Alerus Financial Corporation (Nasdaq: ALRS), or the Company,
reported net income of $6.2 million for the second quarter of 2024,
or $0.31 per diluted common share, compared to net income of $6.4
million, or $0.32 per diluted common share, for the first quarter
of 2024, and net income of $9.1 million, or $0.45 per diluted
common share, for the second quarter of 2023.
CEO Comments
President and Chief Executive Officer Katie Lorenson said, “We
continued to see improvement in our underlying core business during
the second quarter of 2024. Overall revenues grew 8% sequentially
from the prior quarter as both our spread based and fee based
revenues grew at a similar rate. A continued rebound in our net
interest margin coupled with strong balance sheet growth in loans
and deposits, including noninterest bearing deposits, propelled our
spread income higher. Fee based revenues benefitted from an
improvement in both asset based and non-market based fees from our
wealth and retirement businesses. In addition, operating leverage
improved with continued prudent expense management, which drove
overall expenses down slightly during the quarter. These strong
core underlying trends led to sequential improvement of over 48% in
pre-provision net revenue from the prior quarter. Provision expense
for the quarter was $4.5 million which was driven by loan growth
and moving one previously identified commercial real estate loan to
nonperforming. Overall classified asset levels improved during the
quarter and credit quality is strong relative to historical
standards. Reserve and capital levels remain robust with an
allowance of 1.31% to total loans, CET1 ratio of 11.67%, while
tangible book value per common share grew more than 8% over the
past year.
I want to thank all the Alerus team members for their efforts in
driving continuous improvement, their expertise and commitment to
our clients, communities and shareholders to make Alerus better
every day.”
Second Quarter Highlights
- Total deposits were $3.3 billion as of June 30, 2024, an
increase of $203.0 million, or 6.6%, from December 31, 2023
- Total loans were $2.9 billion as of June 30, 2024, an increase
of $156.2 million, or 5.7%, from December 31, 2023
- The loan to deposit ratio as of June 30, 2024 was 88.4%,
compared to 89.1% as of December 31, 2023; brokered deposits
remained at $0
- Net interest margin (on a tax equivalent basis) was 2.39% in
the second quarter of 2024, compared to 2.30% in the first quarter
of 2024. Adjusted net interest margin (on a tax-equivalent basis)
(non-GAAP) increased 13 basis points from 2.44% in the first
quarter of 2024 to 2.57% in the second quarter of 2024
- Net interest income was $24.0 million in the second quarter of
2024, an increase of 8.0% from $22.2 million in the first quarter
of 2024
- Noninterest income, which represented 53.3% of total revenues,
was $27.4 million in the second quarter of 2024, an increase of
8.1% from $25.3 million in the first quarter of 2024
- Noninterest expense was $38.8 million in the second quarter of
2024, a decrease of 0.7%, from $39.0 million in the first quarter
of 2024
- Total assets under administration/management at June 30, 2024
were $43.6 billion, a 1.9% increase from March 31, 2024
- Increased quarterly dividend by 5.26% over the first quarter of
2024 to $0.20 per share
- Allowance for credit losses to total loans remained stable at
1.31% as of June 30, 2024 and March 31, 2024
- Tangible book value per common share (non-GAAP) was $15.77 as
of June 30, 2024, a 0.9% increase from March 31, 2024
- Common equity tier 1 capital to risk weighted assets as of June
30, 2024 was 11.67% and continues to be well above the minimum
threshold to be “well capitalized” of 6.50%
- Continued to hold cash of $355.0 million from the Bank Term
Funding Program (“BTFP”), earning 52 basis points of risk free
return resulting in $0.5 million in net interest income for the
second quarter of 2024
Selected Financial Data (unaudited)
As of and for the
Three months ended
Six months ended
June 30,
March 31,
June 30,
June 30,
June 30,
(dollars and shares in thousands, except
per share data)
2024
2024
2023
2024
2023
Performance Ratios
Return on average total assets
0.58
%
0.63
%
0.96
%
0.60
%
0.92
%
Return on average common equity
6.76
%
7.04
%
10.14
%
6.90
%
9.66
%
Return on average tangible common equity
(1)
9.40
%
9.78
%
13.71
%
9.58
%
13.15
%
Noninterest income as a % of revenue
53.28
%
53.26
%
53.69
%
53.27
%
52.65
%
Net interest margin (tax-equivalent)
2.39
%
2.30
%
2.52
%
2.35
%
2.61
%
Adjusted net interest margin
(tax-equivalent) (1)
2.57
%
2.44
%
2.52
%
2.50
%
2.61
%
Efficiency ratio (1)
72.50
%
78.88
%
72.79
%
75.56
%
73.67
%
Net charge-offs/(recoveries) to average
loans
0.36
%
0.01
%
(0.07)
%
0.19
%
(0.02)
%
Dividend payout ratio
64.52
%
59.38
%
42.22
%
61.90
%
43.53
%
Per Common Share
Earnings per common share - basic
$
0.31
$
0.32
$
0.45
$
0.64
$
0.86
Earnings per common share - diluted
$
0.31
$
0.32
$
0.45
$
0.63
$
0.85
Dividends declared per common share
$
0.20
$
0.19
$
0.19
$
0.39
$
0.37
Book value per common share
$
18.87
$
18.79
$
17.96
Tangible book value per common share
(1)
$
15.77
$
15.63
$
14.60
Average common shares outstanding -
basic
19,777
19,739
20,033
19,758
20,030
Average common shares outstanding -
diluted
20,050
19,986
20,241
20,018
20,243
Other Data
Retirement and benefit services assets
under administration/management
$
39,389,533
$
38,488,523
$
35,052,652
Wealth management assets under
administration/management
$
4,172,290
$
4,242,408
$
3,857,710
Mortgage originations
$
109,254
$
54,101
$
111,261
$
163,355
$
188,989
_______________
(1) Represents a non-GAAP financial
measure. See “Non-GAAP to GAAP Reconciliations and Calculation of
Non-GAAP Financial Measures.”
