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ALERUS FINANCIAL CORP (ALRS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 EPS was $0.65, beating S&P Global consensus of $0.586*; revenue was $72.6M vs $71.4M consensus*, while net interest margin (tax-equivalent) held essentially flat at 3.50% q/q .
  • Record net interest income of $43.1M, with fee income at 40.6% of revenues (more than double industry average), and sequential organic growth in loans and deposits .
  • Management raised full‑year 2025 reported NIM guidance to 3.35%–3.40% (from 3.25%–3.35% in Q2) and introduced 2026 NIM guidance of 3.35%–3.45%; each 25bp Fed cut improves NIM by ~5bps .
  • Credit quality mixed: NPAs increased to 1.13% driven by two large relationships, but net recoveries were 0.17% of average loans and allowance stood at 1.51% of total loans (strong reserve coverage) .
  • Stock reaction catalyst: a clean beat on EPS/revenue*, record NII, and a notable NIM guidance raise, offset by higher opex and a near‑term uptick in NPAs .

Note: *Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Record net interest income and stable NIM: “In the third quarter, net interest income continued to reach new heights at $43.1 million and our reported net interest margin remained stable at 3.5%” .
  • Fee income resilience and diversification: “Our ultimate differentiator at Alerus is our diversified business model, which drives nearly double the average fee income compared to other banks” (fee income 40.6% of total revenues) .
  • Capital/tangible book value strength: Tangible common equity/TA rose to 8.24% and TBV/share increased 4.9% q/q to $16.90; ROTCE 18.48% (non‑GAAP) .

What Went Wrong

  • Noninterest income declined 7.3% q/q: Down to $29.4M driven by absence of Q2’s $2.1M loan sale gain and lower wealth revenue (-$0.8M) .
  • Higher operating expenses: Noninterest expense rose 4.3% q/q to $50.5M from incentives, technology upgrades, legal fees, and occupancy .
  • NPAs increased: NPAs/TA rose to 1.13% (up 15bps), driven by one general equipment lessor (50% reserve pending valuation) and a large Twin Cities multifamily project (book ~$32M, 67% leased, listed for sale) .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)67.926*74.795*72.566*
Diluted EPS ($)$0.52 $0.78 $0.65
Net Interest Income ($USD Millions)41.157 43.032 43.136
Noninterest Income ($USD Millions)27.632 31.763 29.430
Net Interest Margin % (tax‑equivalent)3.41% 3.51% 3.50%
Efficiency Ratio %68.76% 60.66% 65.34%

Note: *Values retrieved from S&P Global.

Segment (Noninterest) Revenue Breakdown

Segment Revenue ($USD Millions)Q1 2025Q2 2025Q3 2025
Retirement & Benefit Services16.106 16.024 16.496
Wealth Management6.905 7.363 6.560
Mortgage Banking1.527 3.651 3.474
Service Charges on Deposits0.651 0.680 0.703
Other2.443 1.930 2.232

KPIs

KPIQ1 2025Q2 2025Q3 2025
Total Loans ($USD Billions)$4.09B $4.04B $4.10B
Total Deposits ($USD Billions)$4.49B $4.34B $4.41B
Retirement AUA ($USD Billions)$39.93B $42.45B $44.01B
Wealth AUM ($USD Billions)$4.50B $4.61B $4.81B
Net Charge‑offs (Recoveries) to Avg Loans (%)0.04% 0.37% (0.17)%
NPAs / Total Assets (%)0.96% 0.98% 1.13%
TCE / TA (%)7.43% 7.87% 8.24%
TBV per Share ($)$15.27 $16.11 $16.90

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (reported)FY 20253.25%–3.35% 3.35%–3.40% Raised
Purchase Accounting AccretionQ4 2025~22 bps ~23 bps Raised
NIM Sensitivity to 25bp Fed CutOngoing+5 bps +5 bps Maintained
Loans (year‑end)FY 2025Mid‑single‑digit growth (ex‑HFS) >$4.1B Maintained (specified target)
Deposits (year‑end)FY 2025Low single‑digit growth ~$4.3B; call ~$165M brokered CDs Maintained (added actions)
Adjusted Noninterest IncomeFY 2025Low single‑digit up (reported) ~$115M (ex‑$2.1M loan sale) Clarified
Adjusted PPNRFY 2025N/A~$85–$86M New
Adjusted ROAFY 2025N/A>1.15% New
NIM (reported)FY 2026N/A3.35%–3.45% (incl. ~18 bps accretion) New
Loans GrowthFY 2026N/AMid‑single digit New
Deposits GrowthFY 2026N/ALow single digit New

