Slide 1: Earnings Presentation 4Q 2022 Alerus
EARNINGS PRESENTATION 4Q 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 31.8% Wealth Management Revenue 9.9% Mortgage Revenue 8.0% Banking Fees 3.0% Net Interest Income 47.3% FOR THE TWELVE MONTHS ENDED DEC EMBER 31 , 2022 Noninterest income: $111.2 million Net interest income: $99.7 million $27.8 $31.9 $34.2 $36.7 $32.1 2018 2019 2020 2
Slide 4: Our Diverse Business Lines
3 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 12/31/2022. 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 ($2,915) LOANS ($2,444) (1) ARB ASSETS UNDER ADMIN/MGMT. ($32,123) WM ASSETS UNDER ADMIN/MGMT. ($3,583) MORTGAGE ORIGINATIONS ($812) ($ IN MILLIONS) Data as of 12/31/2022. 1 – Loans in our national market are purchased part
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 2
Slide 9: Growth strategy and client base
8 ▪ Diversified client base consists of 38,500 consumers clients , 16,600 commercial clients and over 384,800 employer - sponsored retirement and benefit plan participants ▪ Harness product synergies unavailable to traditional banking organizations ▪ Capitalize on strategic opportunities to grow in
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: Fourth Quarter Highlights
10 FOURTH QUARTER HIGHLIGHTS
Slide 12: Fourth Quarter Highlights
11 ▪ Reported net income of $10.9 million for the fourth quarter of 2022, or $0.53 per diluted common share. ▪ Loans increased $686.0 million, or 39.0%, compared to the end of the fourth quarter of 2021. Excluding the $270.4 million in loans acquired from Metro Phoenix Bank, organic loan growth incr
Slide 13: Income Statement Q4 2022 Financial Highlights
12 INCOME STATEMENT Q4 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 $ 26,964 $ 28,316 $ 22,789 $ 99,729 $ 87,099 Provision for Loan Losses — — (1,500)
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 segregate merger and acquisition expenses associated with the acquisition of Metro Phoenix Bank. 1.50% 1.02% 1.17% 0.15% 1.17% Q4 2021 Q3
Slide 15: Key Balance Sheet Items
14 KEY BALANCE SHEET ITEMS DOLLARS IN MILLIONS $1,718.5 $1,976.1 $2,358.2 $64.2 $5.2 $1.6 $281.1 $1,782.7 $2,262.4 $2,359.8 Q4 2021 Q3 2022 Q4 2022 Average Loans Core Loans PPP Loans MPB Loans $2,019.4 $1,838.9 $2,092.1 $851.2 $829.1 $870.9 $327.1 $2,870.6 $2,995.1 $2,963.0 Q4 2021 Q3 2022 Q4 2022 A
Slide 16: Asset Quality and Reserve Levels Overview
15 1.30% 1.39% 1.73% 1.80% 1.27% 0.16% 1.43% 0.00% 0.40% 0.80% 1.20% 1.60% 2.00% 2018 2019 2020 2021 2022 318% 306% 674% 1,437% 821% 00% 200% 400% 600% 800% 1,000% 1,200% 1,400% 1,600% 2018 2019 2020 2021 2022 0.33% 0.33% 0.17% 0.09% 0.10% 0.00% 0.20% 0.40% 0.60% 0.80% 2018 2019 2020 2021 2022 ASSET
Slide 17: Strong Core Funding Mix
16 STRONG CORE FUNDING MIX ▪ Commercial transaction accounts totaled $1.3 billion and increased 2.4% YoY. Consumer transaction accounts totaled $708.1 million and decreased 4.2% 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% 16.5% 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 2022 7.5% 11.1% 9.2% 9.8% 11.3% 8.9% 12.9% 13.2% 15.1% 13.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2018 2019 2020 2021 2022 Tier 1 Leverage Tier 1 Capital STRONG CAPITAL AND S
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. $20,570 $28,218 $26,939 $2,219 $98 $25 $22,789 $28,316 $26,964 $0 $5,000 $10
Slide 20: Net Interest Margin (NIM)
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 an increase in the a
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 $ 384 37.1% 37.1% At Floor 127 12.3% 49.4% 0 - 50 bps above floor 30 2.9% 52.3% >50bps to above floor 494 47.7% 1
Slide 22: Retirement and Benefits Overview
