Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q3 2021 Earnings Presentation
38 slides from Alerus Financial's earnings presentation, Oct 27, 2021
Slide 1: Investor Presentation October 2021
INVESTOR PRESENTATION OCTOBER 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 SEPTEMBER 30, 2021 Noninterest income: $152.4 million Net interest income: $87.5 million $29.4 $27.8 $31.9 $34.2 $36.2 2017 2018 2019 2020 Q3 2021 OUR MISSION ▪ To positively impact our clients’ financial potential-through holistic guidance, unparalleled service, and en
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 and Acquisition History
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: Growth Strategy
6 ▪ Diversified client base consists of 45,200 consumers, 10,200 businesses and over 375,800 employer-sponsored retirement and benefit plan participants ▪ Harness product synergies unavailable to traditional banking organizations ▪ Capitalize on strategic opportunities to grow in our existing market
Slide 8: Officers and Directors
7 OFFICERS AND DIRECTORS OUR MOTIVATED, DEDICATED, AND ENERGETIC LEADERS KEEP US ON THE RIGHT PATH 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 MATHEWS Since 2019 CIO, Deluxe Corporati
Slide 9: Third Quarter Highlights
THIRD QUARTER HIGHLIGHTS ~~
Slide 10: Income Statement Q3 2021 Financial Highlights
9 INCOME STATEMENT Q3 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 nine months ended September 30, 2021, was 2.62% and 2.77%, respectively. (dollars and
Slide 11: Asset Quality and Reserve Levels Overview
10 ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPAS / ASSETS (%) RESERVES / LOANS (%) RESERVES / NPLS (%) ▪ Solid asset quality ▪ Strong reserve levels ▪ Proactive approach to classification of assets and management of loan problems Excluding PPP loans, NPAs/Assets as of September 30, 2021, was 0.23%
Slide 12: Strong Capital and Sources of Liquidity
11 12.2% 12.9% 16.7% 16.8% 18.6% 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 Q3 2021 7.1% 7.5% 11.1% 9.2% 9.9% 8.3% 8.9% 12.9% 13.2% 14.9% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2017 2018 2019 2020 Q3 2021 Tier 1 Leverage Tier 1 Capital 6.0% 6.9% 10.4%
Slide 13: Strong Core Funding Mix
12 0.14% 0.19% 0.20% 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 2018 2019 2020 Q3 2021 YTD STRONG CORE FUNDING MIX ▪ Commercial transaction accounts totaled $1.2 billion and decreased 0.1% in Q3. Consumer transaction a
Slide 14: Net Interest Margin (NIM)
13 0.65% 0.97% 0.51% 0.20% 1.83% 2.16% 0.45% 0.08% 3.84% 3.65% 3.22% 2.92% 4.81% 4.97% 4.35% 4.10% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 2018 2019 2020 Q3 2021 NET INTEREST MARGIN (NIM) 1 – Rates have been annualized for interim periods. Source: Alerus Financial Corporation; Federal Reserve Note
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 $ 266 40.2% 40.2% Floors Reached 255 38.5% 78.7% 0-50 bps to reach floor 125 18.9% 97.6% >50bps to reach floor 16 2.4% 100.0% Total $ 66
Slide 16: Diversified
15 DIVERSIFIED
Slide 17: A Big Company Model with Small Company Execution
16 A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION OUR DIVERSE BUSINESS LINES Revenue data LTM as of 9/30/2021. TRUSTED ADVISOR BANKING WEALTH MANAGEMENT • Residential mortgage lending • Purchasing or refinancing • Residential construction lending • Home equity/second mortgages • Advisory services
Slide 18: Well Diversified Loan Portfolio
17 BY OUTSTANDING BALANCES WELL DIVERSIFIED LOAN PORTFOLIO As of 9/30/2021. 1-4 Residential 1st 25% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 2% HELOC 5% RE Loans to be Sold 3% C&I 20% PPP 6% Ag Production 2% Other CRE 15% Owner Occupied CRE 11% Ag Land 1% Multifamily 4% Retail Indirec
Slide 19: Strong Growth Markets and Stable Core Funding
18 North Dakota Minnesota Arizona National STRONG GROWTH MARKETS AND STABLE CORE FUNDING MARKET DISTRIBUTION DEPOSITS ($2,713) LOANS ($1,800)(1) ARB ASSETS UNDER ADMIN/MGMT. ($36,203) WM ASSETS UNDER ADMIN/MGMT. ($3,865) MORTGAGE ORIGINATIONS ($1,479) ($ IN MILLIONS) Data as of 09/30/2021. 1-Loans i
Slide 20: Retirement and Benefits Overview
19 $27,812 $31,905 $34,200 $36,203 350,000 365,000 380,000 395,000 410,000 425,000 440,000 455,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 2018 2019 2020 Q3 2021 AUA/AUM Participants $26,902 $28,404 $25,720 $22,736 $63,316 $63,811 $60,956 $53,157 $0 $20,000 $40,000 $60,000
