Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q3 2022 Earnings Presentation
37 slides from Alerus Financial's earnings presentation, Oct 26, 2022
Slide 1: Investor Presentation October 2022
INVESTOR PRESENTATION OCTOBER 2022 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, estima
Slide 3: Company Profile
2 Retirement and Benefit Revenue 32.1% Wealth Management Revenue 9.9% Mortgage Revenue 10.6% Banking Fees 2.9% Net Interest Income 44.5% FOR THE TWELVE MONTHS ENDED SEPTEMBER 30 , 2022 Noninterest income: $119.4 million Net interest income: $95.6 million $27.8 $31.9 $34.2 $36.7 $30.5 2018 2019 2020
Slide 4: Our Diverse Business Lines
3 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 09/30/2022. TRUSTED ADVISOR BANKING WEALTH MANAGEMENT • Residential mortgage lending • Residential construction lending • Home equity/second mortgages • Advisory services • Trust and fiduciary servic
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 fu
Slide 6: Strong Growth Markets and Stable Core Funding
5 STRONG GROWTH MARKETS AND STABLE CORE FUNDING MARKET DISTRIBUTION DEPOSITS ($2,962) LOANS ($2,318) (1) ARB ASSETS UNDER ADMIN/MGMT. ($ 30,546 ) WM ASSETS UNDER ADMIN/MGMT. ($3,436) MORTGAGE ORIGINATIONS ($686) ($ IN MILLIONS) Data as of 09/30/2022. 1 - Loans in our national market are purchased pa
Slide 7: One Alerus
6 ONE ALERUS REINVENTION OF PROCESSES We have aligned processes, policies, and procedures throughout all departments to enhance the client experience and improve our Company's efficiency Our expectation is this initiative will continue to improve our scalability and operating costs TAILORED ADVICE W
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 2
Slide 9: ▪ Diversified client base consists of 38,700 consumers clients, 16,600 commercial clients and over
8 ▪ Diversified client base consists of 38,700 consumers clients, 16,600 commercial clients and over 386,600 employer - sponsored retirement and benefit plan participants ▪ Harness product synergies unavailable to traditional banking organizations ▪ Capitalize on strategic opportunities to grow in o
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 Advi
Slide 11: Third Quarter Highlights
10 THIRD QUARTER HIGHLIGHTS
Slide 12: Third Quarter Highlights
11 ▪ Reported net income of $9.6 million in the third quarter of 2022, or $0.47 per diluted common share; $0.54 per diluted common share excluding a one - time merger related expenses. ▪ Net interest income increased $5.5 million, or 24.3%, from the second quarter, primarily driven by strong loan or
Slide 13: Income Statement Q3 2022 Financial Highlights
12 INCOME STATEMENT Q3 2022 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 $ 28,316 $ 22,776 $ 21,132 $ 72,765 $ 64,310 Provision for Loan Losses — — (2,000)
Slide 14: Performance Ratios
13 PERFORMANCE RATIOS 1 – Represents a non - GAAP Financial measure. See “Non - GAAP Disclosure Reconciliation.” 2 – Rates have been annualized 3 – Q3 2022 Rates exclude merger and acquisition expenses associated with the acquisition of Metro Phoenix Bank. 1.62% 1.14% 1.02% 0.15% 1.17% Q3 2021 Q2 20
Slide 15: Key Balance Sheet Items
14 KEY BALANCE SHEET ITEMS DOLLARS IN MILLIONS $1,687.1 $1,828.1 $1,976.1 $133.8 $10.5 $5.2 $281.1 $1,820.9 $1,838.6 $2,262.4 Q3 2021 Q2 2022 Q3 2022 Average Loans Core Loans PPP Loans MPB Loans $1,920.2 $1,957.1 $1,838.9 $799.9 $783.4 $829.1 $327.1 $2,720.1 $2,740.5 $2,995.1 Q3 2021 Q2 2022 Q3 2022
Slide 16: Asset Quality and Reserve Levels Overview
