Press Release

Alerus Financial Corporation Reports Second Quarter 2021 Net Income of $11.7 Million

Company Release - 7/28/2021

GRAND FORKS, N.D.--(BUSINESS WIRE)-- Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $11.7 million for the second quarter of 2021, or $0.66 per diluted common share, compared to net income of $15.2 million, or $0.86 per diluted common share, for the first quarter of 2021, and net income of $11.5 million, or $0.65 per diluted common share, for the second quarter of 2020.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “Alerus continues to deliver top tier financial performance, driven by our long-term strategies and focus on offering valued advice to clients, resulting in extraordinary revenue diversification and growth opportunities. Alerus continues to establish itself as a premier provider of holistic solutions to our consumer and business clients. Our client base of more than 540,000 consumer clients and 18,300 business clients is a significant differentiator in our ability to continue to grow and provide superior returns to our shareholders.

Our diversified business is rooted by our long-standing culture, focused on advice and working in the best interests of our clients, a foundation which has been built over decades of meeting our clients on their financial journey and guiding them to their path for financial success. This relationship focused model is a key differentiator both in working with clients and attracting talented professionals to our organization.

During the quarter we strengthened our U.S. Small Business Administration, or SBA, lending capabilities with the addition of an experienced SBA team. Led by industry veteran John Kimball, who most recently served as SBA lending manager at a large, regional community bank, the five-person team collectively has more than 100 years of business banking and small business lending experience at community and regional banks. These team members are aligned with our culture of providing expertise and value to our business clients so they can continue to grow and expand.”

Quarterly Highlights

  • Return on average total assets of 1.50%, compared to 2.02% for the first quarter of 2021
  • Return on average tangible common equity(1) of 17.36%, compared to 23.03% for the first quarter of 2021
  • Net interest margin (tax-equivalent)(1) was 2.88%, compared to 3.12% for the first quarter of 2021
  • Allowance for loan losses to total loans, excluding Paycheck Protection Program, or PPP, loans, was 2.02%, compared to 2.00% as of December 31, 2020
  • Efficiency ratio(1) of 71.46%, compared to 66.43% for the first quarter of 2021
  • Noninterest income decreased $4.1 million from the first quarter of 2021 and was 63.48% of total revenue, compared to 64.97% for the first quarter of 2021
  • Mortgage originations totaled $545.4 million, a 5.3% increase from the first quarter of 2021
  • Investment securities increased $205.5 million, or 34.7%, from the fourth quarter of 2020
  • Loans held for sale decreased $55.6 million, or 45.4%, from the fourth quarter of 2020
  • Loans held for investment decreased $144.1 million, or 7.3%, from the fourth quarter of 2020
  • Deposits increased $138.9 million, or 5.4%, from the fourth quarter of 2020

(1)

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

 

 

Selected Financial Data (unaudited)

As of and for the

Three months ended

 

Six months ended

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

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

 

2021

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Performance Ratios

 

Return on average total assets

 

1.50

%

 

2.02

%

 

1.68

%

 

1.76

%

 

1.31

%

Return on average common equity

 

13.82

%

 

18.46

%

 

15.30

%

 

16.11

%

 

11.35

%

Return on average tangible common equity (1)

 

17.36

%

 

23.03

%

 

18.88

%

 

20.15

%

 

14.39

%

Noninterest income as a % of revenue

 

63.48

%

 

64.97

%

 

65.55

%

 

64.26

%

 

62.69

%

Net interest margin (tax-equivalent) (1)

 

2.88

%

 

3.12

%

 

3.14

%

 

3.00

%

 

3.24

%

Efficiency ratio (1)

 

71.46

%

 

66.43

%

 

66.31

%

 

68.84

%

 

71.23

%

Net charge-offs/(recoveries) to average loans

 

%

 

0.10

%

 

0.66

%

 

0.05

%

 

0.29

%

Dividend payout ratio

 

24.24

%

 

17.44

%

 

23.08

%

 

20.39

%

 

31.58

%

Per Common Share

 

 

 

 

 

Earnings per common share - basic

$

0.67

 

$

0.87

 

$

0.66

 

$

1.54

 

$

0.97

 

Earnings per common share - diluted

$

0.66

 

$

0.86

 

