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Alerus Financial
ALRS
#6880
Rank
$0.60 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$23.84
Share price
0.97%
Change (1 day)
45.01%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Alerus Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2025 Q3

Alerus Financial - 10-Q quarterly report FY2025 Q3


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0000903419ALERUS FINANCIAL CORPfalse--12-31Q32025603,221686,556230,597236,986126131112,000,0002,000,00000001160,000,00030,000,00025,396,68625,396,68625,344,80325,344,80300000000000000000000000000March 30, 2031March 31, 20260.263.10June 26, 2033June 26, 2008http://fasb.org/us-gaap/2025#SecuredOvernightFinancingRateSofrMember0.261.80September 15, 2036September 15, 2011March 30, 2031March 31, 20260.263.10June 26, 2033June 26, 2008http://fasb.org/us-gaap/2025#SecuredOvernightFinancingRateSofrMember0.261.80September 15, 2036September 15, 2011033150000http://fasb.org/us-gaap/2025#AccruedLiabilitiesAndOtherLiabilitieshttp://fasb.org/us-gaap/2025#AccruedLiabilitiesAndOtherLiabilitiesfalsefalsefalsefalseAssociated amortization expense was reported within other noninterest income on the consolidated statements of income.Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At June 30, 2025, the amortized cost of the closed portfolios used in these hedging relationships was $281.6 million.There were no discounts taken on the collateral that comprises the balance of foreclosed assets as of December 31, 2024.The Company maintains a master netting agreement with each counterparty and settles collateral on a net basis for all interest rate swaps with counterparty banks.Reclassified into interest expense on short-term borrowings on the consolidated statements of income. Refer to “NOTE 25 Derivative Instruments” for further details.The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($3.9) million related to off-balance sheet credit exposure, ($6) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale. Reclassified into net gains (losses) on investment securities in the consolidated statements of income. Refer to “NOTE 5 Investment Securities” for further details.Derivative assets are included in other assets on the Company’s consolidated balance sheet.Reclassified into taxable and/or exempt from federal income taxes interest income on investment securities on the consolidated statements of income. Refer to “NOTE 5 Investment Securities” for further details.Associated income was reported within mortgage banking income, net on the consolidated statements of income.Associated valuation reserve was reported within mortgage and lending expenses on the consolidated statements of income.The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($31) thousand related to off-balance sheet credit exposure and ($76) thousand related to HTM investment securities.Excludes assets held for sale.All of the tax benefits recognized were included in income tax expense.The Company manages its net exposure on its customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its customers as part of its contract.The amortization expense for low income housing tax credits were included in income tax expense.All amounts net of tax.Derivative liabilities are included in accrued expenses and other liabilities on the Company’s consolidated balance sheet.Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At December 31, 2024, the amortized cost of the closed portfolios used in these hedging relationships was $296.9 million.Reclassified into interest income on loans, including fees and/or interest income on taxable investment securities on the consolidated statements of income. Refer to “NOTE 25 Derivative Instruments” for further details.“Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.Reported fair values include accrued interest receivable and 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2025

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-39036

 

ALERUS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

45-0375407

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

 
  

401 Demers Avenue

 

Grand Forks, ND

58201

(Address of principal executive offices)

(Zip Code)

 

(701) 795‑3200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to section 12(b) of the Act:

 

Title of each class

 

Trading symbol

 

Name of each exchange on which registered

Common Stock, par value $1.00 per share

 

ALRS

 

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐  No ☒

 

The number of shares of the registrant’s common stock outstanding at November 1, 2025 was 25,397,303. 

 
Table of Contents
 

Alerus Financial Corporation and Subsidiaries

 

Table of Contents

 

  

Page

Part 1:

FINANCIAL INFORMATION

 

Item 1.

Consolidated Financial Statements

1

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Income

2

 

Consolidated Statements of Comprehensive Income

3

 

Consolidated Statements of Changes in Stockholders’ Equity

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

62

Item 4.

Controls and Procedures

63

   

Part 2:

OTHER INFORMATION

 

Item 1.

Legal Proceedings

64

Item 1A.

