Alerus Financial Q4 2025 Alerus Financial Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Alerus Financial Corp Earnings Call
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Operator: Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release in the company's SEC filings. I'll now turn the conference over to Alerus Financial Corporation, President and CEO, Katie Lorenson. Please go ahead.
Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release in the company's SEC filings. I'll now turn the conference over to Alerus Financial Corporation, President and CEO, Katie Lorenson. Please go ahead.
Speaker #1: I'll now turn the conference over to Alerus Financial Corporation President and CEO, Katie Lorenson. Please go ahead.
Speaker #2: Thank you, and good morning, everyone. Thank you for joining us. I appreciate this opportunity to share reflections on the year and offer some perspective on the strategic position and momentum of our company as we enter into 2026.
Katie Lorenson: Thank you, and good morning, everyone. Thank you for joining us. I appreciate this opportunity to share reflections on the year and offer some perspective of the strategic position and momentum of our company as we enter into 2026. Joining me today is Alerus CFO, Al Villalon, COO, Karin Taylor, Chief Banking Revenue Officer, Jim Collins, and Alerus Chief Retirement Services Officer, Forrest Wilson. 2025 was a milestone year for Alerus, in which we demonstrated not only strong core financial performance, but significant execution of major strategic initiatives that positions the company for sustainable organic growth and a return to top-tier profitability and performance. I'm incredibly proud of the team, not just for the financial results, including posting a core ROA of 1.62% this quarter, but for the collaborative efforts to accomplish these initiatives during the year.
Katie Lorenson: Thank you, and good morning, everyone. Thank you for joining us. I appreciate this opportunity to share reflections on the year and offer some perspective of the strategic position and momentum of our company as we enter into 2026. Joining me today is Alerus CFO, Al Villalon, COO, Karin Taylor, Chief Banking Revenue Officer, Jim Collins, and Alerus Chief Retirement Services Officer, Forrest Wilson. 2025 was a milestone year for Alerus, in which we demonstrated not only strong core financial performance, but significant execution of major strategic initiatives that positions the company for sustainable organic growth and a return to top-tier profitability and performance. I'm incredibly proud of the team, not just for the financial results, including posting a core ROA of 1.62% this quarter, but for the collaborative efforts to accomplish these initiatives during the year.
Speaker #2: Joining me today are ALERUS CFO, Alan Villalon; COO, Karen Taylor; Chief Banking and Revenue Officer, Jim Collins; and ALERUS Chief Retirement Services Officer, Boris Wilson.
Speaker #2: 2025 was a milestone year for ALERUS, in which we demonstrated not only strong core financial performance, but significant execution of major strategic initiatives that positioned the company for sustainable organic growth and a return to top-tier profitability and performance.
Speaker #2: I'm incredibly proud of the team, not just for the financial results, including posting a core ROA of 1.62% this quarter, but for the collaborative efforts to accomplish these initiatives during the year.
Speaker #2: It is evident, through our ability to set goals, hold each other accountable, and exceed expectations, that the leadership team and the talent throughout this company are exceptionally strong and deep.
Katie Lorenson: It is evident through our ability to set goals, hold each other accountable, and exceed expectations that the leadership team and the talent throughout this company is exceptionally strong and deep. One of the most notable, notable accomplishments of 2025 was delivering results well above our committed targets, both financial and non-financial, in our first full year of operating as a combined organization with Home Federal. We delivered an adjusted ROA of 1.35% and an adjusted efficiency ratio of 64.45%, in addition to a net retention rate of deposits close to 95% and critical retention of key talent throughout the organization. These results solidify our integration capabilities of aligning people, systems, resources, and culture quickly and effectively.
It is evident through our ability to set goals, hold each other accountable, and exceed expectations that the leadership team and the talent throughout this company is exceptionally strong and deep. One of the most notable, notable accomplishments of 2025 was delivering results well above our committed targets, both financial and non-financial, in our first full year of operating as a combined organization with Home Federal. We delivered an adjusted ROA of 1.35% and an adjusted efficiency ratio of 64.45%, in addition to a net retention rate of deposits close to 95% and critical retention of key talent throughout the organization. These results solidify our integration capabilities of aligning people, systems, resources, and culture quickly and effectively.
Speaker #2: One of the most notable accomplishments of 2025 was delivering results well above our committed targets, both financial and non-financial, in our first full year of operating as a combined organization with Home Federal.
Speaker #2: We delivered an adjusted ROA of 1.35% and an adjusted efficiency ratio of 64.45%. In addition to a net retention rate of deposits close to 95% and critical retention of key talent throughout the organization.
Speaker #2: These results solidify our integration capabilities of aligning people, systems, resources, and culture quickly and effectively. Our focus in 2025 was to continue to enhance our commercial bank and to sustainably improve returns.
Katie Lorenson: Our focus in 2025 was to continue to enhance our commercial bank and to sustainably improve returns while focusing on our long-term strategy. In the back half of the year, we executed a purposeful deleveraging plan, actively managing loan paydowns and pruning marginal credits to strengthen our balance sheet and improve our flexibility. As we saw success in these initiatives, we took disciplined action to sell our legacy low-yielding available-for-sale securities portfolio. This balance sheet repositioning improved our earnings power going forward, reduces our AOCI volatility, enhances capital generation capacity, and gives us greater flexibility for lending in our markets. The deliberate steps we took position Alerus for stronger performance and tangible book value growth in 2026 and beyond, and demonstrates our commitment to creating long-term sustainable value for our clients, our communities, and our shareholders.
Our focus in 2025 was to continue to enhance our commercial bank and to sustainably improve returns while focusing on our long-term strategy. In the back half of the year, we executed a purposeful deleveraging plan, actively managing loan paydowns and pruning marginal credits to strengthen our balance sheet and improve our flexibility. As we saw success in these initiatives, we took disciplined action to sell our legacy low-yielding available-for-sale securities portfolio. This balance sheet repositioning improved our earnings power going forward, reduces our AOCI volatility, enhances capital generation capacity, and gives us greater flexibility for lending in our markets. The deliberate steps we took position Alerus for stronger performance and tangible book value growth in 2026 and beyond, and demonstrates our commitment to creating long-term sustainable value for our clients, our communities, and our shareholders.
Speaker #2: While focusing on our long-term strategy, in the back half of the year, we executed a purposeful deleveraging plan, actively managing loan paydowns and pruning marginal credits to strengthen our balance sheet and improve our flexibility.
Speaker #2: As we saw success in these initiatives, we took disciplined action to sell our legacy low-yielding available-for-sale securities portfolio. This balance sheet repositioning improved our earnings power going forward, reduces our AOCI volatility, enhances capital generation capacity, and gives us greater flexibility for lending in our markets.
Speaker #2: The deliberate steps we took position ALERUS for stronger performance and tangible book value growth in 2026 and beyond, and demonstrates our commitment to creating long-term sustainable value for our clients, our communities, and our shareholders.
Speaker #2: On the banking side, we saw a steady build of momentum throughout 2025, especially in the second half of the year. Excluding the purposeful reductions in CRE, the targeted loan sales, and our selective managing of renewals, organic loan growth for the year would have been closer to mid-single digits.
Katie Lorenson: On the banking side, we saw a steady build in momentum throughout 2025, especially in the second half of the year. Excluding the purposeful reductions in CRE, the targeted loan sales, and our selective managing of renewals, organic loan growth for the year would have been closer to mid-single digits. Of note, our strategic entry into the mid-market C&I space gained real traction as we moved through the year, and we entered 2026 with strong pipelines. Organic core deposit growth also picked up momentum in the back half of the year, with the focus shifting from retention as the team members worked through the deposit systems conversion. We are seeing some nice large opportunities for mid-market and government not-for-profit treasury management in early 2026, which should enhance our deposit growth through the year.
On the banking side, we saw a steady build in momentum throughout 2025, especially in the second half of the year. Excluding the purposeful reductions in CRE, the targeted loan sales, and our selective managing of renewals, organic loan growth for the year would have been closer to mid-single digits. Of note, our strategic entry into the mid-market C&I space gained real traction as we moved through the year, and we entered 2026 with strong pipelines. Organic core deposit growth also picked up momentum in the back half of the year, with the focus shifting from retention as the team members worked through the deposit systems conversion. We are seeing some nice large opportunities for mid-market and government not-for-profit treasury management in early 2026, which should enhance our deposit growth through the year.
Speaker #2: Of note, our strategic entry into the mid-market C&I space gained real traction as we moved through the year, and we entered 2026 with strong pipelines.
Speaker #2: Organic core deposit growth also picked up momentum in the back half of the year, with the focus shifting from retention as the team members worked through the deposit systems conversion.
Speaker #2: We're seeing some nice, large opportunities for mid-market and government not-for-profit treasury management in early 2026, which should enhance our deposit growth through the year.
Speaker #2: From a margin perspective, strong pricing discipline on both sides of the balance sheet throughout the organization drove the core NIM higher. Non-performing loans ticked up higher with the migration of an acquired purchase participation that was previously identified as a problem loan.
Katie Lorenson: From a margin perspective, strong pricing discipline on both sides of the balance sheet throughout the organization drove the core NIM higher. Non-performing loans ticked up higher with the migration of an acquired purchase participation that was previously identified as a problem loan. This is a multifamily property in the Twin Cities with a 15% reserve, and it should resolve relatively quickly. Our largest non-performing exposure continues to be a large multifamily loan in the Twin Cities with a book balance of approximately $32 million. This property now has multiple offers and is currently 74% leased. We are reserved at about 17% and continue to expect resolution by mid-year. Leading credit indicators showed meaningful improvement over the second half of 2025, including a 30% reduction in criticized asset levels.
From a margin perspective, strong pricing discipline on both sides of the balance sheet throughout the organization drove the core NIM higher. Non-performing loans ticked up higher with the migration of an acquired purchase participation that was previously identified as a problem loan. This is a multifamily property in the Twin Cities with a 15% reserve, and it should resolve relatively quickly. Our largest non-performing exposure continues to be a large multifamily loan in the Twin Cities with a book balance of approximately $32 million. This property now has multiple offers and is currently 74% leased. We are reserved at about 17% and continue to expect resolution by mid-year. Leading credit indicators showed meaningful improvement over the second half of 2025, including a 30% reduction in criticized asset levels.
Speaker #2: This is a multifamily property in the Twin Cities with a 15% reserve, and it should resolve relatively quickly. Our largest non-performing exposure continues to be a large multifamily loan in the Twin Cities with a book balance of approximately $32 million.
