Alerus Financial: 2024 Earnings Show Mixed Results

Alerus Financial Corporation (NASDAQ: ALRS) has released its full-year 2024 earnings report, revealing a mixed bag of results that investors need to carefully consider. The company's revenue exceeded analyst expectations, but its earnings per share (EPS) fell short, raising questions about its financial health and future prospects. Let's dive into the details to understand what this means for income-seeking investors.

Revenue Surpasses Expectations

Alerus Financial reported a full-year revenue of $203.8 million, a 23% increase from the previous year. This growth was driven primarily by the Banking Incl.Mortgage segment, which contributed $112.5 million, or 55% of the total revenue. The company's noninterest income also saw a significant boost, reaching $33.9 million in the fourth quarter of 2024, up from $28.4 million in the previous quarter. This increase was driven by improvements across all fee-based businesses, including mortgage banking and wealth management.



EPS Falls Short of Estimates

Despite the impressive revenue growth, Alerus Financial's EPS for the full year 2024 was $0.84, missing analyst estimates by 17%. This shortfall can be attributed to several factors, including increased nonperforming assets and a higher provision for credit losses. The company's net income for the year was $17.7 million, a 52% increase from the previous year, but the EPS figure tells a different story.

Strategic Acquisition and Organic Growth

One of the key drivers of Alerus Financial's growth in 2024 was its strategic acquisition of HMN Financial, Inc. (HMNF). This acquisition, completed in the fourth quarter, significantly contributed to the company's loan and deposit growth. Total loans increased by $1.0 billion, or 31.7%, reaching $4.0 billion by the end of 2024. Total deposits also saw a significant rise, increasing by $1.1 billion, or 31.7%, to $4.4 billion. The acquisition also led to a 41.9% increase in earnings per share compared to the previous quarter.

Risks and Challenges

While the acquisition has positioned Alerus Financial for future growth, it has also introduced new risks and challenges. The company's nonperforming assets increased to $62.9 million, primarily due to loans moving to nonaccrual status. The provision for credit losses also increased to $12.0 million, reflecting the company's proactive approach to managing these risks. These factors could impact the company's profitability and liquidity in the short term.

Focus on Organic Growth and Diversification

Alerus Financial is also focusing on organic growth and diversification of revenue streams. The company has made long-term investments to support and grow its diversified business model and revenue streams. This includes the addition of a specialized equipment leasing team and key hires to drive growth and efficiencies, particularly in the retirement and benefit services segment. These investments have led to significant growth in various business lines, with the retirement and benefits business growing over 19%, the wealth management business growing 18%, and loans and deposits increasing by nearly 10% and over 7%, respectively, in a challenging and competitive environment.

Conclusion

Alerus Financial's full-year 2024 earnings report shows a company that is growing but also facing significant challenges. The strategic acquisition of HMNF has positioned the company for future growth, but the rise in nonperforming assets and the provision for credit losses present risks that investors need to carefully consider. The company's focus on organic growth and diversification of revenue streams is a positive sign, but it remains to be seen whether these efforts will be enough to overcome the current challenges. As always, investors should do their own research and consider their risk tolerance before making any investment decisions.