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Alerus Financial Corporation Reports Third Quarter 2021 Net Income of $13.1 Million

Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $13.1 million for the third quarter of 2021, or $0.74 per diluted common share, compared to net income of $11.7 million, or $0.66 per diluted common share, for the second quarter of 2021, and net income of $17.7 million, or $0.99 per diluted common share, for the third quarter of 2020.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “Our diversified business model continues to drive strong financial performance, as we ended the third quarter with a return on tangible common equity of over 18.0%. We generated $57.2 million of revenue through continued momentum in our retirement, wealth management and mortgage businesses, while net interest income and loan growth (excluding Paycheck Protection Program, or PPP, loans) showed incremental improvement with average total earning assets growing 10.6% year-over-year. Credit quality was better than expected with another net recovery quarter driving a negative provision for the quarter. Tangible book value grew over 7.0% from a year ago, which includes the intangibles recognized in the December 2020 acquisition of the Denver based, 24HourFlex/RPS. During the quarter, we converted 24HourFlex clients to Alerus and are pleased to see exceptional client retention and growth. We greatly appreciate all of our employees for their continued hard work, remarkable ongoing engagement and dedication to serving our clients, and their ability to help us produce strong returns for our shareholders.”

Quarterly Highlights

  • Return on average total assets of 1.62%, compared to 1.50% for the second quarter of 2021
  • Return on average tangible common equity(1) of 18.13%, compared to 17.36% for the second quarter of 2021
  • Net interest margin (tax-equivalent)(1) was 2.78%, compared to 2.88% for the second quarter of 2021
  • Allowance for loan losses to total loans, excluding PPP loans was 1.89%, compared to 2.00% as of December 31, 2020
  • Efficiency ratio(1) of 71.49%, compared to 71.46% for the second quarter of 2021
  • Noninterest income for the second quarter of 2021 was 63.04% of total revenue, compared to 63.48% for the second quarter of 2021
  • Mortgage originations totaled $415.8 million, a 23.8% decrease from the second quarter of 2021
  • Investment securities increased $425.5 million, or 71.8%, since December 31, 2020
  • Loans held for sale decreased $61.5 million, or 50.3%, since December 31, 2020
  • Loans held for investment decreased $179.0 million, or 9.0%, since December 31, 2020. Excluding PPP loans, loans held for investment decreased $14.1 million, or 0.8%, since December 31, 2020
  • Deposits increased $141.1 million, or 5.5%, since December 31, 2020
(1)

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

Selected Financial Data (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

June 30,

 

 

September 30,

 

 

September 30,

 

 

September 30,

 

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

 

2021

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

1.62

%

 

 

1.50

%

 

 

2.42

%

 

 

1.71

%

 

 

1.71

%

Return on average common equity

 

 

14.68

%

 

 

13.82

%

 

 

22.31

%

 

 

15.61

%

 

 

15.17

%

Return on average tangible common equity (1)

 

 

18.13

%

 

 

17.36

%

 

 

26.67

%

 

 

19.44

%

 

 

18.70

%

Noninterest income as a % of revenue

 

 

63.04

%

 

 

63.48

%

 

 

67.53

%

 

 

63.87

%

 

 

64.58

%

Net interest margin (tax-equivalent) (1)

 

 

2.78

%

 

 

2.88

%

 

 

3.17

%

 

 

2.92

%

 

 

3.22

%

Efficiency ratio (1)

 

 

71.49

%

 

 

71.46

%

 

 

58.42

%

 

 

69.69

%

 

 

66.22

%

Net charge-offs/(recoveries) to average loans

 

 

(0.06)

%

 

 

%

 

 

(0.11)

%

 

 

0.01

%

 

 

0.15

%

Dividend payout ratio

 

 

21.62

%

 

 

24.24

%

 

 

15.15

%

 

 

20.80

%

 

 

23.20

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.75

 

 

$

0.67

 

 

$

1.01

 

 

$

2.29

 

 

$

1.98

 

Earnings per common share - diluted

 

$

0.74

 

 

$

0.66

 

 

$

0.99

 

 

$

2.26

 

 

$

1.94

 

Dividends declared per common share

 

$

0.16

 

 

$

0.16

 

 

$

0.15

 

 

$

0.47

 

 

$

0.45

 

Tangible book value per common share (1)

 

$

17.46

 

 

$

16.89

 

 

$

16.31

 

 

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

17,205

 

 

 

17,194

 

 

 

17,121

 

 

 

17,182

 

 

 

17,101

 

Average common shares outstanding - diluted

 

 

17,499

 

 

 

17,497

 

 

 

17,453

 

 

 

17,488

 

 

 

17,435

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

36,202,553

 

 

$

36,964,961

 

 

$

30,470,645

 

 