Results of Operations
Net Interest Income
Net interest income for the second quarter of 2024 was $24.0
million, a $1.8 million, or 8.0%, increase from the first quarter
of 2024. The increase was due to interest income on increased loan
balances and higher average cash balances related to the Bank Term
Funding Program (“BTFP”) arbitrage trade. The increase was
partially offset by an increase in interest expense on deposits,
driven by higher average deposit and BTFP borrowing balances and
higher deposit rates.
Net interest income increased $1.8 million, or 7.9%, from $22.2
million for the second quarter of 2023. Interest income increased
$12.7 million, or 31.4%, from the second quarter of 2023, primarily
driven by higher yields on new loans and strong organic loan
growth, in addition to interest income on higher cash balances due
to the BTFP arbitrage trade. The increase in interest income was
partially offset by a $10.9 million, or 60.3%, increase in interest
expense, due to both an increase in rates paid on interest-bearing
deposits and higher deposit and short-term borrowing balances.
Net interest margin (on a tax-equivalent basis) was 2.39% for
the second quarter of 2024, a 9 basis point increase from 2.30% for
the first quarter of 2024, and a 13 basis point decrease from 2.52%
for the second quarter of 2023. The increase in net interest margin
(on a tax-equivalent basis) was mainly attributable to higher
yields on loans and strong loan growth, partially offset by the
higher cost of funds from continued growth in average
interest-bearing deposit balances. Adjusted net interest margin (on
a tax-equivalent basis) (non-GAAP), which excludes BTFP borrowings,
was 2.57% for the second quarter of 2024, a 13 basis point increase
from 2.44% for the first quarter of 2024, and a 5 basis point
increase from 2.52% for the second quarter of 2023.
Noninterest Income
Noninterest income for the second quarter of 2024 was $27.4
million, a $2.0 million increase from the first quarter of 2024.
The quarter over quarter increase was primarily driven by
improvement across all fee-based businesses. Mortgage banking saw a
$0.9 million increase in revenue with mortgage originations of
$109.3 million in the second quarter of 2024, compared to
originations of $54.1 million in the first quarter of 2024.
Retirement and benefit services revenue increased $0.4 million for
the second quarter of 2024, a 2.7% increase from first quarter of
2024 results, primarily due to the growth in asset-based revenue.
Assets under administration/management in retirement and benefit
services increased 2.3% from March 31, 2024, due to improved equity
and bond markets. Wealth management revenues increased $0.2 million
during the second quarter of 2024, a 4.0% increase from the first
quarter of 2024, primarily due to fee schedule increases.
Additionally, other noninterest income increased $0.4 million
during the second quarter of 2024, a 29.0% increase from the first
quarter of 2024, primarily due to client swap fees.
Noninterest income for the second quarter of 2024 was $27.4
million, an increase of $1.6 million, or 6.2%, from the second
quarter of 2023. Wealth management revenues increased $0.9 million,
or 16.7%, in the second quarter of 2024, as assets under
administration/management increased 8.2% during that same period.
Other noninterest income increased $0.7 million, or 57.2% in the
second quarter of 2024 compared to the second quarter of 2023,
primarily due to client swap fees. Partially offsetting this
increase, mortgage revenue decreased $0.4 million, or 12.1%, from
$2.9 million in the second quarter of 2023, primarily driven by
timing differences related to the mortgage pipeline hedging.
Noninterest Expense
Noninterest expense for the second quarter of 2024 was $38.8
million, a $0.3 million, or 0.7%, decrease from the first quarter
of 2024. Employee taxes and benefits expense decreased $1.1 million
for the second quarter of 2024, a 17.0% decrease from the first
quarter of 2024, primarily due to seasonality. Business services,
software and technology expense decreased $0.7 million, or 14.0%,
from the first quarter of 2024, primarily driven by reduced core
processing and data processing expenses. The decrease in
noninterest expense was partially offset by an increase in
compensation and professional fees and assessments. Compensation
expenses increased $0.9 million, or 4.8%, from the first quarter of
2024, primarily driven by an increase in mortgage incentive
compensation. Professional fees and assessments increased $0.4
million, or 19.1%, from the first quarter of 2024, primarily driven
by increased merger-related expenses of $0.5 million in connection
with the pending acquisition of HMN Financial, Inc.
Noninterest expense for the second quarter of 2024 increased
$2.4 million, or 6.5%, from $36.4 million in the second quarter of
2023. The increase was primarily driven by compensation expenses
and professional fees and assessments. Compensation expenses
increased primarily due to increased labor costs. Professional fees
and assessments increased primarily due to increased merger-related
expenses of $0.6 million in connection with the pending acquisition
of HMN Financial, Inc. and an increase in Federal Deposit Insurance
Corporation (“FDIC”) assessments.
