Alerus Financial Corporation Reports Third Quarter 2019 Net Income of $7.1 Million

GRAND FORKS, N.D.--()--Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $7.1 million for the third quarter of 2019, or $0.48 per diluted common share, compared to $8.3 million of net income, or $0.59 per diluted common share, for the second quarter of 2019.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “Financial results were as expected for the third quarter of 2019. Year-to-date net income for the first nine months of 2019 was up $2.1 million, or 10.4%, compared to 2018 despite a challenging interest rate environment; further exhibiting the value of our diversified business model. The Company accomplished two significant milestones this past quarter, both of which are key in positioning the Company for long-term success. First, we completed our initial public offering (IPO) and began trading on Nasdaq in mid-September. The initial public offering was one of the most important decisions the Company has ever made. The IPO raised $62.8 million, increasing our capital, strengthening our balance sheet and giving us a strong foundation to execute our strategic plan.

In September, we also introduced a new digital experience designed to guide clients in improving their finances. This reimagined digital experience, called MY ALERUS, brings together all consumer products within our Company to create a dashboard for our clients’ whole financial life. MY ALERUS helps clients dig deeper into their finances through a series of financial fitness workouts to help clients calculate their financial wellness score and see how they’re doing with respect to their finances, robust account aggregation technology to link in outside financial accounts, and a seamless yet quick way to open deposit accounts online. Alerus has been strategically building this digital solution as part of our multi-year, organic growth strategic plan called One Alerus. We believe the new technology paired with our skilled advisor team will not only bring new value to our clients, but also add long-term value for our stockholders.”

Quarterly Highlights

  • Return on average assets of 1.29%
  • Return on tangible common equity of 17.01% (1)
  • Noninterest income as a percentage of total revenue was 61.29%
  • Mortgage banking noninterest income increased $1.1 million or 15.6% over the second quarter of 2019
  • Mortgage originations totaled $313.5 million, a 27.4% increase from the second quarter of 2019
  • Net interest margin (tax-equivalent) was 3.69% compared to 3.62% for the second quarter of 2019 (1)
  • Loans held for investment decreased $27.4 million, or 1.6%, from the second quarter of 2019
  • Deposits increased $79.7 million, or 4.5%, from the second quarter of 2019
  • Short-term borrowings decreased $141.4 million from the second quarter of 2019
  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)

 

2019

 

2019

 

2018

 

2019

 

2018

 

Performance Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average total assets

 

 

1.29

%

 

1.52

%

 

1.36

%

 

1.34

%

 

1.25

%

Return on average common equity

 

 

12.42

%

 

15.82

%

 

15.45

%

 

13.74

%

 

14.35

%

Return on average tangible common equity (1)

 

 

17.01

%

 

21.93

%

 

23.08

%

 

19.24

%

 

22.05

%

Noninterest income as a % of revenue

 

 

61.29

%

 

62.11

%

 

58.11

%

 

60.14

%

 

57.78

%

Net interest margin (tax-equivalent) (1)

 

 

3.69

%

 

3.62

%

 

3.80

%

 

3.72

%

 

3.85

%

Efficiency ratio (1)

 

 

75.17

%

 

70.74

%

 

73.16

%

 

73.06

%

 

72.84

%

Net charge-offs/(recoveries) to average loans

 

 

(0.01)

%

 

0.18

%

 

0.02

%

 

0.27

%

 

0.16

%

Dividend payout ratio

 

 

29.17

%

 

23.73

%

 

25.00

%

 

28.19

%

 

27.66

%

Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.49

 

$

0.60

 

$

0.53

 

$

1.53

 

$

1.44

 

Earnings per common share - diluted

 

$

0.48

 

$

0.59

 

$

0.52

 

$

1.49

 

$

1.41

 

Dividends declared per common share

 

$

0.14

 

$

0.14

 

$

0.13

 

$

0.42

 

$

0.39

 

Tangible book value per common share (1)

 

$

13.77

 

$

12.02

 

$

10.11

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

14,274

 

 

13,810

 

 

13,777

 

 

13,957

 

 

13,759

 

Average common shares outstanding - diluted

 

 

14,626

 

 

14,100

 

