Business Wire | Jan 26, 2022 06:05PM EST

Alerus Financial Corporation Reports Fourth Quarter 2021 Net Income of $12.7 Million and Record Annual Net Income of $52.7 Million

Jan. 26, 2022

GRAND FORKS, N.D.--(BUSINESS WIRE)--Jan. 26, 2022--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 December 31, December December 30, 31, 31,

(dollars andshares inthousands, 2021 2021 2020 2021 2020 except per sharedata)

Performance Ratios

Return onaverage total 1.50 % 1.62 % 1.34 % 1.66 % 1.61 %assets

Return onaverage common 14.12 % 14.68 % 12.30 % 15.22 % 14.40 %equity

Return onaverage tangible 17.36 % 18.13 % 15.13 % 18.89 % 17.74 %common equity(1)

Noninterestincome as a % of 59.67 % 63.04 % 62.57 % 62.86 % 64.05 %revenue

Net interestmargin 2.84 % 2.78 % 3.23 % 2.90 % 3.22 %(tax-equivalent)(1)

Efficiency ratio 71.06 % 71.49 % 74.44 % 70.02 % 68.40 %(1)

Net charge-offs/(recoveries) to (0.22) % (0.06) % (0.30) % (0.04) % 0.03 %average loans

Dividend payout 22.22 % 21.62 % 26.32 % 21.21 % 23.81 %ratio

Per Common Share

Earnings percommon share - $ 0.73 $ 0.75 $ 0.58 $ 3.02 $ 2.57 basic

Earnings percommon share - $ 0.72 $ 0.74 $ 0.57 $ 2.97 $ 2.52 diluted

Dividendsdeclared per $ 0.16 $ 0.16 $ 0.15 $ 0.63 $ 0.60 common share

Tangible bookvalue per common $ 17.87 $ 17.46 $ 16.00 share (1)

Average commonshares 17,210 17,205 17,122 17,189 17,106 outstanding -basic

Average commonshares 17,480 17,499 17,450 17,486 17,438 outstanding -diluted

Other Data

Retirement andbenefit servicesassets under $ 36,732,938 $ 36,202,553 $ 34,199,954 administration/management

Wealthmanagementassets under $ 4,039,931 $ 3,865,062 $ 3,338,594 administration/management

Mortgage $ 356,821 $ 415,792 $ 607,166 $ 1,836,064 $ 1,778,977 originations

(1) Represents a non-GAAP financial measure. See "Non-GAAP to GAAPReconciliations 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 September June 30, March 31, December 31, 30, 31,

(dollars in 2021 2021 2021 2021 2020thousands)

Commercial

Commercialand $ 436,761 $ 506,599 $ 572,734 $ 678,029 $ 691,858industrial(1)

Real estate 40,619 37,751 36,549 40,473 44,451construction

Commercial 598,893 573,518 567,987 569,451 563,007real estate

Total 1,076,273 1,117,868 1,177,270 1,287,953 1,299,316commercial

Consumer

Residentialreal estate 510,716 501,339 470,822 454,958 463,370firstmortgage

Residentialreal estate 125,668 130,243 130,180 130,299 143,416junior lien

Otherrevolving 45,363 50,936 57,040 64,135 73,273andinstallment

Total 681,747 682,518 658,042 649,392 680,059consumer

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:

Includes PPP loans of $33.6 million at December 31, 2021, $103.5 million(1) 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 September June 30, March 31, December 31, 30, 31,

(dollars in 2021 2021 2021 2021 2020thousands)

Noninterest-bearing $ 938,840 $ 797,062 $ 758,820 $ 775,434 $ 754,716demand

Interest-bearing

Interest-bearing 714,669 673,916 736,043 674,466 618,900demand

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 1,981,711 1,916,026 1,952,120 1,942,139 1,817,277interest-bearing

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 September June March December 31, 30, 30, 31, 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 121 - - - 30 past due

