Alerus Financial (ALRS) Q2 2024 earnings summary

Executive summary

• Net income for Q2 2024 was $6.2 million ($0.31 per diluted share), down 31.8% year-over-year, mainly due to higher provision for credit losses and increased noninterest expense, but with sequential revenue and pre-provision net revenue growth over 48%.

• Total assets reached $4.4 billion as of June 30, 2024, up 11.5% from year-end, driven by increases in cash and loans.

• Loan growth was 4.2% for the quarter, with a loan-to-deposit ratio of 88% and no brokered deposits used for funding.

• Fee income contributed over 53% of total revenues, with total fee income up 8.1% sequentially and assets under administration/management at $43.6 billion.

• Announced pending acquisition of HMN Financial, Inc., expected to close in Q4 2024, with related merger expenses impacting Q2 results.

Financial highlights

• Net interest income for Q2 2024 was $24.0 million, up 8% sequentially and 7.9% year-over-year; adjusted net interest margin expanded 13 basis points to 2.57%.

• Noninterest income rose 8.1% sequentially and 6.2% year-over-year to $27.4 million, led by wealth management and client swap fees.

• Noninterest expense decreased 0.7% sequentially but rose 6.5% year-over-year to $38.8 million, mainly due to higher compensation and merger-related costs.

• Return on average assets was 0.58%, and return on average tangible common equity was 9.40% for Q2 2024.

• Allowance for credit losses on loans was 1.31% of total loans, with a $4.5 million provision expense recorded.

Outlook and guidance

• Net interest margin expected to improve in coming quarters, with a path to exceed 3% by 2026, excluding the HMN acquisition.

• Loan growth anticipated to continue, even with 6% of loans contractually paying down in the second half of 2024.

• Deposit levels expected to be slightly higher by year-end despite seasonal outflows in Q3.

• Management expects continued improvement in core business trends, with prudent expense management and focus on integration of the HMN Financial acquisition.