2 0 1 8 A n n u a l R e p o r t
FOL L OW
YOU R DEST I N Y.
B Y YO U R S I D E , W H E R E V E R T H E
J O U R N E Y TA K E S YO U.
WE B ELI EVE THAT WITH I N E ACH AN D EVERY O N E
O F U S LI E S A STE ADY PU R SU IT TO G ROW, TO I M PROVE ,
TO MAKE B ET TER — TO FO LLOW O N E’ S D E STI NY.
T he path to each destiny is all your ow n, but most cer tainly, it’s a
path filled w ith decisions and challenges all along the way. W hether
it’s a business ow ner deciding how to transition their business to
the employees who helped build it, or the recent college graduate
balancing sav ing for retirement w ith pay ing of f their college debt,
the course we char t is of ten filled w ith complex ity and uncer tainty.
T he good news: you don’t have to nav igate this financial journey
alone. A ler us is here to help. W hatever your path is, A ler us can help
you achieve your goals and find your path to financial confidence.
Company Portfolio
Diversified financial services company
$2.2 billion banking assets
$4.6 billion assets under management
$25.9 billion assets under administration
$779.7 million mortgage loans originated
Stockholder Return
Diluted earnings per common share: $1.84
Dividends per share: $0.53
Stock price range 2018: $19.25 - $26.50
Last trade 2018: $19.25
Last trade 2017: $20.45
Total stockholder return: -3.28%*
* Calculated as Last Trade 2018 minus Last Trade 2017
plus dividends per share divided by Last Trade 2017.
Diversified Revenue Stream
NET REVENUE
$17 7.9 million
$75.2 MILLION NET INTEREST INCOME
$102.7 MILLION NON-INTEREST INCOME
Net interest
income: 42.3%
Retirement and
benefits revenue:
35.6%
Mortgage banking
revenue: 9.9%
Wealth
management
revenue: 8.4%
Banking
fees: 3.9%
Core Strengths
CORE BUSINESS LINES
Alerus Team
Strong balance sheet
Diversified earnings
Relationship-oriented business
model focused on advice
Highly skilled professional
service employee base
Commitment to business
expansion opportunities
Commitment to leadership
development
Commitment to technology
and innovation
Loyal client base
Client Base
46,200 consumers
11,175 businesses
6,700 employer-sponsored
retirement plans
355,000 employer-sponsored
retirement plan participants
44,500 health savings account
participants
15,600 flexible spending
account/health reimbursement
arrangement participants
Business Banking
• Commercial and commercial
real estate lending
• Agriculture lending
• Treasury management
• Deposit services
Consumer Banking
• Deposit products and services
• Consumer lending
• Private banking
Mortgage
• Residential mortgage lending
• Purchasing or refinancing
821 employees
Market Presence
Grand Forks, ND
• Five full-service banking and
wealth management offices
Fargo/West Fargo, ND
• Three full-service banking and
wealth management offices
Twin Cities, MN
• Six full-service banking and
wealth management offices
• Two residential mortgage offices
• Residential construction lending
• One loan production and deposit
• Home equity/second mortgages
production office
Retirement and Benef its
• Retirement plan
administration
• Retirement plan
investment advisory
• ESOP fiduciary services
Phoenix, AZ
• One full-service banking and
wealth management office
• One loan production office
National Presence
• Payroll administration services
• Three retirement and benefits
• HSA/FSA/HRA administration
offices in Minnesota
• COBRA
Wealth Management
• Advisory services
• Trust and fiduciary services
• Investment management
• Insurance and health planning
• Financial planning
• Education planning
• Two retirement and benefits
offices in Michigan
• One retirement and benefits
office in New Hampshire
• Serve clients in all 50
states through retirement
and benefit services
3
T H I S I S T H E
D E ST I N Y W E C R E AT E D —
A N D W E C A LL I T
One Alerus.
D E A R S T O C K H O L D E R S , C L I E N T S ,
A N D F R I E N D S ,
A S WE LOO K BACK AT TH E PA ST YE AR , WE AR E I N CR ED I B LY PRO U D
O F TH E PER FO R MAN CE AN D PRO G R E S S O F O U R CO M PANY.
Alerus reached new financial milestones in 2018 as total revenue and net
income for the year ending December 31, 2018, were $177.9 million and $25.9
million, respectively. These financial results are commendable; however,
they are not by chance. We believe they are the result of disciplined strategic
planning by our leadership team, meticulous focus and execution by our
employees, and continued success with our clients.
Historically, Alerus carefully balances growth, risk, profitability, and
strategic investments for the long-term benefit of our stockholders. Never
was this more evident than in 2018, a year in which we achieved record
breaking financial performance while simultaneously investing in our
future. These investments in technology, people, and the overall client
experience are all cohesively aligned to ensure we continue to add value
to client relationships through proactive financial advice, offer innovative
and seamless technology solutions for our clients, and bring together our
entire organization to grow in new ways not previously achieved.
The One Alerus Story
One Alerus is a multi-year strategic plan designed to organically grow our company. It brings together the full
power of Alerus in a unified manner unlike any other. Born out of our innovative and collaborative culture,
One Alerus lays the strategic foundation for current and future technology investments balanced with the
synergistic growth strategies of a diverse financial services firm. In its purest form, One Alerus unites five key
areas: technology, people, client experience, synergistic growth opportunities, and financial reporting.