Total nonperforming 2,197 6,229 6,960 4,756 5,080 loans

OREO and repossessed 885 862 858 139 63 assets

Total nonperforming $ 3,082 $ 7,091 $ 7,818 $ 4,895 $ 5,143 assets

Net charge-offs/ (1,006) (302) (6) 488 (1,509) (recoveries)

Net charge-offs/(recoveries) to average (0.22) % (0.06) % - % 0.10 % (0.30) %loans

Nonperforming loans to 0.12 % 0.35 % 0.38 % 0.25 % 0.26 %total loans

Nonperforming assets to 0.09 % 0.22 % 0.25 % 0.16 % 0.17 %total assets

Allowance for loan 1.80 % 1.78 % 1.84 % 1.74 % 1.73 %losses to total loans

Allowance for loanlosses to nonperforming 1,437 % 515 % 485 % 710 % 674 %loans

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 September December 31, 30, 31,

2021 2021 2020

Capital Ratios^(1)

Alerus Financial Corporation Consolidated

Common equity tier 1 capital to risk 14.65 % 14.52 % 12.75 %weighted assets

Tier 1 capital to risk weighted assets 15.06 % 14.93 % 13.15 %

Total capital to risk weighted assets 18.64 % 18.58 % 16.79 %

Tier 1 capital to average assets 9.79 % 9.88 % 9.24 %

Tangible common equity / tangible assets 9.21 % 9.62 % 9.27 %^(2)



Alerus Financial, N.A.

Common equity tier 1 capital to risk 13.87 % 13.77 % 12.10 %weighted assets

Tier 1 capital to risk weighted assets 13.87 % 13.77 % 12.10 %

Total capital to risk weighted assets 15.12 % 15.03 % 13.36 %

Tier 1 capital to average assets 9.01 % 9.11 % 8.50 %

(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 9:00 a.m. Central Time on Thursday, January 27, 2022, 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 is a diversified financial services company headquartered in Grand Forks, ND. Through its subsidiary, Alerus Financial, N.A., Alerus provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments-banking, retirement and benefit services, wealth management, and mortgage. Alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients' needs. Alerus 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, MN, East Lansing, MI, and Littleton, CO.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders' equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as "may", "might", "should", "could", "predict", "potential", "believe", "expect", "continue", "will", "anticipate", "seek", "estimate", "intend", "plan", "projection", "would", "annualized", "target" and "outlook", or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management's long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the negative effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the pandemic; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including rising rates of inflation; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies; 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 other Fintech companies; our ability to successfully manage liquidity risk, especially in light of recent excess liquidity at the Bank; 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, including the effects of anticipated rate increases by the Federal Reserve; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic, acts of war or terrorism 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 London Interbank Offered Rate, as well as other alternative rates; changes to U.S. or state tax laws, regulations and guidance, including recent proposals to increase the federal corporate tax rate; talent and labor shortages and employee turnover; possible federal mask and vaccine mandates; 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.

(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 9:00 a.m. Central Time on Thursday, January 27, 2022, 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 is a diversified financial services company headquartered in Grand Forks, ND. Through its subsidiary, Alerus Financial, N.A., Alerus provides innovative and comprehensive financial solutions to business and consumer clients through four distinct business segments-banking, retirement and benefit services, wealth management, and mortgage. Alerus provides clients with a primary point of contact to help fully understand the unique needs and delivery channel preferences of each client. Clients are provided with competitive products, valuable insight and sound advice supported by digital solutions designed to meet the clients' needs. Alerus 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, MN, East Lansing, MI, and Littleton, CO.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders' equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as "may", "might", "should", "could", "predict", "potential", "believe", "expect", "continue", "will", "anticipate", "seek", "estimate", "intend", "plan", "projection", "would", "annualized", "target" and "outlook", or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management's long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: the negative effects of the ongoing COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, including due to supply chain disruptions, as well as any changes to federal, state, or local government laws, regulations, or orders in response to the pandemic; our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses; new or revised accounting standards, including as a result of the implementation of the new Current Expected Credit Loss Standard; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including rising rates of inflation; the overall health of the local and national real estate market; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies; 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 other Fintech companies; our ability to successfully manage liquidity risk, especially in light of recent excess liquidity at the Bank; 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, including the effects of anticipated rate increases by the Federal Reserve; fluctuations in the values of the securities held in our securities portfolio; governmental monetary, trade and fiscal policies; severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 global pandemic, acts of war or terrorism 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 London Interbank Offered Rate, as well as other alternative rates; changes to U.S. or state tax laws, regulations and guidance, including recent proposals to increase the federal corporate tax rate; talent and labor shortages and employee turnover; possible federal mask and vaccine mandates; our success at managing the risks involved in the foregoing items; and any other risks described in the "Risk Factors" sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

