this time of crisis, as we utilize these investments to proactively reach out to clients, increase digital adoption, and build lifetime client relationships.”

Quarterly Highlights

  • Return on average assets of 0.89%, compared to 1.33% for the fourth quarter of 2019
  • Return on average common equity of 7.32%, compared to 10.65% for the fourth quarter of 2019
  • Return on average tangible common equity(1) of 9.76%, compared to 13.78% f or the fourth quarter of 2019
  • Net interest margin (tax-equivalent)(1) was 3.35%, compared to 3.45% for the fourth quarter of 2019
  • Noninterest income as a percentage of total revenue was 59.07%, compared to 61.56% for the fourth quarter of 2019
  • Noninterest income decreased $2.4 million, or 8.0%, compared to the fourth quarter of 2019
  • Mortgage originations totaled $228.6 million, a 12.5% decrease from the fourth quarter of 2019
  • Available-for-sale investment securities increased $43.8 million, or 14.1%, from the fourth quarter of 2019
  • Loans held for sale increased $25.4 million, or 54.2%, from the fourth quarter of 2019
  • Loans held for investment increased $37.0 million, or 2.1%, from the fourth quarter of 2019
  • Deposits increased $150.2 million, or 7.6%, from the fourth quarter of 2019

(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)

 

2020

 

2019

 

2019

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

0.89

%

 

1.33

%

 

1.20

%

Return on average common equity

 

 

7.32

%

 

10.65

%

 

13.06

%

Return on average tangible common equity (1)

 

 

9.76

%

 

13.78

%

 

18.99

%

Noninterest income as a % of revenue

 

 

59.07

%

 

61.56

%

 

56.74

%

Net interest margin (tax-equivalent) (1)

 

 

3.35

%

 

3.45

%

 

3.86

%

Efficiency ratio (1)

 

 

77.47

%

 

73.68

%

 

73.30

%

Net charge-offs/(recoveries) to average loans

 

 

(0.14

)%

 

0.20

%

 

0.41

%

Dividend payout ratio

 

 

50.00

%

 

34.88

%

 

30.43

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic (2)

 

$

0.31

 

$

0.44

 

$

0.47

 

Earnings per common share - diluted (2)

 

$

0.30

 

$

0.43

 

$

0.46

 

Dividends declared per common share

 

$

0.15

 

$

0.15

 

$

0.14

 

Tangible book value per common share (1)

 

$

14.55

 

$

14.08

 

$

11.25

 

Average common shares outstanding - basic

 

 

17,070

 

 

17,049

 

 

13,781

 

Average common shares outstanding - diluted

 

 

17,405

 

 

17,397

 

 

14,078

 

Other Data

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

27,718,026

 

$

31,904,648

 

$

29,760,820

 

Wealth management assets under administration/management

 

 

2,746,052

 

 

3,103,056

 

 

2,721,328

 

Mortgage originations

 

 

228,568

 

 

261,263

 

 

125,536

 

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

(2) Earnings per share calculated using the two-class method beginning in the third quarter of 2019.

Earnings Per Share

Beginning in the third quarter of 2019, the Company elected to prospectively use the two-class method in calculating earnings per share due to the restricted stock awards and restricted stock units qualifying as participating securities. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participating rights in undistributed earnings. Average shares of common stock for diluted net income per common share include shares to be issued upon the vesting of restricted stock awards and restricted stock units granted under the Company's share-based compensation plans.

The following table presents the calculation of basic and diluted earnings per share for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31,

 

December 31,

 

March 31,

(dollars in thousands, except per share data)

 

2020

 

2019

 

2019

Net income

 

$

5,363

 

$

7,652

 

$

6,436

Dividends and undistributed earnings allocated to participating securities

 

 

82

 

 

138

 

 

Net income available to common shareholders

 

$

5,281

 

$

7,514

 

$

6,436

Weighted-average common shares outstanding for basic EPS

 

 

17,070

 

 

17,049

 

 

13,781

Dilutive effect of stock-based awards

 

 

335

 

 

348

 

 

297

Weighted-average common shares outstanding for diluted EPS

 

 

17,405

 

 

17,397

 

 

14,078

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

 

0.31

 

 

0.44

 

 

0.47

Diluted earnings per common share

 

 

0.30

 

 

0.43

 

 

0.46

Results of Operations

Net Interest Income

Net interest income for the first quarter of 2020 was $18.8 million, an increase of $378 thousand, or 2.0%, from $18.5 million for the fourth quarter of 2019. The increase was primarily driven by an increase of $259 thousand in interest income on investment securities and a decrease of $140 thousand in interest expense on deposits, partially offset by a decrease of $117 thousand in interest income from loans.