Technology is essential in our industry — being driven not only by changing client expectations, but also by
new and existing competitors, in all business lines. As we establish our technology, we recognize the need
to align our investments with specific priorities designed to drive stockholder value. To that end, our careful
selection of technology investments is focused on solutions that will help our clients make better financial
decisions, help improve the client experience by unifying the digital experience of our diverse product line,
and help our employees better serve clients and improve efficiencies. During the past year, our team spent a
tremendous amount of time working behind the scenes to implement new technology solutions, which will
be introduced to clients in 2019. We believe the groundwork laid during the past year is incredible, especially
given our team’s ability to simultaneously perform at unprecedented financial levels.
5
Relationships have always been the cornerstone of our work with clients. Although technology solutions
can aid and enhance our relationships with clients, we firmly believe our clients still want to interact with our
people. Financial services remains a relationship-driven business; however, it continues to become more and
more complex for our clients. We strive to understand our clients’ full financial situation and guide clients in their
financial path. As we look to the future, we recognize the need to align our staff with the needs of our clients. By
becoming a much more advisory based organization, we intend to have more client intimacy, provide career
paths for our employees, and align the talent within our organization with their highest and best use.
Client experience is inherently woven throughout every aspect of our company. Whether it’s improving the
digital client experience, leveraging technology to help clients make better financial decisions, or reimagining
existing processes, our entire leadership team is focused on aligning everything we do around our clients.
This is no small undertaking, as it involves numerous initiatives — some of which were introduced in 2018
and many of which our clients will see and feel in 2019.
Alerus is a unique organization because of its diverse revenue stream. Our diverse product and services
offerings affords us additional growth opportunities as we begin offering our highly complementary, full
suite of services to every client. In 2018, we grew $84.5 million in Blueprint IRAs, $73.4 million in money
market balances, and $11.2 million in HSAs. These accomplishments require strong divisional collaboration,
steadfast execution, and continued focus. As Alerus continues to grow, we maintain the ability to operate
like a much smaller company. We are pleased with the progress of these synergistic growth opportunities
and look forward to building on this momentum.
Finally, the last key area of our strategic growth plan is financial reporting. We know the more data we bring
together in the right way, the better our team can leverage this data to make better decisions. We implemented
a new financial reporting system in 2018, and continue to enhance this important management tool.
Since embarking upon One Alerus several years ago, it is now a new way of life for our organization. We don’t
view One Alerus as a one-time project, task, or finish line — it is a continuous initiative that is — and will
remain — a vital part of our culture. Our leadership team is passionate, yet accountable. Our employees are
engaged and energized. And soon, we believe our clients will experience the spirited beginnings of this great
adventure designed to improve their financial lives.
Welcoming Our Newest Director
We are pleased to welcome Michael S. Mathews to the Alerus Board of Directors. Mr.
Mathews brings over 20 years of technology experiences with acumen of the financial
industry and expertise in digital transformation, cloud and mobility, cybersecurity,
artificial intelligence and machine learning, and application development. He has served
as chief information officer of Deluxe Corporation since 2013. In addition to leadership roles
with UnitedHealth Group and Merrill Lynch, Mr. Mathews also founded and built his own
management consulting business, The Infology Group, Inc., which he later transitioned to
key partners. Mr. Mathews’ deep experience in technology innovation will benefit Alerus
as we continue to transform our company for long-term growth.
6
Welcoming Our New CRO
Please welcome our new chief risk officer, Karin Taylor, who joined Alerus in November.
Ms. Taylor brings years of industry experience including a distinct background in risk
management, having held numerous leadership roles in risk management at other financial
institutions. With a deep background in risk, financial regulations, and compliance, Ms.
Taylor embodies the perfect combination of balance — prudently growing the company while
concurrently managing the overall risk.
Farewell to Two Leaders
This past year, we said goodbye to chief development officer Dan Cheever in the planned succession of our CFO
role. Dan first joined Alerus in March 2015 as interim chief financial officer, and the interim label was removed
in September 2015. Dan’s vision for financial reporting, including divisional reports by banking, mortgage,
retirement, and wealth management, as well as his outlook for modeling and forecasting added significant
value to our company. Katie Lorenson joined Alerus in late 2017, working closely alongside Dan to create a
seamless transition of leadership.
Next, we extend our sincerest appreciation to our most tenured corporate director, Harold “Hal” Gershman, who
will retire in May 2019. Hal joined Alerus as a corporate director in 1989. He’s helped lead our company not only
through the best of times, but also the worst of times. Whether it was rebuilding the company after the devastating
Grand Forks flood and fire of 1997, to opportunistically growing Alerus through acquisitions shortly after the 2008
financial crisis, he has made significant contributions to our company. Equally matched to his leadership at Alerus
is his leadership in the local Grand Forks community, which will continue to live on for years to come.
One Principle Remains
Throughout our company’s history, we’ve remained true to one guiding client principle. As a trusted
financial advisor, we believe it is our fiduciary responsibility to work in our clients’ best interests at every
turn. We aspire to do the right thing, every time. This philosophy is the cornerstone of our culture and the
foundation of our board of directors. Whether it’s our longest tenured employee or our most recent hire,
our operational staff or our client service center team, everyone in our company embodies this promise
and continues to hold it dearly. For this, I am truly grateful. Alerus is a special place because of the people
who represent it. Thank you to each and every one of you. 2018 was a remarkable year.
We sincerely appreciate your investment in our company and look forward to following our destiny together.
