Alerus Financial Corporation (Nasdaq: ALRS), or the Company,
reported net income of $5.2 million for the third quarter of 2024,
or $0.26 per diluted common share, compared to net income of $6.2
million, or $0.31 per diluted common share, for the second quarter
of 2024, and net income of $9.2 million, or $0.45 per diluted
common share, for the third quarter of 2023.
CEO Comments
President and Chief Executive Officer Katie Lorenson said,
“Earlier this month we closed on our 26th and largest acquisition
in company history. In the transaction, we acquired a strong core
deposit base and strategically expanded into the vibrant Rochester
and Southern Minnesota markets. Throughout the quarter and ahead of
this closing, we continued to make long term investments to support
and grow our uniquely diversified business model and revenue
streams. We continued to demonstrate our position as an employer of
choice, with the addition of a specialized equipment leasing team
and key hires to drive growth and efficiencies throughout our
organization, especially in our retirement and benefit services
segment.
We have continued to see market share gains and growth of our
client base both in adding new business and deepening relationships
with current clients. This year, our retirement and benefits
business has grown over 19%, our wealth management business has
grown 18%, and we have grown loans nearly 10% and deposits over 7%
in a very challenging and competitive environment.
Credit quality remains a key area of focus. Early identification
of problem loans coupled with proactive and decisive actions are
part of our credit culture. We continue to closely monitor and
proactively downgrade loans where we see potential or emerging
weaknesses. Normalization of credit continued during the quarter,
as two large relationships drove the increase in nonaccrual loans.
Charge-offs to average loans for the quarter were 0.04% and
reserves to loans was stable at 1.29%.
We are focused on efficient headcount management, and balancing
investments in talent, technology and infrastructure, while
remaining committed to a strong balance sheet, capital levels, and
improving performance as a bigger and better combined entity.
Thank you to the team members both new and long tenured for your
hard work, dedication and invaluable contributions supporting our
company, our clients and our communities, and helping us on our
journey to achieving new milestones and our return to
high-performance and top tier financial results.”
Third Quarter Highlights
- Total loans were $3.0 billion as of September 30, 2024, an
increase of $272.8 million, or 9.9%, from December 31, 2023.
- Total deposits were $3.3 billion as of September 30, 2024, an
increase of $227.9 million, or 7.4%, from December 31, 2023;
brokered deposits remained at $0.
- The loan to deposit ratio as of September 30, 2024 was 91.2%,
compared to 89.1% as of December 31, 2023.
- Noninterest income, which represented 55.7% of total revenues,
was $28.4 million in the third quarter of 2024, an increase of 3.6%
from $27.4 million in the second quarter of 2024.
- Total assets under administration/management at September 30,
2024 were $45.6 billion, a 4.8% increase from June 30, 2024.
- Net charge-offs to average loans were 0.04% in the third
quarter of 2024, a decrease of 32 basis points from 0.36% in the
second quarter of 2024.
- Tangible book value per common share (non-GAAP) was $16.50 as
of September 30, 2024, a 6.7% increase from December 31, 2023.
- Tangible common equity to tangible assets (non-GAAP) was 8.11%
at September 30, 2024, an increase of 85 basis points from 7.26% in
the second quarter of 2024.
- Common equity tier 1 capital to risk weighted assets as of
September 30, 2024 was 11.12% and continues to be well above the
minimum threshold to be “well capitalized” of 6.50%.
- Repaid Bank Term Funding Program (“BTFP”) borrowings, resulting
in risk-free net interest income of $1.2 million earned during the
course of the year to date.
- $400.0 million of interest rate swaps matured during the third
quarter of 2024, which drove increased liability sensitivity as the
Federal Reserve began to cut interest rates. Of the remaining
$400.0 million of interest rate swaps, $200.0 million will mature
in January 2025.
HMN Financial
Acquisition
On October 9, 2024, the Company completed its previously
announced acquisition of HMN Financial, Inc. and its subsidiary,
Home Federal Savings Bank (together, "HMNF"). The transaction
expands the Company's franchise into Rochester, Minnesota and
represents the largest bank acquisition in its history. With the
addition of HMNF, the Company now has over $5.5 billion in total
assets, $3.8 billion in total loans, $4.3 billion in total
deposits, and asset under administration and management of
approximately $43.6 billion, with 29 locations across the Midwest,
as well as Arizona.
