8-K: Alerus Financial Corporation Reports Solid Q4 2024 Results, Fueled by HMN Financial Acquisition

Alerus Financial Corporation announced a net income of $3.2 million for Q4 2024, driven by the acquisition of HMN Financial, Inc. and organic growth.

Summary

• Alerus Financial Corporation reported a net income of $3.2 million for the fourth quarter of 2024, which translates to $0.13 per diluted common share.
• This compares to a net income of $5.2 million, or $0.26 per diluted common share, for the third quarter of 2024.
• The company experienced a net loss of $14.8 million, or ($0.73) per diluted common share, for the fourth quarter of 2023.
• The fourth quarter was positively impacted by the closing and conversion of HMN Financial, Inc., the largest acquisition in the company's history.
• Adjusted earnings per common share (non-GAAP) were $0.44 in the fourth quarter of 2024, a 41.9% increase from $0.31 in the third quarter of 2024.
• Total loans reached $4.0 billion as of December 31, 2024, a $1.0 billion or 31.7% increase from September 30, 2024.
• Total deposits were $4.4 billion as of December 31, 2024, up $1.1 billion or 31.7% from September 30, 2024.
• Non-interest bearing deposits increased to $903.5 million as of December 31, 2024, a $245.9 million or 37.4% increase from September 30, 2024.
• The net interest margin expanded by 97 basis points to 3.20% in the fourth quarter of 2024.
• The adjusted efficiency ratio improved significantly to 69.0% from 77.7% in the third quarter.
• For the full year 2024, adjusted earnings per common share (non-GAAP) were $1.44, a slight decrease of 0.7% from $1.45 in 2023.
• Noninterest income grew 19.4% quarter-over-quarter and represents nearly half of the company's total revenues.
• The allowance for credit losses on loans to total loans moved up to 1.50%.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the successful acquisition, improved efficiency ratio, and increased earnings per share compared to the previous quarter, but tempered by the decline in capital ratios and increase in nonperforming assets.

Positives

• The acquisition of HMN Financial, Inc. significantly contributed to the company's growth.
• Adjusted earnings per share increased substantially compared to the previous quarter.
• Net interest margin improved significantly.
• The efficiency ratio improved, indicating better cost management.
• Noninterest income increased, contributing significantly to total revenues.
• The company experienced strong growth in loans and deposits.
• Book value per common share increased to $19.68 as of December 31, 2024, a 5.2% increase from $18.71 as of December 31, 2023.
• Dividends paid per common share totaled $0.79 for the year ended December 31, 2024, an increase of 5.3% from $0.75 for the year ended December 31, 2023.

Negatives

• Net income for Q4 2024 was lower than Q3 2024.
• Tangible book value per common share (non-GAAP) decreased to $14.49 as of December 31, 2024, from $15.46 as of December 31, 2023.
• Common equity tier 1 capital to risk weighted assets decreased to 9.98% as of December 31, 2024, from 11.82% as of December 31, 2023.

Risks

• The company acknowledges the need to proactively identify and manage credit normalization.
• Capital ratios declined in the fourth quarter due to the HMNF acquisition.
• Total nonperforming assets were $62.9 million as of December 31, 2024, an increase of $54.1 million from December 31, 2023.
• One construction, land and development loan moving to nonaccrual status in the second quarter of 2024 contributed $25.0 million to the increase in nonperforming assets.

Future Outlook

Alerus plans to continue making long term investments to support and grow its diversified revenue streams while continuing to prudently manage expenses, with a strategic focus on organic growth, diversification, valuable fee income, and maintaining strong asset quality in 2025 and beyond.

Management Comments

• President and Chief Executive Officer Katie Lorenson said, 'We are pleased to end 2024 with a solid quarter on across-the-board improvements to our performance metrics.'
• Katie Lorenson said the combination of HMNF and meaningful organic growth in our underlying core business, drove an increase in earnings per share by a robust 41.9% versus the prior quarter.
• Katie Lorenson stated that the company remains committed to driving sustainable growth and delivering value to its shareholders.

Industry Context

The acquisition of HMN Financial, Inc. reflects a trend of consolidation within the banking industry to achieve economies of scale and expand market presence.

Comparison to Industry Standards

• Comparing Alerus's efficiency ratio of 69.0% to peers like First Interstate BancSystem (efficiency ratio around 60%) and Glacier Bancorp (efficiency ratio around 55-60%) suggests there is room for improvement in operational efficiency.
• Alerus's net interest margin of 3.20% is comparable to regional banks like UMB Financial Corporation, which has a net interest margin in the range of 3.0-3.5%.
• However, it is lower than some high-performing banks like Western Alliance Bancorporation, which has a net interest margin above 4.0%.

Stakeholder Impact

• Shareholders can expect continued efforts to drive sustainable growth and deliver value.
• Employees from HMN Financial, Inc. are welcomed to the Alerus team.
• Clients will benefit from the combined resources and expertise of the merged entities.
• The company aims to support its communities through its financial services.

Next Steps

• The company will host a conference call on January 29, 2024, to discuss the financial results.
• Alerus plans to continue making long term investments to support and grow its diversified revenue streams.
• The company expects to build capital in 2025.

Key Dates