ALERUS FINANCIAL CORP (ALRS) stock intrinsic value fair value estimate & owner earnings analysis

Alerus Financial is a bank holding company built around a community bank serving North Dakota, Minnesota, Wisconsin, Iowa and the Phoenix, Arizona area, paired with two capital-light, national fee businesses: retirement-plan recordkeeping (nearly $45 billion in assets under administration, up from $40.7 billion a year earlier) and wealth management (nearly $4.9 billion under management). In October 2024 the company roughly doubled in size by acquiring HMN Financial, parent of Home Federal Savings Bank, funded mostly with stock. Because that acquisition changed the company's scale so substantially, we anchor our estimate of ongoing earning power on 2025 — the first full year of combined operations — rather than blending in the smaller, pre-merger company. During 2025 the bank also sold a large block of older, lower-yielding investment bonds at a $68.4 million loss and reinvested the proceeds at today's higher rates. That trade depressed reported net income to $17.4 million for the year, but because the cash from the sale shows up elsewhere in the accounts rather than reducing operating cash flow, it doesn't reduce the cash-generating power we value the company on. The trade also did real work: net interest margin rose from 2.56% to 3.53% in 2025, and results through the first half of 2026 show that gain continuing to hold, with net interest income tracking roughly 7% ahead of the 2025 pace and no repeat of the securities loss. Our base case assumes the merger integration is substantially complete, margin holds near its improved 2025 level as the repositioning's benefit continues to phase in, and the recordkeeping and wealth businesses keep growing at roughly the mid-to-high single-digit pace they've shown in AUM/AUA over the past year — producing a share value near $70. Our bull case assumes the fee businesses continue compounding at their better recent pace, funding costs stay disciplined, and the bank's expanded Home Federal franchise integrates cleanly, pushing value toward $88 or so. Our bear case reflects a specific, evidenced risk: nonaccrual loans in the combined bank rose from $8.6 million in 2023 to $54.4 million in 2024 and $69.1 million in 2025 as the acquired Home Federal book was absorbed, while loan-loss reserve coverage of those nonperforming loans slipped from about 95% to about 90%. If that credit drift continues rather than levels off, and the market-linked fee businesses see a stretch of weaker markets, value falls to roughly $43. A meaningful share of all three estimates rests on the durability of the recordkeeping and wealth relationships and the bank's ability to keep renewing its loan book at reasonable margins, which we've treated conservatively rather than assuming any specific rebound. Given that there is still only about a year and a half of clean financial results since the merger, and the credit-quality trend in the acquired loan book bears watching, the margin-of-safety price sits at a meaningful discount to our base estimate — around $52 per share — and assumes confirmation over a couple of quarters that the nonaccrual-loan trend has stabilized and no further large one-time securities losses are needed.