 

 

 

 

 

 

 

Wealth management assets under administration/management

 

 

3,865,062

 

 

 

3,538,959

 

 

 

3,043,173

 

 

 

 

 

 

 

 

 

Mortgage originations

 

 

415,792

 

 

 

545,437

 

 

 

511,605

 

 

$

1,479,243

 

 

$

1,171,811

 

(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 2021 was $21.1 million, unchanged from the second quarter of 2021. Net interest income decreased $633 thousand, or 2.9%, from $21.8 million for the third quarter of 2020. During the third quarter of 2021, average interest earning assets increased $77.3 million, primarily due to increases of $90.1 million in interest-bearing deposits with banks and $68.6 million in investment securities, partially offset by decreases of $67.1 million in loans held for investment and $14.2 million in loans held for sale. The change in the balance sheet mix resulted in a 12 basis point decrease in the average earning asset yield. Net interest income earned from PPP loans during the third quarter of 2021 totaled $2.1 million, a decrease of $502 thousand, from the $2.6 million earned during the second quarter. The cost of interest-bearing liabilities had a modest decrease of 1 basis point from the second quarter of 2021.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.78% for the third quarter of 2021, a 10 basis point decrease from 2.88% for the second quarter of 2021, and a 39 basis point decrease from 3.17% in the third quarter of 2020. The linked quarter decrease was primarily due to lower yields on interest earning assets. Excluding PPP loans, net interest margin was 2.62% for the third quarter of 2021, a 13 basis point decrease from 2.75% for the second quarter of 2021. The year over year decrease was primarily attributable to the historically low and flat yield curve and a more liquid balance sheet mix which resulted in a 58 basis point decrease in interest earning asset yields. The decrease in earning asset yield was offset by a 27 basis point decrease in the average rate paid on interest-bearing liabilities.

Noninterest Income

Noninterest income for the third quarter of 2021 was $36.0 million, a $708 thousand, or 1.9%, decrease from the second quarter of 2021. The decrease was primarily driven by a $1.2 million decrease in mortgage banking revenue, a result of a decrease of $129.6 million in mortgage originations. The decrease in mortgage banking revenue was partially offset by modest increases in both retirement and benefit services and wealth management revenue.

Noninterest income for the third quarter of 2021 decreased $9.2 million, or 20.4%, from $45.3 million in the third quarter of 2020. This decrease was primarily due to an $11.2 million decrease in mortgage banking revenue, a result of a $7.8 million decrease in the fair market value on the secondary market hedge, a decrease of $95.8 million in mortgage originations, and a 4 basis point decrease in the gain on sale margin. Partially offsetting this decrease was a $2.9 million increase in retirement and benefit services income, primarily driven by the revenue attributable to the acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex), or RPS, and a $893 thousand increase in document restatement fees. In addition, wealth management revenue increased $809 thousand, or 18.0%, primarily driven by organic growth and market increases in assets under management.

Noninterest Expense

Noninterest expense for the third quarter of 2021 was $42.0 million, a decrease of $509 thousand, or 1.2%, compared to the second quarter of 2021. The decrease was primarily due to decreases of $1.0 million in compensation expense, $514 thousand in employee benefits and taxes, partially offset by increases of $374 thousand in business services, software and technology expense and $198 thousand in other noninterest expense. The decreases in compensation expense and employee taxes and benefits were primarily attributable to the $129.6 million decrease in mortgage originations from the previous quarter, partially offset by other personnel related accruals. The increase in business services, software and technology expense is primarily a result of non-recurring expenses related to investments in automated processing and integration expenses associated with the acquisition of RPS. The increase in other noninterest expense is primarily attributable to a $234 thousand increase in the provision for unfunded commitments. The increase in the provision for unfunded commitments was a result of lower credit line utilization. Unfunded commitments increased 2.0% from the second quarter of 2021.

Noninterest expense for the third quarter of 2021 increased $1.8 million, or 4.5%, from $40.2 million in the third quarter of 2020. The increase was primarily attributable to increases of business services, software and technology expense as well as compensation expense, partially offset by decreased occupancy and equipment expense. Business services, software and technology expense increased primarily as a result of our increased investment in processing innovations as previously stated. Additionally, compensation expense increased as a result of the acquisition of RPS, as the number of full time employees increased from 790 employees in the third quarter of 2020 to 825 employees in the third quarter of 2021. Occupancy and equipment expense decreased due to the closure of certain offices in 2021 due to our transition to a hybrid work environment.

Financial Condition

Total assets were $3.2 billion as of September 30, 2021, an increase of $161.4 million, or 5.4%, from December 31, 2020. The overall increase in total assets included an increase of $425.5 million in investment securities, partially offset by a $179.0 million decrease in loans held for investment and a $61.5 million decrease in loans held for sale. The decrease in loans held for investment was primarily due to PPP loan balances decreasing by $164.9 million from December 31, 2020.

