Alerus Financial Corporation Reports Third Quarter 2022 Net Income of $9.6 Million

Rhea-AI Summary

Alerus Financial Corporation (Nasdaq: ALRS) reported a third-quarter 2022 net income of $9.6 million, or $0.47 per diluted share, down from $13.1 million and $0.74 in Q3 2021. Excluding merger expenses from the acquisition of Metro Phoenix Bank, diluted earnings were $0.54. Loan growth surged 31.9% to $2.3 billion, attributed to the acquisition and organic growth. Net interest income rose 24.3% from Q2 2022, while noninterest income fell 25.1% year-over-year. Asset quality remained stable with 0.23% of total loans as nonperforming.

Positive

• Net income increased to $9.6 million for Q3 2022, including a strong loan growth of 31.9%.
• Net interest income rose 24.3% quarter-over-quarter, reflecting successful loan growth and acquisitions.
• Historically low net charge-off ratio at 0.07%, indicating strong credit quality and risk management.

Negative

• Earnings per share declined from $0.74 in Q3 2021 to $0.47 in Q3 2022.
• Noninterest income dropped 25.1% year-over-year due to decreased mortgage banking and wealth management revenues.
• Common equity tier 1 capital ratio decreased to 13.63% from 14.65% since December 2021.

MINNEAPOLIS--(BUSINESS WIRE)-- Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $9.6 million for the third quarter of 2022, or $0.47 per diluted common share, compared to net income of $9.3 million, or $0.52 per diluted common share, for the second quarter of 2022, and net income of $13.1 million, or $0.74 per diluted common share, for the third quarter of 2021. Excluding the acquisition of Metro Phoenix Bank, earnings per diluted common share were $0.54 for the third quarter of 2022.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “We ended the quarter with net income of $9.6 million; this included $1.8 million of merger expenses as we closed and converted the Metro Phoenix Bank acquisition during the quarter. The seamless integration of Metro Phoenix Bank marks a historic milestone as the Company’s twenty-fifth acquisition.

Our financial results were highlighted by strong loan growth during the quarter, driven by the addition of new team members and expansion of existing client relationships. During the last several years we have invested further in our credit talent and infrastructure. We have improved our credit policies and deepened our credit risk management practices in preparation for improved organic loan growth. The Company’s historic net charge-off ratio is 27 basis points, dating back over 25 years. Prudent credit underwriting and client selection continue to remain a key focus as we lend through the uncertainty of the current economic cycle.

We continue to position the Company strategically as the economic environment continues to evolve. We believe our diversified business model, with recurring revenue streams, strong capital levels, liquidity profile, and underwriting culture will continue to differentiate us from the rest of the industry. I know our team will respond to any challenge and I am proud of their constant dedication to serving our clients and communities, and for delivering positive results for our shareholders.”

Quarterly Highlights

• Return on average total assets of 1.02%, compared to 1.14% for the second quarter of 2022. Excluding merger and acquisition expenses, return on average total assets was 1.17% for the third quarter of 2022
• Return on average common equity of 10.25%, compared to 11.93% for the second quarter of 2022. Excluding merger and acquisition expenses, return on average common equity was 12.18% for the third quarter of 2022
• Return on average tangible common equity⁽¹⁾ of 13.89%, compared to 15.25% for the second quarter of 2022. Excluding merger and acquisition expenses, return on average tangible common equity was 15.75% for the third quarter of 2022
• Net interest margin (tax-equivalent) was 3.21%, compared to 2.98% for the second quarter of 2022. Excluding the acquisition of Metro Phoenix Bank, net interest margin (tax-equivalent) was 3.04% for the third quarter of 2022
• Allowance for loan losses to total loans was 1.34% compared to 1.80% as of December 2021. Excluding Metro Phoenix Bank, the allowance for loan losses to total loas was 1.51% as of September 2022
• Noninterest income for the third quarter of 2022 was 48.82% of total revenue, compared to 56.20% for the second quarter of 2022
• Loans held for investment increased $560.2 million, or 31.9%, since December 31, 2021; Metro Phoenix Bank loans acquired totaled $270.4 million. Excluding the acquisition of Metro Phoenix Bank and Paycheck Protection Program, or PPP, loans, loans held for investment increased $320.5 million, or 18.2%, since December 31, 2021
• Loan to deposit ratio was 78.3%, compared to 60.2% as of December 31, 2021.
• Common equity tier 1 capital to risk weighted assets was 13.63%, compared to 14.65% as of December 31, 2021