Randy L. Newman
Chairman, President, and
Chief Executive Officer
Alerus Financial Corporation
7
S H A R E I N O U R D E S T I N Y.
A S WE R EFLEC T O N TH E H I STO R I C PER FO R MAN CE O F O U R
CO M PANY, WE AR E PLE A S ED WITH TH E G ROW TH R E SU LTS AN D
CO NTI N U ED ADVAN CEM ENT O F TH E ALER U S FR AN CH I S E .
We believe in prudently managing results over the long run to provide
maximum value to our stockholders. This long-term approach has proven
its strength in not only providing a return to stockholders, but also
developing the company into a high-value, professional services company.
Whether growth is in the form of organic, acquisition, or lift out strategies,
Alerus demonstrates a high level of performance with our ability to accomplish
the blueprint we set forth. We do not view our success by chance, but rather
the result of our commitment to long-term planning. These accomplishments
are the foundation of a strong leadership team which is further magnified by
the Alerus culture — a culture rooted with the Midwestern work ethic and
supported by the determination to continuously raise the bar.
8
Asset Growth (IN BILLIONS)
Earnings Per Share and Dividends
Retirement Assets
Diluted Earnings Per Common Share (EPS)
$15.5
2014
$17.5
2015
$25.0
2016
$28.2
2017
$25.9
2018
Wealth Management Assets
$2.00
$1.75
$1.50
$1.25
$1.00
$1.48
$1.21
$1.00
$1.07
$1.84
2014
2015
2016
2017
2018
Dividends Per Share (DPS)
$2.6
2014
$2.7
2015
$3.4
2016
$3.8
2017
$4.6
2018
Banking Assets
$0.50
$0.45
$0.40
$0.35
$0.30
$1.5
2014
$1.7
2015
$2.1
2016
$2.1
2017
$2.2
2018
$0.38
$0.42
$0.44
$0.48
$0.53
2014
2015
2016
2017
2018
Stockholder Total Return
(% CUMULATIVE)
ALRS +28.83%
SNL U.S. Financial Services +44.27%
S&P 500 +51.65%
200
150
100
50
0
2014
2015
2016
2017
2018
Stockholder Value
Year-End Stock Price
$25.00
$20.00
$15.00
$10.00
$5.00
$19.75
$18.90
$17.00
$20.45
$19.25
2014
2015
2016
2017
2018
Book Value Per Share
$25.00
$20.00
$15.00
$10.00
$5.00
$10.85
$11.67
$12.47
$13.11
$14.30
2014
2015
2016
2017
2018
9
Financial Performance
Credit Quality
Total nonperforming loans increased $1.1 million
or 18.6% from December 31, 2017; nonperforming
assets to total loans plus other nonperforming
assets equaled 0.41% at year-end 2018 compared
to 0.40% at year-end 2017.
Allowance for loan losses to nonperforming
loans was 318% at year-end 2018, compared
to 282% at year-end 2017.
Year- Over-Year Results
Total loans grew $159.4 million
to $1.73 billion from 2017.
Total deposits decreased $35.7 million
to $1.80 billion from 2017.
Total assets under administration decreased
$2.37 billion to $25.9 billion from 2017.
Total assets under management grew
$736.3 million to $4.6 billion from 2017.
Reported net income of $25.9 million,
up 72.4% from 2017.
Diluted earnings per common share
increased 71.9% from $1.07 to $1.84 per share.
Cash dividends per share increased 10.4%
from $0.48 to $0.53 per share.
Return on average (ROA) assets of 1.21%,
up 46 basis points from 2017.
Return on equity (ROE) of 13.76%, up from
8.49% in 2017.
Return on tangible common equity (ROTCE)
of 20.93%, up from 14.34% in 2017.
Efficiency ratio of 73.80%, down from
75.35% in 2017.
Company revenue of $177.9 million,
up 4.25% from 2017.
Business line revenue
• Banking division revenue of $82.1 million,
up 10.3% from 2017.
• Mortgage division revenue of $17.6 million,
down 11.3% from 2017.
• Retirement and benefits division revenue
of $63.3 million, up 1.5% from 2017.
• Wealth management division revenue
of $14.9 million, up 6.8% from 2017.
10
Maintained Strong Capital
Ratios, Year-End 2018
Common equity tier 1 ratio of 8.43%.
Tier 1 capital ratio of 8.87%.
Total risk-based capital ratio of 12.86%.
Tier 1 leverage ratio of 7.51%.
Client Enhancements
Introduced updated and modernized statements
to clients with banking or retirement accounts.
Unified our two banking and retirement call
centers into one client service center, allowing
us to holistically work with clients across all
products and services.
Updated our system to allow for real-time fraud
detection, while also introducing text message
alerts for potentially fraudulent transactions —
simplifying the process in which clients can confirm
or deny fraudulent activity on their account.
Added electronic signature, allowing for continued
improvement as we reimagine processes and
the manner in which clients interact with us by
electronically signing various documentation.
Company Developments
Centralized our operations staff across the
divisional product lines under common
leadership to capitalize on operational synergies
and create unified service level agreements.
Opened a new loan production office in Mesa,
Ariz., supported by the addition of new staff
in business development to further grow our
Phoenix market share.
Remodeled our office in Scottsdale, Ariz., expanded
our office in Minnetonka, Minn., and entered into
an agreement with a developer to rebuild our Express
office in Grand Forks, N.D., as part of an economic
revitalization project designed to repurpose the
existing land on and around our Express office
into commercial and residential space.
