8-K - ALRS - Equibles

United States

Securities And Exchange Commission Washington, DC 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15( d ) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): January 27, 2021

Alerus Financial Corporation (Exact Name of Registrant as Specified in Charter)

Delaware	001-39036	45-0375407
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

401 Demers Avenue Grand Forks , North Dakota **** 58201 (Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: (701) 795-3200

N/A

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading symbol		Name of each exchange on which registered
Common Stock, $1.00 par value per share		ALRS		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b–2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02. Results of Operations and Financial Condition.

On January 27, 2021, Alerus Financial Corporation (the “Company”) issued a press release announcing its financial results for the three and twelve months ended December 31, 2020. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.

The information in Item 2.02 of this Current Report on Form 8-K, and the related Exhibit 99.1, attached hereto is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor will any of such information or exhibits be deemed incorporated by reference to any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Item 7.01. Regulation FD Disclosure.

On January 27, 2020, the Company posted a presentation to the Company’s investor relations website, located at investors.alerus.com. The presentation is also attached hereto as Exhibit 99.2.

The information in Item 7.01 of this Current Report on Form 8-K, and the related Exhibit 99.2, attached hereto is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor will any of such information or exhibits be deemed incorporated by reference to any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits


Exhibit No.	****	Description
99.1		Press Release of Alerus Financial Corporation, dated January 27, 2021
99.2<br><br>104		Investor Presentation of Alerus Financial Corporation<br><br>Cover Page Interactive Data File (embedded within the Inline XBLR document)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: January 27, 2021	Alerus Financial Corporation


	By:	/s/ Randy L. Newman
	Name:	Randy L. Newman
	Title:	Chairman, Chief Executive Officer and President

Exhibit 99.1

<br><br><br><br>	<br><br>
<br><br><br><br>FOR RELEASE (1.27.2021)	Katie A. Lorenson, Chief Financial Officer<br><br>952.417.3725 (Office)

ALERUS FINANCIAL CORPORATION REPORTS

FOURTH QUARTER 2020 NET INCOME OF $10.2 MILLION

GRAND FORKS, N.D. (January 27, 2021) – Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $10.2 million for the fourth quarter of 2020, or $0.57 per diluted common share, compared to net income of $17.7 million, or $0.99 per diluted common share, for the third quarter of 2020, and net income of $7.7 million, or $0.43 per diluted common share, for the fourth quarter of 2019.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “Alerus continues to be a purpose-driven company, focused on its business model, strategy and culture. In a year filled with so much uncertainty and adversity, our business strategy of serving as trusted advisors to our clients delivered to our shareholders record annual net income of $44.7 million, a 51.2% increase over 2019. In 2020, we continued to execute on our acquisition strategy, and on December 16, 2020, we closed our acquisition of Retirement Planning Services, Inc. (doing business as RPS Plan Administrators and 24HourFlex). This acquisition allowed Alerus to add talent, increase market share in the desirable Rocky Mountain region, and expand products and services to the newly acquired clients as well as existing Alerus clients through our collaborative “One Alerus” business model and culture.

In this challenging environment we also remain committed to managing expenses. Our ability to continue serving clients and the transition of most of our employees to a remote working environment prompted the closure of six of our 23 offices. We are very proud of our company’s performance, ability to focus on long-term growth for our shareholders through our diversified business model, solid financial foundation and strategic focus on serving clients holistically and in their best interests.”

Quarterly Highlights

◾	Return on average assets of 1.34%, compared to 2.42% for the third quarter of 2020
◾	Return on average tangible common equity^(1)^ of 15.13%, compared to 26.67% for the third quarter of 2020
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◾	Net interest margin (tax-equivalent)^(1)^ was 3.23%, compared to 3.17% for the third quarter of 2020
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◾	Allowance for loan losses to total loans, excluding Paycheck Protection Program, or PPP, loans, was 2.00%, compared to 1.83% as of September 30, 2020
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◾	Efficiency ratio^(1)^ of 74.44%, compared to 58.42% for the third quarter of 2020
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◾	Noninterest income as a percentage of total revenue was 62.57%, compared to 67.53% for the third quarter of 2020
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◾	Mortgage originations totaled $607.2 million, an 18.7% increase from the third quarter of 2020
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◾	Loans held for investment increased $258.1 million, or 15.0%, from the fourth quarter of 2019
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◾	Deposits increased $600.7 million, or 30.5%, from the fourth quarter of 2019
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(1)	Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”
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Selected Financial Data (unaudited)


	As of and for the
	Three months ended									Year ended
	December 31,			September 30,			December 31,			December 31,			December 31,
(dollars and shares in thousands, except per share data)	2020			2020			2019			2020			2019		****
Performance Ratios
Return on average total assets		1.34	%		2.42	%		1.33	%		1.61	%		1.34	%
Return on average common equity		12.30	%		22.31	%		10.65	%		14.40	%		12.78	%
Return on average tangible common equity (1)		15.13	%		26.67	%		13.78	%		17.74	%		17.46	%
Noninterest income as a % of revenue		62.57	%		67.53	%		61.56	%		64.05	%		60.50	%
Net interest margin (tax-equivalent) (1)		3.23	%		3.17	%		3.45	%		3.22	%		3.65	%
Efficiency ratio (1)		74.44	%		58.42	%		73.68	%		68.40	%		73.22	%
Net charge-offs/(recoveries) to average loans		(0.30)	%		(0.11)	%		0.20	%		0.03	%		0.33	%
Dividend payout ratio		26.32	%		15.15	%		34.88	%		23.81	%		29.84	%
Per Common Share
Earnings per common share - basic	$	0.58		$	1.01		$	0.44		$	2.57		$	1.96
Earnings per common share - diluted	$	0.57		$	0.99		$	0.43		$	2.52		$	1.91
Dividends declared per common share	$	0.15		$	0.15		$	0.15		$	0.60		$	0.57
Tangible book value per common share (1)	$	16.00		$	16.31		$	14.08
Average common shares outstanding - basic		17,122			17,121			17,049			17,106			14,736
Average common shares outstanding - diluted		17,450			17,453			17,397			17,438			15,093
Other Data
Retirement and benefit services assets under administration/management	$	34,199,954		$	30,470,645		$	31,904,648
Wealth management assets under administration/management		3,338,594			3,043,173			3,103,056
Mortgage originations		607,166			511,605			261,263		$	1,778,977		$	946,441

(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 fourth quarter of 2020 was $23.2 million, an increase of $1.4 million, or 6.4%, from $21.8 million for the third quarter of 2020, and an increase of $4.7 million, or 25.4%, from $18.5 million for the fourth quarter of 2019. The linked quarter increase in net interest income was primarily driven by an increase in interest and loan fees recognized on PPP loans of $3.9 million compared to $3.2 million of interest and fees on PPP loans in the third quarter. During the fourth quarter of 2020 approximately $83.6 million of PPP loans were forgiven or repaid and average interest earning assets increased by $125.0 million, primarily due to an increase of $105.5 million in investment securities and a $32.2 million increase in loans held for sale. The cost of interest-bearing liabilities decreased 12 basis points from the third quarter of 2020.

Net interest margin (tax-equivalent), a non-GAAP financial measure, was 3.23% for the fourth quarter of 2020, a 6 basis point increase from 3.17% for the third quarter of 2020, and a 22 basis point decrease from 3.45% in the fourth quarter of 2019. The linked quarter increase was primarily due to the loan fees recognized on forgiven PPP loans, partially offset by lower yields on interest earning assets. The year over year decrease was primarily attributed to the historically low and flat yield curve and a more liquid balance sheet mix which resulted in a 76 basis point decrease in interest earning asset yields and compressed net interest margin.

Noninterest Income

Noninterest income for the fourth quarter of 2020 was $38.7 million, a $6.6 million, or 14.5%, decrease from the third quarter of 2020. The decrease was primarily driven by a $5.5 million decrease in mortgage banking revenue, a $1.4 million decrease in net gains on investment securities, and a $777 thousand decrease in other noninterest income. These decreases were partially offset by increases of $818 thousand in retirement and benefit services revenue and $321 thousand in wealth management revenue. The decrease in mortgage banking revenue was primarily due to an $8.3 million decrease in the change in fair value of secondary market derivatives and a 15 basis point decrease in the gain on sale margin, partially offset by a $95.6 million increase in mortgage originations. The decrease in the fair value of secondary market derivatives was due to a decrease of $251.7 million in the hedged pipeline for the fourth quarter of 2020, as compared to the change during the third quarter of 2020. The decrease in other noninterest income was primarily due to losses on assets of $707 thousand as we closed two branches and terminated leases at four offices during the quarter. The increase in retirement and benefit services revenue was primarily due to seasonally higher ESOP transactional trustee fees, distribution and health and welfare account fees.

Noninterest income for the fourth quarter of 2020 increased $9.1 million, or 30.9%, from $29.6 million in the fourth quarter of 2019. This increase was primarily due to a $10.7 million increase in mortgage banking revenue as mortgage originations increased from $261.3 million in the fourth quarter of 2019 to $607.2 million in the fourth quarter of 2020. The increase was partially offset by a decrease in retirement and benefit services revenue of $1.7 million due to a decline in revenue sharing and plan document fees.

Noninterest Expense

Noninterest expense for the fourth quarter of 2020 was $47.1 million, an increase of $6.9 million, or 17.2%, compared to the third quarter of 2020. The increase was primarily due to increases of $3.8 million in compensation expense, $1.3 million in business services, software and technology expense, $779 thousand in other noninterest expense, and $438 thousand in professional fees and assessments. The increase in compensation expense was primarily due to increased mortgage incentives resulting from increased mortgage originations, increased incentives for retirement and benefit services driven by a seasonal increase in revenue, and an increase in performance bonus expense due to the Company’s record financial performance. Business services, software and technology expense increased following purchases of computer equipment, supplies and allowances for home office equipment as the vast majority of our employees work remotely during the ongoing COVID-19 pandemic. Professional fees and assessments increased due to legal and consulting fees related to the acquisition of Retirement Planning Services, Inc.

