Q2 2026 Alerus Financial Corp Earnings Call

July 30, 2026

Operator: Good morning, welcome to the Alerus Financial Corporation Earnings Conference Call. All participants are in a listen-only mode. Today's call will reference slides that can be found on Alerus investor relations website. You can also view the presentation slides directly within the website platform. After today's presentation, there will be an opportunity to ask questions for analysts and institutional investors. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please note, this event is being recorded. This call may contain forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.

Speaker #1: You can also view the presentation slides directly within the website platform. After today's presentation, there will be an opportunity to ask questions for analysts and institutional investors.

Speaker #1: To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised.

Speaker #1: To withdraw your question, please press *11 again. Please note, this event is being recorded. This call may contain forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements.

Operator: This call may contain forward-looking statements, and the company's actual results may differ materially from those indicated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's SEC filings.

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 and the company's SEC filings. I would now like to turn the conference over to Alerus Financial Corporation President and CEO, Katie O'Neill Lorenson. Please go ahead.

Speaker #1: Important factors that could cause actual results to differ materially from those indicated in the forward-looking statements are listed in the earnings release and the company's SEC filings.

Speaker #1: I would now like to turn the conference over to Alerus Financial Corporation President and CEO, Katie Lorenson. Please go ahead.

Operator: I would now like to turn the conference over to Alerus Financial Corporation President and CEO, Katie O'Neill Lorenson. Please go ahead.

Speaker #2: Thank you. Good morning, everyone, and thank you for joining us. Joining me today on the call and in the Twin Cities are Forrest Wilson, Chief Retirement Services Officer; Alan Villalon, Chief Financial Officer; Jim Collins, Chief Banking and Revenue Officer; and Karen Taylor, our Chief Operating Officer.

Katie O'Neill Lorenson: Thank you. Good morning, everyone, and thank you for joining us. Joining me today on the call and in the Twin Cities is Forrest Wilson, Chief Retirement Services Officer, Al Villalon, Chief Financial Officer, Jim Collins, Chief Banking and Revenue Officer, and Karin Taylor, our Chief Operating Officer. We are pleased with our Q2 performance and believe the results further demonstrate the strength of the Alerus franchise and the benefits of the diversified business model we have purposefully built over many years. Our Q2 results reflect disciplined execution across the organization, with continued net interest margin expansion, solid performance from our fee-based businesses, and a significant improvement in credit quality. We generated earnings per diluted share of $0.81, delivered a return on assets of 1.6%, and a return on tangible common equity of nearly 20%, underscoring the earnings power of our company.

Speaker #2: We are pleased with our second-quarter performance and believe the results further demonstrate the strength of the ALERUS franchise and the benefits of the diversified business model we have purposely built over many years.

Speaker #2: Our second quarter results reflect disciplined execution across the organization, with continued net interest margin expansion, solid performance from our fee-based businesses, and a significant improvement in credit quality.

Speaker #2: We generated earnings per diluted share of $0.81, delivered a return on assets of 1.6%, and a return on tangible common equity of nearly 20%.

Speaker #2: Underscoring the earnings power of our company, the most significant highlight was the favorable resolution of the largest non-performing loan and significantly improved credit quality metrics.

Katie O'Neill Lorenson: The most significant highlight was the favorable resolution of the largest non-performing loan and significantly improved credit quality metrics. Criticized loans have decreased over 60% from a year ago, with non-performing loans now less than 20 basis points. In addition, we maintained robust reserves at 1.2%, strong capital levels with TCE exceeding 9%, and continued to return capital to shareholders through buybacks and dividends. Importantly, this quarter highlights the advantages of a business model designed to generate balanced, sustainable growth. With net interest income again representing more than 40% of total revenue. Our commercial banking, wealth advisory, and retirement and benefits services businesses continued to work together to create value for clients while producing recurring revenue to allow for consistent returns to shareholders.

Speaker #2: Criticized loans have decreased over 60% from a year ago, with non-performing loans now less than 20 basis points. In addition, we maintained robust reserves at 1.2%, strong capital levels with TCE exceeding 9%, and continued to return capital to shareholders through buybacks and dividends.

Speaker #2: Importantly, this quarter highlights the advantages of a business model designed to generate balanced, sustainable growth, with non-interest income again representing more than 40% of total revenue.

Speaker #2: Our commercial banking, wealth advisory, and retirement and benefits services businesses continued to work together to create value for clients while producing recurring revenue to allow for consistent returns to shareholders.

Speaker #2: While Alan will provide additional detail on the quarterly financial results, we continue to measure our progress through the lens of long-term value creation and strategic execution.

Katie O'Neill Lorenson: While Al will provide additional detail on the quarterly financial results, we continue to measure our progress through the lens of long-term value creation and strategic execution. We are seeing the benefits of our shift toward full relationship commercial and private banking. We grew commercial relationships by more than 20%, expanded our core deposit franchise, increased fee-based revenues, and retirement and wealth assets reached record levels exceeding $50 billion. We also continued to reduce commercial real estate concentrations and improve the overall quality of the balance sheet. Most importantly, we see evidence that the evolution of our strategy is working. Since the launch of our IPO, we are increasingly gaining awareness from stakeholders that we are much more than just a traditional bank, and instead a highly diversified financial institution with multiple engines for capital accretion and client growth.

Speaker #2: We are seeing the benefits of our shift toward full relationship commercial and private banking. We grew commercial relationships by more than 20%, expanded our core deposit franchise, increased fee-based revenues, and retirement and wealth assets reached record levels exceeding $50 billion.

Speaker #2: We also continue to reduce commercial real estate concentrations and improve the overall quality of the balance sheet. Most importantly, we see evidence that the evolution of our strategy is working.

Speaker #2: Since the launch of our IPO, we are increasingly gaining awareness from stakeholders that we are much more than just a traditional bank and are instead a highly diversified financial institution with multiple engines for capital accretion and client growth.

Speaker #2: The performance demonstrates the durability of our earnings profile, the quality of our revenue streams, and the advantages of a strategy designed to create long-term value.

Katie O'Neill Lorenson: The performance demonstrates the durability of our earnings profile, the quality of our revenue streams, and the advantages of a strategy designed to create long-term value. The driver behind our performance is the talented team we have assembled across Alerus. We are fortunate to have hundreds of dedicated, long-tenured team members alongside exceptional new talent that continues to strengthen our organization. Together, they have played a critical role in the evolution of our company and the execution of our strategic plan. During the quarter, we continued to invest in leadership, growth markets, client-facing talent, and technology capabilities. We announced the appointment of Dan Schroeder as our permanent Chief Credit Officer. We expanded our commercial banking leadership and production talent in Arizona. We added new wealth management advisors in the Twin Cities and welcomed another class of interns.

Speaker #2: The driver behind our performance is the talented team we have assembled across ALERUS. We are fortunate to have hundreds of dedicated, long-tenured team members, alongside exceptional new talent, that continue to strengthen our organization.