Speaker #2: This property now has multiple offers and is currently 74% leased. We are reserved at about 17% and continue to expect resolution by mid-year. Leading credit indicators showed meaningful improvement over the second half of 2025, including a 30% reduction in criticized asset levels.
Speaker #2: While we had another quarter of net recoveries and a slight reserve release, the allowance for loan losses remained robust at 1.53% of total loans.
Katie Lorenson: While we had another quarter of net recoveries and a slight reserve release, the allowance for loan losses remained robust at 1.53% of total loans. In addition, capital accretion boosted the TCE ratio to 8.72%, putting the balance sheet in a strong position for organic loan growth. Moving on to our ultimate differentiator, our fee income businesses, where we grew core revenues 7% year-over-year. Although our most recent acquisitions have been strategic bank additions in key markets like Rochester, Minnesota, and Phoenix, Arizona, we have maintained fee income at over 40% of total revenues, almost 3 times the average of most financial institutions. Notably, we ended the year with assets in our retirement and wealth divisions at nearly $50 billion, or 10 times the assets in our banking division.
While we had another quarter of net recoveries and a slight reserve release, the allowance for loan losses remained robust at 1.53% of total loans. In addition, capital accretion boosted the TCE ratio to 8.72%, putting the balance sheet in a strong position for organic loan growth. Moving on to our ultimate differentiator, our fee income businesses, where we grew core revenues 7% year-over-year. Although our most recent acquisitions have been strategic bank additions in key markets like Rochester, Minnesota, and Phoenix, Arizona, we have maintained fee income at over 40% of total revenues, almost 3 times the average of most financial institutions. Notably, we ended the year with assets in our retirement and wealth divisions at nearly $50 billion, or 10 times the assets in our banking division.
Speaker #2: In addition, capital accretion boosted the TCE ratio to 8.72%, putting the balance sheet in a strong position for organic loan growth. Moving on to our ultimate differentiator—our fee income businesses—where we grew core revenues 7% year over year.
Speaker #2: Although our most recent acquisitions have been strategic bank additions in key markets like Rochester, Minnesota, and Phoenix, Arizona, we have maintained fee income at over 40% of total revenues.
Speaker #2: Almost three times the average of most financial institutes. Notably, we ended the year with assets in our retirement and wealth divisions at nearly $50 billion, or 10 times the assets in our banking division.
Speaker #2: Our retirement division delivered strong results, including robust sales, continued better-than-industry client retention, and growth in plans and participants. We ended 2025 with the strongest revenue momentum this division has seen—momentum we believe will continue into 2026 and beyond.
Katie Lorenson: Our retirement division delivered strong results, including robust sales, continued better-than-industry client retention, and growth in plans and participants. We ended 2025 with the strongest revenue momentum this division has seen. Momentum, we believe, will continue into 2026 and beyond. Our retirement business remains integral to our overall success, providing over 1/4 of the company's funding and serving as a powerful internal source of wealth management opportunities. In 2025, we continued to expand our national presence through partnerships anchored in our distinguished reputation for outstanding client service. As the 25th largest provider in the country, and with a new leadership team in place, we will continue to invest in technology and AI to enhance scalability and improve margins.
Our retirement division delivered strong results, including robust sales, continued better-than-industry client retention, and growth in plans and participants. We ended 2025 with the strongest revenue momentum this division has seen. Momentum, we believe, will continue into 2026 and beyond. Our retirement business remains integral to our overall success, providing over 1/4 of the company's funding and serving as a powerful internal source of wealth management opportunities. In 2025, we continued to expand our national presence through partnerships anchored in our distinguished reputation for outstanding client service. As the 25th largest provider in the country, and with a new leadership team in place, we will continue to invest in technology and AI to enhance scalability and improve margins.
Speaker #2: Our retirement business remains integral to our overall success, providing over a quarter of the company's funding and serving as a powerful internal source of wealth management opportunities.
Speaker #2: In 2025, we continue to expand our national presence through partnerships anchored in our distinguished reputation for outstanding client service. As the 25th largest provider in the country, and with a new leadership team in place, we will continue to invest in technology and AI to enhance scalability and improve margins.
Speaker #2: During the year, we successfully converted our entire wealth business onto a new system, achieving 100% client retention, thanks to excellent execution by our support teams and the high-touch service delivered by our wealth advisors.
Katie Lorenson: During the year, we successfully converted our entire wealth business onto a new system, achieving 100% client retention, thanks to excellent execution by our support teams and the high-touch service delivered by our wealth advisors. This reinvestment strengthens our foundation and positions us to advance our strategic plan to double the number of advisors across the Alerus franchise, with the aspirational goal of growing our wealth assets at the same pace as our banking assets. Earlier this month, we finalized the first step in building our next generation team with the selection of our new wealth management leader, an experienced professional with deep expertise in wealth, trust, and institutional advisory, and a proven ability to recruit talent and drive key strategic initiatives.
During the year, we successfully converted our entire wealth business onto a new system, achieving 100% client retention, thanks to excellent execution by our support teams and the high-touch service delivered by our wealth advisors. This reinvestment strengthens our foundation and positions us to advance our strategic plan to double the number of advisors across the Alerus franchise, with the aspirational goal of growing our wealth assets at the same pace as our banking assets. Earlier this month, we finalized the first step in building our next generation team with the selection of our new wealth management leader, an experienced professional with deep expertise in wealth, trust, and institutional advisory, and a proven ability to recruit talent and drive key strategic initiatives.
Speaker #2: This reinvestment strengthens our foundation and positions us to advance our strategic plan to double the number of advisors across the Alerus franchise, with the aspirational goal of growing our wealth assets at the same pace as our banking assets.
Speaker #2: Earlier this month, we finalized the first step in building our next-generation team with the selection of our new wealth management leader. An experienced professional with deep expertise in wealth, trust, and institutional advisory, and a proven ability to recruit talent and drive key strategic initiatives.
Speaker #2: On a core and reported basis, we saw strong operating leverage, even as we modernized our systems, implemented new core platforms, and strengthened our digital capabilities.
Katie Lorenson: On a core and reported basis, we saw strong operating leverage, even as we modernized our systems, implemented new core platforms, and strengthened our digital capabilities, while we produced record levels of sales throughout many of our business lines. We did this all while managing our headcount down over 6% from its peak in October 2024. These upgrades allow us to move faster, create more consistency in client experience, and operate with greater scalability. They also ensure we're we're building a future-ready organization, one that is ready to embed AI and automation where it improves quality, efficiency, and client insight. CET1 capital levels ended the year at 10.28%, up from 9.91% a year ago, giving us ample flexibility to support growth, sustain our dividend, and selectively pursue opportunities.
On a core and reported basis, we saw strong operating leverage, even as we modernized our systems, implemented new core platforms, and strengthened our digital capabilities, while we produced record levels of sales throughout many of our business lines. We did this all while managing our headcount down over 6% from its peak in October 2024. These upgrades allow us to move faster, create more consistency in client experience, and operate with greater scalability. They also ensure we're we're building a future-ready organization, one that is ready to embed AI and automation where it improves quality, efficiency, and client insight. CET1 capital levels ended the year at 10.28%, up from 9.91% a year ago, giving us ample flexibility to support growth, sustain our dividend, and selectively pursue opportunities.
Speaker #2: While we produced record levels of sales throughout many of our business lines, we did this all while managing our headcount down over 6% from its peak in October 2024.
Speaker #2: These upgrades allow us to move faster, create more consistency in client experience, and operate with greater scalability. They also ensure we're building a future-ready organization—one that is ready to embed AI and automation where it improves quality, efficiency, and client insights.
Speaker #2: CET1 capital levels ended the year at 10.28%, up from 9.91% a year ago, giving us ample flexibility to support growth, sustain our dividend, and selectively pursue opportunities.
Speaker #2: Our primary focus remains on organic growth and strategic hiring, as we continue to see meaningful talent and market share opportunities stemming from recent M&A disruption in the Twin Cities.
Katie Lorenson: Our primary focus remains on organic growth and strategic hiring as we continue to see meaningful talent and market share opportunities stemming from recent M&A disruption in the Twin Cities. As the second-largest locally-led financial institution in the market, with $55 billion in banking, wealth, and retirement assets, nearly $300 million in adjusted revenue, and over $600 million in market cap, Alerus is well positioned to capture this momentum. Over the past several years, we have successfully lifted out high-performing teams and professionals, leveraging our deep expertise in C&I, private banking, and wealth management. The strong synergies across these business lines, combined with our expanding physical and brand presence in the Twin Cities, position us to continue attracting top talents, growing C&I relationships, and serving more high-net-worth clients. As we enter 2026, we do so from a position of strength and are set for continued momentum.
Our primary focus remains on organic growth and strategic hiring as we continue to see meaningful talent and market share opportunities stemming from recent M&A disruption in the Twin Cities. As the second-largest locally-led financial institution in the market, with $55 billion in banking, wealth, and retirement assets, nearly $300 million in adjusted revenue, and over $600 million in market cap, Alerus is well positioned to capture this momentum. Over the past several years, we have successfully lifted out high-performing teams and professionals, leveraging our deep expertise in C&I, private banking, and wealth management. The strong synergies across these business lines, combined with our expanding physical and brand presence in the Twin Cities, position us to continue attracting top talents, growing C&I relationships, and serving more high-net-worth clients. As we enter 2026, we do so from a position of strength and are set for continued momentum.
Speaker #2: As the second-largest locally led financial institution in the market, with $55 billion in banking, wealth, and retirement assets, nearly $300 million in adjusted revenue, and over $600 million in market cap, ALERUS is well positioned to capture this momentum.
Speaker #2: Over the past several years, we have successfully lifted out high-performing teams and professionals, leveraging our deep expertise in C&I, private banking, and wealth management.
Speaker #2: The strong synergies across these business lines, combined with our expanding physical and brand presence in the Twin Cities, position us to continue attracting top talent, growing C&I relationships, and serving more high-net-worth clients.
Speaker #2: As we enter 2026, we do so from a position of strength and are set for continued momentum. We have a unified and clearly defined strategy, a modernized operating environment, a de-risked, future-ready balance sheet, durable, diversified revenue engines across banking, wealth, and retirement, strong capital and liquidity, a deep leadership team built for the next chapter, and a culture centered on accountability to each other, our shareholders, our clients, and our communities.
