Alerus Financial Q4 Earnings Call Highlights

Key Points

• Alerus said 2025 was a “milestone year” after the Home Federal integration, beating targets with an adjusted return on assets of 1.35%, an adjusted efficiency ratio of 64.45%, roughly 95% deposit retention and a quarterly core ROA of 1.62% while reducing headcount and modernizing systems.
• Management actively repositioned the balance sheet—selling $360 million (over 68%) of available-for-sale securities and reinvesting into higher-yield, shorter-duration securities—which helped lift reported NIM to 3.69% (core NIM ~3.17%) and lower cost of funds to 2.18%.
• Fee businesses remain a growth driver with core fee income up 7% YoY and retirement/wealth AUM near $50 billion, and 2026 guidance targets mid-single-digit loan growth, low single-digit deposit growth, NIM ~3.5–3.6% and ROA above 1.2%.

Alerus Financial NASDAQ: ALRS executives used the company’s year-end earnings call to highlight what they described as a “milestone year” in 2025, pointing to improved profitability, balance sheet repositioning, and momentum across its banking and fee income businesses as it enters 2026.

2025 results and integration progress

President and CEO Katie Lorenson said 2025 marked the company’s first full year operating as a combined organization with Home Federal and that Alerus delivered results above its committed targets. She cited an adjusted return on assets (ROA) of 1.35% and an adjusted efficiency ratio of 64.45% for the year, along with deposit retention close to 95% and retention of key talent following the integration.

Lorenson also highlighted quarterly performance, noting a core ROA of 1.62% in the quarter, and emphasized operating leverage even as the company modernized systems and strengthened digital capabilities. She said headcount was down more than 6% from its peak in October 2024, while the company implemented new core platforms and produced record sales across many business lines.

Balance sheet repositioning and margin trends

Management detailed actions taken in the back half of 2025 to deleverage and de-risk the balance sheet, including managing loan paydowns, pruning marginal credits, and selling a legacy low-yielding available-for-sale securities portfolio. Lorenson said the repositioning was intended to improve earnings power, reduce accumulated other comprehensive income (AOCI) volatility, enhance capital generation, and provide greater flexibility for lending.

CFO Al Villalon said fourth-quarter net interest income reached $45.2 million and reported net interest margin (NIM) increased to 3.69%. He attributed net interest income growth to a lower cost of funds, with total cost of funds declining 16 basis points to 2.18%.

Villalon also noted 52 basis points in the quarter related to purchase accounting accretion and non-recurring items. Excluding those items, he said core NIM was 3.17%, up 12 basis points from the third quarter. He said the company remained disciplined in pricing, citing new loan spreads of 258 basis points over Fed funds and deposit costs 116 basis points below Fed funds, for what he called a “new business margin” of 374 basis points.

On the investment portfolio, Villalon said Alerus sold $360 million of available-for-sale securities—over 68% of total AFS securities—with an average weighted yield of 1.7% and weighted average duration of 5.1 years. He said proceeds were reinvested into new investment securities with a weighted average yield of 4.7% and duration just over 3 years.

Loans, deposits, and credit quality

At quarter-end, Villalon said loans decreased 1.3% from the prior quarter, driven by “strategic downsizing” to improve the company’s risk profile. In Q&A, Chief Banking and Revenue Officer Jim Collins said runoff was largely designed, with Alerus pushing out marginal or non-core credits, paring down commercial real estate (CRE) concentrations, and emphasizing full-relationship C&I growth over “orphan” credits. Collins said the company expects less targeted runoff in 2026 than in 2025.

Deposits declined 5% from the prior quarter, which Villalon attributed mainly to calling in more than $165 million in broker deposits and running off another $45 million in other wholesale funding to optimize funding costs. Excluding those intentional actions, he said deposits declined about $10 million, or 0.2%. The loan-to-deposit ratio was 96.6% at quarter-end, and Villalon said management generally targets a 95% to 96% range, while recognizing seasonal public funds outflows in the second and third quarters.

