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): October 28, 2020

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 October 28, 2020, Alerus Financial Corporation (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 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 October 28, 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 October 28, 2020
99.2		Investor Presentation

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: October 28, 2020	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 (10.28.2020)	Katie A. Lorenson, Chief Financial Officer<br><br>952.417.3725 (Office)

ALERUS FINANCIAL CORPORATION REPORTS

THIRD QUARTER 2020 NET INCOME OF $17.7 MILLION

GRAND FORKS, N.D. (October 28, 2020) – Alerus Financial Corporation (Nasdaq: ALRS) reported net income of $17.7 million for the third quarter of 2020, or $0.99 per diluted common share, compared to net income of $11.5 million, or $0.65 per diluted common share, for the second quarter of 2020, and net income of $7.1 million, or $0.48 per diluted common share, for the third quarter of 2019.

CEO Comments

Chairman, President, and Chief Executive Officer Randy Newman said, “We are proud to report record quarterly net income of $17.7 million. Despite the uncertain economic environment and ongoing pandemic, our diversified business model demonstrates its value to stockholders as we delivered incredible financial performance throughout 2020. Our “One Alerus” approach to serving clients holistically through advisors and digitally through technology resulted in record levels of mortgage originations and expansions of relationships across our lines of business.

We believe we continue to be agile in our response to the novel coronavirus, or COVID-19 pandemic, by focusing on the health and well-being of our team members and communities, and helping clients during a difficult economic environment. The strength and stability of our balance sheet uniquely positioned our Company to perform well in challenging economic environments. We have a diversified loan portfolio, strong credit quality metrics, and robust levels of loan loss reserves at 1.83% of total loans, excluding Paycheck Protection Program, or PPP, loans. These balance sheet attributes, supported by a diversified business model which generates high levels of revenue despite the low rate environment is proving to be resilient in challenging and uncertain times. These fundamentals paired with the dedication of our team and technology investments are paving our path forward.”

Quarterly Highlights

◾	Return on average assets of 2.42%, compared to 1.68% for the second quarter of 2020
◾	Return on average tangible common equity^(1)^ of 26.67%, compared to 18.88% for the second quarter of 2020
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◾	Net interest margin (tax-equivalent)^(1)^ was 3.17%, compared to 3.14% for the second quarter of 2020
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◾	Allowance for loan losses to total loans, excluding PPP loans, was 1.83%, compared to 1.62% as of June 30, 2020
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◾	Efficiency ratio^(1)^ of 58.42%, compared to 66.31% for the second quarter of 2020
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◾	Noninterest income as a percentage of total revenue was 67.53%, compared to 65.55% for the second quarter of 2020
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◾	Mortgage originations totaled $511.6 million, an 18.5% increase from the second quarter of 2020
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◾	Loans held for investment increased $337.1 million, or 19.6%, from the fourth quarter of 2019
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◾	Deposits increased $491.1 million, or 24.9%, 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									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
(dollars and shares in thousands, except per share data)	2020			2020			2019			2020			2019		****
Performance Ratios
Return on average total assets		2.42	%		1.68	%		1.29	%		1.71	%		1.34	%
Return on average common equity		22.31	%		15.30	%		12.42	%		15.17	%		13.74	%
Return on average tangible common equity (1)		26.67	%		18.88	%		17.01	%		18.70	%		19.24	%
Noninterest income as a % of revenue		67.53	%		65.55	%		61.29	%		64.58	%		60.14	%
Net interest margin (tax-equivalent) (1)		3.17	%		3.14	%		3.69	%		3.22	%		3.72	%
Efficiency ratio (1)		58.42	%		66.31	%		75.17	%		66.22	%		73.06	%
Net charge-offs/(recoveries) to average loans		(0.11)	%		0.66	%		(0.06)	%		0.15	%		0.37	%
Dividend payout ratio		15.15	%		23.08	%		29.17	%		23.20	%		28.19	%
Per Common Share
Earnings per common share - basic (2)	$	1.01		$	0.66		$	0.49		$	1.98		$	1.53
Earnings per common share - diluted (2)	$	0.99		$	0.65		$	0.48		$	1.94		$	1.49
Dividends declared per common share	$	0.15		$	0.15		$	0.14		$	0.45		$	0.42
Tangible book value per common share (1)	$	16.31		$	15.30		$	13.77
Average common shares outstanding - basic		17,121			17,111			14,274			17,101			13,957
Average common shares outstanding - diluted		17,453			17,445			14,626			17,435			14,317
Other Data
Retirement and benefit services assets under administration/management	$	30,470,645		$	30,093,095		$	30,661,226
Wealth management assets under administration/management		3,043,173			2,957,213			2,765,459
Mortgage originations		511,605			431,638			313,527		$	1,171,811		$	685,178

(1)Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

(2)Earnings per share calculated using the two-class method beginning in the third quarter of 2019.

Results of Operations

Net Interest Income

Net interest income for the third quarter of 2020 was $21.8 million, an increase of $1.7 million, or 8.3%, from $20.1 million for the second quarter of 2020. The increase was primarily driven by a decrease of $875 thousand in interest expense on deposits, an increase of $590 thousand in interest income from loans, and a $207 thousand increase in interest income from investment securities. The decrease in interest expense on deposits was primarily a result of a 25 basis point decrease in the cost of interest-bearing deposits, partially offset by a $119.6 million increase in average interest-bearing deposit balances. The increase in interest income from loans was primarily driven by a $74.3 million increase in average balance of PPP loans offset by a 4 basis point decrease in average yield. Interest and fees recognized on PPP loans totaled $3.2 million in the third quarter, an increase of $1.1 million from the second quarter. The increase in interest income from investment securities was primarily a result of a $74.5 million increase in average balances partially offset by a 21 basis point decrease in the average yield.

Compared to the third quarter of 2019, net interest income for the third quarter of 2020 increased $3.1 million, or 16.5%, primarily due to a $2.4 million decrease in interest expense and a $664 thousand increase in interest income. The decrease in interest expense was primarily due to an 84 basis point decrease in the average rate paid on interest-bearing liabilities. The increase in interest income was primarily due to a $674 thousand increase in interest income from investment securities driven by a $186.1 million increase in average balances partially offset by a 39 basis point decrease in the average yield.

Net Interest Margin (Tax-Equivalent)

Net interest margin (tax-equivalent), a non-GAAP financial measure, increased to 3.17% for the third quarter of 2020, compared with 3.14% for the second quarter of 2020. The increase in net interest margin was primarily due to a 26 basis point decrease in the average rate on total interest-bearing liabilities partially offset by a 14 basis point decrease in the average earning asset yield. The decrease in the average rate on total interest-bearing liabilities was primarily due to a 35 basis point decrease in the average rate on money market and savings deposits and a 32 basis point decrease in the average rate on time deposits. The decrease in average earning asset yield was due to the continued low interest rate environment and a change in balance sheet mix.

Compared to the third quarter of 2019, net interest margin (tax-equivalent) for the third quarter of 2020 decreased 52 basis points from 3.69%. This decrease was the combined result of sustained lower interest rates and balance sheet mix. The average yield 2

on interest earning assets decreased 112 basis points on an average balance increase of $727.6 million, or 36.1%. The average rate paid on interest-bearing liabilities decreased 84 basis points on an average balance increase of $407.9 million, or 29.0%.

