Slide 1: Earnings Presentation Q4 2023
Alerus EARNINGS PRESENTATION Q4 2023 NASDAQ: ALRS
Slide 2: Disclaimers
DISCLAIMERS 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
Slide 3: Company Profile
COMPANY PROFILE OUR MISSION ▪ To positively impact our clients’ financial potential-through holistic guidance, unparalleled service, and engaging technology. ALERUS BUSINESS LINES DIVERSIFIED FINANCIAL SERVICES COMPANY ▪ Banking ▪ $3.9 billion Banking assets ▪ Retirement and Benefit Services ▪ $36.7
Slide 4: Our Diverse Business Lines
OUR DIVERSE BUSINESS LINES A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION COMMERCIAL BANKING BANKING(1) CONSUMER BANKING • Commercial and commercial real • Private banking estate lending 50.4% of Revenue • Deposit products • Government and non-profit banking and services • Small business lending •
Slide 5: Franchise Footprint
FRANCHISE FOOTPRINT FULL-SERVICE BANKING OFFICES Alerus offers banking, retirement and benefit services, 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
Slide 6: Market Distribution
MARKET DISTRIBUTION STRONG GROWTH MARKETS AND STABLE CORE FUNDING (DOLLARS IN MILLIONS) LOANS $2,756 DEPOSITS $3,096 LEGEND 14.3% North Dakota 28.3% 30.2% Minnesota 37.2% Arizona National 57.4% 9.3% Synergistic 23.3% 2023 MORTGAGE WM ASSETS UNDER ARB ASSETS UNDER ORIGINATIONS $364 ADMIN/MGMT. $4,019
Slide 7: One Alerus
ONE ALERUS CULTURE + BUSINESS MODEL = SUSTAINED TOP TIER SHAREHOLDER RESULTS ONE ALERUS STRATEGY TECHNOLOGY INVESTMENT Our collaborative One Alerus culture brings our product and service We have proactively invested in technology to offerings to clients in a cohesive and seamless manner. We believe
Slide 8: Strategic Growth
STRATEGIC GROWTH To supplement our organic growth, we have executed 25 acquisitions throughout the history of our company across all business lines: 2000 REBRANDED TO ALERUS 2011 Acquired selected loans and deposits (in MN) and a branch (in AZ) from BNC National Bank 2002 Acquired a branch from BNC
Slide 9: Key Strategic Initiatives
KEY STRATEGIC INITIATIVES GROWING THE ALERUS FRANCHISE ▪ Collaborative leadership team focused on growing organically through new client acquisition ORGANIC GROWTH and deepening relationships with existing clients through our expansive services “ONE ALERUS” ▪ Diversified business model focused on br
Slide 10: Officers and Directors
OFFICERS AND DIRECTORS KARIN TAYLOR Executive Vice President and Chief Risk Officer AL VILLALON 6 years with Alerus Executive Vice President and Chief Financial Officer Joined Alerus in 2022 MISSY KENEY Executive Vice President and EXECUTIVE MANAGEMENT Chief Engagement Officer JIM COLLINS 19 years w
Slide 11: Fourth Quarter Highlights
FOURTH QUARTER HIGHLIGHTS 10
Slide 12: Q4 2023 Highlights
Q4 2023 HIGHLIGHTS SUCCESS IS NEVER FINAL ▪ Net interest margin expanded 10 basis points, from 2.27% in the third quarter to 2.37% in the fourth quarter of 2023 ▪ Net interest income increased 5.7%, from $20.4 million in the third quarter to $21.6 million in the EARNINGS fourth quarter of 2023 ▪ Non
Slide 13: Q4 2023 Financial Highlights
Q4 2023 FINANCIAL HIGHLIGHTS INCOME STATEMENT Three months ended Year ended December 31, September 30, December 31, December 31, December 31, 2023 2023 2022 2023 2022 (dollars and shares in thousands, except per share data) Net Interes t Income $ 21,552 $ 20,395 $ 26,964 $ 87,839 $ 99,729 Provi s i
Slide 14: Performance Ratios
PERFORMANCE RATIOS Adjusted Return on Average Adjusted Return on Average Tangible Book Value per Share(1) Assets(1)/(2) Tangible Common Equity (1)/(2) 1.22% 17.35% $15.46 0.74% $14.37 $14.32 10.80% 8.30% 0.51% Q4 2022 Q3 2023 Q4 2023 Q4 2022 Q3 2023 Q4 2023 Q4 2022 Q3 2023 Q4 2023 1 – Represents a n
Slide 15: Key Revenue Items
KEY REVENUE ITEMS DOLLARS IN THOUSANDS Net Interest Income Noninterest Income Retirement & Benefit Services Wealth Management Mortgage Banking Banking Fees and Other Income(1)/(2) $28,407 $25,517 $2,021 $25,434 $26,964 $1,604 $2,510 $2,898 $2,170 $1,279 $5,271 $21,552 $20,395 $5,144 $5,940 $18,605 $
Slide 16: Net Interest Income