Financial Condition
Total assets were $4.4 billion as of June 30, 2024, an increase
of $450.9 million, or 11.5%, from December 31, 2023. The increase
was primarily due to a $308.2 million increase in cash and cash
equivalents and a $156.2 million increase in loans, partially
offset by a decrease of $37.5 million in investment securities. The
increase in cash and cash equivalents was primarily driven by the
proceeds from BTFP borrowings.
Loans
Total loans were $2.9 billion as of June 30, 2024, an increase
of $156.2 million, or 5.7%, from December 31, 2023. The increase
was primarily driven by a $78.4 million increase in non-owner
occupied commercial real estate (“CRE”) loans, a $37.7 million
increase in construction, land and development CRE loans, and a
$29.6 million increase in commercial and industrial loans,
partially offset by $11.6 million and $6.4 million decreases in
residential real estate first lien and construction loans,
respectively.
The following table presents the composition of our loan
portfolio as of the dates indicated:
June 30,
March 31,
December 31,
September 30,
June 30,
(dollars in thousands)
2024
2024
2023
2023
2023
Commercial
Commercial and industrial
$
591,779
$
575,259
$
562,180
$
547,644
$
521,427
Commercial real estate
Construction, land and development
161,751
125,966
124,034
97,742
78,428
Multifamily
242,041
260,609
245,103
214,148
210,902
Non-owner occupied
647,776
565,979
569,354
504,827
500,334
Owner occupied
283,356
285,211
271,623
264,458
251,981
Total commercial real estate
1,334,924
1,237,765
1,210,114
1,081,175
1,041,645
Agricultural
Land
41,410
41,149
40,832
41,581
40,603
Production
40,549
36,436
36,141
34,743
30,435
Total agricultural
81,959
77,585
76,973
76,324
71,038
Total commercial
2,008,662
1,890,609
1,849,267
1,705,143
1,634,110
Consumer
Residential real estate
First lien
686,286
703,726
697,900
680,634
672,441
Construction
22,573
18,425
28,979
37,159
35,189
HELOC
126,211
120,501
118,315
116,296
121,474
Junior lien
36,323
36,381
35,819
36,381
35,757
Total residential real estate
871,393
879,033
881,013
870,470
864,861
Other consumer
35,737
29,833
29,303
30,817
34,552
Total consumer
907,130
908,866
910,316
901,287
899,413
Total loans
$
2,915,792
$
2,799,475
$
2,759,583
$
2,606,430
$
2,533,523
Deposits
Total deposits were $3.3 billion as of June 30, 2024, an
increase of $203.0 million, or 6.6%, from December 31, 2023.
Interest-bearing deposits increased $229.6 million, while
noninterest-bearing deposits decreased $26.7 million, from December
31, 2023. The increase in total deposits was due to both expanded
and new commercial deposit relationships, along with time deposit
and synergistic deposit growth. Synergistic deposits were $874.8
million as of June 30, 2024, an increase of $23.2 million, or 2.7%,
from December 31, 2023. The Company continued to have $0 of
brokered deposits as of June 30, 2024.
The following table presents the composition of the Company’s
deposit portfolio as of the dates indicated:
June 30,
March 31,
December 31,
September 30,
June 30,
(dollars in thousands)
2024
2024
2023
2023
2023
Noninterest-bearing demand
$
701,428
$
692,500
$
728,082
$
717,990
$
715,534
Interest-bearing
Interest-bearing demand
1,003,585
938,751
840,711
759,812
753,194
Savings accounts
79,747
82,727
82,485
88,341
93,557
Money market savings
1,022,470
1,114,262
1,032,771
959,106
986,403
Time deposits
491,345
456,729
411,562
346,935
304,167
Total interest-bearing
2,597,147
2,592,469
2,367,529
2,154,194
2,137,321
Total deposits
$
3,298,575
$
3,284,969
$
3,095,611
$
2,872,184
$
2,852,855
Asset Quality
Total nonperforming assets were $27.6 million as of June 30,
2024, an increase of $18.9 million from December 31, 2023. The
increase was driven by one previously identified construction, land
and development loan of $21.5 million moving to nonaccrual
status.
As of June 30, 2024, the allowance for credit losses on loans
was $38.3 million, or 1.31% of total loans, compared to $35.8
million, or 1.30% of total loans, as of December 31, 2023.
The following table presents selected asset quality data as of
and for the periods indicated:
As of and for the three months
ended
June 30,
March 31,
December 31,
September 30,
June 30,
(dollars in thousands)
2024
2024
2023
2023
2023
Nonaccrual loans
$
27,618
$
7,345
$
8,596
$
9,007
$
2,233
Accruing loans 90+ days past due
—
—
139
—
347
Total nonperforming loans
27,618
7,345
8,735
9,007
2,580
OREO and repossessed assets
—
3
32
3
—
Total nonperforming assets
$
27,618
$
7,348
$
8,767
$
9,010
$
2,580
Net charge-offs/(recoveries)
2,522
58
(238)
(594)
(403)
Net charge-offs/(recoveries) to average
loans
0.36
%
0.01
%
(0.04)
%
(0.09)
%
(0.07)
%
Nonperforming loans to total loans
0.95
%
0.26
%
0.32
%
0.35
%
0.10
%
Nonperforming assets to total assets
0.63
%
0.17
%
0.22
%
0.23
%
0.07
%
Allowance for credit losses on loans to
total loans
1.31
%
1.31
%
1.30
%
1.39
%
1.41
%
Allowance for credit losses on loans to
nonperforming loans
139
%
498
%
410
%
403
%
1,384
%
For the second quarter of 2024, the Company had net charge-offs
of $2.5 million, compared to net charge-offs of $58 thousand for
the first quarter of 2024 and net recoveries of $403 thousand for
the second quarter of 2023. The increase in net charge-offs was
driven by a $2.6 million charge-off of one commercial and
industrial loan that had an individual reserve of $2.3 million in
the first quarter of 2024.