Noninterest Income

Noninterest income for the third quarter of 2020 was $45.3 million, a $7.0 million, or 18.4%, increase from the second quarter of 2020. The increase was primarily driven by a $4.7 million increase in mortgage banking revenue, a $1.4 million increase in retirement and benefit services revenue, and a $374 thousand increase in wealth management revenue. The increase in mortgage banking revenue was primarily due to an $80.0 million increase in mortgage originations along with a 38 basis point increase in the gain on sale margin. The increase in retirement and benefit services revenue was primarily due to a $712 thousand increase in asset based revenue as a result of an increase in the average balance of assets under administration/management. In addition, the second quarter of 2020 included a downward adjustment to revenue sharing of $660 thousand.

Noninterest income for the third quarter of 2020 increased $15.7 million, or 53.0%, from $29.6 million in the third quarter of 2019. Mortgage banking revenue increased $14.1 million as mortgage originations increased from $313.5 million in the third quarter of 2019 to $511.6 million in the third quarter of 2020, and the gain on sale margin increased 75 basis points. In addition, the unrealized gain from the change in fair value of secondary market derivatives increased $5.2 million. Gains on investment securities were $1.4 million during the third quarter of 2020, compared to $48 thousand during the third quarter of 2019.

Noninterest Expense

Noninterest expense for the third quarter of 2020 was $40.2 million, an increase of $480 thousand, or 1.2%, compared to the second quarter of 2020. The increase was due to increases of $1.5 million in compensation expense, $380 thousand in marketing and business development expense and $286 thousand in employee taxes and benefits, partially offset by decreases of $968 thousand in other noninterest expense and $428 thousand in supplies and postage expenses. The increase in compensation expense was primarily driven by an increase in mortgage originations. Marketing and business development expense increased due to seasonally higher advertising expenses. Other noninterest expense decreased primarily due to a $990 thousand decrease in the provision for unused commitments. Supplies and postage expenses decreased due to the transition from paper statements to E-statements for the retirement and benefit services segment.

Compared to the third quarter of 2019, noninterest expense for the third quarter of 2020 increased $2.9 million, or 7.7%, from $37.3 million. The increase was attributable to increases of $2.7 million in compensation expense, $480 thousand in mortgage and lending expense, and $433 thousand in employee taxes and benefits, partially offset by decreases of $409 thousand in travel expense and $384 thousand in supplies and postage expense. The increases in compensation expense and mortgage and lending expense were primarily the result of higher mortgage originations.

Financial Condition

Total assets were $2.9 billion as of September 30, 2020, an increase of $541.9 million, or 23.0%, from December 31, 2019. The increase in total assets included increases of $337.1 million in loans, $185.1 million in available-for-sale investment securities, $64.5 million in loans held for sale, and $15.3 million in other assets.

Loans

Total loans were $2.06 billion as of September 30, 2020, an increase of $337.1 million, or 19.6%, from December 31, 2019. The increase was primarily due to increases of $309.9 million in commercial and industrial loans and $40.5 million in our commercial real estate loan portfolio, partially offset by a $20.1 million decrease in our consumer loan portfolio. The increase in commercial and industrial loans was due to an increase of $348.9 million in net PPP loans, offset by a 7.64% decrease in operating line utilization, or a $64.6 million decrease in funded balances.

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



		September 30,		June 30,		March 31,		December 31,		September 30,
(dollars in thousands)	****	2020		2020		2020		2019		2019
Commercial
Commercial and industrial (1)		$	789,036	$	794,204	$	502,637	$	479,144	$	485,183
Real estate construction			33,169		31,344		25,487		26,378		21,674
Commercial real estate			535,216		519,104		522,106		494,703		444,600
Total commercial			1,357,421		1,344,652		1,050,230		1,000,225		951,457
Consumer
Residential real estate first mortgage			469,050		456,737		457,895		457,155		459,763
Residential real estate junior lien			152,487		154,351		170,538		177,373		182,516
Other revolving and installment			79,461		78,457		79,614		86,526		92,351
Total consumer			700,998		689,545		708,047		721,054		734,630
Total loans		$	2,058,419	$	2,034,197	$	1,758,277	$	1,721,279	$	1,686,087

(1)	Includes PPP loans of $348.9 million at September 30, 2020 and $347.3 million at June 30, 2020.

Deposits

Total deposits were $2.46 billion as of September 30, 2020, an increase of $491.1 million, or 24.9%, from December 31, 2019. Interest-bearing deposits increased $375.3 million while non-interest bearing deposits increased $115.7 million. Key drivers of the increase in deposits included deposits from new and existing PPP loan clients, inflows from government stimulus programs and higher depositor balances due to the uncertain economic environment and financial markets. The increase in interest-bearing deposits included a $128.8 million increase in synergistic deposits from our retirement and benefit services and wealth management segments. In addition, health savings account deposits were $131.5 million as of September 30, 2020, an increase of $11.8 million, or 9.9%, from December 31, 2019. Commercial transaction deposits increased $292.6 million, or 35.9%, while consumer transaction deposits increased $43.3 million, or 8.1%, since December 31, 2019. Noninterest-bearing deposits as a percentage of total deposits were 28.2% and 29.3% as of September 30, 2020 and December 31, 2019, respectively.

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


		September 30,			June 30,			March 31,			December 31,			September 30,
(dollars in thousands)	****	2020		****	2020		****	2020		****	2019		****	2019
Noninterest-bearing demand		$	693,450		$	700,892		$	608,559		$	577,704		$	537,951
Interest-bearing
Interest-bearing demand			590,366			579,840			477,752			458,689			424,249
Savings accounts			78,659			75,973			60,181			55,777			55,513
Money market savings			892,473			892,717			773,652			683,064			622,647
Time deposits			207,422			203,731			201,370			196,082			192,753
Total interest-bearing			1,768,920			1,752,261			1,512,955			1,393,612			1,295,162
Total deposits		$	2,462,370		$	2,453,153		$	2,121,514		$	1,971,316		$	1,833,113

Asset Quality

Total nonperforming assets were $5.0 million as of September 30, 2020, a decrease of $3.0 million, or 38.7%, from December 31, 2019. As of September 30, 2020, the allowance for loan losses was $31.3 million, or 1.52% 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 44 basis points to 1.83% as of September 30, 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
		September 30,			June 30,			March 31,			December 31,			September 30,
(dollars in thousands)	****	2020		****	2020		****	2020		****	2019		****	2019		****
Nonaccrual loans		$	4,795		$	5,328		$	6,959		$	7,379		$	5,107
Accruing loans 90+ days past due			—			—			11			448			45
Total nonperforming loans			4,795			5,328			6,970			7,827			5,152
OREO and repossessed assets			10			26			209			8			84
Total nonperforming assets		$	4,805		$	5,354		$	7,179		$	7,835		$	5,236
Net charge-offs/(recoveries)			(581)			3,264			(595)			857			(240)
Net charge-offs/(recoveries) to average loans			(0.11)	%		0.66	%		(0.14)	%		0.20	%		(0.06)	%
Nonperforming loans to total loans			0.23	%		0.26	%		0.40	%		0.45	%		0.31	%
Nonperforming assets to total assets			0.17	%		0.19	%		0.29	%		0.33	%		0.23	%
Allowance for loan losses to total loans			1.52	%		1.34	%		1.54	%		1.39	%		1.36	%
Allowance for loan losses to nonperforming loans			654	%		512	%		388	%		306	%		446	%

For the third quarter of 2020, we had net recoveries of $581 thousand compared to net charge-offs of $3.3 million for the second quarter of 2020 and $240 thousand of net recoveries for the third quarter of 2019.

The provision for loan losses for the third quarter of 2020 was $3.5 million, which was the same amount as the second quarter of 2020 and an increase of $2.0 million from the third quarter of 2019. The increase in provision expense was due to allocations of reserves for the economic uncertainties related to COVID-19, which increased the allowance for loan losses balance by $7.4 million to $31.3 million at September 30, 2020, a 31.0% increase from December 31, 2019.

