Alerus Financial Corp ( NASDAQ:ALRS ) faces tough competition in the deposit market, which could pressure future growth and profitability.

The company expects an increase in deposit costs by 8 to 10 basis points due to a mix shift in deposits and continued competition.

Nonperforming assets remained stable but high at 98 basis points, driven by two large relationships, with resolutions expected only in early 2026.

The company anticipates continued seasonal deposit outflows from public funds in the third quarter, which may impact liquidity.

Deposit outflows were noted due to seasonal factors such as public funds and tax payments, with a 3.3% shrinkage in deposits during the quarter.

Alerus Financial Corp ( NASDAQ:ALRS ) successfully upgraded its wealth management platform, enhancing client and adviser experiences, and supporting its goal to double the number of wealth advisers.

Industry-leading fee income accounted for more than 42% of revenues, driven by the Retirement and Benefits business, which provides stability and minimal capital allocation risk.

The company achieved a significant net gain of $2 million from the strategic sale of $60 million in nonowner-occupied CRE hospitality loans, optimizing their balance sheet.

Alerus Financial Corp ( NASDAQ:ALRS ) reported an adjusted earnings per diluted share of $0.72, with an adjusted return on assets of 1.41%, indicating strong financial performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .

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Q & A Highlights

Q: Could you provide details on the expected purchase accounting accretion for the third and fourth quarters? A: For the third quarter, we expect 27 basis points of purchase accounting accretion, and for the fourth quarter, we expect 22 basis points. These figures do not include any early payoffs. – Alan Villalon, CFO

Q: What is the status of the larger construction credit that was expected to be listed for sale this summer? A: The final certificate of occupancy was issued, and the property was listed for sale in the second quarter. It is currently 57% leased, and we expect it to be better positioned for sale as leasing progresses. – Karin Taylor, COO

Q: Can you discuss the impact of technology upgrades on client acquisition and existing client relationships? A: We completed a full conversion of our Wealth Management platform, enhancing client and adviser experiences. This platform improves operational efficiency and supports our recruiting efforts, allowing us to leverage synergies across our retirement and wealth management businesses. – Katie Lorenson, CEO

Q: How do you view the current deposit competition, and what are your expectations for deposit costs? A: Deposit competition is tough, but we are focused on full relationships in mid-market C&I and business banking. We expect an 8 to 10 basis point increase in deposit costs in the third quarter due to a mix shift from noninterest-bearing to interest-bearing deposits. – Jim Collins, Chief Banking and Revenue Officer

Q: What is the outlook for nonperforming assets, and are there any expected resolutions? A: The nonperforming asset numbers are driven by two large relationships. The construction deal is progressing as expected, with a likely resolution in early 2026. The large residential relationship is under legal action, also expected to resolve in the first half of 2026. – Karin Taylor, COO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.