CEO Comments
President and Chief Executive Officer Katie O'Neill Lorenson said, "We are pleased with the strong start to 2026, as our first quarter results reflect continued execution of our long-term strategy and the tangible benefits of the transformation we have undertaken over the past several years. Net income for the quarter was $23.0 million, translating to a return on average assets of 1.79% and a return on average tangible common equity exceeding 21%, demonstrating the earnings power of our diversified business model. Profitability continued to improve during the quarter, driven by disciplined balance-sheet management, expanding margins, improving credit performance, and focused investments across the franchise.
"Our performance underscores the resilience and sustainability of our earnings profile. Core relationship-based commercial and industrial lending continued to grow at a double-digit rate year-over-year, while intentional runoff reflected proactive risk and capital management. Our diversified fee-based businesses again provided stability, with noninterest income representing over 40% of total revenue, supported by steady retirement and benefit services revenues, continued growth in Health Savings Accounts, and ongoing investment in wealth advisory services leadership and talent. Asset quality also improved during the quarter, with declines in nonperforming assets reflecting meaningful progress on previously identified credits.
"Most importantly, these results are a testament to the exceptional team we have built at Alerus and the constant execution of our strategy of our value creation strategy. Together, our discipline, collaboration, and commitment to doing the right thing for our clients and communities continues to translate into consistent performance, strengthening returns, and a balanced business model we believe is well positioned to deliver sustained, long-term returns for our shareholders."
First Quarter Highlights
Earnings per diluted common share of $0.89. Adjusted earnings per diluted common share(1) of $0.89, compared to adjusted earnings per diluted common share(1) of $0.85 in the fourth quarter of 2025.
Return on average total assets of 1.79%. Adjusted return on average total assets(1) of 1.79%, compared to 1.62% in the fourth quarter of 2025.
Return on average tangible common equity of 21.85%. Adjusted return on average tangible common equity(1) of 21.96%, compared to 21.05% in the fourth quarter of 2025.
Noninterest income was $30.8 million, which represented 40.72% of total revenue.
Net interest margin (on a tax-equivalent basis)(1) was 3.77%, an increase compared to 3.69% in the fourth quarter of 2025.
Total deposits were $4.3 billion as of March 31, 2026, an increase of $155.9 million, or 3.7%, from December 31, 2025. Core commercial transactional deposits were $1.8 billion as of March 31, 2026, an increase of $143.2 million, or 8.6%, from December 31, 2025. Synergistic deposits were $742.7 million as of March 31, 2026, an increase of $16.8 million, or 2.3%, from December 31, 2025. Health Savings Account balances drove most of the increase, up $14.5 million, or 7.1%, from December 31, 2025.
The loan to deposit ratio was 92.8% as of March 31, 2026, compared to 96.6% as of December 31, 2025.
Efficiency ratio(1) of 63.39%. Adjusted efficiency ratio of 63.20% compared to adjusted efficiency ratio of 63.55% in the fourth quarter of 2025.
Pre-provision net revenue(1) was $25.4 million. Adjusted pre-provision net revenue(1) was $25.5, an increase of 0.9% from $25.3 million in the fourth quarter of 2025.
Nonperforming assets were $54.0 million as of March 31, 2026, a decrease of $15.4 million, or 22.1%, from $69.4 million as of December 31, 2025.
Repurchased $6.0 million of the Company's outstanding common stock at an average per share price of $23.90, reducing common shares outstanding by 250,000 shares at quarter end.
Tangible book value per common share(1) was $18.15 as of March 31, 2026, an increase of 3.4% from $17.55 as of December 31, 2025.
Tangible common equity to tangible assets ratio(1) was 8.85% as of March 31, 2026, an increase from 8.72% as of December 31, 2025.
________________(1) Represents a non-GAAP financial measure. See "Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures."
