Alerus financial corporation reports first quarter 2023 net income of $8.2 million
Minneapolis--(business wire)--alerus financial corporation (nasdaq: alrs), or the company, reported net income of $8.2 million for the first quarter of 2023, or $0.40 per diluted common share, compared to net income of $10.9 million, or $0.53 per diluted common share, for the fourth quarter of 2022, and net income of $10.2 million, or $0.57 per diluted common share, for the first quarter of 2022. ceo comments president and chief executive officer katie lorenson said, “alerus’ highly diversified business model is a unique differentiator in this challenging economic environment with fee income making up over 50.0% of total revenues, our banking franchise is anchored by a strong foundation of capital, risk management, and diversification. our common equity tier 1 capital ratio at the end of the first quarter was 13.3% and our nearly all-core granular deposit based increased balances by 4.0% during the quarter. our liquidity position is strong, with total available liquidity to uninsured and not collateralized deposits of 286%. the company’s loan portfolio remains well diversified by sector and geography, with limited exposure to commercial office borrowers at 3.9% of total loans. the allowance for credit losses to was 1.4% to total loans and 1,675% of non-performing loans. credit quality remains pristine with net charge-offs of 3 basis points, below the company’s historical net charge-off rates of 0.27%. financial results for the first quarter were impacted by continuing margin pressure and headwinds in the mortgage sector. we are focused on improving long-term profitability and shareholder returns through ongoing restructuring and efficiency enhancing opportunities. we continue to have success in the transformation of our organic growth model and synergistic expansion as we added core holistic relationships in banking and wealth management. our momentum in talent acquisition continued in the first quarter with key talent adds to the banking and treasury management teams. thank you to our alerus employees for your dedication and constant focus on building relationships with clients by bringing value to every interaction and together taking alerus to new heights.” quarterly highlights total deposits were $3.0 billion as of march 31, 2023, an increase of $116.5 million, or 4.0%, from december 31, 2022 loan to deposit ratio as of march 31, 2023 was 82.0%, compared to 83.8% as of december 31, 2022 common equity tier 1 capital to risk weighted assets as of march 31, 2023 was 13.30%, compared to 13.39% as of december 31, 2022 return on average total assets of 0.88%, compared to 1.17% for the fourth quarter of 2022 return on average common equity of 9.17%, compared to 12.37% for the fourth quarter of 2022 return on average tangible common equity(1) of 12.58%, compared to 16.63% for the fourth quarter of 2022 net interest margin (tax-equivalent) was 2.70%, compared to 3.09% for the fourth quarter of 2022 noninterest expense was $37.9 million, no change compared to $37.9 million for the fourth quarter of 2022 noninterest income was 51.63% of total revenue, compared to 48.62 for the fourth quarter of 2022 allowance for credit losses to total loans was 1.41% compared to 1.27% as of december 31, 2022 expanded the company’s commercial banking team with the addition of four highly experienced mid-market and treasury management professionals the board of directors previously declared a regular quarterly cash dividend of $0.18 per share, which was paid on april 14, 2023 to shareholders of record as of march 15, 2023. as previously reported, this dividend represents a 12.5% increase over the dividend declared during the first quarter 2022. (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 march 31, december 31, march 31, (dollars and shares in thousands, except per share data) 2023 2022 2022 performance ratios return on average total assets 0.88 % 1.17 % 1.26 % return on average common equity 9.17 % 12.37 % 11.78 % return on average tangible common equity (1) 12.58 % 16.63 % 14.72 % noninterest income as a % of revenue 51.63 % 48.62 % 57.62 % net interest margin (tax-equivalent) 2.70 % 3.09 % 2.83 % efficiency ratio (1) 74.53 % 69.62 % 72.25 % net charge-offs/(recoveries) to average loans 0.03 % (0.03 ) % (0.03 ) % dividend payout ratio 45.00 % 33.96 % 28.07 % per common share earnings per common share - basic $ 0.41 $ 0.54 $ 0.58 earnings per common share - diluted $ 0.40 $ 0.53 $ 0.57 dividends declared per common share $ 0.18 $ 0.18 $ 0.16 book value per common share $ 17.90 $ 17.85 $ 19.00 tangible book value per common share (1) $ 14.50 $ 14.37 $ 16.07 average common shares outstanding - basic 20,028 19,988 17,244 average common shares outstanding - diluted 20,246 20,232 17,500 other data retirement and benefit services assets under administration/management $ 33,404,342 $ 32,122,520 $ 35,333,131 wealth management assets under administration/management $ 3,675,684 $ 3,582,648 $ 4,584,856 mortgage originations $ 77,728 $ 126,254 $ 186,762 (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 first quarter of 2023 was $23.7 million, a $3.3 million, or 12.3%, decrease from the fourth quarter of 2022. net interest income increased $2.0 million, or 9.2%, from $21.7 million for the first quarter of 2022. the linked quarter decrease in net interest income was primarily driven by a $5.3 million, or 59.9%, increase in interest expense, partially offset by a $2.0 million, or 5.6%, increase in interest income. the increase in interest expense was primarily driven by a $3.4 million increase in interest expense paid on deposits and $1.8 million in interest expense paid on short-term borrowings. the increase in interest expense paid on deposits was primarily due to the rapid increase in short-term rates and heightened deposit competition. short-term borrowings expense increased as interest rates have increased and the average balance of fed funds purchased and short-term borrowings increased $105.3 million as compared to the fourth quarter of 2022. this increase was primarily driven by a $97.4 million increase in average loan balances, and a $29.9 million decline in average deposit balances, partially offset by a $12.2 million decline in average investment securities balance. net interest margin (tax-equivalent), was 2.70% for the first quarter of 2023, a 39 basis point decrease from 3.09% for the fourth quarter of 2022, and a 13 basis point decrease from 2.83% in the first quarter of 2022. the linked quarter decrease was primarily driven by a 78 basis point increase in the average rate paid on interest-bearing liabilities, partially offset by a 21 basis point increase in interest earning asset yields. the increase in the average rate paid on interest-bearing liabilities was the result of a 100 basis point increase in the average rate paid on fed funds purchased and short-term borrowings as well as a 65 basis point increase in the rate paid on interest-bearing deposits. noninterest income noninterest income for the first quarter of 2023 was $25.3 million, a $264 thousand, or 1.0%, decrease from the fourth quarter of 2022. the quarter over quarter decrease was primarily driven by decreases of $1.1 million in retirement and benefit services revenue and $453 thousand in mortgage banking revenue, partially offset by a $1.2 million increase in other noninterest income. the decrease in retirement and benefit services revenue was primarily the result of seasonal decreases in administration fees, esop transaction fees and loan and distribution fees. mortgage banking revenue decreased primarily due to a $48.5 million, or 38.4%, decrease in mortgage originations due to the rising interest rate environment and seasonality. other noninterest income increased primarily due to a $1.2 million increase in proceeds received on a bank-owned life insurance claim. noninterest income for the first quarter of 2023 decreased $4.2 million, or 14.3%, from $29.5 million in the first quarter of 2022. the decrease in noninterest income was primarily due to a $3.2 million decrease in mortgage banking revenue and a $2.2 million decrease in retirement and benefit services revenue, partially offset by a $1.4 million increase in other noninterest income. mortgage banking revenue decreased primarily due to a $109.0 million, or 58.4% decrease in mortgage originations, driven by the rising interest rate environment and a reduction in mortgage personnel. retirement and benefit services revenue decreased primarily due to a decrease in asset based fees as assets under administration/management decreased $1.9 billion, or 5.5%. additionally, retirement and benefit services revenue experienced decreases of $528 thousand in payroll service fees resulting from the exit of payroll services and $310 thousand in plan document restatement fees. other noninterest income increased for reasons previously stated. noninterest expense noninterest expense for both the first quarter of 2023 and the fourth quarter of 2022 was $37.9 million. the minor linked quarter changes in noninterest expense included a $983 thousand decrease in other noninterest expense and a $302 thousand decrease in professional fees and assessments, partially offset by an increase of $966 thousand in employee