Alerus Financial Corporation Reports Second Quarter 2023 Net Income of $9.1 Million

Rhea-AI Summary

Alerus Financial Corporation reported net income of $9.1 million for Q2 2023, compared to $8.2 million for Q1 2023, and $9.3 million for Q2 2022. CEO Katie Lorenson highlighted the company's focus on talent acquisitions and infrastructure optimization to drive growth. Fee income accounted for 53.7% of total revenues in Q2. Noninterest expenses declined 4% from the previous quarter, leading to a 10% reduction in total headcount over the past 12 months. Alerus remains optimistic about its ability to attract and retain talent and is seeing the benefits of infrastructure optimization.

Positive

• Alerus Financial Corporation reported a 10% increase in net income from Q1 2023 to Q2 2023, indicating positive growth. Fee income represented 53.7% of total revenues in Q2, highlighting the company's strong performance in its retirement services and wealth management businesses. Noninterest expenses declined 4% from the previous quarter, leading to improved efficiency and cost management. The company reduced its total headcount by 10% over the past 12 months, demonstrating its focus on streamlining operations and optimizing its organizational structure.

Negative

• None.

MINNEAPOLIS--(BUSINESS WIRE)-- Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $9.1 million for the second quarter of 2023, or $0.45 per diluted common share, compared to net income of $8.2 million, or $0.40 per diluted common share, for the first quarter of 2023, and net income of $9.3 million, or $0.52 per diluted common share, for the second quarter of 2022.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “During the second quarter, we continued to evolve Alerus into a high performing commercial wealth bank and a national retirement and benefits provider through strategic talent acquisitions and infrastructure optimization. The foundational strength and unique business model of our Company allowed us to continue to attract experienced professionals who will continue to build our commercial banking segment in addition to doubling the size of our treasury management team. More recently, we lifted out a highly regarded and seasoned team to lead the launch of our private banking franchise. We believe that the addition of these professionals coupled with our tenured talent will drive continued new client acquisition and existing client expansion throughout our growing markets.

While the macroeconomic environment remains uncertain, our diversified business model shined in the second quarter as fee income represented 53.7% of total revenues, an industry leading standard, driven primarily by our nationally scaled retirement services and growing wealth management business.

During the quarter, we continued to execute on prudent expense management as noninterest expenses declined 4% from the prior quarter. Our focus on a client-centric organizational structure has resulted in efficiency improvements across the organization. As of July, these improvements have allowed us to reduce total headcount by 10% over the past 12 months, even after taking account of the acquisition of Metro Phoenix Bank.

Despite ongoing industry and economic challenges, we believe Alerus is positioned to emerge stronger than ever. Our unique business model is anchored by durable and highly recurring fee income and our balance sheet is characterized by superior capital and reserves, a highly diversified loan and deposit portfolio, and a long history of strong credit performance. We remain optimistic about our continued ability to attract and retain the best talent and are seeing the benefits of our ongoing implementation of infrastructure optimization.

We are grateful for our Alerus team members whose ongoing collaboration and client focus are continuing to position the company’s future for top tier shareholder returns and performance.”

Second Quarter Highlights

• Return on average tangible common equity⁽¹⁾ of 13.71%, compared to 12.58% for the first quarter of 2023
• Return on average common equity of 10.14%, compared to 9.17% for the first quarter of 2023
• Return on average total assets of 0.96%, compared to 0.88% for the first quarter of 2023
• Repurchased $3.0 million of the Company’s outstanding stock, reducing common shares outstanding by 170,046 at quarter end
• Increased quarterly dividend by 5.6% to $0.19 per share
• Loan to deposit ratio as of June 30, 2023 was 88.8%, compared to 83.8% as of December 31, 2022
• Common equity tier 1 capital to risk weighted assets as of June 30, 2023 was 13.30%, compared to 13.39% as of December 31, 2022
• Noninterest expense was $36.4 million, compared to $37.9 million for the first quarter of 2023
• Efficiency ratio improved to 72.79% compared to 74.53% for the first quarter of 2023
• Noninterest income was 53.69% of total revenue, compared to 51.63% for the first quarter of 2023
• Allowance for credit losses to total loans was 1.41% compared to 1.27% as of December 31, 2022
• Net recoveries to average loans of 0.07% compared to net charge-offs to average loans of 0.03% for the first quarter of 2023