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



December 31, December 31,

2021 2020

Assets (Unaudited) (Audited)

Cash and cash equivalents $ 242,311 $ 172,962

Investment securities

Available-for-sale, at fair value 853,649 592,342

Held-to-maturity, at carrying value 352,061 -

Loans held for sale 46,490 122,440

Loans 1,758,020 1,979,375

Allowance for loan losses (31,572 ) (34,246 )

Net loans 1,726,448 1,945,129

Land, premises and equipment, net 18,370 20,289

Operating lease right-of-use assets 3,727 6,918

Accrued interest receivable 8,537 9,662

Bank-owned life insurance 33,156 32,363

Goodwill 31,490 30,201

Other intangible assets 20,250 25,919

Servicing rights 1,880 1,987

Deferred income taxes, net 11,614 9,409

Other assets 42,708 44,150

Total assets $ 3,392,691 $ 3,013,771

Liabilities and Stockholders' Equity

Deposits

Noninterest-bearing $ 938,840 $ 754,716

Interest-bearing 1,981,711 1,817,277

Total deposits 2,920,551 2,571,993

Long-term debt 58,933 58,735

Operating lease liabilities 4,275 7,861

Accrued expenses and other liabilities 49,529 45,019

Total liabilities 3,033,288 2,683,608

Stockholders' equity

Preferred stock, $1 par value, 2,000,000 shares - - authorized: 0 issued and outstanding

Common stock, $1 par value, 30,000,000 sharesauthorized: 17,212,588 and 17,125,270 issued 17,213 17,125 and outstanding

Additional paid-in capital 92,878 90,237

Retained earnings 253,567 212,163

Accumulated other comprehensive income (loss) (4,255 ) 10,638

Total stockholders' equity 359,403 330,163

Total liabilities and stockholders' equity $ 3,392,691 $ 3,013,771

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 December December December 30, 31, 31, 31,

2021 2021 2020 2021 2020

Interest (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)Income

Loans,including $ 19,354 $ 18,888 $ 22,549 $ 78,133 $ 86,425fees

Investment securities

Taxable 4,454 3,249 2,301 13,001 7,798

Exempt fromfederal 231 225 237 925 949income taxes

Other 166 185 114 598 930

Totalinterest 24,205 22,547 25,201 92,657 96,102income

Interest Expense

Deposits 880 880 1,210 3,661 8,843

Long-term 536 535 838 1,897 3,413debt

Totalinterest 1,416 1,415 2,048 5,558 12,256expense

Net interest 22,789 21,132 23,153 87,099 83,846income

Provisionfor loan (1,500 ) (2,000 ) 1,400 (3,500 ) 10,900losses

Net interestincome afterprovision 24,289 23,132 21,753 90,599 72,946for loanlosses

