Alerus(ALRS) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Highlights Alerus Financial Corporation reported strong Q2 2025 results, including $20.3 million net income, improved KPIs, and a dividend increase Q2 2025 Earnings Summary | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Income | $20.3 million | $13.3 million | $6.2 million | | Diluted EPS | $0.78 | $0.52 | $0.31 | - CEO Katie Lorenson attributed the strong performance to the company's diversified business model and disciplined execution, highlighting progress towards achieving top-tier performance[3] - The company optimized its balance sheet through the strategic sale of $62.5 million of non-owner occupied commercial real estate loans, demonstrating proactive credit risk management[3] Q2 2025 Key Performance Metrics (Non-GAAP) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Adjusted Return on Average Total Assets | 1.41% | 1.10% | | Adjusted Return on Average Tangible Common Equity | 21.0% | 17.6% | | Adjusted Earnings per Diluted Common Share | $0.72 | $0.56 | - The quarterly dividend was increased by 5.0% to $0.21 per share, marking the 39th consecutive year of dividend increases[5] - Tangible book value per common share grew by over 20.0% annualized compared to the prior quarter, reaching $16.11[3][5] Selected Financial Data Q2 2025 selected financial data demonstrates strong improvements in profitability ratios, per-share metrics, and increased assets under administration Key Performance Ratios Comparison | Performance Ratio | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Return on average total assets | 1.53% | 1.02% | 0.58% | | Return on average tangible common equity (1) | 22.65% | 16.50% | 9.40% | | Net interest margin (tax-equivalent) | 3.51% | 3.41% | 2.39% | | Efficiency ratio (1) | 60.66% | 68.76% | 72.50% | Per Common Share Data Comparison | Per Common Share Data | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Earnings per common share - diluted | $0.78 | $0.52 | $0.31 | | Dividends declared per common share | $0.21 | $0.20 | $0.20 | | Tangible book value per common share (1) | $16.11 | $15.27 | $15.77 | Assets Under Administration/Management (in thousands) | AUA/AUM | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Retirement and benefit services | $42,451,544 | $39,925,596 | $39,389,533 | | Wealth management | $4,613,102 | $4,500,852 | $4,172,290 | Results of Operations Q2 2025 operating results show significant strength, with growth in net interest and noninterest income, and disciplined expense management, leading to improved profitability Net Interest Income Net interest income for Q2 2025 was $43.0 million, increasing 4.6% from Q1 2025 and 79.3% from Q2 2024, driven by higher loan yields and the HMNF acquisition, expanding NIM to 3.51% - Net interest income increased by $1.9 million (4.6%) from Q1 2025, driven by higher yields on new and repriced loans and purchase accounting accretion[7] - Compared to Q2 2024, net interest income surged by $19.0 million (79.3%), largely due to earning assets acquired in the HMNF transaction and strong organic loan growth[8] Net Interest Margin (NIM) Trend | Period | Net Interest Margin (tax-equivalent) | | :--- | :--- | | Q2 2025 | 3.51% | | Q1 2025 | 3.41% | | Q2 2024 | 2.39% | Noninterest Income Q2 2025 noninterest income reached $31.8 million, a 15.0% increase quarter-over-quarter, primarily driven by a 139.1% surge in mortgage banking revenue and a $2.1 million gain on a loan sale - The $4.1 million quarter-over-quarter increase was mainly due to a $2.1 million rise in mortgage banking revenue and a $2.1 million gain on the sale of a non-mortgage loan[11] - Year-over-year, noninterest income increased by $4.4 million, driven by the loan sale gain, a 15.8% increase in wealth revenue, and a 43.0% increase in mortgage banking revenue[12] Noninterest Expense Q2 2025 noninterest expense was $48.4 million, a 3.8% decrease quarter-over-quarter due to disciplined management, but a 25.0% increase year-over-year driven by the HMNF acquisition and technology investments - Quarter-over-quarter expenses decreased by $1.9 million (3.8%), mainly due to seasonal drops in employee taxes and benefits, and lower professional fees and assessments[13] - Year-over-year expenses increased by $9.7 million (25.0%), driven by higher compensation, benefits, intangible amortization, and technology costs associated with the HMNF acquisition and platform upgrades[14] Financial Condition Alerus's financial condition remained robust as of June 30, 2025, with total assets at $5.3 billion, an expanded