Compared to the first quarter of 2019, net interest income for the first quarter of 2020 decreased $283 thousand. The decrease was primarily due to a $1.0 million decrease in interest income from loans partially offset by increases of $441 thousand and $386 thousand in interest income from investment securities and other interest income, respectively.

Net Interest Margin (Tax-Equivalent)

Net interest margin (tax-equivalent), a non-GAAP financial measure, for the first quarter of 2020 was 3.35%, compared to 3.45% for the fourth quarter of 2019. The average balance of interest-bearing deposits with banks increased by $63.3 million in the first quarter of 2020 compared to the fourth quarter of 2019. For the first quarter of 2020, the average yield on total loans was 4.72% compared to 4.79% for the fourth quarter of 2019. For the first quarter of 2020, the average cost of interest-bearing liabilities was 1.13% compared to 1.26% for the fourth quarter of 2019.

Compared to the first quarter of 2019, net interest margin (tax-equivalent) for the first quarter of 2020 decreased 51 basis points from 3.86%. The decrease in net interest margin from the first quarter of 2019 was due to a 59 basis point lower average earning asset yield and a $172.5 million increase in the average balance of interest-bearing deposits. In addition, the average yield on loans fell from 5.03% in the first quarter of 2019 to 4.72% in the first quarter of 2020 and the average rate on total interest-bearing liabilities decreased 6 basis points to 1.13% in the first quarter of 2020.

Noninterest Income

Noninterest income for the first quarter of 2020 was $27.2 million, a $2.4 million, or 8.0%, decrease from the fourth quarter of 2019. The decrease was primarily due to a $1.4 million decrease in retirement and benefit services revenue along with a $1.0 million decrease in mortgage banking revenue. The decrease in retirement and benefit services revenue was primarily due to an expected $506 thousand decrease in plan document fees. The fourth quarter of 2019 also included seasonally higher distribution fees and transactional trustee fees. In addition, asset based fees declined $456 thousand primarily due to market impact during the first quarter of 2020, as a result of the volatility and downward movement of the financial markets in response to COVID-19. The decrease in mortgage banking was primarily due to a seasonal decrease in mortgage originations of $32.7 million during the quarter.

Noninterest income for the first quarter of 2020 increased $2.1 million, or 8.4%, from the $25.1 million in the first quarter of 2019. Retirement and benefit services revenue increased $1.2 million primarily due to increases in transaction related fees, including distribution and loan fees. Mortgage banking revenue increased $476 thousand as mortgage originations increased from $125.5 million in the first quarter of 2019 to $228.6 million in the first quarter of 2020, partially offset by a $2.5 million change in the mark-to-market of the related hedges. Wealth management revenue increased $435 thousand, or 12%, due to strong organic growth and market performance for the majority of the first quarter of 2020.

Noninterest Expense

Noninterest expense for the first quarter of 2020 was $36.7 million, an increase of $291 thousand, or 0.8%, compared to the fourth quarter of 2019. The increase was primarily due to increases of $1.0 million in seasonally higher employee taxes and benefits, $175 thousand in professional fees and assessments, $156 thousand in mortgage and lending expenses, and $107 thousand in business services, software and technology expense, partially offset by decreases of $528 thousand in marketing and business development, $290 thousand in compensation expense, $276 thousand in other expense, and $191 thousand in travel expenses.

