Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q1 2023 Earnings Presentation
42 slides from Alerus Financial's earnings presentation, Apr 26, 2023
Slide 1: Earnings Presentation Q1 2023
EARNINGS PRESENTATION Q1 2023 NASDAQ: ALRS Alerus
Slide 2: Forward-Looking Statements
1 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, calculat
Slide 3: Company Profile
2 Retirement and Benefit Revenue 31.2% Wealth Management Revenue 9.9% Mortgage Revenue 6.6% Banking Fees and Other Income 3.6% Net Interest Income 48.7% FOR THE TWELVE MONTHS ENDED MARCH 31, 2023 Noninterest income: $107.0 million Net interest income: $101.7 million $31.9 $34.2 $36.7 $32.1 $33.4 201
Slide 4: Our Diverse Business Lines
3 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 3/31/2023. TRUSTED ADVISOR BANKING WEALTH MANAGEMENT • Residential mortgage lending • Residential construction lending • Home equity/second mortgages • Advisory services • Trust and fiduciary service
Slide 5: Franchise Footprint
4 FRANCHISE FOOTPRINT FULL-SERVICE BANKING OFFICES Alerus offers banking, retirement and benefits, 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-servi
Slide 6: Strong Growth Markets and Stable Core Funding
5 STRONG GROWTH MARKETS AND STABLE CORE FUNDING MARKET DISTRIBUTION LOANS $2,452 DEPOSITS $3,032 ARB ASSETS UNDER ADMIN/MGMT. $33,404 WM ASSETS UNDER ADMIN/MGMT. $3,676 MORTGAGE ORIGINATIONS $78 (DOLLARS IN MILLIONS) Data as of 3/31/2023. LEGEND 30.2% 53.2% 16.6% 40.5% 23.5% 11.0% 25.0% 5.2% 89.1% 5
Slide 7: One Alerus
6 ONE ALERUS REINVENTION OF PROCESSES We consistently seek new ways to enhance efficiencies and improve scalability TAILORED ADVICE We strive to provide each client with a primary point of contact — a trusted advisor — who deals with individual needs and integrates other department’s expertise when
Slide 8: Strategic Growth
7 EXPANDED TO COLORADO Acquired Retirement Planning Services, Inc. (Littleton, CO) To supplement our strong organic growth, we have executed 25 acquisitions throughout the history of our company across all business lines: STRATEGIC GROWTH 2000 2002 2003 2006 2007 2019 2009 2016 2015 2014 2013 2012 R
Slide 9: ▪ Diversified client base consists of 38,200 consumers clients, 16,700 commercial clients and over
8 ▪ Diversified client base consists of 38,200 consumers clients, 16,700 commercial clients and over 389,100 employer-sponsored retirement and benefit plan participants ▪ Harness product synergies unavailable to traditional banking organizations ▪ Capitalize on strategic opportunities to grow in our
Slide 10: Officers and Directors
9 DAN COUGHLIN Since 2016 Chairman, Alerus Financial Corp. Former MD & Co-Head – Fin’l Services Inv. Banking, Raymond James; Former Chairman & CEO, Howe Barnes Hoefer & Arnett MARY ZIMMER Since 2021 Former Director of Diverse Client Segments and Former Northern Regional President, Wells Fargo Adviso
Slide 11: First Quarter Highlights
FIRST QUARTER HIGHLIGHTS Sos
Slide 12: Diversified Business Model Strengthens Fortress Balance Sheet
11 DIVERSIFIED BUSINESS MODEL STRENGTHENS FORTRESS BALANCE SHEET SAFETY AND STABILITY STRONG CAPITAL Common Equity Tier 1 Ratio 13.3% Tangible Common Equity Ratio 7.6% CONSERVATIVE CREDIT Nonperforming Assets to Total Assets 0.05% Non-Owner Occupied CRE Office Exposure Equal to 3.9% (no exposure to
Slide 13: ▪ Reported net income of $8.2 million for the first quarter of 2023, or
12 ▪ Reported net income of $8.2 million for the first quarter of 2023, or $0.40 per diluted common share. ▪ Loans increased $42.6 million, or 1.7%, compared to the end of the fourth quarter of 2022 primarily due to increases of $52.7 million in commercial real estate loans. ▪ Deposits increased $11
Slide 14: Income Statement Q1 2023 Financial Highlights
13 INCOME STATEMENT Q1 2023 FINANCIAL HIGHLIGHTS 1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.” (dollars and shares in thousands, except per share data) Net Interest Income $ 23,658 $ 26,964 $ 21,673 Provision for Credit Losses 550 — — Net Interest Income Afte
Slide 15: Performance Ratios
14 PERFORMANCE RATIOS 1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.” 2 – Rates have been annualized 1.26% 1.17% 0.88% Q1 2022 Q4 2022 Q1 2023 Return on Average Assets(2) 14.72% 16.63% 12.58% Q1 2022 Q4 2022 Q1 2023 Return on Average Tangible Common Equity(1)/(
