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ALERUS FINANCIAL CORP (ALRS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 GAAP EPS was $0.13 on net income of $3.2M; adjusted EPS was $0.44 as margin expanded 97 bps to 3.20% and adjusted efficiency improved to 68.97% amid the closing of the HMN Financial acquisition (HMNF) and stronger fee income .
  • Net interest income rose 69.8% QoQ to $38.3M and noninterest income rose 19.4% QoQ to $33.9M; provision of $12.0M (including ~$7.8M “day-one” CECL related to HMNF) weighed on GAAP results .
  • Credit normalized but remains manageable: NPAs increased to $62.9M (1.19% of assets); ACL/loans increased to 1.50%; net charge-offs were 0.13% of average loans .
  • 2025 outlook: management guided NIM “>3%” (no further Fed cuts assumed), loan growth low-to-mid single digits, deposit growth low single digits, purchase accounting accretion of ~30–35 bps per quarter, and adjusted efficiency ratio <70% as HMNF cost saves ramp .
  • S&P Global consensus estimates were unavailable at time of writing, so beats/misses vs Street could not be assessed (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Margin and PPNR inflected: reported NIM up 97 bps QoQ to 3.20% and adjusted PPNR nearly doubled QoQ to $18.2M; adjusted efficiency improved to 68.97% .
  • Diversified, fee-heavy model contributed: noninterest income was $33.9M (46.9% of revenues), up 19.4% QoQ; mortgage, wealth, retirement, and “other” all improved, supported by gains on sale and swap fees .
  • Strategic integration progressing: “successful closing and conversion” of HMNF, largest deal in company history; CEO: “we are pleased to end 2024 with a solid quarter... net interest margin expanded 97 bps... adjusted efficiency ratio... to 69.0%” .

What Went Wrong

  • Credit costs and NPAs higher: provision rose to $12.0M (including ~$7.8M HMNF day-one CECL) and NPAs increased to $62.9M driven by a large construction project and select credits; net charge-offs increased to 0.13% .
  • Expenses elevated on deal costs: noninterest expense rose 32.0% QoQ on acquisition-related costs (M&A, severance, IT/core processing, intangible amortization) .
  • Capital diluted by deal though still well-capitalized: CET1 fell to 9.98% and TCE/TA to 7.15% post-transaction; tangible book value per share declined YoY to $14.49 (from $15.46) given higher intangibles .

Financial Results

Headline P&L and Profitability vs prior periods

MetricQ4 2023Q3 2024Q4 2024
Net Interest Income ($MM)$21.55 $22.54 $38.28
Noninterest Income ($MM)$0.79 $28.36 $33.87
Total Tax-Equivalent Revenue ($MM)$22.57 $51.22 $72.54
Provision for Credit Losses ($MM)$1.51 $1.66 $11.99
Net Income ($MM)($14.75) $5.21 $3.22
Diluted EPS ($)($0.73) $0.26 $0.13
Adjusted EPS - Diluted ($)$0.26 $0.31 $0.44
NIM (TE, %)2.37% 2.23% 3.20%
Adjusted NIM (TE, %)2.31% 2.35% 2.81%
Adjusted Efficiency Ratio (%)78.18% 77.71% 68.97%

Notes: Q4 2023 noninterest income included a ($24.64)M loss on securities; Q4 2024 adjusted results add back HMNF day-one CECL and exclude certain items (see Non-GAAP reconciliations) .

Noninterest Income Mix (segment detail)

Noninterest Income ($MM)Q4 2023Q3 2024Q4 2024
Retirement & Benefit Services$15.32 $16.14 $16.49
Wealth Management$5.94 $6.68 $7.01
Mortgage Banking$1.28 $2.57 $3.67
Service Charges$0.34 $0.49 $0.64
Net Gains (Losses) on Investment Securities($24.64) $0.00 $0.00
Other$2.56 $2.47 $6.06
Total$0.79 $28.36 $33.87

Balance Sheet, Asset Quality, Capital and KPIs

KPIQ4 2023Q3 2024Q4 2024
Total Loans ($000)$2,759,583 $3,032,343 $3,992,534
Total Deposits ($000)$3,095,611 $3,323,550 $4,378,410
Noninterest-Bearing Deposits ($000)$728,082 $657,547 $903,466
Loan/Deposit Ratio (%)89.1% (12/31/23) 91.2% 91.2%
Retirement AUA/M ($000)$36,682,425 $41,249,280 $40,728,699
Wealth AUA/M ($000)$4,018,846 $4,397,505 $4,579,189
Nonperforming Assets ($000)$8,767 $48,026 $62,886
Net Charge-offs / Avg Loans (%)(0.04%) 0.04% 0.13%
ACL / Loans (%)1.30% 1.29% 1.50%
CET1 (%)11.82% 11.12% 9.98%
TCE / TA (%)7.94% 8.11% 7.15%
Book Value / Share ($)18.71 19.53 19.68
Tangible BV / Share ($)15.46 16.50 14.49

Guidance Changes

MetricPeriodPrevious Guidance (Q3’24 call)Current Guidance (Q4’24 call)Change
Net Interest Margin (reported)FY 2025Path to 3% by 2026 (legacy book) >3% in 2025, no further Fed cuts assumed; 30–35 bps purchase accounting accretion per quarter; start year near 3% with lumpy quarterly path Raised timeline
Loan GrowthFY 2025N/A specific numeric (focus on C&I growth, pipelines) Low to mid-single digits (combined balance sheet) New
Deposit GrowthFY 2025Seasonal/lumpy; target L/D ~95% through-cycle Low single digits New
Adjusted Efficiency RatioFY 2025Committed to HMNF cost saves (30%+) <70% for 2025; early saves front-half weighted Clarified/maintained
Purchase Accounting AccretionFY 2025Marks pending; accretion to support NIM 30–35 bps of NIM per quarter; ~$4M per quarter NII Quantified
Fee IncomeFY 2025Stable with market; Mortgage seasonal; swaps lumpy Flat YoY reported; excluding property gains/swaps, core fees up mid-single digits Clarified
DividendsOngoingLong history of increases; dividend aristocrat status noted $0.20 per share declared Dec 11, 2024 (5.3% YoY increase) Maintained/increased