(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)		2023				2023			2022			2023				2022
Performance Ratios
Return on average total assets			0.96		%		0.88	%		1.14	%		0.92		%		1.20	%
Return on average common equity			10.14		%		9.17	%		11.93	%		9.66		%		11.85	%
Return on average tangible common equity (1)			13.71		%		12.58	%		15.25	%		13.15		%		14.97	%
Noninterest income as a % of revenue			53.69		%		51.63	%		56.20	%		52.65		%		56.91	%
Net interest margin (tax-equivalent)			2.52		%		2.70	%		2.98	%		2.61		%		2.91	%
Efficiency ratio (1)			72.79		%		74.53	%		74.72	%		73.67		%		73.50	%
Net charge-offs/(recoveries) to average loans			(0.07	)	%		0.03	%		0.07	%		(0.02	)	%		0.02	%
Dividend payout ratio			42.22		%		45.00	%		34.62	%		43.53		%		30.91	%
Per Common Share
Earnings per common share - basic		$	0.45			$	0.41		$	0.53		$	0.86			$	1.11
Earnings per common share - diluted		$	0.45			$	0.40		$	0.52		$	0.85			$	1.10
Dividends declared per common share		$	0.19			$	0.18		$	0.18		$	0.37			$	0.34
Book value per common share		$	17.96			$	17.90		$	17.75
Tangible book value per common share (1)		$	14.60			$	14.50		$	14.93
Average common shares outstanding - basic			20,033				20,028			17,297			20,030				17,271
Average common shares outstanding - diluted			20,241				20,246			17,532			20,243				17,517
Other Data
Retirement and benefit services assets under administration/management		$	35,052,652			$	33,404,342		$	31,749,157
Wealth management assets under administration/management		$	3,857,710			$	3,675,684		$	4,147,763
Mortgage originations		$	111,261			$	77,728		$	269,397		$	188,989			$	456,159
(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 2023 was $22.2 million, a $1.4 million, or 6.0%, decrease from the first quarter of 2023. Net interest income decreased $542.0 thousand, or 2.4%, from $22.8 million for the second quarter of 2022. Interest income increased $2.5 million, or 6.7% from the first quarter of 2023, primarily driven by a 24 basis point increase in yield on interest earning assets. Contributing factors to higher asset yields were higher new loan yields and accretion of fair value marks from the Metro Phoenix Bank transaction. The increase in interest income was more than offset by a $4.0 million increase in interest expense, primarily due to an increase in rates paid on interest-bearing deposits. The increase in interest expense paid on deposits was due to heightened deposit competition, the impact of rising short-term interest rates on indexed money market deposits and clients moving deposits out of noninterest bearing products into interest-bearing products.

Net interest margin (tax-equivalent), was 2.52% for the second quarter of 2023, an 18 basis point decrease from 2.70% for the first quarter of 2023, and a 46 basis point decrease from 2.98% for the second quarter of 2022. The decrease in net interest margin from the prior quarter reflected the impact of rising interest rates on our interest-bearing liabilities partially offset by slightly higher yields on new loans and accretion of fair value marks from the Metro Phoenix Bank transaction.

Noninterest Income

Noninterest income for the second quarter of 2023 was $25.8 million, a $525.0 thousand, or 2.1%, increase from the first quarter of 2023. The quarter over quarter increase was primarily driven by improvement across all fee-based business segments. Mortgage saw a $1.2 million, or 69.2%, increase in mortgage banking revenue due to a seasonal rebound in originations as mortgage originations grew 43% from the prior quarter. Retirement and benefit services revenue increased $408 thousand, or 2.6%, mainly due to increased administration, recordkeeping, and asset-based fees. Assets under management/administration grew due to improved equity markets and organic growth in plans and participants. Wealth management revenue increased $256 thousand, or 4.9%, as assets under management/administration grew due to improved equity markets and organic net inflows from new and existing relationships.

Noninterest income for the second quarter of 2023 decreased $3.4 million, or 11.8%, from $29.2 million in the second quarter of 2022. The year over year decrease was primarily driven by a $3.1 million decrease in mortgage revenue due to a $158.1 million decrease in mortgage originations as higher interest rates dramatically impacted demand. Retirement and benefit services decreased $403 thousand mainly from the exit of the payroll services business and one-time document restatement fees recognized in 2022.