21 RETIREMENT AND BENEFITS OVERVIEW – 8,100 PLANS - NATIONAL FOOTPRINT ASSETS UNDER ADMINISTRATION/MANAGEMENT REVENUE MIX 2 ▪ RETIREMENT (58% of Revenue) - Provide recordkeeping and administration services to qualified retirement plans ▪ TRUST CUSTODY & ADVISORY SERVICES (10% of Revenue ) - Provide
Slide 23: Wealth Management Services Overview
22 $3,446 $3,276 $4,227 $5,633 $4,852 $5,144 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Q4 2021 Q3 2022 Q4 2022 Net Income Revenue $3,103 $3,339 $4,040 $3,583 $0 $1,000 $2,000 $3,000 $4,000 2019 2020 2021 2022 ▪ ADVISORY AND PLANNING SERVICES • Retirement Planning, Tax Planning, Insurance P
Slide 24: Mortgage Banking Overview
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 $56 million in annual volume over the last three years ▪
Slide 25: Noninterest Expense
24 $27,678 $26,247 $24,076 $1,936 $1,926 $1,892 $5,220 $5,373 $4,405 $1,681 $1,314 $1,454 $216 $1,812 $4,545 $6,095 $6,121 $41,276 $42,767 $37,948 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Q4 2021 Q3 2022 Q4 2022 Other(1) Nonrecurring expense(2) Professional Fees and
Slide 26: Appendix
25 APPENDIX
Slide 27: Well Diversified Loan Portfolio
26 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO As of 12/31/2022 1 - 4 Residential 1st 26% 1 - 4 Residential Construction 1% 1 - 4 Residential Jr Lien 1% HELOC 5% C&I 22% Ag Production 1% Other CRE 21% Owner Occupied CRE 10% Ag Land 2% Multifamily 4% Retail Indirect 1% Other Consumer 2% R
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: Commercial and Residential Real Estate Loans
28 Office 15% Retail 12% Warehouse 16% Manufacturing 1% Commercial Development 2% Mixed Commercial 3% Apartments 14% Hotel 2% Medical or Nursing Facilities 5% Commercial/Land Development 26% Ag Land 4% LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT COMMERCIAL REAL ESTATE 1 1 – Loans secured by commer
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 $ 1,168 $ (1,396) $ 461 $ 9,158 Real estate construction 783 587 — 76 1,446 Commercial real estate 12,376 178 — 134 12,688 Total commercial 22,084 1,933 (1,396) 6
Slide 32: Allocation by Portfolio Segment
31 ALLOCATION BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES (dollars in thousands) Commercial and industrial $ 9,158 23.9% $ 8,925 24.8% Real estate construction 1,446 4.0% 783 2.3% Commercial real estate 12,688 36.0% 12,376 34.1% Residential real estate first mortgage 5,769 27.8% 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 12/31/2022. 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 $ 2,408,636 $ 2,396,975 $ 28
Slide 34: Financial Highlights (Quarterly)
33 FINANCIAL HIGHLIGHTS (dollars in thousands, except where otherwise noted) Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Total Assets 3,392,691 $ 3,336,199 $ 3,295,065 $ 3,691,253 $ 3,779,637 $ Total Loans 1,758,020 1,818,042 1,890,243 2,318,231 2,443,994 Total Deposits 2,920,551 2,892,266 2,619,550 2,9
Slide 35: Financial Highlights (Annual)
34 FINANCIAL HIGHLIGHTS 1 – Represents a non - GAAP financial measure. See “Non - GAAP Disclosure Reconciliation”. (dollars 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 1,70
Slide 36: Non-GAAP Disclosure Reconciliation
35 NON - GAAP DISCLOSURE RECONCILIATION ($000s, except where otherwise noted) Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Tangible common equity to tangible assets Total common stockholders' equity 359,403 $ 328,505 $ 307,158 $ 344,839 $ 356,872 $ Less: Goodwill 31,490 31,490 31,337 46,060 47,087 Less:
Slide 37: Non-GAAP Disclosure Reconciliation
36 NON - GAAP DISCLOSURE RECONCILIATION ($000s, 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 intangibl