ALRS Alerus Financial Dashboard

Management Discussion

• Net income for the year ended December 31, 2020 was $44.7 million, an increase of $15.1 million, or 51.2%, compared to $29.5 million for the year ended December 31, 2019. Diluted earnings per common share were $2.52 in 2020, compared to $1.91 for 2019. Return on average total assets was 1.61% in 2020, compared to 1.34% for 2019. The
• increase in net income was primarily due to an increase of $35.2 million in noninterest income and an increase of $9.3 million in net interest income. The increase in noninterest income was primarily driven by an increase in mortgage banking revenue and the increase in net interest income was primarily due to a $6.5 million decrease in interest expense along with a $2.4 million increase in interest income from investment securities. These improvements were partially offset by a $21.3 million, or 14.9%, increase in noninterest expense driven by a $15.2 million increase in compensation expense, $2.7 million in business services, software and technology expense, and $2.2 million in mortgage and lending expenses. The increases in compensation and mortgage and lending expenses were directly correlated to the increase in mortgage banking revenue as mortgage originations totaled $1.8 billion for the year. The provision for loan losses increased $3.6 million in 2020 compared to 2019, as concerns regarding an economic slowdown related to COVID-19 increased qualitative factors.
• Net interest income totaled $83.8 million in 2020, an increase of $9.3 million, or 12.5%, from 2019. Net interest margin decreased 43 basis points to 3.22%, in 2020, from the 3.65% reported in 2019. The decrease in net interest margin was primarily a result of an 87 basis point decrease in the average yield on interest earning assets which was partially offset by a corresponding decrease of 60 basis points in the average rate paid on interest-bearing liabilities. These decreases were largely driven by a historically low interest rate environment as the Federal Open Market Committee decreased the target fed funds rate 150 basis points in reaction to the economic impact related to COVID-19. Also contributing to the decrease in net interest margin was a shift in balance sheet mix with a higher percentage of average balances in lower yielding deposits with banks and investment securities. The increase in these balances was due to an influx of liquidity from PPP loans, government stimulus and market uncertainty.