Noninterest Expense

Noninterest expense for the second quarter of 2023 was $36.4 million, a $1.5 million, or 4.0% decrease from the first quarter of 2023. The quarter over quarter decrease was primarily driven by a $1.1 million decrease in employee taxes and benefits resulting from lower headcount and lower group insurance costs. Compensation expense decreased $311 thousand from the first quarter of 2023 due to a reduction in severance costs and salaries, offset by increased mortgage incentive compensation. Offsetting the improvement in compensation and benefits expense, professional fees and assessments increased $378 thousand due to higher Federal Deposit Insurance Corporation (FDIC) assessment fees.

Noninterest expense for the second quarter of 2023 decreased $3.6 million, or 9.0%, from $40.0 million in the second quarter of 2022. The year over year decrease was primarily due to a $2.4 million decrease in compensation, $1.1 million decrease in employee taxes and benefits, and $716 thousand decrease in professional fees and assessments. Compensation decreased primarily due to a decrease in mortgage related incentive compensation from lower mortgage originations. The decrease in employee taxes and benefits resulted from lower group insurance claims, reduced headcount, and lower compensation costs.

Financial Condition

Total assets were $3.8 billion as of June 30, 2023, an increase of $53.3 million, or 1.4%, from December 31, 2022. The increase was primarily due to an $89.5 million increase in loans, an $11.4 million increase in loans held for sale and a $7.2 million increase in cash and cash equivalents, offset by a decrease of $53.4 million in investment securities.

Loans

Total loans were $2.5 billion as of June 30, 2023, an increase of $89.5 million, or 3.7%, from December 31, 2022. The increase was primarily driven by a $122.2 million increase in commercial real estate and a $34.8 million increase in residential real estate loans, offset by a $32.0 million decrease in commercial and industrial, a $19.4 million decrease in real estate construction and a $16.1 million decrease in other consumer revolving and installment loans.

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

		June 30,			March 31,			December 31,			September 30,			June 30,
(dollars in thousands)		2023			2023			2022			2022			2022
Commercial
Commercial and industrial		$	551,860		$	553,578		$	583,876		$	564,655		$	484,426
Real estate construction			78,428			108,776			97,810			89,215			48,870
Commercial real estate			1,003,821			934,324			881,670			819,068			599,737
Total commercial			1,634,109			1,596,678			1,563,356			1,472,938			1,133,033
Consumer
Residential real estate first mortgage			707,630			698,002			679,551			649,818			568,571
Residential real estate junior lien			157,231			152,281			150,479			143,681			135,255
Other revolving and installment			34,552			39,664			50,608			51,794			53,384
Total consumer			899,413			889,947			880,638			845,293			757,210
Total loans		$	2,533,522		$	2,486,625		$	2,443,994		$	2,318,231		$	1,890,243

Deposits

Total deposits were $2.9 billion as of June 30, 2023, a decrease of $62.6 million, or 2.1%, from December 31, 2022. Interest-bearing deposits increased $82.8 million, while noninterest-bearing deposits decreased $145.5 million from December 31, 2022. The decrease in total deposits was due to both public unit depositor seasonality and clients using excess liquidity and paying down revolving debt. Noninterest-bearing deposits decreased from 29.5% of total deposits to 25.1% as higher interest rates continued a migration to interest-bearing accounts. Time deposit balances increased as higher short-term CD rates attracted both internal transfers of current deposits as well as new clients and deposits to the Company.

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

		June 30,			March 31,			December 31,			September 30,			June 30,
(dollars in thousands)		2023			2023			2022			2022			2022
Noninterest-bearing demand		$	715,534		$	792,977		$	860,987		$	905,228		$	764,808
Interest-bearing
Interest-bearing demand			753,194			817,675			706,275			653,216			642,641
Savings accounts			93,557			99,742			99,882			101,820			97,227
Money market savings			986,403			1,076,166			1,035,981			1,079,520			914,423
Time deposits			304,167			245,418			212,359			222,027			200,451
Total interest-bearing			2,137,321			2,239,001			2,054,497			2,056,583			1,854,742
Total deposits		$	2,852,855		$	3,031,978		$	2,915,484		$	2,961,811		$	2,619,550

Asset Quality

Total nonperforming assets were $2.6 million as of June 30, 2023, a decrease of $1.2 million, or 32.5%, from December 31, 2022. As of June 30, 2023, the allowance for credit losses on loans was $35.7 million, or 1.41% of total loans, compared to $31.1 million, or 1.27% of total loans, as of December 31, 2022.

