Executive Summary

Q2 2025 delivered strong earnings with net income of $20.3M and diluted EPS of $0.78; adjusted diluted EPS was $0.72, up 28.6% q/q, driven by higher net interest income, fee growth, and expense discipline .
Results beat S&P Global consensus: EPS $0.72 vs $0.54* and revenue $74.8M vs $70.0M*; beats were aided by net interest margin expansion to 3.51% and a $2.1M gain on sale of a hospitality loan, while core credit costs remained low after excluding PCD reserve charge-offs .
Balance sheet optimization (sale/classification of ~$62.5M hospitality CRE) reduced risk and supported zero provision in the quarter; adjusted net charge-offs were only 0.07% of average loans .
Guidance was largely maintained: 2025 NIM 3.25%–3.35% (reported), deposit costs expected +8–10 bps in Q3, purchase accounting attrition to moderate (27 bps in Q3, 22 bps in Q4); medium-term catalysts include sustained >40% fee mix and retirement/wealth platform upgrades .

Note: Asterisk (*) denotes values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

Fee mix stayed a strategic differentiator at 42.5% of revenue, supporting resilience and valuation; management emphasized “industry-leading fee income,” with retirement and wealth momentum and a new wealth platform implementation .
NIM expanded 10 bps q/q to 3.51%, with net interest income up 4.6% q/q (loan yields higher, stable cost of funds), and adjusted efficiency ratio improved to 62.4% from 66.9% .
Proactive credit risk actions: strategic sale/classification of ~$62.5M hospitality CRE, $2.1M gain on sale, zero provision, and adjusted net charge-offs at 7 bps; CET1 rose to 10.54% and tangible common equity ratio to 7.87% .

Management quotes:

“Industry-leading fee income of more than 42% will be the ultimate differentiator of our valuation.”
“We are replacing [purchase accounting] with disciplined pricing on renewals of the core client base.”
“We took proactive steps to optimize our balance sheet, including a strategic sale of $60 million in non-owner occupied CRE hospitality loans.”

What Went Wrong

Headline net charge-offs rose to 0.37% due to $3.4M charge-off tied to the hospitality loan sale (mostly day-1 PCD reserves); adjusted NCOs remained low, but the reported metric masks underlying credit stability .
Deposit trends showed seasonal pressure and mix shift: total deposits down 0.9% from year-end; noninterest-bearing deposits fell $113.2M, and deposit competition will lift costs by 8–10 bps in Q3 .
Noninterest expense remains elevated vs prior year (up 25% y/y) on HMNF integration, intangible amortization, tech upgrades, and occupancy expansion, even as q/q core expenses improved; mortgage revenue expected to seasonally soften in H2 .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD)	$63.13M*	$67.93M*	$74.80M*
Primary EPS (S&P)	$0.44 vs $0.27 est.*	$0.56 vs $0.39 est.*	$0.72 vs $0.54 est.*
GAAP Diluted EPS ($)	$0.13	$0.52	$0.78
Net Interest Margin (tax-equivalent)	3.20%	3.41%	3.51%
Adjusted Efficiency Ratio (%)	68.97%	66.86%	62.35%

Note: Values with asterisk (*) retrieved from S&P Global.

Segment/noninterest income breakdown and net interest income:

Segment/Line ($USD)	Q2 2024	Q1 2025	Q2 2025
Net Interest Income	$24.00M	$41.16M	$43.03M
Retirement & Benefit Services	$16.08M	$16.11M	$16.02M
Wealth Management	$6.36M	$6.91M	$7.36M
Mortgage Banking	$2.55M	$1.53M	$3.65M
Service Charges	$0.46M	$0.65M	$0.68M
Gain on Sale (Non-mortgage)	$0.00M	$0.00M	$2.12M
Other	$1.92M	$2.44M	$1.93M

KPIs and balance sheet:

KPI	Q4 2024	Q1 2025	Q2 2025
Retirement AUA ($B)	$41.25	$39.93	$42.45
Wealth AUA ($B)	$4.40	$4.50	$4.61
Mortgage Originations ($M)	$88.58	$70.59	$134.63
TBV/Share ($)	$14.49	$15.27	$16.11
CET1 (%)	9.98	10.10	10.54
NPA / Assets (%)	1.20	0.96	0.98
Net Charge-offs / Avg Loans (%)	0.13	0.04	0.37; Adj 0.07

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Net Interest Margin (reported)	FY 2025	3.20%–3.30% (Q1 call)	3.25%–3.35% (Q2 call)	Raised
Deposit Cost Outlook	Q3 2025	Not specified	+8–10 bps increase	New detail (higher)
Purchase Accounting Attrition	Q3 2025	~35 bps in Q2 outlook	27 bps; no early payoffs	Lower attrition
Purchase Accounting Attrition	Q4 2025	Not specified	22 bps; no early payoffs	New detail
Loan Growth	FY 2025	Mid-single digits	Mid-single digits (ex-held-for-sale)	Maintained
Deposit Growth	FY 2025	Low single digits	Low single digits; seasonal outflows Q3	Maintained
Noninterest Income	FY 2025	Stable with market sensitivity	Low single digits on reported basis (gain already recognized H1)	Maintained w/ nuance
Adjusted Efficiency Ratio	FY 2025	<68%	<68% (ex one-time items)	Maintained
Core Expenses	Q3 2025	~$49M (Q2 outlook for Q2)	~$49–$50M (investments in talent/tech)	Updated range
Mortgage Activity	H2 2025	Seasonal uptick Q2; neutral H2	Eases in Q3, seasonal downturn in Q4	Clarified seasonality
Dividend	Ongoing	$0.20 in Q1	$0.21 declared Aug 27, 2025	Raised

