Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q3 2023 Earnings Presentation
40 slides from Alerus Financial's earnings presentation, Oct 26, 2023
Slide 1: Earnings Presentation Q3 2023
Alerus EARNINGS PRESENTATION Q3 2023 NASDAQ: ALRS
Slide 2: Disclaimers
DISCLAIMERS Forward-Looking Statements This presentation 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
Slide 3: Company Profile
COMPANY PROFILE OUR MISSION ▪ To positively impact our clients’ financial potential-through holistic guidance, unparalleled service, and engaging technology. ALERUS BUSINESS LINES DIVERSIFIED FINANCIAL SERVICES COMPANY ▪ Banking ▪ $3.9 billion Banking assets ▪ Retirement and Benefit Services ▪ $34.6
Slide 4: Our Diverse Business Lines
OUR DIVERSE BUSINESS LINES A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION COMMERCIAL BANKING BANKING CONSUMER BANKING • Commercial and commercial real • Private banking estate lending 51% of Revenue • Deposit products • Government and non-profit banking and services • Small business lending • Cons
Slide 5: Franchise Footprint
FRANCHISE FOOTPRINT FULL-SERVICE BANKING OFFICES Alerus offers banking, retirement and benefit services, mortgage and wealth management services at all full-service banking offices ▪ Grand Forks, ND: 4 full-service banking offices ▪ Fargo, ND: 3 full-service banking offices ▪ Twin Cities, MN: 6 full
Slide 6: Market Distribution
MARKET DISTRIBUTION STRONG GROWTH MARKETS AND STABLE CORE FUNDING (DOLLARS IN MILLIONS) LOANS $2,606 DEPOSITS $2,872 LEGEND 15.7% North Dakota 30.0% 26.6% Minnesota 39.0% Arizona National 10.2% 54.3% Synergistic 24.2% MORTGAGE WM ASSETS UNDER ARB ASSETS UNDER ORIGINATIONS $110 ADMIN/MGMT. $3,724 ADM
Slide 7: One Alerus
ONE ALERUS CULTURE + BUSINESS MODEL = SUSTAINED TOP TIER SHAREHOLDER RESULTS ONE ALERUS STRATEGY TECHNOLOGY INVESTMENT Our collaborative One Alerus culture brings our product and service We have proactively invested in technology to offerings to clients in a cohesive and seamless manner. We believe
Slide 8: Strategic Growth
STRATEGIC GROWTH To supplement our organic growth, we have executed 25 acquisitions throughout the history of our company across all business lines: 2000 REBRANDED TO ALERUS 2011 Acquired selected loans and deposits (in MN) and a branch (in AZ) from BNC National Bank 2002 Acquired a branch from BNC
Slide 9: Key Strategic Initiatives
KEY STRATEGIC INITIATIVES GROWING THE ALERUS FRANCHISE ▪ Collaborative leadership team focused on growing organically by deepening relationships with existing clients ORGANIC GROWTH through our expansive services “ONE ALERUS” ▪ Diversified business model focused on bringing value to the client throu
Slide 10: Officers and Directors
OFFICERS AND DIRECTORS KARIN TAYLOR Executive Vice President and Chief Risk Officer AL VILLALON 5 years with Alerus Executive Vice President and Chief Financial Officer Joined Alerus in 2022 MISSY KENEY Executive Vice President and EXECUTIVE MANAGEMENT Chief Engagement Officer JIM COLLINS 18 years w
Slide 11: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS 10
Slide 12: Q3 2023 Highlights
Q3 2023 HIGHLIGHTS SUCCESS IS NEVER FINAL ▪ Noninterest income represented 58.2% of total revenue compared to 53.7% for the prior quarter ▪ Yield on earning assets increased 11 bps from 4.55% in the second quarter to 4.66% in the third quarter of 2023 EARNINGS ▪ Noninterest income increased $2.6, mi
Slide 13: Q3 2023 Financial Highlights
Q3 2023 FINANCIAL HIGHLIGHTS INCOME STATEMENT Three months ended Nine months ended September 30, June 30, September 30, September 30, September 30, 2023 2023 2022 2023 2022 (dollars and shares in thousands, except per share data) Net Interest Income $ 20,395 $ 22,234 $ 28,316 $ 66,287 $ 72,765 Provi
Slide 14: Performance Ratios
PERFORMANCE RATIOS Return on Average Assets(2) Return on Average Tangible Tangible Book Value per Share(1) Common Equity(1)/(2) 1.02% 13.89% 13.71% 13.51% 0.96% 0.95% $14.60 $14.32 $13.76 Q3 2022 Q2 2023 Q3 2023 Q3 2022 Q2 2023 Q3 2023 Q3 2022 Q2 2023 Q3 2023 1 – Represents a non-GAAP Financial meas
Slide 15: Key Revenue Items