The ratio of nonperforming loans to total loans at September 30, 2020 was 0.23%, and if PPP loans were excluded, this ratio would have been 0.28%. Nonperforming assets as a percentage of total assets was 0.17% at September 30, 2020. Excluding PPP loans, nonperforming assets as a percentage of total assets would have been 0.19% at September 30, 2020.

As of September 30, 2020, we had entered into principal and interest deferrals of 552 loans representing $151.4 million in principal balances, since the beginning of the pandemic. Of those loans, 27 loans with a total outstanding principal balance of $16.9 million, have been granted second deferrals, 56 loans with a total outstanding principal balance of $12.0 million remain on the first deferral and the remaining loans have been returned to a 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 $322.0 million as of September 30, 2020, an increase of $36.3 million from December 31, 2019. The tangible book value per common share increased to $16.31 as of September 30, 2020, from $14.08 as of December 31, 2019. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 9.78% as of September 30, 2020, from 10.38% as of December 31, 2019. Tangible common equity to tangible assets would have been 11.14% as of September 30, 2020, if PPP loans were excluded.

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


	****	September 30,		****	December 31,		****	September 30,
	****	2020		****	2019		****	2019
Capital Ratios^(1)^
Alerus Financial Corporation
Common equity tier 1 capital to risk weighted assets			13.08	%		12.48	%		12.38	%
Tier 1 capital to risk weighted assets			13.48	%		12.90	%		12.81	%
Total capital to risk weighted assets			17.13	%		16.73	%		16.67	%
Tier 1 capital to average assets			9.76	%		11.05	%		11.33	%
Tangible common equity / tangible assets ^(2)^			9.78	%		10.38	%		10.76	%

Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets			12.47	%		11.91	%		11.84	%
Tier 1 capital to risk weighted assets			12.47	%		11.91	%		11.84	%
Total capital to risk weighted assets			13.72	%		13.15	%		13.06	%
Tier 1 capital to average assets			9.03	%		10.20	%		10.47	%

(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, October 29, 2020, 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 and Albert Lea, MN, East Lansing and Troy, MI, and Bedford, NH.

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 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”, 6

“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)


	****	September 30,		****	December 31,
	****	2020		****	2019
Assets		(Unaudited)			(Audited)
Cash and cash equivalents		$	95,751		$	144,006
Investment securities, at fair value
Available-for-sale			495,414			310,350
Equity			—			2,808
Loans held for sale			111,311			46,846
Loans			2,058,419			1,721,279
Allowance for loan losses			(31,337)			(23,924)
Net loans			2,027,082			1,697,355
Land, premises and equipment, net			20,493			20,629
Operating lease right-of-use assets			8,168			8,343
Accrued interest receivable			9,199			7,551
Bank-owned life insurance			32,161			31,566
Goodwill			27,329			27,329
Other intangible assets			15,421			18,391
Servicing rights			2,579			3,845
Deferred income taxes, net			8,628			7,891
Other assets			45,273			29,968
Total assets		$	2,898,809		$	2,356,878
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing		$	693,450		$	577,704
Interest-bearing			1,768,920			1,393,612
Total deposits			2,462,370			1,971,316
Long-term debt			58,745			58,769
Operating lease liabilities			8,671			8,864
Accrued expenses and other liabilities			47,020			32,201
Total liabilities			2,576,806			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: 17,121,863 and 17,049,551 issued and outstanding			17,122			17,050
Additional paid-in capital			89,757			88,650
Retained earnings			204,581			178,092
Accumulated other comprehensive income (loss)			10,543			1,936
Total stockholders’ equity			322,003			285,728
Total liabilities and stockholders’ equity		$	2,898,809		$	2,356,878

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

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


	Three months ended						Nine months ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2020		2020		2019		2020		2019
Interest Income	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Loans, including fees	$	21,962	$	21,372	$	21,886	$	63,876	$	65,171
Investment securities
Taxable		1,973		1,765		1,374		5,497		4,021
Exempt from federal income taxes		238		239		163		712		618
Other		116		130		202		816		603
Total interest income		24,289		23,506		23,625		70,901		70,413
Interest Expense
Deposits		1,683		2,558		3,506		7,633		9,802
Short-term borrowings		—		—		539		—		1,805
Long-term debt		841		857		899		2,575		2,714
Total interest expense		2,524		3,415		4,944		10,208		14,321
Net interest income		21,765		20,091		18,681		60,693		56,092
Provision for loan losses		3,500		3,500		1,498		9,500		5,515
Net interest income after provision for loan losses		18,265		16,591		17,183		51,193		50,577
Noninterest Income
Retirement and benefit services		15,104		13,710		15,307		45,034		46,142
Wealth management		4,486		4,112		3,896		12,644		11,385
Mortgage banking		22,269		17,546		8,135		44,860		19,739
Service charges on deposit accounts		355		297		447		1,075		1,321
Net gains (losses) on investment securities		1,428		1,294		48		2,722		357
Other		1,614		1,271		1,747		4,340		5,694
Total noninterest income		45,256		38,230		29,580		110,675		84,638
Noninterest Expense
Compensation		22,740		21,213		20,041		62,684		54,997
Employee taxes and benefits		5,033		4,747		4,600		15,088		15,188
Occupancy and equipment expense		2,768		2,869		2,700		8,392		8,086
Business services, software and technology expense		4,420		4,520		4,224		13,384		12,044
Intangible amortization expense		990		991		990		2,971		3,091
Professional fees and assessments		1,031		1,160		1,051		3,231		3,146
Marketing and business development		929		549		890		2,088		2,024
Supplies and postage		247		675		631		1,625		2,027
Travel		26		51		435		338		1,335
Mortgage and lending expenses		1,231		1,192		751		3,466		1,966
Other		799		1,767		1,014		3,407		2,198
Total noninterest expense		40,214		39,734		37,327		116,674		106,102
Income before income taxes		23,307		15,087		9,436		45,194		29,113
Income tax expense		5,648		3,613		2,332		10,698		7,225
Net income	$	17,659	$	11,474	$	7,104	$	34,496	$	21,888
Per Common Share Data
Earnings per common share	$	1.01	$	0.66	$	0.49	$	1.98	$	1.53
Diluted earnings per common share	$	0.99	$	0.65	$	0.48	$	1.94	$	1.49
Dividends declared per common share	$	0.15	$	0.15	$	0.14	$	0.45	$	0.42
Average common shares outstanding		17,121		17,111		14,274		17,101		13,957
Diluted average common shares outstanding		17,453		17,445		14,626		17,435		14,317

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)


	****	September 30,			June 30,			December 31,			September 30,
	****	2020			2020			2019			2019
Tangible Common Equity to Tangible Assets
Total common stockholders’ equity		$	322,003		$	305,732		$	285,728		$	281,403
Less: Goodwill			27,329			27,329			27,329			27,329
Less: Other intangible assets			15,421			16,411			18,391			19,382
Tangible common equity (a)			279,253			261,992			240,008			234,692
Total assets			2,898,809			2,875,457			2,356,878			2,228,311
Less: Goodwill			27,329			27,329			27,329			27,329
Less: Other intangible assets			15,421			16,411			18,391			19,382
Tangible assets (b)			2,856,059			2,831,717			2,311,158			2,181,600
Tangible common equity to tangible assets (a)/(b)			9.78	%		9.25	%		10.38	%		10.76	%
Tangible Book Value Per Common Share
Total common stockholders’ equity		$	322,003		$	305,732		$	285,728		$	281,403
Less: Goodwill			27,329			27,329			27,329			27,329
Less: Other intangible assets			15,421			16,411			18,391			19,382
Tangible common equity (c)			279,253			261,992			240,008			234,692
Total common shares issued and outstanding (d)			17,122			17,120			17,050			17,049
Tangible book value per common share (c)/(d)		$	16.31		$	15.30		$	14.08		$	13.77


