Alerus Financial (NASDAQ:ALRS) reported second-quarter 2026 earnings per diluted share of $0.81, as the company cited net interest margin expansion, fee-income growth and a substantial improvement in credit quality. The company reported a 1.6% return on assets and a return on average tangible common equity of 19.33%.
President and CEO Katie O’Neill Lorenson said the quarter reflected “disciplined execution” across the organization and highlighted the resolution of the company’s largest non-performing loan. Non-performing assets declined 68.3% during the quarter, while criticized loans were down more than 60% from a year earlier, according to management.
Credit quality and capital improve
Chief Operating Officer Karin Taylor said the company’s credit and banking teams had identified credits that had either deteriorated or were no longer considered core to Alerus’ business strategy. The company expects this portfolio review process to remain part of its ongoing credit culture.
During the analyst question-and-answer session, Taylor said charge-offs should decline in the second half of 2026. Over a longer period, she said the company’s historical average charge-off rate had been about 25 to 27 basis points and that management expects to ultimately return to that range.
Alerus also moved a residential property and an apartment complex into other real estate owned during the quarter. Taylor said the residential property is expected to be resolved by year-end, while the apartment building, which is in receivership, will more likely be resolved during the first half of 2027.
The company reported tangible book value per share of $18.73, up 3.2% from the prior quarter. Its tangible common equity-to-tangible-assets ratio rose to 9.05%, while its CET1 ratio increased to 10.81%. Total liquidity was approximately $2.6 billion at June 30, or about $1.5 billion excluding brokered certificate-of-deposit capacity.
Revenue mix supports earnings
Net interest income increased 6.2% from the prior quarter to $47.7 million, and reported net interest margin reached 3.97%. Villalon said reported results benefited from purchase-accounting accretion and the resolution of a non-performing loan, while core margin was stable from the first quarter.
Management said its balance sheet has been positioned to be neutral to interest-rate changes following loan and investment portfolio repositioning. In a scenario involving either a 100-basis-point increase or decrease in rates, Alerus does not expect net interest income to be significantly affected.
Adjusted non-interest income rose 4.6% sequentially and 8.6% from the year-earlier quarter to $32.3 million. Banking fees and other income increased 16.3% from the first quarter, helped by higher swap-fee income and mutual fund investment gains tied to deferred-compensation plan assets. Swap-fee revenue totaled $738,000 in the quarter.
Wealth revenue increased 6.5%, supported by higher asset-based fees associated with equity-market performance and higher transaction-based fees. Management said nearly 90% of wealth revenue comes from advisory services. Retirement and benefits services revenue was essentially stable.
Mortgage revenue declined 9.6% from the first quarter to $0.3 million, reflecting lower gain-on-sale margins from product mix changes and increased competition. Villalon said Alerus expects lower mortgage originations in the second half as the market anticipates potential rate increases.
Loan growth expected to accelerate
Total deposits declined $156 million, or 3.6%, from March 31, primarily because of seasonal public-depositor outflows. The loan-to-deposit ratio was 96.2%. Synergistic deposits represented 22.6% of total deposits and increased 3.3% from a year earlier, primarily driven by low-cost health savings account deposits.
Loans were stable in the second quarter as new production offset planned balance-sheet actions and reductions in non-performing loans. Chief Banking and Revenue Officer Jim Collins said the company’s pipeline is its largest and most robust in his four years with Alerus.
Collins said Alerus added 30 full middle-market commercial and industrial relationships during the quarter. He cited one regional nonprofit relationship expected to bring 40 accounts with average collected balances of about $30 million, as well as a newly approved $28 million loan package for a client expected to bring $30 million in deposits.
Management expects growth to build during the second half, supported by commercial and industrial activity while commercial real estate exposure continues to decline. Alerus expects earning-asset growth to match loan growth in the back half of the year.
Outlook and shareholder returns
Alerus updated its 2026 guidance to call for mid-single-digit loan growth, low-single-digit deposit growth, mid-single-digit revenue growth and low- to mid-single-digit growth in non-interest expense. The company now expects full-year reported net interest margin of approximately 3.7% to 3.8% and return on assets above 1.25%.
Adjusted non-interest expense increased 4.8% from the prior quarter, primarily due to annual merit increases, talent additions, deferred-compensation plan liabilities tied to market gains, other-real-estate-owned costs and higher corporate insurance expense. The company said software and technology costs declined because of lower core-processing and IT hardware expenses.
Alerus repurchased $6.8 million of common stock during the quarter at an average price of $27.10 per share, reducing shares outstanding by 250,000. It also raised its quarterly dividend 4.76% to $0.22 per share. Through the first six months of 2026, the company returned $23.6 million to shareholders through dividends and repurchases.
Lorenson said Alerus continues to invest in talent and technology, including modernization of its retirement platform. She said the company views automation, artificial intelligence and technology scalability as opportunities to improve operating margins and support growth across its businesses.
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.
