Yahoo MoviesAlerus Financial Corporation Reports Fourth Quarter 2021 Net Income of $12.7 Million and Record Annual Net Income of $52.7 Million
GRAND FORKS, N.D., January 26, 2022--(BUSINESS WIRE)--Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $12.7 million for the fourth quarter of 2021, or $0.72 per diluted common share, compared to net income of $13.1 million, or $0.74 per diluted common share, for the third quarter of 2021, and net income of $10.2 million, or $0.57 per diluted common share, for the fourth quarter of 2020.
CEO Comments
President and Chief Executive Officer Katie Lorenson said, "Alerus continues to be a purpose-driven company, focused on its business model, strategy and culture. Our talented Alerus team members executed at exceptional levels, resulting in a strong finish to the fourth quarter and another record setting year for Alerus with annual net income of $52.7 million. Our team is focused on serving clients holistically and with their best interests in mind. This advice-based approach coupled with our diversified business model resulted in our highest annual levels of new business in nearly every product offering of the Company. Our company continues to be agile in meeting client needs, serving more clients than ever through digital channels, all while managing our expense base. The overall quality of our credit portfolio remained strong with a significant recovery during the quarter leading to a $1.5 million reversal of provision expense. The company continues to maintain robust capital levels which we believe will position Alerus for ongoing organic and in-organic growth. We continued to execute our acquisition strategy and announced in early December our proposed acquisition of MPB BHC, Inc. and it’s wholly-owned banking subsidiary, Metro Phoenix Bank. Assuming the consummation of the transactions, this will be our twenty-fifth acquisition since 2000. We look forward to welcoming the clients and employees of the high performing Metro Phoenix Bank, a commercial focused community bank headquartered in the strong and growing Phoenix market. We are proud of our company’s performance, ability to focus on long-term growth for shareholders through our diversified business model, solid financial foundation and, strategic focus on serving clients holistically."
Quarterly Highlights
Return on average total assets of 1.50%, compared to 1.62% for the third quarter of 2021
Return on average tangible common equity(1) of 17.36%, compared to 18.13% for the third quarter of 2021
Net interest margin (tax-equivalent)(1) was 2.84%, compared to 2.78% for the third quarter of 2021
Allowance for loan losses to total loans, excluding PPP loans was 1.83%, compared to 2.00% as of December 31, 2020
Efficiency ratio(1) of 71.06%, compared to 71.49% for the third quarter of 2021
Noninterest income for the fourth quarter of 2021 was 59.67% of total revenue, compared to 63.04% for the third quarter of 2021
Mortgage originations totaled $356.8 million, a 14.2% decrease from the third quarter of 2021
Investment securities increased $613.4 million, or 103.5%, since December 31, 2020
Loans held for sale decreased $76.0 million, or 62.0%, since December 31, 2020
Loans held for investment decreased $221.4 million, or 11.2%, since December 31, 2020; excluding Paycheck Protection Program, or PPP, loans, loans held for investment increased $13.5 million, or 0.8%, since December 31, 2020
Deposits increased $348.6 million, or 13.6%, since December 31, 2020
Full Year 2021 Highlights
Net income of $52.7 million, an increase of $8.0 million, or 17.9%, compared to $44.7 million in 2020
Diluted earnings per share, or EPS, of $2.97, compared to $2.52 in 2020
Return on average total assets of 1.66%, compared to 1.61% in 2020
Return on average tangible common equity(1) of 18.89%, compared to 17.74% in 2020
Revenue of $234.5 million, an increase of $1.3 million, or 0.5%, compared to $233.2 million in 2020
Net interest income was $87.1 million, an increase of $3.3 million, or 3.9%, compared to $83.8 million in 2020
Noninterest income was $147.4 million, a decrease of $2.0 million, or 1.3%, compared to $149.4 million in 2020
Noninterest expense of $168.9 million, an increase of $5.1 million, or 3.1%, compared to $163.8 million in 2020
Provision for loan losses expense reversed $3.5 million, a decrease of $14.4 million from 2020
Average loans of $1.9 billion, a decrease of $86.9 million, or 4.5%, from 2020
Average deposits of $2.7 billion, an increase of $372.6 million, or 15.9%, from 2020
(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) | 2021 | 2021 | 2020 | 2021 | 2020 | |||||||||||
Performance Ratios | ||||||||||||||||
Return on average total assets | 1.50 | % | 1.62 | % | 1.34 | % | 1.66 | % | 1.61 | % | ||||||