Loans

Total loans were $1.80 billion as of September 30, 2021, a decrease of $179.0 million, or 9.0%, from December 31, 2020. The decrease was primarily due to a $185.3 million decrease in the commercial and industrial loan portfolio, primarily attributable to a $164.9 million decrease in PPP loans. Excluding PPP loans, the commercial loan portfolio decreased by $16.5 million, or 1.6%, from December 31, 2020, primarily as a result of lower credit line utilization. The outstanding balances of lines of credit decreased $2.0 million, or 0.4%, from December 31, 2020. The consumer loan portfolio increased $2.5 million from December 31, 2020, due to a net increase of $24.8 million in residential real estate mortgages, which was partially offset by a decrease in other consumer loans as a result of discontinuing our indirect auto lending.

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)

 

2021

 

2021

 

2021

 

2020

 

2020

Commercial

 

 

 

 

 

 

 

 

 

 

Commercial and industrial (1)

 

$

506,599

 

$

572,734

 

$

678,029

 

$

691,858

 

$

789,036

Real estate construction

 

 

37,751

 

 

36,549

 

 

40,473

 

 

44,451

 

 

33,169

Commercial real estate

 

 

573,518

 

 

567,987

 

 

569,451

 

 

563,007

 

 

535,216

Total commercial

 

 

1,117,868

 

 

1,177,270

 

 

1,287,953

 

 

1,299,316

 

 

1,357,421

Consumer

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

501,339

 

 

470,822

 

 

454,958

 

 

463,370

 

 

469,050

Residential real estate junior lien

 

 

130,243

 

 

130,180

 

 

130,299

 

 

143,416

 

 

152,487

Other revolving and installment

 

 

50,936

 

 

57,040

 

 

64,135

 

 

73,273

 

 

79,461

Total consumer

 

 

682,518

 

 

658,042

 

 

649,392

 

 

680,059

 

 

700,998

Total loans

 

$

1,800,386

 

$

1,835,312

 

$

1,937,345

 

$

1,979,375

 

$

2,058,419

_________________
(1)

Includes PPP loans of $103.5 million at September 30, 2021, $165.0 million at June 30, 2021, $256.8 million at March 31, 2021, $268.4 million at December 31, 2020 and $348.9 million at September 30, 2020.

Deposits

Total deposits were $2.71 billion as of September 30, 2021, an increase of $141.1 million, or 5.5%, from December 31, 2020. Interest-bearing deposits increased $98.7 million, while noninterest-bearing deposits increased $42.3 million. Key drivers of the increase included ongoing higher depositor balances due to the uncertain economic environment, government stimulus programs and volatile financial markets. Synergistic deposits decreased $19.6 million to $576.0 million as retirement participants transitioned balances back into the markets. Excluding synergistic deposits, commercial transaction deposits increased $112.5 million, or 10.2%, while consumer transaction deposits increased, $31.2 million, or 4.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits were 29.4% as of September 30, 2021 compared to 29.3% as of December 31, 2020.

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

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

(dollars in thousands)

 

2021

 

2021

 

2021

 

2020

 

2020

Noninterest-bearing demand

 

$

797,062

 

$

758,820

 

$

775,434

 

$

754,716

 

$

693,450

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

673,916

 

 

736,043

 

 

674,466

 

 

618,900

 

 

590,366

Savings accounts

 

 

92,632

 

 

89,437

 

 

87,492

 

 

79,902

 

 

78,659

Money market savings

 

 

924,678

 

 

920,831

 

 

967,273

 

 

909,137

 

 

892,473

Time deposits

 

 

224,800

 

 

205,809

 

 

212,908

 

 

209,338

 

 

207,422

Total interest-bearing

 

 

1,916,026

 

 

1,952,120

 

 

1,942,139

 

 

1,817,277

 

 

1,768,920

Total deposits

 

$

2,713,088

 

$

2,710,940

 

$

2,717,573

 

$

2,571,993

 

$

2,462,370

Asset Quality

Total nonperforming assets were $7.1 million as of September 30, 2021, an increase of $1.9 million, or 37.9%, from December 31, 2020. As of September 30, 2021, the allowance for loan losses was $32.1 million, or 1.78% of total loans, compared to $34.2 million, or 1.73% of total loans, as of December 31, 2020. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 1.89% at September 30, 2021, compared to 2.00% as of December 31, 2020.

