Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q3 2020 Earnings Presentation
37 slides from Alerus Financial's earnings presentation, Oct 28, 2020
Slide 1: Investor Presentation October 2020
INVESTOR PRESENTATION OCTOBER 2020 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: COVID-19 Response
2 COVID-19 RESPONSE
Slide 4: COVID-19 response actions
3 .. Activated Business Continuity Planning team and Pandemic Policy; frequent meetings with key leadership teams .. Response guided by safety of employees and clients; being a good corporate citizen; and encouraging digital use .. Benefit of past crisis experience; 1997 historic Flood and Fire in G
Slide 5: Payment Deferrals, Maturity Extensions and Modifications COVID-19 Relief Programs
4 PAYMENT DEFERRALS, MATURITY EXTENSIONS, AND PAYMENT MODIFICATIONS COVID-19 RELIEF PROGRAMS September 30, 2020 Loan Group Number Of Loans Granted Deferral ($ in 000’s) Still on Initial Deferral ($ in 000’s) Second Deferral ($ in 000's) Returned to Normal ($ in 000’s) Consumer 155 $ 2,131 $ 248 $ 60
Slide 6: SBA Paycheck Protection Program (PPP)
5 Retail Trade 16% Professional, Scientific, and Technical Services 13% Construction 12% Manufacturing 9% Wholesale Trade 8% Health Care and Social Assistance 8% Other Services (except Public Administration) 5% Administrative and Support and Waste Management and Remediation Services 3% Transportatio
Slide 7: Strong Capital and Sources of Liquidity
6 12.3% 12.2% 12.9% 16.7% 17.1% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 2016 2017 2018 2019 Q3 2020 6.9% 7.1% 7.5% 11.1% 9.8% 8.2% 8.3% 8.9% 12.9% 13.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2016 2017 2018 2019 Q3 2020 Tier 1 Leverage Tier 1 Capital 5.4% 6.0% 6.9% 10.4% 9.8
Slide 8: Asset Quality and Reserve Levels Overview
7 1.14% 1.05% 1.30% 1.39% 1.52% 0.00% 0.40% 0.80% 1.20% 1.60% 2016 2017 2018 2019 Q3 2020 0.47% 0.30% 0.33% 0.33% 0.17% 0.00% 0.20% 0.40% 0.60% 0.80% 2016 2017 2018 2019 Q3 2020 ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPAS / ASSETS (%) RESERVES / LOANS (%) RESERVES / NPLS (%) .. Solid asset qualit
Slide 9: Well Diversified Loan Portfolio by Outstanding Balances
8 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO As of 9/30/2020. 1-4 Residential 1st 20% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 2% HELOC 5% RE Loans to be Sold 5% C&I 18% PPP 16% Loans to Public Entities 0% Other Loans 0% Ag Production 1% Other CRE 12% Owner Occupied CRE 9
Slide 10: Well Diversified Loan Portfolio by Total Commitment
9 BY TOTAL COMMITMENT INCLUDING UNFUNDED COMMITMENT WELL DIVERSIFIED LOAN PORTFOLIO As of 9/30/2020. 1-4 Residential 1st 17% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 2% HELOC 10% RE Loans to be Sold 4% C&I 25% PPP 13% Loans to Public Entities 0% Other Loans 0% Ag Production 2% Other C
Slide 11: Third Quarter Highlights
10 THIRD QUARTER HIGHLIGHTS
Slide 12: Q3 Financial Highlights
11 Q3 FINANCIAL HIGHLIGHTS 1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.” INCOME STATEMENT Net Interest Income $ 21,765 $ 20,091 $ 18,681 Provision for Loan Losses 3,500 3,500 1,498 Net Interest Income After Provision for Loan Losses 18,265 16,591 17,183 Nonin
Slide 13: Strong Core Funding Mix
12 0.45% 0.63% 0.59% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% Cost of Total Deposits Cost of Interest Bearing Deposits Total Cost of Funds 2017 2018 2019 Q3 2020 YTD STRONG CORE FUNDING MIX .. Commercial transaction accounts totaled $1.1 billion and increased 35.9% YTD. Consumer transaction a
Slide 14: Net Interest Margin (NIM)
