Business Wire | Jul 28, 2021 04:01PM EDT

Alerus Financial Corporation Reports Second Quarter 2021 Net Income of $11.7 Million

Jul. 28, 2021

GRAND FORKS, N.D.--(BUSINESS WIRE)--Jul. 28, 2021--Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $11.7 million for the second quarter of 2021, or $0.66 per diluted common share, compared to net income of $15.2 million, or $0.86 per diluted common share, for the first quarter of 2021, and net income of $11.5 million, or $0.65 per diluted common share, for the second quarter of 2020.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, "Alerus continues to deliver top tier financial performance, driven by our long-term strategies and focus on offering valued advice to clients, resulting in extraordinary revenue diversification and growth opportunities. Alerus continues to establish itself as a premier provider of holistic solutions to our consumer and business clients. Our client base of more than 540,000 consumer clients and 18,300 business clients is a significant differentiator in our ability to continue to grow and provide superior returns to our shareholders.

Our diversified business is rooted by our long-standing culture, focused on advice and working in the best interests of our clients, a foundation which has been built over decades of meeting our clients on their financial journey and guiding them to their path for financial success. This relationship focused model is a key differentiator both in working with clients and attracting talented professionals to our organization.

During the quarter we strengthened our U.S. Small Business Administration, or SBA, lending capabilities with the addition of an experienced SBA team. Led by industry veteran John Kimball, who most recently served as SBA lending manager at a large, regional community bank, the five-person team collectively has more than 100 years of business banking and small business lending experience at community and regional banks. These team members are aligned with our culture of providing expertise and value to our business clients so they can continue to grow and expand."

Quarterly Highlights

* Return on average total assets of 1.50%, compared to 2.02% for the first quarter of 2021 * Return on average tangible common equity(1) of 17.36%, compared to 23.03% for the first quarter of 2021 * Net interest margin (tax-equivalent)(1) was 2.88%, compared to 3.12% for the first quarter of 2021 * Allowance for loan losses to total loans, excluding Paycheck Protection Program, or PPP, loans, was 2.02%, compared to 2.00% as of December 31, 2020 * Efficiency ratio(1) of 71.46%, compared to 66.43% for the first quarter of 2021 * Noninterest income decreased $4.1 million from the first quarter of 2021 and was 63.48% of total revenue, compared to 64.97% for the first quarter of 2021 * Mortgage originations totaled $545.4 million, a 5.3% increase from the first quarter of 2021 * Investment securities increased $205.5 million, or 34.7%, from the fourth quarter of 2020 * Loans held for sale decreased $55.6 million, or 45.4%, from the fourth quarter of 2020 * Loans held for investment decreased $144.1 million, or 7.3%, from the fourth quarter of 2020 * Deposits increased $138.9 million, or 5.4%, from the fourth quarter of 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

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

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

2021

2021

2020

2021

2020

Performance Ratios

Return on average total assets

1.50

%

2.02

%

1.68

%

1.76

%

1.31

%

Return on average common equity

13.82

%

18.46

%

15.30

%

16.11

%

11.35

%

Return on average tangible common equity (1)

17.36

%

23.03

%

18.88

%

20.15

%

14.39

%

Noninterest income as a % of revenue

63.48

%

64.97

%

65.55

%

64.26

%

62.69

%

Net interest margin (tax-equivalent) (1)

2.88

%

3.12

%

3.14

%

3.00

%

3.24

%

Efficiency ratio (1)

71.46

%

66.43

%

66.31

%

68.84

%

71.23

%

Net charge-offs/(recoveries) to average loans

-

%

0.10

%

0.66

%

0.05

%

0.29

%

Dividend payout ratio

24.24

%

17.44

%

23.08

%

20.39

%

31.58

%

Per Common Share

Earnings per common share - basic

$

0.67

$

0.87

$

0.66

$

1.54

$

0.97

Earnings per common share - diluted

$

0.66

$

0.86

$

0.65

$

1.52

$

0.95

Dividends declared per common share

$

0.16

$

0.15

$

0.15

$

0.31

$

0.30

Tangible book value per common share (1)

$

16.89

$

15.95

$

15.30

Average common shares outstanding - basic

17,194

17,145

17,111

17,170

17,091

Average common shares outstanding - diluted

17,497

17,465

17,445

17,482

17,425

Other Data

Retirement and benefit services assets under administration/management

$

36,964,961

$

34,774,650

$

30,093,095

Wealth management assets under administration/management

3,538,959

3,357,530

2,957,213

Mortgage originations

545,437

518,014

431,638

$

1,063,451

$

660,206





Selected Financial Data (unaudited)

As of and for the

Three months ended Six months ended

June 30, March 31, June 30, June 30, June 30,

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

Performance Ratios

Return onaverage total 1.50 % 2.02 % 1.68 % 1.76 % 1.31 %assets

Return onaverage common 13.82 % 18.46 % 15.30 % 16.11 % 11.35 %equity

Return onaverage tangible 17.36 % 23.03 % 18.88 % 20.15 % 14.39 %common equity(1)

Noninterestincome as a % of 63.48 % 64.97 % 65.55 % 64.26 % 62.69 %revenue

Net interestmargin 2.88 % 3.12 % 3.14 % 3.00 % 3.24 %(tax-equivalent)(1)

Efficiency ratio 71.46 % 66.43 % 66.31 % 68.84 % 71.23 %(1)

Net charge-offs/(recoveries) to - % 0.10 % 0.66 % 0.05 % 0.29 %average loans

Dividend payout 24.24 % 17.44 % 23.08 % 20.39 % 31.58 %ratio

Per Common Share

Earnings percommon share - $ 0.67 $ 0.87 $ 0.66 $ 1.54 $ 0.97 basic

Earnings percommon share - $ 0.66 $ 0.86 $ 0.65 $ 1.52 $ 0.95 diluted

Dividendsdeclared per $ 0.16 $ 0.15 $ 0.15 $ 0.31 $ 0.30 common share

Tangible bookvalue per common $ 16.89 $ 15.95 $ 15.30 share (1)