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

 

 

As of and for the three months ended

 

 

 

September 30,

 

 

June 30,

 

 

March 31,

 

 

December 31,

 

 

September 30,

 

(dollars in thousands)

 

2021

 

 

2021

 

 

2021

 

 

2020

 

 

2020

 

Nonaccrual loans

 

$

6,229

 

 

$

6,960

 

 

$

4,756

 

 

$

5,050

 

 

$

4,795

 

Accruing loans 90+ days past due

 

 

 

 

 

 

 

 

 

 

 

30

 

 

 

 

Total nonperforming loans

 

 

6,229

 

 

 

6,960

 

 

 

4,756

 

 

 

5,080

 

 

 

4,795

 

OREO and repossessed assets

 

 

862

 

 

 

858

 

 

 

139

 

 

 

63

 

 

 

10

 

Total nonperforming assets

 

$

7,091

 

 

$

7,818

 

 

$

4,895

 

 

$

5,143

 

 

$

4,805

 

Net charge-offs/(recoveries)

 

 

(302)

 

 

 

(6)

 

 

 

488

 

 

 

(1,509)

 

 

 

(581)

 

Net charge-offs/(recoveries) to average loans

 

 

(0.06)

%

 

 

%

 

 

0.10

%

 

 

(0.30)

%

 

 

(0.11)

%

Nonperforming loans to total loans

 

 

0.35

%

 

 

0.38

%

 

 

0.25

%

 

 

0.26

%

 

 

0.23

%

Nonperforming assets to total assets

 

 

0.22

%

 

 

0.25

%

 

 

0.16

%

 

 

0.17

%

 

 

0.17

%

Allowance for loan losses to total loans

 

 

1.78

%

 

 

1.84

%

 

 

1.74

%

 

 

1.73

%

 

 

1.52

%

Allowance for loan losses to nonperforming loans

 

 

515

%

 

 

485

%

 

 

710

%

 

 

674

%

 

 

654

%

For the third quarter of 2021, we had net recoveries of $302 thousand compared to net recoveries of $6 thousand for the second quarter of 2021 and $581 thousand of net recoveries for the third quarter of 2020.

There was a $2.0 million reversal of provision for loan losses recorded for the third quarter of 2021, a $2.0 million decrease from the second quarter of 2021, and a decrease of $5.5 million from the third quarter of 2020. The negative provision in the third quarter of 2021 was driven by net recoveries in four of the last five quarters and continuous improvements of credit quality indicators and economic conditions.

The ratio of nonperforming loans to total loans at September 30, 2021 was 0.35%. Excluding PPP loans, the ratio of nonperforming loans to total loans was 0.37% at September 30, 2021. Nonperforming assets as a percentage of total assets was 0.22% at September 30, 2021. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.23% at September 30, 2021.

Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through September 30, 2021, we had entered into principal and interest deferrals on 587 loans, representing $154.5 million in total outstanding principal balances. Of those loans, 8 loans with a total outstanding principal balance of $3.4 million have been granted additional deferrals, 2 loans with a total outstanding principal balance of $69 thousand remain on the first deferral and the remaining loans have been returned to normal payment status. These loan modifications are not considered troubled debt restructurings.

Capital

Total stockholders’ equity was $353.2 million as of September 30, 2021, an increase of $23.0 million, or 7.0%, from December 31, 2020. Tangible book value per common share, a non-GAAP financial measure, increased to $17.46 as of September 30, 2021, from $16.00 as of December 31, 2020. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 9.62% as of September 30, 2021, from 9.27% as of December 31, 2020.

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

 

 

September 30,

 

 

December 31,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2020

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation Consolidated

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

14.52

%

 

12.75

%

 

13.08

%

Tier 1 capital to risk weighted assets

 

14.93

%

 

13.15

%

 

13.48

%

Total capital to risk weighted assets

 

18.58

%

 

16.79

%

 

17.13

%

Tier 1 capital to average assets

 

9.88

%

 

9.24

%

 

9.76

%

Tangible common equity / tangible assets (2)

 

9.62

%

 

9.27

%

 

9.78

%

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

13.77

%

 

12.10

%

 

12.47

%

Tier 1 capital to risk weighted assets

 

13.77

%

 

12.10

%

 

12.47

%

Total capital to risk weighted assets

 

15.03

%

 

13.36

%

 

13.72

%

Tier 1 capital to average assets

 

9.11

%

 

8.50

%

 

9.03

%

(1)

Capital ratios for the current quarter are to be considered preliminary until the Call Report for Alerus Financial, N.A. is filed.

(2)

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

Conference Call

The Company will host a conference call at 9:00 a.m. Central Time on Thursday, October 28, 2021, to discuss its financial results. The call can be accessed via telephone at (888) 317-6016. A recording of the call and transcript will be available on the Company’s investor relations website at investors.alerus.com following the call.