Selected Financial Data (unaudited)
As of and for the
Three months ended
Nine months ended
(dollars and shares in thousands, except
per share data)
September 30, 2024
June 30, 2024
September 30,
2023
September 30,
2024
September 30, 2023
Performance Ratios
Return on average total assets
0.48
%
0.58
%
0.95
%
0.56
%
0.93
%
Adjusted return on average total assets
(1)
0.57
%
0.65
%
0.75
%
0.62
%
0.85
%
Return on average common equity
5.52
%
6.76
%
10.05
%
6.43
%
9.79
%
Return on average tangible common equity
(1)
7.83
%
9.40
%
13.51
%
8.98
%
13.27
%
Adjusted return on average tangible common
equity (1)
9.04
%
10.30
%
10.97
%
9.80
%
12.27
%
Noninterest income as a % of revenue
55.72
%
53.28
%
58.21
%
54.10
%
54.51
%
Net interest margin (tax-equivalent)
2.23
%
2.39
%
2.27
%
2.31
%
2.50
%
Adjusted net interest margin
(tax-equivalent) (1)
2.35
%
2.47
%
2.24
%
2.41
%
2.46
%
Efficiency ratio (1)
80.29
%
72.50
%
73.37
%
77.17
%
73.57
%
Adjusted efficiency ratio (1)
77.71
%
70.80
%
77.03
%
75.50
%
74.58
%
Net charge-offs/(recoveries) to average
loans
0.04
%
0.36
%
(0.09
)%
0.14
%
(0.04
)%
Dividend payout ratio
76.92
%
64.52
%
42.22
%
66.29
%
43.08
%
Per Common Share
Earnings per common share - basic
$
0.26
$
0.31
$
0.46
$
0.90
$
1.31
Earnings per common share - diluted
$
0.26
$
0.31
$
0.45
$
0.89
$
1.30
Adjusted earnings per common share -
diluted (1)
$
0.31
$
0.34
$
0.36
$
0.98
$
1.19
Dividends declared per common share
$
0.20
$
0.20
$
0.19
$
0.59
$
0.56
Book value per common share
$
19.53
$
18.87
$
17.60
Tangible book value per common share
(1)
$
16.50
$
15.77
$
14.32
Average common shares outstanding -
basic
19,788
19,777
19,872
19,768
19,977
Average common shares outstanding -
diluted
20,075
20,050
20,095
20,037
20,193
Other Data
Retirement and benefit services assets
under administration/management
$
41,249,280
$
39,389,533
$
34,552,569
Wealth management assets under
administration/management
$
4,397,505
$
4,172,290
$
3,724,091
Mortgage originations
$
82,388
$
109,254
$
109,637
$
245,743
$
298,626
______________
(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 third quarter of 2024 was $22.5
million, a $1.5 million, or 6.1%, decrease from the second quarter
of 2024. The decrease was primarily due to a decrease in interest
income on lower cash balances, lower purchase accounting accretion
from the Metro Phoenix Bank acquisition, and increased interest
expense on higher deposit balances. These pressures were partially
offset by an increase in interest income on higher average loan
balances.
Net interest income increased $2.1 million, or 10.5%, from $20.4
million for the third quarter of 2023. Interest income increased
$10.2 million, or 24.2%, from the third quarter of 2023, primarily
driven by strong organic loan growth at higher yields, in addition
to higher cash balances due to the BTFP. The increase in interest
income was partially offset by an $8.0 million, or 37.1%, increase
in interest expense, due to both an increase in rates paid on
interest-bearing deposits and higher deposit and short-term
borrowing balances.
Net interest margin (on a tax-equivalent basis) was 2.23% for
the third quarter of 2024, a 16 basis point decrease from 2.39% for
the second quarter of 2024, and a 4 basis point decrease from 2.27%
for the third quarter of 2023. The decrease in net interest margin
(on a tax-equivalent basis) was mainly attributable to less
purchase accounting accretion, the impact of nonaccrual loans, and
higher cost of funds from growth in average interest-bearing
deposit balances. This was partially offset by strong loan growth.
Adjusted net interest margin (on a tax-equivalent basis)
(non-GAAP), which excludes BTFP borrowings and purchase accounting
accretion, was 2.35% for the third quarter of 2024, an 11 basis
point decrease from 2.47% for the second quarter of 2024, and an 11
basis point increase from 2.24% for the third quarter of 2023.
Noninterest Income
Noninterest income for the third quarter of 2024 was $28.4
million, a $1.0 million increase from the second quarter of 2024.
The quarter over quarter increase was primarily driven by
improvement across all fee-based businesses. Wealth revenues
increased $0.3 million during the third quarter of 2024, a 5.1%
increase from the second quarter of 2024. Retirement and benefit
services revenue increased $0.1 million for the third quarter of
2024, a 0.4% increase from the second quarter of 2024 results.
Combined assets under administration/management in wealth and
retirement and benefit services increased 4.8% from June 30, 2024.
The increase in wealth, retirement and benefit services revenue,
and assets under administration/management was primarily due to
improved equity and bond markets. Additionally, other noninterest
income increased $0.6 million during the third quarter of 2024, a
28.7% increase from the second quarter of 2024, primarily due to a
gain on the sale of fixed assets related to the sale of the
Shorewood, Minnesota office in the western suburbs of the Twin
Cities.
Noninterest income for the third quarter of 2024 decreased by
$44 thousand, or 0.2%, from the third quarter of 2023. Wealth
revenues increased $1.4 million, or 26.8%, in the third quarter of
2024, due to an increase in assets under administration/management
of 5.4% during that same period. Other noninterest income increased
$0.8 million, or 46.1% in the third quarter of 2024 compared to the
third quarter of 2023, primarily due to a gain on the sale of fixed
assets related to the sale of the Shorewood, Minnesota office and
increased client swap fees. Offsetting these increases, retirement
and benefit services revenue decreased $2.5 million, or 13.2%, from
$18.6 million in the third quarter of 2023, driven by the
divestiture of the ESOP trustee business in the third quarter of
2023 which resulted in a one-time recognized gain of $2.8
million.
