Alerus Financial Q3 2026 Earnings: Loans and Fee Income Grow as Margin Narrows

Alerus Financial Corporation (Nasdaq: ALRS) reported third-quarter 2026 loan and deposit growth alongside higher fee revenue, though lower net interest income and rising expenses weighed on sequential earnings. Net income was $19.2 million, or $0.76 per diluted share, compared with $20.9 million, or $0.81 per share, in the second quarter. Adjusted diluted earnings were $0.71, down from $0.80.

The diversified financial-services company maintained its full-year outlook, which calls for mid-single-digit loan growth, low-single-digit deposit growth and a tax-equivalent net interest margin of 3.75% to 3.85%. The guidance assumes the federal funds rate remains at its September 30 level through year-end.

Balance-sheet growth offsets margin pressure

Total loans rose $150.5 million, or 3.7%, from the previous quarter to $4.18 billion at September 30. The increase reflected $160.9 million of commercial loan growth, partly offset by a $10.4 million decline in consumer loans. Commercial and business lending represented 37.0% of the loan portfolio, while investor commercial real estate accounted for 31.7%.

Deposits increased $111.2 million, or 2.7%, to $4.30 billion, primarily because of growth in commercial deposits. Noninterest-bearing deposits rose $53.9 million, or 7.1%, and represented 18.9% of total deposits. The loan-to-deposit ratio increased to 97.25% from 96.24% at the end of the second quarter.

Net interest income declined 2.1% sequentially to $46.7 million. The tax-equivalent net interest margin narrowed by 13 basis points to 3.84% from 3.97%. Alerus attributed the decrease mainly to the absence of a $1.6 million interest recovery recorded in the second quarter, lower purchase-accounting accretion and slightly higher funding costs. Higher loan and investment yields provided a partial offset. Purchase-accounting accretion contributed 28 basis points to the third-quarter margin.

Fee businesses lift noninterest income

Reported noninterest income increased 4.3% from the second quarter to $34.4 million and accounted for 42.4% of total revenue. Adjusted noninterest income, which excludes securities results, loan-sale gains and losses, and gains or losses on premises and equipment, rose 1.6% sequentially and 11.3% year over year to $32.8 million.

Retirement and Benefit Services revenue increased 1.8% from the prior quarter to $17.7 million, mainly due to higher recurring annual income. Assets under administration and management were approximately $44.94 billion, broadly stable from June. The company said 63% of the division’s revenue is tied to plans, participants and activity, while 37% is market-sensitive.

Wealth Advisory Services revenue advanced 3.8% sequentially to $8.0 million, supported by higher transaction-based fees and a slight increase in asset-based revenue. The unit’s assets under administration and management totaled $5.16 billion, up 7.3% from a year earlier.

Banking-services noninterest income rose 10.0% from the second quarter to $8.7 million on a reported basis. Mortgage revenue increased 4.2%, reflecting higher originations and gain-on-sale margins, while other income declined because of lower investment gains associated with deferred-compensation plan assets and reduced swap-fee income. Mortgage originations totaled $126.7 million, up from $113.5 million in the previous quarter.

Noninterest expense increased to $53.9 million from $52.9 million. Adjusted noninterest expense rose 2.0% sequentially and 6.4% year over year to $53.7 million. The quarterly increase was driven mainly by higher benefits costs associated with self-funded group insurance and increased seasonal marketing and business-development spending. The adjusted efficiency ratio rose to 64.44% from 62.76%.

Credit metrics remain favorable

Alerus recorded a $2.2 million provision for credit losses, up from $495,000 in the second quarter. The company nevertheless posted $1.0 million of net recoveries, equal to 0.10% of average loans, including a $1.1 million recovery tied to a commercial and industrial relationship charged off in the prior quarter.

Nonperforming loans declined to 0.17% of total loans from 0.19%, while criticized loans fell to 1.96% from 2.06%. Total nonperforming assets were $16.4 million, down $0.7 million sequentially. The allowance for credit losses increased to 1.23% of loans from 1.20%.

The preliminary common equity Tier 1 ratio was 10.52%, and tangible common equity equaled 8.77% of tangible assets. Tangible book value was $18.74 per share. Alerus repurchased $8.2 million of common stock during the quarter and paid a dividend of $0.22 per share, bringing total dividends and repurchases for the first nine months of 2026 to $37.2 million.

For full-year 2026, management expects adjusted noninterest income and adjusted revenue to increase at mid-single-digit rates from their 2025 bases, while adjusted noninterest expense is expected to rise at a low-to-mid-single-digit rate. The company also projects an adjusted return on assets above 1.25%.

The presentation identified interest-rate and funding risks, commercial real estate and borrower concentrations, economic uncertainty, fee-business exposure to market conditions, cybersecurity threats and acquisition execution among the factors that could affect results. Investor commercial real estate and residential construction loans equaled 253% of bank risk-based capital at quarter-end, while the rising loan-to-deposit ratio underscores the importance of continued deposit and liquidity management.