About Alerus Financial Corporation

Alerus Financial Corporation is a diversified financial services company headquartered in Grand Forks, ND. Through its subsidiary, Alerus Financial, N.A., Alerus provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. Alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients’ needs. Alerus Financial banking and wealth management offices are located in Grand Forks and Fargo, ND, the Minneapolis-St. Paul, MN metropolitan area, and Scottsdale and Mesa, AZ. Alerus Retirement and Benefits plan administration offices are located in St. Paul, MN, East Lansing, MI, and Littleton, CO.

Non-GAAP Financial Measures

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

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the effects of the COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, 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; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry; our ability to successfully manage liquidity risk; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; interest rate risks associated with our business; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic, acts of war or terrorism or other adverse external events; any material weaknesses in our internal control over financial reporting; developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative rates; changes to U.S. or state tax laws, regulations and guidance, including recent proposals to increase the federal corporate tax rate; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

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

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2021

 

2020

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

159,454

 

$

172,962

Investment securities

 

 

 

 

 

 

Available-for-sale, at fair value

 

 

655,282

 

 

592,342

Held-to-maturity, at carrying value

 

 

362,586

 

 

Loans held for sale

 

 

60,912

 

 

122,440

Loans

 

 

1,800,386

 

 

1,979,375

Allowance for loan losses

 

 

(32,066)

 

 

(34,246)

Net loans

 

 

1,768,320

 

 

1,945,129

Land, premises and equipment, net

 

 

18,403

 

 

20,289

Operating lease right-of-use assets

 

 

3,821

 

 

6,918

Accrued interest receivable

 

 

8,836

 

 

9,662

Bank-owned life insurance

 

 

32,954

 

 

32,363

Goodwill

 

 

30,201

 

 

30,201

Other intangible assets

 

 

22,593

 

 

25,919

Servicing rights

 

 

1,776

 

 

1,987

Deferred income taxes, net

 

 

11,609

 

 

9,409

Other assets

 

 

38,422

 

 

44,150

Total assets

 

$

3,175,169

 

$

3,013,771

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

797,062

 

$

754,716

Interest-bearing

 

 

1,916,026

 

 

1,817,277

Total deposits

 

 

2,713,088

 

 

2,571,993

Long-term debt

 

 

58,963

 

 

58,735

Operating lease liabilities

 

 

4,428

 

 

7,861

Accrued expenses and other liabilities

 

 

45,495

 

 

45,019

Total liabilities

 

 

2,821,974

 

 

2,683,608

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding

 

 

 

 

Common stock, $1 par value, 30,000,000 shares authorized: 17,208,077 and 17,125,270 issued and outstanding

 

 

17,208

 

 

17,125

Additional paid-in capital

 

 

91,783

 

 

90,237

Retained earnings

 

 

243,638

 

 

212,163

Accumulated other comprehensive income (loss)

 

 

566

 

 

10,638

Total stockholders’ equity

 

 

353,195

 

 

330,163

Total liabilities and stockholders’ equity

 

$

3,175,169

 

$

3,013,771

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,

 

 

2021

 

2021

 

2020

 

2021

 

2020

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

Loans, including fees

 

$

18,888

 

$

19,324

 

$

21,962

 

$

58,779

 

$

63,876

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

3,249

 

 

2,897

 

 

1,973

 

 

8,547

 

 

5,497

Exempt from federal income taxes

 

 

225

 

 

233

 

 

238

 

 

694

 

 

712

Other

 

 

185

 

 

130

 

 

116

 

 

432

 

 

816

Total interest income

 

 

22,547

 

 

22,584

 

 

24,289

 

 

68,452

 

 

70,901

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

880

 

 

906

 

 

1,683

 

 

2,781

 

 

7,633

Long-term debt

 

 

535

 

 

538

 

 

841

 

 

1,361

 

 

2,575

Total interest expense

 

 

1,415

 

 

1,444

 

 

2,524

 

 

4,142

 

 

10,208

Net interest income

 

 

21,132

 

 

21,140

 

 

21,765

 

 

64,310

 

 

60,693

Provision for loan losses

 

 

(2,000)

 

 

 

 

3,500

 

 

(2,000)

 

 

9,500

Net interest income after provision for loan losses

 

 

23,132

 

 

21,140

 

 

18,265

 

 

66,310

 

 

51,193

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

18,031

 

 

17,871

 

 

15,104

 

 

53,157

 

 

45,034

Wealth management

 

 

5,295

 

 

5,138

 

 

4,486

 

 

15,419

 

 

12,644

Mortgage banking

 

 

11,116

 

 

12,287

 

 

22,269

 

 

40,535

 

 

44,860

Service charges on deposit accounts

 

 

357

 

 

330

 

 

355

 

 

1,025

 

 

1,075

Net gains (losses) on investment securities

 

 

11

 

