Executive Summary

Strong Q1 start: GAAP EPS $0.52 and adjusted EPS $0.56 on net income of $13.3M; net interest margin (NIM) expanded 21 bps q/q to 3.41% as loan/deposit growth and lower funding costs lifted net interest income to a record $41.2M .
Street beat: Adjusted/Primary EPS of $0.56 vs S&P Global consensus $0.3925; revenue $67.9M vs $66.1M; both beats were driven by higher NII and lower deposit costs; note GAAP diluted EPS was $0.52, Street compares on adjusted basis (Primary/normalized) *.
Credit and balance sheet improved: NPLs/loans fell to 1.24% (from 1.58% in Q4) and NPAs declined $11.9M; ACL rose to 1.52% of loans; TBV/share increased 5.7% q/q to $15.27 .
2025 guidance raised on NIM: CFO now guides NIM of 3.2%–3.3% (vs >3% previously), loan growth mid‑single digits, adjusted efficiency ratio below 68%, and core Q2 opex around ~$49M; watch seasonal public funds outflows and a further mix shift away from noninterest-bearing deposits .
Near-term catalysts: sustained core margin improvement (ex-accretion/recoveries), resolution/sale of the large MN construction nonaccrual, and continued cost saves from Home Federal integration; potential volatility from mortgage/MSR marks and fee-sensitive AUM trends .

What Went Well and What Went Wrong

What Went Well
- NIM and NII momentum: “Net interest income increased to a new record level... $41.2M” with reported NIM up 21 bps to 3.41% on lower deposit costs and strong loan growth .
- Cleaner credit metrics: Nonperforming loans/loans improved to 1.24% (from 1.58%), NPAs/assets fell to 0.96%, and net charge-offs were just 4 bps; ACL/loans increased to 1.52% .
- Capital/TBV accretion: TBV/share rose to $15.27 (+5.7% q/q); TCE/TA improved to 7.43% and CET1 to 10.10% .
- CEO tone: “Strong start to the year… diversified model and top decile fee income remain significant differentiators” .
What Went Wrong
- Fee income down sequentially: Noninterest income fell $6.2M q/q (to $27.6M) due to absence of a $3.5M property gain, fewer client swaps, and lower mortgage/MSR marks .
- Mix shift headwind: Management expects a further 200 bps shift from noninterest-bearing to interest-bearing deposits in 2025, weighing on NIM (partly offset by HSA/synergistic deposits) .
- Mortgage/MSR volatility: MSR fair value declined $0.7M; management doesn’t plan to grow MSR exposure and expects continued valuation fluctuations .

Financial Results

Metric	Q1 2024	Q3 2024	Q4 2024	Q1 2025
Net Interest Income ($M)	$22.2	$22.5	$38.3	$41.2
Noninterest Income ($M)	$25.3	$28.4	$33.9	$27.6
Provision for Credit Losses ($M)	$0.0	$1.7	$12.0	$0.9
Net Income ($M)	$6.4	$5.2	$3.2	$13.3
Diluted EPS (GAAP)	$0.32	$0.26	$0.13	$0.52
Adjusted EPS (non‑GAAP)	$0.33	$0.31	$0.44	$0.56
NIM (tax‑equivalent)	2.30%	2.23%	3.20%	3.41%
Efficiency Ratio	78.88%	80.29%	73.36%	68.76%
Adjusted Efficiency Ratio	78.24%	77.71%	68.97%	66.86%

Segment revenue detail (noninterest):

Noninterest Revenue ($M)	Q1 2024	Q4 2024	Q1 2025
Retirement & Benefit Services	$15.7	$16.5	$16.1
Wealth Management	$6.1	$7.0	$6.9
Mortgage Banking	$1.7	$3.3	$1.5
Service Charges	$0.39	$0.64	$0.65
Other	$1.49	$6.06	$2.44

Key KPIs and balance sheet:

KPI	Q1 2024	Q4 2024	Q1 2025
ROA (GAAP)	0.63%	0.24%	1.02%
ROTCE (GAAP)	9.78%	6.01%	16.50%
Net Charge‑offs / Avg Loans	0.01%	0.13%	0.04%
NPLs / Total Loans	0.26%	1.58%	1.24%
ACL / Loans	1.31%	1.50%	1.52%
Loans ($B)	$2.80	$3.99	$4.09
Deposits ($B)	$3.28	$4.38	$4.49
TBV/Share ($)	$15.63	$14.49	$15.27

Estimate comparison (S&P Global):

Metric (Q1 2025)	Consensus	Actual	Surprise
Primary EPS (adjusted/normalized)	$0.3925*	$0.56*	Beat
Revenue ($)	$66.15M*	$67.93M*	Beat
Values retrieved from S&P Global.*

Guidance Changes

Metric	Period	Previous Guidance (Q4’24 call)	Current Guidance (Q1’25 call)	Change
Loan Growth	FY 2025	Low–mid single digits	Mid single digits	Raised
Deposit Growth	FY 2025	Low single digits	Low single digits; seasonal public funds outflows in Q2–Q3	Maintained (seasonality emphasized)
NIM (reported)	FY 2025	>3.0%; purchase accounting accretion 30–35 bps/quarter; improvement not linear	3.2%–3.3%; assume no nonaccrual recoveries; ~35 bps accretion; seasonal outflows; 200 bps mix shift from NIB to interest‑bearing	Raised range; risks outlined
Adjusted Efficiency Ratio	FY 2025	Below 70%	Below 68%	Improved target
Core Noninterest Expense	Q2 2025	N/A	~ $49M core opex; mortgage incentives seasonal	New detail
Fee Income Outlook	FY 2025	Stable y/y on reported basis (ex property gains/swaps)	No change; equities down in Q2 may pressure AUM‑linked fees	Maintained; caution on markets
Dividend	Ongoing	Maintain dividend history	Declared $0.20 payable Apr 11, 2025	Affirmed/disclosed