Katie Lorenson: We have a unified and clearly defined strategy, a modernized operating environment, a de-risked, future-ready balance sheet, durable, diversified revenue engines across banking, wealth, and retirement, strong capital and liquidity, a deep leadership team built for the next chapter, and a culture centered on accountability to each other, our shareholders, our clients, and our communities. We expect to continue generating positive core operating leverage, expanding tangible book value, and delivering top-tier long-term returns. The work we did in 2025, integrating, modernizing, de-risking, and aligning, creates the conditions for stronger and more consistent performance in the years ahead. With that, I will hand it over to Al Villalon.
We have a unified and clearly defined strategy, a modernized operating environment, a de-risked, future-ready balance sheet, durable, diversified revenue engines across banking, wealth, and retirement, strong capital and liquidity, a deep leadership team built for the next chapter, and a culture centered on accountability to each other, our shareholders, our clients, and our communities. We expect to continue generating positive core operating leverage, expanding tangible book value, and delivering top-tier long-term returns. The work we did in 2025, integrating, modernizing, de-risking, and aligning, creates the conditions for stronger and more consistent performance in the years ahead. With that, I will hand it over to Al Villalon.
Speaker #2: We expect to continue generating positive core operating leverage, expanding tangible book value, and delivering top-tier long-term returns. The work we did in 2025—integrating, modernizing, de-risking, and aligning—creates the conditions for stronger and more consistent performance in the years ahead.
Speaker #2: With that, I will hand it over to Al Bellon. Thanks, Katie. Before I start, let's recap at a high level. 2025, as you can see on page eight of our investor deck—that is posted on the Investor Relations part of our website.
Al Villalon: Thanks, Katie. Before I start, let's recap at a high level, 2025, as you can see on page 8 of our investor deck that is posted on the investor relations part of our website. We just posted record-adjusted earnings and over 21% adjusted return on tangible equity after the biggest acquisition in company history. Also, we continued our strategic balance sheet repositioning to ensure continued success in deriving shareholder value creation. For the past several years, the company's risk and return profile has dramatically improved for the better. Change takes time, and change will continue as the environment changes. I'll now jump to page 11 of our investor deck to go over financials in more detail.
Alan Villalon: Thanks, Katie. Before I start, let's recap at a high level, 2025, as you can see on page 8 of our investor deck that is posted on the investor relations part of our website. We just posted record-adjusted earnings and over 21% adjusted return on tangible equity after the biggest acquisition in company history. Also, we continued our strategic balance sheet repositioning to ensure continued success in deriving shareholder value creation. For the past several years, the company's risk and return profile has dramatically improved for the better. Change takes time, and change will continue as the environment changes. I'll now jump to page 11 of our investor deck to go over financials in more detail.
Speaker #2: We just posted record adjusted earnings and over 21% adjusted return on tangible equity after the biggest acquisition in company history. Also, we continued our strategic balance sheet repositioning to ensure continued success in driving shareholder value creation.
Speaker #2: Over the past several years, the company's risk and return profile has dramatically improved for the better. Change takes time, and change will continue as the environment changes.
Speaker #2: I'll now jump to page 11 of our investor deck to go over our financials in more detail. On a reported basis, net interest income increased 4.7% over the prior quarter, while adjusted non-interest income increased 8.3%, which excludes the loss in securities and other one-time items.
Al Villalon: On a reported basis, net interest income increased 4.7% over the prior quarter, while adjusted non-interest income increased 8.3%, which excludes the loss in securities and other one-time items. Net interest income grew due to a decrease in our cost of funds. Fee income grew as revenues grew both in our retirement and wealth segments. Overall, fee income, excluding the loss in securities, continued to remain over 40% of revenues and over double the industry average. Let's dive into drivers of net interest income on the next slide. Turning to page 12, in the fourth quarter, net interest income continued to reach new heights at $45.2 million, and our reported net interest margin increased to 3.69%. Total cost of funds decreased 16 basis points to 2.18%.
On a reported basis, net interest income increased 4.7% over the prior quarter, while adjusted non-interest income increased 8.3%, which excludes the loss in securities and other one-time items. Net interest income grew due to a decrease in our cost of funds. Fee income grew as revenues grew both in our retirement and wealth segments. Overall, fee income, excluding the loss in securities, continued to remain over 40% of revenues and over double the industry average. Let's dive into drivers of net interest income on the next slide. Turning to page 12, in the fourth quarter, net interest income continued to reach new heights at $45.2 million, and our reported net interest margin increased to 3.69%. Total cost of funds decreased 16 basis points to 2.18%.
Speaker #2: Net interest income grew due to a decrease in our cost of funds. Fee income grew as revenues grew in both our retirement and wealth segments.
Speaker #2: Overall, fee income, excluding the loss in securities, continues to remain over 40% of revenues and over double the industry average. Let's dive into drivers of net interest income on the next slide.
Speaker #2: Turning to page 12, in the fourth quarter, net interest income continued to reach new heights at $45.2 million, and our reported net interest margin increased to 3.69%.
Speaker #2: Total cost of funds decreased 16 basis points to 2.18%. We also had 52 basis points related to purchase accounting accretion and non-recurring items in the quarter.
Al Villalon: We also had 52 basis points related to purchase accounting accretion and non-recurring items in the quarter. Excluding these 52 basis points, core interest margin was 3.17%, a 12-basis point improvement from Q3. We continued to remain disciplined in pricing on both loans and deposits. In Q4, we saw new loan spreads of 258 basis points over Fed funds, while deposit costs were coming in at 116 basis points below Fed funds. These spreads make up what we call a new business margin of 374 basis points. This is a very strong margin, which we continue to expect to build core net interest income and will replace purchase accounting accretion. Let's turn to page 13 to talk about our earning assets.
We also had 52 basis points related to purchase accounting accretion and non-recurring items in the quarter. Excluding these 52 basis points, core interest margin was 3.17%, a 12-basis point improvement from Q3. We continued to remain disciplined in pricing on both loans and deposits. In Q4, we saw new loan spreads of 258 basis points over Fed funds, while deposit costs were coming in at 116 basis points below Fed funds. These spreads make up what we call a new business margin of 374 basis points. This is a very strong margin, which we continue to expect to build core net interest income and will replace purchase accounting accretion. Let's turn to page 13 to talk about our earning assets.
Speaker #2: Excluding these 52 basis points, core interest margin was 3.17%, a 12 basis point improvement from the third quarter. We continued to remain disciplined in pricing on both loans and deposits.
Speaker #2: In the fourth quarter, we saw new loan spreads of 258 basis points over Fed funds, while deposit costs were coming in at 116 basis points below Fed funds.
Speaker #2: These spreads make up what we call a new business margin of 374 basis points. This is a very strong margin, which we continue to expect to build core net interest income and will replace purchase accounting accretion.
Speaker #2: Let's turn to page 13 to talk about our earning assets. At the end of the fourth quarter, loans decreased 1.3% over the previous quarter.
Al Villalon: At the end of Q4, loans decreased 1.3% over the previous quarter. The decrease in loans was driven by strategic downsizing of the loan portfolio to help improve our overall risk profile. As previously mentioned, we pushed out credit risk from non-core loans and did not renew certain relationships. Overall, our loan mix remains around 50% fixed and 50% floating. On investments, we sold $360 million of available-for-sale securities, which represented over 68% of total AFS securities. The securities sold had an average weighted yield of 1.7% and a weighted average duration of 5.1 years. Proceeds from the securities sale were reinvested into new investment securities with a weighted average yield of 4.7% and a weighted average duration of just over 3 years.
At the end of Q4, loans decreased 1.3% over the previous quarter. The decrease in loans was driven by strategic downsizing of the loan portfolio to help improve our overall risk profile. As previously mentioned, we pushed out credit risk from non-core loans and did not renew certain relationships. Overall, our loan mix remains around 50% fixed and 50% floating. On investments, we sold $360 million of available-for-sale securities, which represented over 68% of total AFS securities. The securities sold had an average weighted yield of 1.7% and a weighted average duration of 5.1 years. Proceeds from the securities sale were reinvested into new investment securities with a weighted average yield of 4.7% and a weighted average duration of just over 3 years.
Speaker #2: The decrease in loans was driven by strategic downsizing of the loan portfolio to help improve our overall risk profile. As previously mentioned, we pushed out credit risk from non-core loans and did not renew certain relationships.
Speaker #2: Overall, our loan mix remains around 50% fixed and 50% floating. On investments, we sold $360 million of available-for-sale securities, which represented over 68% of total AFS securities.
Speaker #2: The securities sold had an average weighted yield of 1.7% and a weighted average duration of 5.1 years. Proceeds from the securities sale were reinvested into new investment securities with a weighted average yield of 4.7% and a weighted average duration of just over three years.
Speaker #2: Excluding balance sheet derivatives, we remained slightly liability sensitive. Any 25 basis point cut in Fed funds should help improve our net interest margin around five basis points.
Al Villalon: Excluding balance sheet derivatives, we remain slightly liability sensitive. Any 25 basis point cut in Fed funds should help improve our net interest, net interest margin around 5 basis points. Turning to page 14, on a period-ending basis, deposits declined 5%, mainly due to calling in of over $165 million in broker deposits and the running off of another $45 million in other wholesale funding to optimize our cost of funds. Excluding the intentional optimizations, deposits declined approximately only $10 million, or 0.2% from the prior quarter. Despite the overall decline in deposits, our loan to deposit ratio was 96.6%. Lastly, since the close of the acquisition of Home Federal, our deposit retention rate remains close to 95%. Turning to page 15, I will now talk about our banking segment, which also includes our mortgage business.
Excluding balance sheet derivatives, we remain slightly liability sensitive. Any 25 basis point cut in Fed funds should help improve our net interest, net interest margin around 5 basis points. Turning to page 14, on a period-ending basis, deposits declined 5%, mainly due to calling in of over $165 million in broker deposits and the running off of another $45 million in other wholesale funding to optimize our cost of funds. Excluding the intentional optimizations, deposits declined approximately only $10 million, or 0.2% from the prior quarter. Despite the overall decline in deposits, our loan to deposit ratio was 96.6%. Lastly, since the close of the acquisition of Home Federal, our deposit retention rate remains close to 95%. Turning to page 15, I will now talk about our banking segment, which also includes our mortgage business.