Compared to the first quarter of 2019, noninterest expense for the first quarter of 2020 increased $3.2 million, or 9.6%, from $33.5 million. The increase was primarily attributable to increases of $1.9 million in compensation expenses, $646 thousand in business services, software and technology expenses, and $597 thousand in mortgage and lending expenses. The increases in compensation and mortgage and lending expenses were primarily the result of higher mortgage originations and the recognition of $405 thousand of mortgage servicing rights impairment. The increase in business services, software and technology expenses is primarily due to our “One Alerus” initiative.

Financial Condition

Total assets were $2.5 billion as of March 31, 2020, an increase of $155.2 million, or 6.6%, from December 31, 2019. The increase in total assets was primarily due to increases of $54.5 million in cash and cash equivalents, $43.8 million in available-for-sale investment securities, $37.0 million in loans, $25.4 million in loans held for sale and $4.2 million in other assets.

Loans

Total loans were $1.76 billion as of March 31, 2020, an increase of $37.0 million, or 2.1%, from December 31, 2019. The increase was primarily due to increases of $27.4 million in our commercial real estate loan portfolio and $23.5 million in our commercial and industrial loan portfolio. These increases were partially offset by decreases in our consumer loan portfolio.

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)

 

2020

 

2019

 

2019

 

2019

 

2019

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

502,637

 

$

479,144

 

$

485,183

 

$

513,120

 

$

514,033

Real estate construction

 

 

25,487

 

 

26,378

 

 

21,674

 

 

26,584

 

 

22,188

Commercial real estate

 

 

522,106

 

 

494,703

 

 

444,600

 

 

442,797

 

 

444,882

Total commercial

 

 

1,050,230

 

 

1,000,225

 

 

951,457

 

 

982,501

 

 

981,103

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

457,895

 

 

457,155

 

 

459,763

 

 

452,049

 

 

451,401

Residential real estate junior lien

 

 

170,538

 

 

177,373

 

 

182,516

 

 

185,209

 

 

186,296

Other revolving and installment

 

 

79,614

 

 

86,526

 

 

92,351

 

 

93,693

 

 

94,992

Total consumer

 

 

708,047

 

 

721,054

 

 

734,630

 

 

730,951

 

 

732,689

Total loans

 

$

1,758,277

 

$

1,721,279

 

$

1,686,087

 

$

1,713,452

 

$

1,713,792

Deposits

Total deposits were $2.1 billion as of March 31, 2020, an increase of $150.2 million, or 7.6%, from December 31, 2019. The increase was due to an increase of $119.3 million in interest-bearing deposits and an increase of $30.9 million in noninterest-bearing deposits. The increase in interest-bearing deposits was primarily due to a $76.6 million increase in synergistic deposits from our retirement and benefit services and wealth management segments. In addition, health savings account, or HSA, deposits were $124.2 million as of March 31, 2020, an increase of $4.4 million, or 3.7%, from December 31, 2019. Noninterest-bearing deposits as a percentage of total deposits were 28.7% and 29.3% as of March 31, 2020 and December 31, 2019, respectively.

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)

 

2020

 

2019

 

2019

 

2019

 

2019

Noninterest-bearing demand

 

$

608,559

 

$

577,704

 

$

537,951

 

$

506,021

 

$

530,960

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

477,752

 

 

458,689

 

 

424,249

 

 

439,342

 

 

440,755

Savings accounts

 

 

60,181

 

 

55,777

 

 

55,513

 

 

56,163

 

 

57,304

Money market savings

 

 

773,652

 

 

683,064

 

 

622,647

 

 

568,450

 

 

675,145

Time deposits

 

 

201,370

 

 

196,082

 

 

192,753

 

 

183,389

 

 

178,106

Total interest-bearing

 

 

1,512,955

 

 

1,393,612

 

 

1,295,162

 

 

1,247,344

 

 

1,351,310

Total deposits

 

$

2,121,514

 

$

1,971,316

 

$

1,833,113

 

$

1,753,365

 

$

1,882,270

Asset Quality

Total nonperforming assets were $7.2 million as of March 31, 2020, a decrease of $656 thousand from December 31, 2019. As of March 31, 2020, the allowance for loan losses was $27.0 million, or 1.54% of total loans, compared to $23.9 million, or 1.39% of total loans, as of December 31, 2019.

