Alerus financial corporation reports fourth quarter 2022 net income of $10.9 million
Minneapolis--(business wire)--alerus financial corporation (nasdaq: alrs) reported net income of $10.9 million for the fourth quarter of 2022, or $0.53 per diluted common share, compared to net income of $9.6 million, or $0.47 per diluted common share, for the third quarter of 2022, and net income of $12.7 million, or $0.72 per diluted common share, for the fourth quarter of 2021. ceo comments president and chief executive officer katie lorenson said, “2022 was a year of transitions and milestones for our company. we completed our largest acquisition with metro phoenix bank, which was transformational to our growth in the arizona market. we added new leadership and had continued momentum in talent acquisitions with successful lift outs and additions of commercial bankers, treasury management professionals, and wealth and retirement advisors. we remain focused on client acquisition and deepening of relationships with existing clients through our diversified business model. we continue to right size our infrastructure and manage expenses, despite facing inflationary pressures. during the year, we returned over 33% of our earnings to our shareholders by increasing our dividend 11%. we remain focused on creating long-term value for our clients, and in return, our shareholders. i want to thank our employees for all their continued hard work in developing the strong foundation from which we will continue to grow from in 2023 and beyond.” quarterly highlights return on average total assets of 1.17%, compared to 1.02% for the third quarter of 2022 return on average common equity of 12.37%, compared to 10.25% for the third quarter of 2022 return on average tangible common equity(1) of 16.63%, compared to 13.89% for the third quarter of 2022 net interest margin (tax-equivalent) was 3.09%, compared to 3.21% for the third quarter of 2022 noninterest expense was $37.9 million, a $4.8 million, or 11.3%, decrease compared to $42.8 million for the third quarter of 2022 efficiency ratio(1) of 69.6%, compared to 74.8% for the third quarter of 2022 allowance for loan losses to total loans was 1.27% compared to 1.80% as of december 31, 2021. excluding the acquisition of metro phoenix bank the allowance for loan losses to total loans was 1.43% as of december 31, 2022 noninterest income for the third quarter of 2022 was 48.62% of total revenue, compared to 48.82% for the third quarter of 2022 loan to deposit ratio was 83.8%, compared to 60.2% as of december 31, 2021 common equity tier 1 capital to risk weighted assets was 13.39%, compared to 14.65% as of december 31, 2021 full year 2022 highlights net income of $40.0 million, a decrease of $12.7 million, or 24.1%, compared to $52.7 million in 2021 noninterest expense of $158.8 million, a decrease of $10.1 million, or 6.0%, compared to $168.9 million in 2021 no provision for loan losses expense in 2022, compared to a $3.5 million reversal of provision for loan losses expense in 2021 loans held for investment increased $686.0 million, or 39.0%, since december 31, 2021, including $270.4 million of loans acquired from metro phoenix bank. excluding the acquisition of metro phoenix bank and paycheck protection program, or ppp, loans, loans held for investment increased $448.4 million, or 25.5%, since december 31, 2021 average loans of $2.1 billion, an increase of $200.7 million, or 10.8%, from 2021 average deposits of $2.9 billion, an increase of $158.0 million, or 5.8%, from 2021 diluted earnings per share, or eps, of $2.10, compared to $2.97 in 2021 return on average total assets of 1.14%, compared to 1.66% in 2021 return on average common equity of 11.55%, compared to 15.22% in 2021 return on average tangible common equity(1) of 15.09%, compared to 18.89% in 2021 revenue of $211.0 million, a decrease of $23.5 million, or 10.0%, compared to $234.5 million in 2021 net interest income was $99.7 million, an increase of $12.6 million, or 14.5%, compared to $87.1 million in 2021 noninterest income was $111.2 million, a decrease of $36.2 million, or 24.5%, compared to $147.4 million in 2021 net interest income was $99.7 million, an increase of $12.6 million, or 14.5%, compared to $87.1 million in 2021 noninterest income was $111.2 million, a decrease of $36.2 million, or 24.5%, compared to $147.4 million