Noninterest expense for the fourth quarter of 2020 increased $10.7 million, or 29.3%, from $36.4 million in the fourth quarter of 2019. The increase was primarily attributable to increased compensation expense, employee taxes and benefits and mortgage and lending expenses, primarily as a result of the significant increase in mortgage originations. Other increases including business services, software and technology, professional fees and assessments and other noninterest expenses, are consistent with the linked quarter increases noted above.

Financial Condition

Total assets were $3.0 billion as of December 31, 2020, an increase of $656.9 million, or 27.9%, from December 31, 2019. The overall increase in total assets included increases of $282.0 million in available-for-sale investment securities, $258.1 million in loans, $75.6 million in loans held for sale, and $29.0 million in cash and cash equivalents.

Loans

Total loans were $1.98 billion as of December 31, 2020, an increase of $258.1 million, or 15.0%, from December 31, 2019. The increase was primarily due to increases of $212.7 million in commercial and industrial loans and $68.3 million in our commercial real estate loan portfolio, partially offset by a $41.0 million decrease in our consumer loan portfolio. The increase in commercial and industrial loans was due to an increase of $268.4 million in PPP loans, offset by a decrease in commercial lines of credit due to continued low line utilization.

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



		December 31,		September 30,		June 30,		March 31,		December 31,
(dollars in thousands)	****	2020		2020		2020		2020		2019
Commercial
Commercial and industrial (1)		$	691,858	$	789,036	$	794,204	$	502,637	$	479,144
Real estate construction			44,451		33,169		31,344		25,487		26,378
Commercial real estate			563,007		535,216		519,104		522,106		494,703
Total commercial			1,299,316		1,357,421		1,344,652		1,050,230		1,000,225
Consumer
Residential real estate first mortgage			463,370		469,050		456,737		457,895		457,155
Residential real estate junior lien			143,416		152,487		154,351		170,538		177,373
Other revolving and installment			73,273		79,461		78,457		79,614		86,526
Total consumer			680,059		700,998		689,545		708,047		721,054
Total loans		$	1,979,375	$	2,058,419	$	2,034,197	$	1,758,277	$	1,721,279

(1)	Includes PPP loans of $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 $2.57 billion as of December 31, 2020, an increase of $600.7 million, or 30.5%, from December 31, 2019. Interest-bearing deposits increased $423.7 million while non-interest bearing deposits increased $177.0 million. Key drivers of 3

the increase in deposits included strong deposit production from new and existing PPP loan clients, inflows from government stimulus programs and higher depositor balances due to the uncertain economic environment and volatile financial markets. The increase in interest-bearing deposits included a $184.0 million increase in synergistic deposits, including health savings account deposits from our retirement and benefit services and wealth management segments, bringing our total sourced deposits outside of our branch footprint to $595.6 million. Commercial transaction deposits increased $289.5 million, or 35.5%, while consumer transaction deposits increased $108.1 million, or 20.2%, since December 31, 2019. Noninterest-bearing deposits as a percentage of total deposits were 29.3% as of December 31, 2020 and 2019, respectively.

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


		December 31,			September 30,			June 30,			March 31,			December 31,
(dollars in thousands)	****	2020		****	2020		****	2020		****	2020		****	2019
Noninterest-bearing demand		$	754,716		$	693,450		$	700,892		$	608,559		$	577,704
Interest-bearing
Interest-bearing demand			618,900			590,366			579,840			477,752			458,689
Savings accounts			79,902			78,659			75,973			60,181			55,777
Money market savings			909,137			892,473			892,717			773,652			683,064
Time deposits			209,338			207,422			203,731			201,370			196,082
Total interest-bearing			1,817,277			1,768,920			1,752,261			1,512,955			1,393,612
Total deposits		$	2,571,993		$	2,462,370		$	2,453,153		$	2,121,514		$	1,971,316

Asset Quality

Total nonperforming assets were $5.1 million as of December 31, 2020, a decrease of $2.7 million, or 34.4%, from December 31, 2019. As of December 31, 2020, the allowance for loan losses was $34.2 million, or 1.73% of total loans, compared to $23.9 million, or 1.39% of total loans, as of December 31, 2019. Excluding PPP loans, the ratio of allowance for loan losses to total loans increased 61 basis points to 2.00% as of December 31, 2020, compared to 1.39% as of December 31, 2019.

The following table presents selected asset quality data as of and for the periods indicated:


		As of and for the three months ended
		December 31,			September 30,			June 30,			March 31,			December 31,
(dollars in thousands)	****	2020		****	2020		****	2020		****	2020		****	2019		****
Nonaccrual loans		$	5,050		$	4,795		$	5,328		$	6,959		$	7,379
Accruing loans 90+ days past due			30			—			—			11			448
Total nonperforming loans			5,080			4,795			5,328			6,970			7,827
OREO and repossessed assets			63			10			26			209			8
Total nonperforming assets		$	5,143		$	4,805		$	5,354		$	7,179		$	7,835
Net charge-offs/(recoveries)			(1,509)			(581)			3,264			(595)			857
Net charge-offs/(recoveries) to average loans			(0.30)	%		(0.11)	%		0.66	%		(0.14)	%		0.20	%
Nonperforming loans to total loans			0.26	%		0.23	%		0.26	%		0.40	%		0.45	%
Nonperforming assets to total assets			0.17	%		0.17	%		0.19	%		0.29	%		0.33	%
Allowance for loan losses to total loans			1.73	%		1.52	%		1.34	%		1.54	%		1.39	%
Allowance for loan losses to nonperforming loans			674	%		654	%		512	%		388	%		306	%

For the fourth quarter of 2020, we had net recoveries of $1.5 million compared to net recoveries of $581 thousand for the third quarter of 2020 and $857 thousand of net charge-offs for the fourth quarter of 2019. The net recoveries for the fourth quarter of 2020 were primarily due to a $2.6 million recovery from one commercial client that was previously charged off during the second quarter of 2019.

The provision for loan losses for the fourth quarter of 2020 was $1.4 million, a decrease of $2.1 million, or 60.0%, from the third quarter of 2020 and a decrease of $397 thousand from the fourth quarter of 2019. The decrease in provision expense was primarily due to the net recoveries during the quarter. We have increased allocations of reserves during the year for the economic uncertainties related to COVID-19, which increased the allowance for loan losses balance by $10.3 million to $34.2 million at December 31, 2020, a 43.1% increase from December 31, 2019.

The ratio of nonperforming loans to total loans at December 31, 2020 was 0.26%, and if PPP loans were excluded, this ratio would have been 0.30%. Nonperforming assets as a percentage of total assets was 0.17% at December 31, 2020. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.19% at December 31, 2020.

During 2020, we had entered into principal and interest deferrals on 577 loans, representing $153.6 million in principal balances, since the beginning of the pandemic. Of those loans, 18 loans with a total outstanding principal balance of $8.4 million have been granted second deferrals, 21 loans with a total outstanding principal balance of $3.7 million remain on the first deferral and the remaining loans have been returned to normal payment status. All of these loan modifications were accounted for in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, or have been evaluated under existing accounting policies, and are not considered troubled debt restructurings.

Capital

Total stockholders’ equity was $330.2 million as of December 31, 2020, an increase of $44.4 million from December 31, 2019. The tangible book value per common share, a non-GAAP financial measure, increased to $16.00 as of December 31, 2020, from $14.08 as of December 31, 2019. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 9.27% as of December 31, 2020, from 10.38% as of December 31, 2019. The tangible common equity to tangible assets ratio, excluding PPP loans, was 10.19% as of December 31, 2020.

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


	****	December 31,		****	September 30,		****	December 31,
	****	2020		****	2020		****	2019
Capital Ratios^(1)^
Alerus Financial Corporation
Common equity tier 1 capital to risk weighted assets			12.75	%		13.08	%		12.48	%
Tier 1 capital to risk weighted assets			13.15	%		13.48	%		12.90	%
Total capital to risk weighted assets			16.79	%		17.13	%		16.73	%
Tier 1 capital to average assets			9.24	%		9.76	%		11.05	%
Tangible common equity / tangible assets ^(2)^			9.27	%		9.78	%		10.38	%

Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets			12.10	%		12.47	%		11.91	%
Tier 1 capital to risk weighted assets			12.10	%		12.47	%		11.91	%
Total capital to risk weighted assets			13.36	%		13.72	%		13.15	%
Tier 1 capital to average assets			8.50	%		9.03	%		10.20	%

(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.”
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Conference Call

The Company will host a conference call at 9:00 a.m. Central Time on Thursday, January 28, 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 businesses and consumers through four distinct business segments—banking, retirement and benefit services, wealth management, and mortgage. These solutions are delivered through a relationship-oriented primary point of contact along with responsive and client-friendly technology. 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 5

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; 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)


	****	December 31,		****	December 31,
	****	2020		****	2019
Assets		(Unaudited)			(Audited)
Cash and cash equivalents		$	172,962		$	144,006
Investment securities, at fair value
Available-for-sale			592,342			310,350
Equity			—			2,808
Loans held for sale			122,440			46,846
Loans			1,979,375			1,721,279
Allowance for loan losses			(34,246)			(23,924)
Net loans			1,945,129			1,697,355
Land, premises and equipment, net			20,289			20,629
Operating lease right-of-use assets			6,918			8,343
Accrued interest receivable			9,662			7,551
Bank-owned life insurance			32,363			31,566
Goodwill			30,201			27,329
Other intangible assets			25,919			18,391
Servicing rights			1,987			3,845
Deferred income taxes, net			9,409			7,891
Other assets			44,150			29,968
Total assets		$	3,013,771		$	2,356,878
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	754,716		$	577,704
Interest-bearing			1,817,277			1,393,612
Total deposits			2,571,993			1,971,316
Long-term debt			58,735			58,769
Operating lease liabilities			7,861			8,864
Accrued expenses and other liabilities			45,019			32,201
Total liabilities			2,683,608			2,071,150
Stockholders’ equity
Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding			—			—
Common stock, $1 par value, 30,000,000 shares authorized: 17,125,270 and 17,049,551 issued and outstanding			17,125			17,050
Additional paid-in capital			90,237			88,650
Retained earnings			212,163			178,092
Accumulated other comprehensive income (loss)			10,638			1,936
Total stockholders’ equity			330,163			285,728
Total liabilities and stockholders’ equity		$	3,013,771		$	2,356,878

