ALRS

• Overall Financial & Strategic Performance

  • Delivered reported diluted earnings per share of 81 cents, with a return on assets of 1.6% and a return on tangible common equity (ROTCE) of 19.33%, highlighting strong underlying earnings power.
  • Achieved significant credit quality improvement: non-performing assets declined 68.3% year-over-year, criticized loans fell over 60% from a year ago, and non-performing loans now stand at less than 20 basis points, driven by the favorable resolution of the firm's largest non-performing loan.
  • Maintains robust capital and liquidity: tangible common equity (TCE) to tangible assets is 9.05%, CET1 is 10.81%, total liquidity is approximately $2.6 billion, and reserves total 1.2% of assets, all comfortably above regulatory requirements.
  • Returned capital to shareholders: repurchased $6.8 million of common stock, increased the quarterly dividend by 4.76% to 22 cents per share, and grew tangible book value per share 3.2% quarter-over-quarter to $18.73.

• Balance Sheet & Deposit Strategy

  • Shifted strategy to prioritize full-relationship commercial and private banking, successfully reducing commercial real estate (CRE) portfolio concentrations and improving overall balance sheet quality.
  • Total deposits decreased 3.6% ($156 million) quarter-over-quarter due to expected seasonal public fund outflows; the loan-to-deposit ratio is 96.2%, and relationship-based synergistic deposits remain a key competitive advantage, providing a stable, low-cost funding edge.
  • The balance sheet is neutrally positioned for interest rate changes, with no material expected impact to net interest income from a 100 basis point increase or decrease in rates.

• Operational Investments & Talent

  • Continued targeted investments in leadership, growth markets, client-facing talent, and technology capabilities. Key hires include Dan Schroeder as permanent chief credit officer, expanded commercial banking leadership in Arizona, new wealth advisors in the Twin Cities, and an experienced technology leader from FIS to accelerate retirement platform modernization.
  • The firm is prioritizing AI investment as a top 2026 priority, with targeted deployment focused on automating and scaling the modernized retirement platform to improve long-term margins and operational efficiency.

• Strategic Direction

  • The firm aims to solidify its position as a leading commercial wealth bank and national retirement plan provider, leveraging its diversified model to attract subscale retirement operators as a preferred consolidator.

• Loan growth: Maintained prior guidance of mid-single-digit full-year 2026 loan growth, with all net growth expected to occur in the second half of the year after portfolio cleanup in the first half.
• Deposit growth: Maintained prior guidance of low single-digit full-year 2026 deposit growth, supported by new full-relationship commercial client additions that bring incremental core deposits.
• Net interest margin: Upwardly revised the full-year 2026 reported net interest margin guidance to 3.7% to 3.8%, supported by stable core margin trends, favorable loan and investment repricing, and the current neutral balance sheet positioning.
• Total revenue: Maintained prior guidance of mid-single-digit full-year 2026 revenue growth; the improved margin outlook is offset by expected lower mortgage origination volume amid market expectations for upcoming rate hikes.
• Non-interest expenses: Expects full-year 2026 non-interest expenses to increase low to mid-single digits, driven by planned strategic hiring and growth investments.
• Return on assets: Maintained prior guidance that full-year 2026 ROA will be above 1.25%.

Alaris Financial has three core business segments that collectively generate more than 40% of total revenue as non-interest (fee-based) income. 1. Banking Services: Adjusted banking fees and other non-interest income increased 16.3% quarter-over-quarter to $8.0 million, representing 24.8% of total adjusted non-interest income. Net interest income for the segment increased 6.2% quarter-over-quarter to $47.7 million, with a reported net interest margin of 3.97%. Swap fee income rose to $738,000 for the quarter, while mortgage banking revenue decreased 9.6% quarter-over-quarter to $0.3 million due to lower gain-on-sale margins and heightened competition. 2. Retirement and Benefits Services: The segment generated stable recurring fee revenue this quarter, and total retirement and benefits-related assets exceeded a record $50 billion. The segment's HSA deposit base continued growing, serving as an attractive low-cost funding source for the firm, and it contributes consistent, cycle-resistant earnings. It makes up approximately 31% of total adjusted non-interest income. 3. Wealth Advisory: Wealth revenue increased 6.5% quarter-over-quarter, driven by higher asset-based fees tied to equity market gains and increased transaction-based fees. Nearly 90% of the segment's revenue comes from recurring advisory services, and it contributes meaningful relationship-based low-cost deposits while diversifying the firm's revenue away from net interest spread income. It makes up approximately 20.1% of total adjusted non-interest income.

• Elevated deposit competition in the current rate environment is expected to put upward pressure on deposit costs in the second half of 2026.
• Mortgage banking revenue is facing pressure from lower gain-on-sale margins, increased competition, and expected volume declines amid forecasts of upcoming interest rate hikes.
• The firm holds other real estate owned (OREO) assets from resolved credit issues, which generate incremental holding costs that temporarily increase operating expenses; the residential OREO asset is expected to sell by end of 2026, while the apartment OREO asset is expected to resolve in H1 2027.
• Interest rate volatility remains a source of uncertainty for net interest margin and mortgage activity, though the firm's neutral balance sheet positioning mitigates significant near-term impact.
• Active portfolio management continues to exit underperforming or non-strategic credits, a process that can generate modest near-term charge-offs, though this improves long-term balance sheet quality.

Q: With a stronger capital position, what is Alaris' current appetite for whole bank M&A, and what targets would be of interest? / A: Alaris' top capital priority remains organic growth, with ongoing investment in internal talent, technology, and franchise capabilities. Returning capital to shareholders is also a long-standing core commitment. Strategic acquisitions that fit the firm's culture, enhance its capabilities, and meet return thresholds will be pursued. The firm is a particularly attractive consolidator for subscale national retirement operators, and for banking targets focused on the middle United States that add complementary client relationships to the franchise.

Q: Most loan growth is expected in the second half of 2026 after a flat first half. What is driving this outlook, and what is the current state of the loan pipeline? / A: The firm spent the first eight months of 2026 cleaning up the credit portfolio, reducing CRE concentrations, and intentionally building out its C&I pipeline. The current pipeline is the largest and most robust it has been in four years, with many new full-relationship middle market C&I clients that bring strong incremental deposits alongside new loans. Most net loan growth will be realized in the back half of 2026, with stronger growth expected in Q4 following a solid Q3 push, putting full-year growth in line with the guided mid-single-digit range.

Q: After the meaningful credit cleanup in Q2 2026, what is the expected normalized long-term charge-off trajectory for Alaris? / A: Charge-off levels will be significantly lower in the second half of 2026. Over the long term, the firm's 25+ year historical average charge-off rate of 25 to 27 basis points is the expected normalized level going forward, reflecting the improved quality of the cleaned-up balance sheet.

Q: What early applications of AI is Alaris prioritizing, and how will it impact the franchise? / A: AI is a top 2026 investment priority, with targeted investments in high-conviction areas that deliver long-term returns. The biggest near-term opportunity is integrating AI and automation into the ongoing modernization of the firm's retirement platform, a project being led by a new senior technology hire recruited from FIS. AI investments will improve scalability, operational efficiency, and long-term margins across all business divisions.