The Company recorded a provision for credit losses of $4.5
million for the second quarter of 2024, compared to no provision
for each of the first quarter of 2024 and the second quarter of
2023. The increase in the provision for credit losses was primarily
driven by loan growth, as well as an increased reserve related to
the previously identified $21.5 million construction, land and
development loan which moved to nonaccrual status during the second
quarter of 2024.
The unearned fair value adjustments on the acquired Metro
Phoenix Bank loan portfolio were $4.1 million as of June 30, 2024,
$5.2 million as of December 31, 2023, and $6.2 million as of June
30, 2023.
Capital
Total stockholders’ equity was $373.2 million as of June 30,
2024, an increase of $4.1 million from December 31, 2023. This
change was primarily driven by an increase in retained earnings of
$4.9 million. Tangible book value per common share (non-GAAP)
increased to $15.77 as of June 30, 2024, from $15.46 as of December
31, 2023. Tangible common equity to tangible assets (non-GAAP)
decreased to 7.26% as of June 30, 2024, from 7.94% as of December
31, 2023. Common equity tier 1 capital to risk weighted assets
decreased to 11.67% as of June 30, 2024, from 11.82% as of December
31, 2023.
The following table presents our capital ratios as of the dates
indicated:
June 30,
December 31,
June 30,
2024
2023
2023
Capital Ratios(1)
Alerus Financial Corporation
Consolidated
Common equity tier 1 capital to risk
weighted assets
11.67
%
11.82
%
13.30
%
Tier 1 capital to risk weighted assets
11.94
%
12.10
%
13.60
%
Total capital to risk weighted assets
14.70
%
14.76
%
16.49
%
Tier 1 capital to average assets
9.60
%
10.57
%
11.15
%
Tangible common equity / tangible assets
(2)
7.26
%
7.94
%
7.72
%
Alerus Financial, N.A.
Common equity tier 1 capital to risk
weighted assets
11.23
%
11.40
%
12.93
%
Tier 1 capital to risk weighted assets
11.23
%
11.40
%
12.93
%
Total capital to risk weighted assets
12.48
%
12.51
%
14.14
%
Tier 1 capital to average assets
9.05
%
9.92
%
10.59
%
_______________
(1) Capital ratios for the current quarter
are to be considered preliminary until the Call Report for Alerus
Financial, N.A. is filed.
(2) Represents a non-GAAP financial
measure. See “Non-GAAP to GAAP Reconciliations and Calculation of
Non-GAAP Financial Measures.”
Conference Call
The Company will host a conference call at 11:00 a.m. Central
Time on Thursday, July 25, 2024, to discuss its financial results.
Attendees are encouraged to register ahead of time for the call at
investors.alerus.com. The call can also be accessed via telephone
at 1 (833) 470-1428, using access code 287487. A recording of the
call and transcript will be available on the Company’s investor
relations website at investors.alerus.com following the call.
About Alerus Financial Corporation
Alerus Financial Corporation (Nasdaq: ALRS) is a commercial
wealth bank and national retirement services provider with
corporate offices in Grand Forks, North Dakota, and the
Minneapolis-St. Paul, Minnesota metropolitan area. Through its
subsidiary, Alerus Financial, National Association, Alerus provides
diversified and comprehensive financial solutions to business and
consumer clients, including banking, wealth services, and
retirement and benefit plans and services. Alerus provides clients
with a primary point of contact to help fully understand the unique
needs and delivery channel preferences of each client. Clients are
provided with competitive products, valuable insight, and sound
advice supported by digital solutions designed to meet the clients’
needs. Alerus has banking and wealth offices in Grand Forks and
Fargo, North Dakota, the Minneapolis-St. Paul, Minnesota
metropolitan area, and Phoenix and Scottsdale, Arizona. Alerus
Retirement and Benefit serves advisors, brokers, employers, and
plan participants across the United States.
Non-GAAP Financial Measures
Some of the financial measures included in this press release
are not measures of financial performance recognized by U.S.
Generally Accepted Accounting Principles, or GAAP. These non-GAAP
financial measures include the ratio of tangible common equity to
tangible assets, adjusted tangible common equity to tangible
assets, tangible book value per common share, return on average
tangible common equity, efficiency ratio, pre-provision net
revenue, net interest margin (tax-equivalent), and adjusted net
interest margin (tax-equivalent). Management uses these non-GAAP
financial measures in its analysis of its performance, and believes
financial analysts and investors frequently use these measures, and
other similar measures, to evaluate capital adequacy and financial
performance. Reconciliations of non-GAAP disclosures used in this
press release to the comparable GAAP measures are provided in the
accompanying tables. Management, banking regulators, many financial
analysts and other investors use these measures in conjunction with
more traditional bank capital ratios to compare the capital
adequacy of banking organizations with significant amounts of
goodwill or other intangible assets, which typically stem from the
use of the purchase accounting method of accounting for mergers and
acquisitions.
These non-GAAP financial measures should not be considered in
isolation or as a substitute for total stockholders’ equity, total
assets, book value per share, return on average assets, return on
average equity, or any other measure calculated in accordance with
GAAP. Moreover, the manner in which the Company calculates these
non-GAAP financial measures may differ from that of other companies
reporting measures with similar names.