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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


	Three months ended						Year ended
	December 31,		September 30,		December 31,		December 31,		December 31,
	2020		2020		2019		2020		2019
Interest Income	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)
Loans, including fees	$	22,549	$	21,962	$	20,659	$	86,425	$	85,830
Investment securities
Taxable		2,301		1,973		1,555		7,798		5,576
Exempt from federal income taxes		237		238		180		949		798
Other		114		116		493		930		1,096
Total interest income		25,201		24,289		22,887		96,102		93,300
Interest Expense
Deposits		1,210		1,683		3,532		8,843		13,334
Short-term borrowings		—		—		—		—		1,805
Long-term debt		838		841		896		3,413		3,610
Total interest expense		2,048		2,524		4,428		12,256		18,749
Net interest income		23,153		21,765		18,459		83,846		74,551
Provision for loan losses		1,400		3,500		1,797		10,900		7,312
Net interest income after provision for loan losses		21,753		18,265		16,662		72,946		67,239
Noninterest Income
Retirement and benefit services		15,922		15,104		17,669		60,956		63,811
Wealth management		4,807		4,486		4,117		17,451		15,502
Mortgage banking		16,781		22,269		6,066		61,641		25,805
Service charges on deposit accounts		334		355		451		1,409		1,772
Net gains (losses) on investment securities		15		1,428		—		2,737		357
Other		837		1,614		1,253		5,177		6,947
Total noninterest income		38,696		45,256		29,556		149,371		114,194
Noninterest Expense
Compensation		26,522		22,740		19,021		89,206		74,018
Employee taxes and benefits		4,962		5,033		4,268		20,050		19,456
Occupancy and equipment expense		2,681		2,768		2,665		11,073		10,751
Business services, software and technology expense		5,740		4,420		4,337		19,124		16,381
Intangible amortization expense		990		990		990		3,961		4,081
Professional fees and assessments		1,469		1,031		865		4,700		4,011
Marketing and business development		1,045		929		1,138		3,133		3,162
Supplies and postage		544		247		695		2,169		2,722
Travel		21		26		452		359		1,787
Mortgage and lending expenses		1,573		1,231		887		5,039		2,853
Other		1,578		799		1,117		4,985		3,315
Total noninterest expense		47,125		40,214		36,435		163,799		142,537
Income before income taxes		13,324		23,307		9,783		58,518		38,896
Income tax expense		3,144		5,648		2,131		13,843		9,356
Net income	$	10,180	$	17,659	$	7,652	$	44,675	$	29,540
Per Common Share Data
Earnings per common share	$	0.58	$	1.01	$	0.44	$	2.57	$	1.96
Diluted earnings per common share	$	0.57	$	0.99	$	0.43	$	2.52	$	1.91
Dividends declared per common share	$	0.15	$	0.15	$	0.15	$	0.60	$	0.57
Average common shares outstanding		17,122		17,121		17,049		17,106		14,736
Diluted average common shares outstanding		17,450		17,453		17,397		17,438		15,093

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)


	****	December 31,			September 30,			December 31,
	****	2020			2020			2019
Tangible Common Equity to Tangible Assets
Total common stockholders’ equity		$	330,163		$	322,003		$	285,728
Less: Goodwill			30,201			27,329			27,329
Less: Other intangible assets			25,919			15,421			18,391
Tangible common equity (a)			274,043			279,253			240,008
Total assets			3,013,771			2,898,809			2,356,878
Less: Goodwill			30,201			27,329			27,329
Less: Other intangible assets			25,919			15,421			18,391
Tangible assets (b)			2,957,651			2,856,059			2,311,158
Tangible common equity to tangible assets (a)/(b)			9.27	%		9.78	%		10.38	%
Tangible Book Value Per Common Share
Total common stockholders’ equity		$	330,163		$	322,003		$	285,728
Less: Goodwill			30,201			27,329			27,329
Less: Other intangible assets			25,919			15,421			18,391
Tangible common equity (c)			274,043			279,253			240,008
Total common shares issued and outstanding (d)			17,125			17,122			17,050
Tangible book value per common share (c)/(d)		$	16.00		$	16.31		$	14.08


	Three months ended									Year ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2020			2020			2019			2020			2019
Return on Average Tangible Common Equity
Net income	$	10,180		$	17,659		$	7,652		$	44,675		$	29,540
Add: Intangible amortization expense (net of tax)		782			782			782			3,129			3,224
Net income, excluding intangible amortization (e)		10,962			18,441			8,434			47,804			32,764
Average total equity		329,210			314,921			285,017			310,208			231,084
Less: Average goodwill		27,766			27,329			27,329			27,439			27,329
Less: Average other intangible assets (net of tax)		13,206			12,565			14,912			13,309			16,101
Average tangible common equity (f)		288,238			275,027			242,776			269,460			187,654
Return on average tangible common equity (e)/(f)		15.13	%		26.67	%		13.78	%		17.74	%		17.46	%
Net Interest Margin (tax-equivalent)
Net interest income	$	23,153		$	21,765		$	18,459		$	83,846		$	74,551
Tax-equivalent adjustment		131			116			89			455			347
Tax-equivalent net interest income (g)		23,284			21,881			18,548			84,301			74,898
Average earning assets (h)		2,869,767			2,744,758			2,135,682			2,618,427			2,052,758
Net interest margin (tax-equivalent) (g)/(h)		3.23	%		3.17	%		3.45	%		3.22	%		3.65	%
Efficiency Ratio
Noninterest expense	$	47,125		$	40,214		$	36,435		$	163,799		$	142,537
Less: Intangible amortization expense		990			990			990			3,961			4,081
Adjusted noninterest expense (i)		46,135			39,224			35,445			159,838			138,456
Net interest income		23,153			21,765			18,459			83,846			74,551
Noninterest income		38,696			45,256			29,556			149,371			114,194
Tax-equivalent adjustment		131			116			89			455			347
Total tax-equivalent revenue (j)		61,980			67,137			48,104			233,672			189,092
Efficiency ratio (i)/(j)		74.44	%		58.42	%		73.68	%		68.40	%		73.22	%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)


	Three months ended												Year ended
	December 31, 2020				September 30, 2020				December 31, 2019				December 31, 2020				December 31, 2019
			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	$	164,052	0.12	%	$	169,770	0.12	%	$	100,058	1.69	%	$	162,616	0.41	%	$	34,876	1.88	%
Investment securities (1)		549,198	1.88	%		443,705	2.04	%		296,773	2.38	%		425,219	2.12	%		266,204	2.47	%
Loans held for sale		122,820	2.18	%		90,634	2.44	%		51,766	3.01	%		79,201	2.46	%		36,035	3.16	%
Loans
Commercial:
Commercial and industrial		745,415	4.91	%		782,853	4.34	%		473,489	5.30	%		687,266	4.60	%		500,652	5.45	%
Real estate construction		40,009	4.31	%		32,747	4.47	%		23,901	5.20	%		32,804	4.54	%		23,625	5.45	%
Commercial real estate		545,432	3.82	%		525,514	4.02	%		460,457	4.71	%		523,219	4.18	%		448,869	4.95	%
Total commercial		1,330,856	4.45	%		1,341,114	4.22	%		957,847	5.01	%		1,243,289	4.42	%		973,146	5.22	%
Consumer
Residential real estate first mortgage		471,125	3.73	%		460,995	3.96	%		454,854	4.15	%		463,174	3.97	%		455,635	4.23	%
Residential real estate junior lien		149,456	4.72	%		153,326	4.54	%		179,714	5.29	%		159,844	4.81	%		184,972	5.63	%
Other revolving and installment		76,466	4.53	%		79,343	4.50	%		88,896	4.69	%		79,238	4.57	%		93,226	4.65	%
Total consumer		697,047	4.03	%		693,664	4.15	%		723,464	4.50	%		702,256	4.23	%		733,833	4.64	%
Total loans (1)		2,027,903	4.30	%		2,034,778	4.20	%		1,681,311	4.79	%		1,945,545	4.35	%		1,706,979	4.97	%
Federal Reserve/FHLB stock		5,794	4.46	%		5,871	4.40	%		5,774	4.67	%		5,846	4.55	%		8,664	5.08	%
Total interest earning assets		2,869,767	3.51	%		2,744,758	3.54	%		2,135,682	4.27	%		2,618,427	3.69	%		2,052,758	4.56	%
Noninterest earning assets		158,417				163,386				153,838				156,713				159,235
Total assets	$	3,028,184			$	2,908,144			$	2,289,520			$	2,775,140			$	2,211,993
Interest-Bearing Liabilities
Interest-bearing demand deposits	$	622,854	0.19	%	$	589,633	0.27	%	$	442,945	0.52	%	$	551,861	0.29	%	$	428,162	0.47	%
Money market and savings deposits		1,012,497	0.20	%		961,669	0.32	%		698,533	1.19	%		920,072	0.53	%		681,621	1.22	%
Time deposits		208,378	0.79	%		204,969	0.98	%		195,963	1.72	%		203,413	1.16	%		186,781	1.62	%
Short-term borrowings		—	—	%		—	—	%		—	—	%		80	—	%		71,421	2.53	%
Long-term debt		58,726	5.68	%		58,739	5.70	%		58,760	6.05	%		58,742	5.81	%		58,789	6.14	%
Total interest-bearing liabilities		1,902,455	0.43	%		1,815,010	0.55	%		1,396,201	1.26	%		1,734,168	0.71	%		1,426,774	1.31	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Noninterest-bearing deposits		738,319				698,594				559,363				673,676				512,586
Other noninterest-bearing liabilities		58,200				79,619				48,939				57,088				41,549
Stockholders’ equity		329,210				314,921				285,017				310,208				231,084
Total liabilities and stockholders’ equity	$	3,028,184			$	2,908,144			$	2,289,520			$	2,775,140			$	2,211,993
Net interest rate spread			3.08	%			2.99	%			3.01	%			2.98	%			3.25	%
Net interest margin, tax-equivalent (2)			3.23	%			3.17	%			3.45	%			3.22	%			3.65	%