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)

 

2020

 

2019

 

2019

 

2019

 

2019

 

Nonaccrual loans

 

$

6,959

 

$

7,379

 

$

5,107

 

$

4,623

 

$

8,267

 

Accruing loans 90+ days past due

 

 

11

 

 

448

 

 

45

 

 

28

 

 

 

Total nonperforming loans

 

 

6,970

 

 

7,827

 

 

5,152

 

 

4,651

 

 

8,267

 

OREO and repossessed assets

 

 

209

 

 

8

 

 

84

 

 

381

 

 

149

 

Total nonperforming assets

 

$

7,179

 

$

7,835

 

$

5,236

 

$

5,032

 

$

8,416

 

Net charge-offs/(recoveries)

 

 

(595

)

 

857

 

 

(240

)

 

3,189

 

 

1,756

 

Net charge-offs/(recoveries) to average loans

 

 

(0.14

)%

 

0.20

%

 

(0.06

)%

 

0.74

%

 

0.41

%

Nonperforming loans to total loans

 

 

0.40

%

 

0.45

%

 

0.31

%

 

0.27

%

 

0.48

%

Nonperforming assets to total assets

 

 

0.29

%

 

0.33

%

 

0.23

%

 

0.23

%

 

0.38

%

Allowance for loan losses to total loans

 

 

1.54

%

 

1.39

%

 

1.36

%

 

1.24

%

 

1.32

%

Allowance for loan losses to nonperforming loans

 

 

388

%

 

306

%

 

446

%

 

457

%

 

274

%

For the first quarter of 2020, we had net recoveries of $595 thousand, compared to net charge-offs of $857 thousand for the fourth quarter of 2019 and $1.8 million of net charge-offs for the first quarter of 2019.

The provision for loan losses for the first quarter of 2020 was $2.5 million, an increase of $703 thousand from the fourth quarter of 2019 and an increase of $280 thousand from the first quarter of 2019. The increase in provision expense was due to allocations of reserves for the economic uncertainties related to the novel coronavirus, or COVID-19, which increased the allowance for loan losses balance $3.1 million to $27.0 million, a 12.9% increase from December 31, 2019.

Capital

Total stockholders’ equity was $293.6 million as of March 31, 2020, an increase of $7.9 million from December 31, 2019. The tangible book value per common share increased to $14.55 as of March 31, 2020, from $14.08 as of December 31, 2019. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 10.09% as of March 31, 2020, from 10.38% as of December 31, 2019.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2020

 

2019

 

2019

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

12.36

%

 

12.48

%

 

8.35

%

Tier 1 capital to risk weighted assets

 

 

12.78

%

 

12.90

%

 

8.78

%

Total capital to risk weighted assets

 

 

16.55

%

 

16.73

%

 

12.61

%

Tier 1 capital to average assets

 

 

10.62

%

 

11.05

%

 

7.76

%

Tangible common equity / tangible assets (2)

 

 

10.09

%

 

10.38

%

 

7.17

%

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

11.80

%

 

11.91

%

 

11.16

%

Tier 1 capital to risk weighted assets

 

 

11.80

%

 

11.91

%

 

11.16

%

Total capital to risk weighted assets

 

 

13.05

%

 

13.15

%

 

12.37

%

Tier 1 capital to average assets

 

 

9.80

%

 

10.20

%

 

9.87

%

(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 9:00 a.m. Central Time on Wednesday, April 29, 2020, to discuss its financial results. The call can be accessed via telephone at (888) 317-6016. 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 businesses and consumers through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. These solutions are delivered through a relationship-oriented primary point of contact along with responsive and client-friendly technology. 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 and Albert Lea, MN, East Lansing and Troy, MI, and Bedford, NH.