$

0.65

 

$

1.52

 

$

0.95

 

Dividends declared per common share

$

0.16

 

$

0.15

 

$

0.15

 

$

0.31

 

$

0.30

 

Tangible book value per common share (1)

$

16.89

 

$

15.95

 

$

15.30

 

 

 

Average common shares outstanding - basic

 

17,194

 

 

17,145

 

 

17,111

 

 

17,170

 

 

17,091

 

Average common shares outstanding - diluted

 

17,497

 

 

17,465

 

 

17,445

 

 

17,482

 

 

17,425

 

Other Data

 

 

 

 

 

Retirement and benefit services assets under administration/management

$

36,964,961

 

$

34,774,650

 

$

30,093,095

 

Wealth management assets under administration/management

 

3,538,959

 

 

3,357,530

 

 

2,957,213

 

 

 

Mortgage originations

 

545,437

 

 

518,014

 

 

431,638

 

$

1,063,451

 

$

660,206

 

(1)

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

Results of Operations

Net Interest Income

Net interest income for the second quarter of 2021 was $21.1 million, a decrease of $898 thousand, or 4.1%, from $22.0 million for the first quarter of 2021, and an increase of $1.0 million, or 5.2%, from $20.1 million for the second quarter of 2020. The linked quarter decrease in net interest income was primarily driven by a $1.2 million decrease in interest income from loans as average total loans decreased $57.5 million while the average yield decreased by 17 basis points. During the second quarter of 2021, average interest earning assets increased $78.2 million, primarily due to increases of $138.4 million in investment securities and $7.3 million in interest-bearing deposits with banks, partially offset by decreases of $57.5 million in loans held for investment and $10.8 million in loans held for sale. The change in the balance sheet mix resulted in a 22 basis point decrease in the average earning asset yield. Net interest income earned from PPP loans during the second quarter of 2021 totaled $2.6 million, a decrease of $477 thousand, from the $3.0 million earned during the first quarter. The cost of interest-bearing liabilities had a modest increase of 2 basis points from the first quarter of 2021 primarily due to increased average balances in interest-bearing demand deposits as well as long-term debt.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.88% for the second quarter of 2021, a 24 basis point decrease from 3.12% for the first quarter of 2021, and a 26 basis point decrease from 3.14% in the second quarter of 2020. The linked quarter decrease was primarily due to lower yields on interest earning assets. Excluding PPP loans, net interest margin was 2.75% for the second quarter of 2021, a 20 basis point decrease from 2.95% for the first quarter of 2021. The year over year decrease was primarily attributable to the historically low and flat yield curve and a more liquid balance sheet mix which resulted in a 60 basis point decrease in interest earning asset yields.

Noninterest Income

Noninterest income for the second quarter of 2021 was $36.7 million, a $4.1 million, or 10.1%, decrease from the first quarter of 2021. The decrease was primarily driven by a $4.8 million decrease in mortgage banking revenue. The decrease in mortgage banking revenue was primarily a result of a $6.2 million decline in fair market value of the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin.

Noninterest income for the second quarter of 2021 decreased $1.5 million, or 3.9%, from $38.2 million in the second quarter of 2020. This decrease was primarily due to a $5.3 million decrease in mortgage banking revenue, a result of a $11.5 million decline in fair market value on the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin. Offsetting this decrease was a $4.2 million increase in retirement and benefit services income, primarily driven by the revenue attributable to the acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex) and a $693 thousand increase in document restatement fees, and a $1.0 million increase in wealth management revenue primarily driven by organic growth and market increases in assets under administration/management.

Noninterest Expense

Noninterest expense for the second quarter of 2021 was $42.6 million, a decrease of $492 thousand, or 1.1%, compared to the first quarter of 2021. The decrease was primarily due to decreases of $447 thousand in other noninterest expense, $313 thousand decrease in occupancy and equipment expense and $241 thousand decrease in employee taxes and benefits, partially offset by a $611 thousand increase in compensation expense. The decrease in other noninterest expense was a result of a loss recognized in the first quarter of 2021 on the redemption of the Company’s subordinated notes which were redeemed during the first quarter. The decrease in occupancy and equipment expense is attributable to the termination of facility leases and closure of nine office locations in 2020. The increase in compensation expense was primarily due to an increase in mortgage related compensation and incentives.