(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.”
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Exhibit 99.2

INVESTOR PRESENTATION<br>JANUARY 2021<br>Alerus
1<br>Forward-Looking Statements<br>This presentation 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<br>include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These<br>statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”,<br>“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<br>forward-looking statements include, among others, statements we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s<br>long-term performance goals and the future plans and prospects of Alerus Financial Corporation.<br>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<br>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,<br>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<br>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<br>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,<br>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 connection with the<br>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 future<br>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<br>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<br>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<br>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;<br>interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the<br>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<br>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<br>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<br>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<br>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<br>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<br>use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative rates; our success at managing the risks involved in the foregoing items; and any<br>other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the Securities and Exchange Commission.<br>Any forward-looking statement made by us in this presentation 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<br>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.<br>Non-GAAP Financial Measures<br>This presentation includes certain ratios and amounts that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Management uses certain non-GAAP financial measures to<br>evaluate financial performance and business trends from period to period and believes that disclosure of these non-GAAP financial measures will help investors, rating agencies and analysts<br>evaluate the financial performance and condition of Alerus Financial Corporation. This presentation includes a reconciliation of each non-GAAP financial measure to the most comparable GAAP<br>equivalent.<br>Miscellaneous<br>Except as otherwise indicated, this presentation speaks as of the date hereof. The delivery of this presentation shall not, under any circumstances, create any implication that there has been no<br>change in the affairs of Alerus Financial Corporation after the date hereof. Certain of the information contained herein may be derived from information provided by industry sources. We believe<br>that such information is accurate and that the sources from which it has been obtained are reliable. We cannot guarantee the accuracy of such information, however, and we have not independently<br>verified such information.<br>DISCLAIMERS
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2<br>COVID-19 RESPONSE
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3<br>.. Activated Business Continuity Planning team and Pandemic Policy; frequent meetings with key leadership teams<br>.. Response guided by safety of employees and clients; being a good corporate citizen; and encouraging digital use<br>.. Benefit of past crisis experience; 1997 historic Flood and Fire in Grand Forks, ND<br>.. Early adoption and continuation of self-quarantine recommendations and restricting non-essential business travel<br>.. 82% of staff transitioned to working remote in 1 week; 85% remain working remote<br>.. Established On-Site Pay for staff in offices; introduced Relief Pay for office closures or daycare/school closures<br>.. Frequent all employee virtual calls hosted by C*Suite; 75% of staff attends live; completed 21 in 2020<br>.. Built integrated access between client documents and CRM, allowing team to quickly access client information<br>.. Robotic Process Automation: continue to add robots to automate operational processes<br>.. Leveraged DocuSign to develop pre-filled, dynamic Paycheck Protection Program Forgiveness Application<br>.. Simplified client experience, moving various loan, wealth management, and investment documents to DocuSign<br>.. Built upon holistic financial picture for consumer clients by integrating wealth management and brokerage<br>accounts held with Alerus into My Alerus, simplifying the online account experience down to one login<br>.. Moved all retirement statements and confirmations to electronic format as the default, further driving online<br>engagement<br>.. Paycheck Protection Program: helped over 1,632 new and existing clients secure ~ $364 million in funding relief<br>.. Ongoing virtual webinars to provide guidance and help clients with their financial issues on various topics<br>.. Waived fees on loan extensions, loan payment deferrals, or early CD withdrawals due to COVID-19 related hardship<br>.. Proactively helping participants navigate retirement distributions or other lending options<br>.. Continue to encourage virtual business; reopening approach is guided by market conditions<br>.. ND: lobbies closed in mid-March, open by appointment only in early June, lobbies reopened in mid-June, markets<br>were never subject to stay at home order and markets are widely open for business<br>.. MN: lobbies closed in mid-March, drive-ups remained open, stay at home order lifted in mid-May, open by<br>appointment only in August, continued progress of state’s four-phased approach to businesses reopening<br>.. AZ: lobbies closed in mid-March, drive-up remained open, open by appointment only in September<br>COVID-19 RESPONSE SUMMARY<br>PROACTIVELY RESPONDING WITH AGILITY AND SUPPORT<br>LEADING DURING THE<br>PANDEMIC CRISIS<br>TAKING CARE OF<br>EMPLOYEES<br>LEVERAGING<br>INFRASTRUCTURE<br>INVESTMENTS<br>INCREASED DIGITAL<br>ENGAGEMENT<br>SERVING IN<br>THE BEST INTEREST<br>OF CLIENTS<br>THE NEW NORMAL
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4<br>PAYMENT DEFERRALS, MATURITY EXTENSIONS, AND PAYMENT MODIFICATIONS<br>COVID-19 RELIEF PROGRAMS<br>December 31, 2020<br>Loan Group<br>Number<br>Of<br>Loans<br>Granted<br>Deferral<br>($ in 000’s)<br>Still on Initial<br>Deferral<br>($ in 000’s)<br>Second<br>Deferral<br>($ in 000's)<br>Returned<br>to Normal<br>($ in 000’s)<br>Consumer 174 $ 2,420 $ 125 $ 26 $ 2,269<br>Residential Real Estate<br>Serviced 62 26,939 2,145 8,423 16,371<br>Residential Real Estate<br>Non-serviced 77 10,550 —— 10,550<br>Commercial Real Estate 79 80,763 650 — 80,113<br>Commercial & Industrial 185 32,899 760 — 32,138<br>Total 577 $ 153,571 $ 3,680 $ 8,449 $ 141,441<br>Consumer<br>1%<br>Residential Real<br>Estate Serviced<br>87%<br>Residential Real<br>Estate Non-<br>serviced<br>0%<br>Commercial Real<br>Estate<br>6%<br>Commercial &<br>Industrial<br>6%
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5<br>Retail Trade<br>20%<br>Professional, Scientific, and Technical<br>Services<br>13%<br>Construction<br>12%<br>Manufacturing<br>10%<br>Wholesale<br>Trade<br>5%<br>Health Care and Social<br>Assistance<br>8%<br>Other Services (except Public<br>Administration)<br>5%<br>Administrative and Support and<br>Waste Management and Remediation<br>Services<br>3%<br>Transportation and Warehousing<br>3%<br>Accommodation and Food Services<br>3%<br>Other<br>18%<br>SBA PAYCHECK PROTECTION PROGRAM (PPP)<br>COVID-19 RELIEF PROGRAMS<br>As of 12/31/2020.<br>We had $83.6 million of PPP loans forgiven or repaid as of December 31, 2020.<br>Loan Amount Group # of Loans<br>$ Originated<br>(in 000’s)<br>$150M or less 1,157 $ 49,361<br>$150M to $2MM 449 235,616<br>$2MM+ 26 78,624<br>Total 1,632 $ 363,601<br>INDUSTRY BREAKDOWN OF PPP LOANS MADE TO BORROWERS<br>THROUGH 12/31/2020 SECURED SBA FINANCING FOR 1,632 LOANS FOR APPROXIMATELY $364MM