Average commonshares 17,194 17,145 17,111 17,170 17,091 outstanding -basic

Average commonshares 17,497 17,465 17,445 17,482 17,425 outstanding -diluted

Other Data

Retirement andbenefit servicesassets under $ 36,964,961 $ 34,774,650 $ 30,093,095 administration/management

Wealthmanagementassets under 3,538,959 3,357,530 2,957,213 administration/management

Mortgage 545,437 518,014 431,638 $ 1,063,451 $ 660,206 originations

(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 second quarter of 2021 was $21.1 million, a decrease of $898 thousand, or 4.1%, from $22.0 million for the first quarter of 2021, and an increase of $1.0 million, or 5.2%, from $20.1 million for the second quarter of 2020. The linked quarter decrease in net interest income was primarily driven by a $1.2 million decrease in interest income from loans as average total loans decreased $57.5 million while the average yield decreased by 17 basis points. During the second quarter of 2021, average interest earning assets increased $78.2 million, primarily due to increases of $138.4 million in investment securities and $7.3 million in interest-bearing deposits with banks, partially offset by decreases of $57.5 million in loans held for investment and $10.8 million in loans held for sale. The change in the balance sheet mix resulted in a 22 basis point decrease in the average earning asset yield. Net interest income earned from PPP loans during the second quarter of 2021 totaled $2.6 million, a decrease of $477 thousand, from the $3.0 million earned during the first quarter. The cost of interest-bearing liabilities had a modest increase of 2 basis points from the first quarter of 2021 primarily due to increased average balances in interest-bearing demand deposits as well as long-term debt.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.88% for the second quarter of 2021, a 24 basis point decrease from 3.12% for the first quarter of 2021, and a 26 basis point decrease from 3.14% in the second quarter of 2020. The linked quarter decrease was primarily due to lower yields on interest earning assets. Excluding PPP loans, net interest margin was 2.75% for the second quarter of 2021, a 20 basis point decrease from 2.95% for the first 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 60 basis point decrease in interest earning asset yields.

Noninterest Income

Noninterest income for the second quarter of 2021 was $36.7 million, a $4.1 million, or 10.1%, decrease from the first quarter of 2021. The decrease was primarily driven by a $4.8 million decrease in mortgage banking revenue. The decrease in mortgage banking revenue was primarily a result of a $6.2 million decline in fair market value of the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin.

Noninterest income for the second quarter of 2021 decreased $1.5 million, or 3.9%, from $38.2 million in the second quarter of 2020. This decrease was primarily due to a $5.3 million decrease in mortgage banking revenue, a result of a $11.5 million decline in fair market value on the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin. Offsetting this decrease was a $4.2 million increase in retirement and benefit services income, primarily driven by the revenue attributable to the acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex) and a $693 thousand increase in document restatement fees, and a $1.0 million increase in wealth management revenue primarily driven by organic growth and market increases in assets under administration/management.

Noninterest Expense

Noninterest expense for the second quarter of 2021 was $42.6 million, a decrease of $492 thousand, or 1.1%, compared to the first quarter of 2021. The decrease was primarily due to decreases of $447 thousand in other noninterest expense, $313 thousand decrease in occupancy and equipment expense and $241 thousand decrease in employee taxes and benefits, partially offset by a $611 thousand increase in compensation expense. The decrease in other noninterest expense was a result of a loss recognized in the first quarter of 2021 on the redemption of the Company's subordinated notes which were redeemed during the first quarter. The decrease in occupancy and equipment expense is attributable to the termination of facility leases and closure of nine office locations in 2020. The increase in compensation expense was primarily due to an increase in mortgage related compensation and incentives.

Noninterest expense for the second quarter of 2021 increased $2.8 million, or 7.1%, from $39.7 million in the second quarter of 2020. The increase was primarily attributable to increased compensation expense, employee taxes and benefits, primarily as a result of the significant year over year increase in mortgage originations. Additionally, compensation expense and employee taxes and benefits increased as a result of the acquisition of RPS, as the number of full time employees increased from 791 employees in the second quarter of 2020 to 835 employees in the second quarter of 2021.

Financial Condition

Total assets were $3.2 billion as of June 30, 2021, an increase of $143.5 million, or 4.8%, from December 31, 2020. The overall increase in total assets included increases of $205.5 million in investment securities and $142.5 million in cash and cash equivalents, partially offset by a $55.6 million decrease in loans held for sale and a $144.1 million decrease in loans held for investment.

Loans

Total loans were $1.84 billion as of June 30, 2021, a decrease of $144.1 million, or 7.3%, from December 31, 2020. The decrease was primarily due to a $119.1 million decrease in the commercial and industrial loan portfolio, as approximately $213.5 million of PPP loans were forgiven, and $110.5 million of new PPP loans were funded. Excluding PPP loans, the commercial loan portfolio decreased by $18.6 million, or 1.8%, from December 31, 2020. The consumer loan portfolio decreased $22.0 million from December 31, 2020, due to high levels of refinancing and our strategic exit from indirect lending.