 

14,071

 

 

14,317

 

 

14,060

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets under administration

 

$

27,702,273

 

$

27,854,052

 

$

28,533,616

 

$

27,702,273

 

$

28,533,616

 

Assets under management

 

 

5,724,412

 

 

5,260,233

 

 

4,854,106

 

 

5,724,412

 

 

4,854,106

 

Mortgage originations

 

 

313,527

 

 

246,115

 

 

222,330

 

 

685,178

 

 

609,941

 

(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 2019 was $18.7 million, an increase of $390 thousand, or 2.1%, from $18.3 million for the second quarter of 2019. The increase was primarily driven by a decrease of $195 thousand in interest expense on short-term borrowings and an increase of $174 thousand in interest income on loans.

Compared to the third quarter of 2018, net interest income for the third quarter of 2019 was relatively unchanged with a modest decrease of $248 thousand.

Net Interest Margin

Net interest margin for the third quarter of 2019 was 3.69%, compared to 3.62% for the second quarter of 2019. The increase of 7 basis points was primarily a result of $460 thousand of net interest recoveries during the third quarter. For the third quarter of 2019, the average yield on total loans was 5.06% compared to 4.99% for the second quarter of 2019. For the third quarter of 2019, the cost of interest-bearing liabilities was 1.39% compared to 1.41% for the second quarter of 2019.

Compared to the third quarter of 2018, net interest margin for the third quarter of 2019 decreased 11 basis points from 3.80%. The decrease in net interest margin from the third quarter of 2018 was primarily due to the impact of higher average deposit costs.

Noninterest Income

Noninterest income for the third quarter of 2019 was $29.6 million, a decrease of $404 thousand from $30.0 million for the second quarter of 2019. The decrease was primarily due to a $936 thousand decrease in other noninterest income and a $469 thousand decrease in retirement and benefit services revenue partially offset by an increase in mortgage banking revenue of $1.1 million. The decrease in other noninterest income was due to a $1.5 million gain recognized on the sale of our Duluth branch during the second quarter of 2019, offset by a $542 thousand gain on the sale of our Express branch recognized during the third quarter of 2019. The decrease in retirement and benefit services revenue was primarily due to a decrease in revenue sharing income.

Compared to the third quarter of 2018, noninterest income increased $3.3 million, or 12.7%, from $26.3 million. The increase was primarily attributable to an increase in mortgage banking revenue of $2.8 million and a $542 thousand gain on the sale of our Express branch. The increase in mortgage banking revenue was due to increased mortgage originations and the transition to mandatory delivery of mortgage loans to the secondary market during the first quarter of 2019.

Noninterest Expense

Noninterest expense for the third quarter of 2019 was $37.3 million, an increase of $2.1 million, or 5.9% compared to the second quarter of 2019. Compensation expense increased $1.9 million due to an increase in mortgage banking commissions, driven by seasonally higher mortgage originations, along with an increase due to annual merit increases that were effective July 1. In addition, business services, software and technology expense increased $202 thousand related to our One Alerus initiative, and a $335 thousand increase in other expenses primarily related to a seasonal increase in the provision for unfunded commitments. These increases were partially offset by a decrease of $560 thousand in employee benefit expense primarily due to a decrease in health insurance claims incurred on our self-insured health plans.

Compared to the third quarter of 2018, noninterest expense for the third quarter of 2019 increased $3.0 million, or 8.7%, from $34.3 million. The increase was primarily attributable to a combined increase in compensation and employee benefit expense of $2.5 million due to additional investments in talent and annual merit increases.

Financial Condition

Total assets were $2.23 billion as of September 30, 2019, an increase of $49.2 million, or 2.3%, from December 31, 2018. The increase in total assets was due to increases of $28.5 million in available-for-sale investment securities, $51.5 million in loans held for sale, and $20.5 million in cash and cash equivalents. These increases were partially offset by a $32.0 million decrease in loans held for branch sale and a $15.8 million decrease in loans. Loans held for branch sale decreased as a result of closing on the sale of our Duluth, MN branches on April 26, 2019.