13 0.44% 0.65% 0.97% 0.59% 1.00% 1.83% 2.16% 0.45% 3.74% 3.84% 3.65% 3.22% 4.63% 4.81% 4.97% 4.37% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2017 2018 2019 Q3 2020 YTD NET INTEREST MARGIN (NIM) 1 - Rates have been annualized for interim periods. Source: Alerus Financial Corporation; Federal Reserve
Slide 15: NIM and Loan Floors
14 NIM AND LOAN FLOORS VARIABLE RATE FLOORS BY INDEX VARIABLE RATE FLOORS COMMENTS $ in Millions Balance % of Total Balance Cumulative % of Total Balance No Floors $ 307 39.6% 39.6% Floors Reached 359 46.4% 86.0% 0-50 bps to reach floor 102 13.2% 99.2% >50bps to reach floor 6 0.8% 100.0% Total $ 774
Slide 16: A Big Company Model with Small Company Execution
15 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 9/30/2020. TRUSTED ADVISOR BANKING WEALTH MANAGEMENT • Residential mortgage lending • Purchasing or refinancing • Residential construction lending • Home equity/second mortgages • Advisory services
Slide 17: Retirement and Benefits
16 $29,366 $27,812 $31,905 $30,471 348,000 350,000 352,000 354,000 356,000 358,000 360,000 362,000 364,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 2017 2018 2019 Q3 2020 AUA/AUM Participants Asset Based Retirement 32% Trust, Custody & Advisory 10% Record Keeping 19% Asset Administr
Slide 18: Wealth Management Services
17 $6,370 $8,138 $8,314 $6,390 $14,010 $14,962 $15,502 $12,644 $0 $6,000 $12,000 $18,000 2017 2018 2019 Q3 2020 YTD Net Income Revenue WEALTH MANAGEMENT SERVICES OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT PROFIT MARGIN REVENUE MIX (Q3 2020 YTD) 1 Net Income before Tax and Indirect A
Slide 19: Mortgage Banking
18 $3,040 $1,254 $5,173 $23,043 $20,488 $18,464 $27,050 $46,271 $0 $8,000 $16,000 $24,000 $32,000 $40,000 $48,000 $56,000 2017 2018 2019 Q3 2020 YTD Net Income Revenue $691.7 $650.4 $673.4 $548.9 $175.5 $129.3 $273.0 $622.9 $0.0 $250.0 $500.0 $750.0 $1,000.0 $1,250.0 2017 2018 2019 Q3 2020 YTD Purch
Slide 20: Loan Portfolio and Credit Quality
19 LOAN PORTFOLIO AND CREDIT QUALITY
Slide 21: Summary by Industry Type: Commercial & Industrial
20 SUMMARY BY INDUSTRY TYPE TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL1 1 – Commercial and industrial loans includes C & I, Loans to Public Entities, and Other Loans. It Excludes PPP and Ag Production “Other” includes to the following industries (1) Nonclassifiable establishments, (2) Management of Co
Slide 22: Commercial and Residential Real Estate Loans
21 Office 16% Retail 19% Warehouse 19% Manufacturing 1% Residential Development 1% Mixed Residential/Commer cial 2% Mixed Commercial 7% Apartments 14% Hotel 1% Medical Or Nursing Facilities 6% Commercial/Land Development 12% Ag Land 2% Serviced 47% 1-4 1st Non-Serviced 4% 1-4 Family Jr Liens 5% 1-4
Slide 23: Industries Directly Impacted by COVID-19
22 Impacted industries, 8% All Other Loans, 92% COMMERCIAL AND INDUSTRIAL AND COMMERCIAL REAL ESTATE INDUSTRIES DIRECTLY IMPACTED BY COVID-19 As of 9/30/2020. C&I Total Commitment ($ in 000's) % of Total Accommodation and Food Services $ 9,774 0.70% Arts, Entertainment, and Recreation 4,236 0.30% Oi
Slide 24: Line of Credit Utilization
23 LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% - 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 C&I Funded Unfunded
Slide 25: Changes in the ALLL by Portfolio Segment
24 CHANGES IN THE ALLL BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES Nine months ended September 30, 2020 (dollars in thousands) Beginning Balance Provision for Loan Losses Loan Charge-offs Loan Recoveries Ending Balance Commercial Commercial and industrial $ 12,270 $ (498) $ (2,745) $ 1,346 $ 10,3
Slide 26: Allocation by Portfolio Segment
