ALERUS FINANCIAL CORP [ALRS] Filings

10-Q 1 alrs-20240630x10q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-39036

ALERUS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	45-0375407
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

401 Demers Avenue
Grand Forks, ND	58201
(Address of principal executive offices)	(Zip Code)

(701) 795-3200

(Registrant’s telephone number, including area code)

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, par value $1.00 per share	ALRS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻

Accelerated filer ⌧

Non-accelerated filer ◻

Smaller reporting company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧

The number of shares of the registrant’s common stock outstanding at August 5, 2024 was 19,777,796.

Table of Contents

Alerus Financial Corporation and Subsidiaries

Table of Contents

		Page
Part 1:	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	3
	Consolidated Statements of Changes in Stockholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	82

Part 2:	OTHER INFORMATION
Item 1.	Legal Proceedings	82
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86

Signatures		88

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets


	June 30,		December 31,
(dollars in thousands, except share and per share data)	2024		2023
Assets	(Unaudited)
Cash and cash equivalents	$	438,141	$	129,893
Investment securities
Trading		2,868		—
Available-for-sale, at fair value (amortized cost of $561,960 and $584,754, respectively)		459,345		486,736
Held-to-maturity, at amortized cost (fair value of $243,689 and $258,617, respectively, with an allowance for credit losses on investments of $151 and $213, respectively)		286,532		299,515
Loans held for sale		38,158		11,497
Loans		2,915,792		2,759,583
Allowance for credit losses on loans		(38,332)		(35,843)
Net loans		2,877,460		2,723,740
Land, premises and equipment, net		17,328		17,940
Operating lease right-of-use assets		4,871		5,436
Accrued interest receivable		16,877		15,700
Bank-owned life insurance		35,508		33,236
Goodwill		46,783		46,783
Other intangible assets, net		14,510		17,158
Servicing rights		1,963		2,052
Deferred income taxes, net		35,732		34,595
Other assets		82,547		83,432
Total assets	$	4,358,623	$	3,907,713
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	701,428	$	728,082
Interest-bearing		2,597,147		2,367,529
Total deposits		3,298,575		3,095,611
Short-term borrowings		555,000		314,170
Long-term debt		59,013		58,956
Operating lease liabilities		5,197		5,751
Accrued expenses and other liabilities		67,612		64,098
Total liabilities		3,985,397		3,538,586
Commitments and contingencies (Note 13)
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: 19,777,796 and 19,734,077 issued and outstanding		19,778		19,734
Additional paid-in capital		150,857		150,343
Retained earnings		277,620		272,705
Accumulated other comprehensive income (loss)		(75,029)		(73,655)
Total stockholders’ equity		373,226		369,127
Total liabilities and stockholders’ equity	$	4,358,623	$	3,907,713

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
(dollars and shares in thousands, except per share data)	2024		2023		2024		2023
Interest Income
Loans, including fees	$	41,663	$	33,267	$	80,958	$	64,200
Investment securities
Taxable		4,845		6,125		9,413		12,076
Exempt from federal income taxes		170		186		343		376
Other		6,344		762		11,346		1,497
Total interest income		53,022		40,340		102,060		78,149
Interest Expense
Deposits		21,284		12,678		41,436		21,782
Short-term borrowings		7,053		4,763		13,042		9,156
Long-term debt		684		665		1,362		1,319
Total interest expense		29,021		18,106		55,840		32,257
Net interest income		24,001		22,234		46,220		45,892
Provision for credit losses		4,489		—		4,489		550
Net interest income after provision for credit losses		19,512		22,234		41,731		45,342
Noninterest Income
Retirement and benefit services		16,078		15,890		31,733		31,372
Wealth management		6,360		5,449		12,477		10,644
Mortgage banking		2,554		2,905		4,224		4,622
Service charges on deposit accounts		456		311		845		612
Other		1,923		1,223		3,415		3,781
Total noninterest income		27,371		25,778		52,694		51,031
Noninterest Expense
Compensation		20,265		18,847		39,597		38,005
Employee taxes and benefits		5,134		4,724		11,322		10,577
Occupancy and equipment expense		1,815		1,837		3,722		3,736
Business services, software and technology expense		4,599		5,269		9,944		10,593
Intangible amortization expense		1,324		1,324		2,648		2,648
Professional fees and assessments		2,373		1,530		4,366		2,682
Marketing and business development		651		665		1,436		1,389
Supplies and postage		370		406		898		866
Travel		332		306		624		554
Mortgage and lending expenses		467		215		908		712
Other		1,422		1,250		2,306		2,480
Total noninterest expense		38,752		36,373		77,771		74,242
Income before income taxes		8,131		11,639		16,654		22,131
Income tax expense		1,923		2,535		4,014		4,841
Net income	$	6,208	$	9,104	$	12,640	$	17,290
Per Common Share Data
Basic earnings per common share	$	0.31	$	0.45	$	0.64	$	0.86

Diluted earnings per common share	$	0.31	$	0.45	$	0.63	$	0.85
Dividends declared per common share	$	0.20	$	0.19	$	0.39	$	0.37
Average common shares outstanding		19,777		20,033		19,758		20,030
Diluted average common shares outstanding		20,050		20,241		20,018		20,243

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
(dollars in thousands)	2024		2023		2024		2023
Net Income	$	6,208	$	9,104	$	12,640	$	17,290
Other Comprehensive Income (Loss), Net of Tax
Net change in unrealized gains (losses) on debt securities		(1,221)		(9,720)		(4,739)		(4,879)
Net change in unrealized gain (losses) on cash flow hedging derivatives		25		—		709		—
Net change in unrealized gain (losses) on other derivatives		164		3,794		2,195		2,069
Total other comprehensive income (loss), before tax		(1,032)		(5,926)		(1,835)		(2,810)
Income tax expense (benefit) related to items of other comprehensive income (loss)		(259)		(1,491)		(461)		(709)
Other comprehensive income (loss), net of tax		(773)		(4,435)		(1,374)		(2,101)
Total comprehensive income (loss)	$	5,435	$	4,669	$	11,266	$	15,189

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Three months ended

Accumulated

Additional

Other

Common

Paid-in

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