Noninterest expense for the second quarter of 2021 increased $2.8 million, or 7.1%, from $39.7 million in the second quarter of 2020. The increase was primarily attributable to increased compensation expense, employee taxes and benefits, primarily as a result of the significant year over year increase in mortgage originations. Additionally, compensation expense and employee taxes and benefits increased as a result of the acquisition of RPS, as the number of full time employees increased from 791 employees in the second quarter of 2020 to 835 employees in the second quarter of 2021.

Financial Condition

Total assets were $3.2 billion as of June 30, 2021, an increase of $143.5 million, or 4.8%, from December 31, 2020. The overall increase in total assets included increases of $205.5 million in investment securities and $142.5 million in cash and cash equivalents, partially offset by a $55.6 million decrease in loans held for sale and a $144.1 million decrease in loans held for investment.

Loans

Total loans were $1.84 billion as of June 30, 2021, a decrease of $144.1 million, or 7.3%, from December 31, 2020. The decrease was primarily due to a $119.1 million decrease in the commercial and industrial loan portfolio, as approximately $213.5 million of PPP loans were forgiven, and $110.5 million of new PPP loans were funded. Excluding PPP loans, the commercial loan portfolio decreased by $18.6 million, or 1.8%, from December 31, 2020. The consumer loan portfolio decreased $22.0 million from December 31, 2020, due to high levels of refinancing and our strategic exit from indirect lending.

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

 

(dollars in thousands)

June 30,
2021

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

Commercial

 

 

 

 

 

Commercial and industrial (1)

$

572,734

$

678,029

$

691,858

$

789,036

$

794,204

Real estate construction

 

36,549

 

40,473

 

44,451

 

33,169

 

31,344

Commercial real estate

 

567,987

 

569,451

 

563,007

 

535,216

 

519,104

Total commercial

 

1,177,270

 

1,287,953

 

1,299,316

 

1,357,421

 

1,344,652

Consumer

 

 

 

 

 

Residential real estate first mortgage

 

470,822

 

454,958

 

463,370

 

469,050

 

456,737

Residential real estate junior lien

 

130,180

 

130,299

 

143,416

 

152,487

 

154,351

Other revolving and installment

 

57,040

 

64,135

 

73,273

 

79,461

 

78,457

Total consumer

 

658,042

 

649,392

 

680,059

 

700,998

 

689,545

Total loans

$

1,835,312

$

1,937,345

$

1,979,375

$

2,058,419

$

2,034,197

__________________________________

(1)

 

Includes PPP loans of $165.0 million at June 30, 2021, $256.8 million at March 31, 2021, $268.4 million at December 31, 2020, $348.9 million at September 30, 2020 and $347.3 million at June 30, 2020.

 

Deposits

Total deposits were $2.71 billion as of June 30, 2021, an increase of $138.9 million, or 5.4%, from December 31, 2020. Interest-bearing deposits increased $134.8 million while noninterest-bearing deposits increased $4.1 million. Key drivers of the increase included ongoing higher depositor balances due to the uncertain economic environment, government stimulus programs and volatile financial markets. Although overall deposits increased, there was a $44.0 million decrease in synergistic deposits, primarily in the retirement and benefit services accounts as participants moved balances back into the markets. Excluding synergistic deposits, commercial transaction deposits increased $113.9 million, or 10.3%, while consumer transaction deposits increased, $75.8 million, or 11.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits was 28.0% as of June 30, 2021 compared to 29.3% as of December 31, 2020.

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

 

(dollars in thousands)

June 30,
2021

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

Noninterest-bearing demand

$

758,820

$

775,434

$

754,716

$

693,450

$

700,892

Interest-bearing

 

 

 

 

 

Interest-bearing demand

 

736,043

 

674,466

 

618,900

 

590,366

 

579,840

Savings accounts

 

89,437

 

87,492

 

79,902

 

78,659

 

75,973

Money market savings

 

920,831

 

967,273

 

909,137

 

892,473

 

892,717

Time deposits

 

205,809

 

212,908

 

209,338

 

207,422

 

203,731

Total interest-bearing

 

1,952,120

 

1,942,139

 

1,817,277

 

1,768,920

 

1,752,261

Total deposits

$

2,710,940

$

2,717,573

$

2,571,993

$

2,462,370

$

2,453,153

Asset Quality

Total nonperforming assets were $7.8 million as of June 30, 2021, an increase of $2.7 million, or 52.0%, from December 31, 2020. As of June 30, 2021, the allowance for loan losses was $33.8 million, or 1.84% of total loans, compared to $34.2 million, or 1.73% of total loans, as of December 31, 2020. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 2.02% at June 30, 2021, compared to 2.00% as of December 31, 2020.