(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													Nine months ended
		September 30,				June 30,				September 30,					September 30,				September 30,
(dollars and shares in thousands, except per share data)		2022				2022				2021					2022				2021
Performance Ratios
Return on average total assets			1.02	%			1.14	%			1.62		%			1.13	%			1.71	%
Return on average common equity			10.25	%			11.93	%			14.68		%			11.27	%			15.61	%
Return on average tangible common equity (1)			13.89	%			15.25	%			18.13		%			14.59	%			19.44	%
Noninterest income as a % of revenue			48.82	%			56.20	%			63.04		%			54.08	%			63.87	%
Net interest margin (tax-equivalent)			3.21	%			2.98	%			2.78		%			3.02	%			2.92	%
Efficiency ratio (1)			74.76	%			74.72	%			71.49		%			73.94	%			69.69	%
Net charge-offs/(recoveries) to average loans			0.07	%			0.07	%			(0.06	)	%			0.04	%			0.01	%
Dividend payout ratio			38.30	%			34.62	%			21.62		%			33.33	%			20.80	%
Per Common Share
Earnings per common share - basic		$	0.48			$	0.53			$	0.75				$	1.58			$	2.29
Earnings per common share - diluted		$	0.47			$	0.52			$	0.74				$	1.56			$	2.26
Dividends declared per common share		$	0.18			$	0.18			$	0.16				$	0.52			$	0.47
Book value per common share		$	17.25			$	17.75			$	20.53
Tangible book value per common share (1)		$	13.76			$	14.93			$	17.46
Average common shares outstanding - basic			19,987				17,297				17,205					18,186				17,182
Average common shares outstanding - diluted			20,230				17,532				17,499					18,431				17,488
Other Data
Retirement and benefit services assets under administration/management		$	30,545,694			$	31,749,157			$	36,202,553
Wealth management assets under administration/management		$	3,435,786			$	4,147,763			$	3,865,062
Mortgage originations		$	229,901			$	269,397			$	415,792				$	686,060			$	1,479,243

(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 2022 was $28.3 million, a $5.5 million, or 24.3%, increase from the second quarter of 2022. Net interest income increased $7.2 million, or 34.0%, from $21.1 million for the third quarter of 2021. The linked quarter increase was primarily driven by increases of $7.4 million in interest income from loans and a $591 thousand increase in other interest income, partially offset by increases of $1.2 million in interest expense related to short-term borrowings and $1.0 million in interest expense from deposits, the result of a rising interest rate environment and an increase in our short-term borrowings. The increases in loans and deposits were primarily the result of the Metro Phoenix Bank acquisition which included $270.4 million in loans and $353.7 million in deposits. Short-term borrowings increased primarily due to loan growth outpacing deposit growth.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 3.21% for the third quarter of 2022, a 23 basis point increase from 2.98% for the second quarter of 2022, and a 43 basis point increase from 2.78% in the third quarter of 2021. Excluding the acquisition of Metro Phoenix Bank, net interest margin was 3.04% for the third quarter of 2022, a 6 basis point increase from the second quarter of 2022, and a 26 basis point increase from the third quarter of 2021. The quarter over quarter increase was primarily driven by a 45 basis point increase in interest earning asset yields, partially offset by a 35 basis point increase in the rate paid on interest-bearing liabilities, the result of a rising interest rate environment. Additionally, we saw the average balance on interest-earning assets and interest-bearing liabilities increase, primarily due to the loans and deposits acquired from Metro Phoenix Bank.