	Three months ended									Nine months ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2020			2020			2019			2020			2019
Return on Average Tangible Common Equity
Net income	$	17,659		$	11,474		$	7,104		$	34,496		$	21,888
Add: Intangible amortization expense (net of tax)		782			783			782			2,347			2,442
Net income, excluding intangible amortization (e)		18,441			12,257			7,886			36,843			24,330
Average total equity		314,921			301,719			226,931			303,825			212,911
Less: Average goodwill		27,329			27,329			27,329			27,329			27,329
Less: Average other intangible assets (net of tax)		12,565			13,345			15,697			13,343			16,502
Average tangible common equity (f)		275,027			261,045			183,905			263,153			169,080
Return on average tangible common equity (e)/(f)		26.67	%		18.88	%		17.01	%		18.70	%		19.24	%
Net Interest Margin (tax-equivalent)
Net interest income	$	21,765		$	20,091		$	18,681		$	60,693		$	56,092
Tax-equivalent adjustment		116			109			81			325			257
Tax-equivalent net interest income (g)		21,881			20,200			18,762			61,018			56,349
Average earning assets (h)		2,744,758			2,584,037			2,017,198			2,534,038			2,024,814
Net interest margin (tax-equivalent) (g)/(h)		3.17	%		3.14	%		3.69	%		3.22	%		3.72	%
Efficiency Ratio
Noninterest expense	$	40,214		$	39,734		$	37,327		$	116,674		$	106,102
Less: Intangible amortization expense		990			991			990			2,971			3,091
Adjusted noninterest expense (i)		39,224			38,743			36,337			113,703			103,011
Net interest income		21,765			20,091			18,681			60,693			56,092
Noninterest income		45,256			38,230			29,580			110,675			84,638
Tax-equivalent adjustment		116			109			81			325			257
Total tax-equivalent revenue (j)		67,137			58,430			48,342			171,693			140,987
Efficiency ratio (i)/(j)		58.42	%		66.31	%		75.17	%		66.22	%		73.06	%

Alerus Financial Corporation and Subsidiaries

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

(dollars in thousands)


	Three months ended												Nine months ended
	September 30, 2020				June 30, 2020				September 30, 2019				September 30, 2020				September 30, 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	$	169,770	0.12	%	$	153,197	0.16	%	$	12,998	2.53	%	$	162,134	0.51	%	$	12,910	2.39	%
Investment securities (1)		443,705	2.04	%		369,247	2.25	%		257,561	2.43	%		383,591	2.23	%		255,903	2.51	%
Loans held for sale		90,634	2.44	%		69,606	2.69	%		45,794	3.11	%		64,555	2.64	%		30,734	3.24	%
Loans
Commercial:
Commercial and industrial		782,853	4.34	%		739,816	4.12	%		494,081	5.48	%		667,742	4.48	%		509,806	5.50	%
Real estate construction		32,747	4.47	%		31,660	4.48	%		25,137	5.56	%		30,385	4.64	%		23,532	5.54	%
Commercial real estate		525,514	4.02	%		513,497	4.31	%		439,751	5.29	%		515,761	4.31	%		444,964	5.04	%
Total commercial		1,341,114	4.22	%		1,284,973	4.21	%		958,969	5.40	%		1,213,888	4.41	%		978,302	5.29	%
Consumer
Residential real estate first mortgage		460,995	3.96	%		459,789	4.09	%		454,971	4.18	%		460,505	4.05	%		455,898	4.25	%
Residential real estate junior lien		153,326	4.54	%		163,345	4.79	%		184,124	5.63	%		163,332	4.84	%		186,744	5.75	%
Other revolving and installment		79,343	4.50	%		77,921	4.56	%		93,478	4.74	%		80,169	4.58	%		94,685	4.64	%
Total consumer		693,664	4.15	%		701,055	4.31	%		732,573	4.61	%		704,006	4.30	%		737,327	4.68	%
Total loans (1)		2,034,778	4.20	%		1,986,028	4.24	%		1,691,542	5.06	%		1,917,894	4.37	%		1,715,629	5.03	%
Federal Reserve/FHLB stock		5,871	4.40	%		5,959	4.59	%		9,303	5.07	%		5,864	4.58	%		9,638	5.16	%
Total interest earning assets		2,744,758	3.54	%		2,584,037	3.68	%		2,017,198	4.66	%		2,534,038	3.75	%		2,024,814	4.67	%
Noninterest earning assets		163,386				156,293				159,664				156,144				161,054
Total assets	$	2,908,144			$	2,740,330			$	2,176,862			$	2,690,182			$	2,185,868
Interest-Bearing Liabilities
Interest-bearing demand deposits	$	589,633	0.27	%	$	534,733	0.30	%	$	424,896	0.49	%	$	528,024	0.34	%	$	423,181	0.45	%
Money market and savings deposits		961,669	0.32	%		900,812	0.67	%		649,190	1.32	%		889,039	0.66	%		675,921	1.23	%
Time deposits		204,969	0.98	%		201,147	1.30	%		187,023	1.74	%		201,747	1.29	%		183,686	1.58	%
Short-term borrowings		—	—	%		321	—	%		87,201	2.46	%		107	—	%		95,489	2.53	%
Long-term debt		58,739	5.70	%		58,747	5.87	%		58,776	6.07	%		58,747	5.85	%		58,798	6.17	%
Total interest-bearing liabilities		1,815,010	0.55	%		1,695,760	0.81	%		1,407,086	1.39	%		1,677,664	0.81	%		1,437,075	1.33	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Noninterest-bearing deposits		698,594				692,500				502,108				651,971				496,822
Other noninterest-bearing liabilities		79,619				50,351				40,737				56,722				39,060
Stockholders’ equity		314,921				301,719				226,931				303,825				212,911
Total liabilities and stockholders’ equity	$	2,908,144			$	2,740,330			$	2,176,862			$	2,690,182			$	2,185,868
Net interest rate spread			2.99	%			2.87	%			3.27	%			2.94	%			3.34	%
Net interest margin, tax-equivalent (2)			3.17	%			3.14	%			3.69	%			3.22	%			3.72	%