Dissolved the separate subsidiary, Alerus Securities,
as we transitioned broker-dealers services to Infinex
Investments, Inc. and Pershing, LLC, allowing
our team more time to focus on client needs and
personalized service instead of regulatory and
compliance functions.
Invested in our employees by raising our hourly
minimum wage to $15 per hour, reflecting our long-
term approach to employee retention and recruitment.
Announced our plans to exit the Duluth, Minn.,
market in April 2019 by selling our deposits
and assets to another local financial institution
committed to the long-term advancement of Duluth.
11
F I N D YO U R PAT H T O
F I N A N C I A L CO N F I DE N C E .
A S TECH N O LO GY ADVAN CE S AN D CLI ENT E XPEC TATI O N S
CHAN G E , WE M U ST R E S PO N D I N A MAN N ER CO N S I STENT WITH
O U R B U S I N E S S STR ATEGY AN D CLI ENT- FOCU S ED CU LTU R E .
At our core, A ler us has a relationship-oriented business model
driven by an adv isor focus. We believe in prov iding great technology
to aid the client experience, but also recognize the impor tant value
of a personal relationship.
Serving clients holistically with proactive advice and ease of doing business
Alerus is in the midst of a multi-year transformation designed to enhance the value we provide to clients by
realigning our staff around business and consumer clients. Complementing the reorganization and development
of staff is a robust technology roadmap designed to help clients in seamless and engaging ways.
Clients want to do business with companies that are not only easy to work with, but also provide enjoyable
digital experiences. These technology solutions have never been more critical to an organization’s success —
including ours. By collaborating with critical technology partners, we’ve built a robust roadmap designed to
make it easier for clients to both interact with us and make better financial decisions. Throughout the past
year, we made tremendous progress in advancing the technology solutions within our roadmap, which will
be introduced to clients throughout 2019.
While clients may choose to only interact with us through technology, we recognize a growing need to amplify
our guidance-based approach through our people. Staff resources are finite, so we must manage our employees
to their best and highest use of time and talents. By aligning our teams around business clients or consumer
clients, Alerus is focused on shifting our workforce to serve clients into the future, rather than continuing to
operate as the status quo. The focused execution of this transformative initiative requires immense planning
and preparation. By taking the time last year to ensure we do it right, we’re positioning Alerus for the future and
in turn — better serving clients holistically with the full offering of our diverse products and services.
Proactively guiding clients through a shared philosophy
Personal financial stress is a common challenge facing many individual clients and business organizations today.
There is an increasing amount of research behind consumers’ increased debt levels, decreased savings levels,
and growing financial stress. This stress follows employees to work creating decreased productivity, more sick
days, and fewer on-time retirements. By focusing our team on this segment of our clients, we strive to provide
clients with peace of mind by helping guide them in their path towards financial confidence. In turn, we’re not
only helping individual clients but also offering a unique employee benefit for our business clients.
12
FO R E V E RY P E R S O N ,
A P L A N .
FO R E V E RY J O U R N E Y,
A PAT H .
FO R E V E RY ST E P,
A PA R T N E R .
Wherever you are in life,
we’ll meet you there.
O U R F U N DA M E N TA L B E LI E F S .
T H E FO U N DAT I O N O F O U R
CO R E P R I N C I P LE S R E F LEC T S A
CO M M I T M E N T TO O U R C LI E N T S
A N D E AC H OT H E R .
D O T H E R I G H T T H I N G .
People do business with
people they trust.
C H E R I S H P EO P LE .
Take care of your co-workers
so everyone can take care of clients.
S E RV E W I T H PA S S I O N .
Foster a culture of service.
R E S P EC T E V E RYO N E .
Mutual respect is an important
building block of good teamwork.
E M P OW E R W I T H K N OW LE D G E .
Knowledge drives confidence
and positive action.
E M B R AC E C H A N G E .
Success is never final.
FAC E S O F DE DI C AT IO N .
EVERY TH I N G WE D O B EG I N S AN D EN DS WITH O U R EM PLOYEE S .
AN D J U ST A S CLI ENT E XPEC TATI O N S AN D E XPER I EN CE S AR E
CHAN G I N G , SO AR E TH OS E O F O U R TE AM .
We recognize the close link between our ongoing successful financial
performance with our strength to attract, retain, and engage our employees.
Commitment to being an “Employer of Choice”
Our ability to bring new, high performing talent to our organization is equally matched with our approach
to not only retain employees, but also maximize their full potential. This “Employer of Choice” mentality
begins with our leadership team and cascades throughout the organization as key initiatives are put in
motion to further engage employees.
Following the Tax Cuts and Jobs Act signed in late 2017, we increased our minimum wage for all employees
to $15 per hour in early 2018. True to form, we’ve established a history of disciplined planning and thinking
about the long-term — in everything we do. By utilizing a portion of the decreased tax liability to increase
our hourly minimum rate, we were able to retain valuable employees critical to the success of our business,
as well as recruit new staff.
As our organization transforms to remain relevant long-term, we know communication is critical at every level.
It is why we bring external experiences like blogging, likes, and internet search to our employees through a
dynamic, web based intranet and mobile app. We’ve also utilized technology to hold quarterly calls streamed to
every employee, and recorded videos to share key messages. We pair technology-aided communication with in-
person all-employee meetings and conferences with key teams. It is a well-orchestrated plan designed to engage
employees at multiple touchpoints throughout the year, from various company leaders.
In 2018, we reorganized our training and development team under common leadership within human resources.