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

		As of and for the three months ended
		June 30,				March 31,			December 31,				September 30,			June 30,
(dollars in thousands)		2023				2023			2022				2022			2022
Nonaccrual loans		$	2,233			$	2,118		$	3,794			$	4,303		$	4,370
Accruing loans 90+ days past due			347				—			—				1,000			—
Total nonperforming loans			2,580				2,118			3,794				5,303			4,370
OREO and repossessed assets			—				—			30				904			860
Total nonperforming assets		$	2,580			$	2,118		$	3,824			$	6,207		$	5,230
Net charge-offs/(recoveries)			(403	)			170			(178	)			405			340
Net charge-offs/(recoveries) to average loans			(0.07	)	%		0.03	%		(0.03	)	%		0.07	%		0.07	%
Nonperforming loans to total loans			0.10		%		0.09	%		0.16		%		0.23	%		0.23	%
Nonperforming assets to total assets			0.07		%		0.05	%		0.10		%		0.17	%		0.16	%
Allowance for credit losses on loans to total loans			1.41		%		1.41	%		1.27		%		1.34	%		1.66	%
Allowance for credit losses on loans to nonperforming loans			1,384		%		1,657	%		821		%		584	%		718	%

For the second quarter of 2023, the Company had net recoveries of $403 thousand compared to net charge-offs of $170 thousand for the first quarter of 2023 and $340 thousand of net charge-offs for the second quarter of 2022.

The Company did not record a provision for credit losses for the second quarter of 2023 due to strong credit quality indicators and net recoveries for the quarter. The allowance for credit losses on loans to total loans increased from 1.27% at December 31, 2022 to 1.41% at June 30, 2023. Beginning on January 1, 2023 the allowance for credit losses on loans is computed under the current expected credit loss, or CECL, accounting standard and prior to that the allowance for credit losses was computed using the incurred loss method. The unearned fair value adjustments on the acquired Metro Phoenix Bank loan portfolio were $6.2 million and $7.1 million, as of June 30, 2023 and December 31, 2022, respectively.

Capital

Total stockholders’ equity was $357.7 million as of June 30, 2023, an increase of $813 thousand from December 31, 2022. Tangible book value per common share, a non-GAAP financial measure, increased to $14.60 as of June 30, 2023, from $14.37 as of December 31, 2022. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.72% as of June 30, 2023, from 7.74% as of December 31, 2022. Common equity tier 1 capital to risk weighted assets decreased to 13.30% as of June 30, 2023, from 13.39% as of December 31, 2022.

During the second quarter of 2023, the Company repurchased approximately $3.0 million of its outstanding stock, which reduced common shares outstanding by 170,046 at quarter end.

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

		June 30,			December 31,			June 30,
		2023			2022			2022
Capital Ratios(1)
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets			13.30	%		13.39	%		14.19	%
Tier 1 capital to risk weighted assets			13.60	%		13.69	%		14.56	%
Total capital to risk weighted assets			16.49	%		16.48	%		17.95	%
Tier 1 capital to average assets			11.15	%		11.25	%		10.80	%
Tangible common equity / tangible assets (2)			7.72	%		7.74	%		7.96	%
Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets			12.93	%		12.76	%		13.64	%
Tier 1 capital to risk weighted assets			12.93	%		12.76	%		13.64	%
Total capital to risk weighted assets			14.14	%		13.83	%		14.89	%
Tier 1 capital to average assets			10.59	%		10.48	%		10.12	%
(1) Capital ratios for the current quarter are to be considered preliminary until the Call Report for Alerus Financial, N.A. is filed.
(2) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Conference Call