Risk Factors

64

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

   

Signatures

 

66

 

 
Table of Contents
 

PART 1. FINANCIAL INFORMATION

 

Item 1 - Consolidated Financial Statements

 

Alerus Financial Corporation and Subsidiaries

 

Consolidated Balance Sheets (Unaudited)

 

  

September 30,

  

December 31,

 

(dollars in thousands, except share and per share data)

 

2025

  

2024

 

Assets

        

Cash and cash equivalents

 $92,043  $61,239 

Investment securities

        

Trading

  1,411   3,309 

Available-for-sale, at fair value (amortized cost of $603,221 and $686,556, respectively)

  531,014   588,053 

Held-to-maturity, at amortized cost (fair value of $230,597 and $236,986, respectively, with an allowance for credit losses on investments of $126 and $131, respectively)

  259,225   275,585 

Loans held for sale

  17,757   16,518 

Loans

  4,102,075   3,992,534 

Allowance for credit losses on loans

  (62,127)  (59,929)

Net loans

  4,039,948   3,932,605 

Land, premises and equipment, net

  44,097   39,780 

Operating lease right-of-use assets

  30,154   13,438 

Accrued interest receivable

  21,602   20,075 

Bank-owned life insurance

  38,997   36,033 

Goodwill

  85,634   85,634 

Other intangible assets, net

  35,753   43,882 

Servicing rights

  6,708   7,918 

Deferred income taxes, net

  38,497   52,885 

Other assets

  87,733   84,719 

Total assets

 $5,330,573  $5,261,673 

Liabilities and Stockholders’ Equity

        

Liabilities

        

Deposits

        

Noninterest-bearing

 $776,791  $903,466 

Interest-bearing

  3,635,862   3,474,944 

Total deposits

  4,412,653   4,378,410 

Short-term borrowings

  200,000   238,960 

Long-term debt

  59,154   59,069 

Operating lease liabilities

  36,918   18,991 

Accrued expenses and other liabilities

  71,160   70,833 

Total liabilities

  4,779,885   4,766,263 

Commitments and contingencies (Note 12)

          

Stockholders’ equity

        

Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding

  —   — 

Common stock, $1 par value, 60,000,000 and 30,000,000 shares authorized: 25,396,686 and 25,344,803 issued and outstanding

  25,397   25,345 

Additional paid-in capital

  271,165   269,708 

Retained earnings

  308,464   273,723 

Accumulated other comprehensive income (loss)

  (54,338)  (73,366)

Total stockholders’ equity

  550,688   495,410 

Total liabilities and stockholders’ equity

 $5,330,573  $5,261,673 

 

 

See accompanying notes to consolidated financial statements (unaudited)

 

1
Table of Contents
 

Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Income (Unaudited)

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2024

  

2025

  

2024

 

Interest Income

                

Loans, including fees

 $63,875  $42,593  $189,222  $123,551 

Investment securities

                

Taxable

  5,091   4,596   16,108   14,008 

Exempt from federal income taxes

  160   169   480   512 

Other

  1,518   4,854   3,440   16,200 

Total interest income

  70,644   52,212   209,250   154,271 

Interest Expense

                

Deposits

  24,350   22,285   70,643   63,721 

Short-term borrowings

  2,506   6,706   9,327   19,748 

Long-term debt

  652   679   1,955   2,041 

Total interest expense

  27,508   29,670   81,925   85,510 

Net interest income

  43,136   22,542   127,325   68,761 

Provision for credit losses

  —   1,661   863   6,150 

Net interest income after provision for credit losses

  43,136   20,881   126,462   62,611 

Noninterest Income

                

Retirement and benefit services

  16,496   16,144   48,625   47,876 

Wealth

  6,560   6,684   20,827   19,161 

Mortgage banking

  3,474   2,573   8,651   6,796 

Service charges on deposit accounts

  703   488   2,034   1,333 

Gain on sale of non-mortgage loans

  (35)  —   2,080   — 

Other

  2,232   2,474   6,607   5,891 

Total noninterest income

  29,430   28,363   88,824   81,057 

Noninterest Expense

                

Compensation

  24,984   21,058   72,288   60,655 

Employee taxes and benefits

  6,094   5,400   20,490   16,722 

Occupancy and equipment expense

  2,849   2,082   8,315   5,803 

Business services, software and technology expense

  6,285   4,879   17,905   14,823 

Intangible amortization expense

  2,710   1,324   8,129   3,972 

Professional fees and assessments

  2,676   4,267   8,010   8,633 

Marketing and business development

  1,069   764   2,821   2,200 

Supplies and postage

  569   422   1,690   1,321 

Travel

  385   330   1,019   954 

Mortgage and lending expenses

  1,025   684   2,501   1,592 

Other

  1,895   1,237   6,176   3,543 

Total noninterest expense

  50,541   42,447   149,344   120,218 

Income before income taxes

  22,025   6,797   65,942   23,450 

Income tax expense

  5,101   1,590   15,451   5,604 

Net income

 $16,924  $5,207  $50,491  $17,846 

Per Common Share Data

                