(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.”
---	---

Exhibit 99.2

INVESTOR PRESENTATION<br>OCTOBER 2020<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
---
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 5 in Q3<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 ~ $364 million in funding relief<br>.. Ongoing virtual webinars to provide guidance and help clients with their financial issues on various topics<br>.. Waived fees on loan extensions, loan payment deferrals, or early CD withdrawals due to COVID-19 related hardship<br>.. Proactively helping participants navigate retirement distributions or other lending options<br>.. Continue to encourage virtual business; reopening approach is guided by market conditions<br>.. ND: lobbies closed in mid-March, open by appointment only in early June, lobbies reopened in mid-June, markets<br>were never subject to stay at home order and markets are widely open for business<br>.. MN: lobbies closed in mid-March, drive-ups remained open, stay at home order lifted in mid-May, open by<br>appointment only in August, continued progress of state’s four-phased approach to businesses reopening<br>.. AZ: lobbies closed in mid-March, drive-up remained open, open by appointment only in September<br>COVID-19 RESPONSE SUMMARY<br>PROACTIVELY RESPONDING WITH AGILITY AND SUPPORT<br>LEADING DURING THE<br>PANDEMIC CRISIS<br>TAKING CARE OF<br>EMPLOYEES<br>LEVERAGING<br>INFRASTRUCTURE<br>INVESTMENTS<br>INCREASED DIGITAL<br>ENGAGEMENT<br>SERVING IN<br>THE BEST INTEREST<br>OF CLIENTS<br>THE NEW NORMAL
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4<br>PAYMENT DEFERRALS, MATURITY EXTENSIONS, AND PAYMENT MODIFICATIONS<br>COVID-19 RELIEF PROGRAMS<br>September 30, 2020<br>Loan Group<br>Number<br>Of<br>Loans<br>Granted<br>Deferral<br>($ 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 155 $ 2,131 $ 248 $ 60 $ 1,823<br>Residential Real Estate<br>Serviced 61 26,419 4,370 12,618 9,431<br>Residential Real Estate<br>Non-serviced 77 10,550 479 — 10,071<br>Commercial Real Estate 78 80,113 5,826 4,206 70,081<br>Commercial & Industrial 182 31,138 1,039 — 30,099<br>Total 552 $ 151,351 $ 11,962 $ 16,884 $ 146,429<br>Consumer<br>1%<br>Residential Real<br>Estate Serviced<br>58%<br>Residential Real<br>Estate Non-<br>serviced<br>2%<br>Commercial Real<br>Estate<br>35%<br>Commercial &<br>Industrial<br>4%
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5<br>Retail Trade<br>16%<br>Professional, Scientific, and<br>Technical Services<br>13%<br>Construction<br>12%<br>Manufacturing<br>9% Wholesale Trade<br>8%<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<br>Remediation Services<br>3%<br>Transportation and Warehousing<br>3%<br>Accommodation and Food Services<br>3%<br>Other<br>20%<br>SBA PAYCHECK PROTECTION PROGRAM (PPP)<br>COVID-19 RELIEF PROGRAMS<br>As of 9/30/2020.<br>Loan Amount Group # of Loans<br>$ Originated<br>(in 000’s)<br>$50M or less 784 $ 15,731<br>$50M to $2MM 822 269,246<br>$2MM+ 26 78,624<br>Total 1,632 $ 363,601<br>INDUSTRY BREAKDOWN OF PPP LOANS MADE TO BORROWERS<br>THROUGH 9/30/2020 SECURED SBA FINANCING FOR 1,632 LOANS FOR APPROXIMATELY $364MM
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6<br>12.3% 12.2% 12.9%<br>16.7% 17.1%<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 Q3 2020<br>6.9% 7.1% 7.5%<br>11.1%<br>9.8%<br>8.2% 8.3% 8.9%<br>12.9% 13.5%<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>2016 2017 2018 2019 Q3 2020<br>Tier 1 Leverage Tier 1 Capital<br>5.4% 6.0%<br>6.9%<br>10.4% 9.8%<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 Q3 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 $95,751<br>Unencumbered securities 380,056<br>FHLB borrowing availability 565,029<br>Brokered CD capacity 579,431<br>Fed funds lines 102,000<br>Total as of 09/30/2020 $1,722,267<br>Tier 1<br>Capital<br>Leverage<br>Excluding PPP, Tangible Common Equity/Tangible Assets at September 30, 2020 was 11.14% Basel III Regulatory Capital Minimum to be considered well capitalized
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7<br>1.14% 1.05%<br>1.30% 1.39%<br>1.52%<br>0.00%<br>0.40%<br>0.80%<br>1.20%<br>1.60%<br>2016 2017 2018 2019 Q3 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 Q3 2020<br>ASSET QUALITY AND RESERVE LEVELS<br>OVERVIEW NPAS / ASSETS (%)<br>RESERVES / LOANS (%) RESERVES / NPLS (%)<br>.. Solid asset quality and reserve levels<br>.. Strengthened credit department to support<br>growth<br>.. Proactive approach to classification of assets<br>Excluding PPP, NPAs/Assets as of September 30, 2020 was 0.19%<br>Excluding PPP, Reserves/Loans as of September 30, 2020 was 1.83%<br>205%<br>282% 318% 306%<br>654%<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>2016 2017 2018 2019 Q3 2020
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8<br>BY OUTSTANDING BALANCES<br>WELL DIVERSIFIED LOAN PORTFOLIO<br>As of 9/30/2020.<br>1-4 Residential 1st<br>20%<br>1-4 Residential Construction<br>1%<br>1-4 Residential Jr Lien 2%<br>HELOC 5%<br>RE Loans to be Sold 5%<br>C&I 18% PPP 16%<br>Loans to Public Entities<br>0%<br>Other Loans 0%<br>Ag Production 1%<br>Other CRE 12%<br>Owner Occupied<br>CRE 9%<br>Ag Land 1%<br>Multifamily 4%<br>Retail Indirect 3% 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 9/30/2020.<br>1-4 Residential 1st<br>17%<br>1-4 Residential<br>Construction 1%<br>1-4 Residential Jr<br>Lien 2%<br>HELOC 10%<br>RE Loans to be Sold<br>4%<br>C&I 25%<br>PPP 13% Loans to Public<br>Entities 0%<br>Other Loans 0%<br>Ag Production 2% Other CRE 9%<br>Owner Occupied CRE 7%<br>Ag Land 0%<br>Multifamily 3%<br>Retail Indirect 2%<br>Other Consumer 2% RE Construction 3%
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10<br>THIRD QUARTER HIGHLIGHTS
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11<br>Q3 FINANCIAL HIGHLIGHTS<br>1 – Represents a non-GAAP Financial measure. See “Non-GAAP Disclosure Reconciliation.”<br>INCOME STATEMENT<br>Net Interest Income $ 21,765 $ 20,091 $ 18,681<br>Provision for Loan Losses 3,500 3,500 1,498<br>Net Interest Income After Provision for Loan Losses 18,265 16,591 17,183<br>Noninterest Income 45,256 38,230 29,580<br>Noninterest Expense 40,214 39,734 37,327<br>Income Before Income Taxes 23,307 15,087 9,436<br>Income Tax Expense 5,648 3,613 2,332<br>Net Income $ 17,659 $ 11,474 $ 7,104<br>Per Common Share Data<br>Earnings Per Common Share – Diluted $ 0.99 $ 0.65 $ 0.48<br>Diluted Average Common Shares Outstanding 17,453 17,445 14,626<br>Performance Ratios<br>Return on Average Total Assets 2.42% 1.68% 1.29%<br>Return on Average Tangible Common Equity(1) 26.67% 18.88% 17.01%<br>Noninterest Income as a % of Revenue 67.53% 65.55% 61.29%<br>Net Interest Margin (Tax-Equivalent)(1) 3.17% 3.14% 3.69%<br>Efficiency Ratio(1) 58.42% 66.31% 75.17%<br>Three months ended<br>(dollars and shares in thousands, except per share data)<br>September<br>2020<br>June<br>2020<br>September<br><br><br>2019