The following table presents the composition of our loan portfolio as of the dates indicated:

(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 second quarter of 2021 was $21.1 million, a decrease of $898 thousand, or 4.1%, from $22.0 million for the first quarter of 2021, and an increase of $1.0 million, or 5.2%, from $20.1 million for the second quarter of 2020. The linked quarter decrease in net interest income was primarily driven by a $1.2 million decrease in interest income from loans as average total loans decreased $57.5 million while the average yield decreased by 17 basis points. During the second quarter of 2021, average interest earning assets increased $78.2 million, primarily due to increases of $138.4 million in investment securities and $7.3 million in interest-bearing deposits with banks, partially offset by decreases of $57.5 million in loans held for investment and $10.8 million in loans held for sale. The change in the balance sheet mix resulted in a 22 basis point decrease in the average earning asset yield. Net interest income earned from PPP loans during the second quarter of 2021 totaled $2.6 million, a decrease of $477 thousand, from the $3.0 million earned during the first quarter. The cost of interest-bearing liabilities had a modest increase of 2 basis points from the first quarter of 2021 primarily due to increased average balances in interest-bearing demand deposits as well as long-term debt.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 2.88% for the second quarter of 2021, a 24 basis point decrease from 3.12% for the first quarter of 2021, and a 26 basis point decrease from 3.14% in the second quarter of 2020. The linked quarter decrease was primarily due to lower yields on interest earning assets. Excluding PPP loans, net interest margin was 2.75% for the second quarter of 2021, a 20 basis point decrease from 2.95% for the first 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 60 basis point decrease in interest earning asset yields.

Noninterest Income

Noninterest income for the second quarter of 2021 was $36.7 million, a $4.1 million, or 10.1%, decrease from the first quarter of 2021. The decrease was primarily driven by a $4.8 million decrease in mortgage banking revenue. The decrease in mortgage banking revenue was primarily a result of a $6.2 million decline in fair market value of the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin.

Noninterest income for the second quarter of 2021 decreased $1.5 million, or 3.9%, from $38.2 million in the second quarter of 2020. This decrease was primarily due to a $5.3 million decrease in mortgage banking revenue, a result of a $11.5 million decline in fair market value on the secondary market hedge, partially offset by a 56 basis point increase in the gain on sale margin. Offsetting this decrease was a $4.2 million increase in retirement and benefit services income, primarily driven by the revenue attributable to the acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex) and a $693 thousand increase in document restatement fees, and a $1.0 million increase in wealth management revenue primarily driven by organic growth and market increases in assets under administration/management.

Noninterest Expense

Noninterest expense for the second quarter of 2021 was $42.6 million, a decrease of $492 thousand, or 1.1%, compared to the first quarter of 2021. The decrease was primarily due to decreases of $447 thousand in other noninterest expense, $313 thousand decrease in occupancy and equipment expense and $241 thousand decrease in employee taxes and benefits, partially offset by a $611 thousand increase in compensation expense. The decrease in other noninterest expense was a result of a loss recognized in the first quarter of 2021 on the redemption of the Company's subordinated notes which were redeemed during the first quarter. The decrease in occupancy and equipment expense is attributable to the termination of facility leases and closure of nine office locations in 2020. The increase in compensation expense was primarily due to an increase in mortgage related compensation and incentives.

Noninterest expense for the second quarter of 2021 increased $2.8 million, or 7.1%, from $39.7 million in the second quarter of 2020. The increase was primarily attributable to increased compensation expense, employee taxes and benefits, primarily as a result of the significant year over year increase in mortgage originations. Additionally, compensation expense and employee taxes and benefits increased as a result of the acquisition of RPS, as the number of full time employees increased from 791 employees in the second quarter of 2020 to 835 employees in the second quarter of 2021.

Financial Condition

Total assets were $3.2 billion as of June 30, 2021, an increase of $143.5 million, or 4.8%, from December 31, 2020. The overall increase in total assets included increases of $205.5 million in investment securities and $142.5 million in cash and cash equivalents, partially offset by a $55.6 million decrease in loans held for sale and a $144.1 million decrease in loans held for investment.

Loans

Total loans were $1.84 billion as of June 30, 2021, a decrease of $144.1 million, or 7.3%, from December 31, 2020. The decrease was primarily due to a $119.1 million decrease in the commercial and industrial loan portfolio, as approximately $213.5 million of PPP loans were forgiven, and $110.5 million of new PPP loans were funded. Excluding PPP loans, the commercial loan portfolio decreased by $18.6 million, or 1.8%, from December 31, 2020. The consumer loan portfolio decreased $22.0 million from December 31, 2020, due to high levels of refinancing and our strategic exit from indirect lending.

The following table presents the composition of our loan portfolio as of the dates indicated:

December September June 30, March 31, 31, 30, June 30,(dollars in 2021 2021 2020 2020 2020thousands)

Commercial

Commercialand $ 572,734 $ 678,029 $ 691,858 $ 789,036 $ 794,204industrial(1)

Real estate 36,549 40,473 44,451 33,169 31,344construction

Commercial 567,987 569,451 563,007 535,216 519,104real estate

Total 1,177,270 1,287,953 1,299,316 1,357,421 1,344,652commercial

Consumer

Residentialreal estate 470,822 454,958 463,370 469,050 456,737firstmortgage

Residentialreal estate 130,180 130,299 143,416 152,487 154,351junior lien

Otherrevolving 57,040 64,135 73,273 79,461 78,457andinstallment

Total 658,042 649,392 680,059 700,998 689,545consumer

Total loans $ 1,835,312 $ 1,937,345 $ 1,979,375 $ 2,058,419 $ 2,034,197

__________________________________(1)

Includes PPP loans of $165.0 million at June 30, 2021, $256.8 million at March 31, 2021, $268.4 million at December 31, 2020, $348.9 million at September 30, 2020 and $347.3 million at June 30, 2020.

