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Section 1: 8-K (8-K)

alrs_Current_Folio_8K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):  January 28, 2020

Alerus Financial Corporation

 (Exact Name of Registrant as Specified in Charter)

 

 

 

 

Delaware

001-39036

45-0375407

(State or Other Jurisdiction of Incorporation)

(Commission File Number)

(IRS Employer Identification No.)

 

401 Demers Avenue

Grand Forks, North Dakota 58201

 (Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (701) 795-3200

N/A

 (Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

    

Trading symbol

    

Name of each exchange on which registered

Common Stock, $1.00 par value per share

 

ALRS

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 

Item 2.02.     Results of Operations and Financial Condition.

On January  28, 2020, Alerus Financial Corporation (the “Company”) issued a press release announcing its financial results for the three and twelve months ended December 31, 2019. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

The information furnished pursuant to Item 2.02 of this Form 8-K, and the related exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Item 9.01.     Financial Statements and Exhibits.

(d)  Exhibits

 

 

 

Exhibit No.

    

Description

99.1

 

Press Release of Alerus Financial Corporation, dated January  28, 2020

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

Date:  January  28, 2020

Alerus Financial Corporation

 

 

 

 

 

 

 

 

 

 

By:

/s/ Randy L. Newman

 

Name:

Randy L. Newman

 

Title:

Chairman, Chief Executive Officer and President

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

alrs_Ex99_1

Exhibit 99.1

 

 

 

 

 

 

Picture 2

 

FOR RELEASE (01.28.2020)

Katie A. Lorenson, Chief Financial Officer

952.417.3725 (Office)

 

ALERUS FINANCIAL CORPORATION REPORTS

FOURTH QUARTER 2019 NET INCOME OF $7.7 MILLION

 

GRAND FORKS, N.D. (January 28, 2020) – Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $7.7 million for the fourth quarter of 2019, or $0.43 per diluted common share, compared to $7.1  million of net income, or $0.48 per diluted common share, for the third quarter of 2019.

 

CEO Comments

 

Chairman, President, and Chief Executive Officer Randy Newman said, “2019 was one of the most significant and successful years in our company’s history. Most notably, 2019 will be remembered for the achievement of several long-term strategic initiatives, including: raising $62.8 million in capital through our initial public offering and becoming Nasdaq listed; launching “MY ALERUS”, a holistic digital experience designed to help improve clients’ financial lives; and the reorganization of our client facing staff around a holistic, advisor-focused business model. Our team has proven it not only has the ability to adapt and perform in an ever-changing environment, as evidenced by our record net income of $29.5 million in 2019, a 14.2% increase over 2018. Strong year-end financial performance, coupled with improving credit quality and increased capital ratios, gives us tremendous momentum moving forward. We continue to plan for long-term results and are pleased with our accomplishments over the past year. As proud as we are of our financial results, we are even more proud of the non-financial results. We believe we have a very strong foundation to continue progress with our One Alerus growth strategy in serving clients holistically and working in their best interest.”

 

Quarterly Highlights

 

§

Return on average assets of 1.33%

§

Return on tangible common equity(1) of 13.78%

§

Noninterest income as a percentage of total revenue was 61.56%

§

Retirement and benefit services noninterest income increased $2.4 million, or 15.4%, compared to the third quarter of 2019

§

Mortgage banking noninterest income decreased $2.1 million, or 25.4%, compared to the third quarter of 2019

§

Mortgage originations totaled $261.3 million, a 16.7% decrease from the third quarter of 2019

§

Net interest margin (tax-equivalent)(1) was 3.45%, compared to 3.69% for the third quarter of 2019

§

Available-for-sale investment securities increased $31.6 million, or 11.3%, from the third quarter of 2019

§

Loans held for sale decreased $19.2 million, or 29.0%, from the third quarter of 2019

§

Loans held for investment increased $35.2 million, or 2.1%, from the third quarter of 2019

§

Deposits increased $138.2 million, or 7.5%, from the third quarter of 2019

 

(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)

    

2019

    