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

As of and for the three months ended

 

(dollars in thousands)

June 30,
2021

 

March 31,
2021

 

December 31,
2020

 

September 30,
2020

 

June 30,
2020

Nonaccrual loans

$

6,960

 

$

4,756

 

$

5,050

 

$

4,795

 

$

5,328

 

Accruing loans 90+ days past due

 

 

 

 

 

30

 

 

 

 

 

Total nonperforming loans

 

6,960

 

 

4,756

 

 

5,080

 

 

4,795

 

 

5,328

 

OREO and repossessed assets

 

858

 

 

139

 

 

63

 

 

10

 

 

26

 

Total nonperforming assets

$

7,818

 

$

4,895

 

$

5,143

 

$

4,805

 

$

5,354

 

Net charge-offs/(recoveries)

 

(6

)

 

488

 

 

(1,509

)

 

(581

)

 

3,264

 

Net charge-offs/(recoveries) to average loans

 

%

 

0.10

%

 

(0.30

)%

 

(0.11

)%

 

0.66

%

Nonperforming loans to total loans

 

0.38

%

 

0.25

%

 

0.26

%

 

0.23

%

 

0.26

%

Nonperforming assets to total assets

 

0.25

%

 

0.16

%

 

0.17

%

 

0.17

%

 

0.19

%

Allowance for loan losses to total loans

 

1.84

%

 

1.74

%

 

1.73

%

 

1.52

%

 

1.34

%

Allowance for loan losses to nonperforming loans

 

485

%

 

710

%

 

674

%

 

654

%

 

512

%

For the second quarter of 2021, we had net recoveries of $6 thousand compared to net charge-offs of $488 thousand for the first quarter of 2021 and $3.3 million of net charge-offs for the second quarter of 2020.

There was no provision recorded for the second quarter of 2021, no change from the first quarter of 2021 and a decrease of $3.5 million from the second quarter of 2020. Management decided additional provisions were not necessary in the second quarter of 2021 as credit quality indicators remained strong and loan balances decreased.

The ratio of nonperforming loans to total loans at June 30, 2021 was 0.38%, and if PPP loans were excluded, this ratio would have been 0.42%. Nonperforming assets as a percentage of total assets was 0.25% at June 30, 2021. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.26% at June 30, 2021.

Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through June 30, 2021, we had entered into principal and interest deferrals on 584 loans, representing $154.5 million in total outstanding principal balances. Of those loans, 12 loans with a total outstanding principal balance of $5.3 million have been granted additional deferrals, 4 loans with a total outstanding principal balance of $653 thousand remain on the first deferral and the remaining loans have been returned to normal payment status. These loan modifications are not considered troubled debt restructurings.

Capital

Total stockholders’ equity was $344.4 million as of June 30, 2021, an increase of $14.2 million from December 31, 2020. The tangible book value per common share, a non-GAAP financial measure, increased to $16.89 as of June 30, 2021, from $16.00 as of December 31, 2020. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 9.36% as of June 30, 2021, from 9.27% as of December 31, 2020.

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

June 30,

 

December 31,

 

June 30,

2021

 

2020

 

2020

Capital Ratios(1)

Alerus Financial Corporation Consolidated

Common equity tier 1 capital to risk weighted assets

14.30

%

12.75

%

12.58

%

Tier 1 capital to risk weighted assets

14.71

%

13.15

%

12.99

%

Total capital to risk weighted assets

18.43

%

16.79

%

16.70

%

Tier 1 capital to average assets

9.62

%

9.24

%

9.75

%

Tangible common equity / tangible assets (2)

9.36

%

9.27

%

9.25

%

 

Alerus Financial, N.A.