Selected Financial Data (unaudited)
As of and for the
Three months ended
March 31,
December 31,
March 31,
(dollars and shares in thousands, except per share data)
2026
2025
2025
Performance Ratios
Return on average total assets
1.79
%
(2.50
)%
1.02
%
Adjusted return on average total assets (1)
1.79
%
1.62
%
1.10
%
Return on average common equity
16.44
%
(23.75
)%
10.82
%
Return on average tangible common equity (1)
21.85
%
(28.15
)%
16.50
%
Adjusted return on average tangible common equity (1)
21.96
%
21.05
%
17.61
%
Noninterest (loss) income as a % of revenue
40.72
%
(449.23
)%
40.17
%
Adjusted noninterest (loss) income as a % of revenue (1)
40.73
%
41.39
%
40.17
%
Net interest margin (on a tax-equivalent basis)(1)
3.77
%
3.69
%
3.41
%
Efficiency ratio (1)
63.39
%
557.48
%
68.76
%
Adjusted efficiency ratio (1)
63.20
%
63.55
%
66.86
%
Net charge-offs (recoveries) to average loans (1)
0.71
%
(0.03
)%
0.04
%
Dividend payout ratio
23.60
%
(16.54
)%
38.46
%
Per Common Share
Earnings (loss) per common share - basic
$
0.90
$
(1.28
)
$
0.52
Earnings (loss) per common share - diluted
$
0.89
$
(1.27
)
$
0.52
Adjusted earnings per common share - diluted (1)
$
0.89
$
0.85
$
0.56
Dividends declared per common share
$
0.21
$
0.21
$
0.20
Book value per common share
$
22.79
$
22.24
$
20.27
Tangible book value per common share (1)
$
18.15
$
17.55
$
15.27
Average common shares outstanding - basic
25,380
25,398
25,359
Average common shares outstanding - diluted
25,679
25,710
25,653
Other Data
Retirement and benefit services assets under administration/management
$
42,273,839
$
44,925,311
$
39,925,596
Wealth advisory services assets under administration/management
$
4,792,609
$
4,850,600
$
4,500,852
Mortgage originations
$
94,434
$
136,780
$
70,593
________________(1) Represents a non-GAAP financial measure. See "Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures."
Results of Operations
Net Interest Income
Net interest income for the first quarter of 2026 was $44.9 million, a $0.3 million, or 0.6%, decrease from the fourth quarter of 2025. Interest income decreased $3.4 million, or 4.8%, primarily due to a one-time $2.4 million adjustment related to a sold loan participation recorded in the fourth quarter of 2025, partially offset by higher interest income on investment securities following a strategic balance sheet repositioning in the fourth quarter of 2025. Interest expense decreased $3.1 million, or 12.5%, from the fourth quarter of 2025, as the average rates paid on deposits and borrowings declined due to recent rate cuts by the Federal Reserve.
Net interest income increased $3.8 million, or 9.1%, from $41.2 million for the first quarter of 2025. Interest income decreased $1.2 million, or 1.8%, from the first quarter of 2025, primarily driven by less purchase accounting accretion, partially offset by higher interest income on investment securities following the strategic balance sheet repositioning in the fourth quarter of 2025. Interest expense decreased $5.0 million, or 18.4%, from the first quarter of 2025, as the average rates paid on deposits and borrowings declined due to recent rate cuts by the Federal Reserve.
Net interest margin (on a tax-equivalent basis)(1) was 3.77% for the first quarter of 2026, an 8 basis point increase from 3.69% for the fourth quarter of 2025, and a 36 basis point increase from 3.41% for the first quarter of 2025. The quarter over quarter increase was mainly attributable to lower cost of funds and higher yields on investment securities, partially offset by a one-time adjustment related to a sold loan participation recorded in the fourth quarter of 2025, lower loan yields, and less purchase accounting accretion. The increase from the first quarter of 2025 was primarily driven by lower cost of funds and higher yields on investment securities.
Noninterest (Loss) Income
Noninterest income for the first quarter of 2026 was $30.8 million, a $67.8 million, or 183.5%, increase from the fourth quarter of 2025. The quarter over quarter increase was driven by the strategic balance sheet repositioning in the fourth quarter of 2025, which resulted in a $68.4 million realized loss on the sale of investment securities. Adjusted noninterest income(1) was $30.9 million in the first quarter of 2026, a decrease of $1.0 million, or 3.2%, compared to $31.9 million in the fourth quarter of 2025. Other noninterest income decreased $1.1 million, or 38.4%, from the fourth quarter of 2025, primarily driven by a decrease in swap fee revenue. Wealth advisory services revenue decreased $0.2 million, or 2.7%, from the fourth quarter of 2025, primarily driven by a decline in both asset-based fees tied to equity markets, and transaction-based fees. Mortgage banking revenue increased $0.3 million, or 10.4%, from the fourth quarter of 2025, primarily driven by higher gain on sale margins and an increase in mortgage servicing asset valuation. Retirement and benefit services revenue increased $0.1 million, or 0.8%, from the fourth quarter of 2025. While retirement and benefit services assets under administration/management decreased $2.7 billion, or 5.9%, from $44.9 billion in the fourth quarter of 2025 to $42.3 billion in the first quarter of 2026, the decrease was primarily due to a strategic realignment of record-keeping partners that is expected to have minimal impact on revenue in future periods.
