Alerus Financial (ALRS)

Management Discussion

• Net income for the year ended December 31, 2021, was $52.7 million, an increase of $8.0 million, or 17.9%, compared to $44.7 million for the year ended December 31, 2020. Diluted earnings per common share were $2.97 in 2021, compared to $2.52 in 2020. Return on average total assets was 1.66% in 2021, compared to 1.61% for 2020. The increase in net income was primarily due to a decrease of $14.4 million in provision for loan losses expense and an increase of $3.3 million in net interest income, partially offset by a decrease of $2.0 million in noninterest income and a
• $5.1 million increase in noninterest expense. The decrease in provision for loan losses expense was primarily driven by a $3.5 million reversal of provision expense as well as $826 thousand in net recoveries, a result of improvements in credit quality indicators. Net interest income increased primarily due to a $5.2 million decrease in interest expense paid on deposits and a $5.2 million increase in interest income from investment securities, partially offset by an $8.3 million decrease on interest income from loans. Noninterest income decreased as a result of a $13.1 million decrease in mortgage banking revenue. Noninterest expense increased primarily due to increases of $4.2 million in compensation expense and $2.0 million increase in employee taxes and benefits expense.
• Net interest income totaled $87.1 million in 2021, an increase of $3.3 million, or 3.9%, from 2020. Net interest margin decreased 32 basis points to 2.90%, in 2021, from the 3.22% reported in 2020. The decrease in net interest margin was primarily a result of a 60 basis point decrease in the average yield on interest earning assets which was partially offset by a corresponding decrease of 43 basis points in the average rate paid on interest-bearing liabilities. These decreases were largely driven by a shift in balance sheet mix as the average balance of interest-bearing deposits with banks increased $60.3 million and the average balance on investment securities increased $439.1 million while the average balance on loans held for investment decreased $86.9 million and the average balance on loans held for sale decreased $13.2 million.