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. 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: 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; 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; our ability to successfully manage liquidity risk; 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; 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 or other adverse external events; any material weaknesses in our internal control over financial reporting; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of other 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 and shares in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2020

 

2019

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

198,489

 

 

$

144,006

 

Investment securities, at fair value

 

 

 

 

 

 

Available-for-sale

 

 

354,149

 

 

 

310,350

 

Equity

 

 

 

 

2,808

 

Loans held for sale

 

 

72,258

 

 

 

46,846

 

Loans

 

 

1,758,277

 

 

 

1,721,279

 

Allowance for loan losses

 

 

(27,019

)

 

 

(23,924

)

Net loans

 

 

1,731,258

 

 

 

1,697,355

 

Land, premises and equipment, net

 

 

20,372

 

 

 

20,629

 

Operating lease right-of-use assets

 

 

7,965

 

 

 

8,343

 

Accrued interest receivable

 

 

7,425

 

 

 

7,551

 

Bank-owned life insurance

 

 

31,763

 

 

 

31,566

 

Goodwill

 

 

27,329

 

 

 

27,329

 

Other intangible assets

 

 

17,401

 

 

 

18,391

 

Servicing rights

 

 

3,277

 

 

 

3,845

 

Deferred income taxes, net

 

 

6,185

 

 

 

7,891

 

Other assets

 

 

34,207

 

 

 

29,968

 

Total assets

 

$

2,512,078

 

 

$

2,356,878

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

608,559

 

 

$

577,704

 

Interest-bearing

 

 

1,512,955

 

 

 

1,393,612

 

Total deposits

 

 

2,121,514

 

 

 

1,971,316

 

Long-term debt

 

 

58,762

 

 

 

58,769

 

Operating lease liabilities

 

 

8,480

 

 

 

8,864

 

Accrued expenses and other liabilities

 

 

29,714

 

 

 

32,201

 

Total liabilities

 

 

2,218,470

 

 

 

2,071,150

 

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: 17,105,668 and 17,049,551 issued and outstanding

 

 

17,106

 

 

 

17,050

 

Additional paid-in capital

 

 

88,703

 

 

 

88,650

 

Retained earnings

 

 

180,650

 

 

 

178,092

 

Accumulated other comprehensive income (loss)

 

 

7,149

 

 

 

1,936

 

Total stockholders’ equity

 

 

293,608

 

 

 

285,728

 

Total liabilities and stockholders’ equity

 

$

2,512,078

 

 

$

2,356,878

 

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,

 

 

2020

 

2019

 

2019

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

20,542

 

$

20,659

 

$

21,573

Investment securities

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,759

 

 

1,555

 

 

1,309

Exempt from federal income taxes

 

 

235

 

 

180

 

 

244

Other

 

 

570

 

 

493

 

 

184

Total interest income

 

 

23,106

 

 

22,887

 

 

23,310

Interest Expense

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,392

 

 

3,532

 

 

2,748

Short-term borrowings

 

 

 

 

 

 

531

Long-term debt

 

 

877

 

 

896

 

 

911

Total interest expense

 

 

4,269

 

 

4,428

 

 

4,190

Net interest income

 

 

18,837

 

 

18,459

 

 

19,120

Provision for loan losses

 

 

2,500

 

 

1,797

 

 

2,220

Net interest income after provision for loan losses

 

 

16,337

 

 

16,662

 

 

16,900

Noninterest Income

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

16,220

 

 

17,669

 

 

15,059

Wealth management

 

 

4,046

 

 

4,117

 

 

3,611

Mortgage banking

 

 

5,045

 

 

6,066

 

 

4,569

Service charges on deposit accounts

 

 

423

 

 

451

 

 

444

Net gains (losses) on investment securities

 

 

 

 

 

 

127

Other

 

 

1,455

 

 

1,253

 

 

1,264

Total noninterest income

 

 

27,189

 

 

29,556

 

 

25,074

Noninterest Expense

 

 

 

 

 

 

 

 

 

Compensation

 

 

18,731

 

 

19,021

 

 

16,813

Employee taxes and benefits

 

 

5,308

 

 

4,268

 

 

5,428

Occupancy and equipment expense

 

 

2,755

 

 

2,665

 

 

2,745

Business services, software and technology expense

 

 

4,444

 

 

4,337

 

 

3,798

Intangible amortization expense

 