Slide 21: Wealth Management Services
20 $2,627 $3,103 $3,339 $3,865 $0 $1,000 $2,000 $3,000 $4,000 2018 2019 2020 Q3 2021 ▪ ADVISORY AND PLANNING SERVICES • Retirement Planning, Tax Planning, Insurance Planning, Wealth Transfer Planning and Business Transition Planning ▪ ASSET MANAGEMENT • Personalized SMA strategies, Tax Management an
Slide 22: Mortgage Banking
21 MORTGAGE BANKING OVERVIEW OF SERVICES MORTGAGE ORIGINATIONS GAIN ON SALE MARGIN ($000s) REVENUE SUMMARY ▪ 1st and 2nd mortgage product offerings through centralized mortgage operations in Minnesota ▪ Our Twin Cities originators averaged $42+ million in annual volume over the last three years ▪ YT
Slide 23: Loan Portfolio and Credit Quality
22 LOAN PORTFOLIO AND CREDIT QUALITY
Slide 24: Commercial & Industrial Summary by Industry Type
23 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 25: Loans Secured by Real Estate
24 LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT COMMERCIAL REAL ESTATE1 1 – Loans secured by commercial real estate include Multifamily loans, Ag land, Other CRE, Owner Occupied CRE, and Ag production Portfolio Avg FICO Avg LTV Serviced 759 65% Non-Serviced 780 28% Junior 755 78% HELOC 795 64% TOTA
Slide 26: Line of Credit Utilization
25 LINE OF CREDIT UTILIZATION C&I AND HOME EQUITY LINES OF CREDIT1 1 – Commercial and industrial loans includes revolving C & I Loans and Other Loans. It Excludes non-revolving C&I loans, Ag Production, PPP and loans to Public Entities. 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% - 50,000 100,000 150,000
Slide 27: Changes in the ALLL by Portfolio Segment
26 CHANGES IN THE ALLL BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES Nine months ended September 30, 2021 (dollars in thousands) Beginning Balance Provision for Loan Losses Loan Charge-offs Loan Recoveries Ending Balance Commercial Commercial and industrial $ 10,205 $ (1,378) $ (1,224) $ 1,497 $ 9,
Slide 28: Allocation by Portfolio Segment
27 ALLOCATION BY PORTFOLIO SEGMENT ALLOWANCE FOR LOAN LOSSES September 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 $ 9,100 28.1% $ 10,205 35.0% Real estate co
Slide 29: Allocation by Risk Segment
28 Risk Level Total Loans Unguaranteed Balance1 Reserve Amount Reserve / Unguaranteed Loans Reserve/Total Loans Pass $ 1,768,566 $ 1,654,210 $ 28,045 1.70% 1.59% Special Mention 4,238 4,097 182 4.44% 4.29% Substandard 20,631 19,854 2,264 11.40% 10.97% Total Loans Evaluated Collectively 1,793,435 1,6
Slide 30: COVID-19 Response
29 COVID-19 RESPONSE
Slide 31: COVID-19 Operational Response
30 ▪ 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 32: Pandemic Agility and Facilities Transformation
31 ▪ 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 33: Industries Directly Impacted by COVID-19
32 Impacted industries, 8% All Other Loans, 92% COMMERCIAL AND INDUSTRIAL AND COMMERCIAL REAL ESTATE INDUSTRIES DIRECTLY IMPACTED BY COVID-19 As of 9/30/2021. C&I Total Commitment ($ in 000's) % of Total Accommodation and Food Services $ 8,688 0.63% Arts, Entertainment, and Recreation 2,891 0.21% Oi
Slide 34: COVID-19 Relief Programs: Payment Deferrals
33 PAYMENT DEFERRALS, MATURITY EXTENSIONS, AND PAYMENT MODIFICATIONS COVID-19 RELIEF PROGRAMS September 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 181 $ 2,496 $ 15
Slide 35: SBA Paycheck Protection Program (PPP)
34 Retail Trade 14% Professional, Scientific, and Technical Services 13% Construction 12% Manufacturing 9% Wholesale Trade 8% Health Care and Social Assistance 11% Other Services (except Public Administration) 5% Administrative and Support and Waste Management and Remediation Services 3% Transportat
Slide 36: Appendix
35 APPENDIX
Slide 37: Financial Summary
36 ($000s, except where otherwise noted ) Annual 17-'20 Year-to-date 2017 2018 2019 2020 CAGR Q3 2020 Q3 2021 Total Assets 2,136,081 $ 2,179,070 $ 2,356,878 $ 3,013,771 $ 12.2% 2,898,809 $ 3,175,169 $ Total Loans 1,574,474 1,701,850 1,721,279 1,979,375 7.9% 2,058,419 1,800,386 Total Deposits 1,834,9
Slide 38: Non-GAAP Disclosure Reconciliation
37 NON-GAAP DISCLOSURE RECONCILIATION ($000s, except where otherwise noted ) Annual Year-to-date 2017 2018 2019 2020 Q3 2020 Q3 2021 Tangible common equity to tangible assets Total common stockholders' equity $ 179,594 $ 196,954 $ 285,728 $ 330,163 $ 322,003 $ 353,195 Less: Goodwill 27,329 27,329 27