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6<br>6.9% 7.1% 7.5%<br>11.1%<br>9.2%<br>8.2% 8.3% 8.9%<br>12.9% 13.2%<br>0.0%<br>2.0%<br>4.0%<br>6.0%<br>8.0%<br>10.0%<br>12.0%<br>14.0%<br>2016 2017 2018 2019 2020<br>Tier 1 Leverage Tier 1 Capital<br>12.3% 12.2% 12.9%<br>16.7% 16.8%<br>0.0%<br>2.0%<br>4.0%<br>6.0%<br>8.0%<br>10.0%<br>12.0%<br>14.0%<br>16.0%<br>18.0%<br>2016 2017 2018 2019 2020<br>STRONG CAPITAL AND SOURCES OF LIQUIDITY<br>TANGIBLE COMMON EQUITY/TANGIBLE ASSETS TIER 1 CAPITAL/TIER 1 LEVERAGE RATIOS<br>PRIMARY AND SECONDARY SOURCES OF LIQUIDITY TOTAL RISK BASED CAPITAL<br>Basel III Regulatory Capital Minimum to be considered well capitalized<br>Cash and cash equivalents $172,962<br>Unencumbered securities 431,513<br>FHLB borrowing availability 631,680<br>Brokered CD capacity 602,754<br>Fed funds lines 102,000<br>Total as of 12/31/2020 $1,940,909<br>Tier 1<br>Capital<br>Leverage<br>Excluding PPP, Tangible Common Equity/Tangible Assets at December 31, 2020 was 10.19% Basel III Regulatory Capital Minimum to be considered well capitalized<br>5.4% 6.0%<br>6.9%<br>10.4%<br>9.3%<br>0.0%<br>2.0%<br>4.0%<br>6.0%<br>8.0%<br>10.0%<br>12.0%<br>2016 2017 2018 2019 2020
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7<br>1.14% 1.05%<br>1.30% 1.39%<br>1.73%<br>0.00%<br>0.40%<br>0.80%<br>1.20%<br>1.60%<br>2.00%<br>2016 2017 2018 2019 2020<br>0.47%<br>0.30% 0.33% 0.33%<br>0.17%<br>0.00%<br>0.20%<br>0.40%<br>0.60%<br>0.80%<br>2016 2017 2018 2019 2020<br>ASSET QUALITY AND RESERVE LEVELS<br>OVERVIEW NPAS / ASSETS (%)<br>RESERVES / LOANS (%) RESERVES / NPLS (%)<br>.. Solid asset quality<br>.. Strong reserve levels<br>.. Proactive approach to classification of assets and<br>management of loan problems<br>Excluding PPP loans, NPAs/Assets as of December 31, 2020 was 0.19%<br>Excluding PPP loans, Reserves/Loans as of December 31, 2020 was 2.00%<br>205%<br>282% 318% 306%<br>678%<br>0.00%<br>100.00%<br>200.00%<br>300.00%<br>400.00%<br>500.00%<br>600.00%<br>700.00%<br>800.00%<br>2016 2017 2018 2019 2020
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8<br>BY OUTSTANDING BALANCES<br>WELL DIVERSIFIED LOAN PORTFOLIO<br>As of 12/31/2020.<br>1-4 Residential 1st<br>21%<br>1-4 Residential Construction<br>1%<br>1-4 Residential Jr Lien 2%<br>HELOC 5%<br>RE Loans to be Sold 6%<br>C&I 18% PPP 13%<br>Loans to Public Entities<br>0%<br>Other Loans 0%<br>Ag Production 2%<br>Other CRE 12%<br>Owner Occupied<br>CRE 10%<br>Ag Land 1%<br>Multifamily 4%<br>Retail Indirect 2% Other Consumer<br>1% RE Construction 2%
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9<br>BY TOTAL COMMITMENT INCLUDING UNFUNDED COMMITMENT<br>WELL DIVERSIFIED LOAN PORTFOLIO<br>As of 12/31/2020.<br>1-4 Residential 1st<br>17%<br>1-4 Residential<br>Construction 1%<br>1-4 Residential Jr<br>Lien 1%<br>HELOC 10%<br>RE Loans to be Sold<br>5%<br>C&I 25%<br>PPP 10%<br>Loans to Public<br>Entities 0%<br>Other Loans 0%<br>Ag Production 2%<br>Other CRE 10%<br>Owner Occupied CRE 8%<br>Ag Land 1%<br>Multifamily 3%<br>Retail Indirect 2%<br>Other Consumer 2% RE Construction 3%
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10<br>2020 HIGHLIGHTS
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11<br>Net Interest Income $ 23,153 $ 21,765 $ 18,459 $ 83,846 $ 74,551<br>Provision for Loan Losses 1,400 3,500 1,797 10,900 7,312<br>Net Interest Income After Provision for Loan Losses 21,753 18,265 16,662 72,946 67,239<br>Noninterest Income 38,696 45,256 29,556 149,371 114,194<br>Noninterest Expense 47,125 40,214 36,435 163,799 142,537<br>Income Before Income Taxes 13,324 23,307 9,783 58,518 38,896<br>Income Tax Expense 3,144 5,648 2,131 13,843 9,356<br>Net Income $ 10,180 $ 17,659 $ 7,652 $ 44,675 $ 29,540<br>Per Common Share Data<br>Earnings Per Common Share – Diluted $ 0.57 $ 0.99 $ 0.43 $ 2.52 $ 1.91<br>Diluted Average Common Shares Outstanding 17,450 17,453 17,397 17,438 15,093<br>Performance Ratios<br>Return on Average Total Assets 1.34% 2.42% 1.33% 1.61% 1.34%<br>Return on Average Tangible Common Equity(1) 15.13% 26.67% 13.78% 17.74% 17.46%<br>Noninterest Income as a % of Revenue 62.57% 67.53% 61.56% 64.05% 60.50%<br>Net Interest Margin (Tax-Equivalent)(1)(2) 3.23% 3.17% 3.45% 3.22% 3.65%<br>Efficiency Ratio(1) 74.44% 58.42% 73.68% 68.40% 73.22%<br>2020<br>December December<br>2019<br>Year ended Three months ended<br>(dollars and shares in thousands, except per share data)<br>December<br>2020<br>September<br>2020<br>December<br><br><br>2019<br><br><br><br>INCOME STATEMENT<br>2020 FINANCIAL HIGHLIGHTS<br>1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.”<br>2 – Net interest margin (tax-equivalent) excluding PPP loans for three months ended and the year ended December 31, 2020 was 3.03% and 3.16%, respectively.
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12<br>STRONG CORE FUNDING MIX<br>.. Commercial transaction accounts totaled $1.1 billion and<br>increased 35.5% YTD. Consumer transaction accounts totaled<br>$644.2 million and increased 20.2%<br>.. Synergistic deposits, including HSA deposits and those sourced<br>through retirement plans and participants, totaled $595.6<br>million, with a cost of 0.40%<br>.. CD portfolio is primarily 6 month flex CD with over 50% held<br>by clients for 10+ years<br>.. Stable deposit relationships with 22 year average tenure on 10<br>largest depositors<br>As of December 31, 2020, core deposits totaled<br>$2.6 billion or 97.5% of our total deposits<br>OVERVIEW AS OF DECEMBER 31, 2020 DECEMBER 31, 2020 DEPOSIT FUNDING ($2,572MM)<br>LOW COST OF FUNDS<br>Data YTD as of 12/31/2020.<br>0.38%<br>0.53% 0.51%<br>0.00%<br>0.20%<br>0.40%<br>0.60%<br>0.80%<br>1.00%<br>1.20%<br>1.40%<br>Cost of Total<br> Deposits<br>Cost of Interest<br>Bearing Deposits<br>Total Cost of Funds<br>2017 2018 2019 2020<br>Non-Interest Bearing<br>Deposits<br>29.3%<br>Money<br>Market &<br>Savings<br>Deposits<br>38.5%<br>Interest Bearing<br>Demand Deposits<br>19.2%<br>Time<br>Deposits<br>8.1%<br>HSA Deposits<br>4.9%
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13<br>0.44%<br>0.65%<br>0.97%<br>0.51%<br>1.00%<br>1.83%<br>2.16%<br>0.45%<br>3.74% 3.84%<br>3.65%<br>3.22%<br>4.63%<br>4.81% 4.97%<br>4.35%<br>0.00%<br>1.00%<br>2.00%<br>3.00%<br>4.00%<br>5.00%<br>6.00%<br>2017 2018 2019 2020<br>NET INTEREST MARGIN (NIM)<br>Source: Alerus Financial Corporation; Federal Reserve<br>Note: Net interest margin (FTE) is a non-GAAP financial measure; See “Non-GAAP Disclosure Reconciliation” in the Appendix to this presentation<br>Loan Yield<br>Net Interest Margin (fully-taxable equivalent “FTE”)<br>Average Effective Fed Funds Rate<br>Cost of Funds
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14<br>NIM AND LOAN FLOORS<br>VARIABLE RATE FLOORS BY INDEX VARIABLE RATE FLOORS<br>COMMENTS<br>$ in Millions Balance % of Total<br>Balance<br>Cumulative % of<br>Total Balance<br>No Floors $ 310 42.4% 42.4%<br>Floors Reached 311 42.5% 84.9%<br>0-50 bps to reach floor 103 14.1% 99.0%<br>>50bps to reach floor 7 1.0% 100.0%<br>Total $ 731 100.0%<br>.. Quarter over quarter highlights:<br>• Increased asset yields driven by increased loan yields of<br>10bps<br>• Excluding PPP loans C&I yield would have been down<br>11bps<br>• Investment portfolio increased $97 million during the<br>quarter as we put money back to work<br>• The duration was 4.37 at 12/31 compared to 4.43 at 9/30<br>• Lower investment yield of 14bps<br>• Tax equivalent YTW is 1.29 at 12/31 compared to 1.47 at<br>9/30<br>• Lower yields offset by increased earning assets of $125<br>million<br>$ in Millions<br>Index<br>In the<br>Money<br>Out of<br>the Money No Floor Total Total %<br>Prime $ 254 $ 24 $ 15 $ 293 40.0%<br>1 Month LIBOR 8 2 161 171 23.4%<br>12 Month LIBOR – 75 117 192 26.3%<br>FHLB 5 Year 26 8 12 46 6.3%<br>Other 24 – 5 29 4.0%<br>Total $ 312 $ 109 $ 310 $ 731 100.0%<br>Percent of Total 42.7% 14.9% 42.4% 100.0%<br>1 – NIM excluding PPP for the three months ended December 31, 2020 was 3.03%<br>NIM1 Average Earning Assets<br>3Q 2020 3.17% 2,744,759,465<br>Increased Asset Yields 0.05%<br>Asset Balance/Mix -0.07%<br>Deposit Balance/Mix 0.00%<br>Lower Deposit Rate 0.07%<br>Other Borrowings 0.01%<br>4Q 2020 3.23% 2,869,766,519<br>NET INTEREST MARGIN ROLL FORWARD