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, statements concerning
plans, estimates, calculations, forecasts and projections with
respect to the anticipated future performance of Alerus Financial
Corporation. These statements are often, but not always, identified
by words such as “may”, “might”, “should”, “could”, “predict”,
“potential”, “believe”, “expect”, “continue”, “will”, “anticipate”,
“seek”, “estimate”, “intend”, “plan”, “projection”, “would”,
“annualized”, “target” and “outlook”, or the negative version of
those words or other comparable words of a future or
forward-looking nature. Examples of forward-looking statements
include, among others, statements the Company makes regarding our
projected growth, anticipated future financial performance,
financial condition, credit quality, management’s long-term
performance goals and the future plans and prospects of Alerus
Financial Corporation.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
our current beliefs, expectations and assumptions regarding our
business, future plans and strategies, projections, anticipated
events and trends, the economy and other future conditions. Because
forward-looking statements relate to the future, they are subject
to inherent uncertainties, risks and changes in circumstances that
are difficult to predict and many of which are outside of our
control. Our actual results and financial condition may differ
materially from those indicated in forward-looking statements.
Therefore, you should not rely on any of these forward-looking
statements. Important factors that could cause our actual results
and financial condition to differ materially from those indicated
in forward-looking statements include, among others, the following:
interest rate risk, including the effects of sustained high
interest rates; our ability to successfully manage credit risk and
maintain an adequate level of allowance for credit losses; new or
revised accounting standards; business and economic conditions
generally and in the financial services industry, nationally and
within our market areas, including high rates of inflation and
possible recession; the effects of recent developments and events
in the financial services industry, including the large-scale
deposit withdrawals over a short-period of time that resulted in
recent bank failures; the overall health of the local and national
real estate market; concentrations within our loan portfolio; the
level of nonperforming assets on our balance sheet; our ability to
implement our organic and acquisition growth strategies, including
the integration of Metro Phoenix Bank which the Company acquired in
2022 and the pending acquisition of HMN Financial, Inc.; the impact
of economic or market conditions on our fee-based services; our
ability to continue to grow our retirement and benefit services
business; our ability to continue to originate a sufficient volume
of residential mortgages; the occurrence of fraudulent activity,
breaches or failures of our or our third party vendors’ information
security controls or cybersecurity-related incidents, including as
a result of sophisticated attacks using artificial intelligence and
similar tools; interruptions involving our information technology
and telecommunications systems or third-party servicers; potential
losses incurred in connection with mortgage loan repurchases; the
composition of our executive management team and our ability to
attract and retain key personnel; rapid technological change in the
financial services industry; increased competition in the financial
services industry from non-banks such as credit unions and Fintech
companies, including digital asset service providers; our ability
to successfully manage liquidity risk, including our need to access
higher cost sources of funds such as fed funds purchased and
short-term borrowings; the concentration of large deposits from
certain clients, who have balances above current FDIC insurance
limits; the effectiveness of our risk management framework; the
commencement and outcome of litigation and other legal proceedings
and regulatory actions against us or to which the Company may
become subject; potential impairment to the goodwill the Company
recorded in connection with our past acquisitions, including the
acquisition of Metro Phoenix Bank and the pending acquisition of
HMN Financial, Inc.; the extensive regulatory framework that
applies to us; the impact of recent and future legislative and
regulatory changes, including in response to recent bank failures;
fluctuations in the values of the securities held in our securities
portfolio, including as a result of changes in interest rates;
governmental monetary, trade and fiscal policies; risks related to
climate change and the negative impact it may have on our customers
and their businesses; severe weather, natural disasters, widespread
disease or pandemics; acts of war or terrorism, including the
ongoing Israeli-Palestinian conflict and the Russian invasion of
Ukraine, or other adverse external events; any material weaknesses
in our internal control over financial reporting; changes to U.S.
or state tax laws, regulations and guidance; potential changes in
federal policy and at regulatory agencies as a result of the
upcoming 2024 presidential election; talent and labor shortages and
employee turnover; our success at managing the risks involved in
the foregoing items; and any other risks described in the “Risk
Factors” sections of the reports filed by Alerus Financial
Corporation with the Securities and Exchange Commission.
Any forward-looking statement made by us in this press release
is based only on information currently available to us and speaks
only as of the date on which it is made. The Company undertakes no
obligation to publicly update any forward-looking statement,
whether written or oral, that may be made from time to time,
whether as a result of new information, future developments or
otherwise.
Additional Information and Where to Find It
The Company filed a Registration Statement on Form S-4
(Registration Statement No. 333-280815) with the SEC on July 15,
2024, in connection with a proposed transaction between the Company
and HMN Financial, Inc. (“HMNF”). The registration statement
includes a joint proxy statement of the Company and HMNF that also
constitutes a prospectus of the Company, which will be sent to the
stockholders of the Company and HMNF after the SEC declares the
registration statement effective.
Before making any voting decision, the stockholders of the
Company and HMNF are advised to read the joint proxy
statement/prospectus, because it contains important information
about the Company, HMNF and the proposed transaction.
This document and other documents relating to the proposed
transaction filed by the Company can be obtained free of charge
from the SEC’s website at www.sec.gov. These documents also can be
obtained free of charge by accessing the Company’s website at
www.alerus.com under the link “Investors Relations” and then under
“SEC Filings” and HMNF’s website at
www.justcallhome.com/HMNFinancial under “SEC Filings.”