in 2021 dividends declared per common share were $0.70, a $0.07, or 11.1% increase compared to $0.63 in 2021 (1) represents a non-gaap financial measure. see “non-gaap to gaap reconciliations and calculation of non-gaap financial measures.” selected financial data (unaudited) as of and for the three months ended year ended december 31, september 30, december 31, december 31, december 31, (dollars and shares in thousands, except per share data) 2022 2022 2021 2022 2021 performance ratios return on average total assets 1.17 % 1.02 % 1.50 % 1.14 % 1.66 % return on average common equity 12.37 % 10.25 % 14.12 % 11.55 % 15.22 % return on average tangible common equity (1) 16.63 % 13.89 % 17.36 % 15.09 % 18.89 % noninterest income as a % of revenue 48.62 % 48.82 % 59.67 % 52.72 % 62.86 % net interest margin (tax-equivalent) 3.09 % 3.21 % 2.84 % 3.04 % 2.90 % efficiency ratio (1) 69.62 % 74.76 % 71.06 % 72.86 % 70.02 % net charge-offs/(recoveries) to average loans (0.03) % 0.07 % (0.22) % 0.02 % (0.04) % dividend payout ratio 33.96 % 38.30 % 22.22 % 33.33 % 21.21 % per common share earnings per common share - basic $ 0.54 $ 0.48 $ 0.73 $ 2.12 $ 3.02 earnings per common share - diluted $ 0.53 $ 0.47 $ 0.72 $ 2.10 $ 2.97 dividends declared per common share $ 0.18 $ 0.18 $ 0.16 $ 0.70 $ 0.63 book value per common share $ 17.85 $ 17.25 $ 20.88 tangible book value per common share (1) $ 14.37 $ 13.76 $ 17.87 average common shares outstanding - basic 19,988 19,987 17,210 18,640 17,189 average common shares outstanding - diluted 20,232 20,230 17,480 18,884 17,486 other data retirement and benefit services assets under administration/management $ 32,122,520 $ 30,545,694 $ 36,732,938 wealth management assets under administration/management $ 3,582,648 $ 3,435,786 $ 4,039,931 mortgage originations $ 126,254 $ 229,901 $ 356,821 $ 812,314 $ 1,836,064 (1) represents a non-gaap financial measure. see “non-gaap to gaap reconciliations and calculation of non-gaap financial measures.” results of operations net interest income net interest income for the third quarter of 2022 was $27.0 million, a $1.4 million, or 4.8%, decrease from the third quarter of 2022. net interest income increased $4.2 million, or 18.3%, from $22.8 million for the fourth quarter of 2021. the quarter over quarter decrease in net interest income was primarily driven by an increase of $4.8 million, or 123.5%, in interest expense, partially offset by a $3.5 million, or 11.0%, increase in interest income. the increase in interest expense was primarily due to increases of $3.8 million in interest expense paid on deposits and $1.0 million in interest expense paid on short-term borrowings. the increase in interest expense paid on deposits was primarily due to deposit rate increases in response to a highly competitive deposit environment arising from the federal reserve bank raising short-term rates. short-term borrowings expense increased as short-term rates increased and the average balance of short-term borrowings increased as loan growth outpaced deposit growth in the fourth quarter of 2022. net interest margin (tax-equivalent), a non-gaap financial measure, was 3.09% for the fourth quarter of 2022, a 12 basis point decrease from 3.21% for the third quarter of 2022, and a 25 basis point increase from 2.84% in the fourth quarter of 2021. the linked quarter decrease was primarily driven by a 79 basis point increase in the rate paid on interest-bearing liabilities, partially offset by a 45 basis point increase in interest earning asset yields. the increase in the rate paid on interest-bearing liabilities was the result of a 73 basis point increase on the rate paid on interest-bearing deposits and a 143 basis point increase in the rate paid on fed funds purchased and short-term borrowings. the increase in interest earning asset yields was primarily driven by a 49 basis point increase in loan yields. additionally, we saw a $97.4 million increase in average total loans, primarily due to a $56.6 million increase in the average balance of commercial real estate and real estate construction loans. noninterest income noninterest income for the fourth quarter of 2022 was $25.5 million, a $1.5 million, or 5.5%, decrease from the third quarter of 2022. the quarter over quarter decrease was primarily driven by a $1.6 million decrease in mortgage banking revenue, partially offset