Deposits

Total deposits were $2.71 billion as of June 30, 2021, an increase of $138.9 million, or 5.4%, from December 31, 2020. Interest-bearing deposits increased $134.8 million while noninterest-bearing deposits increased $4.1 million. Key drivers of the increase included ongoing higher depositor balances due to the uncertain economic environment, government stimulus programs and volatile financial markets. Although overall deposits increased, there was a $44.0 million decrease in synergistic deposits, primarily in the retirement and benefit services accounts as participants moved balances back into the markets. Excluding synergistic deposits, commercial transaction deposits increased $113.9 million, or 10.3%, while consumer transaction deposits increased, $75.8 million, or 11.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits was 28.0% as of June 30, 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:

__________________________________(1) Includes PPP loans of $165.0 million at June 30, 2021, $256.8 million at March 31, 2021, $268.4 million at December 31, 2020, $348.9 million at September 30, 2020 and $347.3 million at June 30, 2020.

Deposits

Total deposits were $2.71 billion as of June 30, 2021, an increase of $138.9 million, or 5.4%, from December 31, 2020. Interest-bearing deposits increased $134.8 million while noninterest-bearing deposits increased $4.1 million. Key drivers of the increase included ongoing higher depositor balances due to the uncertain economic environment, government stimulus programs and volatile financial markets. Although overall deposits increased, there was a $44.0 million decrease in synergistic deposits, primarily in the retirement and benefit services accounts as participants moved balances back into the markets. Excluding synergistic deposits, commercial transaction deposits increased $113.9 million, or 10.3%, while consumer transaction deposits increased, $75.8 million, or 11.8%, since December 31, 2020. Noninterest-bearing deposits as a percentage of total deposits was 28.0% as of June 30, 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, 31, 30, June 30,(dollars in 2021 2021 2020 2020 2020thousands)

Noninterest-bearing $ 758,820 $ 775,434 $ 754,716 $ 693,450 $ 700,892demand

Interest-bearing

Interest-bearing 736,043 674,466 618,900 590,366 579,840demand

Savings accounts 89,437 87,492 79,902 78,659 75,973

Money market savings 920,831 967,273 909,137 892,473 892,717

Time deposits 205,809 212,908 209,338 207,422 203,731

Total 1,952,120 1,942,139 1,817,277 1,768,920 1,752,261interest-bearing

Total deposits $ 2,710,940 $ 2,717,573 $ 2,571,993 $ 2,462,370 $ 2,453,153

Asset Quality

Total nonperforming assets were $7.8 million as of June 30, 2021, an increase of $2.7 million, or 52.0%, from December 31, 2020. As of June 30, 2021, the allowance for loan losses was $33.8 million, or 1.84% 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 2.02% at June 30, 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 30, March 31, 31, 30, June 30,(dollars in 2021 2021 2020 2020 2020thousands)

Nonaccrual loans $ 6,960 $ 4,756 $ 5,050 $ 4,795 $ 5,328

Accruing loans 90+ - - 30 - - days past due

Total nonperforming 6,960 4,756 5,080 4,795 5,328 loans

OREO and 858 139 63 10 26 repossessed assets

Total nonperforming $ 7,818 $ 4,895 $ 5,143 $ 4,805 $ 5,354 assets

Net charge-offs/ (6 ) 488 (1,509 ) (581 ) 3,264 (recoveries)

Net charge-offs/ ) )(recoveries) to - % 0.10 % (0.30 % (0.11 % 0.66 %average loans

Nonperforming loans 0.38 % 0.25 % 0.26 % 0.23 % 0.26 %to total loans

Nonperformingassets to total 0.25 % 0.16 % 0.17 % 0.17 % 0.19 %assets

Allowance for loanlosses to total 1.84 % 1.74 % 1.73 % 1.52 % 1.34 %loans

Allowance for loanlosses to 485 % 710 % 674 % 654 % 512 %nonperforming loans

For the second quarter of 2021, we had net recoveries of $6 thousand compared to net charge-offs of $488 thousand for the first quarter of 2021 and $3.3 million of net charge-offs for the second quarter of 2020.

There was no provision recorded for the second quarter of 2021, no change from the first quarter of 2021 and a decrease of $3.5 million from the second quarter of 2020. Management decided additional provisions were not necessary in the second quarter of 2021 as credit quality indicators remained strong and loan balances decreased.

The ratio of nonperforming loans to total loans at June 30, 2021 was 0.38%, and if PPP loans were excluded, this ratio would have been 0.42%. Nonperforming assets as a percentage of total assets was 0.25% at June 30, 2021. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.26% at June 30, 2021.

Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through June 30, 2021, we had entered into principal and interest deferrals on 584 loans, representing $154.5 million in total outstanding principal balances. Of those loans, 12 loans with a total outstanding principal balance of $5.3 million have been granted additional deferrals, 4 loans with a total outstanding principal balance of $653 thousand remain on the first deferral and the remaining loans have been returned to normal payment status. These loan modifications are not considered troubled debt restructurings.

Capital

Total stockholders' equity was $344.4 million as of June 30, 2021, an increase of $14.2 million from December 31, 2020. The tangible book value per common share, a non-GAAP financial measure, increased to $16.89 as of June 30, 2021, from $16.00 as of December 31, 2020. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 9.36% as of June 30, 2021, from 9.27% as of December 31, 2020.

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

June December June 30, 31, 30,

2021 2020 2020

Capital Ratios^(1)

Alerus Financial Corporation Consolidated

Common equity tier 1 capital to risk weighted 14.30 % 12.75 % 12.58 %assets

Tier 1 capital to risk weighted assets 14.71 % 13.15 % 12.99 %

Total capital to risk weighted assets 18.43 % 16.79 % 16.70 %

Tier 1 capital to average assets 9.62 % 9.24 % 9.75 %

Tangible common equity / tangible assets ^(2) 9.36 % 9.27 % 9.25 %

Alerus Financial, N.A.