The Company will host a conference call at 11:00 a.m. Central Time on Thursday, July 27, 2023, to discuss its financial results. The call can be accessed via telephone at (833) 470-1428, using access code 067281. 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 with corporate offices in Grand Forks, North Dakota, and the Minneapolis-St. Paul, Minnesota metropolitan area. Through its subsidiary, Alerus Financial, N.A., the Company 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. The Company 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. The Company has banking, mortgage, and wealth management offices in Grand Forks and Fargo, North Dakota, the Minneapolis-St. Paul, Minnesota metropolitan area, and Phoenix, Scottsdale, and Mesa Arizona. Alerus retirement and benefit services plan administration hubs are located in Minnesota, Michigan, and Colorado.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which 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 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 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 risks associated with our business, including the effects of recent and anticipated rate increases by the Federal Reserve; our ability to successfully manage credit risk and maintain an adequate level of allowance for credit losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including continued rising rates of inflation and possible recession; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short-period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of Metro Phoenix Bank which we acquired in 2022; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; our ability to successfully manage liquidity risk, including our need to access higher cost sources of funds such as fed funds purchased and short-term borrowings; the concentration of large deposits from certain clients, who have balances above current FDIC insurance limits; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions, including the acquisition of Metro Phoenix Bank; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes, including in response to the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank; 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, such as the COVID-19 global pandemic; acts of war or terrorism, including the Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; changes to U.S. or state tax laws, regulations and guidance, including the new 1.0% excise tax on stock buybacks by publicly traded companies; 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. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
		June 30,				December 31,
		2023				2022
Assets		(Unaudited)				(Audited)
Cash and cash equivalents		$	65,471			$	58,242
Investment securities
Available-for-sale, at fair value			677,454				717,324
Held-to-maturity, at carrying value (allowance for credit losses of $218 at June 30, 2023)			308,416				321,902
Loans held for sale			20,893				9,488
Loans			2,533,522				2,443,994
Allowance for credit losses on loans			(35,696	)			(31,146	)
Net loans			2,497,826				2,412,848
Land, premises and equipment, net			17,488				17,288
Operating lease right-of-use assets			6,440				5,419
Accrued interest receivable			13,587				12,869
Bank-owned life insurance			32,793				33,991
Goodwill			47,087				47,087
Other intangible assets			19,806				22,455
Servicing rights			2,351				2,643
Deferred income taxes, net			43,709				42,369
Other assets			79,657				75,712
Total assets		$	3,832,978			$	3,779,637
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	715,534			$	860,987
Interest-bearing			2,137,321				2,054,497
Total deposits			2,852,855				2,915,484
Short-term borrowings			492,060				378,080
Long-term debt			58,900				58,843
Operating lease liabilities			6,746				5,902
Accrued expenses and other liabilities			64,732				64,456
Total liabilities			3,475,293				3,422,765
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: 19,914,884 and 19,991,681 issued and outstanding			19,915				19,992
Additional paid-in capital			152,673				155,095
Retained earnings			285,839				280,426
Accumulated other comprehensive income (loss)			(100,742	)			(98,641	)
Total stockholders’ equity			357,685				356,872
Total liabilities and stockholders’ equity		$	3,832,978			$	3,779,637

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,			March 31,			June 30,			June 30,			June 30,
		2023			2023			2022			2023			2022
Interest Income		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Loans, including fees		$	33,267		$	30,933		$	17,988		$	64,200		$	35,280
Investment securities
Taxable			6,125			5,951			6,068			12,076			11,508
Exempt from federal income taxes			186			190			213			376			429
Other			762			735			157			1,497			273
Total interest income			40,340			37,809			24,426			78,149			47,490
Interest Expense
Deposits			12,678			9,104			813			21,782			1,642
Short-term borrowings			4,763			4,393			278			9,156			278
Long-term debt			665			654			559			1,319			1,121
Total interest expense			18,106			14,151			1,650			32,257			3,041
Net interest income			22,234			23,658			22,776			45,892			44,449
Provision for credit losses			—			550			—			550			—
Net interest income after provision for credit losses			22,234			23,108			22,776			45,342			44,449
Noninterest Income
Retirement and benefit services			15,890			15,482			16,293			31,372			33,939
Wealth management			5,450			5,194			5,548			10,644			10,874
Mortgage banking			2,905			1,717			6,038			4,622			10,969
Service charges on deposit accounts			311			301			412			612			775
Other			1,222			2,559			935			3,781			2,139
Total noninterest income			25,778			25,253			29,226			51,031			58,696
Noninterest Expense
Compensation			18,847			19,158			21,248			38,005			40,299
Employee taxes and benefits			4,724			5,853			5,787			10,577			11,949
Occupancy and equipment expense			1,837			1,899			1,737			3,736			3,788
Business services, software and technology expense			5,269			5,324			4,785			10,593			9,709
Intangible amortization expense			1,324			1,324			1,053			2,648			2,106
Professional fees and assessments			1,530			1,152			2,246			2,682			3,787
Marketing and business development			648			686			814			1,334			1,414
Supplies and postage			406			460			572			866			1,218
Travel			306			248			356			554			535
Mortgage and lending expenses			215			497			482			712			1,168
Other			1,267			1,268			904			2,535			2,082
Total noninterest expense			36,373			37,869			39,984			74,242			78,055
Income before income taxes			11,639			10,492			12,018			22,131			25,090
Income tax expense			2,535			2,306			2,725			4,841			5,613
Net income		$	9,104		$	8,186		$	9,293		$	17,290		$	19,477
Per Common Share Data
Earnings per common share		$	0.45		$	0.41		$	0.53		$	0.86		$	1.11
Diluted earnings per common share		$	0.45		$	0.40		$	0.52		$	0.85		$	1.10
Dividends declared per common share		$	0.19		$	0.18		$	0.18		$	0.37		$	0.34
Average common shares outstanding			20,033			20,028			17,297			20,030			17,271
Diluted average common shares outstanding			20,241			20,246			17,532			20,243			17,517