As we look ahead to the future needs of our organization in transforming to meet client needs, we recognize the
need to holistically train our employees across all products and solutions, technologies, and value added services.
Additionally, our training team is nimble in its approach, as resources can shift in response to internal or external
factors. We’ve already realized positive momentum with our employees simply by establishing a central team of
trainers who share a vision for continuous improvement and growth.
Paramount engagement with our team
Over the past year, we were able to align numerous organizational structures, implement new employee
technology, and continue to transform our company all while achieving high employee engagement survey
results. This survey covers a broad spectrum of employee engagement metrics surrounding work environment,
management and team dynamics, work engagement, benefits and compensation, and career development. We
are very proud of this accomplishment as our organization continues to adapt for even greater success.
Cultures are not built overnight. They are built day by day, year after year. Alerus’ culture is unique to us
and treasured amongst our team. Alerus employees work hard, don’t take shortcuts, and focus on the client.
Our employees align their personal values with our company values. And everyone works together to carry
out the company’s vision. It’s a consistency built over many years, and a steady force that continues to
propel Alerus forward.
15
O N E A L E RU S F O R E V E R YO N E .
O PER ATI O NAL EFFEC TIVEN E S S I S N OT O N LY AB O UT
EFFI CI EN CY; IT M U ST AL SO I N CLU D E SCAL AB LE PROCE S S E S
D E S I G N ED ARO U N D O U R CLI ENTS .
In 2018, we centralized our product operations teams under common
leadership to capitalize on operational sy nergies and create unified
ser v ice level agreements. A lthough we are in the beginning stages of a
unified operations team, we are already making significant progress to
realign our staf f, reimagine processes, and improve ef ficiency.
A COLLABORATIVE ENVIRONMENT
Throughout our diverse product set, there are natural connections of familiar processes and methods. Whether
it’s incorporating best practices from one area into another or shifting resources as workload demands change,
our operational area is focused on breaking down silos and working together to help each other be successful.
The collaborative and empowered spirit within our operations team is transforming how we work — and how
we support clients.
As our operations team designs forward-thinking, scalable processes, they continually build momentum at
an accelerated pace. Two achievements from the past year are working with a single statement vendor and
streamlining our product offering.
Throughout every area of our company, we provide client account statements; however, our approach and our
client experience were not consistent. We made tremendous progress towards this goal in 2018 by selecting our
statement partner and moving retirement account statements and deposit account statements to our new partner.
The end result culminated with a better client experience, a consistent process, and a favorable cost savings as the
full purchasing power of the entire organization was leveraged across all product statements.
STREAMLINING FOR EFFICIENCY AND GROWTH
Over the last decade, Alerus has successfully completed a dozen acquisitions. As we’ve grown, we’ve realized the
need to streamline product structure in order to further scale our business and better serve clients. This past year,
we simplified our consumer deposit product portfolio from seven products to three products. Backed by a deep
understanding of the competitive landscape and a keen focus on client retention, our team reduced the number
of deposit product offerings without significant attrition in the overall portfolio. Furthermore, we are in the midst
of a multi-year project to reduce the number of fee structures within our retirement services. We made significant
progress throughout 2018 to align our retirement services fee structure to industry best practices and benchmarks,
allowing a modernized approach to retirement fees while continuing to maintain clients.
As our operations team forges ahead, we further harness efficiencies. As our platforms and processes become even
more connected, our design and delivery require an innovative approach, and our ecosystem must center on the
client. We are committed to reinventing our operational area to strengthen our infrastructure and advance the
agile approach of a broader team.
16
T H R O U G H T H E T I M E LY
A N D ACC U R AT E D E LI V E RY
O F F I N A N C I A L S O LU T I O N S ,
O U R O P E R AT I O N S ’ M I S S I O N
I S TO P R OV I D E E F F I C I E N T
P R O C E S S E S I N A N E M P OW E R E D
A N D CO LL A B O R AT I V E
E N V I R O N M E N T
where employees are
empowered with knowledge
and innovation.
W E S E E
T H E C H A LLE N G E S .
W E S E E
T H E O P P O R T U N I T I E S .
We’re focused
on our strategy.
WE VIEW ALERUS AS A DIVERSE TAPESTRY WOVEN
TOG ETH ER TH ROUG H STEADY PERSEVER ANCE AN D DIRECTION .
WH EN WE LOOK BACK AT OU R HISTORY, WE ARE VERY PROU D
OF OU R ACCOM PLISH M ENTS . WH EN WE LOOK AH EAD,
WE ’RE INSPIRE D FOR OU R FUTU RE .
2018 certainly was highlighted by our financial performance; however,
even more satisfying were the nonfinancial accomplishments of our team,
which we believe will benefit the organization for years to come. Through
a shared single vision to help clients make better financial decisions,
we’re renewing our role in clients’ lives and creating new meaning.
Anchored by a collaborative leadership team, our company is pivoting
many interconnected pieces to create long-term stockholder value.
Nothing we do is because of chance. We plan for the challenges that
lie ahead and are energized by the opportunities. We are a thriving
organization pursuing continued prosperity.
19
A L E R U S L E A D E R S H I P.