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024, Q1 2025)	Current Period (Q2 2025)	Trend
Fee income as valuation differentiator	Fee income ~47% in Q4; >40% in Q1; cornerstone businesses (retirement/wealth)	42.5% fee mix; focus on retirement tailwinds (Secure 2.0), wealth platform upgrade	Stable and strategic
NIM trajectory & accretion	Q4 NIM +97 bps to 3.20%; Q1 3.41% with purchase accounting accretion and lowered deposit rates	NIM 3.51%; guided 3.25–3.35; attrition moderates; deposit costs up 8–10 bps	Improving but moderating
Deposit competition/mix	Q1 noted decline in noninterest-bearing; LOB synergy deposits grew; target L/D ~95%	Seasonal deposit outflows; expect cost uptick; competition “tough”; strategy full C&I relationships	Competitive pressure
CRE/hospitality exposure	Q4/Q1: nonaccrual construction loan; protective advances; PCD marks from HMNF	~$62.5M hospitality CRE sale/classification; $2.1M gain; adjusted NCOs 7 bps	De-risking continues
Technology/platforms	Q1: wealth platform transition planned; treasury/online upgrades	Wealth platform fully converted; client/advisor analytics and experience improved	Execution progress
Credit normalization & resolutions	Q1: normalized migration; manageable NPAs; robust reserves	Two large relationships drive NPAs; construction project: sale listing; residential: legal action; resolutions likely 1H 2026	Slow resolution path

Management Commentary

Strategic focus: “This quarter marks a significant step… adjusted EPS of $0.72, adjusted ROA of 1.41%… diversified business model combining banking with capital-light wealth/retirement” .
Balance sheet and pricing: “We are replacing [purchase accounting] with disciplined pricing on renewals… strategic sale of $60M hospitality loans… net $2M gain… zero provision… reserves 1.47%” .
Fee franchise: “Industry-leading fee income of more than 42% will be the ultimate differentiator… retirement tailwinds (Secure 2.0)… wealth platform upgrade to double advisors and grow AUM pace with banking assets” .
Expense discipline: “Adjusted efficiency ratio 62.4% vs 66.9% prior quarter… balancing investments in talent and technology with sustainable improvements” .

Q&A Highlights

Margin and accretion: Purchase accounting attrition expected at 27 bps in Q3 and 22 bps in Q4; no early payoffs assumed; core margin improvement expected through H2 .
Loan sale follow-up: July sale of ~$50M hospitality loans carried a minimal loss; Q2 sale recorded ~$2.1M gain .
Deposit costs and competition: Expect +8–10 bps deposit cost increase in Q3; competition “tough,” focus on full C&I relationships and treasury solutions .
NIM rate sensitivity: A 25 bps Fed cut would improve NIM by ~5 bps; guidance assumes no cuts .
Growth sources: Loan growth driven by share gains and deepening existing client relationships in lower mid-market C&I (manufacturing/wholesale/distribution) rather than broad expansion .

Estimates Context

Q2 2025 S&P Global consensus: EPS $0.54 vs actual $0.72 (beat); revenue $70.0M vs actual $74.8M (beat). EPS estimates based on 5 analysts; revenue estimates based on 5 analysts. The beats reflect NIM expansion, strong mortgage seasonality, and gain on sale of hospitality loan .
Prior quarters for context: Q1 2025 EPS $0.39 est. vs $0.56 actual (beat); Q4 2024 EPS $0.27 est. vs $0.44 actual (beat)*.
Note: Values retrieved from S&P Global.

Key Takeaways for Investors

Sustained profitability improvements with NIM expansion to 3.51% and adjusted efficiency ratio at 62.4% position ALRS to deliver top-quartile returns; fee mix >40% enhances resilience across cycles .
Credit normalization is manageable; headline NCOs elevated by accounting effects of the hospitality loan sale, but adjusted NCOs remain low (7 bps); CET1 up to 10.54% and TCE ratio to 7.87% support optionality .
Guidance suggests modest margin moderation but continued core improvement; watch Q3 deposit cost uptick (+8–10 bps) and reduced accretion; a Fed cut would be a small tailwind (+5 bps to NIM) .
Retirement and wealth provide strategic ballast and synergy; new wealth platform can drive advisor productivity, recruiting, and cross-sell into commercial relationships .
Near-term trading catalysts: continued NIM resilience vs guidance, fee revenue strength despite mortgage seasonality, and progress on CRE credit resolutions; medium-term thesis hinges on sustained top-tier ROA/ROTCE with a diversified revenue base .

Note: Values retrieved from S&P Global where indicated by asterisk (*).

ALERUS FINANCIAL CORP (ALRS)·Q2 2025 Earnings Summary