2019

    

2018

    

2019

    

2018

    

Performance Ratios

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Return on average total assets

 

 

1.33

%  

 

1.29

%  

 

1.10

%  

 

1.34

%  

 

1.21

%  

Return on average common equity

 

 

10.65

%  

 

12.42

%  

 

12.27

%  

 

12.78

%  

 

13.81

%  

Return on average tangible common equity (1)

 

 

13.78

%  

 

17.01

%  

 

18.20

%  

 

17.46

%  

 

21.02

%  

Noninterest income as a % of revenue

 

 

61.56

%  

 

61.29

%  

 

57.59

%  

 

60.50

%  

 

57.73

%  

Net interest margin (tax-equivalent) (1)

 

 

3.45

%  

 

3.69

%  

 

3.82

%  

 

3.65

%  

 

3.84

%  

Efficiency ratio (1)

 

 

73.68

%  

 

75.17

%  

 

76.60

%  

 

73.22

%  

 

73.80

%  

Net charge-offs/(recoveries) to average loans

 

 

0.05

%  

 

(0.01)

%  

 

0.02

%  

 

0.33

%  

 

0.18

%  

Dividend payout ratio

 

 

34.88

%  

 

29.17

%  

 

32.56

%  

 

29.84

%  

 

28.80

%  

Per Common Share

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Earnings per common share - basic (2)

 

$

0.44

 

$

0.49

 

$

0.44

 

$

1.96

 

$

1.88

 

Earnings per common share - diluted (2)

 

$

0.43

 

$

0.48

 

$

0.43

 

$

1.91

 

$

1.84

 

Dividends declared per common share

 

$

0.15

 

$

0.14

 

$

0.14

 

$

0.57

 

$

0.53

 

Tangible book value per common share (1)

 

$

14.08

 

$

13.77

 

$

10.68

 

 

 

 

 

 

 

Average common shares outstanding - basic

 

 

17,049

 

 

14,274

 

 

13,775

 

 

14,736

 

 

13,763

 

Average common shares outstanding - diluted

 

 

17,397

 

 

14,626

 

 

14,071

 

 

15,093

 

 

14,063

 

Other Data

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

Retirement and benefit services assets under administration/management

 

$

31,904,648

 

$

30,661,226

 

$

27,812,149

 

$

31,904,648

 

$

27,812,149

 

Wealth management assets under administration/management

 

 

3,103,056

 

 

2,765,459

 

 

2,626,815

 

 

3,103,056

 

 

2,626,815

 

Mortgage originations

 

 

261,263

 

 

313,527

 

 

169,767

 

 

946,441

 

 

779,708

 

 

(1)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

(2)

Earnings per share calculated using the two-class method beginning in the third quarter of 2019.

 

Earnings Per Share

 

Beginning in the third quarter of 2019, the Company has elected to prospectively use the two-class method in calculating earnings per share due to the restricted stock awards and restricted stock units qualifying as participating securities. Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participating rights in undistributed earnings. Average shares of common stock for diluted net income per common share include shares to be issued upon the vesting of restricted stock awards and restricted stock units granted under the Company's share-based compensation plans.

 

The following table presents the calculation of basic and diluted earnings per share for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Year ended

 

    

December 31, 

    

September 30, 

    

December 31, 

    

December 31, 

    

December 31, 

(dollars in thousands, except per share data)

 

2019

 

2019

 

2018

 

2019

 

2018

Net income

 

$

7,652

 

$

7,104

 

$

6,033

 

$

29,540

 

$

25,866

Dividends and undistributed earnings allocated to participating securities

 

 

138

 

 

154

 

 

 —

 

 

647

 

 

 —

Net income available to common shareholders

 

$

7,514

 

$

6,950

 

$

6,033

 

$

28,893

 

$

25,866

Weighted-average common shares outstanding for basic EPS

 

 

17,049

 

 

14,274

 

 

13,775

 

 

14,736

 

 

13,763

Dilutive effect of stock-based awards

 

 

348

 

 

352

 

 

296

 