loan portfolio, improved asset quality, and total deposits at $4.3 billion - Total assets were $5.3 billion as of June 30, 2025, an increase of $62.1 million, or 1.2%, from December 31, 2024[15] Loans Held for Investment The loan portfolio held for investment reached $4.0 billion as of June 30, 2025, increasing 1.3% since year-end 2024, driven by commercial and consumer loan growth, alongside a strategic reduction in commercial real estate loans - Total loans held for investment increased by $52.1 million (1.3%) from December 31, 2024, driven by growth in commercial and consumer loans[16] Loan Portfolio Composition (in thousands) | Loan Category | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total commercial | $2,824,087 | $2,787,277 | | Total consumer | $1,220,570 | $1,205,257 | | Total Loans | $4,044,657 | $3,992,534 | Deposits Total deposits were $4.3 billion as of June 30, 2025, a 0.9% decrease from year-end 2024 due to seasonal outflows and a shift from noninterest-bearing to interest-bearing accounts, with increased brokered deposits - Total deposits decreased by $40.9 million (0.9%) from December 31, 2024, due to seasonal outflows and tax-related client activity[19] Deposit Composition (in thousands) | Deposit Category | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing demand | $790,300 | $903,466 | | Total interest-bearing | $3,547,168 | $3,474,944 | | Total deposits | $4,337,468 | $4,378,410 | Asset Quality Q2 2025 asset quality improved, with total nonperforming assets declining to $52.2 million, and net charge-offs of $3.8 million (adjusted 0.07%), with no provision for credit losses recorded - Total nonperforming assets decreased by $10.7 million from December 31, 2024, to $52.2 million[21] Asset Quality Metrics | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Nonperforming loans to total loans | 1.27% | 1.58% | | Nonperforming assets to total assets | 0.98% | 1.20% | | Allowance for credit losses on loans to total loans | 1.47% | 1.50% | - Net charge-offs were $3.8 million, primarily driven by a $3.4 million charge-off related to a hospitality loan sale. Adjusted net charge-offs (non-GAAP) were $0.7 million, or 0.07% of average loans[22] - No provision for credit losses was recorded in Q2 2025, compared to a provision of $0.9 million in Q1 2025[23] Capital The company's capital position strengthened significantly as of June 30, 2025, with total stockholders' equity rising to $533.2 million, improved regulatory capital ratios, and CET1 ratio increasing to 10.54% - Total stockholders' equity increased by $37.7 million since December 31, 2024, primarily due to $23.2 million in retained earnings and a $13.5 million decrease in accumulated other comprehensive loss[24] Capital Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Common equity tier 1 capital to risk weighted assets | 10.54% | 9.91% | 11.66% | | Total capital to risk weighted assets | 13.10% | 12.49% | 14.67% | | Tangible common equity / tangible assets (2) | 7.87% | 7.13% | 7.26% | Financial Statements and Reconciliations This section provides detailed unaudited financial statements, including Consolidated Balance Sheets and Statements of Income, with reconciliations of non-GAAP measures and analysis of average balances and yields - The Consolidated Balance Sheet as of June 30, 2025, shows total assets of $5.32 billion and total stockholders' equity of $533.2 million[36] - The Consolidated Statement of Income for the three months ended June 30, 2025, reports net interest income of $43.0 million and net income of $20.3 million[37] - Detailed tables provide reconciliations for non-GAAP measures such as Tangible Common Equity, Adjusted Net Income, and Adjusted EPS to their nearest GAAP counterparts[38][40] - The analysis of average balances shows a tax-equivalent net interest margin of 3.51% for Q2 2025, up from 3.41% in Q1 2025[42] Other Information This section provides supplementary information, including investor conference call details, a corporate profile, and disclosures on non-GAAP financial measures and forward-looking statements - The company will host a conference call on Monday, July 28, 2025, at 10:00 a.m. Central Time to discuss the financial results[26] - Alerus is a commercial wealth bank and national retirement services provider with 29 offices in states including North Dakota, Minnesota, Iowa, Wisconsin, and Arizona[27][28] - The report includes non-GAAP financial measures to aid in performance analysis and contains forward-looking statements that are subject to various business and economic risks[29][32][33]