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15<br>A BIG COMPANY MODEL WITH SMALL COMPANY EXECUTION<br>OUR DIVERSE BUSINESS LINES<br>Revenue data LTM as of 12/31/2020.<br>TRUSTED<br>ADVISOR<br>BANKING<br>WEALTH<br>MANAGEMENT<br>• Residential mortgage lending<br>• Purchasing or refinancing<br>• Residential construction lending<br>• Home equity/second mortgages<br>• Advisory services<br>• Trust and fiduciary services<br>• Investment management<br>• Insurance planning<br>• Financial planning<br>• Education planning<br>• Retirement plan<br>administration<br>• Retirement plan<br>investment advisory<br>• ESOP fiduciary services<br>• Payroll administration<br>services<br>• HSA/FSA/HRA<br>administration<br>• COBRA<br>BUSINESS BANKING<br>• Commercial and commercial<br>real estate lending<br>• Agriculture lending<br>• Treasury management<br>• Deposit services<br>CONSUMER BANKING<br>• Deposit products<br>and services<br>• Consumer lending<br>• Private banking<br>MORTGAGE RETIREMENT<br>AND BENEFITS<br>26% of Revenue 26% of Revenue<br>8% of Revenue<br>40% of Revenue
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16<br>$29,366 $27,812 $31,905 $34,200<br> 340,000<br> 345,000<br> 350,000<br> 355,000<br> 360,000<br> 365,000<br> 370,000<br> 375,000<br>$0<br>$5,000<br>$10,000<br>$15,000<br>$20,000<br>$25,000<br>$30,000<br>$35,000<br>2017 2018 2019 2020<br>AUA/AUM Participants<br>$20,413<br>$26,902 $28,404 $25,720<br>$62,390 $63,316 $63,811 $60,956<br>$0<br>$20,000<br>$40,000<br>$60,000<br>$80,000<br>2017 2018 2019 2020<br>Net Income Revenue<br>RETIREMENT AND BENEFITS<br>OVERVIEW-6,500 PLANS- NATIONAL FOOTPRINT ASSETS UNDER ADMINISTRATION/MANAGEMENT<br>PROFIT MARGIN REVENUE MIX<br>MARKET<br>SENSITIVE<br>REVENUE:<br>42%<br>1<br>1 Net Income before Tax and Indirect Allocations.<br>.. RETIREMENT - Provide recordkeeping and administration<br>services to qualified retirement plans<br>.. ADVISORY SERVICES - Provide investment fiduciary services to<br>retirement plans<br>.. HEALTH AND WELFARE - Provide HSA, FSA, COBRA<br>recordkeeping and administration services to employers<br>.. ESOP - Provide trustee, recordkeeping and administration to<br>employee stock ownership plans<br>.. PAYROLL - Provide payroll and HRIS services for employers<br>.. ONE ALERUS SYNERGIES<br>• IRA rollovers $117.7 million YTD 12/31/2020<br>• Deposits - HSA deposits, 401(k) Money Market Funds,<br>Emergency Savings, Terminated Participants<br>• Managed accounts<br>($ in Millions)<br>($000s)<br>Asset Based Retirement<br>32%<br>Trust, Custody &<br>Advisory<br>10%<br>Record<br>Keeping<br>19%<br>Administration<br>11%<br>Health &<br>Welfare<br>7%<br>Payroll Servicing<br>3%<br>ESOP<br>6%<br>Other<br>12%
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17<br>$6,370<br>$8,138 $8,314 $9,162<br>$14,010 $14,962 $15,502<br>$17,451<br>$0<br>$6,000<br>$12,000<br>$18,000<br>2017 2018 2019 2020<br>Net Income Revenue<br>WEALTH MANAGEMENT SERVICES<br>OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT<br>PROFIT MARGIN REVENUE MIX<br>1 Net Income before Tax and Indirect Allocations.<br>.. ADVISORY AND PLANNING SERVICES<br>• Retirement Planning, Tax Planning, Insurance Planning,<br>Wealth Transfer Planning and Business Transition Planning<br>.. ASSET MANAGEMENT<br>• Personalized SMA strategies, Tax Management and Global<br>Perspective<br>.. FIDUCIARY SERVICES<br>• IRA, Agency and Personal Trust<br>.. ONE ALERUS SYNERGIES<br>• IRA rollovers<br>• 401(k) managed accounts<br>1<br>($ in Millions)<br>($000s)<br>$2,702 $2,627<br>$3,103 $3,339<br>$0<br>$1,000<br>$2,000<br>$3,000<br>2017 2018 2019 2020<br>Asset<br>Management<br>84%<br>Brokerage<br>10%<br>Insurance &<br>Advisory<br>6%
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18<br>$237.5 $213.5<br>$393.1 $462.0<br>$564.0 $23.8 $15.0<br>$38.6<br>$49.6<br>$43.2<br>$261.3 $228.5<br>$431.7<br>$511.6<br>$607.2<br>$0.0<br>$100.0<br>$200.0<br>$300.0<br>$400.0<br>$500.0<br>$600.0<br>$700.0<br>Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020<br>Sale Portfolio<br>MORTGAGE BANKING<br>OVERVIEW OF SERVICES MORTGAGE ORIGINATIONS<br>GAIN ON SALE MARGIN<br>($000s)<br>REVENUE SUMMARY<br>.. 1st and 2nd mortgage product offerings through centralized<br>mortgage operations in Minnesota<br>.. Our Twin Cities originators averaged $42+ million in annual<br>volume over the last three years<br>.. YTD 5,948 loans closed, approximately 45% purchase<br>originations, with approximately 89% sourced from the<br>Twin Cities MSA<br>.. Year ended 92.9% pull through on secondary market<br>.. ONE ALERUS SYNERGIES<br>• Through enhanced technology, digital applications<br>exceed 80%. Paperless environment eliminated nearly<br>200,000+ pages printed on a monthly basis<br>• As of December 31, 2020, residential real estate first<br>mortgages excluding construction mortgages totaled<br>$449 million<br>2.7%<br>3.2% 3.3%<br>3.6% 3.5%<br>2.0%<br>3.0%<br>4.0%<br>Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020<br>1 Net Income before Tax and Indirect Allocations.<br>($000s)<br>Q4<br>2019<br>Q1<br>2020<br>Q2<br>2020<br>Q3<br>2020<br>Q4<br>2020<br>Origination<br>and Sale $ 7,017 $ 5,926 $ 11,516 $ 16,289 $ 19,071<br>Fair Value<br>Changes (951) (881) 6,030 5,980 (2,290)<br>Total $ 6,066 $ 5,045 $ 17,546 $ 22,269 $ 16,781<br>Net<br>income (1) $ 426 $ (126) $ 10,056 $ 13,113 $ 4,367<br>Profit<br>Margin 6.6% (2.4%) 55.6% 57.3% 25.0%
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19<br>LOAN PORTFOLIO AND CREDIT QUALITY
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20<br>SUMMARY BY INDUSTRY TYPE<br>TOTAL COMMITMENT COMMERCIAL & INDUSTRIAL1<br>1 – Commercial and industrial loans includes C & I, Loans to Public Entities, and Other Loans. It Excludes PPP and Ag Production loans<br>“Other” includes to the following industries (1) Nonclassifiable establishments, (2) Management of Companies and Enterprises, (3) Administrative and Support and Waste Management and Remediation Services, (4)<br>Accommodation and Food Services, (5) Educational Services, (6) Other Services (except Public Administration), (7) Information, (8) Arts, Entertainment, and Recreation, (9) Agriculture Forestry, Fishing, and Hunting,<br>(10) Public Administration), (11) Mining Quarrying, and Oil and Gas Extraction, and (12) Utilities<br>“Other Retail Trade” includes to the following sub-industries within Retail Trade: (1) Miscellaneous Store Retailers, (2) Furniture and Home Furnishings Stores, (3) Sporting Goods, Hobby, Musical Instrument, and Book<br>Stores, (4) Clothing and Clothing Accessories Stores, and (5) General Merchandise Stores<br>Transportation<br>and Warehousing<br>3%<br>Health Care and Social<br>Assistance<br>6%<br>Professional, Scientific and Technical<br>Services<br>7%<br>Manufacturing<br>9%<br>Real Estate and<br>Rental and<br>Leasing 10%<br>Wholesale Trade<br>11%<br>Construction<br>14%<br>Finance and<br>Insurance<br>14%<br>Other<br>11%<br>Motor Vehicle and Parts Dealers<br>8%<br>Food and Beverage<br>Stores<br>2%<br>Electronics and<br>Appliance Stores<br>2% Heath and Personal<br>Care Services<br>1%<br>Gasoline Stations<br>0%<br>Building Material and<br>Garden Equipment<br>and Supplies Dealers<br>1%<br>Nonstore Retailers<br>1%<br>Other Retail<br>Trade<br>0%<br>Retail Trade<br>15%
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21<br>Serviced 46%<br>1-4 1st Non-Serviced<br>4%<br>1-4 Family Jr Liens<br>4%<br>1-4 Family Revolving<br>29%<br>1-4 Family Construction 3%<br>Held for Sale<br>14%<br>LOANS SECURED BY REAL ESTATE<br>TOTAL COMMITMENT<br>COMMERCIAL REAL ESTATE1<br>1 – Loans secured by commercial real estate include Multifamily loans, Ag land, Other CRE, Owner Occupied CRE, and Ag production<br>Portfolio Avg FICO Avg LTV<br>Serviced 754 67%<br>Non-Serviced 779 38%<br>Junior 757 70%<br>HELOC 794 66%<br>TOTAL COMMITMENT<br>RESIDENTIAL REAL ESTATE<br>Office<br>15%<br>Retail<br>18%<br>Warehouse<br>17%<br>Manufacturing<br>1%<br>Residential<br>Development<br>1%<br>Commercial<br>Development<br>0%<br>Mixed<br>Residential/Commercial<br>1%<br>Mixed<br>Commercial<br>6%<br>Apartments<br>16%<br>Hotel<br>1%<br>Medical Or<br>Nursing Facilities<br>8%<br>Commercial/Land<br>Development<br>14%<br>Ag Land<br>2%
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22<br>Impacted industries,<br>8%<br>All Other Loans, 92%<br>COMMERCIAL AND INDUSTRIAL AND COMMERCIAL REAL ESTATE<br>INDUSTRIES DIRECTLY IMPACTED BY COVID-19<br>As of 12/31/2020.<br>C&I<br>Total<br>Commitment<br>($ in 000's) % of Total<br>Accommodation and Food Services $ 8,756 0.61%<br>Arts, Entertainment, and Recreation 3,689 0.26%<br>Oil and Gas 584 0.04%<br>Other Retail Trade 3,120 0.22%<br>Total $ 16,149 1.13%<br>CRE<br>Total<br>Commitment<br>($ in 000's) % of Total<br>Retail $ 121,283 8.51%<br>Medical or Nursing Facilities 50,763 3.56%<br>Hotel 5,869 0.41%<br>Total $ 177,915 12.49%