Slide 16: Key Balance Sheet Items
15 KEY BALANCE SHEET ITEMS DOLLARS IN MILLIONS $1,768.2 $2,359.8 $2,457.2 Q1 2022 Q4 2022 Q1 2023 Average Loans $1,985.4 $2,092.1 $2,143.9 $831.4 $870.9 $789.1 $2,816.8 $2,963.0 $2,933.0 Q1 2022 Q4 2022 Q1 2023 Average Deposits Interest-Bearing Deposits Non-Interest Bearing Deposits Average 4.1% Lin
Slide 17: Asset Quality and Reserve Levels Overview
16 1.39% 1.73% 1.80% 1.27% 1.41% 0.00% 0.40% 0.80% 1.20% 1.60% 2.00% 2019 2020 2021 2022 Q1 2023 306% 674% 1,437% 821% 1,657% 00% 200% 400% 600% 800% 1,000% 1,200% 1,400% 1,600% 1,800% 2019 2020 2021 2022 Q1 2023 0.33% 0.17% 0.09% 0.10% 0.05% 0.00% 0.20% 0.40% 0.60% 0.80% 2019 2020 2021 2022 Q1 2023
Slide 18: Strong Core Funding Mix
17 NonInterest-Bearing Deposits 26.2% Interest-Bearing Demand Deposits 21.3% Money Market & Savings 38.7% HSA Deposits 5.7% Time Deposits 8.1% STRONG CORE FUNDING MIX ▪ Commercial transaction accounts totaled $1.4 billion and increased 9.0% YoY. Consumer transaction accounts totaled $659.3 million a
Slide 19: Deposit Characteristics
18 DEPOSIT CHARACTERISTICS STRONG LIQUIDITY WELL IN EXCESS OF UNINSURED BALANCES 2 – Uninsured and not collateralized deposits represent those customer deposit balances over the current FDIC insurance limit of $250,000 that are not collateralized by other means such as pledged loans or pledged secur
Slide 20: Strong Capital and Sources of Liquidity
19 16.7% 16.8% 18.6% 16.5% 16.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2019 2020 2021 2022 Q1 2023 11.1% 9.2% 9.8% 11.3% 11.0% 12.9% 13.2% 15.1% 13.7% 13.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2019 2020 2021 2022 Q1 2023 Tier 1 Leverage Tier 1 Capital STRONG CAPIT
Slide 21: Key Revenue Items
20 KEY REVENUE ITEMS DOLLARS IN THOUSANDS 1 – Other noninterest income consists of service charges on deposit accounts, interchange income and other noninterest income. $21,673 $26,964 $23,658 Q1 2022 Q4 2022 Q1 2023 Net Interest Income $17,646 $16,599 $15,482 $5,326 $5,144 $5,194 $4,931 $2,170 $1,7
Slide 22: Net Interest Margin
21 NET INTEREST MARGIN (NIM) LOAN YIELD(1)/NET INTEREST MARGIN(1) QUARTERLY HIGHLIGHTS AVERAGE EFFECTIVE FF RATE/COST OF FUNDS(1) 1 – Rates have been annualized for interim periods. Source: Federal Reserve. ▪ Loan yields increased as a result of an increase in the average rate received from loans co
Slide 23: NII and Loan Floors
22 NII AND LOAN FLOORS VARIABLE RATE FLOORS BY INDEX VARIABLE RATE FLOORS QUARTER OVER QUARTER HIGHLIGHTS $ in Millions Balance % of Total Balance Cumulative % of Total Balance No Floors $ 388 38.3% 38.3% At Floor 120 11.9% 50.2% 0-50 bps above floor 35 3.5% 53.7% >50bps to above floor 469 46.3% 100
Slide 24: Investment Portfolio
23 $(42,324) $(98,641) $(96,307) $(120,000) $(100,000) $(80,000) $(60,000) $(40,000) $(20,000) $- Q1 2022 Q4 2022 Q1 2023 $1,206,484 $1,039,225 $1,019,473 $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 Q1 2022 Q4 2022 Q1 2023 INVESTMENT PORTFOLIO INVESTMENT PORTFOLIO MIX AOC
Slide 25: Retirement and Benefits Overview
24 $34,200 $36,733 $32,123 $33,404 375,000 390,000 405,000 420,000 435,000 450,000 465,000 480,000 495,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 2020 2021 2022 Q1 2023 AUA/AUM Participants $14,742 $13,496 $12,739 $2,904 $3,103 $2,743 $17,646 $16,599 $15,482 Q1 2022 Q4 202
Slide 26: Wealth Management Services
25 $4,714 $4,509 $4,455 $501 $432 $409 $111 $203 $330 $5,326 $5,144 $5,194 Q1 2022 Q4 2022 Q1 2023 Asset Management Brokerage Insurance & Advisory $108,504 $101,621 $143,183 $161,973 $230,838 $0 $50,000 $100,000 $150,000 $200,000 $250,000 2019 2020 2021 2022 Q1 2023 $3,339 $4,040 $3,583 $3,676 $0 $1
Slide 27: Mortgage Banking
26 MORTGAGE BANKING OVERVIEW OF SERVICES YEARLY MORTGAGE ORIGINATIONS ($ in Millions) QUARTERLY RESULTS ▪ 1st and 2nd mortgage product offerings through centralized mortgage operations in Minneapolis, Minnesota, with 89.1% sourced from the Twin Cities MSA ▪ Our Twin Cities originators averaged $46 m
Slide 28: Noninterest Expense