 

Common equity tier 1 capital to risk weighted assets

13.57

%

12.10

%

11.99

%

Tier 1 capital to risk weighted assets

13.57

%

12.10

%

11.99

%

Total capital to risk weighted assets

14.82

%

13.36

%

13.24

%

Tier 1 capital to average assets

8.98

%

8.50

%

9.00

%

(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 Thursday, July 29, 2021, 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 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. 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 effects of the COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, 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; 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; 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. tax laws, regulations and guidance; 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 and shares in thousands, except per share data)

 

 

June 30,
2021

 

December 31,
2020

Assets

(Unaudited)

 

(Audited)

Cash and cash equivalents

$

315,430

 

$

172,962

 

Investment securities

 

 

Available-for-sale, at fair value

 

651,546

 

 

592,342

 

Held-to-maturity, at carrying value

 

146,316

 

 

 

Loans held for sale

 

66,856

 

 

122,440

 

Loans

 

1,835,312

 

 

1,979,375

 

Allowance for loan losses

 

(33,764

)

 

(34,246

)

Net loans

 

1,801,548

 

 

1,945,129

 

Land, premises and equipment, net

 

18,847

 

 

20,289

 

Operating lease right-of-use assets

 

4,203

 

 

6,918

 

Accrued interest receivable

 

8,463

 

 

9,662

 

Bank-owned life insurance

 

32,752

 

 

32,363

 

Goodwill

 

30,201

 

 

30,201

 

Other intangible assets

 

23,680

 

 

25,919

 

Servicing rights

 

1,964

 

 

1,987

 

Deferred income taxes, net

 

11,522

 

 

9,409

 

Other assets

 

43,901

 

 

44,150

 

Total assets

$

3,157,229

 

$

3,013,771

 

Liabilities and Stockholders’ Equity

 

 

Deposits

 

 

Noninterest-bearing

$

758,820

 

$

754,716

 

Interest-bearing

 

1,952,120

 

 

1,817,277

 

Total deposits

 

2,710,940

 

 

2,571,993

 

Long-term debt

 

58,992

 

 

58,735

 

Operating lease liabilities

 

4,868

 

 

7,861

 

Accrued expenses and other liabilities

 

38,038

 

 

45,019

 

Total liabilities

 

2,812,838

 

 

2,683,608

 

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: 17,197,771 and 17,125,270 issued and outstanding

 

17,198

 

 

17,125

 

Additional paid-in capital

 

91,273

 

 

90,237

 

Retained earnings

 

233,397

 

 

212,163

 

Accumulated other comprehensive income (loss)

 

2,523

 

 

10,638

 

Total stockholders’ equity

 

344,391

 

 

330,163

 

Total liabilities and stockholders’ equity

$

3,157,229

 

$

3,013,771

 

 

 

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

 

Three months ended

 

Six months ended

 

June 30,

2021

 

March 31,

2021

 

June 30,

2020

 

June 30,

2021

 

June 30,

2020

Interest Income

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

$

19,324

 

$

20,567

 

$

21,372

 

$

39,891

$

41,914

Investment securities

 

 

 

 

 

 

 

 

Taxable

 

2,897

 

 

2,401

 

 

1,765

 

 

5,298

 

3,524

Exempt from federal income taxes

 

233

 

 

236

 

 

239

 

 

469

 

474

Other

 

130

 

 

117

 

 

130

 

 

247

 

700

Total interest income

 

22,584

 

 

23,321

 

 

23,506

 

 

45,905

 

46,612

Interest Expense

 

 

 

 

 

 

 

 

Deposits

 

906

 

 

995

 

 

2,558

 

 

1,901

 

5,950

Long-term debt

 

538

 

 

288

 

 

857

 

 

826

 

1,734

Total interest expense

 

1,444

 

 

1,283

 

 

3,415

 

 

2,727

 

7,684

Net interest income

 

21,140

 

 

22,038

 

 

20,091

 

 

43,178

 

38,928

Provision for loan losses

 

 

 

 

 

3,500

 

 

 

6,000

Net interest income after provision for loan losses

 

21,140

 

 

22,038

 

 

16,591

 

 

43,178

 

32,928

Noninterest Income

 

 

 

 

 

 

 

 

