Alerus Takes $68.5M Loss in Strategic Pivot for Future Profitability

MINNEAPOLIS, MN – December 29, 2025 – In a decisive move to bolster future earnings, Alerus Financial Corporation (Nasdaq: ALRS) has executed a significant restructuring of its investment portfolio, selling $360 million of lower-yielding securities to reinvest in higher-performing assets. The transaction, which resulted in a substantial one-time pre-tax loss of $68.5 million, is a strategic play designed to materially improve the company's net interest margin and overall profitability profile heading into 2026.

The Minneapolis-based company announced that on December 23, it sold a large portion of its available-for-sale (AFS) securities portfolio. The assets sold, representing over 68% of the total AFS portfolio, carried a weighted average yield of just 1.7%—a reflection of the low-interest-rate environment in which they were purchased. By shedding these underperforming assets, Alerus is proactively addressing the drag they placed on its balance sheet.

A Calculated Trade-Off for Higher Yields

The core of the strategy involves a classic financial trade-off: accepting a present-day loss for the promise of stronger future income. The cash proceeds from the sale were immediately redeployed into new investment securities that boast a much more attractive weighted average yield of 4.7%. This represents a 300-basis-point improvement in yield, a significant enhancement in the current economic climate.

Furthermore, the company has also managed to reduce its interest rate risk through this maneuver. The original securities had a weighted average duration of 5.1 years, meaning their value was more sensitive to fluctuations in interest rates. The newly purchased securities have a shorter weighted average duration of just over 3 years, providing Alerus with greater balance sheet flexibility and less exposure to potential rate volatility.

This portfolio repositioning is expected to have an immediate and positive impact on one of the banking industry's key performance metrics: the net interest margin (NIM). NIM represents the difference between the interest income a bank generates from its assets, like loans and securities, and the interest it pays out on its liabilities, such as deposits. A higher NIM generally translates to higher core profitability. Alerus has accordingly raised its full-year 2026 NIM guidance to a range of 3.50% to 3.60%, a notable increase from its previous forecast of 3.35% to 3.45% shared during its third-quarter earnings presentation.

A Disciplined Approach to Balance Sheet Management

President and Chief Executive Officer Katie Lorenson framed the move as the culmination of a year-long focus on risk reduction and strategic capital management. This wasn't an isolated action but part of a broader, deliberate plan executed throughout the latter half of 2025.

“Our focus in 2025 was to lower risk and improve returns without compromising our long-term strategy,” Lorenson stated in the company's announcement. “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.”

This context is crucial. The securities sale was not a reactive measure but a proactive step taken after the company had already fortified its financial position. According to Lorenson, the company waited for favorable conditions, where both its capital levels had accreted and interest rate dynamics were advantageous, before pulling the trigger on the portfolio restructuring.

Importantly, Lorenson noted that the company considered and rejected a more aggressive, full balance sheet overhaul. Such a move “would have required a dilutive common equity issuance,” she explained. By avoiding an action that would have diluted the value of existing shares, Alerus signaled a commitment to protecting shareholder value while still achieving its strategic objectives. This targeted approach ensures that while the company absorbed a paper loss, its tangible capital—a key measure of a bank's financial strength that excludes goodwill and intangibles—was not impacted.

Positioning for 2026 and Beyond

While the $68.5 million pre-tax loss will be a prominent feature of the company's fourth-quarter 2025 results, investors and analysts will likely focus on the forward-looking implications. By removing the low-yield assets, Alerus has effectively cleared the path for stronger, more sustainable earnings growth. The move is projected to be accretive to earnings per share in 2026, with the increased net interest income more than offsetting the one-time loss over a relatively short period.

The company has also reassured stakeholders that its capital position remains robust. Despite the realized loss, Alerus expects its risk-based capital measures to stay comfortably above both regulatory minimums and its own internal targets at the end of 2025. This ensures the bank maintains a strong foundation to support its clients and continue its organic growth initiatives.

“The deliberate steps we took positions Alerus for stronger performance and tangible book value growth in 2026 and demonstrates our commitment to creating long-term sustainable value for our clients, communities, and shareholders,” Lorenson concluded.

As a commercial wealth bank and national retirement services provider, Alerus's ability to generate consistent returns is fundamental to its model. This decisive portfolio restructuring, though painful in the short term, is a clear and strategic effort to align its asset base with its growth expectations and navigate the evolving economic landscape for improved financial performance in the years ahead.