 

357

 

 

300

Weighted-average common shares outstanding for diluted EPS

 

 

17,397

 

 

14,626

 

 

14,071

 

 

15,093

 

 

14,063

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

 

0.44

 

 

0.49

 

 

0.44

 

 

1.96

 

 

1.88

Diluted earnings per common share

 

 

0.43

 

 

0.48

 

 

0.43

 

 

1.91

 

 

1.84

 

 

2

Results of Operations

 

Net Interest Income

 

Net interest income for the fourth quarter of 2019 was $18.5 million, a decrease of $222 thousand, or 1.2%, from $18.7 million for the third quarter of 2019. The decrease was primarily driven by a decrease of $1.2 million in interest income on loans, partially offset by a $342 thousand increase in interest income from interest-bearing deposits with banks, a $198 thousand increase in interest income from investment securities, and a decrease in interest expense of $516 thousand.

 

Compared to the fourth quarter of 2018, net interest income for the fourth quarter of 2019 decreased $794 thousand. The decrease was due to a $344 thousand decrease in total interest income and a $450 thousand increase in interest expense. 

 

Net Interest Margin (Tax-Equivalent)

 

Net interest margin (tax-equivalent), a non-GAAP financial measure, for the fourth quarter of 2019 was 3.45%, compared to 3.69% for the third quarter of 2019. The third quarter included $460 thousand of net interest recoveries which increased the third quarter net interest margin by 9 basis points. For the fourth quarter of 2019, the average yield on total loans was 4.79% compared to 5.06% for the third quarter of 2019. For the fourth quarter of 2019, the average cost of interest-bearing liabilities was 1.26% compared to 1.39% for the third quarter of 2019.

 

Compared to the fourth quarter of 2018, net interest margin for the fourth quarter of 2019 decreased 37 basis points from 3.82%. The decrease in net interest margin from the fourth quarter of 2018 was due to a 33 basis point lower average earning asset yield and a 15 basis point higher average rate on interest-bearing liabilities.

 

Noninterest Income

 

Noninterest income for the fourth quarter of 2019 was $29.6 million and unchanged from the third quarter of 2019. We realized increases of $2.4 million in income from retirement and benefit services and $221 thousand in income from wealth management. These increases were partially offset by a $2.1 million decrease in mortgage banking and a $494 thousand decrease in other noninterest income. The increase in retirement and benefit services income was driven primarily by increases of $583 thousand in plan document fees, $498 thousand in record keeping fees, $457 thousand in distribution fees, $299 thousand in revenue sharing, and $267 thousand in transactional trustee fees.

 

Noninterest income for the fourth quarter of 2019 increased $3.4 million, or 13.1%, from the $26.1 million in the fourth quarter of 2018. The increase was primarily attributable to an increase in mortgage banking revenue of $2.0 million and an increase of $1.2 million in retirement and benefit services income.

 

Noninterest Expense

 

Noninterest expense for the fourth quarter of 2019 was $36.4 million, a decrease of $892 thousand, or 2.4% compared to the third quarter of 2019. The decrease was driven by decreases of $1.0 million in compensation expense, $332 in employee taxes and benefits expense, and $186 thousand in professional fees and assessments. The decrease in compensation expense was due to a decrease in mortgage banking commissions, driven by seasonally lower mortgage originations, along with a decrease in accrued annual incentive and bonus payments. The decrease in employee taxes and benefits expense was primarily due to lower health insurance claims. The decrease in professional fees and assessment was primarily due to small bank assessment credits applied against our quarterly FDIC assessments. These decreases were partially offset by increases of $248 thousand in marketing and business development and $136 thousand in mortgage and lending expenses.

 

Compared to the fourth quarter of 2018, noninterest expense for the fourth quarter of 2019 increased $524 thousand, or 1.5%, from $35.9 million. The increase was primarily attributable to increases in compensation expense, mortgage and lending expense, and business services, software and technology expenses. These increases were partially offset by decreases in professional fees and assessments, occupancy and equipment expenses, and supplies and postage expense. 