Basic earnings per common share

 $0.66  $0.26  $1.97  $0.90 
                 

Diluted earnings per common share

 $0.65  $0.26  $1.95  $0.89 

Dividends declared per common share

 $0.21  $0.20  $0.62  $0.59 

Average common shares outstanding

  25,395   19,788   25,374   19,768 

Diluted average common shares outstanding

  25,713   20,075   25,693   20,037 

 

See accompanying notes to consolidated financial statements (unaudited)

 

2
Table of Contents
 

Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Net Income

 $16,924  $5,207  $50,491  $17,846 

Other Comprehensive Income (Loss), Net of Tax

                

Net change in unrealized gains (losses) on debt securities

  7,401   19,431   26,161   14,692 

Net change in unrealized gain (losses) on cash flow hedging derivatives

  77   (869)  (510)  (160)

Net change in unrealized gain (losses) on other derivatives

  (123)  (3,068)  (246)  (872)

Total other comprehensive income (loss), before tax

  7,355   15,494   25,405   13,660 

Income tax expense (benefit) related to items of other comprehensive income (loss)

  1,846   3,889   6,377   3,429 

Other comprehensive income (loss), net of tax

  5,509   11,605   19,028   10,231 

Total comprehensive income (loss)

 $22,433  $16,812  $69,519  $28,077 

 

See accompanying notes to consolidated financial statements (unaudited)

 

3
Table of Contents
 

Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

 

  

Three months ended

 
              

Accumulated

     
      

Additional

      

Other

     
  

Common

  

Paid-in

  

Retained

  

Comprehensive

     

(dollars and shares in thousands)

 

Stock

  

Capital

  

Earnings

  

Income (Loss)

  

Total

 

Balance as of June 30, 2024

  19,778  $150,857  $277,620  $(75,029) $373,226 

Net income

  —   —   5,207   —   5,207 

Other comprehensive income (loss)

  —   —   —   11,605   11,605 

Common stock repurchased

  —   (76)  —   —   (76)

Common stock dividends

  —   —   (3,964)  —   (3,964)

Share‑based compensation expense

  —   488   —   —   488 

Vesting of restricted stock

  12   (12)  —   —   — 

Balance as of September 30, 2024

  19,790  $151,257  $278,863  $(63,424) $386,486 
                     

Balance as of June 30, 2025

  25,389  $270,735  $296,878  $(59,847) $533,155 

Net income

  —   —   16,924   —   16,924 

Other comprehensive income (loss)

  —   —   —   5,509   5,509 

Common stock repurchased

  (3)  (339)  —   —   (342)

Common stock dividends

  —   —   (5,338)  —   (5,338)

Share‑based compensation expense

  —   780   —   —   780 

Vesting of restricted stock

  11   (11)  —   —   — 

Balance as of September 30, 2025

  25,397  $271,165  $308,464  $(54,338) $550,688 

 

  

Nine months ended

 
              

Accumulated

     
      

Additional

      

Other

     
  

Common

  

Paid-in

  

Retained

  

Comprehensive

     

(dollars and shares in thousands)

 

Stock

  

Capital

  

Earnings

  

Income (Loss)

  

Total

 

Balance as of December 31, 2023

  19,734  $150,343  $272,705  $(73,655) $369,127 

Net income

  —   —   17,846   —   17,846 

Other comprehensive income (loss)

  —   —   —   10,231   10,231 

Common stock repurchased

  (7)  (225)  —   —   (232)

Common stock dividends

  —   —   (11,688)  —   (11,688)

Share‑based compensation expense

  —   1,202   —   —   1,202 

Vesting of restricted stock

  63   (63)  —   —   — 

Balance as of September 30, 2024

  19,790  $151,257  $278,863  $(63,424) $386,486 
                     

Balance as of December 31, 2024

  25,345  $269,708  $273,723  $(73,366) $495,410 

Net income

  —   —   50,491   —   50,491 

Other comprehensive income (loss)

  —   —   —   19,028   19,028 

Common stock repurchased

  (11)  (507)  —   —   (518)

Common stock dividends

  —   —   (15,750)  —   (15,750)

Share‑based compensation expense

  —   2,027   —   —   2,027 

Vesting of restricted stock

  63   (63)  —   —   — 

Balance as of September 30, 2025

  25,397  $271,165  $308,464  $(54,338) $550,688 

 

See accompanying notes to consolidated financial statements (unaudited)

 

4
Table of Contents
 

Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

 

  

Nine months ended

 
  

September 30,

 

(dollars in thousands)

 

2025

  

2024

 

Operating Activities

        

Net income

 $50,491  $17,846 

Adjustments to reconcile net income to net cash provided (used) by operating activities

        

Deferred income taxes

  8,011   (1,888)