Return on average common equity | 14.12 | % | 14.68 | % | 12.30 | % | 15.22 | % | 14.40 | % | ||||||
Return on average tangible common equity (1) | 17.36 | % | 18.13 | % | 15.13 | % | 18.89 | % | 17.74 | % | ||||||
Noninterest income as a % of revenue | 59.67 | % | 63.04 | % | 62.57 | % | 62.86 | % | 64.05 | % | ||||||
Net interest margin (tax-equivalent) (1) | 2.84 | % | 2.78 | % | 3.23 | % | 2.90 | % | 3.22 | % | ||||||
Efficiency ratio (1) | 71.06 | % | 71.49 | % | 74.44 | % | 70.02 | % | 68.40 | % | ||||||
Net charge-offs/(recoveries) to average loans | (0.22) | % | (0.06) | % | (0.30) | % | (0.04) | % | 0.03 | % | ||||||
Dividend payout ratio | 22.22 | % | 21.62 | % | 26.32 | % | 21.21 | % | 23.81 | % | ||||||
Per Common Share | ||||||||||||||||
Earnings per common share - basic | $ | 0.73 | $ | 0.75 | $ | 0.58 | $ | 3.02 | $ | 2.57 | ||||||
Earnings per common share - diluted | $ | 0.72 | $ | 0.74 | $ | 0.57 | $ | 2.97 | $ | 2.52 | ||||||
Dividends declared per common share | $ | 0.16 | $ | 0.16 | $ | 0.15 | $ | 0.63 | $ | 0.60 | ||||||
Tangible book value per common share (1) | $ | 17.87 | $ | 17.46 | $ | 16.00 | ||||||||||
Average common shares outstanding - basic | 17,210 | 17,205 | 17,122 | 17,189 | 17,106 | |||||||||||
Average common shares outstanding - diluted | 17,480 | 17,499 | 17,450 | 17,486 | 17,438 | |||||||||||
Other Data | ||||||||||||||||
Retirement and benefit services assets under administration/management | $ | 36,732,938 | $ | 36,202,553 | $ | 34,199,954 | ||||||||||
Wealth management assets under administration/management | $ | 4,039,931 | $ | 3,865,062 | $ | 3,338,594 | ||||||||||
Mortgage originations | $ | 356,821 | $ | 415,792 | $ | 607,166 | $ | 1,836,064 | $ | 1,778,977 | ||||||
(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 fourth quarter of 2021 was $22.8 million, a $1.7 million, or 7.8%, increase from the third quarter of 2021. Net interest income decreased $364 thousand, or 1.6%, from $23.2 million for the fourth quarter of 2020. During the fourth quarter of 2021, average interest earning assets increased $158.7 million, primarily due to an increase of $249.9 million in investment securities, partially offset by decreases of $49.1 million in interest-bearing deposits with banks and $38.2 million in loans held for investment. The change in the balance sheet mix resulted in a 6 basis point increase in the average earning asset yield. Net interest income earned from PPP loans during the fourth quarter of 2021 totaled $2.2 million, an increase of $160 thousand, from the $2.0 million earned during the third quarter. The cost of interest-bearing liabilities had a modest decrease of 1 basis point from the third quarter of 2021.
Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.84% for the fourth quarter of 2021, a 6 basis point increase from 2.78% for the third quarter of 2021, and a 39 basis point decrease from 3.23% in the fourth quarter of 2020. The linked quarter increase was primarily due to higher yields on interest earning assets. Excluding PPP loans, net interest margin was 2.62% for the fourth quarter of 2021, unchanged from the third quarter of 2021. The year over year decrease was primarily attributable to the historically low and flat yield curve and a more liquid balance sheet mix which resulted in a 49 basis point decrease in interest earning asset yields. The decrease in earning asset yield was offset by a 16 basis point decrease in the average rate paid on interest-bearing liabilities.
Noninterest Income
Noninterest income for the fourth quarter of 2021 was $33.7 million, a $2.3 million, or 6.4%, decrease from the third quarter of 2021. The decrease was primarily driven by a $3.1 million decrease in mortgage banking revenue, a result of a $59.0 million decrease in mortgage originations. The decrease in mortgage banking revenue was partially offset by increases of $521 thousand in retirement and benefit services revenue and $338 thousand in wealth management revenue.
Noninterest income for the fourth quarter of 2021 decreased $5.0 million, or 12.9%, from $38.7 million in the fourth quarter of 2020. This decrease was primarily due to an $8.8 million decrease in mortgage banking revenue, a result of a $250.3 million decrease in mortgage originations, as well as a 28 basis point decrease in the gain on sale margin. Partially offsetting this decrease was a $2.6 million increase in retirement and benefit services income, primarily driven by the December 2020 acquisition of Retirement Planning Services, Inc. and a $544 thousand increase in document restatement fees. In addition, wealth management revenue increased $826 thousand, or 17.2%, primarily driven by organic growth and market increases in assets under management.