Noninterest Expense
Noninterest expense for the third quarter of 2024 was $42.4
million, a $3.7 million, or 9.5%, increase from the second quarter
of 2024. Professional fees and assessments increased $1.9 million,
or 79.8%, from the second quarter of 2024, primarily driven by
increased merger-related expenses of $1.1 million in connection
with the acquisition of HMNF. Compensation expenses increased $0.8
million, or 3.9%, from the second quarter of 2024, primarily driven
by experienced talent acquisitions in commercial lending and
increased labor costs. Business services, software and technology
expense increased $0.3 million, or 6.1%, from the second quarter of
2024, primarily driven by increased data processing expenses and
custodian fees. Occupancy and equipment expense increased $0.3
million, or 14.7%, from the second quarter of 2024, primarily
driven by increased rent and depreciation expense driven by the
opening of the Shoreview, Minnesota office in the northern suburbs
of the Twin Cities in July 2024.
Noninterest expense for the third quarter of 2024 increased $5.2
million, or 13.9%, from $37.3 million in the third quarter of 2023.
The increase was primarily driven by professional fees and
assessments, compensation and employee taxes and benefits.
Professional fees and assessments increased primarily due to
increased merger-related expenses of $1.7 million in connection
with the acquisition of HMNF and an increase in Federal Deposit
Insurance Corporation (“FDIC”) assessments. Compensation expense
increased $2.0 million, or 10.4%, in the third quarter of 2024,
primarily due to increased labor costs. Employee taxes and benefits
expense increased $0.5 million, or 10.3%, primarily due to
increased costs related to group insurance.
Financial Condition
Total assets were $4.1 billion as of September 30, 2024, an
increase of $176.9 million, or 4.5%, from December 31, 2023. The
increase was primarily due to a $272.8 million increase in loans,
partially offset by a decrease of $63.9 million in cash and cash
equivalents and a decrease of $35.6 million in investment
securities.
Loans
Total loans were $3.0 billion as of September 30, 2024, an
increase of $272.8 million, or 9.9%, from December 31, 2023. The
increase was primarily driven by a $116.7 million increase in
non-owner occupied commercial real estate (“CRE”) loans, a $49.6
million increase in construction, land and development CRE loans, a
$44.1 million increase in commercial and industrial loans, a $30.3
million increase in multifamily CRE loans and a $24.7 million
increase in owner occupied CRE loans, partially offset by $7.4
million and $17.2 million decreases in residential real estate
first lien and construction loans, respectively.
The following table presents the composition of our loan
portfolio as of the dates indicated:
September 30,
June 30,
March 30,
December 31,
September 30,
(dollars in thousands)
2024
2024
2024
2023
2023
Commercial
Commercial and industrial
$
606,245
$
591,779
$
575,259
$
562,180
$
547,644
Commercial real estate
Construction, land and development
173,629
161,751
125,966
124,034
97,742
Multifamily
275,377
242,041
260,609
245,103
214,148
Non-owner occupied
686,071
647,776
565,979
569,354
504,827
Owner occupied
296,366
283,356
285,211
271,623
264,458
Total commercial real estate
1,431,443
1,334,924
1,237,765
1,210,114
1,081,175
Agricultural
Land
45,821
41,410
41,149
40,832
41,581
Production
39,436
40,549
36,436
36,141
34,743
Total agricultural
85,257
81,959
77,585
76,973
76,324
Total commercial
2,122,945
2,008,662
1,890,609
1,849,267
1,705,143
Consumer
Residential real estate
First lien
690,451
686,286
703,726
697,900
680,634
Construction
11,808
22,573
18,425
28,979
37,159
HELOC
134,301
126,211
120,501
118,315
116,296
Junior lien
36,445
36,323
36,381
35,819
36,381
Total residential real estate
873,005
871,393
879,033
881,013
870,470
Other consumer
36,393
35,737
29,833
29,303
30,817
Total consumer
909,398
907,130
908,866
910,316
901,287
Total loans
$
3,032,343
$
2,915,792
$
2,799,475
$
2,759,583
$
2,606,430
Deposits
Total deposits were $3.3 billion as of September 30, 2024, an
increase of $227.9 million, or 7.4%, from December 31, 2023.
Interest-bearing deposits increased $298.5 million, while
noninterest-bearing deposits decreased $70.5 million, from December
31, 2023. The increase in total deposits was due to both expanded
and new commercial deposit relationships and synergistic deposit
growth. Synergistic deposits were $920.6 million as of September
30, 2024, an increase of $69.1 million, or 8.1%, from December 31,
2023. The Company continued to have $0 of brokered deposits as of
September 30, 2024.
The following table presents the composition of the Company’s
deposit portfolio as of the dates indicated:
September 30,
June 30,
March 30,
December 31,
September 30,
(dollars in thousands)
2024
2024
2024
2023
2023
Noninterest-bearing demand
$
657,547
$
701,428
$
692,500
$
728,082
$
717,990
Interest-bearing
Interest-bearing demand
1,034,694
1,003,585
938,751
840,711
759,812
Savings accounts
75,675
79,747
82,727
82,485
88,341
Money market savings
1,067,187
1,022,470
1,114,262
1,032,771
959,106
Time deposits
488,447
491,345
456,729
411,562
346,935
Total interest-bearing
2,666,003
2,597,147
2,592,469
2,367,529
2,154,194
Total deposits
$
3,323,550
$
3,298,575
$
3,284,969
$
3,095,611
$
2,872,184
Asset Quality
Total nonperforming assets were $48.0 million as of September
30, 2024, an increase of $39.3 million from December 31, 2023.