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,			March 31,			December 31,			June 30,
		2023			2023			2022			2022
Tangible Common Equity to Tangible Assets
Total common stockholders’ equity		$	357,685		$	359,118		$	356,872		$	307,158
Less: Goodwill			47,087			47,087			47,087			31,337
Less: Other intangible assets			19,806			21,131			22,455			17,511
Tangible common equity (a)			290,792			290,900			287,330			258,310
Total assets			3,832,978			3,886,773			3,779,637			3,295,065
Less: Goodwill			47,087			47,087			47,087			31,337
Less: Other intangible assets			19,806			21,131			22,455			17,511
Tangible assets (b)			3,766,085			3,818,555			3,710,095			3,246,217
Tangible common equity to tangible assets (a)/(b)			7.72	%		7.62	%		7.74	%		7.96	%
Tangible Book Value Per Common Share
Total common stockholders’ equity		$	357,685		$	359,118		$	356,872		$	307,158
Less: Goodwill			47,087			47,087			47,087			31,337
Less: Other intangible assets			19,806			21,131			22,455			17,511
Tangible common equity (c)			290,792			290,900			287,330			258,310
Total common shares issued and outstanding (d)			19,915			20,067			19,992			17,306
Tangible book value per common share (c)/(d)		$	14.60		$	14.50		$	14.37		$	14.93

		Three months ended									Six months ended
		June 30,			March 31,			June 30,			June 30,			June 30,
		2023			2023			2022			2023			2022
Return on Average Tangible Common Equity
Net income		$	9,104		$	8,186		$	9,293		$	17,290		$	19,477
Add: Intangible amortization expense (net of tax)			1,046			1,046			832			2,092			1,664
Net income, excluding intangible amortization (e)			10,150			9,232			10,125			19,382			21,141
Average total equity			360,216			361,857			312,515			361,032			331,425
Less: Average goodwill			47,087			47,087			31,488			47,087			31,489
Less: Average other intangible assets (net of tax)			16,153			17,209			14,737			16,678			15,151
Average tangible common equity (f)			296,976			297,561			266,290			297,267			284,785
Return on average tangible common equity (e)/(f)			13.71	%		12.58	%		15.25	%		13.15	%		14.97	%
Efficiency Ratio
Noninterest expense		$	36,373		$	37,869		$	39,984		$	74,242		$	78,055
Less: Intangible amortization expense			1,324			1,324			1,053			2,648			2,106
Adjusted noninterest expense (g)			35,049			36,545			38,931			71,594			75,949
Net interest income			22,234			23,658			22,776			45,892			44,449
Noninterest income			25,778			25,253			29,226			51,031			58,696
Tax-equivalent adjustment			140			124			100			264			194
Total tax-equivalent revenue (h)			48,152			49,035			52,102			97,187			103,339
Efficiency ratio (g)/(h)			72.79	%		74.53	%		74.72	%		73.67	%		73.50	%