Provision for credit losses

  863   6,150 

Depreciation and amortization

  11,548   6,456 

Amortization and accretion of premiums/discounts on investment securities

  573   1,301 

Amortization of operating lease right-of-use assets

  1,211   60 

Share‑based compensation expense

  2,027   1,202 

Purchase accounting accretion, net

  (21,454)  — 

Originations of loans held for sale

  (120,539)  (233,656)

Proceeds on loans held for sale

  127,318   238,113 

Realized loss (gain) on mortgage loans sold

  (7,936)  (6,545)

Servicing rights capitalized upon sale of mortgage loans

  (154)  — 

(Increase) in value of bank-owned life insurance

  (753)  (622)

Realized loss (gain) on sale of premises and equipment

  —   (476)

Realized loss (gain) on derivative instruments

  (505)  421 

Realized loss (gain) on sale of foreclosed assets

  60   (1)

Change in fair value of mortgage servicing rights

  1,364   — 

Realized loss (gain) on servicing rights

  —   (149)

Net change in:

        

Accrued interest receivable

  (1,527)  (769)

Other assets

  (649)  127 

Accrued expenses and other liabilities

  1,241   (8,129)

Net cash provided (used) by operating activities

  51,190   19,441 

Investing Activities

        

Proceeds from sales of trading investment securities

  6,233   8,684 

Purchases of trading investment securities

  (4,257)  (11,220)

Proceeds from sales or calls of investment securities available-for-sale

  19,800   — 

Proceeds from maturities of investment securities available-for-sale

  63,536   35,011 

Proceeds from calls of investment securities held-to-maturity

  346   611 

Proceeds from maturities and paydowns of investment securities held-to-maturity

  15,314   16,180 

Proceeds from sale of non-mortgage loans held for sale

  62,491   — 

Net (increase) decrease in loans

  (154,466)  (275,760)

Net (increase) decrease in FHLB stock

  636   2,809 

Purchases of BOLI

  (2,211)  (1,935)

Proceeds from sale of premises and equipment

  —   2,799 

Purchases of premises and equipment

  (7,651)  (7,331)

Proceeds from sales of foreclosed assets

  824   37 

Net cash provided (used) by investing activities

  595   (230,115)

Financing Activities

        

Net increase (decrease) in deposits

  34,243   227,939 

Net increase (decrease) in short-term borrowings with maturities of three months or less

  (38,960)  (69,470)

Cash dividends paid on common stock

  (15,746)  (11,481)

Repurchase of common stock

  (518)  (232)

Net cash provided (used) by financing activities

  (20,981)  146,756 

Net change in cash and cash equivalents

  30,804   (63,918)

Cash and cash equivalents at beginning of period

  61,239   129,893 

Cash and cash equivalents at end of period

 $92,043  $65,975 

 

See accompanying notes to consolidated financial statements (unaudited)

 

5
Table of Contents

 

  

Nine months ended

 
  

September 30,

 
  

2025

  

2024

 

Supplemental Cash Flow Disclosures

        

Interest paid

 $83,247  $84,700 

Income taxes paid

  2,212   260 

Cash dividends declared, not paid

  5,338   3,963 

Supplemental Disclosures of Noncash Investing and Financing Activities

        

Loan collateral transferred to foreclosed assets

  (1,351)  (5)

Premises and equipment transferred to other assets

  —   2,086 

Right-of-use assets obtained in exchange for new operating lease liabilities, net

  19,816   5,244 

Change in fair value hedges presented within residential real estate loans and other assets

  —   98 

Loans transferred to non-mortgage loans held for sale

  62,491   — 

 

See accompanying notes to consolidated financial statements (unaudited)

 

6
Table of Contents

 

Alerus Financial Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

NOTE 1 Basis of Presentation

 

The accompanying unaudited consolidated interim financial statements and notes thereto of the Company have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated balance sheets of Alerus Financial Corporation (“the Company”) as of  September 30, 2025 and December 31, 2024, the consolidated statements of income for the three and nine months ended September 30, 2025 and 2024, the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2025 and 2024, the consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2025 and 2024, and the consolidated statements of cash flows for the nine months ended September 30, 2025 and 2024.

 

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s principal operating subsidiary is Alerus Financial, National Association (the “Bank”). Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity. The results of operations for the interim periods are not necessarily indicative of the results for the full year or any other period. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2025.

 

NOTE 2 Recent Accounting Pronouncements

 

The following Financial Accounting Standards Board (“FASB”) Accounting Standards Updates (“ASUs”) are divided into pronouncements which have been adopted by the Company since January 1, 2025, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of September 30, 2025.

 

Adopted Pronouncements

 

There have been no new ASUs adopted by the Company since January 1, 2025. 