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3’24 and Q4’24)	Current Period (Q1’25)	Trend
Net interest margin trajectory	Q3 NIM 2.23%, pressure from funding mix; BTFP repaid . Q4 reported NIM 3.20%, adjusted 2.81%; deposit beta ~30% with further benefit expected .	NIM 3.41%; cost of funds −19 bps; core margin supported by pricing discipline; nonaccrual recoveries added 5 bps; guide to 3.2%–3.3% for 2025 .	Improving
Deposit mix and funding	Q3: noninterest‑bearing deposits down; $0 brokered; synergistic deposits rising . Q4: loan/deposit stable at 91.2% .	Q1: deposits +2.4% q/q; NIB fell $14.2M; HSA/synergistic deposits grew; expect 200 bps shift from NIB to interest‑bearing in 2025 .	Mix headwind; stable liquidity
HMNF integration and cost saves	Q4: biggest merger closed; adj. efficiency 68.97%; cost saves front‑half weighted .	Q1: adj. efficiency 66.86%; “cost saves on track”; consultant engaged to codify commercial credit operating model .	Executing; further gains expected
Credit normalization / CRE construction	Q3: NPLs up from two relationships incl. construction; net charge‑offs 4 bps . Q4: NPAs 1.19%; construction advance to completion; exposure to rise to $36–37M .	Q1: NPLs down to 1.24% of loans; one large nonaccrual paid off; provision $0.9M; portfolio “normalized,” low past‑dues .	Improving, but watch listed project
Fee businesses (Retirement/Wealth)	Q3: fee income 55.7% of revenue; retirement scaled; wealth growing . Q4: fee income 46.9%; property gain and swaps elevated “other” .	Q1: fee income 40% of revenue; q/q decline due to no property gain, fewer swaps, MSR mark; wealth +13% y/y; retirement +2.9% y/y .	Seasonally softer; structural strength
Macro/policy commentary	N/A in Q3; Q4 framed rate cuts, betas .	Monitoring “potential tariffs and government spending cuts;” proactive client outreach .	Cautious stance

Management Commentary

Strategic focus: “One Alerus strategy… unified and collaborative approach… grow our franchise through full relationships… commercial banking, treasury, private banking and wealth” .
Integration and growth: “First full quarter with HMNF fully integrated… momentum in high-quality organic growth… driving efficiency improvements” .
Margin drivers: “Total cost of funds dropped 19 bps… $5.1M of purchase accounting accretion (4 bps from early payoffs)… nonaccrual recovery added 5 bps” .
Fee mix and MSR: “Mortgage revenues were down… $734K decrease in MSR fair value… not looking to actively grow this portfolio” .

Q&A Highlights

Core vs reported margin: Core margin expected to improve from ~2.94% ex accretion/recoveries as loan yields remain strong and deposit costs trend lower .
Construction nonaccrual resolution: Project ~36% leased; interior substantially complete; expected certificate of occupancy by June/July; listing for sale this quarter .
Expense run‑rate: Core opex around ~$49M in Q2; full‑year growth low double digits off ~$176M 2024 core base; cost saves front‑half weighted .
Capital priorities/M&A: Build capital via earnings; prioritize selective organic growth, retirement roll‑ups, and maintain dividend .
Balance sheet repricing: ~$380M loan maturities in 2025 with ~100 bps pickup; ~$100M CDs repricing over ~9 months .

Estimates Context

Q1 2025 performance vs S&P Global consensus: Primary EPS (normalized) $0.56 vs $0.3925 consensus; Revenue $67.93M vs $66.15M consensus — both beats driven by stronger NII and deposit cost relief; note GAAP diluted EPS was $0.52 *.
Implications: Street models may need higher NIM trajectory (to 3.2–3.3%) and modestly higher NII; fee income run‑rates should reflect absence of property gains/swaps and MSR volatility per guidance . Values retrieved from S&P Global.

Key Takeaways for Investors

Core earnings power is inflecting: NIM expansion and record NII underscore a positive slope for core profitability even as deposit mix headwinds persist .
Fee engine remains a differentiator: Retirement/Wealth provide stability and capital‑light growth; expect some quarter‑to‑quarter variability from markets and MSR marks .
Credit normalization progressing: NPLs and NPAs improved; watch the MN construction project sale timeline but overall loss content appears manageable with robust reserves (ACL 1.52%) .
Cost discipline and synergy capture: Adjusted efficiency reached 66.9%; additional cost saves and operating model work should support sub‑68% for 2025 .
Guidance constructive: Raised NIM range (3.2%–3.3%), mid‑single‑digit loan growth, and stable fees suggest upward bias to consensus NII; near‑term noise from seasonal deposits/AUM possible .
Dividend intact: $0.20 declared for Q1 (payable Apr 11), signaling confidence in capital build post‑HMNF .
Trading setup: Catalysts include sustained core margin improvement (ex‑accretion/recovery), resolution of the construction nonaccrual, and further synergy delivery; risks include deposit mix pressure, mortgage/MSR volatility, and macro drag on fee AUM .

Notes: GAAP/Reported figures and non‑GAAP reconciliations are from company filings/press releases. Street comparisons use S&P Global consensus; GAAP diluted EPS for Q1’25 was $0.52, while S&P’s “Primary EPS actual” reflects adjusted/normalized EPS of $0.56 *.

References: Q1’25 8‑K and press release ; Q1’25 press release ; Q1’25 call transcript ; Q4’24 press release and call ; Q3’24 press release .

ALERUS FINANCIAL CORP (ALRS)·Q1 2025 Earnings Summary