Speaker #2: Turning to page 14, on a period-ending basis, deposits declined 5%, mainly due to the calling in of over $165 million in broker deposits and the running off of another $45 million in other wholesale funding to optimize our cost of funds.
Speaker #2: Excluding the intentional optimizations, deposits declined approximately only $10 million, or 0.2%, from the prior quarter. Despite the overall decline in deposits, our loan-to-deposit ratio was 96.6%.
Speaker #2: Lastly, since the close of the acquisition of Home Federal, our deposit retention rate remains close to 95%. Turning to page 15, I will now talk about our banking segment, which also includes our mortgage business.
Speaker #2: I will focus on the fee income components now, since net interest income was previously discussed. Mortgage saw only a 4.2% decrease in originations during the quarter.
Al Villalon: I will focus on the fee income components now, since net interest income was previously discussed. Mortgage saw only a 4.2%, 4.2% decrease in originations during the quarter. We usually see a bigger seasonal slowdown in mortgage, but we saw refi activity pick up in the fourth quarter. Currently, we are seeing the usual slowdown originations as January is off to a slower start. Lastly, we saw approximately $1 million in swap fee income this quarter. As a reminder, swap fee income tends to be lumpy from quarter to quarter. On page 16, I'll provide some highlights on our retirement business. Total revenue from the business increased to $17.3 million, a 4.6% increase over the prior quarter. Most of the increase was driven by growth in both asset and transaction-based fees.
I will focus on the fee income components now, since net interest income was previously discussed. Mortgage saw only a 4.2%, 4.2% decrease in originations during the quarter. We usually see a bigger seasonal slowdown in mortgage, but we saw refi activity pick up in the fourth quarter. Currently, we are seeing the usual slowdown originations as January is off to a slower start. Lastly, we saw approximately $1 million in swap fee income this quarter. As a reminder, swap fee income tends to be lumpy from quarter to quarter. On page 16, I'll provide some highlights on our retirement business. Total revenue from the business increased to $17.3 million, a 4.6% increase over the prior quarter. Most of the increase was driven by growth in both asset and transaction-based fees.
Speaker #2: We usually see a bigger seasonal slowdown in mortgage, but we saw refi activity pick up in the fourth quarter. Currently, we are seeing the usual slowdown in originations, as January is off to a slower start.
Speaker #2: Lastly, we saw approximately $1 million in swap fee income this quarter. As a reminder, swap fee income tends to be lumpy from quarter to quarter.
Speaker #2: On page 16, I'll provide some highlights on our retirement business. Total revenue from the business increased to $17.3 million, a 4.6% increase over the prior quarter.
Speaker #2: Most of the increase was driven by growth in both asset- and transaction-based fees. Assets under administration and management increased 2.1%, due to market performance and net positive asset flows into our retirement business during the quarter.
Al Villalon: Assets under administration and management increased 2.1% due to market performance and net positive asset flows into our retirement business during the quarter. Synergistic deposits within our retirement segment grew 5.6% over the prior quarter. HSA deposits grew over the prior quarter to over $203 million. HSA deposits continue to remain a strong source of funding for us, as these deposits only carry a cost of 10 basis points. These deposits are a valuable source of funding for the bank, which are not reflected in the margin information in this slide. Turning to page 17, you can see highlights for our wealth management business.
Assets under administration and management increased 2.1% due to market performance and net positive asset flows into our retirement business during the quarter. Synergistic deposits within our retirement segment grew 5.6% over the prior quarter. HSA deposits grew over the prior quarter to over $203 million. HSA deposits continue to remain a strong source of funding for us, as these deposits only carry a cost of 10 basis points. These deposits are a valuable source of funding for the bank, which are not reflected in the margin information in this slide. Turning to page 17, you can see highlights for our wealth management business.
Speaker #2: Synergistic deposits within our retirement segment grew 5.6% over the prior quarter. HSA deposits grew over the prior quarter to over $203 million. HSA deposits continue to remain a strong source of funding for us, since these deposits only carry a cost of 10 basis points.
Speaker #2: These deposits are a valuable source of funding for the bank, which are not reflected in the margin information in this slide. Turning to page 17, you can see highlights for our wealth management business.
Speaker #2: On a late quarter basis, revenues increased 13.4% to $7.4 million, while end-of-quarter assets under management increased 0.8%, mainly due to market performance. Revenue increased due to an increase in asset-based fees.
Al Villalon: On a linked quarter basis, revenues increased 13.4% to $7.4 million, while end of quarter assets under management increased 0.8%, mainly due to market performance. Revenue increased due to an increase in asset-based fees. Page 18 provides an overview of our non-interest expense. During the quarter, non-interest expense increased 2.7%. The increase was partially driven by an increase related to the opening of a new facility in Fargo, North Dakota. We also saw an increase in technology expenses driven by new core systems such as our wealth and online banking platforms. Professional fees increased related to the balance sheet restriction that occurred at the end of 2025. Turning to page 19, you can see our credit metrics. During the quarter, we had net recoveries of 3 basis points.
On a linked quarter basis, revenues increased 13.4% to $7.4 million, while end of quarter assets under management increased 0.8%, mainly due to market performance. Revenue increased due to an increase in asset-based fees. Page 18 provides an overview of our non-interest expense. During the quarter, non-interest expense increased 2.7%. The increase was partially driven by an increase related to the opening of a new facility in Fargo, North Dakota. We also saw an increase in technology expenses driven by new core systems such as our wealth and online banking platforms. Professional fees increased related to the balance sheet restriction that occurred at the end of 2025. Turning to page 19, you can see our credit metrics. During the quarter, we had net recoveries of 3 basis points.
Speaker #2: Page 18 provides an overview of our non-interest expense. During the quarter, non-interest expense increased 2.7%. The increase was partially driven by an increase related to the opening of a new facility in Fargo, North Dakota.
Speaker #2: We also saw an increase in technology expenses driven by new core systems such as our wealth and online banking platforms. Professional fees increased related to the balance sheet restructuring that occurred at the end of 2025.
Speaker #2: Turning to page 19, you can see our credit metrics. During the quarter, we had net recoveries of three basis points. The quarter-over-quarter decrease was permanent was primarily driven by 1.9 million dollars recovery in the third quarter of 2025 related to a loan that had previously been charged off.
Al Villalon: The quarter-over-quarter decrease was primarily driven by $1.9 million recovery in Q3 2025, related to a loan that had previously been charged off. Non-performing assets were 1.27%, an increase of 14 basis points from the prior quarter, driven by a slight increase in non-performing assets and a decrease in overall assets. I'll discuss our capital liquidity on page 20. Our tangible common equity ratio improved to 8.72% versus 8.24% in the prior quarter. We continue to have close to $2.8 billion in liquidity to help support loan growth in any liquidity events. We remain committed to driving tangible book value growth, with excess capital being used to support organic loan growth, our dividend payout, and share repurchases.
The quarter-over-quarter decrease was primarily driven by $1.9 million recovery in Q3 2025, related to a loan that had previously been charged off. Non-performing assets were 1.27%, an increase of 14 basis points from the prior quarter, driven by a slight increase in non-performing assets and a decrease in overall assets. I'll discuss our capital liquidity on page 20. Our tangible common equity ratio improved to 8.72% versus 8.24% in the prior quarter. We continue to have close to $2.8 billion in liquidity to help support loan growth in any liquidity events. We remain committed to driving tangible book value growth, with excess capital being used to support organic loan growth, our dividend payout, and share repurchases.
Speaker #2: Non-performing assets were 1.27%, an increase of 14 basis points from the prior quarter, driven by slight increase in non-performing assets and a decrease in overall assets.
Speaker #2: I'll discuss our capital and liquidity on page 20. Our tangible common equity ratio improved to 8.72% versus 8.24% in the prior quarter. We continue to have close to 2.8 billion dollars in liquidity to help support loan growth and any liquidity events.
Speaker #2: We remain committed to driving tangible book value growth with excess capital being used to support organic loan growth, our dividend payout, and share repurchases.
Speaker #2: Now, turning to page 21, I'll update you on our guidance for 2026. We expect the following: for 2026, we expect loans to continue to grow at a mid-single-digit growth rate.
Al Villalon: Now turning to page 21, I'll update you on our guidance for 2026. We expect the following: For 2026, we expect loans to continue to grow at a mid-single digit growth rate. We expect to grow deposits in the low single digits. As previously mentioned, we have ample liquidity to meet any loan growth in excess of deposit growth. For 2026, we're expecting our net interest margin to be around 3.5 to 3.6%, which will include about 16 basis points or just over $8 million of purchase accounting accretion and no early payoffs. This is close to a 60% reduction of purchase accounting accretion from 2025. You'll continue to see improvement in core net interest margin, replacing purchase accounting accretion for 2026. As a reminder, improvement is not linear.
Now turning to page 21, I'll update you on our guidance for 2026. We expect the following: For 2026, we expect loans to continue to grow at a mid-single digit growth rate. We expect to grow deposits in the low single digits. As previously mentioned, we have ample liquidity to meet any loan growth in excess of deposit growth. For 2026, we're expecting our net interest margin to be around 3.5 to 3.6%, which will include about 16 basis points or just over $8 million of purchase accounting accretion and no early payoffs. This is close to a 60% reduction of purchase accounting accretion from 2025. You'll continue to see improvement in core net interest margin, replacing purchase accounting accretion for 2026. As a reminder, improvement is not linear.
Speaker #2: We expect to grow deposits in a low single digit. As previously mentioned, we have ample liquidity to meet any loan growth in excess of deposit growth.
Speaker #2: For 2026, we're expecting our net interest margin to be around 3.5 to 3.6%, which will include about 16 basis points or just over 8 million dollars of purchase accounting accretion and no early payoffs.
Speaker #2: This is close to a 60% reduction of purchase accounting accretion from 2025. You'll continue to see improvement in quarter and interest margin replacing purchase accounting accretion for 2026.
Speaker #2: As a reminder, improvement is not linear. With the aforementioned guidance, net interest income is projected to grow in the low- to mid-single digits for 2026. We expect our adjusted non-interest income to grow in the mid-single digits, driven by continued core growth and our wealth and retirement businesses.