Noninterest Expense
Noninterest expense for the fourth quarter of 2021 was $41.3 million, a decrease of $765 thousand, or 1.8%, compared to the third quarter of 2021. The decrease was primarily due to decreases of $1.2 million in compensation expense, $743 thousand in mortgage and lending expense, partially offset by increases of $532 thousand in employee taxes and benefits expense, $350 thousand in other noninterest expense, and $305 thousand in professional fees and assessments. The decreases in compensation expense as well as mortgage and lending expense were primarily attributable to the $59.0 million decrease in mortgage originations from the previous quarter. Mortgage and lending expense was also positively impacted by a $314 thousand change in the valuation of mortgage servicing rights. The increase in employee taxes and benefits expense was primarily a result of an increase in incentive awards due to the Company’s record financial performance. The $330 thousand increase in other noninterest expense was primarily attributable to an operating charge-off of $134 thousand in the fourth quarter compared to a $250 thousand recovery in the third quarter. The increase in professional fees and assessments was due to expenses related to the announced acquisition of Metro Phoenix Bank.
Noninterest expense for the fourth quarter of 2021 decreased $5.8 million, or 12.4%, from $47.1 million in the fourth quarter of 2020. The decrease was primarily attributable to decreases in compensation expense, mortgage and lending expense, and occupancy and equipment expense, partially offset by increased employee taxes and benefits expense. The decline in mortgage originations in the fourth quarter of 2021 drove the decreases of compensation expense, as well as mortgage and lending expense. Employee taxes and benefits expense increased as a result of increased health insurance expenses. Occupancy and equipment expense decreased due to the closure of certain offices in 2021 and to the transition of many of our employees to a hybrid work environment.
Financial Condition
Total assets were $3.4 billion as of December 31, 2021, an increase of $378.9 million, or 12.6%, from December 31, 2020. The overall increase in total assets included an increase of $613.4 million in investment securities, partially offset by a $221.4 million decrease in loans held for investment and a $76.0 million decrease in loans held for sale. The decrease in loans held for investment was primarily due to PPP loan balances decreasing by $234.9 million from December 31, 2020.
Loans
Total loans were $1.8 billion as of December 31, 2021, a decrease of $221.4 million, or 11.2%, from December 31, 2020. The decrease was primarily due to a $255.1 million decrease in the commercial and industrial loan portfolio, primarily attributable to a $234.9 million decrease in PPP loans. Excluding PPP loans, total loans increased $13.5 million, or 0.8%, in 2021. This increase was primarily due to a $47.3 million increase in residential real estate first mortgages and a $35.9 million increase in commercial real estate, partially offset by a $27.9 million decrease in consumer revolving and installment loans, a $20.2 million decrease in commercial and industrial loans, and a $17.7 million decrease in residential real estate junior liens.
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) | 2021 | 2021 | 2021 | 2021 | 2020 | ||||||||||
Commercial | |||||||||||||||
Commercial and industrial (1) | $ | 436,761 | $ | 506,599 | $ | 572,734 | $ | 678,029 | $ | 691,858 | |||||
Real estate construction | 40,619 | 37,751 | 36,549 | 40,473 | 44,451 | ||||||||||
Commercial real estate | 598,893 | 573,518 | 567,987 | 569,451 | 563,007 | ||||||||||
Total commercial | 1,076,273 | 1,117,868 | 1,177,270 | 1,287,953 | 1,299,316 | ||||||||||
Consumer | |||||||||||||||
Residential real estate first mortgage | 510,716 | 501,339 | 470,822 | 454,958 | 463,370 | ||||||||||
Residential real estate junior lien | 125,668 | 130,243 | 130,180 | 130,299 | 143,416 | ||||||||||
Other revolving and installment | 45,363 | 50,936 | 57,040 | 64,135 | 73,273 | ||||||||||
Total consumer | 681,747 | 682,518 | 658,042 | 649,392 | 680,059 | ||||||||||
Total loans | $ | 1,758,020 | $ | 1,800,386 | $ | 1,835,312 | $ | 1,937,345 | $ | 1,979,375 | |||||
(1) | Includes PPP loans of $33.6 million at December 31, 2021, $103.5 million at September 30, 2021, $165.0 million at June 30, 2021, $256.8 million at March 31, 2021 and $268.4 million at December 31, 2020. |
Deposits
Total deposits were $2.9 billion as of December 31, 2021, an increase of $348.6 million, or 13.6%, from December 31, 2020. Interest-bearing deposits increased $164.4 million, while noninterest-bearing deposits increased $184.1 million in 2021. Key drivers of the increase included new deposit production, ongoing higher depositor balances due to the uncertain economic environment and volatile financial markets. Synergistic deposits increased $73.4 million to $669.0 million as of December 31, 2021. Excluding synergistic deposits, commercial transaction deposits increased $156.3 million, or 14.1%, while consumer transaction deposits increased $95.0 million, or 14.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits were 32.1% as of December 31, 2021, compared to 29.3% as of December 31, 2020.