$25.0 million of the increase was primarily driven by one
construction, land and development loan moving to nonaccrual status
in the second quarter of 2024. During the third quarter of 2024,
management elected to make protective advances in order for
construction to continue on that project. Management is actively
working with the borrower on strategies to complete construction,
preserve value and support repayment of the loan. A large
residential real estate relationship and one CRE non-owner occupied
loan moving to nonaccrual status also contributed $13.6 million to
the increase in nonaccrual loans during the third quarter of
2024.
As of September 30, 2024, the allowance for credit losses on
loans was $39.1 million, or 1.29% 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
September 30,
June 30,
March 30,
December 31,
September 30,
(dollars in thousands)
2024
2024
2024
2023
2023
Nonaccrual loans
$
48,026
$
27,618
$
7,345
$
8,596
$
9,007
Accruing loans 90+ days past due
—
—
—
139
—
Total nonperforming loans
48,026
27,618
7,345
8,735
9,007
OREO and repossessed assets
—
—
3
32
3
Total nonperforming assets
$
48,026
$
27,618
$
7,348
$
8,767
$
9,010
Net charge-offs/(recoveries)
316
2,522
58
(238
)
(594
)
Net charge-offs/(recoveries) to average
loans
0.04
%
0.36
%
0.01
%
(0.04
)%
(0.09
)%
Nonperforming loans to total loans
1.58
%
0.95
%
0.26
%
0.32
%
0.35
%
Nonperforming assets to total assets
1.18
%
0.63
%
0.17
%
0.22
%
0.23
%
Allowance for credit losses on loans to
total loans
1.29
%
1.31
%
1.31
%
1.30
%
1.39
%
Allowance for credit losses on loans to
nonperforming loans
82
%
139
%
498
%
410
%
403
%
For the third quarter of 2024, the Company had net charge-offs
of $0.3 million, compared to net charge-offs of $2.5 million for
the second quarter of 2024 and net recoveries of $0.6 million for
the third quarter of 2023. The quarter-over-quarter decrease in net
charge-offs was driven by a $2.6 million charge-off of one
commercial and industrial loan in the second quarter of 2024.
The Company recorded a provision for credit losses of $1.7
million for the third quarter of 2024, compared to a provision for
credit losses of $4.5 million for the second quarter of 2024 and no
provision for credit losses for the third quarter of 2023. The
provision for credit losses for the third quarter of 2024 was
primarily driven by loan growth and an increase in nonaccrual
loans.
The unearned fair value adjustments on the acquired Metro
Phoenix Bank loan portfolio were $3.8 million as of September 30,
2024, $5.2 million as of December 31, 2023, and $5.5 million as of
September 30, 2023.
Capital
Total stockholders’ equity was $386.5 million as of September
30, 2024, an increase of $17.4 million from December 31, 2023. This
change was primarily driven by an improvement in accumulated other
comprehensive loss of $10.2 million and an increase in retained
earnings of $6.2 million. Tangible book value per common share
(non-GAAP) increased to $16.50 as of September 30, 2024, from
$15.46 as of December 31, 2023. Tangible common equity to tangible
assets (non-GAAP) increased to 8.11% as of September 30, 2024, from
7.94% as of December 31, 2023. Common equity tier 1 capital to risk
weighted assets decreased to 11.12% as of September 30, 2024, from
11.82% as of December 31, 2023.
The following table presents our capital ratios as of the dates
indicated:
September 30,
December 31,
September 30,
2024
2023
2023
Capital Ratios(1)
Alerus Financial Corporation
Consolidated
Common equity tier 1 capital to risk
weighted assets
11.12
%
11.82
%
13.01
%
Tier 1 capital to risk weighted assets
11.38
%
12.10
%
13.30
%
Total capital to risk weighted assets
14.04
%
14.76
%
16.10
%
Tier 1 capital to average assets
9.30
%
10.57
%
11.14
%
Tangible common equity / tangible assets
(2)
8.11
%
7.94
%
7.47
%
Alerus Financial, N.A.
Common equity tier 1 capital to risk
weighted assets
10.73
%
11.40
%
12.68
%
Tier 1 capital to risk weighted assets
10.73
%
11.40
%
12.68
%
Total capital to risk weighted assets
11.98
%
12.51
%
13.86
%
Tier 1 capital to average assets
8.90
%
9.92
%
10.72
%
_______________
(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 Wednesday, October 30, 2024, to discuss its financial
results. Attendees are encouraged to register ahead of time for the
call at investors.alerus.com. The call can also be accessed via
telephone at +1 (833) 470-1428, using access code 572067. 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 benefit 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 operates 29 banking and commercial wealth offices, with
locations in Grand Forks and Fargo, North Dakota; the
Minneapolis-St. Paul, Minnesota metropolitan area; Rochester,
Minnesota; the southern Minnesota area; Marshalltown, Iowa;
Pewaukee, Wisconsin; and Phoenix and Scottsdale, Arizona. Alerus
also operates a commercial wealth office in La Crosse, Wisconsin.