Speaker #2: Together, they have played a critical role in the evolution of our company and the execution of our strategic plan. During the quarter, we continued to invest in leadership, growth markets, client-facing talent, and technology capabilities.

Speaker #2: We announced the appointment of Dan Schrader as our permanent Chief Credit Officer; we expanded our commercial banking leadership and production talent in Arizona; we added new wealth management advisors in the Twin Cities; and welcomed another class of interns.

Speaker #2: Lastly, we landed an experienced technology leader from FIS to help accelerate the overhaul of our retirement platform. These additions are not isolated hires; they reflect our continued ability to attract and retain the best-in-the-business professionals and support our belief that talent, leadership, and culture are among the most sustainable competitive advantages in our industry.

Katie O'Neill Lorenson: Lastly, we landed an experienced technology leader from FIS to help accelerate the overhaul of our retirement platform. These additions are not isolated hires. They reflect our continued ability to attract and retain the best-in-the-business professionals and support our belief that talent, leadership, and culture are among the most sustainable competitive advantages in our industry. As we look ahead, our priorities remain unchanged. We continue to position Alerus as a leading commercial wealth bank and a national retirement plan provider. Our improved balance sheet profile, reduced CRE concentrations, strong capital position, and diversified earnings streams provide flexibility to pursue organic growth while maintaining our disciplined approach to risk management. Investments in talent and technology will continue to drive operational efficiency, automation, and scalability throughout our enterprise.

Speaker #2: As we look ahead, our priorities remain unchanged. We continue to position ALERUS as a leading commercial wealth bank and a national retirement plan provider. Our improved balance sheet profile, reduced CRE concentrations, strong capital position, and diversified earnings streams provide flexibility to pursue organic growth while maintaining our disciplined approach to risk management.

Speaker #2: Investments in talent and technology will continue to drive operational efficiency, automation, and scalability throughout our enterprise. Within our retirement division, we believe the technology transformation currently underway will further strengthen our position as a consolidator of choice for sub-scale operators across the industry.

Katie O'Neill Lorenson: Within our retirement division, we believe the technology transformation currently underway will further strengthen our position as a consolidator of choice for subscale operators across the industry. At the same time, our commercial and private banking teams continue to see attractive opportunities to deepen middle-market relationships, grow treasury management, expose opportunities for wealth and retirement, and add HSA and other synergistic deposits. We remain confident in our efforts and believe Alerus is uniquely positioned as very few organizations of our size operate with the same level of diversification, recurring revenue, and relationship-driven growth. We believe those advantages will continue to differentiate Alerus with clients, future acquisition targets, and investors. Thank you again for your continued trust and support. With that, I'll turn the call over to Al to review the quarter in more detail.

Speaker #2: At the same time, our commercial and private banking teams continue to see attractive opportunities to deepen middle-market relationships, grow treasury management, expand opportunities for wealth and retirement, and add HSA and other synergistic deposits.

Speaker #2: We remain confident in our efforts and believe Alerus is uniquely positioned, as very few organizations of our size operate with the same level of diversification, recurring revenue, and relationship-driven growth.

Speaker #2: We believe those advantages will continue to differentiate Alerus with clients, future acquisition targets, and investors. Thank you again for your continued trust and support.

Speaker #2: And with that, I'll turn the call over to Alan to review the quarter in more detail.

Katie O'Neill Lorenson: With that, I'll turn the call over to Al to review the quarter in more detail.

Speaker #3: Thanks, Katie. Let's start on page 9 of our investor deck, which is posted on the investor relations section of our website. Before I begin, I want to emphasize three themes that define the quarter.

Al Villalon: Thanks, Katie. Let's start on page nine of our investor deck, which is posted on the investor relations section of our website. Before I begin, I want to emphasize three themes that define the quarter: durable earnings, significant credit improvement, and continued shareholder value creation. In Q2, we delivered another exceptionally strong quarter highlighted by strong profitability, improving balance sheet quality, stable core margin performance, and continued capital generation. We generated adjusted diluted EPS of $0.80 and reported EPS of $0.81 while repurchasing $6.8 million of common stock during the quarter. Profitability remained strong with a return on average tangible common equity of 19.33% and a return on average assets of 1.6%. Adjusted pre-provision net revenue continued to improve. We also grew tangible book value per share of 3.2% from the prior quarter to $18.73, and improved tangible common equity to tangible assets to 9.05%.

Speaker #3: Durable earnings, significant credit improvement, and continued shareholder value creation. In the second quarter, we delivered another exceptionally strong quarter, highlighted by strong profitability, improving balance sheet quality, stable core margin performance, and continued capital generation.

Speaker #3: We generated adjusted diluted EPS of 80 cents and reported EPS of 81 cents, while repurchasing 6.8 million dollars of common stock during the quarter.

Speaker #3: Profitability remained strong with a return on average tangible common equity of 19.33% and a return on average assets of 1.6%. Adjusted pre-provision net revenue continued to improve.

Speaker #3: We also grew tangible book value per share we also grew tangible book share per share tangible book value per share of 3.2% from the prior quarter to 1,873 and improved tangible common equity to tangible assets to 9.05%.

Speaker #3: These are high-quality results, and we believe the quarter demonstrates the strength of the franchise. While earnings remained strong, the most important financial takeaway was balance sheet quality.

Al Villalon: These are high-quality results, we believe the quarter demonstrates the strength of the franchise. Reduced non-performing assets by 68.3%, increased tangible book value per share, returned meaningful capital to shareholders through dividend increases and share repurchases. We are proud of our over 40-year history of returning capital to shareholders, especially in the form of dividends. Let's turn to page 16 to talk about earning assets. Loans were stable during the quarter as new production offset planned balance sheet actions and reductions in non-performing loans. The investment portfolio increased $5.9 million, or 0.8%, from the prior quarter as paydowns and maturities were replaced with new investments. We continue to benefit from reinvesting paydowns at higher front book yields.

Speaker #3: Reduced non-performing assets by 68.3%, increased tangible book value per share, and returned meaningful capital to shareholders through dividend increases and share repurchases. We are proud of our over 40-year history of returning capital to shareholders, especially in the form of dividends.

Speaker #3: Let's turn to page 16 to talk about earning assets. Loans were stable during the quarter, as new production offset planned balance sheet actions and reductions in non-performing loans.

Speaker #3: We continue to see healthy client activity, and pipelines remain robust. The investment portfolio increased $5.9 million, or 0.8%, from the prior quarter as paydowns and maturities were replaced with new investments.

Speaker #3: We continue to benefit from reinvesting paydowns at higher front-book yields. Our balance sheet is positioned neutrally for interest rates due to strategic loan and investment portfolio repositioning.