Noninterest Income

Noninterest income for the third quarter of 2022 was $27.0 million, a $2.2 million, or 7.6%, decrease from the second quarter of 2022. The linked quarter decrease was primarily driven by decreases of $2.3 million in mortgage banking revenue and $696 thousand in wealth management revenue. Partially offsetting these decreases was a $304 thousand increase in retirement and benefit services revenue. The decrease in mortgage banking revenue was primarily driven by a $39.5 million, or 14.7%, decrease in mortgage originations as well as an 82 basis point decrease in the gain on sale margin. Wealth management revenue decreased primarily due to a $712.0 million decrease in assets under management, the result of an overall market value decrease.

Noninterest income for the third quarter of 2022 decreased $9.0 million, or 25.1%, from $36.0 million in the third quarter of 2021. The year over year decrease was primarily driven by decreases of $7.3 million in mortgage banking revenue, $1.4 million in retirement and benefit services revenue and $443 thousand in wealth management revenue. Mortgage banking revenue decreased primarily due to a $185.9 million, or 44.7%, decrease in mortgage originations and a 94 basis point decrease in the gain on sale margin. Retirement and benefit services revenue decreased primarily due to a decrease in asset-based fees from a $5.7 billion decrease in assets under administration/management. Wealth management revenue decreased primarily as a result of a $429.3 million decrease in assets under management, the result of declines in market values.

Noninterest Expense

Noninterest expense for the third quarter of 2022 was $42.8 million, a $2.8 million, or 7.0%, increase compared to the second quarter of 2022. The linked quarter increase was primarily driven by increases of $1.7 million in other noninterest expense and $880 thousand in professional fees and assessments expense. Partially offsetting these increases was a $708 thousand decrease in employee taxes and benefits expense. The increase in other noninterest expense was primarily driven by a $1.3 million increase in the provision for unused commitments. This provision expense was the result of new business generated within our real estate construction loans. Professional fees and assessments expense included $1.8 million in merger related expenses associated with the acquisition of Metro Phoenix Bank, an increase of $998 thousand from the prior quarter. Employee taxes and benefits decreased primarily due to a $328 thousand decrease in health insurance claims from the prior quarter.

Noninterest expense for the third quarter of 2022 increased $726 thousand, or 1.7%, from $42.0 million in the third quarter of 2021. The year over year increase in noninterest expense was primarily driven by increases of $1.7 million in other noninterest expense and $1.6 million in professional fees and assessments, partially offset by a $2.1 million decrease in compensation expense. Noninterest expense increased primarily as a result of an $841 thousand increase in the provision for unused commitments, the result of new business generated within our real estate construction loans. Professional fees and assessments increased primarily due to $1.8 million in merger related expenses associated with the acquisition of Metro Phoenix Bank. The year over year decrease in mortgage originations drove the overall decrease in compensation expense as compared to the third quarter of 2021.

Financial Condition

Total assets were $3.7 billion as of September 30, 2022, an increase of $298.6 million, or 8.8%, from December 31, 2021. The overall increase in total assets included an increase of $560.2 million in loans held for investment, partially offset by decreases of $188.1 million in cash and cash equivalents and $150.2 million in investment securities.

Loans

Total loans were $2.3 billion as of September 30, 2022, an increase of $560.2 million, or 31.9%, from December 31, 2021. This increase was primarily due to increases of $270.4 million in loans acquired from Metro Phoenix Bank and $289.8 million in organic loan growth. Excluding loans acquired from Metro Phoenix Bank, the increases in organic loan growth included increases of $119.5 million in residential real estate first mortgages, $91.9 million in commercial real estate loans, and $31.3 million in commercial and industrial loans, also excluding PPP loans, commercial and industrial loans increased $62.0 million.