Common equity tier 1 capital to risk weighted 13.57 % 12.10 % 11.99 %assets

Tier 1 capital to risk weighted assets 13.57 % 12.10 % 11.99 %

Total capital to risk weighted assets 14.82 % 13.36 % 13.24 %

Tier 1 capital to average assets 8.98 % 8.50 % 9.00 %

(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, July 29, 2021, 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. 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 effects of the COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, 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; 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; 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, 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. tax laws, regulations and guidance; 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, July 29, 2021, 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. 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 effects of the COVID-19 pandemic, including its effects on the economic environment, our clients, and our operations, 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; 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; 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, 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. tax laws, regulations and guidance; 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 and shares in thousands, except per share data)

June 30, December 31, 2021 2020

Assets (Unaudited) (Audited)

Cash and cash equivalents $ 315,430 $ 172,962

Investment securities

Available-for-sale, at fair value 651,546 592,342

Held-to-maturity, at carrying value 146,316 -

Loans held for sale 66,856 122,440

Loans 1,835,312 1,979,375

Allowance for loan losses (33,764 ) (34,246 )

Net loans 1,801,548 1,945,129

Land, premises and equipment, net 18,847 20,289

Operating lease right-of-use assets 4,203 6,918

Accrued interest receivable 8,463 9,662

Bank-owned life insurance 32,752 32,363

Goodwill 30,201 30,201

Other intangible assets 23,680 25,919

Servicing rights 1,964 1,987

Deferred income taxes, net 11,522 9,409

Other assets 43,901 44,150

Total assets $ 3,157,229 $ 3,013,771

Liabilities and Stockholders' Equity

Deposits

Noninterest-bearing $ 758,820 $ 754,716

Interest-bearing 1,952,120 1,817,277

Total deposits 2,710,940 2,571,993

Long-term debt 58,992 58,735

Operating lease liabilities 4,868 7,861

Accrued expenses and other liabilities 38,038 45,019

Total liabilities 2,812,838 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: 17,197,771 and 17,125,270 issued and 17,198 17,125 outstanding

Additional paid-in capital 91,273 90,237

Retained earnings 233,397 212,163

Accumulated other comprehensive income (loss) 2,523 10,638

Total stockholders' equity 344,391 330,163

Total liabilities and stockholders' equity $ 3,157,229 $ 3,013,771

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

Three months ended

Six months ended

June 30,

2021

March 31,

2021

June 30,

2020

June 30,

2021

June 30,

2020

Interest Income

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Loans, including fees

$

19,324

$

20,567

$

21,372

$

39,891

$

41,914

Investment securities

Taxable

2,897

2,401

1,765

5,298

3,524

Exempt from federal income taxes

233

236

239

469

474

Other

130

117

130

247

700

Total interest income

22,584

23,321

23,506

45,905

46,612

Interest Expense

Deposits

906

995

2,558

1,901

5,950

Long-term debt

538

288

857

826

1,734

Total interest expense

1,444

1,283

3,415

2,727

7,684

Net interest income

21,140

22,038

20,091

43,178

38,928

Provision for loan losses

-

-

3,500

-

6,000

Net interest income after provision for loan losses

21,140

22,038

16,591

43,178

32,928

Noninterest Income

Retirement and benefit services

17,871

17,255

13,710

35,126

29,930

Wealth management

5,138

4,986

4,112

10,124

8,158

Mortgage banking

12,287

17,132

17,546

29,419

22,591

Service charges on deposit accounts

330

338

297

668

720

Net gains (losses) on investment securities

-

114

1,294

114

1,294

Other

1,122

1,056

1,271

2,178

2,726

Total noninterest income

36,748

40,881

38,230

77,629

65,419

Noninterest Expense

Compensation

24,309

23,698

21,213

48,007

39,944

Employee taxes and benefits

5,572

5,813

4,747

11,385

10,055

Occupancy and equipment expense

1,918

2,231

2,612

4,149

5,104

Business services, software and technology expense

4,958

4,976

4,580

9,934

9,123

Intangible amortization expense

1,088

1,151

991

2,239

1,981

Professional fees and assessments

1,509

1,472

1,177

2,981

2,233

Marketing and business development

769

676

549

1,445

1,159

Supplies and postage

503

531

675

1,034

1,382

Travel

36

26

51

62

312

Mortgage and lending expenses

1,199

1,332

1,341

2,531

2,482

Other

689

1,136

1,798

1,825

2,685

Total noninterest expense

42,550

43,042

39,734

85,592

76,460

Income before income taxes

15,338

19,877

15,087

35,215

21,887

Income tax expense

3,644

4,662

3,613

8,306

5,050

Net income

$

11,694

$

15,215

$

11,474

$

26,909

$

16,837

Per Common Share Data

Earnings per common share

$

0.67

$

0.87

$

0.66

$

1.54

$

0.97

Diluted earnings per common share

$

0.66

$

0.86

$

0.65

$

1.52

$

0.95

Dividends declared per common share

$

0.16

$

0.15

$

0.15

$

0.31

$

0.30

Average common shares outstanding

17,194

17,145

17,111

17,170

17,091

Diluted average common shares outstanding

17,497

17,465

17,445

17,482

17,425





Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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

Three months ended Six months ended

June 30, March 31, June 30, June 30, June 30, 2021 2021 2020 2021 2020

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

Loans,including $ 19,324 $ 20,567 $ 21,372 $ 39,891 $ 41,914fees

Investment securities

Taxable 2,897 2,401 1,765 5,298 3,524

Exempt fromfederal 233 236 239 469 474income taxes

Other 130 117 130 247 700

Totalinterest 22,584 23,321 23,506 45,905 46,612income

Interest Expense

Deposits 906 995 2,558 1,901 5,950

Long-term 538 288 857 826 1,734debt

Totalinterest 1,444 1,283 3,415 2,727 7,684expense

Net interest 21,140 22,038 20,091 43,178 38,928income

Provisionfor loan - - 3,500 - 6,000losses

Net interestincome afterprovision 21,140 22,038 16,591 43,178 32,928for loanlosses