Alerus Retirement and Benefit 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, pre-provision net
revenue, adjusted noninterest income, adjusted noninterest expense,
adjusted pre-provision net revenue, adjusted efficiency ratio,
adjusted net income, adjusted return on average assets, adjusted
return on average tangible common equity, net interest margin
(tax-equivalent), adjusted net interest margin (tax-equivalent),
and adjusted earnings per common share - diluted. 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 changes in interest
rates; 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 the level and impact 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; our ability to raise additional capital to
implement our business plan; the overall health of the local and
national real estate market; concentrations within our loan
portfolio; the concentration of large loans to certain borrowers;
our ability to successfully manage credit risk; the level of
nonperforming assets on our balance sheet; our ability to implement
our organic and acquisition growth strategies, including the
integration of HMNF which the Company acquired in the fourth
quarter of 2024; 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,
including from non-banks such as credit unions, Fintech companies
and 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, including those 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 acquisitions of Metro Phoenix Bank and HMNF; 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 conflict in the Middle
East 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; 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)
September 30,
December 31,
2024
2023
Assets
(Unaudited)
Cash and cash equivalents
$
65,975
$
129,893
Investment securities
Trading, at fair value
2,708
—
Available-for-sale, at fair value
466,003
486,736
Held-to-maturity, at amortized cost (with
an allowance for credit losses on investments of $137 and $151,
respectively)
281,913
299,515
Loans held for sale
13,487
11,497
Loans
3,032,343
2,759,583
Allowance for credit losses on loans
(39,142
)
(35,843
)
Net loans
2,993,201
2,723,740
Land, premises and equipment, net
18,790
17,940
Operating lease right-of-use assets
9,268
5,436
Accrued interest receivable
16,469
15,700
Bank-owned life insurance
35,793
33,236
Goodwill
46,783
46,783
Other intangible assets
13,186
17,158
Servicing rights
1,874
2,052
Deferred income taxes, net
33,054
34,595
Other assets
86,136
83,432
Total assets
$
4,084,640
$
3,907,713
Liabilities and Stockholders’
Equity
Deposits
Noninterest-bearing
$
657,547
$
728,082
Interest-bearing
2,666,003
2,367,529
Total deposits
3,323,550
3,095,611
Short-term borrowings
244,700
314,170
Long-term debt
59,041
58,956
Operating lease liabilities
9,643
5,751
Accrued expenses and other liabilities
61,220
64,098
Total liabilities
3,698,154
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: 19,790,005 and 19,734,077 issued and
outstanding
19,790
19,734
Additional paid-in capital
151,257
150,343
Retained earnings
278,863
272,705
Accumulated other comprehensive loss
(63,424
)
(73,655
)
Total stockholders’ equity
386,486
369,127
Total liabilities and stockholders’
equity
$
4,084,640
$
3,907,713
Alerus Financial Corporation and Subsidiaries
Consolidated Statements of Income (dollars and shares in
thousands, except per share data)
Three months ended
Nine months ended
September 30,
June 30,
September 30,
September 30,
September 30,
2024
2024
2023
2024
2023
Interest Income
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Loans, including fees
$
42,593
$
41,663
$
34,986
$
123,551
$
99,187
Investment securities
Taxable
4,596
4,845
6,146
14,008
18,222
Exempt from federal income taxes
169
170
182
512
558
Other
4,854
6,344
724
16,200
2,221
Total interest income
52,212
53,022
42,038
154,271
120,188
Interest Expense
Deposits
22,285
21,284
14,436
63,721
36,218
Short-term borrowings
6,706
7,053
6,528
19,748
15,684
Long-term debt
679
684
679
2,041
1,999
Total interest expense
29,670
29,021
21,643
85,510
53,901
Net interest income
22,542
24,001
20,395
68,761
66,287
Provision for credit losses
1,661
4,489
—
6,150
550
Net interest income after provision for
credit losses
20,881
19,512
20,395
62,611
65,737
Noninterest Income
Retirement and benefit services
