Alerus(US:ALRS)2022-05-05 16:00Part I - FINANCIAL INFORMATION Consolidated Financial Statements This section presents Alerus Financial Corporation's unaudited consolidated financial statements for Q1 2022, including balance sheets, income, comprehensive income, equity, and cash flow statements, with detailed notes Consolidated Balance Sheets Total assets decreased slightly to $3.34 billion as of March 31, 2022, primarily due to reduced cash, while stockholders' equity significantly declined to $328.5 million from unrealized losses on available-for-sale securities Consolidated Balance Sheet Summary (in thousands) | Account | March 31, 2022 (Unaudited) | December 31, 2021 (Audited) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $132,832 | $242,311 | | Net loans | $1,786,329 | $1,726,448 | | Investment securities (AFS & HTM) | $1,206,483 | $1,205,710 | | Total assets | $3,336,199 | $3,392,691 | | Liabilities & Equity | | | | Total deposits | $2,892,267 | $2,920,551 | | Total liabilities | $3,007,694 | $3,033,288 | | Accumulated other comprehensive income (loss) | ($42,324) | ($4,255) | | Total stockholders' equity | $328,505 | $359,403 | | Total liabilities and stockholders' equity | $3,336,199 | $3,392,691 | Consolidated Statements of Income Net income for Q1 2022 decreased by 33.1% to $10.2 million, primarily driven by a significant $12.2 million reduction in mortgage banking noninterest income, while net interest income remained stable Quarterly Income Statement Summary (in thousands, except per share data) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net interest income | $21,673 | $22,038 | | Provision for loan losses | $0 | $0 | | Noninterest income | $29,470 | $40,881 | | Mortgage banking | $4,931 | $17,132 | | Noninterest expense | $38,071 | $43,042 | | Net income | $10,184 | $15,215 | | Diluted EPS | $0.57 | $0.86 | Consolidated Statements of Comprehensive Income The company reported a total comprehensive loss of $27.9 million for Q1 2022, primarily due to a $38.1 million other comprehensive loss from unrealized losses on available-for-sale securities, offsetting net income Quarterly Comprehensive Income (Loss) (in thousands) | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net Income | $10,184 | $15,215 | | Other comprehensive income (loss), net of tax | ($38,069) | ($13,594) | | Total comprehensive income (loss) | ($27,885) | $1,621 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $109.5 million in Q1 2022, driven by net cash used in investing activities for securities purchases and financing activities from deposit decreases and dividend payments Quarterly Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,847 | $54,841 | | Net cash used in investing activities | ($112,592) | ($180,370) | | Net cash provided by financing activities | ($31,734) | $142,784 | | Net change in cash and cash equivalents | ($109,479) | $17,255 | Notes to Consolidated Financial Statements The notes detail accounting policies, investment portfolio unrealized losses, loan growth with stable credit quality, a sharp decline in mortgage banking income, and regulatory capital remaining well above minimums - The investment portfolio's total unrealized losses significantly increased from $15.5 million at year-end 2021 to $80.7 million as of March 31, 2022, primarily due to changes in interest rates414245 - Total loans grew to $1.82 billion from $1.76 billion at year-end 2021, with criticized loans decreasing from $21.2 million to $16.5 million, representing 0.91% of total loans56207 - The Mortgage segment's net income before taxes sharply fell to $620 thousand in Q1 2022 from $6.7 million in Q1 2021, reflecting the slowdown in the mortgage market109115 - The Company and the Bank remain well-capitalized, with a consolidated Total capital to risk-weighted assets ratio of 18.12% as of March 31, 2022125 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2022 net income decrease primarily to a $12.2 million decline in mortgage banking revenue, while loan growth occurred and stockholders' equity decreased due to unrealized securities losses Key Performance Ratios | Performance Ratio | March 31, 2022 | March 31, 2021 | | :--- | :--- | :--- | | Return on average total assets | 1.26% | 2.02% | | Return on average common equity | 11.78% | 18.46% | | Noninterest income as a % of revenue | 57.62% | 64.97% | | Net interest margin (tax-equivalent) | 2.83% | 3.12% | | Efficiency ratio (non-GAAP) | 72.25% | 66.43% | - The primary driver for the year-over-year decrease in net income was a $12.2 million decrease in mortgage banking revenue, resulting from a $331.3 million (63.9%) decrease in mortgage originations189 - Stockholders' equity decreased by $30.9 million, or 8.6%, during the quarter, primarily due to a $38.1 million decrease in other comprehensive income from unrealized losses on available-for-sale securities caused by rising interest rates229231 Quantitative and Qualitative Disclosures About Market Risk The company manages interest-rate risk through ALCO, using simulations that project a 2.1% decrease in NII over 12 months but a 3.5% increase over 24 months for a +100 bps rate shock, with EVE decreasing by 3.1% Net Interest Income Sensitivity Analysis (as of March 31, 2022) | Rate Shock | % Change in NII (Next 12 months) | % Change in NII (Next 24 months) | | :--- | :--- | :--- | | +300 bps | -5.3% | +2.9% | | +200 bps | -3.8% | +3.1% | | +100 bps | -2.1% | +3.5% | | -100 bps | -4.5% | -5.6% | Economic Value of Equity (EVE) Sensitivity Analysis (as of March 31, 2022) | Rate Shock | % Change in EVE | | :--- | :--- | | +300 bps | -15.2% | | +200 bps | -8.7% | | +100 bps | -3.1% | | -100 bps | 0.0% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting identified during the quarter - The President and Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period257 - No material changes to the Company's internal control over financial reporting were identified during the first quarter of 2022258 Part II - OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings beyond routine litigation incidental to its business - There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business259 Risk Factors No material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, were reported - No material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K filed on March 11, 2022, were reported260 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, with 20,631 shares repurchased at an average price of $29.43 per share during Q1 2022, solely for employee tax withholding on vested restricted stock Issuer Repurchases of Equity Securities (Q1 2022) | Month | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Plan | | :--- | :--- | :--- | :--- | | January | 240 | $29.28 | 0 | | February | 20,391 | $29.43 | 0 | | March | 0 | N/A | 0 | | Total | 20,631 | $29.43 | 0 | - The stock repurchase program, authorizing up to 770,000 shares, remains active with no shares repurchased under it during the quarter262 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, and required CEO and CFO certifications - Exhibits filed include CEO and CFO certifications required by the Sarbanes-Oxley Act (Exhibits 31.1, 31.2, 32.1, 32.2) and iXBRL data files265 Signatures Signatures The Form 10-Q report was duly authorized and signed on May 6, 2022, by Katie A. Lorenson, President and Chief Executive Officer, and Alan A. Villalon, Executive Vice President and Chief Financial Officer