by a $292 thousand increase in wealth management revenue. the decrease in mortgage banking revenue was primarily due to a $103.6 million, or 45.1%, decrease in mortgage originations driven by macroeconomic challenges, partially offset by a 41 basis point increase in the gain on sale margin. the increase in wealth management revenue was primarily driven by a $146.9 million increase in assets under management, due to increased market value from improved bond and equity markets. noninterest income for the fourth quarter of 2022 decreased $8.2 million, or 24.3%, from $33.7 million in the fourth quarter of 2021. the decrease in noninterest income was primarily due to decreases of $5.8 million in mortgage banking revenue, $2.0 million in retirement and benefit services revenue and $489 thousand in wealth management revenue. the decrease in mortgage banking revenue was primarily due to a $230.6 million decrease in mortgage originations driven by macroeconomic challenges. the decrease in retirement and benefit services revenue was primarily due to a $4.6 billion decrease in assets under administration/management. wealth management revenue decreased primarily due to a $457.3 million decrease in assets under management. both decreases in assets under administration/management were mainly driven by lower bond and equity markets. noninterest expense noninterest expense for the fourth quarter of 2022 was $37.9 million, a $4.8 million, or 11.3%, decrease compared to the third quarter of 2022. the linked quarter decrease in noninterest expense was primarily due to decreases of $2.0 million in compensation expense, $1.7 million in professional fees and assessments, and $968 thousand in business services, software and technology expense. compensation expense decreased primarily due to lower mortgage incentives associated with the decrease in mortgage originations as well as an accrual adjustment to performance bonus accruals. the decrease in professional fees and assessments was primarily driven by a decline in the one-time expenses associated with the acquisition of metro phoenix bank. business services, software and technology expense decreased primarily due to the timing of contract renewals. noninterest expense for the fourth quarter of 2022 decreased $3.3 million, or 8.1%, from $41.3 million in the fourth quarter of 2021. the year over year decrease in noninterest expense was primarily driven by decreases of $2.9 million in compensation expense, $815 thousand of business services, software and technology expense, and $703 thousand in employee taxes and benefits expense, partially offset by a $1.0 million increase in other noninterest expense. the decrease in compensation expense was primarily due to lower mortgage incentives associated with the decrease in mortgage originations. business services, software and technology expense decreased primarily due to the timing of contract renewals. the decrease in employee taxes and benefits expense was primarily due to a $531 thousand decrease in share-based compensation from an acceleration upon employee retirements. the increase in other noninterest expense included $469 thousand in one-time expenses from our divestiture of payroll services and $247 thousand increase in the provision for unfunded commitments. financial condition total assets were $3.8 billion as of december 31, 2022, an increase of $386.9 million, or 11.4%, from december 31, 2021. the increase in assets included an increase of $686.0 million in loans held for investment, partially offset by decreases of $184.1 million in cash and cash equivalents and $166.5 million in investment securities. loans total loans were $2.4 billion as of december 31, 2022, an increase of $686.0 million, or 39.0%, from december 31, 2021. the increase in total loans was primarily due to increases of $415.6 million in organic loan growth and $270.4 million in loans acquired from metro phoenix bank. excluding loans acquired from metro phoenix bank, the increase in organic loan growth included increases of $154.5 million in commercial real estate, $149.2 million in residential real estate first mortgages and $50.5 million in commercial and industrial loans. excluding ppp loans and loans acquired from metro phoenix bank, commercial and industrial loans increased $83.4 million. the following table presents the composition of our loan portfolio