Noninterest Income

Retirementand benefit 18,552 18,031 15,922 71,709 60,956services

Wealth 5,633 5,295 4,807 21,052 17,451management

Mortgage 7,967 11,116 16,781 48,502 61,641banking

Servicecharges on 370 357 334 1,395 1,409depositaccounts

Net gains(losses) on - 11 15 125 2,737investmentsecurities

Other 1,196 1,230 837 4,604 5,177

Totalnoninterest 33,718 36,040 38,696 147,387 149,371income

Noninterest Expense

Compensation 22,088 23,291 26,522 93,386 89,206

Employeetaxes and 5,590 5,058 4,962 22,033 20,050benefits

Occupancyand 1,936 2,063 2,443 8,148 10,058equipmentexpense

Businessservices,software and 5,220 5,332 5,634 20,486 19,135technologyexpense

Intangibleamortization 1,053 1,088 990 4,380 3,961expense

Professionalfees and 1,808 1,503 1,531 6,292 4,834assessments

Marketingand business 872 865 1,045 3,182 3,133development

Supplies and 778 549 544 2,361 2,174postage

Travel 206 174 21 442 359

Mortgage andlending 488 1,231 1,791 4,250 5,707expenses

Other 1,237 887 1,642 3,949 5,182

Totalnoninterest 41,276 42,041 47,125 168,909 163,799expense

Incomebefore 16,731 17,131 13,324 69,077 58,518income taxes

Income tax 4,026 4,064 3,144 16,396 13,843expense

Net income $ 12,705 $ 13,067 $ 10,180 $ 52,681 $ 44,675

Per Common Share Data

Earnings per $ 0.73 $ 0.75 $ 0.58 $ 3.02 $ 2.57common share

Dilutedearnings per $ 0.72 $ 0.74 $ 0.57 $ 2.97 $ 2.52common share

Dividendsdeclared per $ 0.16 $ 0.16 $ 0.15 $ 0.63 $ 0.60common share

Averagecommon 17,210 17,205 17,122 17,189 17,106sharesoutstanding

Dilutedaveragecommon 17,480 17,499 17,450 17,486 17,438sharesoutstanding

Alerus Financial Corporation and Subsidiaries

Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures(unaudited)

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



December September December 31, 30, 31,

2021 2021 2020

Tangible Common Equity to Tangible Assets

Total common stockholders' equity $ 359,403 $ 353,195 $ 330,163

Less: Goodwill 31,490 30,201 30,201

Less: Other intangible assets 20,250 22,593 25,919

Tangible common equity (a) 307,663 300,401 274,043

Total assets 3,392,691 3,175,169 3,013,771

Less: Goodwill 31,490 30,201 30,201

Less: Other intangible assets 20,250 22,593 25,919

Tangible assets (b) 3,340,951 3,122,375 2,957,651

Tangible common equity to tangible 9.21 % 9.62 % 9.27 %assets (a)/(b)

Tangible Book Value Per Common Share

Total common stockholders' equity $ 359,403 $ 353,195 $ 330,163

Less: Goodwill 31,490 30,201 30,201

Less: Other intangible assets 20,250 22,593 25,919

Tangible common equity (c) 307,663 300,401 274,043

Total common shares issued and 17,213 17,208 17,125 outstanding (d)

Tangible book value per common share $ 17.87 $ 17.46 $ 16.00 (c)/(d)

Three months ended

Year ended

December 31,

September 30,

December 31,

December 31,

December 31,

2021

2021

2020

2021

2020

Return on Average Tangible Common Equity

Net income

$

12,705

$

13,067

$

10,180

$

52,681

$

44,675

Add: Intangible amortization expense (net of tax)

832

860

782

3,460

3,129

Net income, excluding intangible amortization (e)

13,537

13,927

10,962

56,141

47,804

Average total equity

357,084

353,196

329,210

346,059

310,208

Less: Average goodwill

30,930

30,201

27,766

30,385

27,439

Less: Average other intangible assets (net of tax)

16,843

18,272

13,206

18,548

13,309

Average tangible common equity (f)

309,311

304,723

288,238

297,126

269,460

Return on average tangible common equity (e)/(f)

17.36

%

18.13

%

15.13

%

18.89

%

17.74

%

Net Interest Margin (tax-equivalent)

Net interest income

$

22,789

$

21,132

$

23,153

$

87,099

$

83,846

Tax-equivalent adjustment

99

115

131

492

455

Tax-equivalent net interest income (g)