Al Villalon: With the aforementioned guidance, net interest income is projected to grow low to mid-single digits for 2026. We expect our adjusted non-interest income to grow in the mid-single digits, driven by continued core growth in our wealth and retirement businesses. No swap fee income is included in this guidance, as it tends to be difficult to estimate and dependent on client demand. Overall, net revenue is poised to grow mid-single digits. Non-interest expense is expected to grow low single digits, which shows our commitment to driving positive operating leverage. For 2026, we expect our ROA to exceed 1.2% for the year. We do not have any further Fed cuts in our expectations for 2026. And again, for every 25 basis points cut in rates, we're expecting them to improve about 5 basis points.
With the aforementioned guidance, net interest income is projected to grow low to mid-single digits for 2026. We expect our adjusted non-interest income to grow in the mid-single digits, driven by continued core growth in our wealth and retirement businesses. No swap fee income is included in this guidance, as it tends to be difficult to estimate and dependent on client demand. Overall, net revenue is poised to grow mid-single digits. Non-interest expense is expected to grow low single digits, which shows our commitment to driving positive operating leverage. For 2026, we expect our ROA to exceed 1.2% for the year. We do not have any further Fed cuts in our expectations for 2026. And again, for every 25 basis points cut in rates, we're expecting them to improve about 5 basis points.
Speaker #2: No swap fee income is included in this guidance, as it tends to be difficult to estimate and is dependent on client demand. Overall, net revenue is poised to grow in the mid-single digits.
Speaker #2: Non-interest expense is expected to grow in the low single digits, which shows our commitment to driving positive operating leverage. For 2026, we expect our ROA to exceed 1.2% for the year.
Speaker #2: We do not have any further Fed cuts in our expectations for 2026. And again, for every 25-basis-point cut in rates, we expect them to improve about 5 basis points.
Speaker #2: While we showed while we showed the underlying potential of this better and bigger company in 2025, 2026 is about continued improvement. Our core business is to drive higher return to drive returns higher.
Al Villalon: While we showed the underlying potential of this better and bigger company in 2025, 2026 is about continued improvement of our core businesses to drive higher return—to drive returns higher. So get on the bus and buy some Alerus. With that, I'll open up for Q&A.
While we showed the underlying potential of this better and bigger company in 2025, 2026 is about continued improvement of our core businesses to drive higher return—to drive returns higher. So get on the bus and buy some Alerus. With that, I'll open up for Q&A.
Speaker #2: So get on the bus and buy some Alerus. With that, I'll open up for Q&A. The first question comes from Brandon Nozel of LD Group.
Operator: The first question comes from Brandon Nosal of Hovde Group. Your line is now open.
Operator: The first question comes from Brandon Nosal of Hovde Group. Your line is now open.
Speaker #2: Your line is not open.
Speaker #3: Hey, good morning, everybody. Hope you're doing well.
Brandon Nosal: Good morning, everybody. Hope you're doing well.
Brendan Nosal: Good morning, everybody. Hope you're doing well.
Speaker #4: Hey, Brandon.
Al Villalon: Hey, Brandon.
Alan Villalon: Hey, Brandon.
Brandon Nosal: Maybe just starting off here on kind of balance sheet dynamics for 2026, you know, with the mid-single-digit loan guide and then the deposit guide for low single. You know, totally get that you have the liquidity to, you know, fund the loan growth that you're seeing coming through. Maybe just speak to your comfort bringing up the Loan-to-Deposit Ratio from current levels, and is there any kind of internal ceiling that you want to manage around from here?
Speaker #3: maybe just starting off here on kind of balance sheet dynamics for, '26, you know, with the mid-single digit loan guide and, and the deposit guide for, for low single, you know, totally get that you had the liquidity to, you know, fund the loan growth that you're seeing coming through.
Brendan Nosal: Maybe just starting off here on kind of balance sheet dynamics for 2026, you know, with the mid-single-digit loan guide and then the deposit guide for low single. You know, totally get that you have the liquidity to, you know, fund the loan growth that you're seeing coming through. Maybe just speak to your comfort bringing up the Loan-to-Deposit Ratio from current levels, and is there any kind of internal ceiling that you want to manage around from here?
Speaker #3: Maybe just speak to your comfort bringing up the loan-to-deposit ratio from current levels, and is there any kind of internal ceiling that you want to manage around from here?
Al Villalon: Brandon, thanks. This is Al. We try to manage around a 95% loan-to-deposit ratio, but we also acknowledge that we typically see that tick up as we see some outflows from our public funds, especially in Q2 and Q3 of every year. We look to usually have around a 95 to 96% loan-to-deposit ratio.
Alan Villalon: Brandon, thanks. This is Al. We try to manage around a 95% loan-to-deposit ratio, but we also acknowledge that we typically see that tick up as we see some outflows from our public funds, especially in Q2 and Q3 of every year. We look to usually have around a 95 to 96% loan-to-deposit ratio.
Speaker #4: Brandon, I don't think this is Al. We try to manage around a 95% loan-to-deposit ratio, but we also acknowledge that we typically see that tick up as we see some outflows from our public funds, especially in the second and third quarter of every year.
Speaker #4: But we look to usually have around a 95% to 96% loan-to-deposit ratio.
Speaker #3: Okay. Okay. Thanks. maybe turning to, to expenses, just kind of curious, you know, what you have underlying that outlook in terms of, tech investments or, or room for team ads across the year, kind of baked into that, that
Brandon Nosal: Okay. Okay, thanks. Maybe turning to expenses. Just kind of curious, you know, what you have underlying that outlook in terms of tech investments or room for team adds across the year, kind of baked into that outlook.
Brendan Nosal: Okay. Okay, thanks. Maybe turning to expenses. Just kind of curious, you know, what you have underlying that outlook in terms of tech investments or room for team adds across the year, kind of baked into that outlook.
Speaker #3: outlook. so in terms
Al Villalon: So in terms of team ads, I'll let Jim talk about that, but we do have ads incorporated into that guidance. Also, from a tech standpoint, too, we've incorporated our contracts that have some variable costs going up over the year and also the new platforms we've just implemented.
Alan Villalon: So in terms of team ads, I'll let Jim talk about that, but we do have ads incorporated into that guidance. Also, from a tech standpoint, too, we've incorporated our contracts that have some variable costs going up over the year and also the new platforms we've just implemented.
Speaker #4: Of team ads, I'll let Jim talk about that. But we do have ads incorporated into that guidance. Also, from a tech standpoint too, we've incorporated our contracts that have some variable costs going up over the year, and also the new platforms we just implemented.
Speaker #3: Yeah, we have ads for, specifically in the wealth areas, embedded in the expenses in ’26. And a number of ads in commercial banking.
Jim Collins: Yeah, we have adds for, specifically in the wealth areas embedded in the expenses in 2026 and a number of adds in commercial banking embedded in the expenses for 2026.
Jim Collins: Yeah, we have adds for, specifically in the wealth areas embedded in the expenses in 2026 and a number of adds in commercial banking embedded in the expenses for 2026.
Speaker #3: Embedded in the expenses for '26. Okay, fantastic. Thanks for the color and for taking my questions.
Brandon Nosal: Okay, fantastic. Thanks for the color and taking my questions.
Brendan Nosal: Okay, fantastic. Thanks for the color and taking my questions.
Speaker #4: Thanks,
Al Villalon: Thanks, Brandon.
Alan Villalon: Thanks, Brandon.
Speaker #2: Thank you. One moment for our next question. Our next question concerns the line of Jeff Rulis of D.A. Davidson. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Your line is now open.
Speaker #2: open. Thanks.
Jeff Rulis: Thanks. Good morning. Question on the loan growth expectations and even the fourth quarter runoff. I, you know, I want to get a read on a portion of which was credit trimming, maybe in the - take it the fourth quarter first and any idea of kind of the portion of that runoff that was maybe driven by you or credit trimming?
Jeff Rulis: Thanks. Good morning. Question on the loan growth expectations and even the fourth quarter runoff. I, you know, I want to get a read on a portion of which was credit trimming, maybe in the - take it the fourth quarter first and any idea of kind of the portion of that runoff that was maybe driven by you or credit trimming?
Speaker #5: Good morning. question on the, on the loan growth, expectations and, and even the fourth quarter runoff. I, you know, I want to get a read on a portion of which was, was credit trimming maybe in the ticket fourth quarter first and, any, any idea of kind of the portion of that runoff that was maybe driven by you or credit
Speaker #5: trimming. I'll take that.
Jim Collins: I'll take that. This is Jim. A fair amount of it was designed, right? We certainly wanted to run out some of the marginal credits or the credits that were credit related. But we also wanted to drive out orphan credits or non-full relationship credits and pare down our CRE concentrations and really build up our C&I. So as we look at our portfolio and know that the profitability of C&I is a lot higher than our CRE and changing our mix, we're paring down our CRE, we're building up C&I. We don't want orphan relationships, we want full relationships, and we want to push out any marginal credits that we think might end up in the credit box. And we will continue that philosophy in 2026.
Jim Collins: I'll take that. This is Jim. A fair amount of it was designed, right? We certainly wanted to run out some of the marginal credits or the credits that were credit related. But we also wanted to drive out orphan credits or non-full relationship credits and pare down our CRE concentrations and really build up our C&I. So as we look at our portfolio and know that the profitability of C&I is a lot higher than our CRE and changing our mix, we're paring down our CRE, we're building up C&I. We don't want orphan relationships, we want full relationships, and we want to push out any marginal credits that we think might end up in the credit box. And we will continue that philosophy in 2026.
Speaker #3: This is Jim. A fair amount of it was designed, right? We certainly wanted to run out some of the marginal credits or the credits that were credit-related, but we also wanted to drive out orphan credits or non-full relationship credits.
Speaker #3: And pare down or build up our CNI. So, as we look at our portfolio and know that the profitability of CNI is a lot higher than our CRE, and changing our mix, we're paring down our CRE, we're building up CNI. We don't want orphan relationships, we want full relationships, and we want to push out any marginal credits that we think might end up in the credit box.
Speaker #3: And we will continue that philosophy in '26. That's why we're looking at a mid-percentage of loan growth in
Speaker #3: And we will continue that philosophy in '26. That's why we're looking at a mid-percent range of loan growth in '26. And Jim, if I were to look at—
Jim Collins: That's why we're looking at a mid percentage of loan growth in 2026.
That's why we're looking at a mid percentage of loan growth in 2026.
Jeff Rulis: Jim, if I were to look at kind of year-over-year, you know, low single digit in 25, mid in 26, and understand the mix focus there, but would you fair to say the sort of targeted or designed runoff in 26, that's less of a headwind than you saw in 25?
