Alaris Financial (ALRS) Q4 2025: Fee Income Surges 7% as Wealth and Retirement Drive 40% of Revenue

2026-01-29 | By EarningsIQ Research

Alaris Financial’s Q4 2025 results underscore a deliberate shift toward fee-driven, diversified growth and disciplined balance sheet management. The company’s fee income engines—wealth and retirement—now provide over 40% of total revenue, nearly triple the industry average, while core banking remains disciplined on risk and cost. With a modernized platform and capital flexibility, Alaris enters 2026 positioned to accelerate organic expansion and margin improvement, though deposit competition and credit normalization remain watchpoints.

Summary

• Fee Engine Expansion: Wealth and retirement now anchor over 40% of revenue, amplifying diversification.
• Balance Sheet Reset: Strategic securities sales and loan pruning boost capital and future earnings power.
• 2026 Growth Setup: Modernized systems and talent lift-outs position Alaris for continued margin gains and organic growth.

Performance Analysis

Alaris delivered record adjusted earnings and a 21% adjusted return on tangible equity in its first full year post-Home Federal acquisition, with core return on assets (ROA) at 1.62% for the quarter. Fee income rose 7% year over year, led by robust momentum in retirement and wealth management—segments that now comprise over 40% of total revenues, a level nearly three times that of most peers. Retirement assets neared $50 billion, dwarfing the banking division’s asset base by a factor of ten, and the wealth platform saw 13% sequential revenue growth as asset-based fees climbed.

Net interest income rose 4.7% sequentially, aided by a 16 basis point decline in cost of funds and disciplined pricing on both loans and deposits. The reported net interest margin (NIM) reached 3.69%, but the core NIM, excluding purchase accounting accretion, improved to 3.17%. Strategic actions included selling $360 million of low-yielding securities (68% of the available-for-sale portfolio), reinvesting into higher-yielding, shorter-duration assets, and pruning marginal and non-core loans—especially in commercial real estate (CRE)—to de-risk and reposition the balance sheet. Non-interest expenses rose modestly (2.7%) due to tech upgrades and new facility openings, but headcount was managed down over 6% from peak, supporting positive operating leverage.

• Retirement Segment Scale: Retirement and wealth assets now total nearly $50 billion, providing a durable fee base and internal funding synergies.
• Loan Mix Shift: CRE exposure was trimmed while building mid-market commercial and industrial (CNI) relationships, improving risk-adjusted returns.
• Deposit Retention Strength: Post-acquisition retention remained near 95%, supporting funding stability despite sector-wide competition.

Despite a 1.3% sequential decline in total loans due to targeted runoff, organic loan growth would have approached mid-single digits absent these strategic reductions. Deposits declined 5% on a headline basis, but after adjusting for brokered and wholesale funding runoff, core deposits were essentially flat. The loan-to-deposit ratio stands at 96.6%, within management’s comfort zone.

Executive Commentary

Strategic Positioning

1. Fee Income Diversification as Core Differentiator

Alaris’s business model now derives over 40% of revenue from fee-generating businesses, notably retirement and wealth management, providing a recurring, less rate-sensitive income base. The retirement division, with nearly $50 billion in assets under administration, delivers robust sales and industry-leading client retention, while also serving as a funding source for the bank. Wealth management, post-platform conversion, achieved 100% client retention and is slated for advisor headcount expansion in key markets.

2. Balance Sheet Repositioning and Risk Management

Strategic deleveraging, sale of low-yielding securities, and aggressive pruning of marginal or non-core loans have improved capital ratios and future earnings power. The tangible common equity (TCE) ratio rose to 8.72%, and CET1 capital to 10.28%. The loan portfolio is being rebalanced away from CRE toward CNI, with a focus on full relationships over transactional or orphan credits. Management expects credit normalization but believes reserves (1.53% of loans) and improving criticized asset trends provide a solid buffer.

3. Operating Platform Modernization and Scalability

Modernized core systems, digital upgrades, and a 6% reduction in headcount have enhanced efficiency and created a scalable platform for growth. The company is embedding AI and automation to further improve client experience and margin, while also positioning for future advisor and commercial banker lift-outs, especially in the Twin Cities, Phoenix, and Wisconsin markets.