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

		September 30,			June 30,			March 31,			December 31,			September 30,
(dollars in thousands)		2022			2022			2022			2021			2021
Commercial
Commercial and industrial (1)		$	564,655		$	484,426		$	467,449		$	436,761		$	506,599
Real estate construction			89,215			48,870			41,604			40,619			37,751
Commercial real estate			819,068			599,737			602,158			598,893			573,518
Total commercial			1,472,938			1,133,033			1,111,211			1,076,273			1,117,868
Consumer
Residential real estate first mortgage			649,818			568,571			522,489			510,716			501,339
Residential real estate junior lien			143,681			135,255			130,604			125,668			130,243
Other revolving and installment			51,794			53,384			53,738			45,363			50,936
Total consumer			845,293			757,210			706,831			681,747			682,518
Total loans		$	2,318,231		$	1,890,243		$	1,818,042		$	1,758,020		$	1,800,386

______________
(1)		Includes PPP loans of $2.9 million at September 30, 2022, $6.9 million at June 30, 2022, $13.1 million at March 31, 2022, $33.6 million at December 31, 2021 and $103.5 million at September 30, 2021.

Deposits

Total deposits were $3.0 billion as of September 30, 2022, an increase of $41.3 million, or 1.4%, from December 31, 2021. Interest-bearing deposits increased $74.9 million, while noninterest-bearing deposits decreased $33.6 million in the third quarter of 2022. The increase in total deposits was primarily due to $353.7 million of deposits acquired from Metro Phoenix Bank. Excluding deposits acquired from Metro Phoenix Bank, deposits decreased $312.4 million, or 10.7%. The decrease was primarily driven by decreases of $129.8 million in noninterest-bearing deposits, $80.0 million in interest-bearing demand deposits, and $59.3 million in time deposits. Noninterest-bearing deposits decreased primarily due to a decrease in synergistic deposits. The decrease in interest-bearing demand deposits was the result of seasonally lower balances in public unit deposits. Time deposits decreased due to clients shifting balances to more liquid accounts. Synergistic deposits, which include deposits from our retirement and benefit services and wealth management segments as well as HSA deposits, decreased $35.5 million from December 31, 2021 primarily due to year-end seasonally higher temporary balances from retirement plan terminations.

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

		September 30,			June 30,			March 31,			December 31,			September 30,
(dollars in thousands)		2022			2022			2022			2021			2021
Noninterest-bearing demand		$	905,228		$	764,808		$	831,558		$	938,840		$	797,062
Interest-bearing
Interest-bearing demand			653,216			642,641			760,321			714,669			673,916
Savings accounts			101,820			97,227			99,299			96,825			92,632
Money market savings			1,079,520			914,423			976,905			937,305			924,678
Time deposits			222,027			200,451			224,184			232,912			224,800
Total interest-bearing			2,056,583			1,854,742			2,060,709			1,981,711			1,916,026
Total deposits		$	2,961,811		$	2,619,550		$	2,892,267		$	2,920,551		$	2,713,088

Asset Quality

Total nonperforming assets were $6.2 million as of September 30, 2022, an increase of $3.1 million, or 101.4%, from December 31, 2021, primarily due to a residential real estate first mortgage client that is being individually evaluated for impairment. As of September 30, 2022, the allowance for loan losses was $31.0 million, or 1.34% of total loans, compared to $31.6 million, or 1.80% of total loans, as of December 31, 2021. Excluding Metro Phoenix Bank, the allowance for loan losses to total loans was 1.51% as of September 30, 2022.

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 31,					December 31,					September 30,
(dollars in thousands)		2022				2022				2022					2021					2021
Nonaccrual loans		$	4,303			$	4,370			$	4,069				$	2,076				$	6,229
Accruing loans 90+ days past due			1,000				—				146					121					—
Total nonperforming loans			5,303				4,370				4,215					2,197					6,229
OREO and repossessed assets			904				860				865					885					862
Total nonperforming assets		$	6,207			$	5,230			$	5,080				$	3,082				$	7,091
Net charge-offs/(recoveries)			405				340				(141	)				(1,006	)				(302	)
Net charge-offs/(recoveries) to average loans			0.07	%			0.07	%			(0.03	)	%			(0.22	)	%			(0.06	)	%
Nonperforming loans to total loans			0.23	%			0.23	%			0.23		%			0.12		%			0.35		%
Nonperforming assets to total assets			0.17	%			0.16	%			0.15		%			0.09		%			0.22		%
Allowance for loan losses to total loans			1.34	%			1.66	%			1.74		%			1.80		%			1.78		%
Allowance for loan losses to nonperforming loans			584	%			718	%			752		%			1,437		%			515		%

For the third quarter of 2022, we had net charge-offs of $405 thousand compared to net charge-offs of $340 thousand for the second quarter of 2022 and $302 thousand of net recoveries for the third quarter of 2021.