S EN I O R E XECUTIVE TE AM
Randy L . Newman
Chairman, President,
and Chief Executive Officer
Katie Lorenson
Executive Vice President
and Chief Financial Officer
Kris Compton
Executive Vice President
and Chief Strategy Officer
38 years with Alerus
2 years with Alerus
44 years with Alerus
Ann McConn
Executive Vice President
and Chief Business Officer
Karin Taylor
Executive Vice President
and Chief Risk Officer
17 years with Alerus
Joined Alerus in 2018
ALERUS LEADERSHIP
COUNCIL
Maria Biessener Duncan
Director of Operations
Joined Alerus in 2018
Lori Day
Director of Mortgage
2 years with Alerus
Scott Fenske
Ex Officio
General Counsel and
Corporate Secretary
3 years with Alerus
Jon Hendry
Chief Information Officer
35 years with Alerus
Travis Ingebrigtson
Director of Finance
4 years with Alerus
Chad Johnson, CPA
Ex Officio
Director of Internal Audit
16 years with Alerus
Missy Keney
Director of Marketing and
Client Experience
14 years with Alerus
Karna Loyland
Director of Deposits
20 years with Alerus
Chip Norris
Group President, Director
of Sales and Service
12 years with Alerus
Brian Overby
President of Retirement
and Benefits
24 years with Alerus
Brian Schumacher
Director of Wealth
Management
8 years with Alerus
Teresa Wasvick
Director of Human Resources
28 years with Alerus
Board of Directors
Randy L. Newman
Grand Forks, ND
Chairman, President, and
Chief Executive Officer,
Alerus Financial, N.A., Alerus
Financial Corporation
Karen M. Bohn
Edina, MN
President, Galeo Group, LLC
Former Chief Administrative
Officer, Piper Jaffray Companies
Former Chief Executive Officer,
Piper Trust Company
Lloyd G. Case
Fargo, ND
Past President and CEO of Forum
Communications Company
Board of Directors,
Forum Communications
Daniel E. Coughlin
Chicago, IL
Former Managing Director and
Co-Head of Financial Services,
Raymond James & Associates
Former Chairman and CEO,
Howe Barnes Hoefer & Arnett
Harold A. Gershman
Grand Forks, ND
President, Gershman
Enterprises, LLC
President, Happy Harry’s
Bottle Shops
MARKET PRESIDENTS
Chris Wolf, CPA, Grand Forks
9 years with Alerus
Dan Doeden, Fargo
15 years with Alerus
Sara Ausman, Twin Cities
7 years with Alerus
Rob Schwister, Phoenix
9 years with Alerus
Kevin D. Lemke
Grand Forks, ND
President, Virtual Systems, Inc.
Michael S. Mathews
Minneapolis, MN
Chief Information Officer,
Deluxe Corporation
Former SVP, Technology
and Enterprise Programs,
UnitedHealth Group
Former Global Head/Director,
Global Technology, Operations
and Six Sigma, Merrill Lynch
Sally Smith
Minneapolis, MN
Retired President and Chief
Executive Officer, Buffalo
Wild Wings, Inc.
Galen G. Vetter
Minneapolis, MN
Former Global Chief Financial
Officer, Franklin Templeton
Investments
Former Partner-in-Charge, Upper
Midwest Region, McGladrey
Twin Cities
Advisory Board
Hillary Feder
Hillary’s
Larry Gamst
Franklin Partners, Inc.
Julie Gilbert
The Julie Gilbert Group
Larry Lautt
Great West Ventures, LLC
Lisa Meyer
Marketing and
Management Executive
Dennis Monroe
Monroe Moxness Berg PA
James Nichols
James L. Nichols CPA, LLC
Julie Tanaka
Compendium Capital Group
Compendium Business
Strategies, LLC
21
s
0
7
8
1
e
h
T
s
0
3
9
1
e
h
T
s
0
8
9
1
e
h
T
1879
Founded as the Bank
of Grand Forks, one of
the first chartered in
the Dakota Territory.
1933
First National Bank in
Grand Forks opened its doors
in Grand Forks, North Dakota.
198 5
Acquired Northwood
State Bank in Northwood,
North Dakota.
1986
Created Employee Stock
Ownership Plan
for our employees.
1987
Entered the Fargo market
by purchasing West Fargo
State Bank in West Fargo,
North Dakota.
1989
Purchased Dakota
Bank in Grand Forks,
North Dakota.
s
0
9
9
1
e
h
T
s
0
0
0
2
e
h
T
1991
First National Bank in
Grand Forks purchased the
North Dakota branches of
First Federal Savings & Loan
in Fargo, North Dakota, and
changed its name to First
National Bank North Dakota.
1997
Historic flood and fire
devastated Grand Forks and
First National Bank North
Dakota’s buildings.
2 0 0 0
First National Bank North
Dakota changed its name to
Alerus Financial to reflect the
evolution from a traditional
bank to a diversified financial
services company.
2 0 02
Acquired a branch of
BNC National Bank in
Fargo, North Dakota.
2 0 03
Purchased Pension Solutions,
Inc., a retirement plan
services company located
in St. Paul, Minnesota.
222222
.
d
t
n
c
s
0
0
0
2
e
h
T
2 0 06
Opened a trust and
investment office in the
Twin Cities; purchased
Stanton Trust Company
in Minneapolis, Minnesota.
2 0 07
Opened a business banking
office in Minnetonka,
Minnesota; purchased the
retirement recordkeeping
services unit of Acclaim
Benefits, Inc. in Minneapolis,
Minnesota; acquired Stanton
Investment Advisors,
Inc., a Minneapolis-based
investment advisory firm.