Loans

Total loans were $1.69 billion as of September 30, 2019, a decrease of $15.8 million, or 0.9%, from December 31, 2018. The decrease was primarily due to a decrease in our commercial and industrial loan portfolio primarily due to lower seasonal credit line utilization and our ability to exit $21.4 million of criticized credits.

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)

 

2019

 

2019

 

2019

 

2018

 

2018

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

485,183

 

$

513,120

 

$

514,033

 

$

510,706

 

$

536,566

Real estate construction

 

 

21,674

 

 

26,584

 

 

22,188

 

 

18,965

 

 

23,567

Commercial real estate

 

 

444,600

 

 

442,797

 

 

444,882

 

 

439,963

 

 

434,160

Total commercial

 

 

951,457

 

 

982,501

 

 

981,103

 

 

969,634

 

 

994,293

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

459,763

 

 

452,049

 

 

451,401

 

 

448,143

 

 

448,458

Residential real estate junior lien

 

 

182,516

 

 

185,209

 

 

186,296

 

 

188,855

 

 

188,152

Other revolving and installment

 

 

92,351

 

 

93,693

 

 

94,992

 

 

95,218

 

 

93,753

Total consumer

 

 

734,630

 

 

730,951

 

 

732,689

 

 

732,216

 

 

730,363

Total loans

 

$

1,686,087

 

$

1,713,452

 

$

1,713,792

 

$

1,701,850

 

$

1,724,656

Deposits

Total deposits were $1.83 billion as of September 30, 2019, an increase of $58.0 million, or 3.3%, from December 31, 2018. The increase was due to an increase of $70.7 million in interest-bearing deposits offset by a decrease of $12.7 million in noninterest-bearing deposits. The increase in interest-bearing deposits was primarily due to a $79.1 million increase in synergistic deposits from our retirement and benefit services and wealth management segments and a $11.1 million increase in HSA deposits partially offset by a decrease in public unit deposits of $14.7 million. Noninterest-bearing deposits represented 29.3% of total deposits as of September 30, 2019.

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)

 

2019

 

2019

 

2019

 

2018

 

2018

Noninterest-bearing demand

 

$

537,951

 

$

506,021

 

$

530,960

 

$

550,640

 

$

554,876

Interest-bearing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand

 

 

424,249

 

 

439,342

 

 

440,755

 

 

401,078

 

 

395,197

Savings accounts

 

 

55,513

 

 

56,163

 

 

57,304

 

 

53,971

 

 

57,231

Money market savings

 

 

622,647

 

 

568,450

 

 

675,145

 

 

598,820

 

 

589,059

Time deposits

 

 

192,753

 

 

183,389

 

 

178,106

 

 

170,587

 

 

221,346

Total interest-bearing

 

 

1,295,162

 

 

1,247,344

 

 

1,351,310

 

 

1,224,456

 

 

1,262,833

Total deposits

 

$

1,833,113

 

$

1,753,365

 

$

1,882,270

 

$

1,775,096

 

$

1,817,709

Asset Quality

Total nonperforming assets were $5.2 million as of September 30, 2019, a decrease of $1.9 million from December 31, 2018. As of September 30, 2019, the allowance for loan losses was $23.0 million, or 1.36% of total loans, compared to $22.2 million, or 1.30%, as of December 31, 2018.

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)

 

2019

 

2019

 

2019

 

2018

 

2018

 

Nonaccrual loans

 

$

5,107

 

$

4,623

 

$

8,267

 

$

6,963

 

$

5,476

 

Accruing loans 90+ days past due

 

 

45

 

 

28

 

 

 

 

 

 

162

 

Total nonperforming loans

 

 

5,152

 

 

4,651

 

 

8,267

 

 

6,963

 

 

5,638

 

OREO and repossessed assets

 

 

84

 

 

381

 

 

149

 

 

204

 

 

281

 

Total nonperforming assets

 

$

5,236

 

$

5,032

 

$

8,416

 

$

7,167

 

$

5,919

 

Net charge-offs/(recoveries)

 

 

(240)

 

 

3,189

 

 

1,756

 

 

367

 

 

387

 

Net charge-offs/(recoveries) to average loans

 

 

(0.01)

%

 

0.18

%

 