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23<br>LINE OF CREDIT UTILIZATION<br>C&I AND HOME EQUITY LINES OF CREDIT<br>0%<br>5%<br>10%<br>15%<br>20%<br>25%<br>30%<br>35%<br>40%<br>45%<br> -<br> 50,000<br> 100,000<br> 150,000<br> 200,000<br> 250,000<br> 300,000<br> 350,000<br> 400,000<br> 450,000<br> 500,000<br>Q1<br>2018<br>Q2<br>2018<br>Q3<br>2018<br>Q4<br>2018<br>Q1<br>2019<br>Q2<br>2019<br>Q3<br>2019<br>Q4<br>2019<br>Q1<br>2020<br>Q2<br>2020<br>Q3<br>2020<br>Q4<br>2020<br>C&I<br>Funded Unfunded Funded%<br>0%<br>10%<br>20%<br>30%<br>40%<br>50%<br>60%<br> -<br> 50,000<br> 100,000<br> 150,000<br> 200,000<br> 250,000<br> 300,000<br>Q1<br>2018<br>Q2<br>2018<br>Q3<br>2018<br>Q4<br>2018<br>Q1<br>2019<br>Q2<br>2019<br>Q3<br>2019<br>Q4<br>2019<br>Q1<br>2020<br>Q2<br>2020<br>Q3<br>2020<br>Q4<br>2020<br>Home Equity Lines of Credit<br>Funded Unfunded Funded%
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24<br>CHANGES IN THE ALLL BY PORTFOLIO SEGMENT<br>ALLOWANCE FOR LOAN LOSSES<br>Year ended December 31, 2020<br>(dollars in thousands)<br>Beginning<br>Balance<br>Provision for<br>Loan Losses<br>Loan<br>Charge-offs<br>Loan<br>Recoveries<br>Ending<br>Balance<br>Commercial<br>Commercial and industrial $ 12,270 $ (2,168) $ (4,249) $ 4,352 $ 10,205<br>Real estate construction 303 355 —— 658<br>Commercial real estate 6,688 8,185 (865) 97 14,105<br>Total commercial 19,261 6,372 (5,114) 4,449 24,968<br>Consumer<br>Residential real estate first mortgage 1,448 4,321 — 5 5,774<br>Residential real estate junior lien 671 507 (12) 207 1,373<br>Other revolving and installment 352 514 (242) 129 753<br>Total consumer 2,471 5,342 (254) 341 7,900<br>Unallocated 2,192 (814) —— 1,378<br>Total $ 23,924 $ 10,900 $ (5,368) $ 4,790 $ 34,246
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25<br>ALLOCATION BY PORTFOLIO SEGMENT<br>ALLOWANCE FOR LOAN LOSSES<br>December 31, 2020 December 31, 2019<br>(dollars in thousands)<br>Allocated<br>Allowance<br>Percentage<br>of loans to<br>total loans<br>Allocated<br>Allowance<br>Percentage<br>of loans to<br>total loans<br>Commercial and industrial $ 10,205 35.1% $ 12,270 27.8%<br>Real estate construction 658 2.2% 303 1.5%<br>Commercial real estate 14,105 28.4% 6,688 28.8%<br>Residential real estate first mortgage 5,774 23.4% 1,448 26.6%<br>Residential real estate junior lien 1,373 7.2% 671 10.3%<br>Other revolving and installment 753 3.7% 352 5.0%<br>Unallocated 1,378 —% 2,192 —%<br>Total loans $ 34,246 100.0% $ 23,924 100.0%
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26<br>Risk Level Total Loans<br>Unguaranteed<br>Balance<br>Reserve<br>Amount<br>Reserve /<br>Unguaranteed<br>Loans<br>Reserve/Total<br>Loans<br>Pass $ 1,912,644 $ 1,649,499 $ 27,238 1.65% 1.42%<br>Special Mention 21,388 15,006 639 4.26% 2.99%<br>Substandard 36,813 32,832 3,786 11.53% 10.28%<br>Total Loans Evaluated Collectively 1,970,845 1,697,337 31,663 1.87% 1.61%<br>Total Loans Evaluated Individually 8,530 8,222 1,205 14.66% 14.13%<br>Unallocated –– 1,378 ––<br>Total $ 1,979,375 $ 1,705,559 $ 34,246 2.01% 1.73%<br>ALLOCATION BY RISK SEGMENT ($ IN 000’S)<br>ALLOWANCE FOR LOAN LOSSES<br>As of 12/31/2020.
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27<br>APPENDIX
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28<br>Retirement<br>and Benefit<br>Revenue<br>26.1%<br>Wealth<br>Management<br>Revenue<br>7.5% Mortgage<br>Revenue<br>26.4%<br>Banking<br>Fees<br>4.0%<br>Net<br>Interest<br>Income<br>36.0%<br>FOR THE TWELVE MONTHS ENDED DEC. 31, 2020<br>Noninterest income:<br>$149.4 million<br>Net interest income:<br>$83.8 million<br>$26.1 $29.4 $27.8 $31.9 $34.2<br>2016 2017 2018 2019 2020<br>OUR MISSION<br>.. To always act in the best interest of our clients by providing innovative and comprehensive financial solutions that<br>are delivered through a relationship-oriented single point of contact and supported by client-friendly technology.<br>COMPANY PROFILE<br>Data as of 12/31/2020.<br>DIVERSIFIED REVENUE STREAM ASSET GROWTH (IN BILLIONS)<br>$2.1 $2.1 $2.2 $2.4 $3.0<br>2016 2017 2018 2019 2020<br>Banking Assets<br>Retirement and Benefit Services AUA/AUM<br>Wealth Management AUA/AUM<br>$2.3 $2.7 $2.6 $3.1 $3.3<br>2016 2017 2018 2019 2020<br>NONINTEREST<br>INCOME AS A %<br>OF REVENUE:<br>64%<br>DIVERSIFIED FINANCIAL SERVICES COMPANY<br>.. $3.0 billion Banking assets<br>.. $34.2 billion Retirement and Benefits AUA/AUM<br>.. $3.3 billion Wealth Management AUA/AUM<br>.. $1.8 billion in Mortgage Originations<br>ALERUS BUSINESS LINES<br>.. Banking<br>.. Retirement and Benefits<br>.. Wealth Management<br>.. Mortgage
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29<br>FRANCHISE FOOTPRINT<br>FULL-SERVICE BANKING OFFICES<br>Alerus offers banking, retirement and benefits, mortgage and<br>wealth management services at all full-service banking offices<br>.. Grand Forks, ND: 3 full-service banking offices<br>.. Fargo, ND: 3 full-service banking offices<br>.. Twin Cities, MN: 6 full-service banking offices<br>.. Phoenix, AZ: 2 full-service banking offices<br>RETIREMENT AND BENEFITS SERVICES OFFICES<br>.. 1 retirement and benefits office in Minnesota<br>.. 1 retirement and benefits office in Michigan<br>.. 1 retirement and benefits office in Colorado<br>.. Serve clients in all 50 states through retirement plan services<br>* Exited 6 offices across footprint in last three months<br>DIVERSIFIED CLIENT BASE<br>.. 48,200 consumers<br>.. 10,400 businesses<br>.. 7,500 employer-sponsored retirement plans<br>Data as of 12/31/2020.<br>.. 373,100 employer-sponsored retirement plan participants<br>.. 59,900 health savings account participants<br>.. 46,700 flexible spending account/health reimbursement<br>arrangement participants
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30<br>ONE<br>ALERUS<br>REINVENTION OF PROCESSES<br>We have aligned processes, policies, and<br>procedures throughout all departments to<br>enhance client experience and improve our<br>Company's efficiency<br>Our expectation is this initiative will continue to<br>improve our scalability and operating costs<br>TAILORED ADVICE<br>We strive to provide each<br>client with a primary point of<br>contact —a trusted advisor—<br>who deals with individual<br>needs and integrates other<br>department’s expertise when<br>necessary<br>SYNERGISTIC GROWTH<br>We have formalized our National Market which has<br>grown synergistic deposits to $595.6 million as of<br>December 31, 2020.<br>One Alerus synergies gained with the addition of<br>$1.8 billion in mortgage originations as of<br>December 31, 2020<br>TECHNOLOGY INVESTMENT<br>We have proactively invested in technology to<br>further our goal to effectively integrate all<br>departments and business lines<br>These investments allow for digital and proactive<br>engagement with clients<br>DIVERSIFIED SERVICES<br>We are able to offer<br>comprehensive product and<br>service packages to our clients<br>including banking, mortgage,<br>wealth management, retirement<br>benefits and payroll<br>administration<br>ONE ALERUS STRATEGY<br>One Alerus enables us to bring all of our product and service<br>offerings to clients in a cohesive and seamless manner. We believe<br>the One Alerus initiative will enable us to achieve future organic<br>growth by leveraging our existing client base and help us continue<br>to provide strong returns to our stockholders<br>ONE ALERUS
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31<br>SKILLED ADVISORS AND FINANCIAL GUIDES<br>.. Team is organized around consumer or business; focuses on holistic needs of clients; depth and breadth of Alerus<br>service offering<br>.. Proprietary Financial Fitness Playbook delivers consistency and augments Financial Workout technology<br>.. Clients expect and value guidance from their advisor, supported by seamless technology<br>EMPOWERING CLIENTS WITH RESPONSIVE TECHNOLOGY<br>.. Omni-Channel<br>Seamless experience via desktop and mobile<br>.. Leading Account Aggregation<br>Holistic view of entire financial life<br>.. Single Sign On<br>Remove friction in being an Alerus client<br>.. Financial Wellness Score<br>Your most current financial data is used<br>to create easy, intuitive workouts<br>IMPROVING CLIENTS’ FINANCIAL WELLBEING THROUGH PEOPLE + TECHNOLOGY<br>THE PATH TO FINANCIAL CONFIDENCE<br>WORKOUTS COMPLETED BY CLIENTS SINCE LAUNCH