 

Pronouncements Not Yet Effective

 

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU related to the rate reconciliation and income taxes paid disclosures, to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction disclosures. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The other amendments in this ASU improve the effectiveness and comparability of disclosures by adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (the “SEC”) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this ASU should be applied on a prospective basis. Retrospective application is also permitted.

 

NOTE 3 Investment Securities

 

Trading securities are reported on the Company’s consolidated balance sheet at fair value. The fair value of the Company’s trading securities was $1.4 million and $3.3 million as of September 30, 2025 and  December 31, 2024, respectively. Changes in the fair value of trading securities are recorded in other noninterest income on the Company’s consolidated statements of income. 

 

The following tables present amortized cost, gross unrealized gains and losses, allowance for credit losses (“ACL”) and fair value of available-for-sale (“AFS”) investment securities and the amortized cost, gross unrealized gains and losses and fair value of held-to-maturity (“HTM”) securities as of September 30, 2025 and December 31, 2024:

 

  

September 30, 2025

 
  

Amortized

  

Unrealized

  

Unrealized

  

Allowance for

  

Fair

 

(dollars in thousands)

 

Cost

  

Gains

  

Losses

  

Credit Losses

  

Value

 

Available-for-sale

                    

U.S. Treasury and agencies

 $448  $—  $(2) $—  $446 

Mortgage backed securities

                    

Residential agency

  548,245   765   (69,173)  —   479,837 

Commercial

  1,329   —   (50)  —   1,279 

Asset backed securities

  16   —   —   —   16 

Corporate bonds

  53,183   —   (3,747)  —   49,436 

Total available-for-sale investment securities

  603,221   765   (72,972)  —   531,014 

Held-to-maturity

                    

Obligations of state and political agencies

  113,485   —   (7,219)  75   106,266 

Mortgage backed securities

                    

Residential agency

  145,866   —   (21,535)  51   124,331 

Total held-to-maturity investment securities

  259,351   —   (28,754)  126   230,597 

Total investment securities

 $862,572  $765  $(101,726) $126  $761,611 

 

 

7
Table of Contents
 
  

December 31, 2024

 
  

Amortized

  

Unrealized

  

Unrealized

  

Allowance for

  

Fair

 

(dollars in thousands)

 

Cost

  

Gains

  

Losses

  

Credit Losses

  

Value

 

Available-for-sale

                    

U.S. Treasury and agencies

 $30,691  $18  $(2)  —  $30,707 

Mortgage backed securities

                    

Residential agency

  596,510   1   (92,805)  —   503,706 

Commercial

  1,350   —   (99)  —   1,251 

Asset backed securities

  19   —   —   —   19 

Corporate bonds

  57,986   —   (5,616)  —   52,370 

Total available-for-sale investment securities

  686,556   19   (98,522)  —   588,053 

Held-to-maturity

                    

Obligations of state and political agencies

  119,623   —   (11,638)  77   107,985 

Mortgage backed securities

                    

Residential agency

  156,093   —   (27,092)  54   129,001 

Total held-to-maturity investment securities

  275,716   —   (38,730)  131   236,986 

Total investment securities

 $962,272  $19  $(137,252) $131  $825,039 

 

The adequacy of the ACL on investment securities is assessed at the end of each quarter. The Company does not believe that the AFS debt securities that were in an unrealized loss position as of September 30, 2025 represented a credit loss impairment. As of both September 30, 2025 and December 31, 2024, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Additionally, there were corporate bonds in gross unrealized loss positions as of both September 30, 2025 and December 31, 2024; however, all such bonds had an investment grade rating as of both September 30, 2025 and December 31, 2024. Total gross unrealized losses were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. It is not likely that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. 

 

The ACL on HTM debt securities is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Using a probability of default and loss given default analysis, the ACL on HTM debt securities was $126 thousand and $131 thousand as of September 30, 2025 and December 31, 2024, respectively. The change in the ACL on HTM debt securities was due to a change in the provision for credit losses, with no charge-offs or recoveries for the three and nine months ended September 30, 2025. 

 

Accrued interest receivable on AFS investment securities and HTM investment securities is recorded in accrued interest receivable and is excluded from the estimate of credit losses. As of September 30, 2025, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $1.7 million and $0.9 million, respectively. As of December 31, 2024, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $2.0 million and $1.3 million, respectively. 

 

The Company had no sales of AFS investment securities for the three and nine months ended September 30, 2025 and 2024. The Company had calls of AFS investment securities with proceeds of $0.8 million and $19.8 million for the three and nine months ended September 30, 2025, respectively, and no calls of AFS investment securities for the three and nine months ended September 30, 2024. 