0.10

%

 

0.02

%

 

0.02

%

Nonperforming loans to total loans

 

 

0.31

%

 

0.27

%

 

0.48

%

 

0.41

%

 

0.33

%

Nonperforming assets to total assets

 

 

0.23

%

 

0.23

%

 

0.38

%

 

0.33

%

 

0.27

%

Allowance for loan losses to total loans

 

 

1.36

%

 

1.24

%

 

1.32

%

 

1.30

%

 

1.22

%

Allowance for loan losses to nonperforming loans

 

 

446

%

 

457

%

 

274

%

 

318

%

 

373

%

For the third quarter of 2019, we had a net recovery of $240 thousand, compared to $3.2 million of net charge-offs for the second quarter of 2019 and $387 thousand of net charge-offs for the third quarter of 2018.

The provision for loan losses for the third quarter of 2019 was $1.5 million, a decrease of $299 thousand from the second quarter of 2019 and relatively unchanged from the third quarter of 2018.

Capital

Total stockholders’ equity was $281.4 million as of September 30, 2019, an increase of $84.4 million from December 31, 2018. The increase in total stockholders’ equity was primarily due to $62.8 million of net proceeds received from the Company’s initial public offering. The tangible book value per common share increased to $13.77 as of September 30, 2019, from $10.68 as of December 31, 2018. Tangible common equity to tangible assets increased to 10.76% as of September 30, 2019, from 6.91% as of December 31, 2018.

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

 

 

September 30,

 

June 30,

 

December 31,

 

September 30,

 

 

 

2019

 

2019

 

2018

 

2018

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

12.38

%

8.90

%

8.43

%

8.11

%

Tier 1 capital to risk weighted assets

 

12.81

%

9.34

%

8.87

%

8.55

%

Total capital to risk weighted assets

 

16.67

%

13.14

%

12.86

%

12.45

%

Tier 1 capital to average assets

 

11.33

%

8.08

%

7.51

%

7.37

%

Tangible common equity / tangible assets (2)

 

10.76

%

7.69

%

6.91

%

6.56

%

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

11.84

%

11.90

%

11.39

%

11.08

%

Tier 1 capital to risk weighted assets

 

11.84

%

11.90

%

11.39

%

11.08

%

Total capital to risk weighted assets

 

13.06

%

13.04

%

12.62

%

12.24

%

Tier 1 capital to average assets

 

10.47

%

10.29

%

9.63

%

9.55

%

(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 8:30 a.m. Central Time on Friday, October 25, 2019 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, through its subsidiary Alerus Financial, N.A., offers business and consumer banking products and services, residential mortgage financing, employer-sponsored retirement plan and benefit administration, and wealth management, including trust, brokerage, insurance, and asset management. 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 and Albert Lea, MN, East Lansing and Troy, MI, and Bedford, NH.

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 earnings 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 and 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: our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; 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; any material weaknesses in our internal control over financial reporting; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of other 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 (unaudited)

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

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2019

 

2018

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,174

 

$

40,651

Investment securities, at fair value

 

 

 

 

 

 

Trading

 

 

 

 

1,539

Available-for-sale

 

 

278,716

 

 

250,174

Equity, at fair value

 

 

2,675

 

 

3,165

Loans held for sale

 

 

66,021

 

 

14,486

Loans held for branch sale

 

 

 

 

32,031

Loans

 

 

1,686,087

 

 

1,701,850

Allowance for loan losses

 

 

(22,984)

 

 

(22,174)

Net loans

 

 

1,663,103

 

 

1,679,676

Land, premises and equipment, net

 

 

21,150

 

 

21,743

Operating lease right-of-use assets

 

 

8,877

 

 

Accrued interest receivable

 

 

7,412

 

 

7,645

Bank-owned life insurance

 

 

31,364

 

 

30,763

Goodwill

 

 

27,329

 

 

27,329

Other intangible assets

 

 

19,382

 

 

22,473

Servicing rights

 

 

4,146

 

 

4,623

Deferred income taxes, net

 

 

7,695

 

 

10,085

Other assets

 

 

29,267

 

 

32,687

Total assets

 

$

2,228,311

 

