Alerus Financial Corporation · NASDAQ:ALRS
Alerus Financial — Q2 2023 Earnings Presentation
40 slides from Alerus Financial's earnings presentation, Jul 26, 2023
Slide 1: Earnings Presentation Q2 2023
Alerus EARNINGS PRESENTATION Q2 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 ▪ $3.8 billion Banking assets ▪ Retirement and Benefit Services ▪ $35.1
Slide 4: Our Diverse Business Lines
OUR DIVERSE BUSINESS LINES A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION COMMERCIAL BANKING BANKING CONSUMER BANKING • Commercial and commercial real • Private banking estate lending 53% of Revenue • Deposit products • Government and non-profit banking and services • Small business lending • Cons
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 $2,534 DEPOSITS $2,853 LEGEND 15.7% North Dakota 30.4% 26.1% Minnesota 39.5% Arizona National 10.7% 53.9% Synergistic 23.7% MORTGAGE WM ASSETS UNDER ARB ASSETS UNDER ORIGINATIONS $111 ADMIN/MGMT. $3,858 ADM
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 by deepening relationships with existing clients ORGANIC GROWTH through our expansive services “ONE ALERUS” ▪ Diversified business model focused on bringing value to the client throu
Slide 10: Officers and Directors
OFFICERS AND DIRECTORS KARIN TAYLOR Executive Vice President and Chief Risk Officer AL VILLALON 5 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 18 years w
Slide 11: Second Quarter Highlights
SECOND QUARTER HIGHLIGHTS 10
Slide 12: Q2 2023 Highlights
Q2 2023 HIGHLIGHTS SUCCESS IS NEVER FINAL ▪ Return on average total assets increased from 0.88% in the prior quarter to 0.96% for the current quarter and return on tangible common equity increased to 13.71% compared to 12.58% in the prior quarter EARNINGS ▪ Efficiency ratio improved to 72.79% from 7
Slide 13: Q2 2023 Financial Highlights
Q2 2023 FINANCIAL HIGHLIGHTS INCOME STATEMENT Three months ended Six months ended June 30, March 31, June 30, June 30, June 30, 2023 2023 2022 2023 2022 (dollars and shares in thousands, except per share data) Net Interest Income $ 22,234 $ 23,658 $ 22,776 $ 45,892 $ 44,449 Provision for Credit Loss
Slide 14: Performance Ratios
PERFORMANCE RATIOS Return on Average Assets(2) Return on Average Tangible Tangible Book Value per Share(1) Common Equity(1)/(2) 1.14% 0.96% 15.25% 0.88% 13.71% 12.58% $14.93 $14.50 $14.60 Q2 2022 Q1 2023 Q2 2023 Q2 2022 Q1 2023 Q2 2023 Q2 2022 Q1 2023 Q2 2023 1 – Represents a non-GAAP Financial meas
Slide 15: Key Revenue Items
KEY REVENUE ITEMS DOLLARS IN THOUSANDS Net Interest Income Noninterest Income Retirement & Benefit Services Wealth Management Mortgage Banking $29,226 Other(1) $1,347 $25,778 $25,253 $6,038 $1,533 $2,860 $23,658 $2,905 $22,776 $22,234 $1,717 $5,548 $5,450 $5,194 $16,293 $15,482 $15,890 Q2 2022 Q1 20
Slide 16: Net Interest Income
NET INTEREST INCOME LOAN YIELD AND NET INTEREST MARGIN (NIM)(1) NET INTEREST INCOME (NII) ($ in Thousands) Loan yield NIM 5.10% 5.36% 3.88% 2.98% 2.70% 2.52% Q2 2022 Q1 2023 Q2 2023 NIM: 2.70% 0.00% 0.27% (0.02)% (0.46)% 0.03% 2.52% AVERAGE EFFECTIVE FF RATE AND COST OF FUNDS(1) QUARTERLY HIGHLIGHTS
Slide 17: Diversified Loan Portfolio
DIVERSIFIED LOAN PORTFOLIO TOTAL LOANS HIGHLIGHTS ($ in Millions) ▪ Total loans grew 3.7% from December 31, 2022 ▪ Year to date loan growth was primarily driven by an increase in commercial real estate and residential real estate loans, offset by a decrease in commercial and industrial, real estate
Slide 18: Strong Core Funding Mix
STRONG CORE FUNDING MIX TOTAL DEPOSITS HIGHLIGHTS ($ in Millions) $3,032.0 $2,852.8 ▪ Total deposits decreased $62.6 million from $2,619.5 $793.0 December 31, 2022 driven primarily by public $764.8 $715.5 deposit seasonal outflows ▪ Time deposits increased in the current quarter as $2,239.0 $2,137.3
Slide 19: Deposit Characteristics
DEPOSIT CHARACTERISTICS STRONG LIQUIDITY WELL IN EXCESS OF UNINSURED BALANCES SYNERGISTIC DEPOSIT GROWTH (1) UNINSURED VS INSURED ($ in Millions) 27% YoY growth Uninsured and not collateralized (2) 23.6% $743.4 Uninsured but $691.6 Insured 66.4% collateralized 7.5% $586.8 Uninsured Holding Company d
Slide 20: Investment Portfolio
INVESTMENT PORTFOLIO INVESTMENT PORTFOLIO MIX ($ in Thousands) Agency Non- Corporate Debt MBS 0.3% 5.6% $1,130,538 $1,019,473 $985,870 Municipals 13.3% Q2 2022 Q1 2023 Q2 2023 Yield on Securities: 2.2% 2.4% 2.5% Agency MBS % of Earning Assets: 36.8% 29.0% 27.7% 35.3% AOCI ($ in Thousands) Corporate