15 1.30% 1.39% 1.73% 1.80% 1.34% 0.17% 1.51% 0.00% 0.40% 0.80% 1.20% 1.60% 2.00% 2018 2019 2020 2021 Q3 2022 318% 306% 674% 1,437% 584% 00% 200% 400% 600% 800% 1,000% 1,200% 1,400% 1,600% 2018 2019 2020 2021 Q3 2022 0.33% 0.33% 0.17% 0.09% 0.17% 0.00% 0.20% 0.40% 0.60% 0.80% 2018 2019 2020 2021 Q3 2
Slide 17: Strong Core Funding Mix
16 STRONG CORE FUNDING MIX ▪ Commercial transaction accounts totaled $1.4 billion and increased 12.1% YoY. Consumer transaction accounts totaled $726.0 million and increased 7.5% YoY. ▪ Synergistic deposits, including HSA deposits and those sourced through retirement plans and participants, totaled
Slide 18: Strong Capital and Sources of Liquidity
17 12.9% 16.7% 16.8% 18.6% 16.8% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2018 2019 2020 2021 Q3 2022 7.5% 11.1% 9.2% 9.8% 10.8% 8.9% 12.9% 13.2% 15.1% 13.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2018 2019 2020 2021 Q3 2022 Tier 1 Leverage Tier 1 Capital STRONG CAPITAL
Slide 19: Key Revenue Items
18 KEY REVENUE ITEMS DOLLARS IN THOUSANDS 1 – Other noninterest income consists of service charges on deposit accounts, net gains (losses) on investment securities, speci fic interchange income and other noninterest income. $19,074 $22,523 $28,218 $2,058 $253 $98 $21,132 $22,776 $28,316 $0 $5,000 $1
Slide 20: Net Interest Margin
19 NET INTEREST MARGIN (NIM) LOAN YIELD (1) /N ET INTEREST MARGIN (1) QUARTERLY HIGHLIGHTS AVERAGE EFFECTIVE FF RATE/COST OF FUNDS (1) 1 – Rates have been annualized for interim periods. Source: Alerus Financial Corporation; Federal Reserve. ▪ Loan yield increased as a result of a $7.4 million, or 4
Slide 21: NII and Loan Floors
20 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 $ 414 42.3% 42.3% At Floor 136 13.9% 56.2% 0 - 50 bps above floor 17 1.7% 57.9% >50bps to above floor 411 42.1% 1
Slide 22: Retirement and Benefits Overview
21 $31,905 $34,200 $36,733 $30,546 375,000 390,000 405,000 420,000 435,000 450,000 465,000 480,000 495,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 2019 2020 2021 Q3 2022 YTD AUA/AUM Participants RETIREMENT AND BENEFITS OVERVIEW – 8,000 PLANS - NATIONAL FOOTPRINT ASSETS UNDE
Slide 23: Wealth Management Services
22 $3,076 $3,918 $3,258 $5,295 $5,548 $4,852 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Q3 2021 Q2 2022 Q3 2022 Net Income Revenue $3,103 $3,339 $4,040 $3,436 $0 $1,000 $2,000 $3,000 $4,000 2019 2020 2021 Q3 2022 YTD ▪ ADVISORY AND PLANNING SERVICES • Retirement Planning, Tax Planning, Insu
Slide 24: Mortgage Banking
23 MORTGAGE BANKING OVERVIEW OF SERVICES YEARLY MORTGAGE ORIGINATIONS ($000s) QUARTERLY RESULT S ▪ 1st and 2nd mortgage product offerings through centralized mortgage operations in Minneapolis, Minnesota ▪ Our Twin Cities originators averaged $58+ million in annual volume over the last three years ▪
Slide 25: Noninterest Expense
24 $28,349 $27,035 $26,247 $2,063 $1,737 $1,926 $5,332 $4,785 $5,373 $1,503 $1,432 $1,314 $96 $965 $1,812 $4,698 $4,030 $6,095 $42,041 $39,984 $42,767 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Q3 2021 Q2 2022 Q3 2022 Other(1) Nonrecurring expense(2) Professional Fees
Slide 26: Appendix
25 APPENDIX
Slide 27: Well Diversified Loan Portfolio
26 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO As of 09/30/2022 1 - 4 Residential 1st 26% 1 - 4 Residential Construction 2% 1 - 4 Residential Jr Lien 1% HELOC 5% RE Loans to be Sold 1% C&I 23% Ag Production 1% Other CRE 20% Owner Occupied CRE 10% Ag Land 1% Multifamily 3% Retail Indirect