Retirement and benefit services

 

17,871

 

 

17,255

 

 

13,710

 

 

35,126

 

29,930

Wealth management

 

5,138

 

 

4,986

 

 

4,112

 

 

10,124

 

8,158

Mortgage banking

 

12,287

 

 

17,132

 

 

17,546

 

 

29,419

 

22,591

Service charges on deposit accounts

 

330

 

 

338

 

 

297

 

 

668

 

720

Net gains (losses) on investment securities

 

 

 

114

 

 

1,294

 

 

114

 

1,294

Other

 

1,122

 

 

1,056

 

 

1,271

 

 

2,178

 

2,726

Total noninterest income

 

36,748

 

 

40,881

 

 

38,230

 

 

77,629

 

65,419

Noninterest Expense

 

 

 

 

 

 

 

 

Compensation

 

24,309

 

 

23,698

 

 

21,213

 

 

48,007

 

39,944

Employee taxes and benefits

 

5,572

 

 

5,813

 

 

4,747

 

 

11,385

 

10,055

Occupancy and equipment expense

 

1,918

 

 

2,231

 

 

2,612

 

 

4,149

 

5,104

Business services, software and technology expense

 

4,958

 

 

4,976

 

 

4,580

 

 

9,934

 

9,123

Intangible amortization expense

 

1,088

 

 

1,151

 

 

991

 

 

2,239

 

1,981

Professional fees and assessments

 

1,509

 

 

1,472

 

 

1,177

 

 

2,981

 

2,233

Marketing and business development

 

769

 

 

676

 

 

549

 

 

1,445

 

1,159

Supplies and postage

 

503

 

 

531

 

 

675

 

 

1,034

 

1,382

Travel

 

36

 

 

26

 

 

51

 

 

62

 

312

Mortgage and lending expenses

 

1,199

 

 

1,332

 

 

1,341

 

 

2,531

 

2,482

Other

 

689

 

 

1,136

 

 

1,798

 

 

1,825

 

2,685

Total noninterest expense

 

42,550

 

 

43,042

 

 

39,734

 

 

85,592

 

76,460

Income before income taxes

 

15,338

 

 

19,877

 

 

15,087

 

 

35,215

 

21,887

Income tax expense

 

3,644

 

 

4,662

 

 

3,613

 

 

8,306

 

5,050

Net income

$

11,694

 

$

15,215

 

$

11,474

 

$

26,909

$

16,837

Per Common Share Data

 

 

 

 

 

 

 

 

Earnings per common share

$

0.67

 

$

0.87

 

$

0.66

 

$

1.54

$

0.97

Diluted earnings per common share

$

0.66

 

$

0.86

 

$

0.65

 

$

1.52

$

0.95

Dividends declared per common share

$

0.16

 

$

0.15

 

$

0.15

 

$

0.31

$

0.30

Average common shares outstanding

 

17,194

 

 

17,145

 

 

17,111

 

 

17,170

 

17,091

Diluted average common shares outstanding

 

17,497

 

17,465

 

17,445

 

17,482

 

17,425

 

 

Alerus Financial Corporation and Subsidiaries

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

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

 

 

June 30,
2021

 

March 31,
2021

 

December 31,
2020

 

June 30,
2020

Tangible Common Equity to Tangible Assets

 

 

 

Total common stockholders’ equity

$

344,391

 

$

329,234

 

$

330,163

 

$

305,732

 

Less: Goodwill

 

30,201

 

 

30,201

 

 

30,201

 

 

27,329

 

Less: Other intangible assets

 

23,680

 

 

24,768

 

 

25,919

 

 

16,411

 

Tangible common equity (a)

 

290,510

 

 

274,265

 

 

274,043

 

 

261,992

 

Total assets

 

3,157,229

 

 

3,151,756

 

 

3,013,771

 

 

2,875,457

 

Less: Goodwill

 

30,201

 

 

30,201

 

 

30,201

 

 

27,329

 

Less: Other intangible assets

 

23,680

 

 

24,768

 

 

25,919

 

 

16,411

 

Tangible assets (b)

 

3,103,348

 

 

3,096,787

 

 

2,957,651

 

 

2,831,717

 

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

 

9.36

%

 

8.86

%

 

9.27

%

 