taxes and benefits, $919 thousand increase in business services, software and technology. compensation expense remained flat quarter over quarter, despite the first quarter including one-time expenses of $484 thousand in severance costs and $415 thousand related to talent acquisition. the decrease in other noninterest expense was primarily driven by a reduction of the provision for unfunded commitments which is now being reported within the provision for credit losses, as the company adopted the new current expected credit loss, or cecl, accounting standard on january 1, 2023. professional fees and assessments declined, primarily due to a decrease in the legal fees and mergers and acquisition expenses associated with the acquisition of metro phoenix bank, which was completed in the third quarter of 2022. employee taxes and benefits increased primarily due to seasonality. business services, software and technology expense increased primarily due to the recognition of the benefits of renegotiated contracts at lower rates in the fourth quarter. noninterest expense for the first quarter of 2023 decreased $202 thousand, or 0.5%, from $38.1 million in the first quarter of 2022. the year over year decrease in noninterest expense was primarily driven by a $389 thousand decrease in professional fees and assessments, partially offset by a $400 thousand increase in business services, software and technology expense. professional fees and assessments decreased primarily due to a $284 thousand decrease in recruitment expenses. business services, software and technology expense increased primarily due to increased technology expenses associated with the acquisition and integration of metro phoenix bank. financial condition total assets were $3.9 billion as of march 31, 2023, an increase of $107.1 million, or 2.8%, from december 31, 2022. the increase in assets included increases of $86.9 million in cash and cash equivalents, $42.6 million in loans held for investment, partially offset by a $19.8 million decrease in investment securities from december 31, 2022. loans total loans were $2.5 billion as of march 31, 2023, an increase of $42.6 million, or 1.7%, from december 31, 2022. the increase in total loans was primarily due to increases of $52.7 million in commercial real estate loans, $11.0 million in real estate construction loans and $20.3 million in residential real estate loans, partially offset by a $30.3 million decrease in commercial and industrial loans. the following table presents the composition of our loan portfolio as of the dates indicated: march 31, december 31, september 30, june 30, march 31, (dollars in thousands) 2023 2022 2022 2022 2022 commercial commercial and industrial $ 553,578 $ 583,876 $ 564,655 $ 484,426 $ 467,449 real estate construction 108,776 97,810 89,215 48,870 41,604 commercial real estate 934,324 881,670 819,068 599,737 602,158 total commercial 1,596,678 1,563,356 1,472,938 1,133,033 1,111,211 consumer residential real estate first mortgage 698,002 679,551 649,818 568,571 522,489 residential real estate junior lien 152,281 150,479 143,681 135,255 130,604 other revolving and installment 39,664 50,608 51,794 53,384 53,738 total consumer 889,947 880,638 845,293 757,210 706,831 total loans $ 2,486,625 $ 2,443,994 $ 2,318,231 $ 1,890,243 $ 1,818,042 deposits total deposits were $3.0 billion as of march 31, 2023, an increase of $116.5 million, or 4.0%, from december 31, 2022. interest-bearing deposits increased $184.5 million, while noninterest-bearing deposits decreased $68.0 million in the first quarter of 2023. the increase in interest-bearing deposits included increases of $111.4 million in interest-bearing demand deposits, $40.2 million in money market savings accounts and $33.1 million in time deposits. interest-bearing deposits increased primarily due to an increase in our synergistic, commercial and public funds deposits. synergistic deposits, which include deposits from our retirement and benefit services and wealth management segments including hsa deposits, increased $66.4 million. excluding synergistic deposits, commercial transaction deposits including public funds increased $65.0 million, while consumer transaction deposits decreased $48.8 million in the first quarter of 2023. noninterest bearing deposits as a percentage of total deposits was 26.2% as of march 31, 2023, compared to 29.5% as of december 31, 2022. the following table presents the composition of our deposit portfolio as of the dates indicated: march 31, december 31, september 30, june 30, march 31, (dollars in thousands) 2023 2022 2022 2022 2022 noninterest-bearing demand $ 792,977 $ 860,987 $ 905,228 $ 