There was no provision expense recorded for the three months ended September 30, 2022, no change compared to the three months ended June 30, 2022, and a $2.0 million increase as compared to the three months ended September 30, 2021. Although management saw increases in overall loan volume, based on the reduction of previous adjustments for pandemic related qualitative factors, management concluded no need for additional provision.

Capital

Total stockholders’ equity was $344.8 million as of September 30, 2022, a decrease of $14.6 million, or 4.1%, from December 31, 2021. The decrease in stockholders’ equity was primarily due to a $98.7 million decrease in accumulated other comprehensive loss, due to rising interest rates, which resulted in a lower fair value of our available-for-sale investment securities, partially offset by a $61.8 million increase in additional paid-in capital as a result of the Metro Phoenix Bank acquisition. Tangible book value per common share, a non-GAAP financial measure, decreased to $13.76 as of September 30, 2022, from $17.87 as of December 31, 2021. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.59% as of September 30, 2022, from 9.21% as of December 31, 2021. Common equity tier 1 capital to risk weighted assets decreased to 13.63% as of September 30, 2022, from 14.65% as of December 31, 2021.

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

		September 30,			December 31,			September 30,
		2022			2021			2021
Capital Ratios(1)
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets		13.63	%		14.65	%		14.52	%
Tier 1 capital to risk weighted assets		13.94	%		15.06	%		14.93	%
Total capital to risk weighted assets		16.84	%		18.64	%		18.58	%
Tier 1 capital to average assets		10.82	%		9.79	%		9.88	%
Tangible common equity / tangible assets (2)		7.59	%		9.21	%		9.62	%
Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets		13.01	%		13.87	%		13.77	%
Tier 1 capital to risk weighted assets		13.01	%		13.87	%		13.77	%
Total capital to risk weighted assets		14.11	%		15.12	%		15.03	%
Tier 1 capital to average assets		11.12	%		9.01	%		9.11	%

(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, October 27, 2022, to discuss its financial results. The call can be accessed via telephone at (844) 200-6205, using access code 769396. 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., 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 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 Benefits 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 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: 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 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, including rising rates of inflation; 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 from non-banks such as credit unions and Fintech companies; our ability to successfully manage liquidity risk, especially in light of recent excess liquidity at the Bank; 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; fluctuations in the values of the securities held in our securities portfolio, including as a result of rising interest rates; governmental monetary, trade and fiscal policies; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic, the negative effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the 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; 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. 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; possible federal mask and vaccine mandates; 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)
		September 30,				December 31,
		2022				2021
Assets		(Unaudited)				(Audited)
Cash and cash equivalents		$	54,167			$	242,311
Investment securities
Available-for-sale, at fair value			729,110				853,649
Held-to-maturity, at carrying value			326,410				352,061
Fed funds sold			14,124				—
Loans held for sale			26,129				46,490
Loans			2,318,231				1,758,020
Allowance for loan losses			(30,968	)			(31,572	)
Net loans			2,287,263				1,726,448
Land, premises and equipment, net			17,067				18,370
Operating lease right-of-use assets			3,481				3,727
Accrued interest receivable			11,256				8,537
Bank-owned life insurance			33,777				33,156
Goodwill			46,060				31,490
Other intangible assets			23,779				20,250
Servicing rights			2,780				1,880
Deferred income taxes, net			45,889				11,614
Other assets			69,961				42,708
Total assets		$	3,691,253			$	3,392,691
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	905,228			$	938,840
Interest-bearing			2,056,583				1,981,711
Total deposits			2,961,811				2,920,551
Short-term borrowings			253,830				—
Long-term debt			58,836				58,933
Operating lease liabilities			3,802				4,275
Accrued expenses and other liabilities			68,135				49,529
Total liabilities			3,346,414				3,033,288
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: 19,987,274 and 17,212,588 issued and outstanding			19,987				17,213
Additional paid-in capital			154,629				92,878
Retained earnings			273,132				253,567
Accumulated other comprehensive income (loss)			(102,909	)			(4,255	)
Total stockholders’ equity			344,839				359,403
Total liabilities and stockholders’ equity		$	3,691,253			$	3,392,691