$

2,179,070

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

Noninterest-bearing

 

$

537,951

 

$

550,640

Interest-bearing

 

 

1,295,162

 

 

1,224,456

Total deposits

 

 

1,833,113

 

 

1,775,096

Deposits held for sale

 

 

 

 

24,197

Short-term borrowings

 

 

 

 

93,460

Long-term debt

 

 

58,775

 

 

58,824

Operating lease liabilities

 

 

9,401

 

 

Accrued expenses and other liabilities

 

 

45,619

 

 

30,539

Total liabilities

 

 

1,946,908

 

 

1,982,116

Commitments and contingent liabilities ESOP-owned shares

 

 

 

 

34,494

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: 17,049,493 and 13,775,327 issued and outstanding

 

 

17,049

 

 

13,775

Additional paid-in capital

 

 

88,230

 

 

27,743

Retained earnings

 

 

173,039

 

 

159,037

Accumulated other comprehensive income (loss)

 

 

3,085

 

 

(3,601)

Total stockholders’ equity

 

 

281,403

 

 

196,954

Less ESOP-owned shares

 

 

 

 

(34,494)

Total stockholders’ equity net of ESOP-owned shares

 

 

281,403

 

 

162,460

Total liabilities and stockholders’ equity

 

$

2,228,311

 

$

2,179,070

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income (unaudited)

(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,

 

 

2019

 

2019

 

2018

 

2019

 

2018

Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

21,886

 

$

21,712

 

$

20,576

 

$

65,171

 

$

59,594

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,374

 

 

1,338

 

 

1,129

 

 

4,021

 

 

3,475

Exempt from federal income taxes

 

 

163

 

 

211

 

 

301

 

 

618

 

 

927

Other

 

 

202

 

 

217

 

 

191

 

 

603

 

 

475

Total interest income

 

 

23,625

 

 

23,478

 

 

22,197

 

 

70,413

 

 

64,471

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,506

 

 

3,548

 

 

1,790

 

 

9,802

 

 

4,481

Short-term borrowings

 

 

539

 

 

734

 

 

575

 

 

1,805

 

 

1,331

Long-term debt

 

 

899

 

 

905

 

 

903

 

 

2,714

 

 

2,688

Total interest expense

 

 

4,944

 

 

5,187

 

 

3,268

 

 

14,321

 

 

8,500

Net interest income

 

 

18,681

 

 

18,291

 

 

18,929

 

 

56,092

 

 

55,971

Provision for loan losses

 

 

1,498

 

 

1,797

 

 

1,530

 

 

5,515

 

 

7,080

Net interest income after provision for loan losses

 

 

17,183

 

 

16,494

 

 

17,399

 

 

50,577

 

 

48,891

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement and benefit services

 

 

15,307

 

 

15,776

 

 

15,536

 

 

46,142

 

 

46,873

Wealth management

 

 

3,896

 

 

3,878

 

 

3,685

 

 

11,385

 

 

10,948

Mortgage banking

 

 

8,135

 

 

7,035

 

 

5,318

 

 

19,739

 

 

13,551

Service charges on deposit accounts

 

 

447

 

 

430

 

 

442

 

 

1,321

 

 

1,333

Net gains (losses) on investment securities

 

 

48

 

 

182

 

 

13

 

 

357

 

 

119

Other

 

 

1,747

 

 

2,683

 

 

1,264

 

 

5,694

 

 

3,784

Total noninterest income

 

 

29,580

 

 

29,984

 

 

26,258

 

 

84,638

 

 

76,608

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

20,041

 

 

18,143

 

 

17,873

 

 

54,997

 

 

50,906

Employee benefits

 

 

4,600

 

 

5,160

 

 

4,314

 

 

15,188

 

 

13,606

Occupancy and equipment expense

 

 

2,700

 

 

2,641

 

 

2,698

 

 

8,086

 

 

8,215

Business services, software and technology expense

 

 

4,224

 

 

4,022

 

 

3,731

 

 

12,044

 

 

10,467

Intangible amortization expense

 

 

990

 

 

1,050

 

 

1,196

 

 

3,091

 

 

3,588

Professional fees and assessments

 

 

1,051

 

