How North Dakota-based Alerus Financial built a sizable Minnesota franchise

A North Dakota-based financial-services firm, fresh off a 2020 initial public offering of stock and record earnings, is getting most of its growth from the Twin Cities.

Grand Forks-based Alerus Financial, once known as the First National Bank of Grand Forks, has quietly built a sizable Minnesota franchise. The state is also home to several of its top executives and half of the 800 employees.

The company, which has grown organically as well as through acquisitions of specialty financial firms, just reported 2020 earnings growth that rose 51% to $44.7 million. Revenue in commercial loans, mortgages, retirement-and-wealth management products rose in double-digit percentages.

"Alerus has a client-centered approach and business model that is different than larger financial institutions," said Twin Cities Regional President Sara Ausman, a veteran banker who once worked for the former Marquette Banks.

"But we have all the solutions," she said. "We are a high-performing company with a diversified business model and a good history of profitable growth. Our mortgage business doubled [thanks largely to low-rate refinancings]. That was unprecedented for the industry. We had invested in the business, in leadership and digital products."

Ausman joined Alerus in 2012 and was named regional president in 2017. She runs the business from downtown on 6th Street in a refurbished office building that was once headquarters of the former First Bank System, predecessor to U.S. Bank.

She is joined by Alerus Chief Financial Officer Katie Lorenson, and the chief credit, chief mortgage and chief risk officers, all of whom were recruited from Twin Cities financial firms.

CEO Randy Newman joined Alerus in 1981 after teaching finance for a few years at the University of North Dakota. He has overseen more than two dozen acquisitions, including several in the Twin Cities, and is the architect of what has become a growth business from mortgage loans, small-business banking, wealth management and retirement planning.

Alerus' record financial performance last year was driven by $1.8 billion in mortgage originations, nearly 90% of which were Twin Cities-based.

The company booked a healthy pretax profit of $27.5 million alone on origination and sale of home loans.

The bank also made 1,600 government-guaranteed Payroll Protection Program loans totaling $364 million, for which it was paid up to 5% depending upon the size of the loan. Most were for less than $150,000 to small borrowers.

The numbers indicate Alerus is a good integrator in capturing a growing share of customer business. Its most profitable businesses, albeit smaller than banking and mortgage, are retirement and benefits and wealth-management services that boast profit margins of 42% and 52%, respectively.

Alerus is a smaller regional bank at about $3 billion in assets, one fourth the size of St. Paul-based Bremer Financial Corp., which runs the No. 4 bank in Minnesota. However, it drives a lot of profitable volume through the mortgage company. And it has predictable income from $35 billion of investor assets under management or administration in wealth management.

CFO Lorenson pointed out that the company's Employee Stock Ownership (ESOP) also has been a strong selling point for employee attraction and retention since 1987, thanks to the growing value of the company that is shared with the workers.

"We've had many bank tellers retire in a very good place," Ausman said.

In 2019, Alerus sold 2.86 million shares of common stock at $21 per share, netting $54.5 million.

The stock traded up to $29 per share last week, for a market value of nearly $500 million.

CEO Newman credited Alerus people with delivering record performance amid the pandemic, absorbing acquisitions and adding technology during a taxing year. The troops earned their profit-sharing.

"Our talent and technology translated into results," Lorenson told investment analysts recently. "Our teams are working with urgency to identify additional opportunities to expand relationships and grow our client base, as well as increase efficiencies and reduce expenses.

Alerus is the only publicly held bank in North Dakota and smaller than Bell Bank, based in Fargo.

That institution, formerly State Bank of Fargo, started 50 years ago, also has grown through a Twin Cities local expansion. It bought Bell Mortgage a decade ago and took the Bell name.

Privately held Bell Bank also has benefited from strong performance in mortgage banking.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. Reach him at nstanthony@startribune.com.