KEY REVENUE ITEMS DOLLARS IN THOUSANDS Net Interest Income Noninterest Income Retirement & Benefit Services Wealth Management Mortgage Banking Other(1) $28,407 $27,010 $28,316 $2,021 $25,778 $1,779 $1,533 $2,510 $3,782 $2,905 $22,234 $5,271 $20,395 $4,852 $5,450 $18,605 $16,597 $15,890 Q3 2022 Q2 20
Slide 16: Net Interest Income
NET INTEREST INCOME LOAN YIELD AND NET INTEREST MARGIN (NIM)(1) NET INTEREST INCOME (NII) ($ in Thousands) Loan yield NIM 5.36% 5.44% 4.41% 3.21% 2.52% 2.27% Q3 2022 Q2 2023 Q3 2023 NIM: 2.52% 0.10% 0.07% 0.03% (0.19)% (0.26)% 2.27% AVERAGE EFFECTIVE FF RATE AND COST OF FUNDS(1) QUARTERLY HIGHLIGHTS
Slide 17: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO TOTAL LOANS HIGHLIGHTS ($ in Millions) ▪ Total loans grew 6.6% from December 31, 2022 ▪ Year to date loan growth was primarily driven by an increase in commercial real estate and residential real estate loans, offset by a decrease in other $2,606.4 consumer revolving and i
Slide 18: Strong Core Funding Mix
STRONG CORE FUNDING MIX TOTAL DEPOSITS HIGHLIGHTS ($ in Millions) ▪ Total deposits increased $19.3 million in the third $2,961.8 $2,852.8 $2,872.2 quarter compared to June 30, 2023 $905.2 $715.5 $718.0 ▪ Noninterest-bearing deposits increased 0.3% compared to June 30, 2023 Time deposits increased 14
Slide 19: Deposit Characteristics
DEPOSIT CHARACTERISTICS STRONG LIQUIDITY WELL IN EXCESS OF UNINSURED BALANCES SYNERGISTIC DEPOSIT GROWTH (1) UNINSURED VS INSURED ($ in Millions) 21% YoY growth Uninsured and not collateralized (2) 25.1% $743.4 $763.7 Insured 65.9% Uninsured but $633.5 collateralized 6.6% Uninsured Holding Company d
Slide 20: Investment Portfolio
INVESTMENT PORTFOLIO INVESTMENT PORTFOLIO MIX ($ in Thousands) Agency Non- Corporate Debt MBS 0.3% 6.0% $1,055,520 $985,870 $943,269 Municipals 13.8% Q3 2022 Q2 2023 Q3 2023 Yield on Securities: 2.2% 2.5% 2.6% Agency MBS % of Earning Assets: 30.0% 27.7% 26.3% 34.5% AOCI ($ in Thousands) Corporate AB
Slide 21: Retirement and Benefit Services
RETIREMENT AND BENEFIT SERVICES OVERVIEW – 8,250 PLANS – NATIONAL FOOTPRINT ASSETS UNDER ADMINISTRATION/MANAGEMENT ▪ RETIREMENT - Provide recordkeeping and administration ($ in Millions) AUA/AUM Participants services to qualified retirement plans $40,000 $36,733 $34,200 $34,553 495,000 $35,000 $31,9
Slide 22: Wealth Management Services
WEALTH MANAGEMENT SERVICES OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT ($ in Millions) ▪ ADVISORY AND PLANNING SERVICES • Advisory Services, Insurance Planning, Financial Planning, Education Planning ▪ INVESTMENT MANAGEMENT • Personalized SMA strategies, Tax Management and Global Per
Slide 23: Mortgage Banking
MORTGAGE BANKING OVERVIEW OF SERVICES YEARLY MORTGAGE ORIGINATIONS ▪ 1st and 2nd mortgage product offerings through ($ in Millions) Portfolio Sale centralized mortgage operations in Minneapolis, $1,779 $1,836 Minnesota $147 $244 ▪ 86% year-to-date originations sourced from the Twin Cities MSA $812 $
Slide 24: Noninterest Expense
NONINTEREST EXPENSE ($ in Thousands) $42,767 QUARTERLY HIGHLIGHTS $6,095 $37,260 ▪ Noninterest expense increased $0.9 million or 2.4% $36,373 over the last quarter $3,126 $4,166 $4,921 ▪ Increase was primarily driven by a $0.8 million $1,530 $1,716 $5,373 increase in other expenses, a $0.4 million i
Slide 25: Asset Quality and Reserve Levels
ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPA / ASSETS (%) ▪ Non-performing loans remain at low levels ▪ Reserve levels remain strong despite quarter over quarter increase in non-performing loans 0.23% 0.33% ▪ Strong credit quality continues to be evidenced by a 0.17% 0.09% 0.10% second straight qua
Slide 26: Strong Capital and Sources of Liquidity
STRONG CAPITAL AND SOURCES OF LIQUIDITY COMMON EQUITY TIER 1 TIER 1 CAPITAL/TIER 1 LEVERAGE RATIOS Tier 1 Leverage Tier 1 Capital 14.7% 15.1% 13.4% 13.0% 13.7% 12.5% 12.8% 12.9% 13.2% 13.3% 11.1% 11.3% 11.1% 9.8% 9.2% Tier 1 Capital 6% Leverage 4% 2019 2020 2021 2022 Q3 2023 2019 2020 2021 2022 Q3 2
Slide 27: Key Takeaways