 

 

 

1,428

 

 

125

 

 

2,722

Other

 

 

1,230

 

 

1,122

 

 

1,614

 

 

3,408

 

 

4,340

Total noninterest income

 

 

36,040

 

 

36,748

 

 

45,256

 

 

113,669

 

 

110,675

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

23,291

 

 

24,309

 

 

22,740

 

 

71,298

 

 

62,684

Employee taxes and benefits

 

 

5,058

 

 

5,572

 

 

5,033

 

 

16,443

 

 

15,088

Occupancy and equipment expense

 

 

2,063

 

 

1,918

 

 

2,511

 

 

6,212

 

 

7,615

Business services, software and technology expense

 

 

5,332

 

 

4,958

 

 

4,378

 

 

15,266

 

 

13,501

Intangible amortization expense

 

 

1,088

 

 

1,088

 

 

990

 

 

3,327

 

 

2,971

Professional fees and assessments

 

 

1,503

 

 

1,509

 

 

1,070

 

 

4,484

 

 

3,303

Marketing and business development

 

 

865

 

 

769

 

 

929

 

 

2,310

 

 

2,088

Supplies and postage

 

 

549

 

 

503

 

 

248

 

 

1,583

 

 

1,630

Travel

 

 

174

 

 

36

 

 

26

 

 

236

 

 

338

Mortgage and lending expenses

 

 

1,231

 

 

1,199

 

 

1,434

 

 

3,762

 

 

3,916

Other

 

 

887

 

 

689

 

 

855

 

 

2,712

 

 

3,540

Total noninterest expense

 

 

42,041

 

 

42,550

 

 

40,214

 

 

127,633

 

 

116,674

Income before income taxes

 

 

17,131

 

 

15,338

 

 

23,307

 

 

52,346

 

 

45,194

Income tax expense

 

 

4,064

 

 

3,644

 

 

5,648

 

 

12,370

 

 

10,698

Net income

 

$

13,067

 

$

11,694

 

$

17,659

 

$

39,976

 

$

34,496

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.75

 

$

0.67

 

$

1.01

 

$

2.29

 

$

1.98

Diluted earnings per common share

 

$

0.74

 

$

0.66

 

$

0.99

 

$

2.26

 

$

1.94

Dividends declared per common share

 

$

0.16

 

$

0.16

 

$

0.15

 

$

0.47

 

$

0.45

Average common shares outstanding

 

 

17,205

 

 

17,194

 

 

17,121

 

 

17,182

 

 

17,101

Diluted average common shares outstanding

 

 

17,499

 

 

17,497

 

 

17,453

 

 

17,488

 

 

17,435

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,

 

        

2021

 

2021

 

2020

 

2020

Tangible Common Equity to Tangible Assets

   

 

 

 

 

 

 

 

Total common stockholders’ equity

   

$

353,195

 

 

$

344,391

 

 

$

330,163

 

 

$

322,003

 

Less: Goodwill

   

 

30,201

 

 

 

30,201

 

 

 

30,201

 

 

 

27,329

 

Less: Other intangible assets

   

 

22,593

 

 

 

23,680

 

 

 

25,919

 

 

 

15,421

 

Tangible common equity (a)

   

 

300,401

 

 

 

290,510

 

 

 

274,043

 

 

 

279,253

 

Total assets

   

 

3,175,169

 

 

 

3,157,229

 

 

 

3,013,771

 

 

 

2,898,809

 

Less: Goodwill

   

 

30,201

 

 

 

30,201

 

 

 

30,201

 

 

 

27,329

 

Less: Other intangible assets

   

 

22,593

 

 

 

23,680

 

 

 

25,919

 

 

 

15,421

 

Tangible assets (b)

   

 

3,122,375

 

 

 

3,103,348

 

 

 

2,957,651

 

 

 

2,856,059

 

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

   

 

9.62

%

 

 

9.36

%

 

 

9.27

%

 

 

9.78

%

Tangible Book Value Per Common Share

   

 

 

 

 

 

 

 

Total common stockholders’ equity

   

$

353,195

 

 

$

344,391

 

 

$

330,163

 

 

$

322,003

 

Less: Goodwill

   

 

30,201

 

 

 

30,201

 

 

 

30,201

 

 

 

27,329

 

Less: Other intangible assets

   

 

22,593

 

 

 

23,680

 

 

 

25,919

 

 

 

15,421

 

Tangible common equity (c)

   

 

300,401

 

 

 

290,510

 

 

 

274,043

 

 

 

279,253

 

Total common shares issued and outstanding (d)

   

 

17,208

 

 

 

17,198

 

 

 

17,125

 

 

 

17,122

 

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

   

$

17.46

 

 

$

16.89

 

 

$

16.00

 

 