Al Villalon: Our balance sheet is positioned neutrally for interest rates due to strategic loan and investment portfolio repositioning. In a 100 basis point increase or decrease scenario, we do not expect NII to be significantly impacted. While future rates remain uncertain, we believe that the balance sheet is positioned appropriately across a range of rate scenarios. Turning to deposits on page 17. Total deposits decreased $156 million, or 3.6%, from 31 March 2026. Decrease was primarily driven by seasonal outflows of public depositor funds. Despite the seasonal outflows, our loan-to-deposit ratio is 96.2%. Deposit costs remain stable, the mix of relationship-based deposits remains a key strength of the franchise. Synergistic deposits now represent 22.6% of total deposits continue to provide a meaningful funding advantage. Those synergistic deposits grew 3.3% over the prior year, primarily from low-cost HSA deposits.

Speaker #3: In a 100 basis point increase or decrease scenario, we do not expect NII to be significantly impacted. While future rates remain uncertain, we believe that the balance sheet is positioned appropriately across a range of rate scenarios.

Speaker #3: Turning to the deposits on page 17, total deposits decreased $156 million, or 3.6%, from March 31, 2026. The decrease was primarily driven by seasonal outflows of public deposits or funds.

Speaker #3: Despite the seasonal outflows, our loan to deposit ratio was 96.2%. Deposit cost remained stable, and the mix of relationship-based deposits remains a key strength of the franchise.

Speaker #3: Synergistic deposits now represent 22.6% of total deposits and continue to provide a meaningful funding advantage. Those synergistic deposits grew 3.3% over the prior year primarily from low-cost HSA deposits.

Speaker #3: Their continued contribution reinforces the strategic value of our integrated banking, wealth, retirement, and benefits services model. Our synergistic deposit franchise remains one of the strongest competitive differentiators in our business model and continues to provide a funding advantage that is difficult for many peers to replicate.

Al Villalon: Their continued contribution reinforces the strategic value of our integrated banking, wealth, retirement, and benefit services model. Our synergistic deposit franchise remains one of the strongest competitive differentiators in our business model and continues to provide a funding advantage that is difficult for many peers to replicate. This matters in the current environment where deposit quality, stability, and cost discipline remain top priorities. Turning to page 18, net interest income increased 6.2% to $47.7 million, and reported net interest margin increased 3.97%. Core margin remained stable from the prior quarter, which we view as a strong outcome given the current operating environment. Reported results benefit from purchase account accretion and the resolution of a non-performing loan. Overall, we continue to feel good about the positioning of the balance sheet and our margin outlook.

Speaker #3: This matters in the current environment, where deposit quality, stability, and cost discipline remain top priorities. Turning to page 18, net interest income increased 6.2% to $47.7 million, and reported net interest margin increased to 3.97%.

Speaker #3: Core margin remained stable from the prior quarter, which we view as a strong outcome given the current operating environment. Reported results benefit from purchase accounting increases and the resolution of a non-performing loan.

Speaker #3: But overall, we continue to feel good about the positioning of the balance sheet and our margin outlook. Turning to page 19, adjusted non-interest income increased to $32.3 million, up 4.6% from the prior quarter and up 8.6% from the second quarter of last year.

Al Villalon: Turning to page 19, adjusted non-interest income increased to $32.3 million, up 4.6% from the prior quarter and up 8.6% from Q2 of last year. Adjusted banking fees and other income increased 16.3% linked quarter, primarily driven by higher swap fee income and mutual fund investment gains related to deferred compensation plan assets, partially offset by lower mortgage banking revenue. Retirement and benefit service revenue was essentially stable, while wealth revenue increased 6.5% due to higher asset-based fees tied to equity markets and an increase in transaction-based fees. These businesses continue to demonstrate the strategic value of Alerus's model by generating stable, recurring fee income and attracting low-cost relationship deposits and diversifying earnings. Diversification continues to lower dependence on spread income and remains a meaningful differentiator for our company. On page 20, banking services non-interest income increased $1.7 million, or 27.2% from Q1.

Speaker #3: Adjusted banking fees and other income increased 16.3% late quarter, primarily driven by higher swap fee income and mutual fund investment gains related to deferred compensation plan assets.

Speaker #3: Partially offset by lower mortgage banking revenue. Retirement and benefits service revenue was also essentially stable. While wealth revenue increased 6.5% due to higher asset-based fees tied to equity markets and an increase in transaction-based fees.

Speaker #3: These businesses continue to demonstrate the strategic value of the Alerus model by generating stable, recurring fee income, attracting low-cost relationship deposits, and diversifying earnings.

Speaker #3: That diversification continues to lower dependence on spread income and remains a meaningful differentiator for our company. On page 20, banking services non-interest income increased $1.7 million, or 27.2%, from the first quarter.

Speaker #3: Other income increase meaningfully primarily due to higher swap fee income, which totaled 738,000 dollars in the quarter. As we noted before, swap fee revenue can be variable based on client timing and activity.

Al Villalon: Other income increased meaningfully, primarily due to higher swap fee income, which totaled $738,000 in the quarter. As we noted before, swap fee revenue can be variable based on client timing and activity. Mortgage revenue decreased to $0.3 million, or 9.6% from Q1, primarily driven by lower gain on sale margins from product mix changes and increased competition. Turning to page 21, retirement and benefit services continues to be one of Alerus's most significant differentiators. It generates recurring fee income, low-cost deposits, and long-term client relationships while supporting more stable performance across economic cycles. During the quarter, market appreciation supported higher retirement assets and continued growth in our HSA deposit base, which remains an attractive source of funding. On page 22, our wealth business continues to produce strong results while supporting broader client relationships across the organization.

Speaker #3: Mortgage revenue decreased 0.3 million dollars or 9.6% from the first quarter primarily driven by lower gain on sale margins from product mix changes and increased competition.

Speaker #3: Turning to page 21, retirement and benefits services continues to be one of ALERUS's most significant differentiators. It generates recurring fee income, low-cost deposits, and long-term client relationships, while supporting more stable performance across economic cycles.

Speaker #3: During the quarter, market appreciation supported higher retirement assets and continued growth in our HSA deposit base, which remains an attractive source of funding. On page 22, our wealth business continues to produce strong results while supporting broader client relationships across the organization.

Speaker #3: Wealth contributes meaningful recurring fee income and relationship-based deposits, while helping diversify earnings beyond traditional spread revenue. ALERUS's wealth business is differentiated by nearly 90% of the revenue coming from advisory services.

Al Villalon: Wealth contributes meaningful recurring fee income and relationship-based deposits while helping diversify earnings beyond traditional spread revenue. Alerus's wealth business is differentiated with nearly 90% of the revenue coming from advisory services. Turning to page 23, adjusted non-interest expense increased $2.4 million or 4.8% compared to Q1. The increase was primarily driven by compensation and benefits, including annual merit increases, talent additions, and deferred compensation plan liabilities tied to market gains. Other expense increased due to higher other real estate owned balances and related holding costs, as well as higher corporate insurance costs. Business services, software, and technology expense declined due to lower core processing expenses and lower IT hardware expense. We continue to manage expenses carefully while investing in growth areas that support long-term scalability. Turning to page 24, asset quality is one of the strongest parts of the quarter. Credit quality improved significantly during the quarter.