 

1,029

 

 

1,628

 

 

3,146

 

 

3,734

Marketing and business development

 

 

890

 

 

707

 

 

856

 

 

2,024

 

 

2,439

Supplies and postage

 

 

631

 

 

663

 

 

611

 

 

2,027

 

 

1,902

Travel

 

 

435

 

 

398

 

 

382

 

 

1,335

 

 

1,252

Mortgage and lending expenses

 

 

751

 

 

769

 

 

437

 

 

1,966

 

 

1,597

Other

 

 

1,014

 

 

679

 

 

610

 

 

2,198

 

 

2,708

Total noninterest expense

 

 

37,327

 

 

35,261

 

 

34,336

 

 

106,102

 

 

100,414

Income before income taxes

 

 

9,436

 

 

11,217

 

 

9,321

 

 

29,113

 

 

25,085

Income tax expense

 

 

2,332

 

 

2,869

 

 

1,951

 

 

7,225

 

 

5,252

Net income

 

$

7,104

 

$

8,348

 

$

7,370

 

$

21,888

 

$

19,833

Per Common Share Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

 

$

0.49

 

$

0.60

 

$

0.53

 

$

1.53

 

$

1.44

Diluted earnings per common share

 

$

0.48

 

$

0.59

 

$

0.52

 

$

1.49

 

$

1.41

Dividends declared per common share

 

$

0.14

 

$

0.14

 

$

0.13

 

$

0.42

 

$

0.39

Average common shares outstanding

 

 

14,274

 

 

13,810

 

 

13,777

 

 

13,957

 

 

13,759

Diluted average common shares outstanding

 

 

14,626

 

 

14,100

 

 

14,071

 

 

14,317

 

 

14,060

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,

 

 

 

2019

 

2019

 

2018

 

2018

 

Tangible Common Equity to Tangible Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

281,403

 

$

213,765

 

$

196,954

 

$

190,082

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

19,382

 

 

20,372

 

 

22,473

 

 

23,523

 

Tangible common equity (a)

 

 

234,692

 

 

166,064

 

 

147,152

 

 

139,230

 

Total assets

 

 

2,228,311

 

 

2,207,129

 

 

2,179,070

 

 

2,171,821

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

19,382

 

 

20,372

 

 

22,473

 

 

23,523

 

Tangible assets (b)

 

 

2,181,600

 

 

2,159,428

 

 

2,129,268

 

 

2,120,969

 

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

 

 

10.76

%

 

7.69

%

 

6.91

%

 

6.56

%

Tangible Book Value Per Common Share

 

 

 

 

 

 

 

 

 

 

 

 

 

Total common stockholders’ equity

 

$

281,403

 

$

213,765

 

$

196,954

 

$

190,082

 

Less: Goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Other intangible assets

 

 

19,382

 

 

20,372

 

 

22,473

 

 

23,523

 

Tangible common equity (c)

 

 

234,692

 

 

166,064

 

 

147,152

 

 

139,230

 

Total common shares issued and outstanding (d)

 

 

17,049

 

 

13,816

 

 

13,775

 

 

13,776

 

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

 

$

13.77

 

$

12.02

 

$

10.68

 

$

10.11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

September 30,

 

June 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

Return on Average Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

7,104

 

$

8,348

 

$

7,370

 

$

21,888

 

$

19,833

 

Add: Intangible amortization expense (net of tax)

 

 

782

 

 

830

 

 

945

 

 

2,442

 

 

2,835

 

Net income, excluding intangible amortization (e)

 

 

7,886

 

 

9,178

 

 

8,315

 

 

24,330

 

 

22,668

 

Average total equity

 

 

226,931

 

 

211,655

 

 

189,311

 

 

212,911

 

 

184,733

 

Less: Average goodwill

 

 

27,329

 

 

27,329

 

 

27,329

 

 

27,329

 

 

27,329

 

Less: Average other intangible assets (net of tax)

 

 

15,697

 

 

16,498

 

 

19,045

 

 

16,502

 

 

19,982

 

Average tangible common equity (f)

 

 

183,905

 

 

167,828

 

 

142,937

 

 

169,080

 

 

137,422

 

