Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q2 2021 Earnings Presentation
41 slides from Alerus Financial's earnings presentation, Jul 28, 2021
Slide 1: Investor Presentation July 2021
INVESTOR PRESENTATION JULY 2021 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 FOR THE TWELVE MONTHS ENDED JUNE 30, 2021 Noninterest income: $161.6 million Net interest income: $88.1 million $29.4 $27.8 $31.9 $34.2 $37.0 2017 2018 2019 2020 Q2 2021 OUR MISSION ▪ To positively impact our clients’ financial potential-through holistic guidance, unparalleled service, and engagin
Slide 4: Franchise Footprint
3 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 5: One Alerus
4 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 st
Slide 6: Strategic Growth
5 EXPANDED TO COLORADO Acquired Retirement Planning Services, Inc. (Littleton, CO) To supplement our strong organic growth, we have executed 24 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 7: Skilled Advisors and Financial Guides
6 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 expect and val
Slide 8: Growth Strategy
7 ▪ Diversified client base consists of 46,200 consumers, 10,200 businesses and over 375,200 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 mar
Slide 9: Officers and Directors
8 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 MICHAEL
Slide 10: Second Quarter Highlights
SECOND QUARTER HIGHLIGHTS ~~
Slide 11: Income Statement Q2 2021 Financial Highlights
10 INCOME STATEMENT Q2 2021 FINANCIAL HIGHLIGHTS 1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.” 2 – Net interest margin (tax-equivalent) excluding PPP loans for the three and six months ended June 30, 2021, was 2.75% and 2.85%, respectively. (dollars and share
Slide 12: Strategic Highlights
11 EMPLOYEES ▪ All time high of 80.9% favorable responses in 2020 employee engagement survey ▪ Named to American Banker’s Best Banks to Work for in 2020 STOCKHOLDERS ▪ Strong historical performance with a 10-year total return of: 337% ▪ Dividends increased year over year for 34 straight years at an
Slide 13: Asset Quality and Reserve Levels Overview
12 282% 318% 306% 674% 485% 0.00% 100.00% 200.00% 300.00% 400.00% 500.00% 600.00% 700.00% 800.00% 2017 2018 2019 2020 Q2 2021 0.30% 0.33% 0.33% 0.17% 0.25% 0.00% 0.20% 0.40% 0.60% 0.80% 2017 2018 2019 2020 Q2 2021 ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPAS / ASSETS (%) RESERVES / LOANS (%) RESER
Slide 14: Strong Capital and Sources of Liquidity
13 12.2% 12.9% 16.7% 16.8% 18.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 2017 2018 2019 2020 Q2 2021 7.1% 7.5% 11.1% 9.2% 9.6% 8.3% 8.9% 12.9% 13.2% 14.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2017 2018 2019 2020 Q2 2021 Tier 1 Leverage Tier 1 Capital 6.0% 6.9% 10.4%
Slide 15: Strong Core Funding Mix
14 STRONG CORE FUNDING MIX ▪ Commercial transaction accounts totaled $1.2 billion and decreased 1.7% in Q2. Consumer transaction accounts totaled $720.0 million and increased 7.7% ▪ Synergistic deposits, including HSA deposits and those sourced through retirement plans and participants, totaled $551
Slide 16: Net Interest Margin
15 0.65% 0.97% 0.51% 0.20% 1.83% 2.16% 0.45% 0.08% 3.84% 3.65% 3.22% 3.00% 4.81% 4.97% 4.35% 4.13% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2018 2019 2020 Q2 2021 NET INTEREST MARGIN (NIM) 1 – Rates have been annualized for interim periods. Source: Alerus Financial Corporation; Federal Reserve Note