Alternatively, these documents can be obtained free of charge from
the Company upon written request to Alerus Financial Corporation,
Corporate Secretary, 401 Demers Avenue, Grand Forks, North Dakota
58201 or by calling (701) 795-3200, or from HMNF upon written
request to HMN Financial, Inc., Corporate Secretary, 1016 Civic
Center Drive NW, Rochester, Minnesota 55901 or by calling (507)
535-1200. The contents of the websites referenced above are not
deemed to be incorporated by reference into the registration
statement or the joint proxy statement/prospectus.
Participants in the Solicitation
This press release does not constitute a solicitation of proxy,
an offer to purchase or a solicitation of an offer to sell any
securities. The Company, HMNF, and certain of their directors,
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies
from the stockholders of the Company and HMNF in connection with
the proposed transaction under SEC rules. Information about the
directors and executive officers of the Company and HMNF is
included in the joint proxy statement/prospectus for the proposed
transaction filed with the SEC. This document may be obtained free
of charge in the manner described above under “Additional
Information and Where to Find It.”
Alerus Financial Corporation and
Subsidiaries
Consolidated Balance Sheets
(dollars in thousands, except share and
per share data)
June 30,
December 31,
2024
2023
Assets
(Unaudited)
Cash and cash equivalents
$
438,141
$
129,893
Investment securities
Trading, at fair value
2,868
—
Available-for-sale, at fair value
459,345
486,736
Held-to-maturity, at amortized cost (with
an allowance for credit losses on investments of $151 and $207,
respectively)
286,532
299,515
Loans held for sale
38,158
11,497
Loans
2,915,792
2,759,583
Allowance for credit losses on loans
(38,332)
(35,843)
Net loans
2,877,460
2,723,740
Land, premises and equipment, net
21,167
17,940
Operating lease right-of-use assets
4,871
5,436
Accrued interest receivable
16,877
15,700
Bank-owned life insurance
35,508
33,236
Goodwill
46,783
46,783
Other intangible assets
14,510
17,158
Servicing rights
1,963
2,052
Deferred income taxes, net
35,732
34,595
Other assets
78,708
83,432
Total assets
$
4,358,623
$
3,907,713
Liabilities and Stockholders’
Equity
Deposits
Noninterest-bearing
$
701,428
$
728,082
Interest-bearing
2,597,147
2,367,529
Total deposits
3,298,575
3,095,611
Short-term borrowings
555,000
314,170
Long-term debt
59,013
58,956
Operating lease liabilities
5,197
5,751
Accrued expenses and other liabilities
67,612
64,098
Total liabilities
3,985,397
3,538,586
Stockholders’ equity
Preferred stock, $1 par value, 2,000,000
shares authorized: 0 issued and outstanding
—
—
Common stock, $1 par value, 30,000,000
shares authorized: 19,777,796 and 19,734,077 issued and
outstanding
19,778
19,734
Additional paid-in capital
150,857
150,343
Retained earnings
277,620
272,705
Accumulated other comprehensive loss
(75,029)
(73,655)
Total stockholders’ equity
373,226
369,127
Total liabilities and stockholders’
equity
$
4,358,623
$
3,907,713
Alerus Financial Corporation and
Subsidiaries
Consolidated Statements of
Income
(dollars and shares in thousands, except
per share data)
Three months ended
Six months ended
June 30,
March 31,
June 30,
June 30,
June 30,
2024
2024
2023
2024
2023
Interest Income
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Loans, including fees
$
41,663
$
39,294
$
33,267
$
80,958
$
64,200
Investment securities
Taxable
4,845
4,568
6,125
9,413
12,076
Exempt from federal income taxes
170
174
186
343
376
Other
6,344
5,002
762
11,346
1,497
Total interest income
53,022
49,038
40,340
102,060
78,149
Interest Expense
Deposits
21,284
20,152
12,678
41,436
21,782
Short-term borrowings
7,053
5,989
4,763
13,042
9,156
Long-term debt
684
678
665
1,362
1,319
Total interest expense
29,021
26,819
18,106
55,840
32,257
Net interest income
24,001
22,219
22,234
46,220
45,892
Provision for credit losses
4,489
—
—
4,489
550
Net interest income after provision for
credit losses
19,512
22,219
22,234
41,731
45,342
Noninterest Income
Retirement and benefit services
16,078
15,655
15,890
31,733
31,372
Wealth management
6,360
6,118
5,449
12,477
10,644
Mortgage banking
2,554
1,670
2,905
4,224
4,622
Service charges on deposit accounts
456
389
311
845
612
Other
1,923
1,491
1,223
3,415
3,781
Total noninterest income
27,371
25,323
25,778
52,694
51,031
Noninterest Expense
Compensation
20,265
19,332
18,847