22,888

21,247

23,284

87,591

84,301

Average earning assets (h)

3,194,530

3,035,798

2,869,767

3,018,172

2,618,427

Net interest margin (tax-equivalent) (g)/(h)

2.84

%

2.78

%

3.23

%

2.90

%

3.22

%

Efficiency Ratio

Noninterest expense

$

41,276

$

42,041

$

47,125

$

168,909

$

163,799

Less: Intangible amortization expense

1,053

1,088

990

4,380

3,961

Adjusted noninterest expense (i)

40,223

40,953

46,135

164,529

159,838

Net interest income

22,789

21,132

23,153

87,099

83,846

Noninterest income

33,718

36,040

38,696

147,387

149,371

Tax-equivalent adjustment

99

115

131

492

455

Total tax-equivalent revenue (j)

56,606

57,287

61,980

234,978

233,672

Efficiency ratio (i)/(j)

71.06

%

71.49

%

74.44

%

70.02

%

68.40

%



Three months ended Year ended

December September December December December 31, 30, 31, 31, 31,

2021 2021 2020 2021 2020

Return onAverage Tangible Common Equity

Net income $ 12,705 $ 13,067 $ 10,180 $ 52,681 $ 44,675

Add: Intangibleamortization 832 860 782 3,460 3,129 expense (net oftax)

Net income,excluding 13,537 13,927 10,962 56,141 47,804 intangibleamortization (e)

Average total 357,084 353,196 329,210 346,059 310,208 equity

Less: Average 30,930 30,201 27,766 30,385 27,439 goodwill

Less: Averageother intangible 16,843 18,272 13,206 18,548 13,309 assets (net oftax)

Average tangiblecommon equity 309,311 304,723 288,238 297,126 269,460 (f)

Return onaverage tangible 17.36 % 18.13 % 15.13 % 18.89 % 17.74 %common equity(e)/(f)

Net InterestMargin (tax-equivalent)

Net interest $ 22,789 $ 21,132 $ 23,153 $ 87,099 $ 83,846 income

Tax-equivalent 99 115 131 492 455 adjustment

Tax-equivalentnet interest 22,888 21,247 23,284 87,591 84,301 income (g)

Average earning 3,194,530 3,035,798 2,869,767 3,018,172 2,618,427 assets (h)

Net interestmargin 2.84 % 2.78 % 3.23 % 2.90 % 3.22 %(tax-equivalent)(g)/(h)

Efficiency Ratio

Noninterest $ 41,276 $ 42,041 $ 47,125 $ 168,909 $ 163,799 expense

Less: Intangibleamortization 1,053 1,088 990 4,380 3,961 expense

Adjustednoninterest 40,223 40,953 46,135 164,529 159,838 expense (i)

Net interest 22,789 21,132 23,153 87,099 83,846 income

Noninterest 33,718 36,040 38,696 147,387 149,371 income

Tax-equivalent 99 115 131 492 455 adjustment

Totaltax-equivalent 56,606 57,287 61,980 234,978 233,672 revenue (j)

Efficiency ratio 71.06 % 71.49 % 74.44 % 70.02 % 68.40 %(i)/(j)

Alerus Financial Corporation and Subsidiaries

Analysis of Average Balances, Yields, and Rates (unaudited)

(dollars in thousands)



Three months ended Year ended

December 31, 2021 September 30, 2021 December 31, 2020 December 31, 2021 December 31, 2020

Average Average Average Average Average

Average Yield/ Average Yield/ Average Yield/ Average Yield/ Average Yield/

Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate

Interest Earning Assets

Interest-bearing $ 232,650 0.16 % $ 281,768 0.16 % $ 164,052 0.12 % $ 222,916 0.14 % $ 162,616 0.41 %deposits with banks

Investment 1,119,370 1.68 % 869,421 1.61 % 549,198 1.88 % 864,273 1.64 % 425,219 2.12 %securities (1)