2 0 09
Expanded into Phoenix, Arizona;
purchased the retirement plan
practice of Eide Bailly, LLP in
Minneapolis, Minnesota;
acquired deposits from BankFirst
in Minneapolis, Minnesota;
acquired Prosperan Bank in
Oakdale, Maplewood, and
Minnetonka, Minnesota;
acquired Residential Mortgage
Group in Minnetonka and
Arden Hills, Minnesota.
2 011
Acquired a branch in Arizona and
selected loans and deposits in
Minnesota and Arizona from BNC
National Bank in Scottsdale, Arizona.
2 012
Purchased PensionTrend Inc. and
PensionTrend Investment Advisers,
LLC, in Okemos, Michigan.
2 013
Purchased Tegrit Administrators, LLC.
2 014
Purchased Private Bank Minnesota
in Minneapolis, Minnesota;
purchased Retirement Alliance, Inc.,
in Manchester, New Hampshire.
2 015
Purchased Interactive
Retirement Systems, LTD, in
Bloomington, Minnesota.
2 016
Purchased Beacon Bank in
Shorewood, Excelsior, Eden Prairie,
and Duluth, Minnesota; purchased
Alliance Benefit Group North Central
States, Inc., in Albert Lea and Eden
Prairie, Minnesota.
2 018
Opened a loan production
office in Mesa, Arizona.
232323
SELECTED FINANCIAL DATA
(dollars and shares in thousands, except per share data)
Income Statement Data
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income, after provision for loan losses
Noninterest income
Other noninterest expense
Income before income taxes
Income tax expense
Net income
Per Common Share
As of and for the years ended December 31
2018
2017
2016
2015
2014
$
87,702
$
75,637
$
69,942
$
56,328
$
54,394
12,478
75,224
8,610
66,614
102,749
136,325
33,038
7,172
7,967
67,670
3,280
64,390
103,045
134,920
32,515
17,514
7,002
62,940
3,060
59,880
105,089
143,792
21,177
7,141
3,458
52,870
4,200
48,670
93,105
3,316
51,078
(400)
51,478
78,306
118,134
100,115
23,641
6,631
29,669
8,964
$
25,866
$
15,001
$
14,036
$
17,010
$
20,705
Earnings per common share
$
Diluted earnings per common share
Dividends declared per common share
Average common shares outstanding
Diluted average common shares outstanding
Performance Ratios
Net interest margin (taxable-equivalent basis)
Return on average total assets
Return on average common equity
Return on average tangible common equity
Noninterest income as a % of revenue
1.88
1.84
0.53
13,763
14,063
3.86%
1.21%
13.76%
20.93%
57.58%
73.80%
$
$
1.10
1.07
0.48
$
1.04
1.00
0.44
13,653
14,007
13,495
14,000
3.76%
0.75%
8.49%
14.34%
60.05%
75.35%
3.63%
0.73%
8.29%
15.40%
62.32%
81.11%
$
1.26
1.21
0.42
13,413
13,947
3.81%
1.12%
10.51%
13.73%
63.52%
77.69%
1.55
1.48
0.38
13,290
13,877
3.97%
1.45%
14.26%
17.42%
60.46%
73.84%
Noninterest-bearing deposits
528,552
488,295
443,453
327,654
278,005
Efficiency ratio
Average Balances
Loans
Investment securities
Earnings assets
Assets
Deposits
Short-term borrowings
Long-term debt
Stockholders' equity
Period End Balances
Loans
Allowance for loan losses
Investment securities
Assets
Deposits
Long-term debt
Total stockholders' equity
Capital Ratios
Common equity tier 1
Tier 1 capital
Total capital
Tier 1 leverage
Tangible common equity / tangible assets
$ 1,677,885
$ 1,475,042
$ 1,345,209
$ 1,124,601
$
994,047
255,247
286,313
279,992
183,103
258,705
1,960,723
1,824,287
1,750,105
1,399,587
1,299,646
2,131,110
2,001,347
1,934,195
1,533,397
1,424,331
1,766,951
1,664,022
1,666,791
1,295,987
1,191,846
86,851
58,813
72,445
58,803
5,059
65,102
12,599
23,480
29,007
21,562
187,927
176,778
168,742
180,931
164,203
$ 1,733,881
$ 1,574,474
$ 1,366,952
$ 1,126,921
$ 1,095,458
(22,174)
254,878
(16,564)
274,411
(15,615)
278,911
(14,688)
192,343
(17,063)
206,101
2,179,070
2,136,081
2,050,045
1,744,324
1,487,290
1,799,293
1,834,962
1,785,209
1,458,021
1,262,168
58,824
196,954
58,819
179,594
58,813
168,251
70,744
182,282
21,494
170,644
8.43%
8.87%
12.86%
7.51%
6.91%
7.83%
8.29%
12.17%
7.07%
6.01%
7.74%
8.23%
12.29%
6.85%
5.44%
10.92%
12.33%
17.01%
10.85%
8.18%
N/A
11.76%
13.02%
10.07%
8.65%
9.49
25.7%
Tangible common equity per common share
$
10.68
$
9.14
$
7.99
$
10.50
$
Dividend payout ratio
28.8%
44.8%
44.0%
34.7%
24
CONSOLIDATED BAL ANCE SHEETS
At December 31,
(dollars in thousands, except share and per share amounts)
Assets
Cash and cash equivalents
Interest-bearing deposits
Cash and due from banks
Investment securities
Trading
Available-for-sale
Equity, at fair value
Loans held for sale
Loans
Less allowance for loan losses
Net loans
Land, premises and equipment, net
Accrued interest receivable
Bank-owned life insurance
Goodwill
Other intangible assets
Servicing rights
Deferred income taxes
Other assets
Total assets