 

Financial Condition

 

Total assets were $2.36 billion as of December 31, 2019, an increase of $177.8 million, or 8.2%, from December 31, 2018. The increase in total assets was due to increases of $103.4 million in cash and cash equivalents,  $60.2 million in available-for-sale investment securities, $32.4 million in loans held for sale, and $19.4 million in loans. These increases were partially offset by a $32.0

3

million decrease in loans held for branch sale. Loans held for branch sale decreased as a result of closing on the sale of our Duluth, Minnesota branches on April 26, 2019.

 

Loans

 

Total loans were $1.72 billion as of December  31, 2019, an increase of $19.4 million, or 1.1%, from December 31, 2018. The increase was primarily due to an increase in our commercial real estate loan portfolio, offset by decreases in our commercial and industrial, residential real estate junior lien, and other revolving and installment loan portfolios.

 

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)

    

2019

 

2019

 

2019

 

2019

 

2018

Commercial

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial and industrial

 

$

479,144

 

$

485,183

 

$

513,120

 

$

514,033

 

$

510,706

Real estate construction

 

 

26,378

 

 

21,674

 

 

26,584

 

 

22,188

 

 

18,965

Commercial real estate

 

 

494,703

 

 

444,600

 

 

442,797

 

 

444,882

 

 

439,963

Total commercial

 

 

1,000,225

 

 

951,457

 

 

982,501

 

 

981,103

 

 

969,634

Consumer

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Residential real estate first mortgage

 

 

457,155

 

 

459,763

 

 

452,049

 

 

451,401

 

 

448,143

Residential real estate junior lien

 

 

177,373

 

 

182,516

 

 

185,209

 

 

186,296

 

 

188,855

Other revolving and installment

 

 

86,526

 

 

92,351

 

 

93,693

 

 

94,992

 

 

95,218

Total consumer

 

 

721,054

 

 

734,630

 

 

730,951

 

 

732,689

 

 

732,216

Total loans

 

$

1,721,279

 

$

1,686,087

 

$

1,713,452

 

$

1,713,792

 

$

1,701,850

 

Deposits

 

Total deposits were $1.97 billion as of December 31, 2019, an increase of $196.2 million, or 11.1%, from December 31, 2018. The increase was due to an increase of $169.2 million in interest-bearing deposits and an increase of $27.1 million in noninterest-bearing deposits. The increase in interest-bearing deposits was primarily due to a $108.0 million increase in synergistic deposits from our retirement and benefit services and wealth management segments. In addition, health savings account, or HSA, deposits increased $13.6 million, or 12.9%, to $119.7 million as of December 31, 2019 as compared to December 31, 2018. Noninterest-bearing deposits as a percent of total deposits was 29.3%  and 31.0% as of December 31, 2019 and 2018, respectively.

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)

    

2019

 

2019

 

2019

 

2019

 

2018

Noninterest-bearing demand

 

$

577,704

 

$

537,951

 

$

506,021

 

$

530,960

 

$

550,640

Interest-bearing

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Interest-bearing demand

 

 

458,689

 

 

424,249

 

 

439,342

 

 

440,755

 

 

401,078

Savings accounts

 

 

55,777

 

 

55,513

 

 

56,163

 

 

57,304

 

 

53,971

Money market savings

 

 

683,064

 

 

622,647

 

 

568,450

 

 

675,145

 

 

598,820

Time deposits

 

 

196,082

 

 

192,753

 

 

183,389

 

 

178,106

 

 

170,587

Total interest-bearing

 

 

1,393,612

 

 

1,295,162

 

 

1,247,344

 

 

1,351,310

 

 

1,224,456

Total deposits

 

$

1,971,316

 

$

1,833,113

 

$

1,753,365

 

$

1,882,270

 

$

1,775,096

 

Asset Quality

 

Total nonperforming assets were $7.8 million as of December 31, 2019, an increase of $668 thousand from December 31, 2018. As of December 31, 2019, the allowance for loan losses was $23.9 million, or 1.39% of total loans, compared to $22.2 million, or 1.30% of total loans, as of December 31, 2018.