16,144
16,078
18,605
47,876
49,977
Wealth management
6,684
6,360
5,271
19,161
15,915
Mortgage banking
2,573
2,554
2,510
6,796
7,132
Service charges on deposit accounts
488
456
328
1,333
940
Other
2,474
1,923
1,693
5,891
5,475
Total noninterest income
28,363
27,371
28,407
81,057
79,439
Noninterest Expense
Compensation
21,058
20,265
19,071
60,655
57,076
Employee taxes and benefits
5,400
5,134
4,895
16,722
15,472
Occupancy and equipment expense
2,082
1,815
1,883
5,803
5,619
Business services, software and technology
expense
4,879
4,599
4,774
14,823
15,367
Intangible amortization expense
1,324
1,324
1,324
3,972
3,972
Professional fees and assessments
4,267
2,373
1,716
8,633
4,397
Marketing and business development
764
651
750
2,200
2,139
Supplies and postage
422
370
410
1,321
1,275
Travel
330
332
322
954
876
Mortgage and lending expenses
684
467
689
1,592
1,401
Other
1,237
1,422
1,426
3,543
3,909
Total noninterest expense
42,447
38,752
37,260
120,218
111,503
Income before income tax expense
6,797
8,131
11,542
23,450
33,673
Income tax expense
1,590
1,923
2,381
5,604
7,222
Net income
$
5,207
$
6,208
$
9,161
$
17,846
$
26,451
Per Common Share Data
Earnings per common share
$
0.26
$
0.31
$
0.46
$
0.90
$
1.31
Diluted earnings per common share
$
0.26
$
0.31
$
0.45
$
0.89
$
1.30
Dividends declared per common share
$
0.20
$
0.20
$
0.19
$
0.59
$
0.56
Average common shares outstanding
19,788
19,777
19,872
19,768
19,977
Diluted average common shares
outstanding
20,075
20,050
20,095
20,037
20,193
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)
September 30,
June 30,
December 31,
September 30,
2024
2024
2023
2023
Tangible Common Equity to Tangible
Assets
Total common stockholders’ equity
$
386,486
$
373,226
$
369,127
$
349,402
Less: Goodwill
46,783
46,783
46,783
46,783
Less: Other intangible assets
13,186
14,510
17,158
18,482
Tangible common equity (a)
326,517
311,933
305,186
284,137
Total assets
4,084,640
4,358,623
3,907,713
3,869,138
Less: Goodwill
46,783
46,783
46,783
46,783
Less: Other intangible assets
13,186
14,510
17,158
18,482
Tangible assets (b)
4,024,671
4,297,330
3,843,772
3,803,873
Tangible common equity to tangible assets
(a)/(b)
8.11
%
7.26
%
7.94
%
7.47
%
Adjusted Tangible Common Equity to
Tangible Assets
Tangible assets (b)
$
4,024,671
$
4,297,330
$
3,843,772
$
3,803,873
Less: Cash proceeds from BTFP
—
355,000
—
—
Adjusted tangible assets (c)
4,024,671
3,942,330
3,843,772
3,803,873
Adjusted tangible common equity to
tangible assets (a)/(c)
8.11
%
7.91
%
7.94
%
7.47
%
Tangible Book Value Per Common
Share
Total common stockholders’ equity
$
386,486
$
373,226
$
369,127
$
349,402
Less: Goodwill
46,783
46,783
46,783
46,783
Less: Other intangible assets
13,186
14,510
17,158
18,482
Tangible common equity (d)
326,517
311,933
305,186
284,137
Total common shares issued and outstanding
(e)
19,790
19,778
19,734
19,848
Tangible book value per common share
(d)/(e)
$
16.50
$
15.77
$
15.46
$
14.32
Three months ended
Nine months ended
September 30,
June 30,
September 30,
September 30,
September 30,
2024
2024
2023
2024
2023
Return on Average Tangible Common
Equity
Net income
$
5,207
$
6,208
$
9,161
$
17,846
$
26,451
Add: Intangible amortization expense (net
of tax) (1)
1,046
1,046
1,046
3,138
3,138
Net income, excluding intangible
amortization (f)
6,253
7,254
10,207
20,984
29,589
Average total equity
375,229
369,217
361,735
370,758
361,260
Less: Average goodwill
46,783
46,783
46,882
46,783
47,018
Less: Average other intangible assets (net
of tax) (1)
10,933
11,969
15,109
11,969
16,149
Average tangible common equity (g)
317,513
310,465
299,744
312,006
298,093
Return on average tangible common equity
(f)/(g)
7.83
%
9.40
%
13.51
%
8.98
%
13.27
%
Efficiency Ratio
Noninterest expense
$
42,447
$
38,752
$
37,260
$
120,218
$
111,503
Less: Intangible amortization expense
1,324
1,324
1,324
3,972
3,972
Adjusted noninterest expense (h)
41,123
37,428
35,936
116,246
107,531
Net interest income
22,542
24,001
20,395
68,761
66,287
Noninterest income
28,363
27,371
28,407
81,057
79,439
Tax-equivalent adjustment
314
255
180
816
444
Total tax-equivalent revenue (i)
51,219
51,627
48,982
150,634
146,170
Efficiency ratio (h)/(i)
80.29
%
72.50
%
73.37
%
77.17
%
73.57
%
______________
(1)
Items calculated after-tax utilizing a
marginal income tax rate of 21.0%.