On credit, executives said non-performing loans increased due to the migration of an acquired purchase participation that had previously been identified as a problem loan. Lorenson described it as a multifamily property in the Twin Cities with a 15% reserve that she said should resolve relatively quickly. She also cited the company’s largest non-performing exposure as a Twin Cities multifamily loan with a book balance of approximately $32 million, which she said had multiple offers and was 74% leased, with reserves of about 17% and an expected resolution by mid-year.

Villalon said non-performing assets were 1.27%, up 14 basis points from the prior quarter, driven by a slight increase in non-performing assets and a decrease in overall assets. Lorenson said leading credit indicators improved in the second half of 2025, including a 30% reduction in criticized asset levels, and noted the allowance for loan losses remained at 1.53% of total loans.

Fee businesses: retirement and wealth

Management repeatedly emphasized Alerus’ fee income profile. Lorenson said core fee income revenues grew 7% year-over-year, and Villalon said fee income (excluding a loss on securities and other one-time items) remained over 40% of revenues. Lorenson said the company ended 2025 with nearly $50 billion of assets in its retirement and wealth divisions, which she described as roughly 10 times the assets in its banking division.

In retirement services, Villalon said quarterly revenue rose to $17.3 million, up 4.6% from the prior quarter, driven by growth in asset- and transaction-based fees. He said assets under administration and management increased 2.1% due to market performance and net positive flows. He also noted synergistic deposits within the retirement segment grew 5.6% from the prior quarter, while HSA deposits rose to over $203 million, carrying a cost of 10 basis points.

In wealth management, Villalon said revenues increased 13.4% linked-quarter to $7.4 million, while assets under management rose 0.8%, mainly due to market performance. Lorenson said the company completed a conversion of its entire wealth business onto a new system with 100% client retention. Collins said Alerus currently has 26 wealth advisors and plans to add additional advisors, with hiring focused in larger markets including the Twin Cities, Phoenix, and Wisconsin.

2026 outlook and guidance

Villalon provided 2026 guidance that included:

• Loans: mid-single-digit growth
• Deposits: low single-digit growth, with liquidity available to fund loan growth in excess of deposits
• Net interest margin: about 3.5% to 3.6%, including roughly 16 basis points (just over $8 million) of purchase accounting accretion and no early payoffs
• Net interest income: projected to grow low to mid-single digits
• Adjusted non-interest income: mid-single-digit growth, driven by wealth and retirement
• Non-interest expense: low single-digit growth, supporting positive operating leverage
• ROA: expected to exceed 1.2% for the year

Villalon said the company’s outlook does not assume further Federal Reserve rate cuts in 2026, and noted that a 25 basis point cut in Fed funds would be expected to improve NIM by about 5 basis points. He said purchase accounting accretion is expected to decline to about $8 million in 2026 from approximately $20 million in 2025, and described margin improvement as “not linear,” dependent on deposit flows and seasonal public funds trends.

On capital, Lorenson said CET1 ended the year at 10.28% (up from 9.91% a year earlier). Villalon said tangible common equity improved to 8.72% from 8.24% in the prior quarter, and the company had close to $2.8 billion in liquidity. Lorenson reiterated capital priorities as organic growth, team lift-outs, dividends and buybacks, and selective M&A—particularly in retirement and HSA—where she said Alerus continues to build a pipeline of potential partners.

Management also addressed provisioning expectations. Chief Operating Officer Karin Taylor said provision levels in 2026 are expected to be driven by loan growth and macroeconomic factors, and said the company believes it is adequately reserved on its non-performing credits, with several expected to resolve in the first half of the year. Villalon said the company’s expected 2026 tax rate is 24%.

About Alerus Financial NASDAQ: ALRS

Alerus Financial Corporation NASDAQ: ALRS is a diversified financial services company headquartered in Grand Forks, North Dakota. The firm provides a full range of commercial and consumer banking products, including deposit accounts, lending solutions and treasury management services for individuals, small businesses and larger corporate clients. Through its community banking network, Alerus emphasizes local decision-making and personalized service to meet the needs of its varied client base.

In addition to traditional banking offerings, Alerus operates a national mortgage origination and servicing platform that delivers home purchase and refinance loans.

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