 

990

 

 

990

 

 

1,051

Professional fees and assessments

 

 

1,040

 

 

865

 

 

1,066

Marketing and business development

 

 

610

 

 

1,138

 

 

427

Supplies and postage

 

 

703

 

 

695

 

 

733

Travel

 

 

261

 

 

452

 

 

502

Mortgage and lending expenses

 

 

1,043

 

 

887

 

 

446

Other

 

 

841

 

 

1,117

 

 

505

Total noninterest expense

 

 

36,726

 

 

36,435

 

 

33,514

Income before income taxes

 

 

6,800

 

 

9,783

 

 

8,460

Income tax expense

 

 

1,437

 

 

2,131

 

 

2,024

Net income

 

$

5,363

 

$

7,652

 

$

6,436

Per Common Share Data

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.31

 

$

0.44

 

$

0.47

Diluted earnings per common share

 

$

0.30

 

$

0.43

 

$

0.46

Dividends declared per common share

 

$

0.15

 

$

0.15

 

$

0.14

Average common shares outstanding

 

 

17,070

 

 

17,049

 

 

13,781

Diluted average common shares outstanding

 

 

17,405

 

 

17,397

 

 

14,078

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,

 

 

 

2020

 

2019

 

2019

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

293,608

 

$

285,728

 

$

203,949

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

17,401

 

 

18,391

 

 

21,422

 

Tangible common equity (a)

 

 

248,878

 

 

240,008

 

 

155,198

 

Total assets

 

 

2,512,078

 

 

2,356,878

 

 

2,213,758

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

17,401

 

 

18,391

 

 

21,422

 

Tangible assets (b)

 

 

2,467,348

 

 

2,311,158

 

 

2,165,007

 

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

 

 

10.09

%

 

10.38

%

 

7.17

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

293,608

 

$

285,728

 

$

203,949

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

17,401

 

 

18,391

 

 

21,422

 

Tangible common equity (c)

 

 

248,878

 

 

240,008

 

 

155,198

 

Total common shares issued and outstanding (d)

 

 

17,106

 

 

17,050

 

 

13,801

 

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

 

$

14.55

 

$

14.08

 

$

11.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2020

 

2019

 

2019

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,363

 

$

7,652

 

$

6,436

 

Add: Intangible amortization expense (net of tax)

 

 

782

 

 

782

 

 

830

 

Net income, excluding intangible amortization (e)

 

 

6,145

 

 

8,434

 

 

7,266

 

Average total equity

 

 

294,727

 

 

285,017

 

 

199,854

 

Less: Average goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Average other intangible assets (net of tax)

 

 

14,128

 

 

14,912

 

 

17,329

 

Average tangible common equity (f)

 

 

253,270

 

 

242,776

 

 

155,196

 

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

 

 

9.76

%

 

13.78

%

 

18.99

%

Net Interest Margin (tax-equivalent)

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

18,837

 

$

18,459

 

$

19,120

 

Tax-equivalent adjustment

 

 

100

 

 

89

 

 

92

 

Tax-equivalent net interest income (g)

 

 

18,937

 

 

18,548

 

 

19,212

 

Average earnings assets (h)

 

 

2,271,004

 

 

2,135,682

 

 

2,019,666

 

Net interest margin (tax-equivalent) (g)/(h)

 

 

3.35

%

 

3.45

%

 

3.86

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

36,726

 

$

36,435

 

$

33,514

 

Less: Intangible amortization expense

 

 

990

 

 

990

 

 

1,051

 

Adjusted noninterest expense (i)

 

 

35,736

 

 

35,445

 

 

32,463

 

Net interest income

 

 

18,837

 

 

18,459

 

 

19,120

 

Noninterest income

 

 

27,189

 

 

29,556

 

 

25,074

 

Tax-equivalent adjustment

 

 

100

 

 

89

 

 

92

 

Total tax-equivalent revenue (j)

 

 

46,126

 

 

48,104

 

 

44,286

 

Efficiency ratio (i)/(j)

 

 

77.47

%

 

73.68

%

 

73.30

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

March 31, 2020

 