Jeff Rulis: Jim, if I were to look at kind of year-over-year, you know, low single digit in 25, mid in 26, and understand the mix focus there, but would you fair to say the sort of targeted or designed runoff in 26, that's less of a headwind than you saw in 25?
Speaker #5: Kind of year over year, you know, low single digit in '25, mid in '26, and understand the mix focus there. But would it be fair to say the sort of targeted or designed runoff in '26, that's less of a headwind than you saw in '25?
Speaker #3: Yes. I would.
Jim Collins: Yes, I would.
Jim Collins: Yes, I would.
Speaker #5: Okay. Great. and, and somewhat related on the Katie, I think you touched on the, the link quarter non-accrual lift, again, what, what, what, what was that in, in terms of, type and, and segment?
Jeff Rulis: Okay, great. And somewhat related on the— Katie, I think you touched on the linked quarter non-accrual lift. Again, what was that in terms of type and segment?
Jeff Rulis: Okay, great. And somewhat related on the— Katie, I think you touched on the linked quarter non-accrual lift. Again, what was that in terms of type and segment?
Speaker #6: Sure. Jeff, this is Karen. I can take that. The increase was related to a multifamily loan that we acquired. It is here in the Twin Cities.
Karin Taylor: Sure, Jeff, this is Karin. I can take that. The increase was related to a multifamily loan that we acquired. It is here in the Twin Cities. We've got a 15% reserve on it. There are already offers on the property, and so we expect that that will resolve certainly in the first half of this year.
Karin Taylor: Sure, Jeff, this is Karin. I can take that. The increase was related to a multifamily loan that we acquired. It is here in the Twin Cities. We've got a 15% reserve on it. There are already offers on the property, and so we expect that that will resolve certainly in the first half of this year.
Speaker #6: We've got a 15% reserve on it. There are already offers on the property, and so we expect that will resolve certainly in the first half of this year.
Jeff Rulis: That's great. And last one for me on the margin. Al, the trajectory of that through the year is, you know, a 10 basis point range, 350 to 360, but, you know, and again, does not assume rate cuts. I appreciate the language there. But through the course of the year, is it kind of steady state 355, or kind of do you see it building throughout the year? Any color on the pace of the margin over the year?
Speaker #5: That's great. And last one for me on the margin, Al—the trajectory of that through the year. It's a, you know, a 10 basis point range, through 350 to 360.
Jeff Rulis: That's great. And last one for me on the margin. Al, the trajectory of that through the year is, you know, a 10 basis point range, 350 to 360, but, you know, and again, does not assume rate cuts. I appreciate the language there. But through the course of the year, is it kind of steady state 355, or kind of do you see it building throughout the year? Any color on the pace of the margin over the year?
Speaker #5: But, you know, and again, does not assume rate cuts. I appreciate the language there. But through the course of the year, is it kind of steady state, $355 million, or do you see it building throughout the year?
Speaker #5: Pace of the margin over any, any color on the year?
Speaker #4: Yeah, the exit question, Jeff—it's going to be gradual. And the way I could term it is it's just going to be really dependent on how our deposit flows ebb and flow, especially, you know, as we see those summer months come in and our public funds go out.
Al Villalon: Yeah. Thanks for the question, Jeff. It's gonna be gradual, and the way I determine it, it's just gonna be really dependent on how our deposit flows ebb and flow, especially, you know, as we see those summer months come in and our public funds go out. So I would expect some gradual improvement in there, but that's why I made the comment, it's not really linear.
Alan Villalon: Yeah. Thanks for the question, Jeff. It's gonna be gradual, and the way I determine it, it's just gonna be really dependent on how our deposit flows ebb and flow, especially, you know, as we see those summer months come in and our public funds go out. So I would expect some gradual improvement in there, but that's why I made the comment, it's not really linear.
Speaker #4: So I would expect some gradual improvement in there. But that's why I made the comment—it's not really linear.
Speaker #5: Okay. Okay. Appreciate it. Thank you.
Jeff Rulis: Okay. Okay. Appreciate it. Thank you.
Jeff Rulis: Okay. Okay. Appreciate it. Thank you.
Speaker #2: Thank you. One moment for our next question. Our next question concerns the line of Nathan Race of Piper Sandler. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Nathan Race of Piper Sandler. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Nathan Race of Piper Sandler. Your line is now open.
Speaker #3: Yes. Hi, everyone. Good morning. Thanks for taking the questions. Just going back to the margin discussion—Al, I was wondering if you had the dollar amount of accretion in the quarter.
Nathan Race: ... Yes. Hi, everyone. Good morning. Thanks for taking the questions. Just going back to the margin discussion, Al, was wondering if you had the dollar amount of accretion in the quarter, and maybe what's a good starting point for the core margin, ex accretion, just given the full benefit of the securities portfolio reposition that you'll have in Q1?
Nathan Race: ... Yes. Hi, everyone. Good morning. Thanks for taking the questions. Just going back to the margin discussion, Al, was wondering if you had the dollar amount of accretion in the quarter, and maybe what's a good starting point for the core margin, ex accretion, just given the full benefit of the securities portfolio reposition that you'll have in Q1?
Speaker #3: For the core margin, ex, and maybe what's a good starting point accretion, just given the full benefit of the securities portfolio repositioning that you'll have in the first quarter?
Al Villalon: Yep. So last year, we had approximately about $20 million of purchase accounting accretion for 2025. This year, we're looking for about 8. And I would say that that 8 is pretty evenly spread out, so I'd say a little bit heavy, just a little bit over $2 million in Q1 and kind of scaling down to just right at $2 million in Q4. And then I think a good exit rate right now is looking at the 317 that we had in Q4 and growing it from that.
Alan Villalon: Yep. So last year, we had approximately about $20 million of purchase accounting accretion for 2025. This year, we're looking for about 8. And I would say that that 8 is pretty evenly spread out, so I'd say a little bit heavy, just a little bit over $2 million in Q1 and kind of scaling down to just right at $2 million in Q4. And then I think a good exit rate right now is looking at the 317 that we had in Q4 and growing it from that.
Speaker #4: Yep. So last year, we had approximately about $20 million of purchase accounting accretion. In 2025, this year, we're looking for about $8 million. And I would say that that $8 million is pretty evenly spread out.
Speaker #4: So, I'd say a little bit heavy—just a little bit over $2 million in the first quarter and kind of scaling down to just right at $2 million in the fourth quarter.
Speaker #4: And then I think a good exit rate right now is looking at the 317 that we had in the fourth quarter and growing it from that.
Speaker #3: Okay. Great. Really helpful. and then Katie, your comments around kind of trying to double the wealth management, advisors across the franchise going forward, was wondering if you could just speak to kind of the timeline and kind of where you're at in terms of, you know, that headcount and then kind of where you're looking to add, you know, additional depth to the wealth management team going forward across the.
Nathan Race: Okay, great. Really helpful. And then, Katie, your comments around kind of trying to double the wealth management advisors across the franchise going forward. Was wondering if you could just speak to kind of the timeline and kind of where you're at in terms of, you know, that headcount, and then kind of where you're looking to add, you know, additional depth to the wealth management team going forward across the advisor?
Nathan Race: Okay, great. Really helpful. And then, Katie, your comments around kind of trying to double the wealth management advisors across the franchise going forward. Was wondering if you could just speak to kind of the timeline and kind of where you're at in terms of, you know, that headcount, and then kind of where you're looking to add, you know, additional depth to the wealth management team going forward across the advisor?
Speaker #4: Yeah. This is Jim.
Jim Collins: This is Jim. I'll take that one. We have 26 advisors now in all the markets. We certainly want to add more advisors in our larger markets, the Twin Cities, Phoenix, and Wisconsin. We've already added one this year, which will start here in a couple of weeks. We've had slated for another six or seven the rest of this year, spread out throughout the markets. We will take the opportunity to add talent where we find it. So I'm not exactly sure at this point where we're going to find it, but we plan to actively recruit. We are actively recruiting in all markets. So it depends on where we find it, but we are actively recruiting in all markets.
Jim Collins: This is Jim. I'll take that one. We have 26 advisors now in all the markets. We certainly want to add more advisors in our larger markets, the Twin Cities, Phoenix, and Wisconsin. We've already added one this year, which will start here in a couple of weeks. We've had slated for another six or seven the rest of this year, spread out throughout the markets. We will take the opportunity to add talent where we find it. So I'm not exactly sure at this point where we're going to find it, but we plan to actively recruit. We are actively recruiting in all markets. So it depends on where we find it, but we are actively recruiting in all markets.
Speaker #4: I'll take that, Advisor. We have 26 advisors now, in all the markets. We certainly want to add more advisors in our larger markets—the Twin Cities, Phoenix, and Wisconsin.
Speaker #4: We've already added one this year, which will start here in a couple of weeks. We've had slated for another six or seven the rest of this year, spread out throughout the markets.
Speaker #4: We will take the opportunity to add talent where we find it. So I'm not exactly sure at this point where we're going to find it, but we plan to actively recruit.
Speaker #4: We are actively recruiting in all markets, so it depends on where we find it. But we are actively recruiting in all markets. We plan to add those throughout the year.
Jim Collins: We plan to add those throughout the year, but again, it's all, it's all dependent on when we find the right talent at the right time.
We plan to add those throughout the year, but again, it's all, it's all dependent on when we find the right talent at the right time.
Speaker #4: Again, it's all dependent on when we find the right talent at the right time.
Speaker #3: Okay, perfect. That's helpful. Thanks, Jim. And then I would just be curious to get an update—you know, you guys, even with the balance sheet repositioning in the quarter, still have a nice excess capital position, and that should continue to build just given the profitability improvement that was alluded to in the guidance.
Nathan Race: Okay, perfect. That's helpful. Thanks, Jim. And then would just be curious to get an update. You know, you guys still, even with the balance sheet reposition in the quarter, you know, still have nice excess capital position and, you know, that you continue to build, just given the profitability improvement, that was alluded to in the guidance. So maybe just curious to get an update from Katie in terms of if you're feeling more optimism these days in terms of, the opportunities that are out there to, perhaps augment the, retirements platform via acquisition.
Nathan Race: Okay, perfect. That's helpful. Thanks, Jim. And then would just be curious to get an update. You know, you guys still, even with the balance sheet reposition in the quarter, you know, still have nice excess capital position and, you know, that you continue to build, just given the profitability improvement, that was alluded to in the guidance. So maybe just curious to get an update from Katie in terms of if you're feeling more optimism these days in terms of, the opportunities that are out there to, perhaps augment the, retirements platform via acquisition.