 

 

4

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)

    

2019

 

2019

 

2019

 

2019

 

2018

 

Nonaccrual loans

 

$

7,379

 

$

5,107

 

$

4,623

 

$

8,267

 

$

6,963

 

Accruing loans 90+ days past due

 

 

448

 

 

45

 

 

28

 

 

 —

 

 

 —

 

Total nonperforming loans

 

 

7,827

 

 

5,152

 

 

4,651

 

 

8,267

 

 

6,963

 

OREO and repossessed assets

 

 

 8

 

 

84

 

 

381

 

 

149

 

 

204

 

Total nonperforming assets

 

$

7,835

 

$

5,236

 

$

5,032

 

$

8,416

 

$

7,167

 

Net charge-offs/(recoveries)

 

 

857

 

 

(240)

 

 

3,189

 

 

1,756

 

 

367

 

Net charge-offs/(recoveries) to average loans

 

 

0.05

%  

 

(0.01)

%  

 

0.18

%  

 

0.10

%  

 

0.02

%  

Nonperforming loans to total loans

 

 

0.45

%  

 

0.31

%  

 

0.27

%  

 

0.48

%  

 

0.41

%  

Nonperforming assets to total assets

 

 

0.33

%  

 

0.23

%  

 

0.23

%  

 

0.38

%  

 

0.33

%  

Allowance for loan losses to total loans

 

 

1.39

%  

 

1.36

%  

 

1.24

%  

 

1.32

%  

 

1.30

%  

Allowance for loan losses to nonperforming loans

 

 

306

%  

 

446

%  

 

457

%  

 

274

%  

 

318

%  

 

For the fourth quarter of 2019, we had net charge-offs of $857 thousand, compared to a net recovery of $240 thousand for the third quarter of 2019 and $367 thousand of net charge-offs for the fourth quarter of 2018.

 

The provision for loan losses for the fourth quarter of 2019 was $1.8 million, an increase of $299 thousand from the third quarter of 2019 and an increase of $267 from the fourth quarter of 2018.

 

Capital

 

Total stockholders’ equity was $285.7 million as of December 31, 2019, an increase of $88.8 million from December 31, 2018. The increase in total stockholders’ equity was primarily due to $62.8 million of net proceeds received from the Company’s initial public offering. The tangible book value per common share increased to $14.08 as of December 31, 2019, from $10.68 as of December 31, 2018. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 10.38% as of December 31, 2019, from 6.91% as of December 31, 2018.

 

The following table presents our capital ratios as of the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 

    

September 30, 

    

December 31, 

 

 

    

2019

    

2019

    

2018

 

Capital Ratios(1)

 

 

 

 

 

 

 

 

 

 

Alerus Financial Corporation

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

12.48

%  

 

12.38

%  

 

8.43

%  

Tier 1 capital to risk weighted assets

 

 

12.90

%  

 

12.81

%  

 

8.87

%  

Total capital to risk weighted assets

 

 

16.73

%  

 

16.67

%  

 

12.86

%  

Tier 1 capital to average assets

 

 

11.05

%  

 

11.33

%  

 

7.51

%  

Tangible common equity / tangible assets (2)

 

 

10.38

%  

 

10.76

%  

 

6.91

%  

 

 

 

 

 

 

 

 

 

 

 

Alerus Financial, N.A.

 

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital to risk weighted assets

 

 

11.91

%  

 

11.84

%  

 

11.39

%  

Tier 1 capital to risk weighted assets

 

 

11.91

%  

 

11.84

%  

 

11.39

%  

Total capital to risk weighted assets

 

 

13.15

%  

 

13.06

%  

 

12.62

%  

Tier 1 capital to average assets

 

 

10.20

%  

 

10.47

%  

 

9.63

%  

 

(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.”