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) | 2021 | 2021 | 2021 | 2021 | 2020 | ||||||||||
Noninterest-bearing demand | $ | 938,840 | $ | 797,062 | $ | 758,820 | $ | 775,434 | $ | 754,716 | |||||
Interest-bearing | |||||||||||||||
Interest-bearing demand | 714,669 | 673,916 | 736,043 | 674,466 | 618,900 | ||||||||||
Savings accounts | 96,825 | 92,632 | 89,437 | 87,492 | 79,902 | ||||||||||
Money market savings | 937,305 | 924,678 | 920,831 | 967,273 | 909,137 | ||||||||||
Time deposits | 232,912 | 224,800 | 205,809 | 212,908 | 209,338 | ||||||||||
Total interest-bearing | 1,981,711 | 1,916,026 | 1,952,120 | 1,942,139 | 1,817,277 | ||||||||||
Total deposits | $ | 2,920,551 | $ | 2,713,088 | $ | 2,710,940 | $ | 2,717,573 | $ | 2,571,993 | |||||
Asset Quality
Total nonperforming assets were $3.1 million as of December 31, 2021, a decrease of $2.1 million, or 42.1%, from December 31, 2020. As of December 31, 2021, the allowance for loan losses was $31.6 million, or 1.80% of total loans, compared to $34.2 million, or 1.73% of total loans, as of December 31, 2020. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 1.83% at December 31, 2021, compared to 2.00% as of December 31, 2020.
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) | 2021 | 2021 | 2021 | 2021 | 2020 | |||||||||||
Nonaccrual loans | $ | 2,076 | $ | 6,229 | $ | 6,960 | $ | 4,756 | $ | 5,050 | ||||||
Accruing loans 90+ days past due | 121 | — | — | — | 30 | |||||||||||
Total nonperforming loans | 2,197 | 6,229 | 6,960 | 4,756 | 5,080 | |||||||||||
OREO and repossessed assets | 885 | 862 | 858 | 139 | 63 | |||||||||||
Total nonperforming assets | $ | 3,082 | $ | 7,091 | $ | 7,818 | $ | 4,895 | $ | 5,143 | ||||||
Net charge-offs/(recoveries) | (1,006) | (302) | (6) | 488 | (1,509) | |||||||||||
Net charge-offs/(recoveries) to average loans | (0.22) | % | (0.06) | % | — | % | 0.10 | % | (0.30) | % | ||||||
Nonperforming loans to total loans | 0.12 | % | 0.35 | % | 0.38 | % | 0.25 | % | 0.26 | % | ||||||
Nonperforming assets to total assets | 0.09 | % | 0.22 | % | 0.25 | % | 0.16 | % | 0.17 | % | ||||||
Allowance for loan losses to total loans | 1.80 | % | 1.78 | % | 1.84 | % | 1.74 | % | 1.73 | % | ||||||
Allowance for loan losses to nonperforming loans | 1,437 | % | 515 | % | ... | 485 | % | 710 | % | 674 | % | |||||
For the fourth quarter of 2021, we had net recoveries of $1.0 million compared to net recoveries of $302 thousand for the third quarter of 2021 and $1.5 million of net recoveries for the fourth quarter of 2020. The $1.0 million recovery was the result of a payoff on a commercial real estate loan that was previously charged off.
There was a $1.5 million reversal of provision for loan losses recorded in the fourth quarter of 2021, a $500 thousand increase from the third quarter of 2021, and a decrease of $2.9 million from the fourth quarter of 2020. The negative provision in the fourth quarter of 2021 was driven by net recoveries in four of the last five quarters and improvement of credit quality indicators.
Capital
Total stockholders’ equity was $359.4 million as of December 31, 2021, an increase of $29.2 million, or 8.9%, from December 31, 2020. Tangible book value per common share, a non-GAAP financial measure, increased to $17.87 as of December 31, 2021, from $16.00 as of December 31, 2020. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 9.21% as of December 31, 2021, from 9.27% as of December 31, 2020.
The following table presents our capital ratios as of the dates indicated:
December 31, | September 30, | |||||||||
