Alerus Financial Corporation (ALRS) | Investment Case

1. Company Snapshot

1.a. Company Description

Alerus Financial Corporation, through its subsidiary, Alerus Financial, National Association, provides various financial services to businesses and consumers.The company operates in four segments: Banking, Retirement and Benefit Services, Wealth Management, and Mortgage.It offers various deposit products, including demand deposits, interest-bearing transaction accounts, money market accounts, time and savings deposits, checking accounts, and certificates of deposit; and treasury management products, including electronic receivables management, remote deposit capture, cash vault services, merchant services, and other cash management services.

The company also provides commercial loans, business term loans, lines of credit, and commercial real estate loans, as well as construction and land development loans; consumer lending products, including residential first mortgage loans; installment loans and lines of credit; and second mortgage loans.In addition, it offers retirement plan administration and investment advisory services, employee stock ownership plan, fiduciary services, payroll, health savings accounts, and other benefit services, as well as individual retirement accounts; and financial planning, investment management, personal and corporate trust, estate administration, and custody services.Further, the company provides debit and credit cards, online banking, mobile banking/wallet, payment, private banking, payroll accounts, flex spending accounts, administration, and government health insurance program services.

It offers banking services through fourteen offices in North Dakota, Minnesota, and Arizona; and retirement and benefit plans in 50 states through offices located in Michigan, Minnesota, and Colorado.The company was formerly known as First National Bank North Dakota and changed its name to Alerus Financial Corporation in 2000.Alerus Financial Corporation was founded in 1879 and is headquartered in Grand Forks, North Dakota.

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1.b. Last Insights on ALRS

Alerus Financial Corporation's recent performance was driven by strong Q1 2025 earnings, with net income of $13.3 million, surpassing the Zacks Consensus Estimate of $0.43 per share. The company's quarterly earnings of $0.56 per share beat the estimate, marking a significant improvement from $0.32 per share in the year-ago period. Additionally, the company's CEO, Katie Lorenson, highlighted the quarter's strong performance, citing a significant increase in revenue and earnings.

1.c. Company Highlights

Last Price	22.21
Change Percentage	-0.31%
Open	22.23
Previous Close	22.28
Market Cap ( Millions)	564
Volume	54168
Year High	24.33
Year Low	15.78
M A 50	21.55
M A 200	20.93

FCF Yield	9.87%
Dividend Yield	3.69%
ROE	9.63%
Debt / Equity	53.76%
Net Debt / EBIDTA	250.01%
Price To Book	1.02
Price Earnings Ratio	11.19
Price To FCF	10.13
Price To sales	1.79
EV / EBITDA	9.41

2. Bank's Q3 2025 Earnings: A Resilient Performance

The bank's third-quarter 2025 financial performance was consistent with expectations, showcasing a robust diversified business model that drives nearly double the average fee income compared to other banks. Revenues were supported by a 0.2% increase in net interest income to $43.1 million, while fee income decreased 7.3%. Earnings per share (EPS) came in at $0.66, beating estimates of $0.59. The net interest margin remained stable at 3.50%, and the tangible common equity ratio improved to 8.24%. The bank returned $5.3 million to shareholders through its dividend, highlighting its commitment to shareholders.

Publication Date: Nov -12

                                    📋 Highlights
                                    Fee Income Resilience::
                                                Fee income remains over 40% of revenues and over double the industry average, despite a 7.3% QoQ decline.
Net Interest Income Growth::
                                                Net interest income reached $43.1 million in Q3, with full-year 2025 NIM guidance at 3.35%-3.4%.
Tangible Equity Strength::
                                                Tangible common equity ratio rose to 8.24%, with tangible book value growing nearly 5% YoY.
Loan Growth Potential::
                                                Proactive credit selection and rate cuts could drive 10-12% loan growth if interest rates decline.
Deposit Strategy Shift::
                                                Plans to shift low-yield securities into higher-yield loans, with non-maturity deposits added at <3% rates.

                                

Revenue Diversification and Growth Prospects

The bank's diversified revenue streams are a key strength, with fee income remaining over 40% of revenues and more than double the industry average. The management expects net interest margin for 2025 to be around 3.35% to 3.4% and for 2026 to be around 3.35% to 3.45%. Analysts estimate revenue growth at 3.4% for next year. The bank is well-positioned for growth, with a strong presence in Retirement and Benefits, and Wealth Management businesses. As Katie Lorenson mentioned, "Our diversified business model drives nearly double the average fee income compared to other banks, providing revenue resilience across cycles."