Noninterest income for the first quarter of 2026 increased by $3.2 million, or 11.6%, from the first quarter of 2025. This increase was driven by an increase in mortgage banking revenue and retirement and benefit services revenue. Mortgage banking revenue increased $2.0 million, or 131.5%, compared to the first quarter of 2025, due to an increase in mortgage servicing asset valuation, as well as increased origination volume and improved gain on sale margin. Retirement and benefit services revenue increased $1.3 million, or 8.1%, in the first quarter of 2026 compared to the first quarter of 2025, primarily driven by both asset-based and transaction-based fees.
________________(1) Represents a non-GAAP financial measure. See "Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures."
Noninterest Expense
Noninterest expense for the first quarter of 2026 was $50.4 million, a $1.5 million, or 2.9%, decrease from the fourth quarter of 2025. Compensation expense decreased $1.1 million, or 4.3%, from the fourth quarter of 2025, primarily due to decreases in annual bonus expense and mortgage incentive compensation due to seasonality. Business services, software and technology expense decreased $1.0 million, or 14.1%, from the fourth quarter of 2025, primarily due to a reclassification of consulting services and other third-party vendor expenses from business services, software and technology expense to professional fees and assessments. Professional fees and assessments increased $0.7 million, or 23.0%, from the fourth quarter of 2025, primarily due to this expense reclassification, partially offset by a decrease in legal fees.
Noninterest expense for the first quarter of 2026 increased $27.0 thousand, or 0.1%, from $50.4 million in the first quarter of 2025, primarily due to increases in compensation expense, professional fees and assessments, and occupancy and equipment expense, offset by decreases in employee taxes and benefits expense and intangible amortization expense. Compensation expense increased $1.1 million, or 4.9%, from the first quarter of 2025, primarily due to higher annual bonus expense. Professional fees and assessments increased $0.8 million, or 26.8%, from the first quarter of 2025, primarily due to the expense reclassification described above. Occupancy and equipment expense increased $0.5 million, or 17.9%, from the first quarter of 2025, primarily driven by facility investments and the strategic realignment of locations from owned to leased space. Employee taxes and benefits expense decreased $1.1 million, or 14.5%, from the first quarter of 2025, primarily due to lower claims on group insurance. Intangible amortization expense decreased $0.7 million, or 27.2%, in the first quarter of 2026, primarily due to the annual reset of the $33.5 million core deposit intangible recorded in connection with the HMN Financial, Inc. ("HMNF") acquisition in the fourth quarter of 2024.
Financial Condition
Total assets were $5.3 billion as of March 31, 2026, an increase of $57.9 million, or 1.1%, from December 31, 2025. The increase was primarily due to a $61.6 million increase in cash and cash equivalents and an $8.0 million increase in available-for-sale investment securities, partially offset by a decrease of $13.3 million in loans held for investment.
Loans Held for Investment
Total loans held for investment were $4.0 billion as of March 31, 2026, a decrease of $13.3 million, or 0.3%, from December 31, 2025. The decrease was primarily driven by a $28.3 million decrease in consumer loans, partially offset by a $15.1 million increase in commercial loans.