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
Nine months ended
September 30,
June 30,
September 30,
September 30,
September 30,
2024
2024
2023
2024
2023
Pre-Provision Net Revenue
Net interest income
$
22,542
$
24,001
$
20,395
$
68,761
$
66,287
Add: Noninterest income
28,363
27,371
28,407
81,057
79,439
Less: Noninterest expense
42,447
38,752
37,260
120,218
111,503
Pre-provision net revenue
$
8,458
$
12,620
$
11,542
$
29,600
$
34,223
Adjusted Noninterest Income
Noninterest income
$
28,363
$
27,371
$
28,407
$
81,057
$
79,439
Less: Adjusted noninterest income
items
BOLI mortality proceeds (non-taxable)
—
—
—
—
1,196
Gain on sale of ESOP trustee business
—
—
2,775
—
2,775
Net gain on sale of premises and
equipment
476
—
—
476
—
Total adjusted noninterest income items
(j)
476
—
2,775
476
3,971
Adjusted noninterest income (k)
$
27,887
$
27,371
$
25,632
$
80,581
$
75,468
Adjusted Noninterest Expense
Noninterest expense
$
42,447
$
38,752
$
37,260
$
120,218
$
111,503
Less: Adjusted noninterest expense
items
HMNF merger- and acquisition-related
expenses
1,661
563
—
2,251
—
Severance and signing bonus expense
31
315
343
626
1,475
Total adjusted noninterest expense items
(l)
1,692
878
343
2,877
1,475
Adjusted noninterest expense (m)
$
40,755
$
37,874
$
36,917
$
117,341
$
110,028
Adjusted Pre-Provision Net
Revenue
Net interest income
$
22,542
$
24,001
$
20,395
$
68,761
$
66,287
Add: Adjusted noninterest income (k)
27,887
27,371
25,632
80,581
75,468
Less: Adjusted noninterest expense (m)
40,755
37,874
36,917
117,341
110,028
Adjusted pre-provision net revenue
$
9,674
$
13,498
$
9,110
$
32,001
$
31,727
Adjusted Efficiency Ratio
Adjusted noninterest expense (m)
$
40,755
$
37,874
$
36,917
$
117,341
$
110,028
Less: Intangible amortization expense
1,324
1,324
1,324
3,972
3,972
Adjusted noninterest expense for
efficiency ratio (n)
39,431
36,550
35,593
113,369
106,056
Tax-equivalent revenue
Net interest income
22,542
24,001
20,395
68,761
66,287
Add: Adjusted noninterest income (k)
27,887
27,371
25,632
80,581
75,468
Add: Tax-equivalent adjustment
314
255
180
816
444
Total tax-equivalent revenue (o)
50,743
51,627
46,207
150,158
142,199
Adjusted efficiency ratio (n)/(o)
77.71
%
70.80
%
77.03
%
75.50
%
74.58
%
Adjusted Net Income
Net income
$
5,207
$
6,208
$
9,161
$
17,846
$
26,451
Less: Adjusted noninterest income items
(net of tax) (1) (j)
376
—
2,192
376
3,388
Add: Adjusted noninterest expense items
(net of tax) (1) (l)
1,337
694
271
2,273
1,165
Adjusted net income (p)
$
6,168
$
6,902
$
7,240
$
19,743
$
24,228
Adjusted Return on Average
Assets
Average total assets (q)
$
4,298,080
$
4,297,294
$
3,821,601
$
4,245,181
$
3,799,645
Adjusted return on average assets
(p)/(q)
0.57
%
0.65
%
0.75
%
0.62
%
0.85
%
Adjusted Return on Average Tangible
Common Equity
Adjusted net income (p)
$
6,168
$
6,902
$
7,240
$
19,743
$
24,228
Add: Intangible amortization expense (net
of tax) (1)
1,046
1,046
1,046
3,138
3,138
Adjusted net income, excluding intangible
amortization (r)
7,214
7,948
8,286
22,881
27,366
Average total equity
375,229
369,217
361,735
370,758
361,260
Less: Average goodwill
46,783
46,783
46,882
46,783
47,018
Less: Average other intangible assets (net
of tax)
10,933
11,969
15,109
11,969
16,149
Average tangible common equity (s)
317,513
310,465
299,744
312,006
298,093
Return on average tangible common equity
(r)/(s)
9.04
%
10.30
%
10.97
%
9.80
%
12.27
%
______________
(1)
Items calculated after-tax utilizing a
marginal income tax rate of 21.0%.
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
Nine months ended
September 30,
June 30,
September 30,
September 30,
September 30,
2024
2024
2023
2024
2023
Adjusted Net Interest Margin
(Tax-Equivalent)
Net interest income
$
22,542
$
24,001
$
20,395
$
68,761
$
66,287
Less: BTFP cash interest income
4,113
4,766
—
12,494
—
Add: BTFP interest expense
3,717
4,307
—
11,291
—
Less: Purchase accounting net
accretion
152
985
294
1,429
969
Net interest income excluding BTFP
impact
21,994
22,557
20,101
66,129
65,318
Add: Tax equivalent adjustment for loans
and securities
314
255
180
816
444
Adjusted net interest income (t)
$
22,308
$
22,812
$
20,281
$
66,945
$
65,762
Interest earning assets
4,077,716
4,075,003
3,591,478
4,024,942
3,574,675
Less: Average cash proceeds balance from
BTFP
303,043
355,000
—
309,051
—
Add: Change in unearned purchase
accounting discount
152
985
294
1,429
969
Adjusted interest earning assets (u)
$
3,774,825
$
3,720,988
$
3,591,772
$
3,717,320
$
3,575,644
Adjusted net interest margin
(tax-equivalent) (t)/(u)
2.35
%
2.47
%
2.24
%
2.41
%
2.46
%
Adjusted Earnings Per Common Share -
Diluted
Adjusted net income (p)
$
6,168
$
6,902
$
7,240
$
19,743
$
24,228
Less: Dividends and undistributed earnings
allocated to participating securities
24
38
67
102
186
Net income available to common
stockholders (v)
6,144
6,864
7,173
19,641
24,042
Weighted-average common shares outstanding
for diluted earnings per share (w)
20,075
20,050
20,095
20,037
20,193
Adjusted earnings per common share -
diluted (v)/(w)
$
0.31
$
0.34
$
0.36
$
0.98
$
1.19
_____________
(1)
Items calculated after-tax utilizing a
marginal income tax rate of 21.0%.