Speaker #3: Turning to page 23, adjusted non-interest expense increased 2.4 million or 4.8% compared to the first quarter. The increase was primarily driven by compensation and benefits, including annual merit increases, talent additions, and deferred compensation plan liabilities tied to market gains.

Speaker #3: Other expense increased due to higher other real estate-owned balances and related holding costs, as well as higher corporate insurance costs. Business services, software, and technology expense declined due to lower core processing expenses and lower IT hardware expense.

Speaker #3: We continue to manage expenses carefully while investing in growth areas that support long-term scalability. Turning to page 24, asset quality is one of the strongest parts of the quarter.

Speaker #3: Credit quality improved significantly during the quarter. Non-performing assets declined over 68%, criticized loans declined meaningfully, and charge-offs were substantially lower than the first quarter.

Al Villalon: Non-performing assets declined over 68%, criticized loans declined meaningfully, and charge-offs were substantially lower than Q1. Overall, we made significant progress improving balance sheet quality and reducing risk. On page 25, capital and liquidity remain strong. Tangible book value per share increased to $18.73, and tangible common equity to tangible assets improved to 9.05%. CET1 increased to 10.81%, and total risk-based capital remained comfortably above regulatory requirements. Total liquidity was approximately $2.6 billion at the end of 30 June, or approximately $1.5 billion excluding brokered CD capacity. During the quarter, we repurchased $6.8 million of common stock at an average price of $27.10 per share, reducing common shares outstanding by 250,000 shares at the end of the quarter. We also increased the quarterly dividend by 4.76% to $0.22 per share. Through H1 2026, we returned $23.6 million to shareholders through dividends and repurchases.

Speaker #3: Overall, we made significant progress improving balance sheet quality and reducing risk. On page 25, capital and liquidity remained strong. Tangible book value per share increased to $18.73, and tangible common equity to tangible assets improved to 9.05%.

Speaker #3: CET-1 increased to 10.81%, and total risk-based capital remained comfortably above regulatory requirements. Total liquidity was approximately $2.6 billion at the end of June 30, or approximately $1.5 billion excluding brokered CD capacity.

Speaker #3: During the quarter, we repurchased 6.8 million dollars of common stock at an average price of 27 dollars and 10 cents per share. Reducing common shares outstanding by 250,000 shares at the end of the quarter.

Speaker #3: We also increased the quarterly dividend by 4.76% to $0.22 per share. Through the first six months of 2026, we returned $23.6 million to shareholders through dividends and repurchases.

Speaker #3: We are pleased to simultaneously increase tangible book value, repurchase shares, increase the dividend, and strengthen regulatory capital ratios during the quarter. The increase in tangible book value per share, combined with share repurchase and dividend growth, demonstrates our continued focus on disciplined shareholder value creation.

Al Villalon: We are pleased to simultaneously increase tangible book value, repurchase shares, increase the dividend, and strengthen regulatory capital ratios during the quarter. The increase in tangible book value per share, combined with share repurchase and dividend growth, demonstrates our continued focus on disciplined shareholder value creation. Our capital allocation priorities remain consistent. Support organic growth, return capital opportunistically when it creates value, and maintain flexibility for strategic opportunities. Turning to page 26, our 2026 guidance framework has improved and reflects continued disciplined growth, stable core margin trends, and positive operating leverage. As we enter H2, we remain encouraged by our performance in H1 and believe Alerus is well-positioned to achieve our full year objectives. We continue to expect mid-single digit loan growth and low single digit deposit growth. We now expect full-year reported net interest margin of approximately 3.7% to 3.8%.

Speaker #3: Our capital allocation priorities remain consistent. Support organic growth, return capital opportunistically when it creates value, and maintain flexibility for strategic opportunities. Turning to page 26, our 2026 guidance framework has improved and reflects continued disciplined growth, stable core margin trends, and positive operating leverage.

Speaker #3: As we enter the second half of the year, we remain encouraged by our performance in the first six months and believe Alerus's well-positioned to achieve our full-year objectives.

Speaker #3: We continue to expect mid-single-digit loan growth and low single-digit deposit growth. We now expect full-year reported net interest margin of approximately 3.7% to 3.8%.

Speaker #3: Our confidence in that outlook is supported by stable core margin trends, favorable loan and investment repricing, and the overall positioning of the balance sheet.

Al Villalon: Our confidence in that outlook is supported by stable core margin trends, favorable loan and investment repricing, and the overall positioning of the balance sheet. We expect revenues to be up mid-single digits. Within that guide, we do anticipate lower mortgage originations with the market currently pricing in potential rate hikes. Non-interest expenses will increase low-to mid-single digits as we anticipate more strategic hirings. Lastly, we continue to expect full year ROA to be above 1.25%. In summary, Q2 reinforced what makes Alerus unique. We generate strong returns, credit quality improved, we grew tangible book value, strengthened capital, and leveraged a diversified business model that continues to differentiate us from many of our peers. We entered H2 2026 with strong momentum, strong capital, and confidence in our ability to continue creating long-term value for shareholders. With that, let's go to Q&A.

Speaker #3: We expect revenues to be up mid-single digits. Within that guide, we do anticipate lower mortgage originations with a market currently pricing in potential rate hikes.

Speaker #3: Non-interest expenses will increase by low to mid-single digits, as we anticipate more strategic hirings. Lastly, we continue to expect full-year ROA to be above 1.25%.

Speaker #3: In summary, the second quarter reinforced what makes ALERUS unique. We generate strong returns, credit quality improved, we grew tangible book value, strengthened capital, and leveraged a diversified business model that continues to differentiate us from many of our peers.

Speaker #3: We entered the second half of 2026 with strong momentum, strong capital, and confidence in our ability to continue creating long-term value for shareholders. With that, let's go to Q&A.

Al Villalon: With that, let's go to Q&A.

Speaker #1: Thank you. We will now begin our Q&A. One moment while we compile the Q&A roster. And the first question is coming from the line of Jeff Rulis.

Operator: Thank you. We will now begin our Q&A session. One moment while we compile the Q&A roster. The first question is coming from the line of Jeff Rulis of D.A. Davidson. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Thanks. Appreciate it. Al, I guess on the margin, the full year guide, I guess, would reflect or imply a pullback of reported in the 360 range.

Jeff Rulis: Thanks. Appreciate it. Al, I guess on the margin, the full year guide, I guess would reflect or imply a pullback of reported in the 3.60% range. Do you have the I'm sorry, hopping to loan yields a little bit, 6.24%. Do you have that ex recovery for the quarter and as well as do you have the spot loan yields at the quarter end?

Speaker #2: Do you have the I'm sorry, hopping at loan yields a little bit. 6204, do you have that extra covering for the quarter and as well as do you have the spot loan yields at quarter end?