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,
		2022			2022			2021				2022			2021
Interest Income		(Unaudited)			(Unaudited)			(Unaudited)				(Unaudited)			(Unaudited)
Loans, including fees		$	25,379		$	17,988		$	18,888			$	60,659		$	58,779
Investment securities
Taxable			5,939			6,068			3,249				17,447			8,547
Exempt from federal income taxes			209			213			225				638			694
Other			748			157			185				1,021			432
Total interest income			32,275			24,426			22,547				79,765			68,452
Interest Expense
Deposits			1,852			813			880				3,494			2,781
Short-term borrowings			1,516			278			—				1,794			—
Long-term debt			591			559			535				1,712			1,361
Total interest expense			3,959			1,650			1,415				7,000			4,142
Net interest income			28,316			22,776			21,132				72,765			64,310
Provision for loan losses			—			—			(2,000	)			—			(2,000	)
Net interest income after provision for loan losses			28,316			22,776			23,132				72,765			66,310
Noninterest Income
Retirement and benefit services			16,597			16,293			18,031				50,536			53,157
Wealth management			4,852			5,548			5,295				15,726			15,419
Mortgage banking			3,782			6,038			11,116				14,751			40,535
Service charges on deposit accounts			377			412			357				1,152			1,025
Net gains (losses) on investment securities			—			—			11				—			125
Other			1,402			935			1,230				3,541			3,408
Total noninterest income			27,010			29,226			36,040				85,706			113,669
Noninterest Expense
Compensation			21,168			21,248			23,291				61,467			71,298
Employee taxes and benefits			5,079			5,787			5,058				17,028			16,443
Occupancy and equipment expense			1,926			1,737			2,063				5,713			6,212
Business services, software and technology expense			5,373			4,785			5,332				15,082			15,266
Intangible amortization expense			1,324			1,053			1,088				3,430			3,327
Professional fees and assessments			3,126			2,246			1,503				6,913			4,484
Marketing and business development			890			814			865				2,304			2,310
Supplies and postage			588			572			549				1,806			1,583
Travel			291			356			174				826			236
Mortgage and lending expenses			409			482			1,231				1,577			3,762
Other			2,593			904			887				4,676			2,712
Total noninterest expense			42,767			39,984			42,041				120,822			127,633
Income before income taxes			12,559			12,018			17,131				37,649			52,346
Income tax expense			2,940			2,725			4,064				8,553			12,370
Net income		$	9,619		$	9,293		$	13,067			$	29,096		$	39,976
Per Common Share Data
Earnings per common share		$	0.48		$	0.53		$	0.75			$	1.58		$	2.29
Diluted earnings per common share		$	0.47		$	0.52		$	0.74			$	1.56		$	2.26
Dividends declared per common share		$	0.18		$	0.18		$	0.16			$	0.52		$	0.47
Average common shares outstanding			19,987			17,297			17,205				18,186			17,182
Diluted average common shares outstanding			20,230			17,532			17,499				18,431			17,488