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing transaction
Interest-bearing transaction
Time deposits
Total deposits
Short-term borrowings
Long-term debt
Accrued expenses and other liabilities
Total liabilities
Stockholders’ equity
Common stock, $1 par value, 30,000,000 shares authorized;
13,775,327 and 13,669,066 issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
2018
$
34,909
$
5,742
40,651
1,539
250,174
3,165
14,486
1,733,881
(22,174)
1,711,707
21,743
7,645
30,763
27,329
22,473
4,623
10,085
32,687
2017
Restated
40,336
81,662
121,998
1,945
267,021
5,445
17,938
1,574,474
(16,564)
1,557,910
21,229
6,817
29,959
27,329
27,111
4,686
9,213
37,480
$ 2,179,070
$ 2,136,081
$
563,130
$
619,333
1,061,709
174,454
1,799,293
93,460
58,824
30,539
1,011,368
204,261
1,834,962
30,000
58,819
32,706
1,982,116
1,956,487
13,775
27,743
159,037
(3,601)
196,954
13,699
26,040
140,986
(1,131)
179,594
$ 2,179,070
$ 2,136,081
25
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
(dollars and shares in thousands, except per share data)
Interest Income
Loans, including fees
Investment securities
Taxable
Exempt from federal income taxes
Other
Total interest income
Interest Expense
Deposits
Short-term borrowings
Long-term debt
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Retirement and benefit services
Wealth management
Mortgage banking
Service charges on deposit accounts
Net gain (losses) on investment securities
Other
Total noninterest income
Noninterest Expense
Compensation
Employee benefits
Occupancy and equipment expense
Business services, software and technology expense
Intangible amortization expense
Professional fees and assessments
Marketing and business development
Supplies and postage
Travel
Mortgage and lending expenses
Other
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Less preferred stock dividends
Net income applicable to common stock
Earnings per common share
Diluted earnings per common share
Dividends declared per common share
Average common shares outstanding
Diluted average common shares outstanding
2018
2017
Restated
2016
Restated
$
81,159
$
68,799
$
63,644
4,670
1,234
639
87,702
6,991
1,896
3,591
12,478
75,224
8,610
66,614
63,316
14,900
17,630
1,808
85
5,010
102,749
69,403
17,866
11,086
14,525
4,638
5,098
3,459
2,737
1,738
2,153
3,622
136,325
33,038
7,172
25,866
-
25,866
1.88
1.84
0.53
13,763
14,063
$
$
$
$
4,773
1,356
709
75,637
3,520
942
3,505
7,967
67,670
3,280
64,390
62,390
13,953
19,882
1,854
(13)
4,979
103,045
67,576
16,490
10,892
12,976
5,623
6,158
3,271
2,609
1,530
2,235
5,560
134,920
32,515
17,514
15,001
-
15,001
1.10
1.07
0.48
13,653
14,007
$
$
$
$
4,584
1,089
625
69,942
3,385
11
3,606
7,002
62,940
3,060
59,880
57,804
12,640
26,528
1,916
(24)
6,225
105,089
70,359
15,888
11,736
14,510
7,005
6,301
3,237
2,930
1,721
2,439
7,666
143,792
21,177
7,141
14,036
25
14,011
1.04
1.00
0.44
13,495
14,000
$
$
$
$
26
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(dollars and shares in thousands, except per share data)
Preferred
Stock
Common
Stock
Additional
Paid-In Capital
Retained
Earnings
Restated
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance December 31, 2015
$
20
$
13,434
$
42,617
$
125,162
$
1,049
$ 182,282
Net income
Other comprehensive income (loss)
Common stock repurchased
Preferred stock dividends
Common stock dividends
Stock-based compensation expense
Vesting of restricted stock
Preferred stock redeemed
Balance December 31, 2016
Net income
Other comprehensive income (loss)
Common stock repurchased
Common stock issued
Common stock dividends
Stock-based compensation expense
Vesting of restricted stock
Balance December 31, 2017
Net income
Adjustment for adoption of ASU 2016-01
Other comprehensive income (loss)
Common stock repurchased
Common stock dividends
Stock-based compensation expense
Vesting of restricted stock
Balance December 31, 2018
$
-
-
-
-
-
-
-
(20)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(18)
-
-
20
98
-
13,534
-
-
(16)
64
-
17
100
-
-
(102)
-
-
1,445
(98)
(19,980)
23,882
-
-
(47)
1,384
-
921
(100)
14,036
-
(237)
(25)
(6,163)
-
-
-
132,773
15,001
172
(231)
-
(6,729)
-
-
-
(2,987)
-
-
-
-
-
-
(1,938)
-
807
-
-
-
-
-
14,036
(2,987)
(357)
(25)
(6,163)
1,465
-
(20,000)
168,251
15,001
979
(294)
1,448
(6,729)
938
-
13,699
26,040
140,986
(1,131)
179,594
-
-
-
(15)
-
11
80
-
-
-
(53)
-
1,836
(80)
25,866
(71)
-
(288)
(7,456)
-
-
-
71
(2,541)
-
-
-
-
25,866
-
(2,541)
(356)
(7,456)
1,847
-
$
13,775
$
27,743
$
159,037
$
(3,601)
$ 196,954
27
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