Speaker #3: So Jeff, can you just help me understand the question a little bit further? So the our guidance has the recovery. It's a full year guide with the recovery already in there.

Al Villalon: Jeff, can you just help me understand the question a little bit further? Our guidance has the recovery. It's the full year guide with the recovery already in there.

Speaker #2: Right. And I hopped then to loan yields. Sorry for the transition. Well, one, I was just, I guess, the first question is implying that the reported 360 range in the back half of the year is would get you in that midpoint of the range for the year.

Jeff Rulis: Right. I hopped then to loan yields. Sorry for the transition. Well, one, I guess the first question is implying that the reported 3.60% range in the H2 would get you in that midpoint of the range for the year. Is that fair?

Speaker #2: Is that fair?

Speaker #3: If I'm understanding the question correctly, yes. I mean, we're looking I mean, our core margins have remained stable at the end of June. We're in the mid-threes right now.

Al Villalon: If I'm understanding the question correctly, yes. Our core margins have remained stable at the end of June. We're in the mid-3% right now. That's helpful?

Speaker #3: That's helpful.

Speaker #2: Gotcha. Maybe switch gears on that is on the expected accretion in the second half of this year and '27, if you have that.

Jeff Rulis: Gotcha. Maybe switch gears, Al, on the expected accretion in H2 of 2024 and 2027, if you have that.

Speaker #3: Yes, I have that. The expected accretion is going to decrease to roughly a couple hundred thousand dollars in each quarter. So last quarter, we had that on anticipated paydowns.

Al Villalon: Yes. I have that. The expected accretion is going to decrease to roughly a couple hundred thousand dollars in each quarter. Last quarter we had that's anticipated pay downs. This quarter we had over $3 million of total accretion. On contractual basis, we're expecting around $1.9 million for Q3.

Speaker #3: This quarter, we had over 3 million dollars of total accretion, but on contractual basis, we're expecting around 1.9 million for 3Q.

Speaker #2: Okay, appreciate it. Well, you've got enough guidance there that we can back into a couple of those. Maybe, switching gears to just the loan pace, given, I guess, the full year, I would assume that net growth really gained some steam ahead. And maybe with the assumptions behind that, do you expect payoffs to slow and begin to show a little bit more net growth in the second half?

Jeff Rulis: Okay. Appreciate it. Well, you've got enough guide there that we could back into a couple of those.

Al Villalon: Sure.

Jeff Rulis: Maybe switching gears to just the loan pace. Given the full year would assume that net growth really gained some steam ahead and maybe that the assumptions behind that, do you expect payoffs to slow and begin to show a little bit more net growth in H2?

Speaker #4: Yeah, I would say this is Jim Collins. The pipeline right now is the largest and most robust since I've been here in four years.

Jim Collins: Yeah, I would say, this is Jim Collins. The pipeline right now is the largest and most robust since I've been here in four years. Like we discussed in Q1, the growth would really happen in H2 of this year. We worked really hard the last eight months with credit and the line working through some credit issues, kind of cleaning up the portfolio, and really building that C&I pipeline. Q2, we put on 30 full mid-market C&I relationships. One of those was a regional nonprofit that is bringing 40 accounts with an average collected balance of about $30 million. Once all those deposits flow in, which hasn't happened yet, about half of those have come in. Just this week we approved a loan package of $28 million for a new client, and that client will walk in with $30 million in deposits.

Speaker #4: Like we discussed in the first quarter, the growth would really happen in the back half of this year. We worked really hard the last eight months with credit and aligned working through some credit issues, kind of cleaning up the portfolio.

Speaker #4: And really building that C&I pipeline. In the second quarter, we put on 30 full mid-market C&I relationships. One of those was a regional nonprofit that is bringing 40 accounts with an average collected balance of about $30 million.

Speaker #4: Once all those deposits flow in—which hasn't happened yet, as about half of those have come in—just this week, we approved a loan package of $28 million for a new client, and that client will walk in with $30 million in deposits.

Speaker #4: So, just a couple of examples of what we are doing. The strategy is working. We're staying the course. We're working on full CNI relationships.

Jim Collins: Just a couple examples of what we are doing. The strategy is working. We're staying the course. We're working on full C&I relationships. We brought in a team that is focused on C&I relationships. They're a little harder. It's a longer lead time for C&I. As you'll see, we are bringing down the CRE, growing C&I. That was the plan. That's the strategy. It is working. I will tell you that that was the plan, and we will have more growth in H2 of this year.

Speaker #4: We brought in a team that is focused on CNI relationships. They're a little harder; it's a longer lead time for CNI. But as you'll see, we are bringing down the CRE, growing CNI—that was the plan.

Speaker #4: That's the strategy. It is working. But I will tell you that that was the plan, and we will have more growth in the back half of this year.

Speaker #2: Thanks, Jim. And just one follow-on: I guess the earning asset balance—do we expect that to really match loan growth? I thought I heard some expectation to reinvest in the securities portfolio, but I guess with the growth of the earning asset base, do we think that's going to match the loan growth pace for the second half?

Jeff Rulis: Thanks, Jim. Just one follow on is just the, I guess, the earning asset balance. Do we expect that to match really loan growth? I thought I heard some expects to reinvest in the securities portfolio, I guess the growth of the earning asset base, do we think that's going to match the loan growth pace for H2? Thanks.

Speaker #2: Thanks.

Speaker #3: Yes, we do believe that.

Al Villalon: Yes, we do believe that. This is Al.

Jeff Rulis: Okay. Thanks, Al.

Speaker #2: Okay. Thanks, Al.

Operator: Thank you. One moment for the next question. The next question is coming from the line of Brendan Nosal of Hovde Group. Please go ahead.

Speaker #1: Thank you. One moment for the next question. The next question is coming from the line of Brendan Nozzle. Please go ahead.

Speaker #5: Hey, good morning, everybody. Hope you're doing well. Maybe to start off here on capital and M&A: stock as the currency again; capital is a lot stronger than it had been a year ago.

Brendan Nosal: Hey, good morning, everybody. Hope you're doing well.

Al Villalon: Good morning.

Brendan Nosal: Maybe to start off here on capital and M&A. Stock was a currency again. Capital's a lot stronger than it had been a year ago. Can you just update us on your appetite for whole bank M&A at this point and perhaps walk through what would be of interest in terms of size, geography, business characteristics, anything like that?

Speaker #5: Can you just update us on your appetite for whole bank M&A at this point and perhaps walk through what would be of interest in terms of size, geography, business characteristics—anything like that?

Speaker #6: Sure, I'll take that. As we have talked about, the capital priorities remain the same. We are very focused on organic growth, client selection, and investing—reinvesting in ourselves in terms of talent, technology, and capabilities that really strengthen our franchise for the long term.