NET INTEREST INCOME LOAN YIELD AND NET INTEREST MARGIN (NIM)(1) NET INTEREST INCOME (NII) ($ in Thousands) Loan yield NIM 5.44% 5.64% 4.90% 3.09% 2.27% 2.37% Q4 2022 Q3 2023 Q4 2023 NIM: 2.27% 0.13% 0.10% 0.02% 0.00% (0.15)% 2.37% AVERAGE EFFECTIVE FF RATE AND COST OF FUNDS(1) QUARTERLY HIGHLIGHTS A
Slide 17: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO TOTAL LOANS HIGHLIGHTS ($ in Millions) ▪ Total loans grew 12.8% from December 31, 2022 ▪ Year to date loan growth was primarily driven by an increase in commercial real estate, residential real estate, and C&I loans, partially offset by a $2,756.1 $2,606.4 decrease in othe
Slide 18: Strong Core Funding Mix
STRONG CORE FUNDING MIX TOTAL DEPOSITS HIGHLIGHTS ($ in Millions) $3,095.6 ▪ Total deposits increased 7.8% compared to $2,915.5 $2,872.2 September 30, 2023 $728.1 $861.0 $718.0 ▪ Noninterest-bearing deposits increased 1.4% compared to September 30, 2023 $2,367.5 Time deposits increased 18.6% in the
Slide 19: Deposit Characteristics
DEPOSIT CHARACTERISTICS STRONG LIQUIDITY WELL IN EXCESS OF UNINSURED BALANCES SYNERGISTIC DEPOSIT GROWTH (1) UNINSURED VS INSURED ($ in Millions) 23% YoY growth Uninsured and not collateralized (2) 24.3% $851.5 $763.7 Insured 66.2% Uninsured but $691.6 collateralized 7.3% Uninsured Holding Company d
Slide 20: Investment Portfolio
INVESTMENT PORTFOLIO INVESTMENT PORTFOLIO MIX ($ in Thousands) Agency Non- Corporate Debt MBS 0.1% 6.2% $1,039,226 $943,269 $786,251 Municipals 16.5% Q4 2022 Q3 2023 Q4 2023 Yield on Securities: 2.3% 2.6% 2.7% Agency MBS % of Earning Assets: 29.3% 26.0% 21.4% 35.3% AOCI ($ in Thousands) Corporate AB
Slide 21: Retirement and Benefit Services
RETIREMENT AND BENEFIT SERVICES OVERVIEW – 8,300 PLANS – NATIONAL FOOTPRINT ASSETS UNDER ADMINISTRATION/MANAGEMENT ▪ RETIREMENT - Provide recordkeeping and administration ($ in Millions) AUA/AUM Participants services to qualified retirement plans $40,000 $36,733 $36,682 $34,200 495,000 $35,000 $31,9
Slide 22: Wealth Management Services
WEALTH MANAGEMENT SERVICES OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT ($ in Millions) ▪ ADVISORY AND PLANNING SERVICES • Advisory Services, Insurance Planning, Financial Planning, Education Planning ▪ INVESTMENT MANAGEMENT • Personalized SMA strategies, Tax Management and Global Per
Slide 23: Mortgage Banking
MORTGAGE BANKING OVERVIEW OF SERVICES YEARLY MORTGAGE ORIGINATIONS ▪ 1st and 2nd mortgage product offerings through ($ in Millions) Portfolio Sale centralized mortgage operations in Minneapolis, $1,779 $1,836 Minnesota $146 $244 ▪ 86% of 2023 originations sourced from the Twin Cities MSA $812 $1,633
Slide 24: Noninterest Expense
NONINTEREST EXPENSE ($ in Thousands) QUARTERLY HIGHLIGHTS $37,948 $37,260 $38,654 ▪ Noninterest expense increased $1.4 million, or 3.7%, over the last quarter $4,973 $6,121 $4,921 $2,345 ▪ The increase was primarily driven by a $0.9 million $1,454 $1,716 increase in business services, software and $
Slide 25: Asset Quality and Reserve Levels
ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPA / ASSETS (%) ▪ Non-performing loans remain at low levels ▪ Reserve levels remain strong despite an increase in non-performing loans in 2023 0.33% 0.22% ▪ Strong credit quality continues to be evidenced by a 0.17% 0.09% 0.10% third straight quarter of net
Slide 26: Strong Capital and Sources of Liquidity
STRONG CAPITAL AND SOURCES OF LIQUIDITY COMMON EQUITY TIER 1 TIER 1 CAPITAL/TIER 1 LEVERAGE RATIOS Tier 1 Leverage Tier 1 Capital 14.7% 15.1% 13.4% 13.7% 12.5% 12.8% 12.9% 13.2% 11.8% 12.1% 11.1% 11.3% 10.6% 9.8% 9.2% Tier 1 Capital 6% Leverage 4% 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Re
Slide 27: Key Takeaways
KEY TAKEAWAYS ALERUS HAS ESTABLISHED A STRONG FOUNDATION HEADING INTO 2024 ▪ Loan and deposit growth was robust in the fourth quarter, putting Alerus in a strong position to start 2024 ▪ Net interest margin increased 10 basis points from 2.27% in the third quarter to 2.37% in the fourth quarter of 2
Slide 28: Appendix
APPENDIX 27
Slide 29: Well Diversified Loan Portfolio
WELL DIVERSIFIED LOAN PORTFOLIO BY OUTSTANDING BALANCES Other Consumer 1% RE Construction 5% Multifamily 9% Ag Land 1% 1-4 Residential 1st 25% Owner Occupied CRE 10% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 1% HELOC 4% Other CRE 21% C&I 20% RE Loans to be Sold 1% Ag Production 1% Data