Noninterest Income

Retirementand benefit 17,871 17,255 13,710 35,126 29,930services

Wealth 5,138 4,986 4,112 10,124 8,158management

Mortgage 12,287 17,132 17,546 29,419 22,591banking

Servicecharges on 330 338 297 668 720depositaccounts

Net gains(losses) on - 114 1,294 114 1,294investmentsecurities

Other 1,122 1,056 1,271 2,178 2,726

Totalnoninterest 36,748 40,881 38,230 77,629 65,419income

Noninterest Expense

Compensation 24,309 23,698 21,213 48,007 39,944

Employeetaxes and 5,572 5,813 4,747 11,385 10,055benefits

Occupancyand 1,918 2,231 2,612 4,149 5,104equipmentexpense

Businessservices,software and 4,958 4,976 4,580 9,934 9,123technologyexpense

Intangibleamortization 1,088 1,151 991 2,239 1,981expense

Professionalfees and 1,509 1,472 1,177 2,981 2,233assessments

Marketingand business 769 676 549 1,445 1,159development

Supplies and 503 531 675 1,034 1,382postage

Travel 36 26 51 62 312

Mortgage andlending 1,199 1,332 1,341 2,531 2,482expenses

Other 689 1,136 1,798 1,825 2,685

Totalnoninterest 42,550 43,042 39,734 85,592 76,460expense

Incomebefore 15,338 19,877 15,087 35,215 21,887income taxes

Income tax 3,644 4,662 3,613 8,306 5,050expense

Net income $ 11,694 $ 15,215 $ 11,474 $ 26,909 $ 16,837

Per Common Share Data

Earnings per $ 0.67 $ 0.87 $ 0.66 $ 1.54 $ 0.97common share

Dilutedearnings per $ 0.66 $ 0.86 $ 0.65 $ 1.52 $ 0.95common share

Dividendsdeclared per $ 0.16 $ 0.15 $ 0.15 $ 0.31 $ 0.30common share

Averagecommon 17,194 17,145 17,111 17,170 17,091sharesoutstanding

Dilutedaveragecommon 17,497 17,465 17,445 17,482 17,425sharesoutstanding

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)

June 30, 2021

March 31, 2021

December 31, 2020

June 30, 2020

Tangible Common Equity to Tangible Assets

Total common stockholders' equity

$

344,391

$

329,234

$

330,163

$

305,732

Less: Goodwill

30,201

30,201

30,201

27,329

Less: Other intangible assets

23,680

24,768

25,919

16,411

Tangible common equity (a)

290,510

274,265

274,043

261,992

Total assets

3,157,229

3,151,756

3,013,771

2,875,457

Less: Goodwill

30,201

30,201

30,201

27,329

Less: Other intangible assets

23,680

24,768

25,919

16,411

Tangible assets (b)

3,103,348

3,096,787

2,957,651

2,831,717

Tangible common equity to tangible assets (a)/(b)

9.36

%

8.86

%

9.27

%

9.25

%

Tangible Book Value Per Common Share

Total common stockholders' equity

$

344,391

$

329,234

$

330,163

$

305,732

Less: Goodwill

30,201

30,201

30,201

27,329

Less: Other intangible assets

23,680

24,768

25,919

16,411

Tangible common equity (c)

290,510

274,265

274,043

261,992

Total common shares issued and outstanding (d)

17,198

17,190

17,125

17,120

Tangible book value per common share (c)/(d)

$

16.89

$

15.95

$

16.00

$

15.30





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)

June 30, March 31, December 31, June 30, 2021 2021 2020 2020

Tangible CommonEquity to Tangible Assets

Total commonstockholders' $ 344,391 $ 329,234 $ 330,163 $ 305,732 equity

Less: Goodwill 30,201 30,201 30,201 27,329

Less: Otherintangible 23,680 24,768 25,919 16,411 assets

Tangible common 290,510 274,265 274,043 261,992 equity (a)

Total assets 3,157,229 3,151,756 3,013,771 2,875,457

Less: Goodwill 30,201 30,201 30,201 27,329

Less: Otherintangible 23,680 24,768 25,919 16,411 assets

Tangible assets 3,103,348 3,096,787 2,957,651 2,831,717 (b)

Tangible commonequity to 9.36 % 8.86 % 9.27 % 9.25 %tangible assets(a)/(b)

Tangible BookValue Per Common Share

Total commonstockholders' $ 344,391 $ 329,234 $ 330,163 $ 305,732 equity

Less: Goodwill 30,201 30,201 30,201 27,329

Less: Otherintangible 23,680 24,768 25,919 16,411 assets

Tangible common 290,510 274,265 274,043 261,992 equity (c)

Total commonshares issued 17,198 17,190 17,125 17,120 and outstanding(d)

Tangible bookvalue per common $ 16.89 $ 15.95 $ 16.00 $ 15.30 share (c)/(d)

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2021

2021

2020

2021

2020

Return on Average Tangible Common Equity

Net income

$

11,694

$

15,215

$

11,474

$

26,909

$

16,837

Add: Intangible amortization expense (net of tax)

860

909

783

1,769

1,565

Net income, excluding intangible amortization (e)

12,554

16,124

12,257

28,678

18,402

Average total equity

339,439

334,188

301,719

336,830

298,221

Less: Average goodwill

30,201

30,201

27,329

30,201

27,329

Less: Average other intangible assets (net of tax)

19,123

19,995

13,345

19,556

13,737

Average tangible common equity (f)

290,115

283,992

261,045

287,073

257,155

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

17.36

%

23.03

%

18.88

%

20.15

%

14.39

%

Net Interest Margin (tax-equivalent)

Net interest income

$

21,140

$

22,038

$

20,091

$

43,178

$

38,928

Tax-equivalent adjustment

135

143

109

278

209

Tax-equivalent net interest income (g)