Speaker #3: So, maybe just curious to get an update from Katie in terms of if you're feeling more optimism these days in terms of the opportunity set out there to perhaps augment the retirements platform via acquisition.
Speaker #6: Sure, thanks, Nathan. I would say, on the capital front, priorities remain consistent with what they've been over the course of the past several quarters and years.
Katie Lorenson: Sure. Thanks, Nate. I would, on the capital front, priorities remain consistent with what they've been over the course of the past several quarters and years. So organic growth, number one, team list outs, market share opportunities, dividends, buybacks, and obviously on the M&A front, and that retirement and HSA space is continues to be a priority for us. We continue to expand and deepen the conversations that we're in with potential partners. And those that, again, that's agnostic to location in the country, will remain selective and disciplined and make sure that they're good matches. But I would say, overall, yeah, we continue to build our pipeline of potential partners in that space.
Katie Lorenson: Sure. Thanks, Nate. I would, on the capital front, priorities remain consistent with what they've been over the course of the past several quarters and years. So organic growth, number one, team list outs, market share opportunities, dividends, buybacks, and obviously on the M&A front, and that retirement and HSA space is continues to be a priority for us. We continue to expand and deepen the conversations that we're in with potential partners. And those that, again, that's agnostic to location in the country, will remain selective and disciplined and make sure that they're good matches. But I would say, overall, yeah, we continue to build our pipeline of potential partners in that space.
Speaker #6: So organic growth, number one; team liftouts, market, market share opportunities, dividends, buybacks, and obviously on the M&A front. And that retirement and HSA space continues to be a priority for us.
Speaker #6: We continue to expand and deepen the conversations that we're in with potential partners, and those that—again, that's agnostic to location in the country—we'll remain selective and disciplined and make sure that they're good matches.
Speaker #6: But I would say, overall, yeah, we continue to build, build our pipeline of potential partners in that.
Speaker #6: space. Okay.
Nathan Race: Okay, great. Very helpful. I'm sorry, if I could just sneak one last one in for Al. On the expense-
Nathan Race: Okay, great. Very helpful. I'm sorry, if I could just sneak one last one in for Al. On the expense-
Speaker #3: Great. Very helpful. I'm sorry. If I could just sneak one last one in for Al, on the expense.
Speaker #4: Mm-hmm. Go for
Al Villalon: Yeah. Go for it, Nate.
Alan Villalon: Yeah. Go for it, Nate.
Speaker #4: Go for it, Nathan. I'm sorry.
Nathan Race: I'm sorry? Yeah, sorry.
Nathan Race: I'm sorry? Yeah, sorry.
Speaker #3: Yeah, sorry. On the occupancy—on the occupancy...
Al Villalon: Go for it, Nate.
Alan Villalon: Go for it, Nate.
Speaker #4: Nathan.
Nathan Race: On the occupancy, on the occupancy expenses, I appreciate that that included the cost with the location in Fargo. Does the increase from Q3 to Q4, does that kind of come out starting Q1?
Nathan Race: On the occupancy, on the occupancy expenses, I appreciate that that included the cost with the location in Fargo. Does the increase from Q3 to Q4, does that kind of come out starting Q1?
Speaker #3: Expenses, I appreciate that that included the cost with the location in Fargo. Does the increase from Q3 to Q4, does that kind of come out starting the first quarter?
Speaker #4: Oh, there is some of that in the fourth quarter. But then, we had actually some real—there's going to be a tick up in occupancy because we did have the opening of a new facility as well.
Al Villalon: Oh, there is some of that in the fourth quarter, but then we had actually some real... There's going to be a tick up in occupancy because we did have opening of a new facility as well.
Alan Villalon: Oh, there is some of that in the fourth quarter, but then we had actually some real... There's going to be a tick up in occupancy because we did have opening of a new facility as well.
Speaker #3: Okay, so any thoughts on just a better run rate for that number going forward?
Nathan Race: Okay. So any thoughts on just a better run rate for that number going forward?
Nathan Race: Okay. So any thoughts on just a better run rate for that number going forward?
Speaker #4: Well, I mean, we're still looking at, you know, again, low single digits for expenses over the year. I mean, we exited, you know, the quarter roughly around $51 million.
Al Villalon: Well, I mean, we're still looking at, you know, again, low single digits for expenses over the year. I mean, we exited, you know, the quarter roughly around $51 million. I mean, I would just grow up from that.
Alan Villalon: Well, I mean, we're still looking at, you know, again, low single digits for expenses over the year. I mean, we exited, you know, the quarter roughly around $51 million. I mean, I would just grow up from that.
Speaker #4: I mean, I would just grow it from that.
Speaker #3: Okay, fair enough. I appreciate all the color. Congrats on a great quarter. Thanks.
Nathan Race: Okay, fair enough. I appreciate all the color. Congrats on a great quarter.
Nathan Race: Okay, fair enough. I appreciate all the color. Congrats on a great quarter.
Al Villalon: No problem.
Alan Villalon: No problem.
Speaker #4: No problem. Thank you.
Nathan Race: Thanks, everyone.
Nathan Race: Thanks, everyone.
Al Villalon: Thank you.
Alan Villalon: Thank you.
Speaker #3: Thank you.
Katie Lorenson: Thanks, Nate.
Katie Lorenson: Thanks, Nate.
Al Villalon: Appreciate that, Nate.
Alan Villalon: Appreciate that, Nate.
Speaker #4: Appreciate that, everyone.
Speaker #2: Thank you. One moment for our next question. Our next question concerns the line of Damon Demonte of KVW. The line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Damon DelMonte of KBW. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Damon DelMonte of KBW. Your line is now open.
Speaker #1: Hey, good afternoon, everyone. Hope you're all doing well. First question relates to the loan growth. You know, how much of your view on the growth is being driven just by, you know, continued strong underlying economic trends versus opportunities that are being created through, like, market disruption from M&A?
Damon DelMonte: Hey, good afternoon, everyone. Hope you're all doing well. First question-
Damon DelMonte: Hey, good afternoon, everyone. Hope you're all doing well. First question-
Al Villalon: Good afternoon.
Alan Villalon: Good afternoon.
Damon DelMonte: Relates to the loan growth. You know, how much of your view on the growth is being driven just by, you know, continued strong underlying economic trends versus opportunities that are being created through, like, market disruption from M&A?
Damon DelMonte: Relates to the loan growth. You know, how much of your view on the growth is being driven just by, you know, continued strong underlying economic trends versus opportunities that are being created through, like, market disruption from M&A?
Speaker #4: I would say, what I see going into '26, it's probably, for us, it's mostly market disruption and market share from the talent that we've acquired over the last three years.
Jim Collins: I would say, what I see going into 2026, it's probably for us, it's probably mostly market disruption and market share from the talent that we've acquired over the last three years. So if I was to guess, it's probably gonna be 70/30. Seventy from the talent and the relationships that they know at other banks and market disruption, and 30% of just economic growth. That's my best guess rolling into 2026 at this point. But talking to business owners, it feels like 2026 is going to be a good year for a lot of businesses.
Jim Collins: I would say, what I see going into 2026, it's probably for us, it's probably mostly market disruption and market share from the talent that we've acquired over the last three years. So if I was to guess, it's probably gonna be 70/30. Seventy from the talent and the relationships that they know at other banks and market disruption, and 30% of just economic growth. That's my best guess rolling into 2026 at this point. But talking to business owners, it feels like 2026 is going to be a good year for a lot of businesses.
Speaker #4: So if I was to guess, it's probably going to be 70/30—70% from the talent and the relationships that they know at other banks and market disruption, and 30% just from economic growth.
Speaker #4: That's my best guess rolling into '26 at this point. But talking to business owners, it feels like '26 is going to be a good year for a lot of businesses.
Speaker #1: Great. I appreciate that color. and then with respect to credit and trying to think about provision, Al, any, any thoughts on kind of how you see the, the provision playing out over the upcoming quarters?
Speaker #1: Great, I appreciate that color. And then, with respect to credit and trying to think about provision, Al, any thoughts on how you see the provision playing out over the upcoming quarters?
Damon DelMonte: Great. I appreciate that color. And then with respect to credit and trying to think about provision, Al, any thoughts on kind of how you see the provision playing out over the upcoming quarters?
Damon DelMonte: Great. I appreciate that color. And then with respect to credit and trying to think about provision, Al, any thoughts on kind of how you see the provision playing out over the upcoming quarters?
Speaker #6: Yeah. Damon, this is Karen. I'll take that. You know, I think the provision, the provision in '26 is going to be driven by loan growth and macroeconomic factors.
Karin Taylor: ... Yeah, Damon, this is Karin. I'll take that. You know, I think-
Karin Taylor: ... Yeah, Damon, this is Karin. I'll take that. You know, I think-
Damon DelMonte: Hi, Karen.
Karin Taylor: The provision, the provision in 2026 is going to be driven by loan growth and macroeconomic factors. We feel that we're adequately reserved on those non-performing deals. And with improving credit metrics, we think the primary growth in reserve will be loan growth.
Damon DelMonte: Hi, Karen.
Karin Taylor: The provision, the provision in 2026 is going to be driven by loan growth and macroeconomic factors. We feel that we're adequately reserved on those non-performing deals. And with improving credit metrics, we think the primary growth in reserve will be loan growth.
Speaker #6: We feel that we're adequately reserved on those non-performing deals, and with improving credit metrics, we think the primary growth in reserve will be loan growth.
Speaker #6: We feel that we're adequately reserved on those non-performing deals, and with improving credit metrics, we think the primary growth in reserve will be loan.
Speaker #1: Great. And I may have missed this earlier, but are you guys anticipating some of those non-performers moving off here in the upcoming quarters to kind of lower some of those ratios?
Damon DelMonte: Great. And I may have missed this earlier, but are you guys anticipating some of those non-performers moving off here in the upcoming quarters to kind of lower some of those ratios?
Damon DelMonte: Great. And I may have missed this earlier, but are you guys anticipating some of those non-performers moving off here in the upcoming quarters to kind of lower some of those ratios?
Speaker #6: Yeah, we've got several in that bucket where we expect resolution in the first half of the year.
Karin Taylor: Yeah, we've got several in that bucket where we expect resolution in the first half of the year.
Karin Taylor: Yeah, we've got several in that bucket where we expect resolution in the first half of the year.