Slide 28: Commercial & Industrial Summary by Industry Type
27 SUMMARY BY INDUSTRY TYPE TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL 1 1 – Commercial and industrial loans includes C & I, loans to public entities, and other loans. It excludes PPP and ag production loans. “Other” includes to the following industries (1) Nonclassifiable establishments, (2) Manageme
Slide 29: Loans Secured by Real Estate
28 Office 17% Retail 13% Warehouse 18% Manufacturing 1% Residential Development 1% Commercial Development 1% Mixed Commercial 3% Apartments 13% Medical or Nursing Facilities 5% Commercial/Land Development 24% Ag Land 4% LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT COMMERCIAL REAL ESTATE 1 1 – Loans
Slide 30: Line of Credit Utilization
29 LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT 1 1 – Commercial and industrial loans includes revolving C & I loans and other loans. It excludes non - revolving C&I loans, ag prod uction, PPP and loans to public entities. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% - 50,000
Slide 31: Changes in the ALLL by Portfolio Segment
30 CHANGES IN THE ALLL BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES (dollars in thousands) Commercial Commercial and industrial $ 8,925 $ 1,011 $ (1,336) $ 321 $ 8,921 Real estate construction 783 473 — 76 1,332 Commercial real estate 12,376 (229) — 123 12,270 Total commercial 22,084 1,255 (1,336)
Slide 32: Allocation by Portfolio Segment
31 ALLOCATION BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES (dollars in thousands) Commercial and industrial $ 8,921 24.4% $ 8,925 24.8% Real estate construction 1,332 3.8% 783 2.3% Commercial real estate 12,270 35.4% 12,376 34.1% Residential real estate first mortgage 5,591 28.0% 6,532 29.1% Resid
Slide 33: Allocation by Risk Segment
32 ALLOCATION BY RISK SEGMENT (DOLLARS IN THOUSANDS) ALLOWANCE FOR LOAN LOSSES As of 9/30/2022. 1 - Unguaranteed balances exclude PPP loans as well as loans that are guaranteed by another government agency. Reserve/ Unguaranteed Reserve/Total Risk Level Loans Loans Pass $ 2,300,624 $ 2,017,705 $ 28,
Slide 34: Financial Highlights
33 FINANCIAL HIGHLIGHTS 1 Represents a non - GAAP financial measure. See “Non - GAAP Disclosure Reconciliation”. (dollars in thousands, except where otherwise noted) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 September 30, 2022 September 30, 2021 Total Assets 3,175,169 $ 3,392,691 $ 3,336,199 $ 3,295,0
Slide 35: Financial Highlights
34 FINANCIAL HIGHLIGHTS 1 Represents a non - GAAP financial measure. See “Non - GAAP Disclosure Reconciliation”. (dollars in thousands, 17-'21 except where otherwise noted) 2017 2018 2019 2020 2021 CAGR Total Assets 2,136,081 $ 2,179,070 $ 2,356,878 $ 3,013,771 $ 3,392,691 $ 12.3% Total Loans 1,574,
Slide 36: Non-GAAP Disclosure Reconciliation
35 NON - GAAP DISCLOSURE RECONCILIATION ($000s, except where otherwise noted) Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022 September 30, 2022 September 30, 2021 Tangible common equity to tangible assets Total common stockholders' equity 353,195 $ 359,403 $ 328,505 $ 307,158 $ 344,839 $ 344,839 $ 353,195
Slide 37: Non-GAAP Disclosure Reconciliation
36 NON - GAAP DISCLOSURE RECONCILIATION (dollars in thousands, except where otherwise noted ) Annual 2017 2018 2019 2020 2021 Tangible common equity to tangible assets Total common stockholders' equity $ 179,594 $ 196,954 $ 285,728 $ 330,163 $ 359,403 Less: Goodwill 27,329 27,329 27,329 30,201 31,49