$

16.31

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

 

 

2021

 

2021

    

2020

 

2021

    

2020

Return on Average Tangible Common Equity

 

 

 

 

 

 

Net income

 

$

13,067

 

 

$

11,694

 

 

$

17,659

 

 

$

39,976

 

 

$

34,496

 

Add: Intangible amortization expense (net of tax)

 

 

860

 

 

 

860

 

 

 

782

 

 

 

2,628

 

 

 

2,347

 

Net income, excluding intangible amortization (e)

 

 

13,927

 

 

 

12,554

 

 

 

18,441

 

 

 

42,604

 

 

 

36,843

 

Average total equity

 

 

353,196

 

 

 

339,439

 

 

 

314,921

 

 

 

342,344

 

 

 

303,825

 

Less: Average goodwill

 

 

30,201

 

 

 

30,201

 

 

 

27,329

 

 

 

30,201

 

 

 

27,329

 

Less: Average other intangible assets (net of tax)

 

 

18,272

 

 

 

19,123

 

 

 

12,565

 

 

 

19,124

 

 

 

13,343

 

Average tangible common equity (f)

 

 

304,723

 

 

 

290,115

 

 

 

275,027

 

 

 

293,019

 

 

 

263,153

 

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

 

 

18.13

%

 

 

17.36

%

  

 

26.67

%

  

 

19.44

%

  

 

18.70

%

Net Interest Margin (tax-equivalent)

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

21,132

 

 

$

21,140

 

 

$

21,765

 

 

$

64,310

 

 

$

60,693

 

Tax-equivalent adjustment

 

 

115

 

 

 

135

 

 

 

116

 

 

 

392

 

 

 

325

 

Tax-equivalent net interest income (g)

 

 

21,247

 

 

 

21,275

 

 

 

21,881

 

 

 

64,702

 

 

 

61,018

 

Average earning assets (h)

 

 

3,035,798

 

 

 

2,958,468

 

 

 

2,744,758

 

 

 

2,958,742

 

 

 

2,534,038

 

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

 

 

2.78

%

 

 

2.88

%

 

 

3.17

%

  

 

2.92

%

 

 

3.22

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

42,041

 

 

$

42,550

 

 

$

40,214

 

 

$

127,633

 

 

$

116,674

 

Less: Intangible amortization expense

 

 

1,088

 

 

 

1,088

 

 

 

990

 

 

 

3,327

 

 

 

2,971

 

Adjusted noninterest expense (i)

 

 

40,953

 

 

 

41,462

 

 

 

39,224

 

 

 

124,306

 

 

 

113,703

 

Net interest income

 

 

21,132

 

 

 

21,140

 

 

 

21,765

 

 

 

64,310

 

 

 

60,693

 

Noninterest income

 

 

36,040

 

 

 

36,748

 

 

 

45,256

 

 

 

113,669

 

 

 

110,675

 

Tax-equivalent adjustment

 

 

115

 

 

 

135

 

 

 

116

 

 

 

392

 

 

 

325

 

Total tax-equivalent revenue (j)

 

 

57,287

 

 

 

58,023

 

 

 

67,137

 

 

 

178,371

 

 

 

171,693

 

Efficiency ratio (i)/(j)

 

 

71.49

%

 

 

71.46

%

  

 

58.42

%

 

 

69.69

%

 

 

66.22

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 2021

 

June 30, 2021

 

September 30, 2020

 

September 30, 2021

 

September 30, 2020

 

 

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

Average

 

Yield/

 

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

 

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

281,768

 

0.16

%

 

$

191,695

 

0.12

%

 

$

169,770

 

0.12

%

 

$

219,636

 

0.14

%

 

$

162,134

 

0.51

%

Investment securities (1)

 

 

869,421

 

1.61

%

 

 

800,812

 

1.60

%

 

 

443,705

 

2.04

%

 

 

778,307

 

1.62

%

 

 

383,591

 

2.23

%

Loans held for sale

 

 

57,233

 

2.40

%

 

 

71,447

 

2.26

%

 

 

90,634

 

2.44

%

 

 

70,218

 

2.25

%

 

 

64,555

 

2.64

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

544,811

 

4.95

%

 

 

627,613

 

4.55

%

 

 

782,853

 

4.34

%

 

 

615,310

 

4.73

%

 

 

667,742

 

4.48

%

Real estate construction

 

 

37,743

 

3.99

%

 

 

42,511

 

4.28

%

 

 

32,747

 

4.47

%

 

 

41,812

 

4.17

%

 

 

30,385

 

4.64

%

Commercial real estate

 

 

567,696

 

3.67

%

 

 

568,827

 

3.71

%

 

 

525,514

 

4.02

%

 

 

565,861

 

3.72

%

 

 