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

 

 

17.01

%

 

21.93

%

 

23.08

%

 

19.24

%

 

22.05

%

Net Interest Margin (tax-equivalent)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

18,681

 

$

18,291

 

$

18,929

 

$

56,092

 

$

55,971

 

Tax-equivalent adjustment

 

 

81

 

 

84

 

 

114

 

 

257

 

 

348

 

Tax-equivalent net interest income (g)

 

 

18,762

 

 

18,375

 

 

19,043

 

 

56,349

 

 

56,319

 

Average earnings assets (h)

 

 

2,017,198

 

 

2,037,605

 

 

1,987,267

 

 

2,024,814

 

 

1,955,253

 

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

 

 

3.69

%

 

3.62

%

 

3.80

%

 

3.72

%

 

3.85

%

Efficiency Ratio

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense

 

$

37,327

 

$

35,261

 

$

34,336

 

$

106,102

 

$

100,414

 

Less: Intangible amortization expense

 

 

990

 

 

1,050

 

 

1,196

 

 

3,091

 

 

3,588

 

Adjusted noninterest expense (i)

 

 

36,337

 

 

34,211

 

 

33,140

 

 

103,011

 

 

96,826

 

Net interest income

 

 

18,681

 

 

18,291

 

 

18,929

 

 

56,092

 

 

55,971

 

Noninterest income

 

 

29,580

 

 

29,984

 

 

26,258

 

 

84,638

 

 

76,608

 

Tax-equivalent adjustment

 

 

81

 

 

84

 

 

114

 

 

257

 

 

348

 

Total tax-equivalent revenue (j)

 

 

48,342

 

 

48,359

 

 

45,301

 

 

140,987

 

 

132,927

 

Efficiency ratio (i)/(j)

 

 

75.17

%

 

70.74

%

 

73.16

%

 

73.06

%

 

72.84

%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

September 30, 2019

June 30, 2019

September 30, 2018

 

September 30, 2019

September 30, 2018

 

 

 

 

 

Average

 

 

 

Average

 

 

 

Average

 

 

 

 

Average

 

 

 

Average

 

 

Average

 

Rate/

Average

 

Yield/

Average

 

Yield/

 

Average

 

Yield/

Average

 

Yield/

 

 

Balance

 

Yield

Balance

 

Rate

Balance

 

Rate

 

Balance

 

Rate

Balance

 

Rate

Interest Earning Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits with banks

 

$

12,998

 

2.53

%

$

14,476

 

2.24

%

$

7,260

 

2.35

%

 

$

12,910

 

2.39

%

$

7,905

 

2.05

%

Investment securities (1)

 

 

257,561

 

2.43

%

 

255,502

 

2.52

%

 

248,568

 

2.41

%

 

 

255,903

 

2.51

%

 

256,331

 

2.42

%

Loans held for sale

 

 

45,794

 

3.11

%

 

33,078

 

3.40

%

 

22,438

 

3.22

%

 

 

30,734

 

3.24

%

 

20,217

 

3.04

%

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

 

494,081

 

5.48

%

 

518,880

 

5.51

%

 

524,601

 

5.19

%

 

 

509,806

 

5.50

%

 

514,940

 

5.08

%

Real estate construction

 

 

25,137

 

5.56

%

 

24,237

 

5.56

%

 

23,999

 

5.39

%

 

 

23,532

 

5.54

%

 

24,533

 

5.45

%

Commercial real estate

 

 

439,751

 

5.29

%

 

446,820

 

4.91

%

 

435,950

 

4.67

%

 

 

444,964

 

5.04

%

 

441,209

 

4.75

%

Total commercial

 

 

958,969

 

5.40

%

 

989,937

 

5.24

%

 

984,550

 

4.97

%

 

 

978,302

 

5.29

%

 

980,682

 

4.94

%

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate first mortgage

 

 

454,971

 

4.18

%

 

453,027

 

4.21

%

 

434,691

 

4.13

%

 

 

455,898

 

4.25

%

 

402,644

 

4.16

%

Residential real estate junior lien

 

 

184,124

 

5.63

%

 

187,054

 

5.77

%

 

188,897

 