Slide 21: Retirement and Benefit Services
RETIREMENT AND BENEFIT SERVICES OVERVIEW – 8,200 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 $34,200 $35,053 495,000 $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 centralized ($ in Millions) mortgage operations in Minneapolis, Minnesota, with 89.1% $1,779.0 $1,836.1 Portfolio Sale sourced from the Twin Cities MSA $146.5 $244.0 ▪ Historically str
Slide 24: Noninterest Expense
NONINTEREST EXPENSE ($ in Thousands) QUARTERLY HIGHLIGHTS $39,984 $37,869 ▪ Noninterest expense for Q2 2023 decreased $1.5 $36,373 $4,181 million or 4.0% from Q1 2023 $4,483 $2,246 $4,166 $1,152 ▪ Decrease primarily driven by $1.4 million reduction $1,530 $4,785 $5,324 QoQ in compensation, employee
Slide 25: Asset Quality and Reserve Levels
ASSET QUALITY AND RESERVE LEVELS OVERVIEW NPA / ASSETS (%) ▪ Solid asset quality based on low levels of nonperforming assets ▪ Substandard loans totaled $40 million and special mention loans totaled $60 thousand as of June 30, 2023 0.33% ▪ Strong reserve levels as criticized loans remain at 0.07% 0.
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% 13.3% 13.7% 13.6% 12.5% 12.8% 12.9% 13.2% 11.1% 11.3% 11.2% 9.8% 9.2% Tier 1 Capital 6% Leverage 4% 2019 2020 2021 2022 Q2 2023 2019 2020 2021 2022 Q2 2
Slide 27: Key Takeaways
KEY TAKEAWAYS ALERUS MAINTAINS COMMITTED TO DELIVERING FUNDAMENTAL IMPROVEMENT ▪ Return on tangible common equity of 13.71% improved over the prior quarter as noninterest income grew 2.0% and noninterest expense declined 4.0% ▪ Noninterest income of 53.7% of total revenues for the quarter highlights
Slide 28: Appendix
APPENDIX 27
Slide 29: Well Diversified Loan Portfolio
WELL DIVERSIFIED LOAN PORTFOLIO BY OUTSTANDING BALANCES Other Consumer 1% RE Construction 3% Multifamily 8% Ag Land 2% 1-4 Residential 1st 27% Owner Occupied CRE 10% 1-4 Residential Construction 1% 1-4 Residential Jr Lien 1% HELOC 5% Other CRE 20% 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 10% Other Electronics and 18% Appliance Gasoline Stations 1% Stores 2% Construction 10% Nonstore Retailers 1% Wholesale Trade 9% Retail Trade 14% Other Retail Trade 1% Motor Vehicle
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 14% Office 16% Commercial Construction 19% Commercial Construction 26% Medical or Nursing Facilities Retail 11% 5% Retail 14% Medical or Nursing Facilities 5% Warehouse 11
Slide 32: Loans Secured by Real Estate
LOANS SECURED BY REAL ESTATE TOTAL COMMITMENT RESIDENTIAL REAL ESTATE 1-4 Family Held for Sale 2% Construction 6% 1-4 Family Revolving 29% 1-4 1st Mortage 60% 1-4 Family Jr Liens 3% Portfolio Avg FICO Avg LTV 1st Mortgage 778 48% Junior 764 76% HELOC 795 73% Data as of 6/30/2023. 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% 400,000 300,000 50% 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 Six months ended June 30, 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 $ 9,15
Slide 36: Allowance for Credit Losses on Loans
ALLOWANCE FOR CREDIT LOSSES ON LOANS ALLOCATION BY LOAN PORTFOLIO SEGMENT (1) June 30, 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 $ 7,813 21.8% $ 9,158 23.9% Real esta
Slide 37: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Quarterly Six months ended except where otherwise noted) Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 June 30, 2023 June 30, 2022 Total Assets $ 3,295,065 $ 3,691,253 $ 3,779,637 $ 3,886,773 $ 3,832,978 $ 3,832,978 $ 3,295,065 Total Loans 1,890,243 2,318,231 2,443,99
Slide 38: Financial Highlights
FINANCIAL HIGHLIGHTS ($ in thousands, Annual 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 1,701,850 1,721,279 1,979,375 1,758,020 2,443,994 9.5% Total Deposits 1,775,096 1,971,316 2,571,9
Slide 39: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Quarterly Six months ended Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 June 30, 2023 June 30, 2022 Tangible common equity to tangible assets Total common stockholders' equity $ 307,158 $ 344,839 $ 356,872 $ 359,118 $ 357,6
Slide 40: Non-GAAP Disclosure Reconciliation
NON-GAAP DISCLOSURE RECONCILIATION ($ in thousands, except where otherwise noted) Annual 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: Othe