 

The Company had no sales of HTM investment securities for the three and nine months ended September 30, 2025 and 2024. 

 

The following tables present investment securities with gross unrealized losses, for which an ACL was not recorded at September 30, 2025 and December 31, 2024, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position: 

 

      

September 30, 2025

 
      

Less than 12 Months

  

Over 12 Months

  

Total

 
  

Number of

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

 

(dollars in thousands)

 

Holdings

  

Losses

  

Value

  

Losses

  

Value

  

Losses

  

Value

 

Available-for-sale

                            

U.S. Treasury and agencies

  2  $—  $—  $(2) $446  $(2) $446 

Mortgage backed securities

                            

Residential agency

  123   —   54   (69,173)  479,783   (69,173)  479,837 

Commercial

  1   —   —   (50)  1,280   (50)  1,280 

Asset backed securities

  3   —   —   —   16   —   16 

Corporate bonds

  11   —   —   (3,747)  49,435   (3,747)  49,435 

Total available-for-sale investment securities

  140  $—  $54  $(72,972) $530,960  $(72,972) $531,014 

 

 

      

December 31, 2024

 
      

Less than 12 Months

  

Over 12 Months

  

Total

 
  

Number of

  

Unrealized

  

Fair

  

Unrealized

  

Fair

  

Unrealized

  

Fair

 

(dollars in thousands)

 

Holdings

  

Losses

  

Value

  

Losses

  

Value

  

Losses

  

Value

 

Available-for-sale

                            

U.S. Treasury and agencies

  1  $—  $—  $(2) $327  $(2) $327 

Mortgage backed securities

                            

Residential agency

  124   (1,715)  116,800   (91,090)  386,864   (92,805)  503,664 

Commercial

  1   —   —   (99)  1,251   (99)  1,251 

Asset backed securities

  3   —   —   —   18   —   18 

Corporate bonds

  12   —   —   (5,616)  52,370   (5,616)  52,370 

Total available-for-sale investment securities

  141  $(1,715) $116,800  $(96,807) $440,830  $(98,522) $557,630 

 

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As of September 30, 2025 and December 31, 2024, none of the Company’s HTM debt securities were past due or on nonaccrual status. The Company did not recognize any interest income on nonaccrual HTM debt securities during the three months ended September 30, 2025 and 2024.

 

The following table presents the carrying value and fair value of HTM investment securities and the amortized cost and fair value of AFS investment securities as of September 30, 2025, by contractual maturity:

 

  

Held-to-maturity

  

Available-for-sale

 
  

Carrying

  

Fair

  

Amortized

  

Fair

 

(dollars in thousands)

 

Value

  

Value

  

Cost

  

Value

 

Due within one year or less

 $11,648  $11,504  $—  $— 

Due after one year through five years

  57,043   54,041   4,777   4,723 

Due after five years through ten years

  37,390   34,026   49,998   46,254 

Due after 10 years

  7,404   6,695   201   200 
   113,485   106,266   54,976   51,177 

Mortgage-backed securities

                

Residential agency

  145,866   124,331   548,245   479,837 

Total investment securities

 $259,351  $230,597  $603,221  $531,014 

 

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

Investment securities with a total carrying value of $368.7 million and $340.2 million were pledged as of September 30, 2025 and December 31, 2024, respectively, to secure public deposits and for other purposes required or permitted by law.

 

As of September 30, 2025 and December 31, 2024, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines (“FHLB”) stock was as follows:

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Federal Reserve

 $8,631  $7,519 

FHLB

  13,020   13,656 

 

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

 

Visa Class B Restricted Shares

 

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of September 30, 2025, the conversion ratio was 1.5549. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (10,766 Class A equivalents) that the Company owned as of September 30, 2025 and December 31, 2024, were carried at a zero cost basis.

 

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NOTE 4 Loans and Allowance for Credit Losses

 

The following table presents total loans outstanding, by portfolio segment, as of September 30, 2025 and December 31, 2024:

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Commercial

        

Commercial and industrial

 $702,135  $666,727 

Commercial real estate

        

Construction, land and development

  349,768   294,677 

Multifamily

  374,761   363,123 

Non-owner occupied

  865,785   967,025 

Owner occupied

  435,320   371,418 

Total commercial real estate

  2,025,634   1,996,243 

Agricultural

        

Land

  65,900   61,299 

Production

  63,051   63,008 

Total agricultural

  128,951   124,307 

Total commercial

  2,856,720   2,787,277 

Consumer

        

Residential real estate

        

First lien

  894,402   921,019 

Construction

  34,124   33,547 

HELOC

  234,681   162,509 

Junior lien

  40,434   44,060 

Total residential real estate

  1,203,641   1,161,135 

Other consumer

  41,714   44,122 

Total consumer

  1,245,355   1,205,257 

Total loans

 $4,102,075  $3,992,534 

 

Total loans included net deferred loan fees and costs of $0.4 million and $1.1 million at September 30, 2025 and December 31, 2024, respectively. Unearned discounts associated with bank acquisitions totaled $47.3 million and $70.6 million as of September 30, 2025 and December 31, 2024, respectively. 