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12<br>0.45%<br>0.63%<br>0.59%<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 Q3 2020 YTD<br>STRONG CORE FUNDING MIX<br>.. Commercial transaction accounts totaled $1.1 billion and<br>increased 35.9% YTD. Consumer transaction accounts totaled<br>$579.4 million and increased 8.1%<br>.. HSA deposits sourced through retirement plans totaled $131.5<br>million, with a cost of 0.18%<br>.. CD portfolio is primarily 6 month flex CD of which over 50%<br>have been clients for 10+ years.<br>.. Stable deposit relationships with 22 year average tenure on 10<br>largest depositors<br>.. National Market deposits totaled $554.2 million<br>As of September 30, 2020, core deposits totaled<br>$2.4 billion or 97.6% of our total deposits<br>OVERVIEW AS OF SEPTEMBER 30, 2020 SEPTEMBER 30, 2020 DEPOSIT FUNDING ($2,462MM)<br>LOW COST OF FUNDS<br>Revenue data YTD as of 9/30/2020.<br>Non-Interest Bearing<br>Deposits<br>28.2%<br>Money<br>Market &<br>Savings<br>Deposits<br>39.4%<br>Interest Bearing<br>Demand Deposits<br>18.7%<br>Time<br>Deposits<br>8.4%<br>HSA Deposits<br>5.3%
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13<br>0.44%<br>0.65%<br>0.97%<br>0.59%<br>1.00%<br>1.83%<br>2.16%<br>0.45%<br>3.74% 3.84%<br>3.65%<br>3.22%<br>4.63%<br>4.81% 4.97%<br>4.37%<br>0.00%<br>1.00%<br>2.00%<br>3.00%<br>4.00%<br>5.00%<br>6.00%<br>2017 2018 2019 Q3 2020 YTD<br>NET INTEREST MARGIN (NIM)<br>1 - Rates have been annualized for interim periods.<br>Source: Alerus Financial Corporation; Federal Reserve<br>Note: Net interest margin (FTE) is a non-GAAP financial measure; See “Non-GAAP Disclosure Reconciliation” in the Appendix to this presentation<br>Loan Yield<br>Net Interest Margin (fully-taxable equivalent “FTE”)<br>Average Effective Fed Funds Rate<br>Cost of Funds<br>1<br>1<br>1<br>1
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14<br>NIM AND LOAN FLOORS<br>VARIABLE RATE FLOORS BY INDEX VARIABLE RATE FLOORS<br>COMMENTS<br>$ in Millions Balance % of Total<br>Balance<br>Cumulative % of<br>Total Balance<br>No Floors $ 307 39.6% 39.6%<br>Floors Reached 359 46.4% 86.0%<br>0-50 bps to reach floor 102 13.2% 99.2%<br>>50bps to reach floor 6 0.8% 100.0%<br>Total $ 774 100.0%<br>.. Quarter over quarter highlights:<br>• Lower asset yields driven by lower loan yields of 4bps,<br>excluding PPP loans, C&I yield would have been down<br>7bps.<br>• Lower cash yields of 4bps<br>• Lower investment yields of 21bps<br>• Lower yields offset by increased earning assets of $160<br>million<br>• Total deposit costs were down 23bps and interest-bearing<br>deposit costs were down 30bps<br>$ in Millions<br>Index<br>In the<br>Money<br>Out of<br>the Money No Floor Total Total %<br>Prime $ 291 $ 19 $ 16 $ 326 42.1%<br>1 Month LIBOR 8 2 146 156 20.2%<br>12 Month LIBOR – 79 127 206 26.7%<br>FHLB 5 Year 33 8 12 53 6.9%<br>Other 26 – 6 32 4.1%<br>Total $ 358 $ 108 $ 307 $ 774 100.0%<br>Percent of Total 46.3% 14.0% 39.7% 100.0%<br>1 – NIM excluding PPP for the three months ended September 30, 2020 was 2.25%<br>NIM1 Average Earning Assets<br>2Q 2020 3.14% 2,584,036,032<br>Lower Asset Yields -0.08%<br>Asset Balance/Mix -0.06%<br>Deposit Balance/Mix 0.00%<br>Lower Deposit Rate 0.16%<br>Other Borrowings 0.01%<br>3Q 2020 3.17% 2,744,759,465<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 9/30/2020.<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>29% of Revenue 23% of Revenue<br>8% of Revenue<br>40% of Revenue
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16<br>$29,366 $27,812 $31,905 $30,471<br> 348,000<br> 350,000<br> 352,000<br> 354,000<br> 356,000<br> 358,000<br> 360,000<br> 362,000<br> 364,000<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 Q3 2020<br>AUA/AUM Participants<br>Asset Based Retirement<br>32%<br>Trust, Custody &<br>Advisory<br>10%<br>Record<br>Keeping<br>19%<br>Asset Administration<br>11%<br>Health &<br>Welfare<br>7%<br>Payroll Servicing<br>3%<br>ESOP<br>6%<br>Other<br>12%<br>$20,413<br>$26,902 $28,404<br>$19,562<br>$62,390 $63,316 $63,811<br>$45,034<br>$0<br>$20,000<br>$40,000<br>$60,000<br>$80,000<br>2017 2018 2019 Q3 2020 YTD<br>Net Income Revenue<br>RETIREMENT AND BENEFITS<br>OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT<br>PROFIT MARGIN REVENUE MIX (Q3 2020 YTD)<br>MARKET<br>SENSITIVE<br>REVENUE:<br>42%<br>1<br>1 Net Income before Tax and Indirect Allocations.<br>.. RETIREMENT - Provide recordkeeping and administration<br>services to qualified retirement plans<br>.. ESOP - Provide trustee, recordkeeping and administration to<br>employee stock ownership plans<br>.. ADVISORY SERVICES - Provide investment fiduciary services to<br>retirement plans<br>.. HEALTH AND WELFARE - Provide HSA, FSA, COBRA<br>recordkeeping and administration services to employers<br>.. PAYROLL - Provide payroll and HRIS services for employers<br>.. ONE ALERUS SYNERGIES<br>• IRA rollovers<br>• Deposits - HSA deposits, 401(k) Money Market Funds,<br>Emergency Savings, Terminated Participants<br>• Managed accounts<br>($ in Millions)<br>($000s)
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17<br>$6,370<br>$8,138 $8,314<br>$6,390<br>$14,010 $14,962 $15,502<br>$12,644<br>$0<br>$6,000<br>$12,000<br>$18,000<br>2017 2018 2019 Q3 2020 YTD<br>Net Income Revenue<br>WEALTH MANAGEMENT SERVICES<br>OVERVIEW OF SERVICES ASSETS UNDER ADMINISTRATION/MANAGEMENT<br>PROFIT MARGIN REVENUE MIX (Q3 2020 YTD)<br>1 Net Income before Tax and Indirect Allocations.<br>.. ADVISORY AND PLANNING SERVICES<br>• Retirement Planning, Tax Planning, Insurance Planning,<br>Wealth Transfer Planning and Business Transition Planning<br>.. ASSET MANAGEMENT<br>• Personalized SMA strategies, Tax Management and Global<br>Perspective<br>.. FIDUCIARY SERVICES<br>• IRA, Agency and Personal Trust<br>.. ONE ALERUS SYNERGIES<br>• IRA rollovers<br>• 401(k) managed accounts<br>1<br>($ in Millions)<br>($000s)<br>Asset<br>Management<br>85%<br>Brokerage<br>10%<br>Insurance &<br>Advisory<br>5%<br>$2,702 $2,627<br>$3,103 $3,043<br>$0<br>$1,000<br>$2,000<br>$3,000<br>2017 2018 2019 Q3 2020