Katie O'Neill Lorenson: Sure, I'll take that. As we have talked about, the capital priorities remain the same. We are very focused on organic growth, client selection, reinvesting in ourselves in terms of talent, technology, and capabilities that really strengthen our franchise for the long term. Capital commitments or returning to shareholders has been very clearly demonstrated over many decades of this franchise. Strategic acquisitions are also a very enterprise strength of ours, and we remain committed to pursuing those that fit our culture, enhance our capabilities, and meet our return thresholds. When we look strategically for acquisitions, those are the three buckets. Again, retirement, we're agnostic to location because it's a national business. We believe we are viewed as a consolidator of choice for those subscale operators. From a banking franchise standpoint, we look for, again, middle of the country is kind of our geographic focus.

Speaker #6: Capital commitments to returning value to shareholders have been very clearly demonstrated over many decades of this franchise. But strategic acquisitions are also a significant enterprise strength of ours, and we remain committed to pursuing those that fit our culture, enhance our capabilities, and meet our return thresholds.

Speaker #6: And so, when we look strategically for acquisitions, those are the three buckets. And again, for retirement, we're agnostic to location because it's a national business.

Speaker #6: We believe we are viewed as a consolidator of choice for those subscale operators. From a banking franchise standpoint, we look for, again, the middle of the country as kind of our geographic focus.

Speaker #6: Geographic focus—from a size standpoint, we're more so looking at the client base and what it can bring to us in terms of enhancing our franchise.

Katie O'Neill Lorenson: From a size standpoint, we're more so looking at the client base and what it can bring to us in terms of enhancing our franchise.

Speaker #5: Okay, thanks for those thoughts, Katie. Maybe turning back to the outlook, this is a little bit more top level. So you're adding 15 basis points to the full-year margin outlook.

Brendan Nosal: Okay. Thanks for those thoughts there, Katie. Maybe turning back to the outlook. This is on the little bit more top level. You're adding 15 basis points to the full year margin outlook. You maintain the other components of revenue, including loan growth and fee income, but you're keeping the same revenue outlook. Help us understand why the margin outlook is better, but the revenue outlook is unchanged.

Speaker #5: You maintained the other components of revenue, including loan growth and fee income, but you're keeping the same revenue outlook. So help us understand why the margin outlook is better, but the revenue outlook is unchanged.

Speaker #3: Yeah, that's pretty simple, Brendan. Basically, we're forecasting lower originations from our mortgage business, given there's a higher probability of a rate hike coming in September.

Al Villalon: Yeah, that's pretty simple, Brendan. Basically, we're forecasting lower originations from our mortgage business, given there's a higher probability of a rate hike coming in September. We are seeing a slowdown in our pipelines right now. That's kind of the offset that we're anticipating for H2. Hopefully, it'll be better than that, but right now we're just given the market prediction for more rate hikes in September, we're just wanting to give more cautious guidance on that.

Speaker #3: We are seeing a slowdown in our pipelines right now, so that's kind of the offset that we're anticipating for the back half of the year.

Speaker #3: Hopefully, it will be better than that. But right now, we're just trying to be given the market prediction for more rate hikes in September, we're just wanting to give me more cautious guidance on that.

Speaker #5: Okay. All right. Thanks, Al.

Brendan Nosal: Okay. All right. Thanks, Al.

Speaker #3: No problem.

Al Villalon: No problem.

Speaker #1: Thank you. If you would like to ask a question, please press star 11 on your telephone. One moment for the next question. The next question is coming from the line of Damon Del Monte.

Operator: Thank you. If you would like to ask a question, please press * one one on your telephone. One moment for the next question. The next question is coming from the line of Damon DelMonte of KBW. Please go ahead.

Speaker #1: Of KBW, please go ahead.

Speaker #7: Hey everyone, I hope you're all doing well, and thanks for taking my questions. I have a question on the paydowns that occurred this quarter.

Damon DelMonte: Hey, everyone. Hope you're all doing well, and thanks for taking my questions. I just had a question on the paydowns that occurred this quarter. How much of that was just normal CRE paydowns like we're seeing across the industry, and how much of it was sort of Alerus-specific targeted, where you're looking to maybe exit some credits that you weren't comfortable with?

Speaker #7: How much of that was just normal CRE paydowns, like we're seeing across the industry? And how much of it was sort of ALERUS-specific—targeted, where you're looking to maybe exit some credits that you weren't comfortable with?

Speaker #3: So what I can tell you right now, Damon, is we had total pay-downs. Overall, the total purchase account increase was about $3.8 million, okay?

Al Villalon: What I can tell you right now on, we had a total paydowns, Damon, of overall the total purchase accounting accretion was about $3.8 million. Okay? $2.1 of it was base. The regular payoffs, the accelerated payoffs of $1.8, I would say, which is a broad mix.

Speaker #3: And $2.1 million of it was base. The regular payoffs or the accelerated payoffs of $1.8 million, I would say, which is a broad mix.

Damon DelMonte: Got it. Okay. A little bit more specifically, are you guys kind of going through the portfolio and exiting certain credits that maybe aren't meeting your standards today versus when they were originated? Did that also contribute to the paydowns in the quarter?

Speaker #7: Got it. Okay. And then, a little bit more specifically, are you guys going through the portfolio and exiting certain credits that maybe aren't meeting your standards today versus when they were originated?

Speaker #7: Did that also contribute to the paydowns in the quarter?

Speaker #6: Yeah, Damon, this is Karen. It did. As Jim mentioned, our teams in Credit and Banking have worked very hard to identify credits that either had deteriorated or just weren't core to our business going forward.

Karin Taylor: Yeah, Damon, this is Karin. It did. As Jim mentioned, our teams in credit and banking have worked very hard to identify credits that either had deteriorated or just weren't core to our business going forward. We feel really good about the progress those teams have made.

Speaker #6: And we feel really good about the progress those teams have made.

Speaker #4: And that will be a standard culture of ours going forward for the portfolio.

Jim Collins: And that will be-

Damon DelMonte: Got it.

Jim Collins: a standard culture of ours going forward for the portfolio.

Speaker #7: Got it. Okay. And then the loan guidance for mid-single digits—I mean, you've been pretty much flat for the first half of the year. So, I mean, that would kind of imply close to a 10% late-quarter annualized rate for each of the next two quarters.

Damon DelMonte: Got it. Okay. The loan guidance for mid-single digits, I mean, pretty much flat for H1 of the year. That would kind of imply close to 10% linked quarter annualized for each of the next two quarters. Is that a reasonable way to look at it? Or do you think that it's maybe a little less in Q3 and then a really strong finish to year-end?

Speaker #7: Is that a reasonable way to look at it, or do you think that it's maybe a little less in the third quarter and then a really strong finish to year-end?

Speaker #4: Yeah, I think that's a way to look at it. We have a pretty good, solid pipeline, but we'll have a good, solid push at the end of the third quarter, and we should have a good push into the fourth quarter.