KEY TAKEAWAYS ALERUS CONTINUES TO DELIVER QUALITY RESULTS WHILE BEING WELL POSITIONED FOR WHAT IS TO COME ▪ Returned $5.0 million to shareholders through dividends and share repurchases during the quarter ▪ Capital levels are strong with tangible common equity to tangible assets of 7.47% and regulat
Slide 28: Appendix
APPENDIX 27
Slide 29: Well Diversified Loan Portfolio
WELL DIVERSIFIED LOAN PORTFOLIO BY OUTSTANDING BALANCES Other Cons umer 1% RE Cons truction 4% Mul tifamily 8% Ag La nd 2% 1-4 Residential 1s t 27% Owner Occupied CRE 10% 1-4 Residential Construction 1% 1-4 Residential Jr Li en 1% Other CRE 19% HELOC 4% C&I 21% RE Loa ns to be Sold 1% Ag Producti on
Slide 30: Summary by Industry Type
SUMMARY BY INDUSTRY TYPE TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL 1 Food and Beverage Stores 1% Finance and Insurance 10% Other 17% Construction 10% Electronics and Appliance Stores 2% Wholesale Trade 7% Other Retail Trade Retail Trade 15% 2% Motor Vehicle and Parts Dealers 10% Real Estate and Renta
Slide 31: Loans Secured by Real Estate
LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT TOTAL COMMITMENT COMMERCIAL REAL ESTATE 1 INVESTOR REAL ESTATE 2 Ag Land 3% Office 14% Office Commercial 16% Construction 18% Commercial Construction 24% Other 2% Retail 11% Retail Medical or 14% Nursing Facilities Other 2% 5% Medical or Nursing Faciliti
Slide 32: Loans Secured by Real Estate
LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT RESIDENTIAL REAL ESTATE 1-4 Fa mily Hel d for Sale 2% Cons truction 5% 1-4 Fa mily Revolving 29% 1-4 1s t Morta ge 61% 1-4 Fa mily Jr Li ens 3% Portfolio Avg FICO Avg LTV 1st Mortgage 759 53% Junior 764 75% HELOC 796 73% Data as of 9/30/2023. 31
Slide 33: Line of Credit Utilization
LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT 1 C&I Home Equity Lines of Credit 450,000 60% 350,000 60% 55% 55% 400,000 50% 300,000 50% 350,000 45% 45% 250,000 300,000 40% 40% 35% 200,000 35% 250,000 30% 30% 200,000 150,000 25% 25% 150,000 20% 20% 100,000 15% 15% 100,000 10% 10% 50,
Slide 34: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS CECL ADOPTION – DRIVERS OF CHANGE FROM ALLL ($ in Thousands) 1 – ACL is the allowance for credit losses on loans and excludes the allowance for investment securities held-for-maturity, and the allowance for unfunded commitments. Portfolio changes primarily repres
Slide 35: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS CHANGES IN THE ACL FOR LOANS BY PORTFOLIO SEGMENT Nine months ended September 30, 2023 Beginning Adoption Provision for Loan Loan Ending (1) (1) Balance of ASC 326 Credit Losses Charge-offs Recoveries Balance ($ in thousands) Commercial Commercial and industrial
Slide 36: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS ALLOCATION BY LOAN PORTFOLIO SEGMENT (1) September 30, 2023 December 31, 2022 Percentage Percentage Allocated of loans to Allocated of loans to ($ in thousands) Allowance total loans Allowance total loans Commercial and industrial $ 8,577 22.3% $ 9,158 23.9% Real
Slide 37: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Quarterly Nine months ended except where otherwise noted) Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 September 30, 2023 September 30, 2022 Total Assets $ 3,691,253 $ 3,779,637 $ 3,886,773 $ 3,832,978 $ 3,869,138 $ 3,869,138 $ 3,691,253 Total Loans 2,318,231 2,443,9
Slide 38: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Annual 18-'22 except where otherwise noted) 2018 2019 2020 2021 2022 CAGR Total Assets $ 2,179,070 $ 2,356,878 $ 3,013,771 $ 3,392,691 $ 3,779,637 14.8% Total Loans 1,701,850 1,721,279 1,979,375 1,758,020 2,443,994 9.5% Total Deposits 1,775,096 1,971,316 2,571,9
Slide 39: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Quarterly Nine months ended Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 September 30, 2023 September 30, 2022 Tangible common equity to tangible assets Total common stockholders' equity $ 344,839 $ 356,872 $ 359,118 $ 357,
Slide 40: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Annual 2018 2019 2020 2021 2022 Tangible common equity to tangible assets Total common stockholders' equity $ 196,954 $ 285,728 $ 330,163 $ 359,403 $ 356,871 Less: Goodwill 27,329 27,329 30,201 31,490 47,087 Less: Othe