Valuation and Dividend Yield

With a Price-to-Tangible Book Value (P/TBV) close to 1.01, the bank's valuation appears reasonable. The Dividend Yield stands at 3.76%, making it an attractive option for income-seeking investors. The bank's Return on Equity (ROE) is 9.63%, indicating a decent return on shareholders' equity. The Net Interest Margin (NIM) guidance for 2026 suggests a stable outlook, and the expected loan growth, potentially reaching 10-12% if interest rates decrease, could further boost revenues.

Asset Quality and Provisioning

The bank's asset quality appears to be improving, with a decrease in the requirement for pooled loans. The management expects a normalized provision level of around $1.5 million to $2 million per quarter, down from $3.5 million to $4 million per quarter in 2024. Loan growth and macroeconomic factors will primarily drive provisioning going forward, as mentioned by Karin Taylor.

Outlook and Conclusion

The bank's strategic positioning is exceptionally strong, with a clear focus on improving commercial underwriting and origination processes, and optimizing the Retirement division. With a reasonable valuation and attractive dividend yield, the bank is well-positioned for future growth. The expected fair value accretion impact on the margin guide and the potential for higher loan growth if interest rates decrease are positive factors that could drive the bank's performance in the coming quarters.

3. NewsRoom

Alerus Financial Corporation (ALRS) Q3 2025 Earnings Call Transcript

Oct -31

Source: seekingalpha.com

Alerus (ALRS) Q3 Earnings: Taking a Look at Key Metrics Versus Estimates

Oct -31

Source: zacks.com

Alerus (ALRS) Q3 Earnings and Revenues Beat Estimates

Oct -30

Source: zacks.com

Alerus Financial Corporation Reports Third Quarter 2025 Net Income of $16.9 Million

Oct -30

Source: businesswire.com

Is Alerus Financial (ALRS) Stock Outpacing Its Finance Peers This Year?

Oct -23

Source: zacks.com

Alerus Financial Corporation to Announce Third Quarter Financial Results on Thursday, October 30

Oct -01

Source: businesswire.com

Alerus Financial Corporation Declares Cash Dividend on Common Shares

Sep -02

Source: businesswire.com

Alerus Financial Corporation (ALRS) Q2 2025 Earnings Call Transcript

Jul -28

Source: seekingalpha.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.59%)

6. Segments

Banking

Expected Growth: 7.03%

Alerus Financial Corporation's 7.03% growth in banking is driven by strategic acquisitions, expansion into new markets, and a strong focus on commercial lending. Additionally, the company's investment in digital transformation and customer experience has led to increased deposits and loan growth. Furthermore, a favorable interest rate environment and a strong balance sheet have also contributed to the company's growth momentum.

Retirement and Benefit Services

Expected Growth: 7.9%

Alerus Financial Corporation's Retirement and Benefit Services segment growth of 7.9% is driven by increasing demand for retirement plan administration, actuarial services, and employee benefits consulting. Additionally, strategic acquisitions, expansion of existing client relationships, and a growing need for fiduciary support contribute to the segment's growth.

Wealth Management

Expected Growth: 8.5%

Alerus Financial Corporation's 8.5% growth in Wealth Management is driven by increasing demand for retirement planning, strategic acquisitions, and expansion of investment services. Additionally, the company's focus on digital transformation, enhanced client experience, and talent acquisition have contributed to its growth. Strong market performance, diversification of revenue streams, and effective cost management have also supported the segment's growth.

Mortgage

Expected Growth: 7.43%

Alerus Financial Corporation's 7.43% mortgage growth is driven by low interest rates, increasing housing demand, and strategic expansion into new markets. Additionally, the corporation's digital transformation and improved customer experience have enhanced loan origination capabilities, contributing to the growth. Furthermore, a strong economy and low unemployment rates have increased consumer confidence, leading to increased borrowing activity.