Speaker #1: Okay, great. And then just last question on the tax rate. You know, what's a good tax rate we should think about here for—
Speaker #1: Okay, great. And then just last question on the tax rate—you know, what's a good tax rate we should think about here for 2026?
Damon DelMonte: Okay, great. And then just last question on the tax rate. What's a good tax rate we should think about here for 2026?
Damon DelMonte: Okay, great. And then just last question on the tax rate. What's a good tax rate we should think about here for 2026?
Speaker #4: 24%, Damon.
Al Villalon: 24%, Damon.
Alan Villalon: 24%, Damon.
Speaker #1: Perfect. Okay. That's all that I had. Thanks so much.
Damon DelMonte: Perfect. Okay. That's all that I had. Thanks so much.
Damon DelMonte: Perfect. Okay. That's all that I had. Thanks so much.
Speaker #2: Thank you. One moment for our next question. Our next question concerns the line of David Long of RJ. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of David Long of RJ. Your line is now open.
Operator: Thank you. One moment for our next question. Our next question comes from the line of David Long of RJ. Your line is now open.
Speaker #2: open. Good morning,
David Long: Good morning, everyone.
David Long: Good morning, everyone.
Speaker #7: everyone.
Al Villalon: Hey, David.
Alan Villalon: Hey, David.
David Long: Hey, on the deposit side, just curious what you're seeing on competition, both from your retail deposits, from the HSA deposits. Does it differ across the different platforms? And is the pricing that you're seeing, do you feel like it's rational?
David Long: Hey, on the deposit side, just curious what you're seeing on competition, both from your retail deposits, from the HSA deposits. Does it differ across the different platforms? And is the pricing that you're seeing, do you feel like it's rational?
Speaker #7: Hey, hey, David. I'm at the deposit side. Just curious what you're seeing on competition, both from your retail deposits and from the HSA deposits. Does it differ across the different platforms?
Speaker #7: And, and is the pricing that you're seeing—do you feel like it's
Jim Collins: This is Jim. I think it's, it's very competitive. I think in all markets, it's competitive. It's competitive on the retail side. It's competitive on the commercial side. I think, I think we have a fairly good strategy in place for 2026, but it will be, again, very competitive across the boards. Is it rational? Generally speaking, yes. I think in pockets, you'll find some banks that are being aggressive. You can say that's a little irrational sometimes, but generally speaking, I think I would just put it as very competitive. So 2026 will be very competitive for deposits. That's, you know, Al's comment earlier, that will be the kind of the part of the NIM that will be how will be affected throughout the year on where that kind of levels out throughout the year.
Speaker #4: This is Jim. I think it's very competitive. I think in all markets, it's competitive. It's competitive on the retail side. It's competitive on the commercial side.
Jim Collins: This is Jim. I think it's, it's very competitive. I think in all markets, it's competitive. It's competitive on the retail side. It's competitive on the commercial side. I think, I think we have a fairly good strategy in place for 2026, but it will be, again, very competitive across the boards. Is it rational? Generally speaking, yes. I think in pockets, you'll find some banks that are being aggressive. You can say that's a little irrational sometimes, but generally speaking, I think I would just put it as very competitive. So 2026 will be very competitive for deposits. That's, you know, Al's comment earlier, that will be the kind of the part of the NIM that will be how will be affected throughout the year on where that kind of levels out throughout the year.
Speaker #4: I think we have a fairly good strategy in place for 2026, but it will be, again, very competitive across the boards. Is it rational?
Speaker #4: Generally speaking, yes. I think in pockets you'll find some banks that are being aggressive—you can say that's a little irrational sometimes—but, generally speaking, I think I would just put it as very competitive.
Speaker #4: So '26 will be very competitive for deposits. That's, you know, Al's comment earlier, that will be the kind of the part of the NIM that will be, how will, will be affected throughout the year on where that, kind of levels out throughout the year.
Jim Collins: So we're going to work extremely hard on that piece throughout the entire year, but it's going to be very competitive.
Speaker #4: So we're going to work extremely hard on that piece throughout the entire year, but it's going to be very competitive.
So we're going to work extremely hard on that piece throughout the entire year, but it's going to be very competitive.
Speaker #7: Great. And then, just to follow up on that, as you're thinking about the loan growth in the next year, how will the mix look different with your guide at the end of '26 versus what we're looking at here at the end of '25?
David Long: Great. And then just to follow up to that, as you're thinking about the loan growth in the next year, how will the mix look differently with your guide at the end of 2026 versus what we're looking at here at the end of 2025?
David Long: Great. And then just to follow up to that, as you're thinking about the loan growth in the next year, how will the mix look differently with your guide at the end of 2026 versus what we're looking at here at the end of 2025?
Jim Collins: As I commented earlier, we're really focused on full C&I relationships. So the portfolio in 2026 is really gearing up, like we've trended towards the end of 2025, is really full C&I relationships. So we're trying to change the mix to more full C&I and less CRE. So the goal at the end of 2026 is to change that mix, to more more C&I, more mid-market C&I. Hopefully, that answers your question.
Speaker #4: As I commented earlier, we're really focused on full C&I relationships. So the portfolio in '26 is really gearing up—like we've trended towards the end of '25—is really full C&I relationships.
Jim Collins: As I commented earlier, we're really focused on full C&I relationships. So the portfolio in 2026 is really gearing up, like we've trended towards the end of 2025, is really full C&I relationships. So we're trying to change the mix to more full C&I and less CRE. So the goal at the end of 2026 is to change that mix, to more more C&I, more mid-market C&I. Hopefully, that answers your question.
Speaker #4: So, we're trying to change the mix to more full C&I and less CRE. So, the goal at the end of '26 is to change that mix to more C&I, more mid-market C&I.
Speaker #4: Hopefully that answers your question.
Speaker #7: Yeah, yeah. No, that's definitely helpful. And looking at the deposit side too, how do you see the concentration on the deposit side?
David Long: Yeah. No, that's definitely helpful. And looking at the deposit side, too, how do you see the concentration on the deposit side changing?
David Long: Yeah. No, that's definitely helpful. And looking at the deposit side, too, how do you see the concentration on the deposit side changing?
Speaker #7: changing? Hey, David, before I,
Al Villalon: Hey, David, before I answer that question, first, I just want to congratulate you and your Indiana Hoosiers on winning a national title. I hope to feel that euphoria someday with Notre Dame. But to answer your deposit question, I mean, we're continuing to see some erosion on the non-interest-bearing side because the environment is still very competitive. We're still seeing, you know, our non-maturity deposit rates around the 2 to 3% level in terms of, you know, new rates for new accounts coming in. So we're still going to see some shift from non-interest bearing to interest bearing.
Alan Villalon: Hey, David, before I answer that question, first, I just want to congratulate you and your Indiana Hoosiers on winning a national title. I hope to feel that euphoria someday with Notre Dame. But to answer your deposit question, I mean, we're continuing to see some erosion on the non-interest-bearing side because the environment is still very competitive. We're still seeing, you know, our non-maturity deposit rates around the 2 to 3% level in terms of, you know, new rates for new accounts coming in. So we're still going to see some shift from non-interest bearing to interest bearing.
Speaker #4: First, I just want to congratulate you and your Indiana Hoosiers on winning a national title. I hope to feel that euphoria someday with Notre Dame.
Speaker #4: But to answer your deposit question, I mean, we are seeing some—a little—we're continuing to see some erosion on the non-spending side because the environment is still very competitive.
Speaker #4: We're still seeing, you know, our non-maturity deposit rates around the 2 to 3 percent level in terms of, you know, new rates for new accounts coming in.
Speaker #4: So we're still going to see some shift from non-disparaging to—
Speaker #4: interest-bearing. Great.
David Long: Great. Thanks, Al. And unfortunately, I did not take up your advice and purchase the options for tickets using the CFP website, but I was able to attend the game in Atlanta at the Peach Bowl, so it was a ton of fun. Thanks.
David Long: Great. Thanks, Al. And unfortunately, I did not take up your advice and purchase the options for tickets using the CFP website, but I was able to attend the game in Atlanta at the Peach Bowl, so it was a ton of fun. Thanks.
Speaker #7: Thanks, Al. And unfortunately, I did not take up your advice to purchase the options for tickets using the CFP website, but I was able to attend the game in Atlanta—the Peach Bowl.
Speaker #7: So, it was a ton of fun. Thanks.
Speaker #4: Congrats. Thank you.
Al Villalon: Congrats.
Alan Villalon: Congrats.
Operator: Thank you. Again, as a reminder to ask a question, you'll need to press star one one on your telephone. I'm showing no further questions. This concludes our question and answer session. I'll now turn the conference back over to Katie Lorenson for any closing remarks.
Operator: Thank you. Again, as a reminder to ask a question, you'll need to press star one one on your telephone. I'm showing no further questions. This concludes our question and answer session. I'll now turn the conference back over to Katie Lorenson for any closing remarks.
Speaker #2: Again, as a reminder, to ask a question you'll need to press *11 on your telephone. And I'm showing no further questions. This concludes our question and answer session.
Speaker #2: I'll now turn the conference back over to Katie Lorenson for any closing remarks.
Speaker #2: remarks. Thank you.
Karin Taylor: Thank you. And thank you, everyone, for your time today. Thank you to all of our team members across this great company. The progress we've made together reflects the team's hard work, the strength of our strategy, and the resilience of our diversified business model. I also want to thank our shareholders, our clients, and our communities for their trust and partnership. We're excited about our outlook as we enter 2026 with confidence, momentum, and a clear vision for the future. Thank you, everyone.
Katie Lorenson: Thank you. And thank you, everyone, for your time today. Thank you to all of our team members across this great company. The progress we've made together reflects the team's hard work, the strength of our strategy, and the resilience of our diversified business model. I also want to thank our shareholders, our clients, and our communities for their trust and partnership. We're excited about our outlook as we enter 2026 with confidence, momentum, and a clear vision for the future. Thank you, everyone.
Speaker #6: And thank you, everyone, for your time today. Thank you to all of our team members across this great company. The progress we've made together reflects the team's hard work, the strength of our strategy, and the resilience of our diversified business model.
Speaker #6: I also want to thank our shareholders, our clients, and our communities for their trust and partnership. We're excited about our outlook as we enter 2026 with confidence, momentum, and a clear vision for the future.
Speaker #6: Thank you, everyone.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