515,761

 

4.31

%

Total commercial

 

 

1,150,250

 

4.29

%

 

 

1,238,951

 

4.15

%

 

 

1,341,114

 

4.22

%

 

 

1,222,983

 

4.24

%

 

 

1,213,888

 

4.41

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

487,699

 

3.32

%

 

 

459,278

 

3.53

%

 

 

460,995

 

3.96

%

 

 

468,395

 

3.53

%

 

 

460,505

 

4.05

%

Residential real estate junior lien

 

 

129,239

 

4.57

%

 

 

129,544

 

4.58

%

 

 

153,326

 

4.54

%

 

 

132,145

 

4.67

%

 

 

163,332

 

4.84

%

Other revolving and installment

 

 

53,683

 

4.45

%

 

 

60,213

 

4.31

%

 

 

79,343

 

4.50

%

 

 

60,785

 

4.37

%

 

 

80,169

 

4.58

%

Total consumer

 

 

670,621

 

3.65

%

 

 

649,035

 

3.81

%

 

 

693,664

 

4.15

%

 

 

661,325

 

3.84

%

 

 

704,006

 

4.30

%

Total loans (1)

 

 

1,820,871

 

4.05

%

 

 

1,887,986

 

4.04

%

 

 

2,034,778

 

4.20

%

 

 

1,884,308

 

4.10

%

 

 

1,917,894

 

4.37

%

Federal Reserve/FHLB stock

 

 

6,505

 

4.33

%

 

 

6,528

 

4.36

%

 

 

5,871

 

4.40

%

 

 

6,273

 

4.37

%

 

 

5,864

 

4.58

%

Total interest earning assets

 

 

3,035,798

 

2.96

%

 

 

2,958,468

 

3.08

%

 

 

2,744,758

 

3.54

%

 

 

2,958,742

 

3.11

%

 

 

2,534,038

 

3.75

%

Noninterest earning assets

 

 

155,079

 

 

 

 

161,272

 

 

 

 

163,386

 

 

 

 

161,077

 

 

 

 

156,144

 

 

Total assets

 

$

3,190,877

 

 

 

$

3,119,740

 

 

 

$

2,908,144

 

 

 

$

3,119,819

 

 

 

$

2,690,182

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

692,873

 

0.14

%

 

$

697,789

 

0.14

%

 

$

589,633

 

0.27

%

 

$

678,015

 

0.15

%

 

$

528,024

 

0.34

%

Money market and savings deposits

 

 

1,009,564

 

0.14

%

 

 

1,015,358

 

0.14

%

 

 

961,669

 

0.32

%

 

 

1,018,347

 

0.15

%

 

 

889,039

 

0.66

%

Time deposits

 

 

217,756

 

0.50

%

 

 

208,338

 

0.56

%

 

 

204,969

 

0.98

%

 

 

212,297

 

0.57

%

 

 

201,747

 

1.29

%

Short-term borrowings

 

 

10

 

%

 

 

 

%

 

 

 

%

 

 

3

 

%

 

 

107

 

%

Long-term debt

 

 

58,968

 

3.60

%

 

 

58,996

 

3.66

%

 

 

58,739

 

5.70

%

 

 

48,002

 

3.79

%

 

 

58,747

 

5.85

%

Total interest-bearing liabilities

 

 

1,979,171

 

0.28

%

 

 

1,980,481

 

0.29

%

 

 

1,815,010

 

0.55

%

 

 

1,956,664

 

0.28

%

 

 

1,677,664

 

0.81

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

799,854

 

 

 

 

755,773

 

 

 

 

698,594

 

 

 

 

762,685

 

 

 

 

651,971

 

 

Other noninterest-bearing liabilities

 

 

58,656

 

 

 

 

44,047

 

 

 

 

79,619

 

 

 

 

58,126

 

 

 

 

56,722

 

 

Stockholders’ equity

 

 

353,196

 

 

 

 

339,439

 

 

 

 

314,921

 

 

 

 

342,344

 

 

 

 

303,825

 

 

Total liabilities and stockholders’ equity

 

$

3,190,877

 

 

 

$

3,119,740

 

 

 

$

2,908,144

 

 

 

$

3,119,819

 

 

 

$

2,690,182

 

 

Net interest rate spread

 

 

 

2.68

%

 

 

 

2.79

%

 

 

 

2.99

%

 

 

 

2.83

%

 

 

 

2.94

%

Net interest margin, tax-equivalent (2)

 

 

 

2.78

%

 

 

 

2.88

%

 

 

 

3.17

%

 

 

 

2.92

%

 

 

 

3.22

%

_________________
(1)

Taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.

(2)

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

 

Contacts

Katie A. Lorenson, Chief Financial Officer

952.417.3725 (Office)

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