764,808 $ 831,558 interest-bearing interest-bearing demand 817,675 706,275 653,216 642,641 760,321 savings accounts 99,742 99,882 101,820 97,227 99,299 money market savings 1,076,166 1,035,981 1,079,520 914,423 976,905 time deposits 245,418 212,359 222,027 200,451 224,184 total interest-bearing 2,239,001 2,054,497 2,056,583 1,854,742 2,060,709 total deposits $ 3,031,978 $ 2,915,484 $ 2,961,811 $ 2,619,550 $ 2,892,267 asset quality effective january 1, 2023, the company adopted the new cecl accounting standard. the adoption of cecl resulted in the company’s allowance for credit losses increasing by approximately $5.9 million relative to the allowance held as of december 31, 2022. the adoption of cecl resulted in additional allowance of $3.9 million in the allowance for credit losses on loans and $1.9 million in additional allowance for credit losses on unfunded commitments. total nonperforming assets were $2.1 million as of march 31, 2023, a decrease of $1.7 million, or 44.6%, from december 31, 2022. as of march 31, 2023, the allowance for credit losses on loans was $35.1 million, or 1.41% of total loans, compared to $31.1 million, or 1.27% of total loans, as of december 31, 2022. in addition, the fair value mark on the acquired metro phoenix bank loan portfolio was $6.9 million and $7.1 million, as of march 31, 2023 and december 31, 2022, respectively. the following table presents selected asset quality data as of and for the periods indicated: as of and for the three months ended march 31, december 31, september 30, june 30, march 31, (dollars in thousands) 2023 2022 2022 2022 2022 nonaccrual loans $ 2,118 $ 3,794 $ 4,303 $ 4,370 $ 4,069 accruing loans 90+ days past due — — 1,000 — 146 total nonperforming loans 2,118 3,794 5,303 4,370 4,215 oreo and repossessed assets — 30 904 860 865 total nonperforming assets $ 2,118 $ 3,824 $ 6,207 $ 5,230 $ 5,080 net charge-offs/(recoveries) 170 (178 ) 405 340 (141 ) net charge-offs/(recoveries) to average loans 0.03 % (0.03 ) % 0.07 % 0.07 % (0.03 ) % nonperforming loans to total loans 0.09 % 0.16 % 0.23 % 0.23 % 0.23 % nonperforming assets to total assets 0.05 % 0.10 % 0.17 % 0.16 % 0.15 % allowance for credit losses on loans to total loans 1.41 % 1.27 % 1.34 % 1.66 % 1.74 % allowance for credit losses on loans to nonperforming loans 1,657 % 821 % 584 % 718 % 752 % for the first quarter of 2023, the company had net charge-offs of $170 thousand compared to net recoveries of $178 thousand for the fourth quarter of 2022 and $141 thousand of net recoveries for the first quarter of 2022. the company recorded a provision for credit losses expense of $550 thousand in the three months ended march 31, 2023, a $550 thousand increase compared to both the three months ended december 31, 2022, and march 31, 2022. the provision for credit losses expense for the three months ended march 31, 2023, included $269 thousand in provision for credit losses on loans and $230 thousand in provision for credit losses on unfunded commitments. the increase in provision for credit losses was primarily a result of a change in forecasting assumptions in the new methodology with the adoption of cecl. capital total stockholders’ equity was $359.1 million as of march 31, 2023, an increase of $2.2 million, or 0.6%, from december 31, 2022. while stockholders’ equity remained relatively flat, the company saw decreases of $4.5 million in retained earnings as a result of the adoption of cecl, partially offset by a $2.3 million decrease in the amount of other comprehensive loss. tangible book value per common share, a non-gaap financial measure, increased to $14.50 as of march 31, 2023, from $14.37 as of december 31, 2022. tangible common equity to tangible assets, a non-gaap financial measure, decreased to 7.62% as of march 31, 2023, from 7.74% as of december 31, 2022. common equity tier 1 capital to risk weighted assets decreased to 13.30% as of march 31, 2023, from 13.39% as of december 31, 2022. the following table presents our capital ratios as of the dates indicated: march 31, december 31, march 31, 2023 2022 2022 capital ratios(1) alerus financial corporation consolidated common equity tier 1 capital to risk weighted assets 13.30 % 13.39 % 14.27 % tier 1 capital to risk weighted assets 13.60 % 13.69 % 14.66 % total capital to risk weighted assets 16.51 % 16.48 % 18.12 % tier 1 capital to average assets 11.00 % 11.25 % 10.30 % tangible common equity / tangible assets (2) 7.62 % 7.74 % 8.46 % alerus financial, n.a. common equity tier 1 capital to risk weighted assets 12.67 % 12.76 % 13.52 % tier 1 capital to risk weighted assets 12.67 % 12.76 % 13.52 % total capital to risk weighted assets 13.87 % 13.83 % 14.77 % tier 1 capital to average assets 10.24 % 10.48 % 9.50 % (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, april 27, 2023, to discuss its financial results. the call can be accessed via telephone at (844) 200-6205, using access code 057461. 