 

Accrued interest receivable on loans is recorded within accrued interest receivable, and totaled $18.3 million at September 30, 2025 and $16.4 million at December 31, 2024. 

 

The Company manages its loan portfolio proactively to effectively identify problem credits and assess trends early, implement effective work-out strategies, and take charge-offs as promptly as practical. In addition, the Company continuously reassesses its underwriting standards in response to credit risk posed by changes in economic conditions. The Company monitors and manages credit risk through the following governance structure: 

 

 

●

The Credit Risk team, Collection and Special Assets team and the Credit Governance Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking, oversee the Company’s systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system.

 

 

●

The Loan Committee is responsible for reviewing and approving all credit requests that exceed individual limits that have not been countersigned by an individual with sufficient assigned authority. This committee has full authority to commit the Bank to any request that fits within its assigned approval authority.

 

 

●

The adequacy of the ACL is overseen by the ACL Governance Committee, which is an internal management committee comprised of various Company executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking. The ACL Governance Committee supports the oversight efforts of the Bank’s Board of Directors.

 

 

●

The Bank’s Board of Directors has approval authority and responsibility for all matters regarding loan policy, reviews all loans approved or declined by the Loan Committee, approves lending authority and monitors asset quality and concentration levels.

 

 

●

The ACL Governance Committee and Bank Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.

 

Loans with a carrying value of $2.6 billion as of September 30, 2025 and $2.9 billion as of December 31, 2024, were pledged to secure public deposits, and for other purposes required or permitted by law.

 

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ACL on Loans

 

The following tables present, by loan portfolio segment, a summary of the changes in the ACL on loans for the three and nine months ended September 30, 2025 and 2024:

 

  

Three months ended September 30, 2025

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and industrial

 $8,326  $3,270  $(606) $2,415  $13,405 

Commercial real estate

                    

Construction, land and development

  18,529   (1,272)  —   —   17,257 

Multifamily

  4,876   (539)  —   —   4,337 

Non-owner occupied

  12,919   (2,796)  —   —   10,123 

Owner occupied

  3,818   (537)  —   10   3,291 

Total commercial real estate

  40,142   (5,144)  —   10   35,008 

Agricultural

                    

Land

  615   384   —   —   999 

Production

  623   65   —   —   688 

Total agricultural

  1,238   449   —   —   1,687 

Total commercial

  49,706   (1,425)  (606)  2,425   50,100 

Consumer

                    

Residential real estate

                    

First lien

  7,059   2,235   —   —   9,294 

Construction

  416   (144)  —   —   272 

HELOC

  1,358   395   (100)  26   1,679 

Junior lien

  376   63   —   —   439 

Total residential real estate

  9,209   2,549   (100)  26   11,684 

Other consumer

  363   12   (34)  2   343 

Total consumer

  9,572   2,561   (134)  28   12,027 

Total

 $59,278  $1,136  $(740) $2,453  $62,127 

(1)

The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($1.1) million related to off-balance sheet credit exposure and ($2) thousand related to HTM investment securities. 

 

  

Nine months ended September 30, 2025

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and industrial

 $8,170  $3,276  $(854) $2,813  $13,405 

Commercial real estate

                    

Construction, land and development

  16,277   980   —   —   17,257 

Multifamily

  4,716   (379)  —   —   4,337 

Non-owner occupied

  16,513   (2,989)  (3,401)  —   10,123 

Owner occupied

  3,226   37   (4)  32   3,291 

Total commercial real estate

  40,732   (2,351)  (3,405)  32   35,008 

Agricultural

                    

Land

  597   402   —   —   999 

Production

  631   429   (384)  12   688 

Total agricultural

  1,228   831   (384)  12   1,687 

Total commercial

  50,130   1,756   (4,643)  2,857   50,100 

Consumer

                    

Residential real estate

                    

First lien

  6,921   2,427   (54)  —   9,294 

Construction

  357   (85)  —   —   272 

HELOC

  1,339   674   (360)  26   1,679 

Junior lien

  742   (3)  (300)  —   439 

Total residential real estate

  9,359   3,013   (714)  26   11,684 

Other consumer

  440   (112)  (112)  127   343 

Total consumer

  9,799   2,901   (826)  153   12,027 

Total

 $59,929  $4,657  $(5,469) $3,010  $62,127 

(1)

The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($3.9) million related to off-balance sheet credit exposure, ($6) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale. 