Dividend: Regular quarterly cash dividend of $0.21 per share declared Aug 27, 2025 (payable Oct 10, 2025) ; Q3 dividends per common share were $0.21 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Technology & AI initiativesEngaged consultant to optimize commercial credit processes; platform upgrades planned “Leverage technology, data and AI to drive efficiency”; wealth platform conversion completed; plan to double wealth advisors Increasing execution
Credit quality (NPAs/reserves)NPAs down q/q in Q1; stable ~0.98% in Q2; allowance ~1.47%–1.52% NPAs up to 1.13%; two large relationships drive ~75% of nonperformers; reserve 1.51% Mixed near term
Deposit competition/mixExpect 200bp mix shift to interest‑bearing; loan/deposit ratio ~91% Deposits +1.7% period‑end; plan to call ~$165M brokered CDs; new deposit costs <3% on non‑maturity accounts Competitive, managed
CRE de‑riskingFocus away from investor CRE; sale of hospitality loans; fair value marks Continued proactive de‑risking; investor CRE/capital below 300% threshold Risk reduction
Retirement & Wealth momentumRetirement organic growth, strong retention; wealth stable in Q1 Retirement revenue +2.9% q/q; AUA +3.7%; wealth AUM +4.3%; transactional revenue down Building with mix shifts
Regional dynamics (Twin Cities)Taking share in AZ/MN/ND; cautious optimism Disruption creates talent/client opportunities; pipeline includes mid‑market C&I Opportunity rising
Margin outlook and sensitivitiesFY25 NIM 3.2%–3.3%; accretion cadence set; +5bps per 25bp cut FY25 raised to 3.35%–3.40%; FY26 3.35%–3.45%; +5bps per 25bp cut Improving core margin

Management Commentary

  • CEO: “Our ultimate differentiator at Alerus is our diversified business model, which drives nearly double the average fee income compared to other banks… Due to the annuitized and capital-light businesses of retirement and wealth, Alerus has revenue resilience across cycles” .
  • CEO: “Another example of our conservative and proactive risk management was a large recovery during the quarter… bringing the year‑to‑date charge off ratio to eight basis points… investor CRE to capital ratio dropping below the 300% threshold” .
  • CFO: “Net interest income continued to reach new heights at $43.1 million and our reported net interest margin remained stable at 3.5%… we saw new loan spreads of 259 bps over Fed funds, while new deposit costs were coming in 92 bps below Fed funds” .
  • CFO: “For every 25 basis point cut in rates, we expect NIM to improve about five basis points” .
  • CEO: “We intend to continue to build organically and inorganically [in retirement and HSA]; catalysts to consolidation position Alerus favorably as one of the few independent aggregators in the space” .

Q&A Highlights

  • Provisioning: No provision in Q3 largely due to recoveries; normalized provision in 2026 will be driven by loan growth and macro factors .
  • Loan growth outlook: Base case mid‑single digit; if rates fall, upside to ~9%–12% with focus on full C&I relationships and deposit growth .
  • Margin drivers: Expect improvement in core NIM excluding purchase accounting accretion, supported by healthy loan and deposit spreads .
  • Fee income trajectory: Conservative 2026 outlook given expected mortgage seasonal pressure; limited market uplift assumed .
  • Costs: Software/technology expenses likely to tick up due to contractual escalators; non‑maturity deposit rates <3%, CDs kept short .
  • Credit detail: Two credits drive most NPAs; multifamily listed for sale, 67% leased, ~15% reserve; equipment lessor reserved at 50% pending valuations .

Estimates Context

  • Q3 2025 EPS of $0.65 beat S&P Global consensus $0.586*; Q3 revenue of $72.6M beat consensus $71.4M*; prior quarters also beat EPS and revenue* .
  • Near‑term estimate revisions likely skew positive on core NIM trajectory and record NII; fee income mix (lower transactional wealth, seasonal mortgage) and higher opex may temper magnitude of upward revisions .
MetricQ1 2025Q2 2025Q3 2025
EPS Estimate ($)0.3925*0.538*0.586*
EPS Actual ($)0.56 0.72 0.66
Revenue Estimate ($USD Millions)66.146*69.983*71.394*
Revenue Actual ($USD Millions)67.926*74.795*72.566*

Note: *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Results beat on EPS and revenue* with record NII and stable NIM; management raised full‑year NIM guidance—supportive for core earnings momentum .
  • Credit risk is concentrated and well‑identified; reserves are robust, and Q3 posted net recoveries. Monitor resolution milestones on the two large nonperformers into 1H26 .
  • Fee mix is resilient (retirement/wealth) but near‑term transactional wealth and mortgage seasonality can cap upside; long‑term platform upgrades and advisor recruiting should improve capture and growth .
  • Deposit strategy (treasury relationships >70%, brokered CD call plan) and liability sensitivity mean rate cuts are a modest tailwind (+5bps per 25bp) to NIM .
  • 2025 adjusted PPNR ~$85–$86M and adjusted ROA >1.15% set a clearer bar for forward performance; 2026 guidance implies sustained profitability with reduced accretion dependence .
  • Tactical de‑risking (hospitality CRE disposals, investor CRE discipline) and capital accretion (TCE/TA 8.24%) support valuation; TBV/share grew ~5% q/q .
  • Trading lens: Positive bias on guidance raise and beats*, with watch‑items on opex inflation and NPAs trajectory; catalysts include credit resolutions, advisor adds, and retirement M&A .

Additional Q3‑Relevant Press Releases

  • Dividend: Regular quarterly dividend of $0.21 per share declared Aug 27, 2025 (payable Oct 10, 2025) .
  • Earnings press release (full details above) published Oct 30, 2025 .