Alerus Financial Corporation and Subsidiaries
Analysis of Average Balances, Yields, and Rates (unaudited)
(dollars in thousands)
		Three months ended																		Six months ended
		June 30, 2023						March 31, 2023						June 30, 2022						June 30, 2023						June 30, 2022
					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		$	36,418		4.00	%		$	41,947		3.23	%		$	28,920		0.39	%		$	39,167		3.59	%		$	67,111		0.22	%
Investment securities (1)			1,007,792		2.53	%			1,034,288		2.43	%			1,164,625		2.18	%			1,020,967		2.48	%			1,190,298		2.04	%
Loans held for sale			14,536		5.22	%			10,345		4.98	%			31,878		3.15	%			12,452		5.12	%			28,287		2.90	%
Loans
Commercial:
Commercial and industrial			545,357		6.90	%			559,416		6.09	%			463,215		4.38	%			552,348		6.49	%			449,014		4.52	%
Real estate construction			87,905		7.43	%			103,099		6.56	%			44,627		4.04	%			95,460		6.96	%			42,893		3.97	%
Commercial real estate			956,828		5.09	%			911,634		4.95	%			601,765		3.80	%			934,356		5.02	%			601,397		3.72	%
Total commercial			1,590,090		5.84	%			1,574,149		5.46	%			1,109,607		4.05	%			1,582,164		5.65	%			1,093,304		4.06	%
Consumer
Residential real estate first mortgage			698,288		3.76	%			688,754		3.76	%			543,023		3.29	%			693,547		3.76	%			528,952		3.39	%
Residential real estate junior lien			156,276		7.44	%			149,720		7.21	%			132,082		4.64	%			153,016		7.33	%			129,056		4.55	%
Other revolving and installment			37,759		6.03	%			44,531		5.86	%			53,919		4.40	%			41,126		5.94	%			52,311		4.39	%
Total consumer			892,323		4.50	%			883,005		4.45	%			729,024		3.62	%			887,689		4.48	%			710,319		3.67	%
Total loans (1)			2,482,413		5.36	%			2,457,154		5.10	%			1,838,631		3.88	%			2,469,853		5.23	%			1,803,623		3.91	%
Federal Reserve/FHLB stock			23,724		6.76	%			23,668		6.87	%			10,564		4.90	%			23,697		6.82	%			8,536		4.70	%
Total interest earning assets			3,564,883		4.55	%			3,567,402		4.31	%			3,074,618		3.20	%			3,566,136		4.43	%			3,097,855		3.10	%
Noninterest earning assets			220,604						224,134						184,037						222,358						174,799
Total assets		$	3,785,487					$	3,791,536					$	3,258,655					$	3,788,494					$	3,272,654
Interest-Bearing Liabilities
Interest-bearing demand deposits		$	775,818		1.26	%		$	746,660		0.87	%		$	703,365		0.12	%		$	761,319		1.07	%		$	708,888		0.12	%
Money market and savings deposits			1,145,335		2.81	%			1,165,269		2.17	%			1,041,898		0.14	%			1,155,247		2.49	%			1,042,660		0.14	%
Time deposits			270,121		3.29	%			231,959		2.23	%			211,787		0.43	%			251,145		2.80	%			219,592		0.44	%
Fed funds purchased			360,033		5.31	%			290,187		4.85	%			81,506		1.18	%			325,303		5.10	%			40,978		1.18	%
Short-term borrowings			—		—	%			80,000		4.69	%			9,615		1.59	%			39,779		4.69	%			4,834		1.59	%
Long-term debt			58,886		4.52	%			58,858		4.51	%			58,876		3.81	%			58,872		4.51	%			58,892		3.84	%
Total interest-bearing liabilities			2,610,193		2.78	%			2,572,933		2.23	%			2,107,047		0.31	%			2,591,665		2.51	%			2,075,844		0.30	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Noninterest-bearing deposits			748,942						789,134						783,367						768,927						807,271
Other noninterest-bearing liabilities			66,136						67,612						55,726						66,870						58,114
Stockholders’ equity			360,216						361,857						312,515						361,032						331,425
Total liabilities and stockholders’ equity		$	3,785,487					$	3,791,536					$	3,258,655					$	3,788,494					$	3,272,654
Net interest income (1)
Net interest rate spread					1.77	%					2.08	%					2.89	%					1.92	%					2.80	%
Net interest margin, tax-equivalent (1)					2.52	%					2.70	%					2.98	%					2.61	%					2.91	%
(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/20230726487813/en/

Alan A. Villalon, Chief Financial Officer

952.417.3733 (Office)

Source: Alerus Financial Corporation

FAQ

What was Alerus Financial Corporation's net income for Q2 2023?

Alerus Financial Corporation reported net income of $9.1 million for the second quarter of 2023.

What percentage of total revenues did fee income represent in Q2?

Fee income represented 53.7% of total revenues in the second quarter of 2023.

How much did noninterest expenses decline by in Q2 compared to the previous quarter?

Noninterest expenses declined 4% from the first quarter of 2023.

Did Alerus Financial Corporation reduce its total headcount?

Yes, Alerus Financial Corporation reduced its total headcount by 10% over the past 12 months.