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., the company 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. the company 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. the company 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 the company calculates 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 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 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 credit 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 effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short-period of time at silicon valley bank and signature bank that resulted in the failure of those institutions; 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 concentration of large deposits from certain clients, who have balances above current fdic insurance limits and may withdraw deposits to diversify their exposure; 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, including in response to the recent failures of silicon valley bank and signature bank; 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; 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) march 31, december 31, 2023 2022 assets (unaudited) (audited) cash and cash equivalents $ 145,181 $ 58,242 investment securities available-for-sale, at fair value 705,825 717,324 held-to-maturity, at carrying value (allowance for credit losses of $223 at march 31, 2023) 313,648 321,902 loans held for sale 16,900 9,488 loans 2,486,625 2,443,994 allowance for credit losses on loans (35,102 ) (31,146 ) net loans 2,451,523 2,412,848 land, premises and equipment, net 17,631 17,288 operating lease right-of-use assets 5,122 5,419 accrued interest receivable 12,983 12,869 bank-owned life insurance 32,583 33,991 goodwill 47,087 47,087 other intangible assets 21,131 22,455 servicing rights 2,421 2,643 deferred income taxes, net 41,620 42,369 other assets 73,118 75,712 total assets $ 3,886,773 $ 3,779,637 liabilities and stockholders’ equity deposits noninterest-bearing $ 792,977 $ 860,987 interest-bearing 2,239,001 2,054,497 total deposits 3,031,978 2,915,484 short-term borrowings 372,145 378,080 long-term debt 58,872 58,843 operating lease liabilities 5,545 5,902 accrued expenses and other liabilities 59,115 64,456 total liabilities 3,527,655 3,422,765 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: 20,066,807 and 19,991,681 issued and outstanding 20,067 19,992 additional paid-in capital 154,818 155,095 retained earnings 280,540 280,426 accumulated other comprehensive income (loss) (96,307 ) (98,641 ) total stockholders’ equity 359,118 356,872 total liabilities and stockholders’ equity $ 3,886,773 $ 3,779,637 alerus financial corporation and subsidiaries consolidated statements of income (dollars and shares in thousands, except per share data) three months ended march 31, december 31, march 31, 2023 2022 2022 interest income (unaudited) (unaudited) (unaudited) loans, including fees $ 30,933 $ 29,248 $ 17,292 investment securities taxable 5,951 5,813 5,440 exempt from federal income taxes 190 210 216 other 735 541 116 total interest income 37,809 35,812 23,064 interest expense deposits 9,104 5,675 829 short-term borrowings 4,393 2,545 — long-term debt 654 628 562 total interest expense 14,151 8,848 1,391 net interest income 23,658 26,964 21,673 provision for credit losses 550 — — net interest income after provision for credit losses 23,108 26,964 21,673 noninterest income retirement and benefit services 15,482 16,599 17,646 wealth management 5,194 5,144 5,326 mortgage banking 1,717 2,170 4,931 service charges on deposit accounts 301 282 363 other 2,559 1,322 1,204 total noninterest income 25,253 25,517 29,470 noninterest expense compensation 19,158 19,189 19,051 employee taxes and benefits 5,853 4,887 6,162 occupancy and equipment expense 1,899 1,892 2,051 business services, software and technology expense 5,324 4,405 4,924 intangible amortization expense 1,324 1,324 1,053 professional fees and assessments 1,152 1,454 1,541 marketing and business development 686 950 600 supplies and postage 460 634 646 travel 248 356 179 mortgage and lending expenses 497 606 686 other 1,268 2,251 1,178 total noninterest expense 37,869 37,948 38,071 income before income taxes 10,492 14,533 13,072 income tax expense 2,306 3,624 2,888 net income $ 8,186 $ 10,909 $ 10,184 per common share data earnings per common share $ 0.41 $ 0.54 $ 