as of the dates indicated: december 31, september 30, june 30, march 31, december 31, (dollars in thousands) 2022 2022 2022 2022 2021 commercial commercial and industrial (1) $ 583,876 $ 564,655 $ 484,426 $ 467,449 $ 436,761 real estate construction 97,810 89,215 48,870 41,604 40,619 commercial real estate 881,670 819,068 599,737 602,158 598,893 total commercial 1,563,356 1,472,938 1,133,033 1,111,211 1,076,273 consumer residential real estate first mortgage 679,551 649,818 568,571 522,489 510,716 residential real estate junior lien 150,479 143,681 135,255 130,604 125,668 other revolving and installment 50,608 51,794 53,384 53,738 45,363 total consumer 880,638 845,293 757,210 706,831 681,747 total loans $ 2,443,994 $ 2,318,231 $ 1,890,243 $ 1,818,042 $ 1,758,020 (1) includes ppp loans of $737 thousand at december 31, 2022, $2.9 million at september 30, 2022, $6.9 million at june 30, 2022, $13.1 million at march 31, 2022 and $33.6 million at december 31, 2021. deposits total deposits were $2.9 billion as of december 31, 2022, a decrease of $5.1 million, or 0.2%, from december 31, 2021. interest-bearing deposits increased $72.8 million, while noninterest-bearing deposits decreased $77.9 million in the fourth quarter of 2022. in the third quarter of 2022, we acquired $353.7 million in deposits from our acquisition of metro phoenix bank. excluding deposits acquired from metro phoenix bank, deposits decreased $358.8 million, or 12.3%, from december 31, 2021. the decrease was primarily due to decreases of $184.7 million in interest-bearing deposits and $174.0 million in noninterest-bearing deposits. interest-bearing deposits decreased primarily due to a $84.9 million decrease in money market savings accounts, and a $69.0 million decrease in time deposits. noninterest-bearing deposits decreased primarily due to a $68.3 million decrease in synergistic deposits. synergistic deposits, which include deposits from our retirement and benefit services and wealth management segments as well as hsa deposits, increased $22.6 million from december 31, 2021, primarily due to increases in our synergistic deposits from our wealth management division. the following table presents the composition of our deposit portfolio as of the dates indicated: december 31, september 30, june 30, march 31, december 31, (dollars in thousands) 2022 2022 2022 2022 2021 noninterest-bearing demand $ 860,987 $ 905,228 $ 764,808 $ 831,558 $ 938,840 interest-bearing interest-bearing demand 706,275 653,216 642,641 760,321 714,669 savings accounts 99,882 101,820 97,227 99,299 96,825 money market savings 1,035,981 1,079,520 914,423 976,905 937,305 time deposits 212,359 222,027 200,451 224,184 232,912 total interest-bearing 2,054,497 2,056,583 1,854,742 2,060,709 1,981,711 total deposits $ 2,915,484 $ 2,961,811 $ 2,619,550 $ 2,892,267 $ 2,920,551 asset quality total nonperforming assets were $3.8 million as of december 31, 2022, an increase of $742 thousand, or 24.1%, from december 31, 2021. as of december 31, 2022, the allowance for loan losses was $31.1 million, or 1.27% of total loans, compared to $31.6 million, or 1.80% of total loans, as of december 31, 2021. excluding metro phoenix bank, the allowance for loan losses to total loans was 1.43% as of december 31, 2022. the following table presents selected asset quality data as of and for the periods indicated: as of and for the three months ended december 31, september 30, june 30, march 31, december 31, (dollars in thousands) 2022 2022 2022 2022 2021 nonaccrual loans $ 3,794 $ 4,303 $ 4,370 $ 4,069 $ 2,076 accruing loans 90+ days past due — 1,000 — 146 121 total nonperforming loans 3,794 5,303 4,370 4,215 2,197 oreo and repossessed assets 30 904 860 865 885 total nonperforming assets $ 3,824 $ 6,207 $ 5,230 $ 5,080 $ 3,082 net charge-offs/(recoveries) (178) 405 340 (141) (1,006) net charge-offs/(recoveries) to average loans (0.03) % 0.07 % 0.07 % (0.03) % (0.22) % nonperforming loans to total loans 0.16 % 0.23 % 0.23 % 0.23 % 0.12 % nonperforming assets to total assets 0.10 % 0.17 % 0.16 % 0.15 % 0.09 % allowance for loan losses to total loans 1.27 % 1.34 % 1.66 % 1.74 % 1.80 % allowance for loan losses to nonperforming loans 821 % 584 % 718 % 752 % 1,437 % for the fourth quarter of 2022, we had net recoveries of $178 thousand compared to net charge-offs of $405 thousand for the third quarter of 