Jim Collins: Yeah, I think that's a way to look at it. We have a pretty good, solid pipeline, but we'll have a good, solid push at the end of Q3, and we should have a good push into Q4.

Speaker #7: Got it. Okay. And then I guess, just lastly, on the provision outlook, Al, any guidance on what you think a normalized provision level would be?

Damon DelMonte: Got it. Okay. I guess just lastly on the provision outlook, Al, any guidance on kind of what you think a normalized provision level would be?

Speaker #3: I don't want to step on Karen's toes, so I'll let her take that one.

Al Villalon: I don't want to step on Karin's toes, so I'll let her take that one.

Speaker #6: Yeah, Damon.

Damon DelMonte: Okay, Karin.

Speaker #7: Okay, Karen.

Karin Taylor: Damon, it's Karin. The provision's going to be driven by loan growth at this point. I think the level that we're at now is probably reasonably where we're going to be.

Speaker #6: The provision is going to be driven by loan growth at this point. And I think the level that we're at now is probably reasonably where we're going to be.

Damon DelMonte: Got it. Okay, great. That's all that I had. Thank you.

Speaker #7: Okay, great. That's all that I had. Thank you.

Speaker #4: Thanks, Damon.

Jim Collins: Thanks, Damon.

Speaker #1: Thank you. One moment for the next question. Our next question is coming from the line of Nathan Reyes of Piper Sandler. Please go ahead.

Operator: Thank you. One moment for the next question. Our next question's coming from the line of Nathan Race of Piper Sandler. Please go ahead.

Speaker #5: Hi, everyone. Good morning. Thanks for taking the questions. While Karen has the microphone, I'm curious how you're thinking about the normalized charge-off trajectory for Alerus going forward.

Nathan Race: Hi, everyone. Good morning. Thanks for taking the questions.

Katie O'Neill Lorenson: Good night.

Nathan Race: While Karin has the microphone, curious how you're thinking about kind of the normalized charge-off trajectory for Alerus going forward. Obviously, some meaningful credit cleanup occurred in the quarter. Just curious how you are looking at what loss context could look like, just given all the enhancements across the franchise over the last several years, and particularly just given the cleanup here in Q2.

Speaker #5: Obviously, some meaningful credit cleanup occurred in the quarter. So, just curious how you are looking at what loss context could look like, given all the enhancements across the franchise over the last several years, and particularly given the cleanup here in Q2.

Speaker #6: Sure, certainly the back half of this year we'll see reduced levels. I think back to our long history—probably 25 years plus—our average charge-off rate was in that 25 to 27 basis points range.

Karin Taylor: Sure. Certainly the back half of this year will see reduced levels. I think back to our long history, probably 25 years plus, our average charge-off rate was in that 25 to 27 basis points range. I think ultimately, that's where we're going to end up going to the future.

Speaker #6: Range. And I think ultimately that's where we're going to end up going into the future.

Speaker #5: Okay, great. And then just going back to the margin, Al, I was hoping to unpack some of the moving pieces. On the right side of the balance sheet, what do you expect in the back half of the year? It looked like borrowings were up on both an average and a period basis in the quarter.

Nathan Race: Okay, great. Just going back to the margin. Al, just hoping to unpack some of the moving pieces on the right side of the balance sheet that you expect in H2 of the year. It looked like borrowings were up on both an average and a period basis in the quarter. Just curious what you guys are seeing in terms of the core deposit gathering pipeline to fund that growth. Do you anticipate kind of working on wholesale funding, which maybe aligns with your margin guide of in the mid 3.50s for H2 of the year, which is kind of consistent with what we saw here in Q2 when you strip out the recoveries and accretion. I just want to make sure I'm thinking about those moving pieces properly.

Speaker #5: So just curious what you guys are seeing in terms of kind of the core deposit gathering. Pipeline to fund that growth, or do you anticipate kind of moving on wholesale funding, which maybe kind of aligns with kind of your margin guide of kind of in the mid 350s for the back half of the year, which is kind of consistent with what we saw here in Q2 when you strip out the recoveries and accretion.

Speaker #5: So I just want to make sure I'm thinking about those moving pieces properly.

Speaker #6: Yep.

Speaker #3: Yep. Thanks for that question, Nate. I'll take the first part and then Jim can comment on the pipelines. In terms of what we're seeing in the back half of the year, we are anticipating a little bit more rising costs on our deposit costs given the rate hikes.

Al Villalon: Yep. Thanks for that question, Nate. I'll take the first part and Jim can comment on the pipelines. In terms of what we're seeing in H2 of the year, we are anticipating a little bit more rise in cost on our deposit cost given the rate hikes. We're hoping to lag at some, but we know that deposit competition is pretty intense right now. With that being said too, we did refinance our sub-debt recently too, which put a little bit more pressure on our funding costs. We do not anticipate too much use of wholesale funding to fund our loan growth here because we do believe that our deposits, we should have deposit growth to offset it. We have plenty of liquidity to fund that growth if we need to tap into it.

Speaker #3: We're hoping to lag it some, but we know that deposit competition is pretty intense right now. With that being said too, we did refinance our sub debt recently, which put a little bit more pressure on our funding costs. But we do not anticipate too much use of wholesale funding to fund our loan growth here, because we do believe that our deposits—we should have deposit growth to offset it. But we have plenty of liquidity to fund that growth if we need to tap into it.

Speaker #5: Yeah. And getting to the deposit pipeline, as I said, the full pipeline is pretty robust. That does still include the deposit pipeline, so that still goes to the forecast of deposit growth in the low single digits.

Jim Collins: Getting to the deposit pipeline. As I said, the full pipeline is pretty robust. That does still include the deposit pipeline. That still goes to the forecast of deposit growth in the low single digits. Our government nonprofit group is certainly trucking along really nicely on deposits. Again, those mid-market clients carry some decent deposits to fund part of that loan growth as well.

Speaker #5: Our government nonprofit group is certainly trucking along really nicely on deposits. But again, those mid-market clients carry some decent deposits to fund part of that loan growth as well.

Speaker #5: Okay, got it. And then maybe I can stick one last one in for Katie. You guys at ALERUS have always been quite proactive in investing in technology, of course.

Nathan Race: Okay. Got it. Maybe I can sneak one last one in for Katie. You guys have, and Alerus have always been quite proactive, invest in technology, of course. With all the AI chatter out there these days, I imagine that's going to create some incremental opportunities going forward. Just curious where you're seeing some early applications for AI and maybe what that can mean for some improvement in terms of just the optimization of some areas of the franchise going forward.

Speaker #5: With all the AI chatter out there these days, I imagine that's going to create some incremental opportunities going forward. So, just curious where you're seeing some early applications for AI, and maybe what that can mean for some improvement in terms of the optimization of some areas of the franchise going forward.

Speaker #6: Yeah, great question. And that has been a huge focus for us and particularly one of our top priorities in 2026. We are making investments, and we're making them in some very targeted areas where we have a really long-term, high conviction for future returns.