9.25

%

Tangible Book Value Per Common Share

 

 

 

 

Total common stockholders’ equity

$

344,391

 

$

329,234

 

$

330,163

 

$

305,732

 

Less: Goodwill

 

30,201

 

 

30,201

 

 

30,201

 

 

27,329

 

Less: Other intangible assets

 

23,680

 

 

24,768

 

 

25,919

 

 

16,411

 

Tangible common equity (c)

 

290,510

 

 

274,265

 

 

274,043

 

 

261,992

 

Total common shares issued and outstanding (d)

 

17,198

 

 

17,190

 

 

17,125

 

 

17,120

 

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

$

16.89

 

$

15.95

 

$

16.00

 

$

15.30

 

Three months ended

 

Six months ended

June 30,

 

March 31,

 

June 30,

 

June 30,

 

June 30,

 

2021

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Return on Average Tangible Common Equity

Net income

$

11,694

 

$

15,215

 

$

11,474

 

$

26,909

 

$

16,837

 

Add: Intangible amortization expense (net of tax)

 

860

 

 

909

 

 

783

 

 

1,769

 

 

1,565

 

Net income, excluding intangible amortization (e)

 

12,554

 

 

16,124

 

 

12,257

 

 

28,678

 

 

18,402

 

Average total equity

 

339,439

 

 

334,188

 

 

301,719

 

 

336,830

 

 

298,221

 

Less: Average goodwill

 

30,201

 

 

30,201

 

 

27,329

 

 

30,201

 

 

27,329

 

Less: Average other intangible assets (net of tax)

 

19,123

 

 

19,995

 

 

13,345

 

 

19,556

 

 

13,737

 

Average tangible common equity (f)

 

290,115

 

 

283,992

 

 

261,045

 

 

287,073

 

 

257,155

 

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

 

17.36

%

 

23.03

%

 

18.88

%

 

20.15

%

 

14.39

%

Net Interest Margin (tax-equivalent)

 

Net interest income

$

21,140

 

$

22,038

 

$

20,091

 

$

43,178

 

$

38,928

 

Tax-equivalent adjustment

 

135

 

 

143

 

 

109

 

 

278

 

 

209

 

Tax-equivalent net interest income (g)

 

21,275

 

 

22,181

 

 

20,200

 

 

43,456

 

 

39,137

 

Average earning assets (h)

 

2,958,468

 

 

2,880,255

 

 

2,584,037

 

 

2,919,578

 

 

2,427,519

 

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

 

2.88

%

 

3.12

%

 

3.14

%

 

3.00

%

 

3.24

%

Efficiency Ratio

 

 

 

 

 

Noninterest expense

$

42,550

 

$

43,042

 

$

39,734

 

$

85,592

 

$

76,460

 

Less: Intangible amortization expense

 

1,088

 

 

1,151

 

 

991

 

 

2,239

 

 

1,981

 

Adjusted noninterest expense (i)

 

41,462

 

 

41,891

 

 

38,743

 

 

83,353

 

 

74,479

 

Net interest income

 

21,140

 

 

22,038

 

 

20,091

 

 

43,178

 

 

38,928

 

Noninterest income

 

36,748

 

 

40,881

 

 

38,230

 

 

77,629

 

 

65,419

 

Tax-equivalent adjustment

 

135

 

 

143

 

 

109

 

 

278

 

 

209

 

Total tax-equivalent revenue (j)

 

58,023

 

 

63,062

 

 

58,430

 

 

121,085

 

 

104,556

 

Efficiency ratio (i)/(j)

 

71.46

%

 

66.43

%

 

66.31

%

 

68.84

%

 

71.23

%

 

 

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

Three months ended

 

Six months ended

June 30, 2021

 

March 31, 2021

 

June 30, 2020

 

June 30, 2021

 

June 30, 2020

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

 

 Average

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

Interest-bearing deposits with banks

$

191,695

0.12

%

$

184,376

0.12

%

$

153,197

0.16

%

$

188,056

0.12

%

$

158,274

0.72

%

Investment securities (1)

 

800,812

1.60

%

 

662,413

1.65

%

 

369,247

2.25

%

 

731,995

1.62

%

 

353,203

2.35

%

Loans held for sale

 