2022 and $1.0 million of net recoveries for the fourth quarter of 2021. there was no provision expense recorded for the three months ended december 31, 2022, no change compared to the three months ended september 30, 2022, and a $1.5 million increase as compared to the three months ended december 31, 2021. with the decrease in nonperforming assets, as well as adjustments for pandemic related qualitative factors, management concluded no need for additional provision expense in the period. capital total stockholders’ equity was $356.9 million as of december 31, 2022, a decrease of $2.5 million, or 0.7%, from december 31, 2021. the decrease in stockholders’ equity was primarily due to a $94.4 million decrease in other comprehensive loss, due to rising interest rates, which resulted in a lower fair value of our available-for-sale investment securities portfolio. tangible book value per common share, a non-gaap financial measure, decreased to $14.37 as of december 31, 2022, from $17.87 as of december 31, 2021. tangible common equity to tangible assets, a non-gaap financial measure, decreased to 7.74% as of december 31, 2022, from 9.21% as of december 31, 2021. common equity tier 1 capital to risk weighted assets decreased to 13.39% as of december 31, 2022, from 14.65% as of december 31, 2021. the following table presents our capital ratios as of the dates indicated: december 31, september 30, december 31, 2022 2022 2021 capital ratios(1) alerus financial corporation consolidated common equity tier 1 capital to risk weighted assets 13.39 % 13.63 % 14.65 % tier 1 capital to risk weighted assets 13.69 % 13.94 % 15.06 % total capital to risk weighted assets 16.48 % 16.84 % 18.64 % tier 1 capital to average assets 11.25 % 10.82 % 9.79 % tangible common equity / tangible assets (2) 7.74 % 7.59 % 9.21 % alerus financial, n.a. common equity tier 1 capital to risk weighted assets 12.76 % 13.01 % 13.87 % tier 1 capital to risk weighted assets 12.76 % 13.01 % 13.87 % total capital to risk weighted assets 13.83 % 14.11 % 15.12 % tier 1 capital to average assets 10.48 % 11.12 % 9.01 % (1) capital ratios for the current quarter are to be considered preliminary until the call report for alerus financial, n.a. is filed. (2) represents a non-gaap financial measure. see “non-gaap to gaap reconciliations and calculation of non-gaap financial measures.” conference call the company will host a conference call at 11:00 a.m. central time on thursday, january 26, 2023, to discuss its financial results. the call can be accessed via telephone at (844) 200-6205, using access code 249132. a recording of the call and transcript will be available on the company’s investor relations website at investors.alerus.com following the call. about alerus financial corporation alerus financial corporation is a diversified financial services company with corporate offices in grand forks, north dakota, and the minneapolis-st. paul, minnesota metropolitan area. through its subsidiary, alerus financial, n.a., alerus provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients’ needs. alerus has banking, mortgage, and wealth management offices in grand forks and fargo, north dakota, the minneapolis-st. paul, minnesota metropolitan area, and phoenix, scottsdale, and mesa arizona. alerus retirement and benefits plan administration hubs are located in minnesota, michigan, and colorado. non-gaap financial measures some of the financial measures included in this press release are not measures of financial performance recognized by u.s. generally accepted accounting principles, or gaap. these non-gaap financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. management uses these non-gaap financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. reconciliations of non-gaap disclosures used in this press release to the comparable gaap measures are provided in the accompanying tables. management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. these non-gaap financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with gaap. moreover, the manner in which we calculate these non-gaap financial measures may differ from that of other companies reporting measures with similar names. forward-looking statements this press release 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, calculations, forecasts and projections with respect to the anticipated future