39,597
38,005
Employee taxes and benefits
5,134
6,188
4,724
11,322
10,577
Occupancy and equipment expense
1,815
1,906
1,837
3,722
3,736
Business services, software and technology
expense
4,599
5,345
5,269
9,944
10,593
Intangible amortization expense
1,324
1,324
1,324
2,648
2,648
Professional fees and assessments
2,373
1,993
1,530
4,366
2,682
Marketing and business development
651
785
665
1,436
1,389
Supplies and postage
370
528
406
898
866
Travel
332
292
306
624
554
Mortgage and lending expenses
467
441
215
908
712
Other
1,422
885
1,250
2,306
2,480
Total noninterest expense
38,752
39,019
36,373
77,771
74,242
Income before income tax expense
8,131
8,523
11,639
16,654
22,131
Income tax expense
1,923
2,091
2,535
4,014
4,841
Net income
$
6,208
$
6,432
$
9,104
$
12,640
$
17,290
Per Common Share Data
Earnings per common share
$
0.31
$
0.32
$
0.45
$
0.64
$
0.86
Diluted earnings per common share
$
0.31
$
0.32
$
0.45
$
0.63
$
0.85
Dividends declared per common share
$
0.20
$
0.19
$
0.19
$
0.39
$
0.37
Average common shares outstanding
19,777
19,739
20,033
19,758
20,030
Diluted average common shares
outstanding
20,050
19,986
20,241
20,018
20,243
Alerus Financial Corporation and
Subsidiaries
Non-GAAP to GAAP Reconciliations and
Calculation of Non-GAAP Financial Measures (unaudited)
(dollars and shares in thousands, except
per share data)
June 30,
March 31,
December 31,
June 30,
2024
2024
2023
2023
Tangible Common Equity to Tangible
Assets
Total common stockholders’ equity
$
373,226
$
371,635
$
369,127
$
357,685
Less: Goodwill
46,783
46,783
46,783
47,087
Less: Other intangible assets
14,510
15,834
17,158
19,806
Tangible common equity (a)
311,933
309,018
305,186
290,792
Total assets
4,358,623
4,338,094
3,907,713
3,832,978
Less: Goodwill
46,783
46,783
46,783
47,087
Less: Other intangible assets
14,510
15,834
17,158
19,806
Tangible assets (b)
4,297,330
4,275,477
3,843,772
3,766,085
Tangible common equity to tangible assets
(a)/(b)
7.26
%
7.23
%
7.94
%
7.72
%
Adjusted Tangible Common Equity to
Tangible Assets
Tangible assets (b)
$
4,297,330
$
4,275,477
$
3,843,772
$
3,766,085
Less: Cash proceeds from BTFP
355,000
355,000
—
—
Adjusted tangible assets (c)
3,942,330
3,920,477
3,843,772
3,766,085
Adjusted tangible common equity to
tangible assets (a)/(c)
7.91
%
7.88
%
7.94
%
7.72
%
Tangible Book Value Per Common
Share
Total common stockholders’ equity
$
373,226
$
371,635
$
369,127
$
357,685
Less: Goodwill
46,783
46,783
46,783
47,087
Less: Other intangible assets
14,510
15,834
17,158
19,806
Tangible common equity (d)
311,933
309,018
305,186
290,792
Total common shares issued and outstanding
(e)
19,778
19,777
19,734
19,915
Tangible book value per common share
(d)/(e)
$
15.77
$
15.63
$
15.46
$
14.60
Three months ended
Six months ended
June 30,
March 31,
June 30,
June 30,
June 30,
2024
2024
2023
2024
2023
Return on Average Tangible Common
Equity
Net income
$
6,208
$
6,432
$
9,104
$
12,640
$
17,290
Add: Intangible amortization expense (net
of tax)
1,046
1,046
1,046
2,092
2,092
Net income, excluding intangible
amortization (f)
7,254
7,478
10,150
14,732
19,382
Average total equity
369,216
367,249
360,216
368,501
361,032
Less: Average goodwill
46,783
46,783
47,087
46,783
47,087
Less: Average other intangible assets (net
of tax)
11,969
13,018
16,153
12,494
16,678
Average tangible common equity
(g)
310,464
307,448
296,976
309,224
297,267
Return on average tangible common equity
(f)/(g)
9.40
%
9.78
%
13.71
%
9.58
%
13.15
%
Efficiency Ratio
Noninterest expense
$
38,752
$
39,019
$
36,373
$
77,771
$
74,242
Less: Intangible amortization expense
1,324
1,324
1,324
2,648
2,648
Adjusted noninterest expense
(h)
37,428
37,695
35,049
75,123
71,594
Net interest income
24,001
22,219
22,234
46,220
45,892
Noninterest income
27,371
25,323
25,778
52,694
51,031
Tax-equivalent adjustment
255
247
141
502
264
Total tax-equivalent revenue
(i)
51,627
47,789
48,153
99,416
97,187
Efficiency ratio (h)/(i)
72.50
%
78.88
%
72.79
%
75.56
%
73.67
%
Alerus Financial Corporation and
Subsidiaries
Non-GAAP to GAAP Reconciliations and
Calculation of Non-GAAP Financial Measures (unaudited)
(dollars and shares in thousands, except
per share data)
Three months ended
Six months ended
June 30,
March 31,
June 30,
June 30,
June 30,
2024
2024
2023
2024
2023
Pre-Provision Net Revenue
Income (loss) before taxes
$
8,131
$
8,523
$
11,639
$
16,654
$
22,131
Add: Provision for credit losses
4,489
—
—
4,489
550
Pre-provision net revenue
$
12,620
$
8,523