25 ALLOCATION BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES September 30, 2020 December 31, 2019 (dollars in thousands) Allocated Allowance Percentage of loans to total loans Allocated Allowance Percentage of loans to total loans Commercial and industrial $ 10,373 38.3% $ 12,270 27.8% Real estate c
Slide 27: Allowance for Loan Losses by Risk Segment
26 Risk Level Total Loans Unguaranteed Balance Reserve Amount Reserve / Unguaranteed Loans Reserve/Total Loans Pass $ 1,979,212 $ 1,625,744 $ 22,836 1.40% 1.15% Special Mention 26,235 19,845 816 4.11% 3.11% Substandard 47,264 42,666 4,883 11.44% 10.33% Total Loans Evaluated Collectively 2,052,711 1,
Slide 28: Appendix
27 APPENDIX
Slide 29: Company Profile
28 FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2020 Noninterest income: $140.2 million Net interest income: $76.2 million $18.1 $26.1 $29.4 $27.8 $31.9 $30.5 2015 2016 2017 2018 2019 Q3 20 OUR MISSION .. To always act in the best interest of our clients by providing innovative and comprehensive financ
Slide 30: Franchise Footprint
29 FRANCHISE FOOTPRINT Grand Forks, ND .. 3 full-service banking offices Fargo, ND .. 3 full-service banking offices Twin Cities, MN .. 6 full-service banking offices .. 1 mortgage office .. 1 deposit and loan production office Phoenix, AZ .. 2 full-service banking offices FULL-SERVICE BANKING OFFIC
Slide 31: One Alerus
30 ONE ALERUS REINVENTION OF PROCESSES We have aligned processes, policies, and procedures throughout all departments to enhance client experience and improve our Company's efficiency Our expectation is this initiative will continue to improve our scalability and operating costs TAILORED ADVICE We s
Slide 32: Skilled Advisors and Financial Guides
31 SKILLED ADVISORS AND FINANCIAL GUIDES .. Team is organized around consumer or business; focuses on holistic needs of clients; depth and breadth of Alerus service offering .. Proprietary Financial Fitness Playbook delivers consistency and augments Financial Workout technology .. Clients expectatio
Slide 33: Growth strategy and client base
32 .. Diversified client base consists of 48,900 consumers, 10,400 businesses and over 350,000 employer-sponsored retirement plan participants .. Harness product synergies unavailable to traditional banking organizations .. Capitalize on strategic opportunities to grow in our existing markets or new
Slide 34: Officers and Directors
33 OFFICERS AND DIRECTORS OUR MOTIVATED, DEDICATED, AND ENERGETIC LEADERS KEEP US ON THE RIGHT PATH SENIOR EXECUTIVE TEAM BOARD OF DIRECTORS DAN COUGHLIN Since 2016 Former MD & Co-Head – Fin’l Services Inv. Banking, Raymond James; Former Chairman & CEO, Howe Barnes Hoefer & Arnett Chicago, IL MICHAE
Slide 35: Strong Growth Markets and Stable Core Funding
34 North Dakota Minnesota Arizona National STRONG GROWTH MARKETS AND STABLE CORE FUNDING MARKET DISTRIBUTION DEPOSITS ($2,462) LOANS ($2,058) ARB ASSETS UNDER ADMIN/MGMT. ($30,471) WM ASSETS UNDER ADMIN/MGMT. ($3,043) MORTGAGE ORIGINATIONS ($1,172) ($ IN MILLIONS) Data as of 9/30/2020. LEGEND 40.1%
Slide 36: Financial Highlights
35 FINANCIAL HIGHLIGHTS 1 Represents a non-GAAP financial measure. See “Non-GAAP Disclosure Reconciliation” in the Appendix to this presentation. 2 Excluding PPP, the following ratios were TCE/TA 11.14% NPLs/Loans 0.29%, NPAs/Assets 0.19%, Allowance/Loans 1.83%, and NCOs/Average Loans 0.16%
Slide 37: Non-GAAP Disclosure Reconciliation
36 NON-GAAP DISCLOSURE RECONCILIATION ($000s, except where otherwise noted ) Annual Year-to-date 2016 2017 2018 2019 Q3 2019 Q3 2020 Tangible common equity to tangible assets Total common stockholders' equity $ 168,251 $ 179,594 $ 196,954 $ 285,728 $ 281,403 $ 322,003 Less: Goodwill 27,329 27,329 27