performance of alerus financial corporation. these statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals and the future plans and prospects of alerus financial corporation. forward-looking statements are neither historical facts nor assurances of future performance. instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. our actual results and financial condition may differ materially from those indicated in the forward-looking statements. therefore, you should not rely on any of these forward-looking statements. important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: interest rate risks associated with our business, including the effects of recent and anticipated rate increases by the federal reserve; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; new or revised accounting standards, including as a result of the implementation of the new current expected credit loss standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including continued rising rates of inflation; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of metro phoenix bank which we acquired in 2022; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and fintech companies, including digital asset service providers; our ability to successfully manage liquidity risk, including our need to access higher cost sources of funds such as fed funds purchased and short-term borrowings; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; potential impairment to the goodwill we recorded in connection with our past acquisitions, including the acquisition of metro phoenix bank; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; fluctuations in the values of the securities held in our securities portfolio, including as a result of rising interest rates, which has resulted in unrealized losses in our portfolio; governmental monetary, trade and fiscal policies; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather, natural disasters, widespread disease or pandemics, such as the covid-19 global pandemic, the negative effects of the ongoing covid-19 pandemic, including its effects on the economic environment, our clients, and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the pandemic; acts of war or terrorism, including the russian invasion of ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; developments and uncertainty related to the future use and availability of some reference rates, such as the expected discontinuation of the london interbank offered rate, as well as the development and implementation of other alternative reference rates; changes to u.s. or state tax laws, regulations and guidance, including the new 1.0% excise tax on stock buybacks by publicly traded companies; talent and labor shortages and employee turnover; our success at managing the risks involved in the foregoing items; and any other risks described in the “risk factors” sections of the reports filed by alerus financial corporation with the securities and exchange commission. any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. alerus financial corporation and subsidiaries consolidated balance sheets (dollars in thousands, except share and per share data) december 31, december 31, 2022 2021 assets (unaudited) (audited) cash and cash equivalents $ 58,242 $ 242,311 investment securities available-for-sale, at fair value 717,324 853,649 held-to-maturity, at carrying value 321,902 352,061 fed funds sold — — loans held for sale 9,488 46,490 loans 2,443,994 1,758,020 allowance for loan losses (31,146) (31,572) net loans 2,412,848 1,726,448 land, premises and equipment, net 17,288 18,370 operating lease right-of-use assets 5,419 3,727 accrued interest receivable 12,869 8,537 bank-owned life insurance 33,991 33,156 goodwill 47,087 31,490 other intangible assets 22,455 20,250 servicing rights 2,643 1,880 deferred income taxes, net 42,369 11,614 other assets 75,712 42,708 total assets $ 3,779,637 $ 3,392,691 liabilities and stockholders’ equity deposits noninterest-bearing $ 860,987 $ 938,840 interest-bearing 2,054,497 1,981,711 total deposits 2,915,484 2,920,551 short-term borrowings 378,080 — long-term debt 58,843 58,933 operating lease liabilities 5,902 4,275 accrued expenses and other liabilities 64,456 49,529 total liabilities 3,422,765 3,033,288 stockholders’ equity preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding — — common stock, $1 par value, 30,000,000 shares authorized: 19,991,681 and 17,212,588 issued and outstanding 19,992 17,213 additional paid-in capital 155,095 92,878 retained earnings 280,426 253,567 accumulated other comprehensive income (loss) (98,641) (4,255) total stockholders’ equity 356,872 359,403 total liabilities and stockholders’ equity $ 3,779,637 $ 3,392,691 alerus financial corporation and subsidiaries consolidated statements of income (dollars and shares in thousands, except per share data) three months ended year ended december 31, september 30, december 31, december 31, december 31, 2022 2022 2021 2022 2021 interest income (unaudited) (unaudited) (unaudited) (unaudited) (audited) loans, including fees $ 29,248 $ 25,379 $ 19,354 $ 89,907 $ 78,133 investment securities taxable 5,813 5,939 4,454 23,260 13,001 exempt from federal income taxes 210 209 231 848 925 other 541 748 166 1,562 598 total interest income 35,812 32,275 24,205 115,577 92,657 interest expense deposits 5,675 1,852 880 9,169 3,661 short-term borrowings 2,545 1,516 — 4,339 — long-term debt 628 591 536 2,340 1,897 total interest expense 8,848 3,959 1,416 15,848 5,558 net interest income 26,964 28,316 22,789 99,729 87,099 provision for loan losses — — (1,500) — (3,500) net interest income after provision for loan losses 26,964 28,316 24,289 99,729 90,599 noninterest income retirement and benefit services 16,599 16,597 18,552 67,135 71,709 wealth management 5,144 4,852 5,633 20,870 21,052 mortgage banking 2,170 3,782 7,967 16,921 48,502 service charges on deposit accounts 282 377 370 1,434 1,395 net gains (losses) on investment securities — — — — 125 other 1,322 1,402 1,196 4,863 4,604 total noninterest income 25,517 27,010 33,718 111,223 147,387 noninterest expense compensation 19,189 21,168 22,088 80,656 93,386 employee taxes and benefits 4,887 5,079 5,590 21,915 22,033 occupancy and equipment expense 1,892 1,926 1,936 7,605 8,148 business services, software and technology expense 4,405 5,373 5,220 19,487 20,486 intangible amortization expense 1,324 1,324 1,053 4,754 4,380 professional fees and assessments 1,454 3,126 1,808 8,367 6,292 marketing and business development 950 890 872 3,254 3,182 supplies and postage 634 588 778 2,440 2,361 travel 356 291 206 1,182 442 mortgage and lending expenses 606 409 488 2,183 4,250 other 2,251 2,593 1,237 6,927 3,949 total noninterest expense 37,948 42,767 41,276 158,770 168,909 income before income taxes 14,533 12,559 16,731 52,182 69,077 income tax expense 3,624 2,940 4,026 12,177 16,396 net income $ 10,909 $ 9,619 $ 12,705 $ 40,005 $ 52,681 per common share data earnings per common share $ 0.54 $ 0.48 $ 0.73 $ 2.12 $ 3.02 diluted earnings per common share $ 0.53 $ 0.47 $ 0.72 $ 2.10 $ 2.97 dividends declared per common share $ 0.18 $ 0.18 $ 0.16 $ 0.70 $ 0.63 average common shares outstanding 19,988 19,987 17,210 18,640 17,189 diluted average common shares outstanding 20,232 20,230 17,480 18,884 17,486 alerus financial corporation and subsidiaries non-gaap to gaap reconciliations and calculation of non-gaap financial measures (unaudited) (dollars and shares in thousands, except per share data) december 31, september 30, december 31, 2022 2022 2021 tangible common equity to tangible assets total common stockholders’ equity $ 356,872 $ 344,839 $ 359,403 less: goodwill 47,087 46,060 31,490 less: other intangible assets 22,455 23,779 20,250 tangible common equity (a) 287,330 275,000 307,663 total assets 3,779,637 3,691,253 3,392,691 less: goodwill 47,087 46,060 31,490 less: other intangible assets 22,455 23,779 20,250 tangible assets (b) 3,710,095 3,621,414 3,340,951 tangible common equity to tangible assets (a)/(b) 7.74 % 7.59 % 9.21 % tangible book value per common share total common stockholders’ equity $ 356,872 $ 344,839 $ 359,403 less: goodwill 47,087 46,060 31,490 less: other intangible assets 22,455 23,779 20,250 tangible common equity (c) 287,330 275,000 307,663 total common shares issued and outstanding (d) 19,992 19,987 17,213 tangible book value per common share (c)/(d) $ 14.37 $ 13.76 $ 17.87 three months ended year ended december 31, september 30, december 31, december 31, december 31, 2022 2022 2021 2022 2021 return on average tangible common equity net income $ 10,909 $ 9,619 $ 12,705 $ 40,005 $ 52,681 add: intangible amortization expense (net of tax) 1,046 1,046 832 3,756 3,460 net