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32<br>.. Diversified client base consists of 48,200 consumers, 10,400 businesses and over 373,100 employer-sponsored<br>retirement plan participants<br>.. Harness product synergies unavailable to traditional banking organizations<br>.. Capitalize on strategic opportunities to grow in our existing markets or new markets<br>.. Acquisition targets include banks and nationwide fee income companies with complementary business models,<br>cultural similarities, synergy and growth opportunities<br>.. Recruit top talent to accelerate growth in our existing markets or jumpstart our entrance into new markets<br>.. Market disruption caused by M&A activity provides lift-out opportunities<br>.. Proactively position ourselves as an acquirer and employer of choice<br>.. Invested in one of the leading marketing automation technologies<br>.. Provide secure and reliable technology that meets evolving client expectations<br>.. Integrate our full product and service offerings through our fast-follower strategy<br>.. Collaborative leadership team focused on growing organically by deepening relationships with existing clients<br>through our expansive services<br>.. Maintain relationship-driven business model while engaging and attracting new clients digitally and diversifying<br>the composition of our business model<br>KEY STRATEGIC INITIATIVES<br>GROWING THE ALERUS FRANCHISE<br>LEVERAGE OUR EXISTING<br>CLIENT BASE<br>EXECUTE STRATEGIC<br>ACQUISITIONS<br>PURSUE TALENT<br>ACQUISITION<br>ENHANCE BRAND<br>AWARENESS<br>STRENGTHEN AND BUILD<br>INFRASTRUCTURE<br>ORGANIC GROWTH<br>“ONE ALERUS”
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33<br>OFFICERS AND DIRECTORS<br>OUR MOTIVATED, DEDICATED, AND ENERGETIC LEADERS KEEP US ON THE RIGHT PATH<br>SENIOR<br>EXECUTIVE<br>TEAM<br>BOARD OF<br>DIRECTORS<br>DAN COUGHLIN<br>Since 2016<br>Former MD & Co-Head – Fin’l Services Inv.<br>Banking, Raymond James; Former Chairman<br>& CEO, Howe Barnes Hoefer & Arnett<br>Chicago, IL<br>MICHAEL MATHEWS<br>Since 2019<br>CIO, Deluxe Corporation<br>Former SVP – Technology and Enterprise<br>Programs, UnitedHealth Group<br>Minneapolis, MN<br>GALEN VETTER<br>Since 2013<br>Former Global CFO, Franklin Templeton<br>Investments; Former Partner-in-Charge,<br>Upper Midwest Region, RSM<br>Minneapolis, MN<br>KATIE LORENSON<br>Executive Vice President and<br>Chief Financial Officer<br>4 years with Alerus<br>ANN MCCONN<br>Executive Vice President and<br>Chief Shared Services Officer<br>19 years with Alerus<br>RYAN GOLDBERG<br>Executive Vice President and<br>Chief Revenue Officer<br>1 year with Alerus<br>KARIN TAYLOR<br>Executive Vice President and<br>Chief Risk Officer<br>3 years with Alerus<br>SALLY SMITH<br>Since 2007<br>Former President and CEO<br>Buffalo Wild Wings, Inc.<br>Minneapolis, MN<br>LLOYD CASE<br>Since 2005<br>Past President and CEO<br>Forum Communications Co.<br>Director, Forum Communications<br>Fargo, ND<br>KAREN BOHN<br>Since 1999<br>President, Galeo Group, LLC<br>Former Chief Administrative Officer<br>Piper Jaffray Co.<br>Edina, MN<br>KEVIN LEMKE<br>Since 1994<br>President<br>Virtual Systems, Inc.<br>Grand Forks, ND<br>RANDY NEWMAN<br>Chairman, President, and<br>Chief Executive Officer<br>40 years with Alerus
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34<br>41.8%<br>30.6%<br>4.4%<br>23.2%<br>North Dakota<br>Minnesota<br>Arizona<br>National<br>STRONG GROWTH MARKETS AND STABLE CORE FUNDING<br>MARKET DISTRIBUTION<br>DEPOSITS ($2,572) LOANS ($1,979)(1)<br>ARB ASSETS UNDER<br>ADMIN/MGMT. ($34,200)<br>WM ASSETS UNDER<br>ADMIN/MGMT. ($3,339) MORTGAGE ORIGINATIONS ($1,779)<br>($ IN MILLIONS)<br>Data as of 12/31/2020.<br>1-Loans in our national market are participant loans not sourced directly through advisors located in one of our geographical markets.<br>LEGEND<br>39.8%<br>48.4%<br>9.7%<br>2.1%<br>8.2%<br>89.3%<br>2.5%<br>72.7%<br>10.1%<br>2.3% 14.9% 9.2%<br>13.9% 0.1%<br>76.8%
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35<br>FINANCIAL HIGHLIGHTS<br>1 Represents a non-GAAP financial measure. See “Non-GAAP Disclosure Reconciliation” in the Appendix to this presentation.<br>2 Excluding PPP loans, the following ratios were TCE/TA 10.19% NPLs/Loans 0.30%, NPAs/Assets 0.19%, Allowance/Loans 2.00%, and NCOs/Average Loans 0.03%<br>($000s, except where otherwise noted ) Annual 16-'20<br>2016 2017 2018 2019 2020 CAGR<br>Total Assets 2,050,045 $ 2,136,081 $ 2,179,070 $ 2,356,878 $ 3,013,771 $ 10.1%<br>Total Loans 1,366,952 1,574,474 1,701,850 1,721,279 1,979,375 9.7%<br>Total Deposits 1,785,209 1,834,962 1,775,096 1,971,316 2,571,993 9.6%<br>Tangible Common Equity1 108,193 125,154 147,152 240,008 274,043 26.2%<br>Net Income 14,036 $ 15,001 $ 25,866 $ 29,540 $ 44,675 $ 33.6%<br>ROAA (%) 0.72 0.75 1.21 1.34 1.61<br>ROATCE (%) 15.81 18.04 21.02 17.46 17.74<br>Net Interest Margin (FTE) (%)1 3.63 3.74 3.84 3.65 3.22<br>Efficiency Ratio (FTE) (%)1 81.12 75.36 73.80 73.22 68.40<br>Non-Int. Income / Op. Rev. (%) 62.54 60.36 57.73 60.50 64.05<br>Earnings per common share - diluted 1.00 1.07 1.84 1.91 2.52<br>Total Equity / Total Assets (%) 8.21 8.41 9.04 12.12 10.96<br>Tang. Cmn. Equity / Tang. Assets (%)1 2 5.44 6.01 6.91 10.38 9.27<br>Loans / Deposits (%) 76.57 85.80 95.87 87.32 76.96<br>NPLs / Loans (%)2 0.56 0.37 0.41 0.45 0.26<br>NPAs / Assets (%)2 0.47 0.30 0.33 0.33 0.17<br>Allowance / NPLs (%) 205.03 282.04 318.45 305.66 678.14<br>Allowance / Loans (%)2 1.14 1.05 1.30 1.39 1.73<br>NCOs / Average Loans (%)2 0.16 0.16 0.18 0.33 0.03
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36<br>NON-GAAP DISCLOSURE RECONCILIATION<br>($000s, except where otherwise noted ) Annual<br>2016 2017 2018 2019 2020<br>Tangible common equity to tangible assets<br>Total common stockholders' equity $ 168,251 $ 179,594 $ 196,954 $ 285,728 $ 330,163<br>Less: Goodwill 27,329 27,329 27,329 27,329 30,201<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 25,919<br>Tangible common equity (a) 108,193 125,154 147,152 240,008 274,043<br>Total assets 2,050,045 2,136,081 2,179,070 2,356,878 3,013,771<br>Less: Goodwill 27,329 27,329 27,329 27,329 30,201<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 25,919<br>Tangible assets (b) 1,989,987 2,081,641 2,129,268 2,311,158 2,957,651<br>Tangible common equity to tangible assets (a)/(b) 5.44 % 6.01 % 6.91 % 10.38 % 9.27 %<br>Tangible common equity per common share<br>Total stockholders' equity $ 168,251 $ 179,594 $ 196,954 $ 285,728 $ 330,163<br>Less: Goodwill 27,329 27,329 27,329 27,329 30,201<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 25,919<br>Tangible common equity (c) 108,193 125,154 147,152 240,008 274,043<br>Common shares outstanding (d) 13,534 13,699 13,775 17,050 17,125<br>Tangible common equity per common share (c)/(d) $ 7.99 $ 9.14 $ 10.68 $ 14.08 $ 16.00<br>Return on average tangible common equity<br>Net income $ 14,036 $ 15,001 $ 25,866 $ 29,540 $ 44,675<br>Less: Preferred stock dividends 25 ----<br>Add: Intangible amortization expense (net of tax) 4,553 3,655 3,664 3,224 3,129<br>Remeasurement due to tax reform - 4,818 ---<br>Net income, excluding intangible amortization (e) 18,564 23,474 29,530 32,764 47,804<br>Average total equity 168,039 176,779 187,341 231,084 310,208<br>Less: Average preferred stock 2,514 ----<br>Less: Average goodwill 25,698 27,329 27,329 27,329 27,439<br>Less: Average other intangible assets (net of tax) 22,372 19,358 19,522 16,101 13,309<br>Average tangible common equity (f) 117,455 130,092 140,490 187,654 269,460<br>Return on average tangible common equity (e)/(f) 15.81 % 18.04 % 21.02 % 17.46 % 17.74%<br>Net interest margin (tax-equivalent)<br>Net interest income $ 62,940 $ 67,670 $ 75,224 $ 74,551 $ 83,846<br>Tax equivalent adjustment 599 865 462 347 455<br>Tax equivalent net interest income (g) 63,539 68,535 75,686 74,898 84,301<br>Average earning assets (h) 1,750,104 1,833,002 1,970,004 2,052,758 2,618,427<br>Net interest margin (tax equivalent) (g)/(h) 3.63 % 3.74 % 3.84 % 3.65 % 3.22 %<br>Efficiency Ratio<br>Noninterest expense $ 143,792 $ 134,920 $ 136,325 $ 142,537 $ 163,799<br>Less: Intangible amortization expense 7,005 5,623 4,638 4,081 3,961<br>Adjusted noninterest expense (i) 136,787 129,297 131,687 138,456 159,838<br>Net interest income 62,940 67,670 75,224 74,551 83,846<br>Noninterest income 105,089 103,045 102,749 114,194 149,371<br>Tax equivalent adjustment 599 865 462 347 455<br>Total tax equivalent revenue (j) 168,628 171,580 178,435 189,092 233,672<br>Efficiency ratio (i)/(j) 81.12 % 75.36 % 73.80 % 73.22 % 68.40 %
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