 

5

Conference Call

 

The Company will host a conference call at 9:00 a.m. Central Time on Wednesday, January  29, 2020 to discuss its financial results. The call can be accessed via telephone at (888)  317-6016. 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, through its subsidiary Alerus Financial, N.A., offers business and consumer banking products and services, residential mortgage financing, employer-sponsored retirement plan and benefit administration, and wealth management, including trust, brokerage, insurance, and asset management. Alerus Financial banking and wealth management offices are located in Grand Forks and Fargo, ND, the Minneapolis-St. Paul, MN metropolitan area and Scottsdale and Mesa, AZ. Alerus Retirement and Benefits plan administration offices are located in St. Paul and Albert Lea, MN, East Lansing and Troy, MI, and Bedford, NH.

 

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. 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: our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; business and economic conditions generally and in the financial services industry, nationally and within our market areas; 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; 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

6

ability to attract and retain key personnel; rapid technological change in the financial services industry; increased competition in the financial services industry; our ability to successfully manage liquidity risk; 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; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; interest rate risks associated with our business; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; severe weather, natural disasters, acts of war or terrorism or other adverse external events; any material weaknesses in our internal control over financial reporting; our success at managing the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of other 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.

 

7

 

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(dollars and shares in thousands, except per share data)

 

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

    

2019

    

2018

Assets

 

(Unaudited)

 

(Audited)

Cash and cash equivalents

 

$

144,006

 

$

40,651

Investment securities, at fair value

 

 

  

 

 

  

Trading

 

 

 —

 

 

1,539

Available-for-sale

 

 

310,350

 

 

250,174

Equity

 

 

2,808

 

 

3,165

Loans held for sale

 

 

46,846

 

 

14,486

Loans held for branch sale

 

 

 —

 

 

32,031

Loans

 

 

1,721,279

 

 

1,701,850

Allowance for loan losses

 

 

(23,924)

 

 

(22,174)

Net loans

 

 

1,697,355

 

 

1,679,676

Land, premises and equipment, net

 

 

20,629

 

 

21,743

Operating lease right-of-use assets

 

 

8,343

 

 

 —

Accrued interest receivable

 

 

7,551

 

 

7,645

Bank-owned life insurance

 

 

31,566

 

 

30,763

Goodwill

 

 

27,329

 

 

27,329

Other intangible assets

 

 

18,391

 

 

22,473

Servicing rights

 

 

3,845

 

 

4,623

Deferred income taxes, net

 

 

7,891

 

 

10,085

Other assets

 

 

29,968

 

 

32,687

Total assets

 

$

2,356,878

 

$

2,179,070

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

Deposits

 

 

  

 

 

  

Noninterest-bearing

 

$

577,704

 

$

550,640

Interest-bearing

 

 

1,393,612

 

 

1,224,456

Total deposits

 

 

1,971,316

 

 

1,775,096

Deposits held for sale

 

 

 —

 

 

24,197

Short-term borrowings

 

 

 —

 

 

93,460

Long-term debt

 

 

58,769

 

 

58,824

Operating lease liabilities

 

 

8,864

 

 

 —

Accrued expenses and other liabilities

 

 

32,201

 

 

30,539

Total liabilities

 

 

2,071,150

 

 

1,982,116

Commitments and contingent liabilities ESOP-owned shares

 

 

 —

 

 

34,494

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: 17,049,551 and 13,775,327 issued and outstanding

 

 

17,050

 

 

13,775

Additional paid-in capital

 

 

88,650

 

 

27,743

Retained earnings

 

 

178,092

 

 

159,037

Accumulated other comprehensive income (loss)

 

 

1,936

 

 

(3,601)

Total stockholders’ equity

 

 

285,728

 

 

196,954

Less ESOP-owned shares

 

 

 —

 

 

(34,494)

Total stockholders’ equity net of ESOP-owned shares

 

 

285,728

 

 

162,460

Total liabilities and stockholders’ equity

 

$

2,356,878

 

$

2,179,070

 

8

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, 

 

    

2019

    

2019

    

2018

    

2019

    

2018

Interest Income

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Audited)

Loans, including fees

 

$

20,659

 