Katie O'Neill Lorenson: Yeah, great question. That has been a huge focus of us and particularly one of our top priorities in 2026. We are making investments and we're making them in some very targeted areas where we have a really long-term high conviction for future returns, particularly as we've discussed in modernizing the retirement platform. As I mentioned in my opening remarks, the technology is great, but it's all about the talent leading the technology. A big win for us to land one of the professionals from FIS who will be instrumental in that modernization of retirement platform, which we think is one of the areas that has the most opportunity in terms of AI, automation, scalability. All of which we believe results in improving margins and improving scalability in every one of our divisions. Those investments are ongoing.

Speaker #6: Particularly as we've discussed in modernizing the retirement platform. And so, as I mentioned in my opening remarks, the technology is great, but it's all about the talent leading the technology.

Speaker #6: And so, a big win for us to land one of the professionals from FIS who will be instrumental in the modernization of our retirement platform, which we think is one of the areas that has the most opportunity in terms of AI, automation, and scalability—all of which we believe result in improving margins and improving scalability in every one of our divisions.

Speaker #6: So those investments are ongoing, and we are running pretty fast and hard. I'm really pleased with the success that I'm seeing the teams have early on.

Katie O'Neill Lorenson: We are running pretty fast and hard, and I'm really pleased with the success that I'm seeing the teams have early on.

Speaker #5: Okay, that's really helpful. Thanks for that, Katie. I'm sorry, Al, if I could just sneak one more in on the expenses: the other line was up about $1,000 quarter over quarter.

Nathan Race: Okay. That's really helpful. Thanks for that, Katie. I'm sorry, Al, if I could just sneak one more in on expenses.

Al Villalon: Sure.

Nathan Race: The other line was up about $900,000 quarter over quarter. Anything to call out there?

Speaker #5: Anything to call out there?

Speaker #3: Yeah. Part of that other line on expenses is that we have a deferred comp plan where there’s an increase in liabilities that gets booked as an expense, but there’s also offsetting other revenues that also flow through too.

Al Villalon: Yeah. Part of that other line on expenses is that we have a deferred comp plan where there's an increase in liabilities that gets booked as an expense, but there's also offsetting other revenues that also flows through too.

Speaker #5: Okay, got it. So there are offsetting fees. Really helpful. I appreciate all the color. Thanks, everyone.

Nathan Race: Okay. Got it. Those are offsetting fees. Really helpful.

Al Villalon: Yeah.

Nathan Race: I appreciate all the color. Thanks, everyone.

Speaker #3: Yep.

Al Villalon: Yep.

Speaker #6: Thanks.

Katie O'Neill Lorenson: Thanks.

Speaker #1: Thank you. One moment for the next question. Next question is coming from the line. Of Ken Kohut of Raymond James, please go ahead.

Operator: Thank you. One moment for the next question. Next question comes from the line of Ken Kohut of Raymond James. Please go ahead.

Speaker #7: Hi. Good morning, everybody. Thanks for taking my questions. Maybe starting out with asset quality. Just wondering if they do you expect any more charge offs related to that one CNI credit that drove the elevated charge offs in one Q and a little bit more in two Q?

Ken Kohut: Hi. Good morning, everybody. Thanks for taking my questions. Maybe starting out with asset quality. Just wondering if you expect any more charge-offs related to that one C&I credit that drove the elevated charge-offs in Q1 and a little bit more in Q2, or do you think you have a good handle on that one right now?

Speaker #7: Or do you think you have a good handle on that one right now?

Speaker #6: Well, we could see some. I think they're going to be at a much lower level. We do continue to have about a $1 million reserve on that.

Karin Taylor: Well, we could see some. I think they're going to be at a much lower level. We do continue to have about a million-dollar reserve on that. As I said earlier, the charge-off level in H2 of the year is going to be quite a bit lower.

Speaker #6: So, as I said earlier, the charge-off level in the back half of the year is going to be quite a bit lower.

Speaker #7: Okay, great. And then, regarding the residential property and apartment complex that was moved to OREO during the quarter, how long do you expect these assets to remain on the balance sheet?

Ken Kohut: Okay, great. Regarding the residential property and apartment complex that was moved to OREO during the quarter, how long do you expect these assets to remain on the balance sheet? What are the associated costs with managing these properties in the meantime? I believe you called that out in the press release regarding the increase in other expenses, any color there would be great. Thank you.

Speaker #7: And then, what are the associated costs with managing these properties in the meantime? I believe you called that out in the press release regarding the increase in other expenses, but any color there would be great.

Speaker #7: Thank you.

Speaker #6: Sure. The residential property, we expect to resolve by the end of the year. Some of the holding costs associated with that were just for minor improvements that needed to be made.

Karin Taylor: Sure. The residential property we expect to resolve by the end of the year. Some of the holding costs associated with that were just some minor improvements that needed to be made. I don't expect that to be ongoing. The apartment building is actually in receivership, there are costs related to the receiver with that building. That one will more likely be resolved in H1 of 2027.

Speaker #6: So I don't expect that to be ongoing. The apartment building is actually in receivership, so there are costs related to the receiver with that building.

Speaker #6: And that one will more likely be resolved in the first half of 2027.

Speaker #7: All right. Great. Thank you for taking my questions.

Ken Kohut: All right, great. Thank you for taking my questions.

Speaker #1: Thanks, Ken. Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Katie for closing remarks.

Nathan Race: Thanks, Ken.

Operator: Thank you. This concludes today's Q&A session. I would now like to turn the call back over to Katie for closing remarks.

Speaker #6: Thank you. Thank you to our shareholders, our analysts, and our board of directors for your ongoing confidence and support. Most importantly, thank you to all of our team members across Alerus.

Katie O'Neill Lorenson: Thank you. Thank you to our shareholders, our analysts, and our board of directors for your ongoing confidence and support. Most importantly, thank you to all of our team members across Alerus. The results that we discussed today are a direct reflection of their commitment to our clients, our strategy, and to one another. While we are proud of our performance, we also recognize that success is never final. We remain committed to balancing strong financial performance today with thoughtful investments in talent, technology, and growth opportunities that will strengthen Alerus for the future. That discipline has helped us to build a more diversified, resilient company, and we believe positions us well to continue creating long-term value for our shareholders. Thank you again for joining us today.

Speaker #6: The results that we discussed today are a direct reflection of their commitment to our clients, our strategy, and to one another. And while we are proud of our performance, we also recognize that success is never final.

Speaker #6: We remain committed to balancing strong financial performance today with thoughtful investments in talent, technology, and growth opportunities that will strengthen Alerus for the future.

Speaker #6: That discipline has helped us build a more diversified, resilient company, and we believe it positions us well to continue creating long-term value for our shareholders.

Speaker #6: Thank you again for joining us today.

Operator: This now concludes today's presentation. Thank you so much for joining, and you may now disconnect.

Q2 2026 Alerus Financial Corp Earnings Call

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