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,
		2022				2022				2021				2021
Tangible Common Equity to Tangible Assets
Total common stockholders’ equity		$	344,839			$	307,158			$	359,403			$	353,195
Less: Goodwill			46,060				31,337				31,490				30,201
Less: Other intangible assets			23,779				17,511				20,250				22,593
Tangible common equity (a)			275,000				258,310				307,663				300,401
Total assets			3,691,253				3,295,065				3,392,691				3,175,169
Less: Goodwill			46,060				31,337				31,490				30,201
Less: Other intangible assets			23,779				17,511				20,250				22,593
Tangible assets (b)			3,621,414				3,246,217				3,340,951				3,122,375
Tangible common equity to tangible assets (a)/(b)			7.59	%			7.96	%			9.21	%			9.62	%
Tangible Book Value Per Common Share
Total common stockholders’ equity		$	344,839			$	307,158			$	359,403			$	353,195
Less: Goodwill			46,060				31,337				31,490				30,201
Less: Other intangible assets			23,779				17,511				20,250				22,593
Tangible common equity (c)			275,000				258,310				307,663				300,401
Total common shares issued and outstanding (d)			19,987				17,306				17,213				17,208
Tangible book value per common share (c)/(d)		$	13.76			$	14.93			$	17.87			$	17.46

		Three months ended												Nine months ended
		September 30,				June 30,				September 30,				September 30,				September 30,
		2022				2022				2021				2022				2021
Return on Average Tangible Common Equity
Net income		$	9,619			$	9,293			$	13,067			$	29,096			$	39,976
Add: Intangible amortization expense (net of tax)			1,046				832				860				2,710				2,628
Net income, excluding intangible amortization (e)			10,665				10,125				13,927				31,806				42,604
Average total equity			372,274				312,515				353,196				345,192				342,344
Less: Average goodwill			48,141				31,488				30,201				37,101				30,201
Less: Average other intangible assets (net of tax)			19,466				14,737				18,272				16,605				19,124
Average tangible common equity (f)			304,667				266,290				304,723				291,486				293,019
Return on average tangible common equity (e)/(f)			13.89	%			15.25	%			18.13	%			14.59	%			19.44	%
Efficiency Ratio
Noninterest expense		$	42,767			$	39,984			$	42,041			$	120,822			$	127,633
Less: Intangible amortization expense			1,324				1,053				1,088				3,430				3,327
Adjusted noninterest expense (g)			41,443				38,931				40,953				117,392				124,306
Net interest income			28,316				22,776				21,132				72,765				64,310
Noninterest income			27,010				29,226				36,040				85,706				113,669
Tax-equivalent adjustment			112				100				115				306				392
Total tax-equivalent revenue (h)			55,438				52,102				57,287				158,777				178,371
Efficiency ratio (g)/(h)			74.76	%			74.72	%			71.49	%			73.94	%			69.69	%