$

21,886

 

$

21,565

 

$

85,830

 

$

81,159

Investment securities

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Taxable

 

 

1,555

 

 

1,374

 

 

1,195

 

 

5,576

 

 

4,670

Exempt from federal income taxes

 

 

180

 

 

163

 

 

307

 

 

798

 

 

1,234

Other

 

 

493

 

 

202

 

 

164

 

 

1,096

 

 

639

Total interest income

 

 

22,887

 

 

23,625

 

 

23,231

 

 

93,300

 

 

87,702

Interest Expense

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Deposits

 

 

3,532

 

 

3,506

 

 

2,510

 

 

13,334

 

 

6,991

Short-term borrowings

 

 

 —

 

 

539

 

 

565

 

 

1,805

 

 

1,896

Long-term debt

 

 

896

 

 

899

 

 

903

 

 

3,610

 

 

3,591

Total interest expense

 

 

4,428

 

 

4,944

 

 

3,978

 

 

18,749

 

 

12,478

Net interest income

 

 

18,459

 

 

18,681

 

 

19,253

 

 

74,551

 

 

75,224

Provision for loan losses

 

 

1,797

 

 

1,498

 

 

1,530

 

 

7,312

 

 

8,610

Net interest income after provision for loan losses

 

 

16,662

 

 

17,183

 

 

17,723

 

 

67,239

 

 

66,614

Noninterest Income

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Retirement and benefit services

 

 

17,669

 

 

15,307

 

 

16,443

 

 

63,811

 

 

63,316

Wealth management

 

 

4,117

 

 

3,896

 

 

3,952

 

 

15,502

 

 

14,900

Mortgage banking

 

 

6,066

 

 

8,135

 

 

4,079

 

 

25,805

 

 

17,630

Service charges on deposit accounts

 

 

451

 

 

447

 

 

475

 

 

1,772

 

 

1,808

Net gains (losses) on investment securities

 

 

 —

 

 

48

 

 

(34)

 

 

357

 

 

85

Other

 

 

1,253

 

 

1,747

 

 

1,226

 

 

6,947

 

 

5,010

Total noninterest income

 

 

29,556

 

 

29,580

 

 

26,141

 

 

114,194

 

 

102,749

Noninterest Expense

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Compensation

 

 

19,021

 

 

20,041

 

 

18,497

 

 

74,018

 

 

69,403

Employee taxes and benefits

 

 

4,268

 

 

4,600

 

 

4,260

 

 

19,456

 

 

17,866

Occupancy and equipment expense

 

 

2,665

 

 

2,700

 

 

2,871

 

 

10,751

 

 

11,086

Business services, software and technology expense

 

 

4,337

 

 

4,224

 

 

4,058

 

 

16,381

 

 

14,525

Intangible amortization expense

 

 

990

 

 

990

 

 

1,050

 

 

4,081

 

 

4,638

Professional fees and assessments

 

 

865

 

 

1,051

 

 

1,364

 

 

4,011

 

 

5,098

Marketing and business development

 

 

1,138

 

 

890

 

 

1,020

 

 

3,162

 

 

3,459

Supplies and postage

 

 

695

 

 

631

 

 

835

 

 

2,722

 

 

2,737

Travel

 

 

452

 

 

435

 

 

486

 

 

1,787

 

 

1,738

Mortgage and lending expenses

 

 

887

 

 

751

 

 

556

 

 

2,853

 

 

2,153

Other

 

 

1,117

 

 

1,014

 

 

914

 

 

3,315

 

 

3,622

Total noninterest expense

 

 

36,435

 

 

37,327

 

 

35,911

 

 

142,537

 

 

136,325

Income before income taxes

 

 

9,783

 

 

9,436

 

 

7,953

 

 

38,896

 

 

33,038

Income tax expense

 

 

2,131

 

 

2,332

 

 

1,920

 

 

9,356

 

 

7,172

Net income

 

$

7,652

 

$

7,104

 

$

6,033

 

$

29,540

 

$

25,866

Per Common Share Data