4. Organic Growth and Talent Acquisition

Organic growth, strategic hiring, and team lift-outs remain top capital allocation priorities. Management sees ongoing market disruption from M&A in its footprint as a source of new talent and client relationships. The pipeline for mid-market CNI and treasury management is strong, and the company is actively recruiting to double wealth advisor headcount over time.

Key Considerations

Alaris’s Q4 2025 results reflect a business in transition from traditional banking toward a more diversified, fee-driven model with a strong capital base and disciplined risk management. The integration of Home Federal, balance sheet repositioning, and investments in technology have created a platform for scalable, organic growth. However, the competitive environment for deposits and the normalization of credit costs require ongoing vigilance.

Key Considerations:

• Fee Revenue Sustainability: Continued growth in retirement and wealth segments is crucial to maintaining above-peer revenue diversification.
• Deposit Competition Intensity: Management expects 2026 to remain highly competitive for deposits, impacting funding costs and NIM trajectory.
• Loan Mix and Credit Quality: Ongoing shift from CRE to CNI improves risk-adjusted returns but requires strong relationship management and underwriting discipline.
• Expense Discipline and Scalability: Tech investments and headcount management must yield positive operating leverage as revenue scales.
• Capital Deployment Flexibility: Ample capital supports organic growth, selective M&A in retirement/HSA, dividends, and buybacks.

Risks

Deposit pricing pressure and sector-wide competition could constrain margin expansion, especially if rate cuts materialize or aggressive competitors bid up deposit costs. Credit normalization, especially in CRE and multifamily, remains a watchpoint, though management expects resolution of key non-performing loans in the first half of 2026. Execution risk persists around scaling fee businesses and integrating new talent, especially as advisor and commercial banker lift-outs accelerate.

Forward Outlook

For Q1 2026, Alaris guided to:

• Mid-single-digit loan growth, with a continued shift toward CNI and away from CRE.
• Low-single-digit deposit growth, with liquidity available to fund excess loan growth if needed.

For full-year 2026, management provided:

• Net interest margin guidance of 3.5% to 3.6%, with core margin improvement as purchase accounting accretion declines by 60% versus 2025.
• Adjusted non-interest income growth in the mid-single digits, led by wealth and retirement.
• Non-interest expense growth in the low single digits, supporting positive operating leverage.
• ROA expected to exceed 1.2% for the year, with no assumed Fed rate cuts.

Management highlighted several factors that will influence results:

• Deposit flows and pricing will be the key determinant of NIM trajectory quarter to quarter.
• Resolution of non-performing loans and continued improvement in criticized assets are expected in the first half of 2026.

Takeaways

Alaris’s Q4 2025 results show a business achieving its goal of fee income diversification and balance sheet strength, while modernizing for future growth. Investors should monitor how deposit competition, credit normalization, and advisor hiring shape performance in 2026.

• Fee Income as a Defensive Moat: Wealth and retirement segments now anchor a recurring revenue base, reducing rate sensitivity and supporting capital generation.
• Balance Sheet Optionality: Capital levels and liquidity provide flexibility for organic growth, selective M&A, and continued dividend/buyback activity.
• 2026 Watchpoints: Margin expansion, deposit pricing, and successful scaling of fee businesses will determine if Alaris can sustain top-tier returns in a competitive landscape.

Conclusion

Alaris exits 2025 with a modernized, diversified business model and a strong capital position, poised to capitalize on organic growth and market disruption in 2026. The company’s ability to scale its fee businesses and manage deposit competition will be decisive for sustaining above-peer profitability and growth.

Industry Read-Through

Alaris’s results underscore a broader trend among regional banks to pivot toward fee-based businesses, particularly in wealth and retirement, as a hedge against margin compression and deposit volatility. Strategic balance sheet repositioning—selling low-yielding securities and pruning CRE—is likely to continue across the sector, especially as credit quality normalizes. Success in advisor lift-outs and market share capture amid M&A disruption in core markets is a playbook others may seek to replicate, but execution risk remains high. Deposit competition will remain a defining theme for the industry in 2026, with rational pricing in some pockets but persistent pressure overall.

ALRS Financials Regional banking Wealth management Retirement Fee income Deposit competition Capital