$
11,639
$
21,143
$
22,681
Adjusted Net Interest Margin
(Tax-Equivalent)
Net interest income
$
24,001
$
22,219
$
22,234
$
46,220
$
45,892
Less: BTFP cash interest income
4,766
3,615
—
8,381
—
Add: BTFP interest expense
4,307
3,266
—
7,573
—
Net interest income excluding BTFP
impact
23,542
21,870
22,234
45,412
45,892
Add: Tax equivalent adjustment for loans
and securities
255
247
141
502
264
Adjusted net interest income
(j)
$
23,797
$
22,117
$
22,375
$
45,914
$
46,156
Interest earning assets
4,075,003
3,921,530
3,564,883
3,998,265
3,566,136
Less: Average cash proceeds balance from
BTFP
355,000
269,176
—
312,088
—
Adjusted interest earning assets
(k)
$
3,720,003
$
3,652,354
$
3,564,883
$
3,686,177
$
3,566,136
Adjusted net interest margin
(tax-equivalent) (j)/(k)
2.57
%
2.44
%
2.52
%
2.50
%
2.61
%
Alerus Financial Corporation and
Subsidiaries
Analysis of Average Balances, Yields,
and Rates (unaudited)
(dollars in thousands)
Three months ended
Six months ended
June 30, 2024
March 31, 2024
June 30, 2023
June 30, 2024
June 30, 2023
Average
Average
Average
Average
Average
Average
Yield/
Average
Yield/
Average
Yield/
Average
Yield/
Average
Yield/
Balance
Rate
Balance
Rate
Balance
Rate
Balance
Rate
Balance
Rate
Interest Earning Assets
Interest-bearing deposits with banks
$
448,245
5.38
%
$
352,038
5.33
%
$
36,418
4.00
%
$
400,141
5.36
%
$
39,167
3.59
%
Investment securities (1)
756,413
2.69
775,305
2.48
1,007,792
2.53
765,859
2.59
1,020,967
2.48
Loans held for sale
16,473
8.91
9,014
5.67
14,536
5.22
12,743
7.76
12,452
5.12
Loans
Commercial and industrial
578,544
7.39
564,125
6.96
516,943
6.92
571,334
7.18
524,500
6.50
CRE − Construction, land and
development
126,744
8.01
127,587
8.04
87,905
7.43
127,165
8.02
95,460
6.96
CRE − Multifamily
243,076
5.52
250,513
5.56
191,100
5.15
246,794
5.54
151,740
5.14
CRE − Non-owner occupied
617,338
5.90
564,553
5.75
473,728
5.19
590,946
5.83
492,174
5.05
CRE − Owner occupied
283,754
5.47
279,165
5.36
252,320
4.90
281,459
5.41
251,669
4.94
Agricultural − Land
40,932
4.72
40,310
4.75
39,679
4.84
40,621
4.73
38,773
4.72
Agricultural − Production
38,004
6.69
35,331
6.39
28,415
6.47
36,668
6.54
27,848
6.26
RRE − First lien
694,866
4.07
701,756
4.01
665,519
3.71
698,311
4.04
659,636
3.70
RRE − Construction
21,225
5.38
21,559
5.20
32,769
4.81
21,392
5.30
33,911
4.91
RRE − HELOC
123,233
8.30
118,957
8.30
120,344
7.97
121,095
8.30
118,459
7.83
RRE − Junior lien
36,181
6.60
35,824
6.38
35,932
5.69
36,003
6.49
34,557
5.60
Other consumer
33,335
6.67
28,835
6.43
37,759
6.03
31,085
6.57
41,126
5.94
Total loans (1)
2,837,232
5.88
2,768,515
5.72
2,482,413
5.36
2,802,873
5.80
2,469,853
5.23
Federal Reserve/FHLB stock
16,640
8.53
16,658
8.14
23,724
6.75
16,649
8.33
23,697
6.82
Total interest earning assets
4,075,003
5.26
3,921,530
5.05
3,564,883
4.55
3,998,265
5.16
3,566,136
4.43
Noninterest earning assets
222,290
217,524
220,604
220,178
222,358
Total assets
$
4,297,293
$
4,139,054
$
3,785,487
$
4,218,443
$
3,788,494
Interest-Bearing Liabilities
Interest-bearing demand deposits
$
959,119
2.24
%
$
869,060
1.97
%
$
775,818
1.26
%
$
914,090
2.11
%
$
761,319
1.07
%
Money market and savings deposits
1,147,525
3.79
1,186,900
3.77
1,145,335
2.81
1,167,213
3.78
1,155,247
2.49
Time deposits
458,125
4.50
431,679
4.46
270,121
3.29
444,902
4.48
251,145
2.80
Fed funds purchased and Bank Term Funding
Program
366,186
4.90
282,614
4.99
360,033
5.31
324,400
4.94
325,303
5.10
FHLB short-term advances
200,000
5.21
200,000
4.99
—
—
200,000
5.10
39,779
4.69
Long-term debt
58,999
4.66
58,971
4.62
58,886
4.53
58,985
4.64
58,872
4.51
Total interest-bearing liabilities
3,189,954
3.66
3,029,224
3.56
2,610,193
2.78
3,109,590
3.61
2,591,665
2.51
Noninterest-Bearing Liabilities and
Stockholders' Equity
Noninterest-bearing deposits
665,930
675,926
748,942
670,928
768,927
Other noninterest-bearing liabilities
72,193
66,655
66,136
69,424
66,870
Stockholders’ equity
369,216
367,249
360,216
368,501
361,032
Total liabilities and stockholders’
equity
$
4,297,293
$
4,139,054
$
3,785,487
$
4,218,443
$
3,788,494
Net interest income (1)
Net interest rate spread
1.60
%
1.49
%
1.77
%
1.55
%
1.92
%
Net interest margin, tax-equivalent
(1)
2.39
%
2.30
%
2.52
%
2.35
%
2.61
%
_______________
(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/20240724630386/en/
Alan A. Villalon, Chief Financial Officer 952.417.3733
(Office)
Alerus Financial (NASDAQ:ALRS)
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