Earnings Call Themes & Trends

TopicQ2 2024 (Prior-2)Q3 2024 (Prior-1)Q4 2024 (Current)Trend
Margin trajectory & sensitivityCore NIM expanding; path to >3% with Fed cuts; swaps roll-off discussed Margin back-half weighted; legacy NIM ~2.41%; HMNF NIM ~2.8%; path to 3% by 2026 Guide >3% in 2025; deposit beta ~30% moving to ~45%; 30–35 bps accretion/quarter; start near 3% Improving timeline
HMNF integration & cost savesDeal expected accretive to margin; close 4Q24 Closed 10/9; 30%+ cost saves; 29 locations; early synergies On track; expenses front-half heavier; <70% adjusted efficiency in 2025 Executing
Credit normalizationNew nonaccrual construction project; 25% reserved; NCOs elevated NPA increase; construction loan 87% complete; completion early 2025 NPAs 1.19% assets; continued protective advances; fund to completion by 2Q25, list for sale Stabilizing post-completion
Fee businesses (Wealth/Retirement)Strong pipelines; national partnerships; top-25 ranking; margins to improve via efficiency Core year-over-year fees up; platform upgrade; mortgage pricing disciplined Wealth +4.9% QoQ; Retirement +2.1% QoQ; core fee stability guided Durable growth
Capital managementCET1 11.67%; dividend raised CET1 11.12%; TCE +85 bps QoQ; repurchases opportunistic post-deal CET1 9.98% post-deal; plan to rebuild in 2025; dividend maintained Rebuild underway

Management Commentary

  • CEO (prepared): “The fourth quarter… highlighted by the closing and conversion of HMN Financial… net interest margin expanded 97 basis points, while our adjusted efficiency ratio… to 69.0%… We enter 2025 with positive momentum… while our capital ratios declined… we remain above all well-capitalized thresholds and expect to build capital in 2025.”
  • CFO (prepared): “Reported NIM increased 97 basis points to 3.2%… adjusted NIM was 2.81%... cost of funds dropped from 3.07% to 2.53%… loan growth 31.7% QoQ (with ~$157M organic); deposits +31.7% QoQ (with ~$93M organic).”
  • CFO (guidance): “Loan growth low- to mid-single digits… deposit growth low single digits… NIM >3% in 2025… 30–35 bps of purchase accounting accretion per quarter… adjusted efficiency ratio below 70% for 2025.”

Q&A Highlights

  • Core margin drivers: Deposit beta ~30% moving toward ~45% in 1H25; additional ~$4M+ right-side relief implied as rates fall; core margin to improve a few bps per quarter, lumpy intra-year .
  • Fee outlook: Q4 included ~$3.5M gain on Fargo office sale and ~$1M swap fees; 2025 fee base guided flat reported and up mid-single digits ex onetime/lumpy items .
  • Expense cadence: Cost saves front-half weighted as contracts roll; run-rate lumpy in 1H; growth low double digits off ~$176M 2024 core expense base for the combined entity .
  • Credit update: Multifamily construction project ~90%+ complete; expect total exposure to rise from ~$28M to ~$36–$37M with listing post-completion (May–June timeframe); leasing ahead of milestones .
  • Capital: Plan to rebuild TCE and CET1 through earnings accretion and capital-light fee mix; dividend remains a priority .

Estimates Context

  • S&P Global (Capital IQ) consensus EPS and revenue estimates for Q4 2024 were unavailable at the time of analysis due to data limits. As a result, we cannot assess beat/miss versus Street for this quarter. Where available in future periods, we will anchor comparisons on S&P Global consensus.

Key Takeaways for Investors

  • Margin inflection is tangible: reported NIM rose 97 bps QoQ to 3.20% with 2025 NIM guided “>3%” as deposit costs fall and accretion contributes 30–35 bps per quarter .
  • Operating leverage improving: adjusted efficiency fell to 68.97% and is guided <70% for 2025 as HMNF cost saves ramp; PPNR momentum supports earnings power .
  • Fee diversification is a differentiator: noninterest income was 46.9% of revenue; retirement/wealth growth and mortgage rebound underpin stability through cycles .
  • Credit normalization is manageable: ACL/loans increased to 1.50% and specific construction exposure is moving toward completion and monetization; NPAs at 1.19% of assets .
  • Capital dipped on acquisition but remains solid: CET1 at 9.98%, with plan to build in 2025; dividend maintained at $0.20 per share .
  • 2025 setup: low-to-mid single-digit loan growth, low single-digit deposit growth, core margin improvement and sub-70% efficiency should drive EPS normalization as deal costs fade .
  • Watch-list items: pace of deposit repricing/betas, timing/amount of accretion, execution on cost saves, resolution of large construction credit, and wealth/retirement net flows .

Additional Context (Q4-related press releases)

  • HMNF acquisition closed Oct 9, 2024; footprint expansion and board addition disclosed .
  • Dividend declared $0.20 per share on Dec 11, 2024 (up 5.26% YoY) .