income, excluding intangible amortization (e) 11,955 10,665 13,537 43,761 56,141 average total equity 349,812 372,274 357,084 346,355 346,059 less: average goodwill 46,283 48,141 30,930 39,415 30,385 less: average other intangible assets (net of tax) 18,243 19,466 16,843 17,018 18,548 average tangible common equity (f) 285,286 304,667 309,311 289,922 297,126 return on average tangible common equity (e)/(f) 16.63 % 13.89 % 17.36 % 15.09 % 18.89 % efficiency ratio noninterest expense $ 37,948 $ 42,767 $ 41,276 $ 158,770 $ 168,909 less: intangible amortization expense 1,324 1,324 1,053 4,754 4,380 adjusted noninterest expense (g) 36,624 41,443 40,223 154,016 164,529 net interest income 26,964 28,316 22,789 99,729 87,099 noninterest income 25,517 27,010 33,718 111,223 147,387 tax-equivalent adjustment 124 112 99 429 492 total tax-equivalent revenue (h) 52,605 55,438 56,606 211,381 234,978 efficiency ratio (g)/(h) 69.62 % 74.76 % 71.06 % 72.86 % 70.02 % alerus financial corporation and subsidiaries analysis of average balances, yields, and rates (unaudited) (dollars in thousands) three months ended year ended december 31, 2022 september 30, 2022 december 31, 2021 december 31, 2022 december 31, 2021 average average average average average average yield/ average yield/ average yield/ average yield/ average yield/ balance rate balance rate balance rate balance rate balance rate interest earning assets interest-bearing deposits with banks $ 26,510 2.16 % $ 72,157 2.02 % $ 232,650 0.16 % $ 58,149 1.01 % $ 222,916 0.14 % investment securities (1) 1,046,441 2.30 % 1,116,458 2.20 % 1,119,370 1.68 % 1,135,426 2.14 % 864,273 1.64 % fed funds sold 7,119 3.40 % 21,893 2.37 % — — % 7,313 2.63 % — — % loans held for sale 14,505 4.54 % 27,032 4.14 % 53,357 2.33 % 24,497 3.49 % 65,968 2.26 % loans commercial: commercial and industrial 561,252 5.80 % 566,987 5.41 % 471,262 5.61 % 507,040 5.13 % 579,002 4.91 % real estate construction 96,189 6.02 % 70,545 5.60 % 41,573 3.89 % 63,296 5.21 % 41,751 4.10 % commercial real estate 838,466 4.85 % 807,505 4.07 % 587,542 3.90 % 713,102 4.16 % 571,326 3.77 % total commercial 1,495,907 5.28 % 1,445,037 4.67 % 1,100,377 4.63 % 1,283,438 4.59 % 1,192,079 4.34 % consumer residential real estate first mortgage 665,135 3.64 % 624,826 3.54 % 504,997 3.30 % 587,443 3.50 % 477,621 3.47 % residential real estate junior lien 146,912 6.46 % 140,664 5.41 % 129,238 4.52 % 136,483 5.29 % 131,412 4.64 % other revolving and installment 51,836 5.62 % 51,834 4.98 % 48,045 4.53 % 52,071 4.85 % 57,574 4.41 % total consumer 863,883 4.24 % 817,324 3.96 % 682,280 3.62 % 775,997 3.91 % 666,607 3.78 % total loans (1) 2,359,790 4.90 % 2,262,361 4.41 % 1,782,657 4.25 % 2,059,435 4.33 % 1,858,686 4.14 % federal reserve/fhlb stock 19,603 6.80 % 18,449 5.35 % 6,496 4.34 % 13,824 5.67 % 6,329 4.36 % total interest earning assets 3,473,968 4.10 % 3,518,350 3.65 % 3,194,530 3.02 % 3,298,644 3.52 % 3,018,172 3.09 % noninterest earning assets 232,754 224,804 159,370 202,011 160,648 total assets $ 3,706,722 $ 3,743,154 $ 3,353,900 $ 3,500,655 $ 3,178,820 interest-bearing liabilities interest-bearing demand deposits $ 692,217 0.50 % $ 659,696 0.13 % $ 754,432 0.13 % $ 692,287 0.22 % $ 697,276 0.14 % money market and savings deposits 1,185,502 1.39 % 1,180,576 0.40 % 1,039,492 0.14 % 1,113,426 0.55 % 1,023,677 0.15 % time deposits 214,264 1.20 % 234,459 0.74 % 225,497 0.46 % 221,997 0.70 % 215,624 0.54 % fed funds purchased 86,350 3.78 % 84,149 2.31 % — — % 63,296 2.46 % 3 — % short-term borrowings 178,533 3.82 % 168,750 2.41 % — — % 89,932 3.10 % — — % long-term debt 58,830 4.24 % 58,843 3.98 % 58,938 3.61 % 58,864 3.98 % 50,759 3.74 % total interest-bearing liabilities 2,415,696 1.45 % 2,386,473 0.66 % 2,078,359 0.27 % 2,239,802 0.71 % 1,987,339 0.28 % noninterest-bearing liabilities and stockholders' equity noninterest-bearing deposits 870,948 920,340 851,210 851,821 784,998 other noninterest-bearing liabilities 70,266 64,067 67,247 62,677 60,424 stockholders’ equity 349,812 372,274 357,084 346,355 346,059 total liabilities and stockholders’ equity $ 3,706,722 $ 3,743,154 $ 3,353,900 $ 3,500,655 $ 3,178,820 net interest income (1) net interest rate spread 2.65 % 2.99 % 2.75 % 2.81 % 2.81 % net interest margin, tax-equivalent (1) 3.09 % 3.21 % 2.84 % 3.04 % 2.90 % (1) taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.