Slide 30: Summary by Industry Type
SUMMARY BY INDUSTRY TYPE TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL 1 Food and Beverage Stores 1% Finance and Insurance 9% Other Electronics Construction 9% 15% and Appliance Stores 2% Health and Personal Care Services 2% Wholesale Trade 7% Retail Trade 16% Other Retail Trade Real Estate and Rental 1%
Slide 31: Loans Secured by Real Estate
LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT TOTAL COMMITMENT COMMERCIAL REAL ESTATE 1 INVESTOR REAL ESTATE 2 Ag Land 3% Office Office 10% 13% Retail Retail 8% Commercial 11% Construction 27% Commercial Construction 34% Warehouse 7% Warehouse Manufacturing 1% 10% Residential Other 1% Development 1%
Slide 32: Loans Secured by Real Estate
LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT RESIDENTIAL REAL ESTATE 1-4 Family Construction 4% Held for Sale 1% 1-4 Family Revolving 30% 1-4 1st Mortage 62% 1-4 Family Jr Liens 3% Portfolio Avg FICO Avg LTV 1st Mortgage 774 53% Junior 765 74% HELOC 796 73% Data as of 12/31/2023. 31
Slide 33: Line of Credit Utilization
LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT 1 C&I Home Equity Lines of Credit 450,000 60% 350,000 60% 55% 55% 400,000 50% 300,000 50% 350,000 45% 45% 250,000 300,000 40% 40% 35% 200,000 35% 250,000 30% 30% 200,000 150,000 25% 25% 150,000 20% 20% 100,000 15% 15% 100,000 10% 10% 50,
Slide 34: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS CECL ADOPTION – DRIVERS OF CHANGE FROM ALLL ($ in Thousands) 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 repres
Slide 35: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS CHANGES IN THE ACL FOR LOANS BY PORTFOLIO SEGMENT Year ended December 31, 2023 Beginning Adoption Provision for Loan Loan Ending (1) (1) Balance of ASC 326 Credit Losses Charge-offs Recoveries Balance ($ in thousands) Commercial Commercial and industrial $ 9,233
Slide 36: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS ALLOCATION BY LOAN PORTFOLIO SEGMENT (1) December 31, 2023 December 31, 2022 Percentage Percentage Allocated of loans to Allocated of loans to ($ in thousands) Allowance total loans Allowance total loans Commercial and industrial $ 9,893 21.6% $ 9,233 23.9% Real
Slide 37: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Quarterly Year ended except where otherwise noted) Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 December 31, 2023 December 31, 2022 Total Assets $ 3,779,637 $ 3,886,773 $ 3,832,978 $ 3,869,138 $ 3,896,811 $ 3,896,810 $ 3,779,637 Total Loans 2,443,994 2,486,625 2,533,
Slide 38: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Annual 19-'23 except where otherwise noted) 2019 2020 2021 2022 2023 CAGR Total Assets $ 2,356,878 $ 3,013,771 $ 3,392,691 $ 3,779,637 $ 3,896,811 13.4% Total Loans 1,721,279 1,979,375 1,758,020 2,443,994 2,756,088 12.5% Total Deposits 1,971,316 2,571,993 2,920,
Slide 39: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Quarterly Year ended Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 December 31, 2023 December 31, 2022 Tangible common equity to tangible assets Total common stockholders' equity $ 356,872 $ 359,118 $ 357,685 $ 349,402 $ 369
Slide 40: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Annual 2019 2020 2021 2022 2023 Tangible common equity to tangible assets Total common stockholders' equity $ 285,728 $ 330,163 $ 359,403 $ 356,872 $ 369,127 Less: Goodwill 27,329 30,201 31,490 47,087 46,783 Less: Othe
Slide 41: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except for where otherwise noted) Quarterly Year ended Q4 2022 Q3 2023 Q4 2023 December 31, 2023 December 31, 2022 Noninterest Income Excluding Net Losses on Investment Securities as a Percentage of Adjusted Revenue Noninterest income $ 25,517 $ 28
Slide 42: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except for per share data and where otherwise noted) Quarterly Year ended Q4 2022 Q3 2023 Q4 2023 December 31, 2023 December 31, 2022 Adjusted Net Income Net Income $ 10,909 $ 9,161 $ (14,754) $ 11,696 $ 40,005 Less: Net gains (losses) on investmen