Alerus Financial Corporation and Subsidiaries Analysis
of Average Balances, Yields, and Rates (unaudited) (dollars in
thousands)
Three months ended
Nine months ended
September 30, 2024
June 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
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
$
326,350
5.47
%
$
448,245
5.38
%
$
29,450
3.09
%
$
375,365
5.39
%
$
35,892
3.45
%
Investment securities (1)
749,062
2.55
756,413
2.69
971,913
2.60
760,219
2.58
1,004,436
2.52
Loans held for sale
15,795
3.20
16,473
8.91
16,518
5.55
13,768
6.01
13,822
5.29
Loans
Commercial and industrial
593,685
7.26
578,544
7.39
523,263
6.61
578,839
7.21
524,083
6.54
CRE − Construction, land and
development
184,611
5.68
126,744
8.01
88,450
8.52
146,454
7.03
93,098
7.46
CRE − Multifamily
242,558
5.62
243,076
5.52
209,020
5.17
245,372
5.57
171,043
5.15
CRE − Non-owner occupied
663,539
5.88
617,338
5.90
491,948
5.34
615,320
5.85
492,098
5.15
CRE − Owner occupied
289,963
5.41
283,754
5.47
256,983
5.22
284,315
5.41
253,460
5.03
Agricultural − Land
42,162
4.93
40,932
4.72
40,685
4.85
41,138
4.80
39,417
4.77
Agricultural − Production
40,964
6.84
38,004
6.69
32,386
6.68
38,110
6.65
29,377
6.42
RRE − First lien
689,382
3.98
694,866
4.07
681,610
3.83
695,313
4.02
667,041
3.75
RRE − Construction
16,792
3.86
21,225
5.38
33,264
5.14
19,847
4.89
33,693
4.99
RRE − HELOC
130,705
8.00
123,233
8.30
118,965
8.24
124,321
8.19
118,630
7.97
RRE − Junior lien
36,818
5.74
36,181
6.60
35,974
5.89
36,276
6.23
35,034
5.70
Other consumer
37,768
6.76
33,335
6.67
32,288
6.11
33,329
6.64
38,148
5.99
Total loans (1)
2,968,947
5.73
2,837,232
5.88
2,544,836
5.44
2,858,634
5.78
2,495,122
5.30
Federal Reserve/FHLB stock
17,562
8.25
16,640
8.53
28,761
6.83
16,956
8.30
25,403
6.81
Total interest earning assets
4,077,716
5.12
4,075,003
5.26
3,591,478
4.66
4,024,942
5.15
3,574,675
4.51
Noninterest earning assets
220,364
222,291
230,123
220,239
224,970
Total assets
$
4,298,080
$
4,297,294
$
3,821,601
$
4,245,181
$
3,799,645
Interest-Bearing Liabilities
Interest-bearing demand deposits
$
1,003,595
2.31
%
$
959,119
2.24
%
$
751,455
1.34
%
$
944,143
2.18
%
$
757,995
1.16
%
Money market and savings deposits
1,146,896
3.82
1,147,525
3.79
1,073,297
3.20
1,160,391
3.79
1,127,630
2.72
Time deposits
485,533
4.46
458,125
4.50
327,264
3.94
458,545
4.47
276,797
3.26
Fed funds purchased and BTFP
327,543
4.97
366,186
4.90
312,121
5.50
325,455
4.95
320,861
5.23
FHLB short-term advances
200,000
5.20
200,000
5.21
173,913
5.02
200,000
5.13
84,982
4.92
Long-term debt
59,027
4.58
58,999
4.66
58,914
4.57
58,999
4.62
58,886
4.54
Total interest-bearing liabilities
3,222,594
3.66
3,189,954
3.66
2,696,964
3.18
3,147,533
3.63
2,627,151
2.74
Noninterest-Bearing Liabilities and
Stockholders' Equity
Noninterest-bearing deposits
628,114
665,930
692,742
656,553
743,253
Other noninterest-bearing liabilities
72,143
72,193
70,160
70,337
67,981
Stockholders’ equity
375,229
369,217
361,735
370,758
361,260
Total liabilities and stockholders’
equity
$
4,298,080
$
4,297,294
$
3,821,601
$
4,245,181
$
3,799,645
Net interest income (1)
Net interest rate spread
1.46
%
1.60
%
1.48
%
1.52
%
1.77
%
Net interest margin, tax-equivalent
(1)
2.23
%
2.39
%
2.27
%
2.31
%
2.50
%
_____________
(1)
Taxable-equivalent adjustment was
calculated utilizing a marginal income tax rate of 21.0%.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20241029387161/en/
Alan A. Villalon, Chief Financial Officer 952.417.3733
(Office)
Alerus Financial (NASDAQ:ALRS)
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