Corporate Administration

Expected Growth: 8.5%

Alerus Financial Corporation's Corporate Administration segment growth of 8.5% is driven by strategic acquisitions, expansion of wealth management services, and increased demand for retirement plan administration. Additionally, investments in digital transformation and process efficiencies have enhanced operational scalability, contributing to the segment's growth.

7. Detailed Products

Retail Banking

Alerus Financial Corporation offers a range of retail banking services, including checking and savings accounts, credit cards, personal loans, and mortgages.

Commercial Banking

Alerus provides commercial banking services, including business checking and savings accounts, commercial loans, and cash management solutions.

Wealth Management

Alerus offers wealth management services, including investment management, financial planning, and retirement planning.

Mortgage Banking

Alerus provides mortgage banking services, including residential and commercial mortgage lending, refinancing, and construction loans.

Retirement and Benefit Services

Alerus offers retirement and benefit services, including 401(k) and pension plan administration, recordkeeping, and compliance services.

8. Alerus Financial Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Alerus Financial Corporation operates in a highly competitive industry, but the threat of substitutes is moderate due to the complexity of financial services and the need for specialized expertise.

Bargaining Power Of Customers

Alerus Financial Corporation's customers have significant bargaining power due to the availability of alternative financial institutions and the ease of switching providers.

Bargaining Power Of Suppliers

Alerus Financial Corporation has a diverse supplier base, and the bargaining power of suppliers is limited due to the company's size and negotiating power.

Threat Of New Entrants

The threat of new entrants in the financial services industry is moderate due to regulatory barriers and the need for significant capital investment.

Intensity Of Rivalry

The financial services industry is highly competitive, and Alerus Financial Corporation faces intense rivalry from established players and new entrants.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	50.38%
Debt Cost	7.23%
Equity Weight	49.62%
Equity Cost	7.23%
WACC	7.23%
Leverage	101.52%

11. Quality Control: Alerus Financial Corporation passed 1 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

C&F Financial

A-Score: 6.3/10

Value: 7.7

Growth: 4.7

Quality: 6.1

Yield: 6.0

Momentum: 7.5

Volatility: 5.7

1-Year Total Return ->

Metropolitan Bank

A-Score: 5.8/10

Value: 7.6

Growth: 8.0

Quality: 6.5

Yield: 0.0

Momentum: 8.0

Volatility: 4.7

1-Year Total Return ->

Alerus Financial

A-Score: 5.5/10

Value: 5.9

Growth: 3.0

Quality: 5.8

Yield: 7.0

Momentum: 3.5

Volatility: 7.7

1-Year Total Return ->

First Northwest Bancorp

A-Score: 5.2/10

Value: 9.4

Growth: 5.6

Quality: 4.0

Yield: 5.0

Momentum: 1.5

Volatility: 6.0

1-Year Total Return ->

First Internet

A-Score: 4.4/10

Value: 9.6

Growth: 6.7

Quality: 3.7

Yield: 2.0

Momentum: 0.5

Volatility: 3.7

1-Year Total Return ->

Kentucky First Federal

A-Score: 4.3/10

Value: 4.8

Growth: 1.9

Quality: 4.1

Yield: 4.0

Momentum: 8.5

Volatility: 2.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

1.27%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

7.23%

Alerus Financial Corporation - US01446U1034

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on ALRS

1.c. Company Highlights

Lower Growth

Average Quality

Fairly Valued

Revenues Beats

Earnings Miss

Expensive

Lower Quality

Average Growth

Average Yield

Revenues Miss

Stable Momentum

Earnings Beats

Weak Momentum

2. Bank's Q3 2025 Earnings: A Resilient Performance

Revenue Diversification and Growth Prospects

Valuation and Dividend Yield

Asset Quality and Provisioning

Outlook and Conclusion

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.59%)

6. Segments

Banking

Expected Growth: 7.03%

Retirement and Benefit Services

Expected Growth: 7.9%

Wealth Management

Expected Growth: 8.5%

Mortgage

Expected Growth: 7.43%

Corporate Administration

Expected Growth: 8.5%

7. Detailed Products

Retail Banking

Commercial Banking

Wealth Management

Mortgage Banking

Retirement and Benefit Services

8. Alerus Financial Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Alerus Financial Corporation passed 1 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

22.21$

Current Price

22.21$

Potential

-0.00%

12.e Scoring ^Insights

12.f DCF ^BETA