The following table presents the composition of our loans held for investment portfolio as of the dates indicated:
March 31,
December 31,
September 30,
June 30,
March 31,
(dollars in thousands)
2026
2025
2025
2025
2025
Commercial
Commercial and business lending
Commercial and industrial
$
747,447
$
736,833
$
702,135
$
675,892
$
658,446
Commercial real estate − Owner occupied
444,276
427,260
435,320
440,170
424,880
Total commercial and business lending
1,191,723
1,164,093
1,137,455
1,116,062
1,083,326
Investor commercial real estate
Construction, land and development
146,897
246,238
349,768
352,749
360,024
Multifamily
392,097
383,505
374,761
333,307
353,060
Non-owner occupied
976,339
875,862
865,785
887,643
951,559
Total investor commercial real estate
1,515,333
1,505,605
1,590,314
1,573,699
1,664,643
Agricultural
Land
54,028
64,799
65,900
66,395
68,894
Production
50,983
62,500
63,051
67,931
64,240
Total agricultural
105,011
127,299
128,951
134,326
133,134
Total commercial
2,812,067
2,796,997
2,856,720
2,824,087
2,881,103
Consumer
Residential real estate
First lien
851,551
874,737
894,402
901,738
907,534
Construction
32,872
33,703
34,124
35,754
38,553
HELOC
262,131
260,883
234,681
200,624
175,600
Junior lien
35,783
36,844
40,434
41,450
43,740
Total residential real estate
1,182,337
1,206,167
1,203,641
1,179,566
1,165,427
Other consumer
40,340
44,858
41,715
41,003
38,955
Total consumer
1,222,677
1,251,025
1,245,356
1,220,569
1,204,382
Total loans
$
4,034,744
$
4,048,022
$
4,102,076
$
4,044,656
$
4,085,485
Deposits
Total deposits were $4.3 billion as of March 31, 2026, an increase of $155.9 million, or 3.7%, from December 31, 2025. Noninterest-bearing deposits increased $49.7 million and interest-bearing deposits increased $106.2 million from December 31, 2025. The increase was primarily driven by seasonal inflows of public depositor funds and consumer deposit growth.
The following table presents the composition of the Company's deposit portfolio as of the dates indicated:
March 31,
December 31,
September 30,
June 30,
March 31,
(dollars in thousands)
2026
2025
2025
2025
2025
Noninterest-bearing demand
$
857,625
$
807,896
$
776,791
$
790,300
$
889,270
Interest-bearing
Interest-bearing demand
1,449,156
1,296,315
1,256,687
1,214,597
1,283,031
Savings accounts
178,347
173,759
174,113
175,586
177,341
Money market savings
1,291,794
1,337,491
1,460,006
1,358,516
1,472,127
Time deposits
570,960
576,542
745,056
798,469
663,522
Total interest-bearing
3,490,257
3,384,107
3,635,862
3,547,168
3,596,021
Total deposits
$
4,347,882
$
4,192,003
$
4,412,653
$
4,337,468
$
4,485,291
Asset Quality
Total nonperforming assets were $54.0 million as of March 31, 2026, a decrease of $15.4 million, or 22.1%, from December 31, 2025. As of March 31, 2026, the allowance for credit losses on loans was $50.5 million, or 1.25% of total loans, compared to $61.9 million, or 1.53% of total loans, as of December 31, 2025.
The following table presents selected asset quality data as of and for the periods indicated:
As of and for the three months ended
March 31,
December 31,
September 30,
June 30,
March 31,
(dollars in thousands)
2026
2025
2025
2025
2025
Nonaccrual loans
$
53,881
$
69,065
$
59,644
$
51,276
$
50,517
Accruing loans 90+ days past due
—
—
—
202
—
Total nonperforming loans
53,881
69,065
59,644
51,478
50,517
OREO and repossessed assets
126
308
467
751
493
Total nonperforming assets
$
54,007
$
69,373
$
60,111
$
52,229
$
51,010
Criticized loans
132,459
149,162
191,331
212,592
230,369
Net charge-offs (recoveries)
7,027
(311
)
(1,715
)
3,767
407
Net charge-offs (recoveries) to average loans (1)
0.71
%
(0.03
)%
(0.17
)%
0.37
%
0.04
%
Nonperforming loans to total loans
1.34
%
1.71
%
1.45
%
1.27
%
1.24
%
Nonperforming assets to total assets
1.02
%
1.33
%
1.13
%
0.98
%
0.96
%
Criticized loans to total loans
3.28
%
3.68
%
4.66
%
5.26
%
5.64
%
Allowance for credit losses on loans to total loans
1.25
%
1.53
%
1.51
%
1.47
%
1.52
%
Allowance for credit losses on loans to nonperforming loans
93.73
%
89.65
%
104.16
%
115.15
%
122.59
%
For the first quarter of 2026, the Company had net charge-offs of $7.0 million, compared to net recoveries of $0.3 million for the fourth quarter of 2025 and net charge-offs of $0.4 million for the first quarter ...