0.58 diluted earnings per common share $ 0.40 $ 0.53 $ 0.57 dividends declared per common share $ 0.18 $ 0.18 $ 0.16 average common shares outstanding 20,028 19,988 17,244 diluted average common shares outstanding 20,246 20,232 17,500 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) march 31, december 31, march 31, 2023 2022 2022 tangible common equity to tangible assets total common stockholders’ equity $ 359,118 $ 356,872 $ 328,505 less: goodwill 47,087 47,087 31,490 less: other intangible assets 21,131 22,455 19,197 tangible common equity (a) 290,900 287,330 277,818 total assets 3,886,773 3,779,637 3,336,199 less: goodwill 47,087 47,087 31,490 less: other intangible assets 21,131 22,455 19,197 tangible assets (b) 3,818,555 3,710,095 3,285,512 tangible common equity to tangible assets (a)/(b) 7.62 % 7.74 % 8.46 % tangible book value per common share total common stockholders’ equity $ 359,118 $ 356,872 $ 328,505 less: goodwill 47,087 47,087 31,490 less: other intangible assets 21,131 22,455 19,197 tangible common equity (c) 290,900 287,330 277,818 total common shares issued and outstanding (d) 20,067 19,992 17,289 tangible book value per common share (c)/(d) $ 14.50 $ 14.37 $ 16.07 three months ended march 31, december 31, march 31, 2023 2022 2022 return on average tangible common equity net income $ 8,186 $ 10,909 $ 10,184 add: intangible amortization expense (net of tax) 1,046 1,046 832 net income, excluding intangible amortization (e) 9,232 11,955 11,016 average total equity 361,857 349,812 350,545 less: average goodwill 47,087 46,283 31,490 less: average other intangible assets (net of tax) 17,209 18,243 15,569 average tangible common equity (f) 297,561 285,286 303,486 return on average tangible common equity (e)/(f) 12.58 % 16.63 % 14.72 % efficiency ratio noninterest expense $ 37,869 $ 37,948 $ 38,071 less: intangible amortization expense 1,324 1,324 1,053 adjusted noninterest expense (g) 36,545 36,624 37,018 net interest income 23,658 26,964 21,673 noninterest income 25,253 25,517 29,470 tax-equivalent adjustment 124 124 94 total tax-equivalent revenue (h) 49,035 52,605 51,237 efficiency ratio (g)/(h) 74.53 % 69.62 % 72.25 % alerus financial corporation and subsidiaries analysis of average balances, yields, and rates (unaudited) (dollars in thousands) three months ended march 31, 2023 december 31, 2022 march 31, 2022 average average average average yield/ average yield/ average yield/ balance rate balance rate balance rate interest earning assets interest-bearing deposits with banks $ 41,947 3.23 % $ 26,510 2.16 % $ 105,726 0.18 % investment securities (1) 1,034,288 2.43 % 1,046,441 2.30 % 1,216,256 1.90 % fed funds sold — — % 7,119 3.40 % — — % loans held for sale 10,345 4.98 % 14,505 4.54 % 24,656 2.57 % loans commercial: commercial and industrial 559,416 6.09 % 561,252 5.80 % 434,656 4.68 % real estate construction 103,099 6.56 % 96,189 6.02 % 41,139 3.89 % commercial real estate 911,634 4.95 % 838,466 4.85 % 601,024 3.64 % total commercial 1,574,149 5.46 % 1,495,907 5.28 % 1,076,819 4.07 % consumer residential real estate first mortgage 688,754 3.76 % 665,135 3.64 % 514,724 3.49 % residential real estate junior lien 149,720 7.21 % 146,912 6.46 % 125,997 4.45 % other revolving and installment 44,531 5.86 % 51,836 5.62 % 50,686 4.38 % total consumer 883,005 4.45 % 863,883 4.24 % 691,407 3.73 % total loans (1) 2,457,154 5.10 % 2,359,790 4.90 % 1,768,226 3.94 % federal reserve/fhlb stock 23,668 6.87 % 19,603 6.80 % 6,486 4.38 % total interest earning assets 3,567,402 4.31 % 3,473,968 4.10 % 3,121,350 3.01 % noninterest earning assets 224,134 232,754 165,459 total assets $ 3,791,536 $ 3,706,722 $ 3,286,809 interest-bearing liabilities interest-bearing demand deposits $ 746,660 0.87 % $ 692,217 0.50 % $ 714,472 0.12 % money market and savings deposits 1,165,269 2.17 % 1,185,502 1.39 % 1,043,430 0.14 % time deposits 231,959 2.23 % 214,264 1.20 % 227,485 0.44 % fed funds purchased 290,187 4.85 % 86,350 3.78 % — — % short-term borrowings 80,000 4.69 % 178,533 3.82 % — — % long-term debt 58,858 4.51 % 58,830 4.24 % 58,908 3.87 % total interest-bearing liabilities 2,572,933 2.23 % 2,415,696 1.45 % 2,044,295 0.28 % noninterest-bearing liabilities and stockholders' equity noninterest-bearing deposits 789,134 870,948 831,441 other noninterest-bearing liabilities 67,612 70,266 60,528 stockholders’ equity 361,857 349,812 350,545 total liabilities and stockholders’ equity $ 3,791,536 $ 3,706,722 $ 3,286,809 net interest income (1) net interest rate spread 2.08 % 2.65 % 2.73 % net interest margin, tax-equivalent (1) 2.70 % 3.09 % 2.83 % (1) taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.