Slide 17: NIM and Loan Floors
16 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 $ 260 38.9% 38.9% Floors Reached 273 40.9% 79.8% 0-50 bps to reach floor 128 19.2% 99.0% >50bps to reach floor 7 1.0% 100.0% Total $ 668
Slide 18: Diversified
17 DIVERSIFIED
Slide 19: A Big Company Model with Small Company Execution
18 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 6/30/2021. TRUSTED ADVISOR BANKING WEALTH MANAGEMENT • Residential mortgage lending • Purchasing or refinancing • Residential construction lending • Home equity/second mortgages • Advisory services
Slide 20: Well Diversified Loan Portfolio by Outstanding Balances
19 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO As of 6/30/2021. 1-4 Residential 1st 21% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 2% HELOC 5% RE Loans to be Sold 4% C&I 20% PPP 9% Ag Production 2% Other CRE 15% Owner Occupied CRE 11% Ag Land 1% Multifamily 4% Retail Indirec
Slide 21: Strong Growth Markets and Stable Core Funding
20 North Dakota Minnesota Arizona National STRONG GROWTH MARKETS AND STABLE CORE FUNDING MARKET DISTRIBUTION DEPOSITS ($2,711) LOANS ($1,835)(1) ARB ASSETS UNDER ADMIN/MGMT. ($36,965) WM ASSETS UNDER ADMIN/MGMT. ($3,539) MORTGAGE ORIGINATIONS ($1,063) ($ IN MILLIONS) Data as of 06/30/2021. 1-Loans i
Slide 22: Retirement and Benefits Overview
21 $26,902 $28,404 $25,720 $15,026 $63,316 $63,811 $60,956 $35,126 $0 $20,000 $40,000 $60,000 $80,000 2018 2019 2020 Q2 2021 YTD Net Income Revenue Asset Based Retirement 29% Trust, Custody & Advisory 10% Record Keeping 17% Administration 13% Health & Welfare 11% Payroll Servicing 2% ESOP 7% Other 1
Slide 23: Wealth Management Services
22 $8,138 $8,314 $9,162 $5,661 $14,962 $15,502 $17,451 $10,124 $0 $6,000 $12,000 $18,000 2018 2019 2020 Q2 2021 YTD Net Income Revenue ▪ ADVISORY AND PLANNING SERVICES • Retirement Planning, Tax Planning, Insurance Planning, Wealth Transfer Planning and Business Transition Planning ▪ ASSET MANAGEMEN
Slide 24: Mortgage Banking
23 $393.1 $462.0 $564.0 $474.1 $465.4 $38.6 $49.6 $43.2 $43.9 $80.0 $431.7 $511.6 $607.2 $518.0 $545.4 $0.0 $250.0 $500.0 $750.0 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Sale Portfolio MORTGAGE BANKING OVERVIEW OF SERVICES MORTGAGE ORIGINATIONS GAIN ON SALE MARGIN ($000s) REVENUE SUMMARY ▪ 1st and 2n
Slide 25: Loan Portfolio and Credit Quality
24 LOAN PORTFOLIO AND CREDIT QUALITY
Slide 26: Summary by Industry Type: Commercial & Industrial
25 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 loans “Other” includes to the following industries (1) Nonclassifiable establishments, (2) Management
Slide 27: Loans Secured by Real Estate
26 Serviced 49% 1-4 1st Non-Serviced 4% 1-4 Family Jr Liens 4% 1-4 Family Revolving 31% 1-4 Family Construction 4% Held for Sale 8% Office 16% Retail 17% Warehouse 20% Manufacturing 1% Residential Development 1% Mixed Residential/Commercial 1% Mixed Commercial 6% Apartments 15% Hotel 1% Medical Or N
Slide 28: Line of Credit Utilization
27 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 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 C&I Funded Unfunded
Slide 29: Changes in the ALLL by Portfolio Segment
28 CHANGES IN THE ALLL BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES Six months ended June 30, 2021 (dollars in thousands) Beginning Balance Provision for Loan Losses Loan Charge-offs Loan Recoveries Ending Balance Commercial Commercial and industrial $ 10,205 $ (553) $ (477) $ 445 $ 9,620 Real est