71,447

2.26

%

 

82,249

2.13

%

 

69,606

2.69

%

 

76,818

2.19

%

 

51,372

2.81

%

Loans

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

627,613

4.55

%

 

674,935

4.72

%

 

739,816

4.12

%

 

651,143

4.64

%

 

609,553

4.57

%

Real estate construction

 

42,511

4.28

%

 

45,264

4.22

%

 

31,660

4.48

%

 

43,880

4.25

%

 

29,191

4.73

%

Commercial real estate

 

568,827

3.71

%

 

560,986

3.79

%

 

513,497

4.31

%

 

564,928

3.75

%

 

510,831

4.46

%

Total commercial

 

1,238,951

4.15

%

 

1,281,185

4.30

%

 

1,284,973

4.21

%

 

1,259,951

4.23

%

 

1,149,575

4.53

%

Consumer

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

459,278

3.53

%

 

457,882

3.76

%

 

459,789

4.09

%

 

458,584

3.65

%

 

460,258

4.10

%

Residential real estate junior lien

 

129,544

4.58

%

 

137,745

4.86

%

 

163,345

4.79

%

 

133,622

4.72

%

 

168,390

4.98

%

Other revolving and installment

 

60,213

4.31

%

 

68,625

4.38

%

 

77,921

4.56

%

 

64,396

4.35

%

 

80,587

4.63

%

Total consumer

 

649,035

3.81

%

 

664,252

4.05

%

 

701,055

4.31

%

 

656,602

3.93

%

 

709,235

4.37

%

Total loans (1)

 

1,887,986

4.04

%

 

1,945,437

4.21

%

 

1,986,028

4.24

%

 

1,916,553

4.13

%

 

1,858,810

4.47

%

Federal Reserve/FHLB stock

 

6,528

4.36

%

 

5,780

4.49

%

 

5,959

4.59

%

 

6,156

4.42

%

 

5,860

4.67

%

Total interest earning assets

 

2,958,468

3.08

%

 

2,880,255

3.30

%

 

2,584,037

3.68

%

 

2,919,578

3.19

%

 

2,427,519

3.88

%

Noninterest earning assets

 

161,272

 

 

167,006

 

 

156,293

 

 

164,124

 

 

152,476

 

Total assets

$

3,119,740

 

$

3,047,261

 

$

2,740,330

 

$

3,083,702

 

$

2,579,995

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

697,789

0.14

%

$

642,832

0.16

%

$

534,733

0.30

%

$

670,462

0.15

%

$

496,880

0.38

%

Money market and savings deposits

 

1,015,358

0.14

%

 

1,030,348

0.16

%

 

900,812

0.67

%

 

1,022,812

0.15

%

 

852,325

0.85

%

Time deposits

 

208,338

0.56

%

 

210,719

0.66

%

 

201,147

1.30

%

 

209,521

0.61

%

 

200,117

1.44

%

Short-term borrowings

 

%

 

%

 

321

%

 

%

 

161

%

Long-term debt

 

58,996

3.66

%

 

25,677

4.55

%

 

58,747

5.87

%

 

42,429

3.93

%

 

58,751

5.94

%

Total interest-bearing liabilities

 

1,980,481

0.29

%

 

1,909,576

0.27

%

 

1,695,760

0.81

%

 

1,945,224

0.28

%

 

1,608,234

0.96

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

755,773

 

 

731,680

 

 

692,500

 

 

743,793

 

 

628,404

 

Other noninterest-bearing liabilities

 

44,047

 

 

 

 

71,817

 

 

 

 

50,351

 

 

 

 

57,855

 

 

 

 

45,136

 

Stockholders’ equity

 

339,439

 

 

334,188

 

 

301,719

 

 

336,830

 

 

298,221

 

Total liabilities and stockholders’ equity

$

3,119,740

 

$

3,047,261

 

$

2,740,330

 

$

3,083,702

 

$

2,579,995

Net interest rate spread

 

2.79

%

 

3.03

%

 

2.87

%

 

2.91

%

 

2.92

%

Net interest margin, tax-

 

 

 

 

 

 

 

 

 

 

equivalent (2)

 

2.88

%

 

3.12

%

 

3.14

%

 

3.00

%

 

3.24

%

(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