Alerus Financial Corporation Sells $172.3M of Debt Securities and Uses Proceeds to Fund Loan Growth, Cut Borrowings

Rhea-AI Summary

Alerus Financial Corporation (NASDAQ: ALRS) completed the sale of $172.3 million of available-for-sale securities resulting in a one-time pre-tax net loss of $24.7 million. The proceeds will be reinvested into loans for clients and paying down borrowings. The restructuring has no impact on tangible capital, improves the net interest margin, and positions the company for higher earnings in 2024.

Positive

• None.

Negative

• The sale resulted in a one-time pre-tax net loss of $24.7 million, which may raise concerns among shareholders and investors about the company's financial performance and decision-making.

Insights

Financial Analyst

The recent transaction by Alerus Financial Corporation indicates a strategic shift in asset allocation from lower-yielding securities to potentially higher-yielding loans. The reported pre-tax net loss of $24.7 million from the sale of available-for-sale securities is a significant one-time financial event. While this loss may affect short-term earnings, the action is intended to enhance the company's net interest margin and overall profitability in the long term.

The decision to redirect funds toward loans suggests confidence in the company's commercial lending operations and an expectation of increased loan demand. The management's projection of a 3.7-year earn-back period for the loss, relative to the 6.1-year remaining life of the sold securities, implies an anticipated improvement in earnings yield that exceeds the cost of the restructuring.

Stakeholders should note the company's maintained capital strength and liquidity, as evidenced by the continuation of shareholder returns through dividends and share repurchases. However, the reallocation of assets carries inherent risks, such as potential loan defaults or shifts in interest rates, which could impact the expected returns on the new loans.

Industry Analyst

By selling off lower-yielding securities, Alerus Financial Corporation is adapting to a changing economic environment and taking steps to remain competitive within the financial services industry. This move aligns with broader industry trends where institutions are seeking to optimize their balance sheets amidst fluctuating interest rates and economic conditions.

The impact on net interest margin is a critical metric for financial institutions, as it directly correlates with profitability. Alerus Financial's strategy to improve this margin suggests a proactive approach to financial management. The focus on commercial loans could signal a shift in market dynamics or a response to increased business activities in the communities they serve.

Comparing the company's strategy with industry norms, such a significant sale of AFS securities may not be common practice, indicating a more aggressive approach to asset reallocation. Stakeholders should monitor the company's future financial performance to assess the effectiveness of this strategy in the context of industry benchmarks.

Economist

The economic implications of Alerus Financial Corporation's restructuring of its asset portfolio reflect anticipatory management in response to economic signals. The transition from low-yield securities to loans suggests an expectation of a stable or improving economic environment where businesses seek credit for expansion or operations.

From an economic standpoint, the reinvestment into loans could stimulate economic activity in the regions served by the company, potentially leading to job creation and business growth. This could have a multiplier effect on the local economy. However, it also exposes the company to macroeconomic risks, such as an economic downturn that could affect the ability of borrowers to repay loans.

The decision to pay down borrowings with the proceeds also indicates a focus on deleveraging and balance sheet optimization, which is prudent in uncertain economic times. The company's strategy must be agile to adapt to both expected and unforeseen economic shifts.

MINNEAPOLIS--(BUSINESS WIRE)-- On December 15, 2023, Alerus Financial Corporation (NASDAQ: ALRS) completed the sale of $172.3 million of available-for-sale securities (“AFS”). The sale resulted in a one-time pre-tax net loss of $24.7 million. Proceeds from the sale will be reinvested into loans to new and existing clients throughout the communities the Company serves in addition to paying down borrowings. The weighted average yield on the AFS securities sold was 2.66% and the estimated time to earn back this loss is approximately 3.7 years, compared to the estimated weighted average remaining life of the AFS securities sold of 6.1 years. The restructuring has no impact on tangible capital, improves the net interest margin and positions the company for higher earnings in 2024.

President and Chief Executive Officer Katie Lorenson added, “With a strong commercial loan pipeline in the fourth quarter, we made the strategic decision to sell securities and reinvest the proceeds into higher yielding loans. Our balance sheet remains strong with robust capital and liquidity, as demonstrated by our recently announced quarterly dividend and share repurchase program authorization of up to 1 million shares. Overall, the sale moves low yielding investments off of the balance sheet to be replaced with loans to clients across the communities we serve, while positioning the company for higher returns and future book value growth.”

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 and Scottsdale, Arizona. Alerus Retirement and Benefits plan administration hubs are in Minnesota, Michigan, and Colorado.

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. 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 risks described in the “Risk Factors” sections of 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231219816186/en/

Al Villalon, Investor Relations

952.417.3733

Al.Villalon@alerus.com

investors.alerus.com

Source: Alerus Financial Corporation

FAQ

What did Alerus Financial Corporation (NASDAQ: ALRS) complete on December 15, 2023?

Alerus Financial Corporation completed the sale of $172.3 million of available-for-sale securities resulting in a one-time pre-tax net loss of $24.7 million.

What will the proceeds from the sale be used for?

The proceeds from the sale will be reinvested into loans for new and existing clients and paying down borrowings.

How will the sale impact the company's financial position?

The restructuring resulting from the sale has no impact on tangible capital, improves the net interest margin, and positions the company for higher earnings in 2024.