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18<br>$3,040 $1,254 $5,173<br>$23,043 $20,488 $18,464<br>$27,050<br>$46,271<br>$0<br>$8,000<br>$16,000<br>$24,000<br>$32,000<br>$40,000<br>$48,000<br>$56,000<br>2017 2018 2019 Q3 2020 YTD<br>Net Income Revenue<br>$691.7 $650.4 $673.4 $548.9<br>$175.5 $129.3<br>$273.0 $622.9<br>$0.0<br>$250.0<br>$500.0<br>$750.0<br>$1,000.0<br>$1,250.0<br>2017 2018 2019 Q3 2020 YTD<br>Purchase Refi<br>MORTGAGE BANKING<br>OVERVIEW OF SERVICES MORTGAGE ORIGINATIONS<br>1-4 FAMILY PORTFOLIO PRODUCT MIX<br>($ in Millions)<br>PROFIT MARGIN<br>1 Net Income before Tax and Indirect Allocations.<br>1<br>.. 1st and 2nd mortgage product offerings through centralized<br>mortgage operations in Minnesota<br>.. Our Twin Cities originators averaged $30+ million in volume<br>in 2019<br>.. YTD, approximately 47% purchase originations, with<br>approximately 89% sourced from the Twin Cities MSA<br>.. ONE ALERUS SYNERGIES<br>• Through enhanced technology, offer digital application<br>and transitioned to a paperless delivery in Q1 2020. Key<br>initiatives necessary to expand mortgage products<br>nationwide to our retirement plan participants.<br>• As of September 30, 2020, originations retained on the<br>banking division’s balance sheet totaled $103 million<br>($000s)<br>30 Yr Jumbo<br>29%<br>5/1 ARM<br>4%<br>15 Yr Jumbo<br>2%<br>15 Yr Fixed<br>2%<br>Other Fixed<br>6%<br>7/1 ARM<br>32%<br>30 Yr Fixed<br>11%<br>Other ARM<br>2%<br>10/1 ARM<br>12%
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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<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>Other<br>12%<br>Finance and<br>Insurance<br>14%<br>Wholesale Trade<br>14%<br>Real Estate and<br>Rental and Leasing<br>9%<br>Manufacturing<br>8%<br>Professional,<br>Scientific and<br>Technical<br>Services 7%<br>Health Care and<br>Social Assistance<br>6%<br>Transportation and<br>Warehousing<br>1%<br>Construction<br>14%<br>Motor Vehicle and Parts Dealers<br>7%<br>Food and<br>Beverage Stores<br>2%<br>Electronics and<br>Appliance Stores<br>2% Heath and Personal<br>Care Services<br>1%<br>Building Material and Garden<br>Equipment and Supplies Dealers<br>1%<br>Nonstore Retailers<br>1%<br>Other Retail<br>Trade<br>1%<br>Retail Trade<br>15%
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21<br>Office<br>16%<br>Retail<br>19%<br>Warehouse<br>19%<br>Manufacturing<br>1%<br>Residential<br>Development<br>1%<br>Mixed<br>Residential/Commer<br>cial<br>2%<br>Mixed<br>Commercial<br>7%<br>Apartments<br>14%<br>Hotel<br>1%<br>Medical Or Nursing<br>Facilities<br>6%<br>Commercial/Land<br>Development<br>12%<br>Ag Land<br>2%<br>Serviced 47%<br>1-4 1st Non-Serviced<br>4%<br>1-4 Family Jr Liens<br>5%<br>1-4 Family Revolving<br>30%<br>1-4 Family Construction 2%<br>Held for Sale<br>12%<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 776 27%<br>Junior 757 77%<br>HELOC 794 75%<br>TOTAL COMMITMENT<br>RESIDENTIAL REAL ESTATE
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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 9/30/2020.<br>C&I<br>Total<br>Commitment<br>($ in 000's) % of Total<br>Accommodation and Food Services $ 9,774 0.70%<br>Arts, Entertainment, and Recreation 4,236 0.30%<br>Oil and Gas 874 0.06%<br>Other Retail Trade 4,138 0.30%<br>Total $ 19,021 1.37%<br>CRE<br>Total<br>Commitment<br>($ in 000's) % of Total<br>Retail $ 117,466 8.44%<br>Medical or Nursing Facilities 35,531 2.55%<br>Hotel 6,821 0.49%<br>Total $ 159,819 11.48%
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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>Q4<br>2017<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>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>Q4<br>2017<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>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>Nine months ended September 30, 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 $ (498) $ (2,745) $ 1,346 $ 10,373<br>Real estate construction 303 180 —— 483<br>Commercial real estate 6,688 5,953 (865) 95 11,871<br>Total commercial 19,261 5,635 (3,610) 1,441 22,727<br>Consumer<br>Residential real estate first mortgage 1,448 2,914 — 5 4,367<br>Residential real estate junior lien 671 377 (12) 175 1,211<br>Other revolving and installment 352 371 (194) 108 637<br>Total consumer 2,471 3,662 (206) 288 6,215<br>Unallocated 2,192 203 —— 2,395<br>Total $ 23,924 $ 9,500 $ (3,816) $ 1,729 $ 31,337
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25<br>ALLOCATION BY PORTFOLIO SEGMENT<br>ALLOWANCE FOR LOAN LOSSES<br>September 30, 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 $ 10,373 38.3% $ 12,270 27.8%<br>Real estate construction 483 1.6% 303 1.5%<br>Commercial real estate 11,871 26.0% 6,688 28.8%<br>Residential real estate first mortgage 4,367 22.8% 1,448 26.6%<br>Residential real estate junior lien 1,211 7.4% 671 10.3%<br>Other revolving and installment 637 3.9% 352 5.0%<br>Unallocated 2,395 —% 2,192 —%<br>Total loans $ 31,337 100.0% $ 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 $ 1,979,212 $ 1,625,744 $ 22,836 1.40% 1.15%<br>Special Mention 26,235 19,845 816 4.11% 3.11%<br>Substandard 47,264 42,666 4,883 11.44% 10.33%<br>Total Loans Evaluated Collectively 2,052,711 1,688,255 28,535 1.69% 1.39%<br>Total Loans Evaluated Individually 5,708 5,382 407 7.56% 7.13%<br>Unallocated –– 2,395 ––<br>Total $ 2,058,419 $ 1,693,637 $ 31,337 1.85% 1.52%<br>ALLOCATION BY RISK SEGMENT ($ IN 000’S)<br>ALLOWANCE FOR LOAN LOSSES<br>As of 9/30/2020.
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27<br>APPENDIX
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28<br>FOR THE TWELVE MONTHS<br>ENDED SEPTEMBER 30, 2020<br>Noninterest income:<br>$140.2 million<br>Net interest income:<br>$76.2 million<br>$18.1 $26.1 $29.4 $27.8 $31.9 $30.5<br>2015 2016 2017 2018 2019 Q3 20<br>OUR MISSION<br>.. To always act in the best interest of our clients by<br>providing innovative and comprehensive financial<br>solutions that are delivered through a relationship-<br>oriented single point of contact and supported by<br>client-friendly technology.<br>DIVERSIFIED FINANCIAL SERVICES COMPANY<br>.. $2.9 billion Banking assets<br>.. $30.5 billion Retirement and Benefits AUA/AUM<br>.. $3.0 billion Wealth Management AUA/AUM<br>ALERUS BUSINESS LINES<br>.. Banking<br>.. Retirement and Benefits<br>.. Wealth Management<br>.. Mortgage<br>COMPANY PROFILE<br>Data as of 9/30/2020.<br>COMPANY PORTFOLIO DIVERSIFIED REVENUE STREAM<br>ASSET GROWTH (IN BILLIONS)<br>$1.7 $2.1 $2.1 $2.2 $2.4 $2.9<br>2015 2016 2017 2018 2019 Q3 20<br>Banking Assets<br>Retirement and Benefit Services AUA/AUM<br>Wealth Management AUA/AUM<br>$2.0 $2.3 $2.7 $2.6 $3.1 $3.0<br>2015 2016 2017 2018 2019 Q3 20<br>Retirement<br>and Benefit<br>Revenue<br>28.6%<br>Wealth<br>Management<br>Revenue<br>7.6%<br>Mortgage<br>Revenue<br>23.2%<br>Banking<br>Fees<br>4.5%<br>Net<br>Interest<br>Income<br>36.1%