Loans held for sale 53,357 2.33 % 57,233 2.40 % 122,820 2.18 % 65,968 2.26 % 79,201 2.46 %

Loans

Commercial:

Commercial and 471,262 5.61 % 544,811 4.95 % 745,415 4.91 % 579,002 4.91 % 687,266 4.60 %industrial

Real estate 41,573 3.89 % 37,743 3.99 % 40,009 4.31 % 41,751 4.10 % 32,804 4.54 %construction

Commercial real 587,542 3.90 % 567,696 3.67 % 545,432 3.82 % 571,326 3.77 % 523,219 4.18 %estate

Total commercial 1,100,377 4.63 % 1,150,250 4.29 % 1,330,856 4.45 % 1,192,079 4.34 % 1,243,289 4.42 %

Consumer

Residential realestate first 504,997 3.30 % 487,699 3.32 % 471,125 3.73 % 477,621 3.47 % 463,174 3.97 %mortgage

Residential real 129,238 4.52 % 129,239 4.57 % 149,456 4.72 % 131,412 4.64 % 159,844 4.81 %estate junior lien

Other revolving and 48,045 4.53 % 53,683 4.45 % 76,466 4.53 % 57,574 4.41 % 79,238 4.57 %installment

Total consumer 682,280 3.62 % 670,621 3.65 % 697,047 4.03 % 666,607 3.78 % 702,256 4.23 %

Total loans (1) 1,782,657 4.25 % 1,820,871 4.05 % 2,027,903 4.30 % 1,858,686 4.14 % 1,945,545 4.35 %

Federal Reserve/ 6,496 4.34 % 6,505 4.33 % 5,794 4.46 % 6,329 4.36 % 5,846 4.55 %FHLB stock

Total interest 3,194,530 3.02 % 3,035,798 2.96 % 2,869,767 3.51 % 3,018,172 3.09 % 2,618,427 3.69 %earning assets

Noninterest earning 159,370 155,079 158,417 160,648 156,713 assets

Total assets $ 3,353,900 $ 3,190,877 $ 3,028,184 $ 3,178,820 $ 2,775,140

Interest-Bearing Liabilities

Interest-bearing $ 754,432 0.13 % $ 692,873 0.14 % $ 622,854 0.19 % $ 697,276 0.14 % $ 551,861 0.29 %demand deposits

Money market and 1,039,492 0.14 % 1,009,564 0.14 % 1,012,497 0.20 % 1,023,677 0.15 % 920,072 0.53 %savings deposits

Time deposits 225,497 0.46 % 217,756 0.50 % 208,378 0.79 % 215,624 0.54 % 203,413 1.16 %

Short-term - - % 10 - % - - % 3 - % 80 - %borrowings

Long-term debt 58,938 3.61 % 58,968 3.60 % 58,726 5.68 % 50,759 3.74 % 58,742 5.81 %

Totalinterest-bearing 2,078,359 0.27 % 1,979,171 0.28 % 1,902,455 0.43 % 1,987,339 0.28 % 1,734,168 0.71 %liabilities

Noninterest-BearingLiabilities and Stockholders'Equity

Noninterest-bearing 851,210 799,854 738,319 784,998 673,676 deposits

Othernoninterest-bearing 67,247 58,656 58,200 60,424 57,088 liabilities

Stockholders' 357,084 353,196 329,210 346,059 310,208 equity

Total liabilitiesand stockholders' $ 3,353,900 $ 3,190,877 $ 3,028,184 $ 3,178,820 $ 2,775,140 equity

Net interest rate 2.75 % 2.68 % 3.08 % 2.81 % 2.98 %spread

Net interestmargin, 2.84 % 2.78 % 3.23 % 2.90 % 3.22 %tax-equivalent (2)

(1)

Taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.

(2)

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

View source version on businesswire.com: https://www.businesswire.com/news/home/20220126006038/en/

CONTACT: Katie A. Lorenson, Chief Executive Officer 952.417.3725 (Office)