Alerus Financial Corporation and Subsidiaries Analysis of Average Balances, Yields, and Rates (unaudited) (dollars in thousands)
		Three months ended																		Nine months ended
		September 30, 2022						June 30, 2022						September 30, 2021						September 30, 2022						September 30, 2021
					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		$	72,157		2.02	%		$	28,920		0.39	%		$	281,768		0.16	%		$	68,811		0.86	%		$	219,636		0.14	%
Investment securities (1)			1,116,458		2.20	%			1,164,625		2.18	%			869,421		1.61	%			1,165,414		2.09	%			778,307		1.62	%
Fed funds sold			21,893		2.37	%			—		—	%			—		—	%			7,378		2.37	%			—		—	%
Loans held for sale			27,032		4.14	%			31,878		3.15	%			57,233		2.40	%			27,864		3.31	%			70,218		2.25	%
Loans
Commercial:
Commercial and industrial			566,987		5.41	%			463,215		4.38	%			544,811		4.95	%			488,771		4.87	%			615,310		4.73	%
Real estate construction			70,545		5.60	%			44,627		4.04	%			37,743		3.99	%			52,212		4.71	%			41,812		4.17	%
Commercial real estate			807,505		4.07	%			601,765		3.80	%			567,696		3.67	%			670,854		3.86	%			565,861		3.72	%
Total commercial			1,445,037		4.67	%			1,109,607		4.05	%			1,150,250		4.29	%			1,211,837		4.30	%			1,222,983		4.24	%
Consumer
Residential real estate first mortgage			624,826		3.54	%			543,023		3.29	%			487,699		3.32	%			561,261		3.45	%			468,395		3.53	%
Residential real estate junior lien			140,664		5.41	%			132,082		4.64	%			129,239		4.57	%			132,968		4.86	%			132,145		4.67	%
Other revolving and installment			51,834		4.98	%			53,919		4.40	%			53,683		4.45	%			52,150		4.59	%			60,785		4.37	%
Total consumer			817,324		3.96	%			729,024		3.62	%			670,621		3.65	%			746,379		3.78	%			661,325		3.84	%
Total loans (1)			2,262,361		4.41	%			1,838,631		3.88	%			1,820,871		4.05	%			1,958,216		4.10	%			1,884,308		4.10	%
Federal Reserve/FHLB stock			18,449		5.35	%			10,564		4.90	%			6,505		4.33	%			11,877		5.04	%			6,273		4.37	%
Total interest earning assets			3,518,350		3.65	%			3,074,618		3.20	%			3,035,798		2.96	%			3,239,560		3.30	%			2,958,742		3.11	%
Noninterest earning assets			224,804						184,037						155,079						191,652						161,077
Total assets		$	3,743,154					$	3,258,655					$	3,190,877					$	3,431,212					$	3,119,819
Interest-Bearing Liabilities
Interest-bearing demand deposits		$	659,696		0.13	%		$	703,365		0.12	%		$	692,873		0.14	%		$	692,310		0.12	%		$	678,015		0.15	%
Money market and savings deposits			1,180,576		0.40	%			1,041,898		0.14	%			1,009,564		0.14	%			1,089,137		0.24	%			1,018,347		0.15	%
Time deposits			234,459		0.74	%			211,787		0.43	%			217,756		0.50	%			224,603		0.54	%			212,297		0.57	%
Fed funds purchased			84,149		3.71	%			81,506		1.18	%			10		—	%			55,527		2.47	%			3		—	%
Short-term borrowings			168,750		1.71	%			9,615		1.59	%			—		—	%			60,073		1.71	%			—		—	%
Long-term debt			58,843		3.98	%			58,876		3.81	%			58,968		3.60	%			58,875		3.89	%			48,002		3.79	%
Total interest-bearing liabilities			2,386,473		0.66	%			2,107,047		0.31	%			1,979,171		0.28	%			2,180,525		0.43	%			1,956,664		0.28	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Noninterest-bearing deposits			920,340						783,367						799,854						845,375						762,685
Other noninterest-bearing liabilities			64,067						55,726						58,656						60,120						58,126
Stockholders’ equity			372,274						312,515						353,196						345,192						342,344
Total liabilities and stockholders’ equity		$	3,743,154					$	3,258,655					$	3,190,877					$	3,431,212					$	3,119,819
Net interest income (1)
Net interest rate spread					2.99	%					2.89	%					2.68	%					2.87	%					2.83	%
Net interest margin, tax-equivalent (1)					3.21	%					2.98	%					2.78	%					3.02	%					2.92	%

______________
(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/20221026006059/en/

Alan A. Villalon, Chief Financial Officer

952.417.3733 (Office)

Source: Alerus Financial Corporation

FAQ

What was Alerus Financial's net income for Q3 2022?

Alerus Financial reported a net income of $9.6 million for Q3 2022.

How did the earnings per share change for ALRS in Q3 2022?

Earnings per share decreased to $0.47 in Q3 2022 from $0.74 in Q3 2021.

What impact did the Metro Phoenix Bank acquisition have on Alerus Financial's loan growth?

The acquisition contributed to a 31.9% increase in loans held for investment, totaling $2.3 billion.

What was the noninterest income percentage for Alerus Financial in Q3 2022?

Noninterest income for Q3 2022 was 48.82% of total revenue.

How did Alerus Financial's capital ratios change since December 2021?

Common equity tier 1 capital ratio decreased to 13.63% from 14.65%.