December 31, 2019

 

March 31, 2019

 

 

 

 

 

Average

 

 

 

 

Average

 

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

163,351

 

1.24

%

 

$

100,058

 

1.69

%

 

$

11,237

 

2.49

%

Investment securities (1)

 

 

337,160

 

2.45

%

 

 

296,773

 

2.38

%

 

 

254,613

 

2.58

%

Loans held for sale

 

 

33,138

 

3.08

%

 

 

51,766

 

3.01

%

 

 

12,968

 

3.31

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

479,291

 

5.26

%

 

 

473,489

 

5.30

%

 

 

485,419

 

5.52

%

Real estate construction

 

 

26,723

 

5.03

%

 

 

23,901

 

5.20

%

 

 

31,164

 

5.67

%

Commercial real estate

 

 

508,164

 

4.61

%

 

 

460,457

 

4.71

%

 

 

479,839

 

4.92

%

Total commercial

 

 

1,014,178

 

4.93

%

 

 

957,847

 

5.01

%

 

 

996,422

 

5.24

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

460,726

 

4.10

%

 

 

454,854

 

4.15

%

 

 

449,763

 

4.33

%

Residential real estate junior lien

 

 

173,436

 

5.17

%

 

 

179,714

 

5.29

%

 

 

189,108

 

5.85

%

Other revolving and installment

 

 

83,253

 

4.69

%

 

 

88,896

 

4.69

%

 

 

96,415

 

4.58

%

Total consumer

 

 

717,415

 

4.43

%

 

 

723,464

 

4.50

%

 

 

735,286

 

4.76

%

Total loans (1)

 

 

1,731,593

 

4.72

%

 

 

1,681,311

 

4.79

%

 

 

1,731,708

 

5.03

%

Federal Reserve/FHLB stock

 

 

5,762

 

4.75

%

 

 

5,774

 

4.67

%

 

 

9,140

 

5.15

%

Total interest earning assets

 

 

2,271,004

 

4.11

%

 

 

2,135,682

 

4.27

%

 

 

2,019,666

 

4.70

%

Noninterest earning assets

 

 

148,661

 

 

 

 

 

153,838

 

 

 

 

 

160,316

 

 

 

Total assets

 

$

2,419,665

 

 

 

 

$

2,289,520

 

 

 

 

$

2,179,982

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

459,028

 

0.46

%

 

$

442,945

 

0.52

%

 

$

419,325

 

0.39

%

Money market and savings deposits

 

 

803,838

 

1.04

%

 

 

698,533

 

1.19

%

 

 

684,487

 

1.01

%

Time deposits

 

 

199,088

 

1.59

%

 

 

195,963

 

1.72

%

 

 

185,619

 

1.40

%

Short-term borrowings

 

 

 

%

 

 

 

%

 

 

83,331

 

2.59

%

Long-term debt

 

 

58,755

 

6.00

%

 

 

58,760

 

6.05

%

 

 

58,811

 

6.28

%

Total interest-bearing liabilities

 

 

1,520,709

 

1.13

%

 

 

1,396,201

 

1.26

%

 

 

1,431,573

 

1.19

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

564,307

 

 

 

 

 

559,363

 

 

 

 

 

509,573

 

 

 

Other noninterest-bearing liabilities

 

 

39,922

 

 

 

 

 

48,939

 

 

 

 

 

38,982

 

 

 

Stockholders’ equity

 

 

294,727

 

 

 

 

 

285,017

 

 

 

 

 

199,854

 

 

 

Total liabilities and stockholders’ equity

 

$

2,419,665

 

 

 

 

$

2,289,520

 

 

 

 

$

2,179,982

 

 

 

Net interest rate spread

 

 

 

 

2.98

%

 

 

 

 

3.01

%

 

 

 

 

3.51

%

Net interest margin, tax-equivalent (2)

 

 

 

 

3.35

%

 

 

 

 

3.45

%

 

 

 

 

3.86

%

 

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

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

Katie A. Lorenson, Chief Financial Officer
952.417.3725 (Office)

Source: Alerus Financial Corporation