27 $25,213 $24,076 $25,011 $2,051 $1,892 $1,899 $4,924 $4,405 $5,324 $1,541 $1,454 $1,152 $4,342 $6,121 $4,483 $38,071 $37,948 $37,869 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Q1 2022 Q4 2022 Q1 2023 Other(1) Professional Fees and Assessments Business Services, Softw
Slide 29: Key Takeaways
28 KEY TAKEAWAYS ALERUS MAINTAINS BOTH A STRONG LIQUIDITY AND CAPITAL POSITION ▪ During the quarter, deposits grew 4.0% from our core commercial and consumer client base. ▪ Uninsured and not collateralized deposits are only 25.1% of total deposits. ▪ Available sources of liquidity exceed $2.2 billio
Slide 30: Appendix
29 APPENDIX
Slide 31: Well Diversified Loan Portfolio
30 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO Data as of 3/31/2023. 1-4 Residential 1st 28% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 1% HELOC 5% RE Loans to be Sold 1% C&I 21% Ag Production 1% Other CRE 18% Owner Occupied CRE 10% Ag Land 2% Multifamily 7% Other Consumer 1
Slide 32: Commercial & Industrial Summary by Industry Type
31 SUMMARY BY INDUSTRY TYPE TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL1 1 – Commercial and industrial loans includes C & I, loans to public entities, and other loans. It excludes ag production loans. “Other” includes to the following industries (1) Nonclassifiable establishments, (2) Management of Com
Slide 33: Commercial Real Estate Loans
32 Office 13% Retail 9% Warehouse 11% Mixed Commercial 2% Apartments 19% Hotel 10% Medical or Nursing Facilities 5% Commercial Construction 31% Office 15% Retail 14% Warehouse 14% Manufacturing 1% Commercial Development 1% Mixed Commercial 3% Apartments 15% Hotel 8% Medical or Nursing Facilities 5%
Slide 34: Residential Real Estate Loans
33 LOANS SECURED BY REAL ESTATE Portfolio Avg FICO Avg LTV 1 st Mortgage 774 53% Junior 764 76% HELOC 796 73% 1-4 1st Mortage 60% 1-4 Family Jr Liens 3% 1-4 Family Revolving 29% 1-4 Family Construction 6% Held for Sale 2% TOTAL COMMITMENT RESIDENTIAL REAL ESTATE
Slide 35: Line of Credit Utilization
34 LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT1 1 – Commercial and industrial loans includes revolving C & I loans and other loans. It excludes non-revolving C&I loans, ag production, and loans to public entities. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% - 50,000 100,000
Slide 36: CECL Adoption – Drivers of Change from ALLL
35 CECL ADOPTION – DRIVERS OF CHANGE FROM ALLL ALLOWANCE FOR CREDIT LOSSES ON LOANS 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 represent the impact
Slide 37: Changes in the ACL for Loans by Portfolio Segment
36 CHANGES IN THE ACL FOR LOANS BY PORTFOLIO SEGMENT ALLOWANCE FOR CREDIT LOSSES ON LOANS ($ in thousands) Commercial Commercial and industrial $ 9,158 $ (862) $ (377) $ (175) $ 56 $ 7,800 Real estate construction 1,446 2,518 442 — — 4,406 Commercial real estate 12,688 (424) 69 — 11 12,344 Total com
Slide 38: Allocation by Loan Portfolio Segment
37 ALLOCATION BY LOAN PORTFOLIO SEGMENT ALLOWANCE FOR CREDIT LOSSES ON LOANS ($ in thousands) Commercial and industrial $ 7,800 22.3% $ 9,158 23.9% Real estate construction 4,406 4.4% 1,446 4.0% Commercial real estate 12,344 37.5% 12,688 36.0% Residential real estate first mortgage 8,060 28.1% 5,769
Slide 39: Financial Highlights
38 FINANCIAL HIGHLIGHTS ($ in thousands, except where otherwise noted) Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Total Assets $ 3,336,199 $ 3,295,065 $ 3,691,253 $ 3,779,637 $ 3,886,773 Total Loans 1,818,042 1,890,243 2,318,231 2,443,994 2,486,625 Total Deposits 2,892,266 2,619,550 2,961,811 2,915,484
Slide 40: Financial Highlights
39 FINANCIAL HIGHLIGHTS 1 – Represents a non-GAAP financial measure. See “Non-GAAP Disclosure Reconciliation”. ($ in thousands, 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 1,72
Slide 41: Non-GAAP Disclosure Reconciliation
40 NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Tangible common equity to tangible assets Total common stockholders' equity $ 328,505 $ 307,158 $ 344,839 $ 356,872 $ 359,118 Less: Goodwill 31,490 31,337 46,060 47,087 47,087
Slide 42: Non-GAAP Disclosure Reconciliation
41 NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) 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: Other in