21,275

22,181

20,200

43,456

39,137

Average earning assets (h)

2,958,468

2,880,255

2,584,037

2,919,578

2,427,519

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

2.88

%

3.12

%

3.14

%

3.00

%

3.24

%

Efficiency Ratio

Noninterest expense

$

42,550

$

43,042

$

39,734

$

85,592

$

76,460

Less: Intangible amortization expense

1,088

1,151

991

2,239

1,981

Adjusted noninterest expense (i)

41,462

41,891

38,743

83,353

74,479

Net interest income

21,140

22,038

20,091

43,178

38,928

Noninterest income

36,748

40,881

38,230

77,629

65,419

Tax-equivalent adjustment

135

143

109

278

209

Total tax-equivalent revenue (j)

58,023

63,062

58,430

121,085

104,556

Efficiency ratio (i)/(j)

71.46

%

66.43

%

66.31

%

68.84

%

71.23

%

Three months ended Six months ended

June 30, March 31, June 30, June 30, June 30,

2021 2021 2020 2021 2020

Return onAverage TangibleCommon Equity

Net income $ 11,694 $ 15,215 $ 11,474 $ 26,909 $ 16,837

Add: Intangibleamortization 860 909 783 1,769 1,565 expense (net oftax)

Net income,excluding 12,554 16,124 12,257 28,678 18,402 intangibleamortization (e)

Average total 339,439 334,188 301,719 336,830 298,221 equity

Less: Average 30,201 30,201 27,329 30,201 27,329 goodwill

Less: Averageother intangible 19,123 19,995 13,345 19,556 13,737 assets (net oftax)

Average tangiblecommon equity 290,115 283,992 261,045 287,073 257,155 (f)

Return onaverage tangible 17.36 % 23.03 % 18.88 % 20.15 % 14.39 %common equity(e)/(f)

Net InterestMargin (tax-equivalent)

Net interest $ 21,140 $ 22,038 $ 20,091 $ 43,178 $ 38,928 income

Tax-equivalent 135 143 109 278 209 adjustment

Tax-equivalentnet interest 21,275 22,181 20,200 43,456 39,137 income (g)

Average earning 2,958,468 2,880,255 2,584,037 2,919,578 2,427,519 assets (h)

Net interestmargin 2.88 % 3.12 % 3.14 % 3.00 % 3.24 %(tax-equivalent)(g)/(h)

Efficiency Ratio

Noninterest $ 42,550 $ 43,042 $ 39,734 $ 85,592 $ 76,460 expense

Less: Intangibleamortization 1,088 1,151 991 2,239 1,981 expense

Adjustednoninterest 41,462 41,891 38,743 83,353 74,479 expense (i)

Net interest 21,140 22,038 20,091 43,178 38,928 income

Noninterest 36,748 40,881 38,230 77,629 65,419 income

Tax-equivalent 135 143 109 278 209 adjustment

Totaltax-equivalent 58,023 63,062 58,430 121,085 104,556 revenue (j)

Efficiency ratio 71.46 % 66.43 % 66.31 % 68.84 % 71.23 %(i)/(j)

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)

Three months ended

Six months ended

June 30, 2021

March 31, 2021

June 30, 2020

June 30, 2021

June 30, 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 deposits with banks

$

191,695

0.12

%

$

184,376

0.12

%

$

153,197

0.16

%

$

188,056

0.12

%

$

158,274

0.72

%

Investment securities (1)

800,812

1.60

%

662,413

1.65

%

369,247

2.25

%

731,995

1.62

%

353,203

2.35

%

Loans held for sale

71,447

2.26

%

82,249

2.13

%

69,606

2.69

%

76,818

2.19

%

51,372

2.81

%

Loans

Commercial:

Commercial and industrial

627,613

4.55

%

674,935

4.72

%

739,816

4.12

%

651,143

4.64

%

609,553

4.57

%

Real estate construction

42,511

4.28

%

45,264

4.22

%

31,660

4.48

%

43,880

4.25

%

29,191

4.73

%

Commercial real estate

568,827

3.71

%

560,986

3.79

%

513,497

4.31

%

564,928

3.75

%

510,831

4.46

%

Total commercial

1,238,951

4.15

%

1,281,185

4.30

%

1,284,973

4.21

%

1,259,951

4.23

%

1,149,575

4.53

%

Consumer

Residential real estate first mortgage

459,278

3.53

%

457,882

3.76

%

459,789

4.09

%

458,584

3.65

%

460,258

4.10

%

Residential real estate junior lien

129,544

4.58

%

137,745

4.86

%

163,345

4.79

%

133,622

4.72

%

168,390

4.98

%

Other revolving and installment

60,213

4.31

%

68,625

4.38

%

77,921

4.56

%

64,396

4.35

%

80,587

4.63

%

Total consumer

649,035

3.81

%

664,252

4.05

%

701,055

4.31

%

656,602

3.93

%

709,235

4.37

%

Total loans (1)