5.38

%

 

 

186,744

 

5.75

%

 

191,348

 

5.36

%

Other revolving and installment

 

 

93,478

 

4.74

%

 

94,063

 

4.61

%

 

90,910

 

4.40

%

 

 

94,685

 

4.64

%

 

86,819

 

4.36

%

Total consumer

 

 

732,573

 

4.61

%

 

734,144

 

4.66

%

 

714,498

 

4.50

%

 

 

737,327

 

4.68

%

 

680,811

 

4.52

%

Total loans (1)

 

 

1,691,542

 

5.06

%

 

1,724,081

 

4.99

%

 

1,699,048

 

4.77

%

 

 

1,715,629

 

5.03

%

 

1,661,493

 

4.77

%

Federal Reserve/FHLB stock

 

 

9,303

 

5.07

%

 

10,468

 

5.21

%

 

9,953

 

5.90

%

 

 

9,638

 

5.16

%

 

9,307

 

5.09

%

Total interest earning assets

 

 

2,017,198

 

4.66

%

 

2,037,605

 

4.64

%

 

1,987,267

 

4.45

%

 

 

2,024,814

 

4.67

%

 

1,955,253

 

4.43

%

Noninterest earning assets

 

 

159,664

 

 

 

 

163,192

 

 

 

 

157,574

 

 

 

 

 

161,054

 

 

 

 

160,455

 

 

 

Total assets

 

$

2,176,862

 

 

 

$

2,200,797

 

 

 

$

2,144,841

 

 

 

 

$

2,185,868

 

 

 

$

2,115,708

 

 

 

Interest-Bearing Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

 

$

424,896

 

0.49

%

$

425,260

 

0.46

%

$

393,390

 

0.23

%

 

$

423,181

 

0.45

%

$

405,837

 

0.23

%

Money market and savings deposits

 

 

649,190

 

1.32

%

 

694,474

 

1.36

%

 

619,386

 

0.67

%

 

 

675,921

 

1.23

%

 

618,700

 

0.55

%

Time deposits

 

 

187,023

 

1.74

%

 

178,401

 

1.59

%

 

207,009

 

0.99

%

 

 

183,686

 

1.58

%

 

199,928

 

0.82

%

Short-term borrowings

 

 

87,201

 

2.46

%

 

115,892

 

2.54

%

 

103,171

 

2.21

%

 

 

95,489

 

2.53

%

 

87,501

 

2.03

%

Long-term debt

 

 

58,776

 

6.07

%

 

58,808

 

6.17

%

 

58,812

 

6.09

%

 

 

58,798

 

6.17

%

 

58,812

 

6.11

%

Total interest-bearing liabilities

 

 

1,407,086

 

1.39

%

 

1,472,835

 

1.41

%

 

1,381,768

 

0.94

%

 

 

1,437,075

 

1.33

%

 

1,370,778

 

0.83

%

Noninterest-Bearing Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

 

502,108

 

 

 

 

478,868

 

 

 

 

545,154

 

 

 

 

 

496,822

 

 

 

 

531,008

 

 

 

Other noninterest-bearing liabilities

 

 

40,737

 

 

 

 

37,439

 

 

 

 

28,608

 

 

 

 

 

39,060

 

 

 

 

29,189

 

 

 

Stockholders’ equity

 

 

226,931

 

 

 

 

211,655

 

 

 

 

189,311

 

 

 

 

 

212,911

 

 

 

 

184,733

 

 

 

Total liabilities and stockholders’ equity

 

$

2,176,862

 

 

 

$

2,200,797

 

 

 

$

2,144,841

 

 

 

 

$

2,185,868

 

 

 

$

2,115,708

 

 

 

Net interest rate spread

 

 

 

 

3.27

%

 

 

 

3.23

%

 

 

 

3.51

%

 

 

 

 

3.34

%

 

 

 

3.60

%

Net interest margin (2)

 

 

 

 

3.69

%

 

 

 

3.62

%

 

 

 

3.80

%

 

 

 

 

3.72

%

 

 

 

3.85

%

________________________________
(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)

Contacts

Katie A. Lorenson, Chief Financial Officer
952.417.3725 (Office)