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29<br>FRANCHISE FOOTPRINT<br>Grand Forks, ND<br>.. 3 full-service banking offices<br>Fargo, ND<br>.. 3 full-service banking offices<br>Twin Cities, MN<br>.. 6 full-service banking offices<br>.. 1 mortgage office<br>.. 1 deposit and loan production office<br>Phoenix, AZ<br>.. 2 full-service banking offices<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>RETIREMENT AND BENEFITS SERVICES OFFICES<br>.. 2 retirement and benefits offices in Minnesota<br>.. 2 retirement and benefits offices in Michigan<br>.. 1 retirement and benefits office in New Hampshire<br>.. Serve clients in all 50 states through retirement plan services<br>DIVERSIFIED CLIENT BASE<br>.. 48,900 consumers<br>.. 10,400 businesses<br>.. 6,900 employer-sponsored retirement plans<br>.. 350,000 employer-sponsored retirement plan<br>participants<br>.. 50,000 health savings account participants<br>.. 21,700 flexible spending account/health reimbursement<br>arrangement participants<br>Data as of 9/30/2020.
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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 deposits to $554.2 million as of September<br>30, 2020<br>Acquired new product lines including HSA and<br>payroll accounts<br>We expect the 401(k) money market accounts to<br>continue to grow and reduce funding costs<br>TECHNOLOGY INVESTMENT<br>We have proactively invested in technology which<br>will allow us to effectively integrate our various<br>departments and business lines<br>We believe these initiatives will reduce the amount<br>of technology expenditures needed in the future<br>DIVERSIFIED SERVICES<br>Through our four divisions, we are<br>able to offer a comprehensive<br>service package to our clients<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 expectations driven by advice and guidance versus transactions<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 48,900 consumers, 10,400 businesses and over 350,000 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 fee income companies with complementary business models, cultural<br>similarities, 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 diversifying our composition of revenue<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>3 years with Alerus<br>ANN MCCONN<br>Executive Vice President and<br>Chief Shared Services Officer<br>18 years with Alerus<br>RYAN GOLDBERG<br>Executive Vice President and<br>Chief Revenue Officer<br>Joined Alerus in 2020<br>KARIN TAYLOR<br>Executive Vice President and<br>Chief Risk Officer<br>2 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>39 years with Alerus
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34<br>North Dakota<br>Minnesota<br>Arizona<br>National<br>STRONG GROWTH MARKETS AND STABLE CORE FUNDING<br>MARKET DISTRIBUTION<br>DEPOSITS ($2,462) LOANS ($2,058)<br>ARB ASSETS UNDER<br>ADMIN/MGMT. ($30,471)<br>WM ASSETS UNDER<br>ADMIN/MGMT. ($3,043) MORTGAGE ORIGINATIONS ($1,172)<br>($ IN MILLIONS)<br>Data as of 9/30/2020.<br>LEGEND<br>40.1%<br>48.0%<br>10.0%<br>1.9%<br>40.6%<br>32.6%<br>4.3%<br>22.5%<br>8.3%<br>89.1%<br>2.6%<br>73.4%<br>9.9%<br>2.3%<br>14.4% 9.5%<br>14.6% 0.1%<br>75.8%
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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, the following ratios were TCE/TA 11.14% NPLs/Loans 0.29%, NPAs/Assets 0.19%, Allowance/Loans 1.83%, and NCOs/Average Loans 0.16%
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36<br>NON-GAAP DISCLOSURE RECONCILIATION<br>($000s, except where otherwise noted ) Annual Year-to-date<br>2016 2017 2018 2019 Q3 2019 Q3 2020<br>Tangible common equity to tangible assets<br>Total common stockholders' equity $ 168,251 $ 179,594 $ 196,954 $ 285,728 $ 281,403 $ 322,003<br>Less: Goodwill 27,329 27,329 27,329 27,329 27,329 27,329<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 19,382 15,421<br>Tangible common equity (a) 108,193 125,154 147,152 240,008 234,692 279,253<br>Total assets 2,050,045 2,136,081 2,179,070 2,356,878 2,228,311 2,898,809<br>Less: Goodwill 27,329 27,329 27,329 27,329 27,329 27,329<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 19,382 15,421<br>Tangible assets (b) 1,989,987 2,081,641 2,129,268 2,311,158 2,181,600 2,856,059<br>Tangible common equity to tangible assets (a)/(b) 5.44% 6.01% 6.91% 10.38% 10.76% 9.78%<br>Tangible common equity per common share<br>Total stockholders' equity $ 168,251 $ 179,594 $ 196,954 $ 285,728 $ 281,403 $ 322,003<br>Less: Goodwill 27,329 27,329 27,329 27,329 27,329 27,329<br>Less: Other intangible assets 32,729 27,111 22,473 18,391 19,382 15,421<br>Tangible common equity (c) 108,193 125,154 147,152 240,008 234,692 279,253<br>Common shares outstanding (d) 13,534 13,699 13,775 17,050 17,049 17,122<br>Tangible common equity per common share (c)/(d) $ 7.99 $ 9.14 $ 10.68 $ 14.08 $ 13.77 $ 16.31<br>Return on average tangible common equity<br>Net income $ 14,036 $ 15,001 $ 25,866 $ 29,540 $ 21,888 $ 34,496<br>Less: Preferred stock dividends 25 -----<br>Add: Intangible amortization expense (net of tax) 4,553 3,655 3,664 3,224 2,442 2,347<br>Remeasurement due to tax reform - 4,818 ----<br>Net income, excluding intangible amortization (e) 18,564 23,474 29,530 32,764 24,330 36,843<br>Average total equity 168,039 176,779 187,341 231,084 212,911 303,829<br>Less: Average preferred stock 2,514 -----<br>Less: Average goodwill 25,698 27,329 27,329 27,329 27,329 27,329<br>Less: Average other intangible assets (net of tax) 22,372 19,358 19,522 16,101 16,502 13,343<br>Average tangible common equity (f) 117,455 130,092 140,490 187,654 169,080 263,157<br>Return on average tangible common equity (e)/(f) 15.81% 18.04% 21.02% 17.46% 19.24% 18.70%<br>Net interest margin (tax-equivalent)<br>Net interest income $ 62,940 $ 67,670 $ 75,224 $ 74,551 $ 56,092 $ 60,693<br>Tax equivalent adjustment 599 865 462 347 257 325<br>Tax equivalent net interest income (g) 63,539 68,535 75,686 74,898 56,349 61,018<br>Average earning assets (h) 1,750,104 1,833,002 1,970,004 2,052,758 2,024,814 2,534,038<br>Net interest margin (tax equivalent) (g)/(h) 3.63% 3.74% 3.84% 3.65% 3.72% 3.22%<br>Efficiency Ratio<br>Noninterest expense $ 143,792 $ 134,920 $ 136,325 $ 142,537 $ 106,102 $ 116,674<br>Less: Intangible amortization expense 7,005 5,623 4,638 4,081 3,091 2,971<br>Adjusted noninterest expense (i) 136,787 129,297 131,687 138,456 103,011 113,703<br>Net interest income 62,940 67,670 75,224 74,551 56,092 60,693<br>Noninterest income 105,089 103,045 102,749 114,194 84,639 110,675<br>Tax equivalent adjustment 599 865 462 347 257 325<br>Total tax equivalent revenue (j) 168,628 171,580 178,435 189,092 140,988 171,693<br>Efficiency ratio (i)/(j) 81.12% 75.36% 73.80% 73.22% 73.06% 66.22%
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