Slide 30: Allocation by Portfolio Segment
29 ALLOCATION BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES June 30, 2021 December 31, 2020 (dollars in thousands) Allocated Allowance Percentage of loans to total loans Allocated Allowance Percentage of loans to total loans Commercial and industrial $ 9,620 31.2% $ 10,205 35.0% Real estate constru
Slide 31: Allocation by Risk Segment
30 Risk Level Total Loans Unguaranteed Balance1 Reserve Amount Reserve / Unguaranteed Loans Reserve/Total Loans Pass $ 1,794,539 $ 1,621,561 $ 26,925 1.66% 1.50% Special Mention 5,247 4,951 218 4.40% 4.15% Substandard 27,815 27,312 3,230 11.83% 11.61% Total Loans Evaluated Collectively 1,827,601 1,6
Slide 32: COVID-19 Response
31 COVID-19 RESPONSE
Slide 33: COVID-19 Response Actions
32 ▪ 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 Gra
Slide 34: Pandemic Agility and Facilities Transformation
33 ▪ Since 2020, we exited three client offices and six admin offices (primarily housed by administrative and operational staff) ▪ Experienced minimal client and employee dissatisfaction ▪ All remaining client offices are now open across the Alerus footprint in ND, MN, and AZ PANDEMIC AGILITY RESULT
Slide 35: Well Diversified Loan Portfolio by Total Commitment
34 BY TOTAL COMMITMENT INCLUDING UNFUNDED COMMITMENT WELL DIVERSIFIED LOAN PORTFOLIO As of 6/30/2021. 1-4 Residential 1st 18% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 1% HELOC 11% RE Loans to be Sold 3% C&I 27% PPP 7% Ag Production 2% Other CRE 11% Owner Occupied CRE 9% Ag Land 1% Mul
Slide 36: Industries Directly Impacted by COVID-19
35 Impacted industries, 8% All Other Loans, 92% COMMERCIAL AND INDUSTRIAL AND COMMERCIAL REAL ESTATE INDUSTRIES DIRECTLY IMPACTED BY COVID-19 As of 6/30/2021. C&I Total Commitment ($ in 000's) % of Total Accommodation and Food Services $ 9,131 0.66% Arts, Entertainment, and Recreation 2,955 0.21% Oi
Slide 37: COVID-19 Relief Programs: Payment Deferrals
36 PAYMENT DEFERRALS, MATURITY EXTENSIONS, AND PAYMENT MODIFICATIONS COVID-19 RELIEF PROGRAMS June 30, 2021 Loan Group Number Of Loans Granted Deferral ($ in 000’s) Still on Initial Deferral ($ in 000’s) Additional Deferral ($ in 000's) Returned to Normal ($ in 000’s) Consumer 178 $ 2,456 $ 5 $ 18 $
Slide 38: SBA Paycheck Protection Program (PPP)
37 Retail Trade 8% Professional, Scientific, and Technical Services 11% Construction 13% Manufacturing 7% Wholesale Trade 8% Health Care and Social Assistance 21% Other Services (except Public Administration) 6% Administrative and Support and Waste Management and Remediation Services 2% Transportati
Slide 39: Appendix
38 APPENDIX
Slide 40: Financial Highlights
39 FINANCIAL HIGHLIGHTS 1 Represents a non-GAAP financial measure. See “Non-GAAP Disclosure Reconciliation” in the Appendix to this presentation. 2 Excluding PPP loans, the following ratios were TCE/TA 9.89% NPLs/Loans 0.42%, NPAs/Assets 0.26%, Allowance/Loans 2.02%, and NCOs/Average Loans 0.05% ($0
Slide 41: Non-GAAP Disclosure Reconciliation
40 NON-GAAP DISCLOSURE RECONCILIATION ($000s, except where otherwise noted ) Annual Year-to-date 2017 2018 2019 2020 Q2 2020 Q2 2021 Tangible common equity to tangible assets Total common stockholders' equity $ 179,594 $ 196,954 $ 285,728 $ 330,163 $ 305,732 $ 344,391 Less: Goodwill 27,329 27,329 27