1,887,986

4.04

%

1,945,437

4.21

%

1,986,028

4.24

%

1,916,553

4.13

%

1,858,810

4.47

%

Federal Reserve/FHLB stock

6,528

4.36

%

5,780

4.49

%

5,959

4.59

%

6,156

4.42

%

5,860

4.67

%

Total interest earning assets

2,958,468

3.08

%

2,880,255

3.30

%

2,584,037

3.68

%

2,919,578

3.19

%

2,427,519

3.88

%

Noninterest earning assets

161,272

167,006

156,293

164,124

152,476

Total assets

$

3,119,740

$

3,047,261

$

2,740,330

$

3,083,702

$

2,579,995

Interest-Bearing Liabilities

Interest-bearing demand deposits

$

697,789

0.14

%

$

642,832

0.16

%

$

534,733

0.30

%

$

670,462

0.15

%

$

496,880

0.38

%

Money market and savings deposits

1,015,358

0.14

%

1,030,348

0.16

%

900,812

0.67

%

1,022,812

0.15

%

852,325

0.85

%

Time deposits

208,338

0.56

%

210,719

0.66

%

201,147

1.30

%

209,521

0.61

%

200,117

1.44

%

Short-term borrowings

-

-

%

-

-

%

321

-

%

-

-

%

161

-

%

Long-term debt

58,996

3.66

%

25,677

4.55

%

58,747

5.87

%

42,429

3.93

%

58,751

5.94

%

Total interest-bearing liabilities

1,980,481

0.29

%

1,909,576

0.27

%

1,695,760

0.81

%

1,945,224

0.28

%

1,608,234

0.96

%

Noninterest-Bearing Liabilities and Stockholders' Equity

Noninterest-bearing deposits

755,773

731,680

692,500

743,793

628,404

Other noninterest-bearing liabilities

44,047

71,817

50,351

57,855

45,136

Stockholders' equity

339,439

334,188

301,719

336,830

298,221

Total liabilities and stockholders' equity

$

3,119,740

$

3,047,261

$

2,740,330

$

3,083,702

$

2,579,995

Net interest rate spread

2.79

%

3.03

%

2.87

%

2.91

%

2.92

%

Net interest margin, tax-

equivalent (2)

2.88

%

3.12

%

3.14

%

3.00

%

3.24

%





Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)



Three months ended Six months ended

June 30, 2021 March 31, 2021 June 30, 2020 June 30, 2021 June 30, 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 EarningAssets

Interest-bearing $ 191,695 0.12 % $ 184,376 0.12 % $ 153,197 0.16 % $ 188,056 0.12 % $ 158,274 0.72 %deposits with banks

Investment 800,812 1.60 % 662,413 1.65 % 369,247 2.25 % 731,995 1.62 % 353,203 2.35 %securities (1)

Loans held for sale 71,447 2.26 % 82,249 2.13 % 69,606 2.69 % 76,818 2.19 % 51,372 2.81 %

Loans

Commercial:

Commercial and 627,613 4.55 % 674,935 4.72 % 739,816 4.12 % 651,143 4.64 % 609,553 4.57 %industrial

Real estate 42,511 4.28 % 45,264 4.22 % 31,660 4.48 % 43,880 4.25 % 29,191 4.73 %construction

Commercial real 568,827 3.71 % 560,986 3.79 % 513,497 4.31 % 564,928 3.75 % 510,831 4.46 %estate

Total commercial 1,238,951 4.15 % 1,281,185 4.30 % 1,284,973 4.21 % 1,259,951 4.23 % 1,149,575 4.53 %

Consumer

Residential realestate first 459,278 3.53 % 457,882 3.76 % 459,789 4.09 % 458,584 3.65 % 460,258 4.10 %mortgage

Residential real 129,544 4.58 % 137,745 4.86 % 163,345 4.79 % 133,622 4.72 % 168,390 4.98 %estate junior lien

Other revolving and 60,213 4.31 % 68,625 4.38 % 77,921 4.56 % 64,396 4.35 % 80,587 4.63 %installment

Total consumer 649,035 3.81 % 664,252 4.05 % 701,055 4.31 % 656,602 3.93 % 709,235 4.37 %

Total loans (1) 1,887,986 4.04 % 1,945,437 4.21 % 1,986,028 4.24 % 1,916,553 4.13 % 1,858,810 4.47 %

Federal Reserve/FHLB 6,528 4.36 % 5,780 4.49 % 5,959 4.59 % 6,156 4.42 % 5,860 4.67 %stock

Total interest 2,958,468 3.08 % 2,880,255 3.30 % 2,584,037 3.68 % 2,919,578 3.19 % 2,427,519 3.88 %earning assets

Noninterest earning 161,272 167,006 156,293 164,124 152,476 assets

Total assets $ 3,119,740 $ 3,047,261 $ 2,740,330 $ 3,083,702 $ 2,579,995

Interest-Bearing Liabilities

Interest-bearing $ 697,789 0.14 % $ 642,832 0.16 % $ 534,733 0.30 % $ 670,462 0.15 % $ 496,880 0.38 %demand deposits

Money market and 1,015,358 0.14 % 1,030,348 0.16 % 900,812 0.67 % 1,022,812 0.15 % 852,325 0.85 %savings deposits

Time deposits 208,338 0.56 % 210,719 0.66 % 201,147 1.30 % 209,521 0.61 % 200,117 1.44 %

Short-term - - % - - % 321 - % - - % 161 - %borrowings

Long-term debt 58,996 3.66 % 25,677 4.55 % 58,747 5.87 % 42,429 3.93 % 58,751 5.94 %

Totalinterest-bearing 1,980,481 0.29 % 1,909,576 0.27 % 1,695,760 0.81 % 1,945,224 0.28 % 1,608,234 0.96 %liabilities

Noninterest-BearingLiabilities and Stockholders' Equity

Noninterest-bearing 755,773 731,680 692,500 743,793 628,404 deposits

Othernoninterest-bearing 44,047 71,817 50,351 57,855 45,136 liabilities

Stockholders' equity 339,439 334,188 301,719 336,830 298,221

Total liabilitiesand stockholders' $ 3,119,740 $ 3,047,261 $ 2,740,330 $ 3,083,702 $ 2,579,995equity

Net interest rate 2.79 % 3.03 % 2.87 % 2.91 % 2.92 %spread

Net interest margin, tax-

equivalent (2) 2.88 % 3.12 % 3.14 % 3.00 % 3.24 %

(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/20210728005993/en/

CONTACT: Katie A. Lorenson, Chief Financial Officer

CONTACT: 952.417.3725 (Office)