 

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Three months ended September 30, 2024

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and industrial

 $6,234  $660  $(246) $153  $6,801 

Commercial real estate

                    

Construction, land and development

  10,820   (447)  —   —   10,373 

Multifamily

  2,430   161   —   —   2,591 

Non-owner occupied

  8,772   (260)  —   —   8,512 

Owner occupied

  2,280   233   (98)  14   2,429 

Total commercial real estate

  24,302   (313)  (98)  14   23,905 

Agricultural

                    

Land

  259   (2)  —   20   277 

Production

  185   (3)  —   —   182 

Total agricultural

  444   (5)  —   20   459 

Total commercial

  30,980   342   (344)  187   31,165 

Consumer

                    

Residential real estate

                    

First lien

  5,366   74   —   —   5,440 

Construction

  458   (355)  —   —   103 

HELOC

  886   68   —   —   954 

Junior lien

  314   807   —   —   1,121 

Total residential real estate

  7,024   594   —   —   7,618 

Other consumer

  328   190   (161)  2   359 

Total consumer

  7,352   784   (161)  2   7,977 

Total

 $38,332  $1,126  $(505) $189  $39,142 

(1)

The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($549) thousand related to off-balance sheet credit exposure and ($14) thousand related to HTM investment securities. 

 

  

Nine months ended September 30, 2024

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and industrial

 $9,705  $(159) $(3,140) $395  $6,801 

Commercial real estate

                    

Construction, land and development

  6,135   4,238   —   —   10,373 

Multifamily

  1,776   815   —   —   2,591 

Non-owner occupied

  7,726   786   —   —   8,512 

Owner occupied

  2,449   73   (127)  34   2,429 

Total commercial real estate

  18,086   5,912   (127)  34   23,905 

Agricultural

                    

Land

  96   161   —   20   277 

Production

  84   98   —   —   182 

Total agricultural

  180   259   —   20   459 

Total commercial

  27,971   6,012   (3,267)  449   31,165 

Consumer

                    

Residential real estate

                    

First lien

  6,087   (647)  —   —   5,440 

Construction

  485   (382)  —   —   103 

HELOC

  835   119   —   —   954 

Junior lien

  264   786   (3)  74   1,121 

Total residential real estate

  7,671   (124)  (3)  74   7,618 

Other consumer

  201   307   (174)  25   359 

Total consumer

  7,872   183   (177)  99   7,977 

Total

 $35,843  $6,195  $(3,444) $548  $39,142 

(1)

The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($31) thousand related to off-balance sheet credit exposure and ($76) thousand related to HTM investment securities. 

 

The ACL on loans at September 30, 2025 was $62.1 million, an increase of $2.2 million, or 3.7%, from December 31, 2024. The increase was primarily due to an increase in nonperforming loans, loan growth and economic conditions. 

 

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Credit Concentrations 

 

The Company focuses on maintaining a well-balanced and diversified loan portfolio. Despite such efforts, it is recognized that credit concentrations may occasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all commercial and industrial and owner occupied real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes and state and county codes. Property type coding is used for investment real estate. There were no industry concentrations exceeding 10% of the Company’s total loan portfolio as of September 30, 2025.

 

Credit Quality Indicators 

 

The Company’s consumer loan portfolio is primarily comprised of secured loans that are evaluated at origination on a centralized basis against standardized underwriting criteria. The Company generally does not risk rate consumer loans unless a default event such as bankruptcy or extended nonperformance takes place. Credit quality for the consumer loan portfolio is measured by delinquency rates, nonaccrual amounts and actual losses incurred. These loans are rated as either performing or nonperforming.

 

The Company assigns a risk rating to all commercial loans, except pools of homogeneous loans, and performs detailed internal and external reviews of risk rated loans over a certain threshold to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by the Company’s regulators. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the estimated fair values of collateral securing the loans. These credit quality indicators are used to assign a risk rating to each individual loan.

 

The Company’s ratings are aligned to pass and criticized categories. The criticized category includes special mention, substandard, and doubtful risk ratings. The risk ratings are defined as follows:

 

 

●

Pass: A pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.

 

 

●

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

 

 

●

Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well‑defined weakness, or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

 

●

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

 

●

Loss: Loans classified as loss are considered uncollectible and charged off immediately.

 

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The following tables set forth the amortized cost basis of loans by credit quality indicator and vintage based on the most recent analysis performed, as of September 30, 2025 and December 31, 2024:

 

                          

Revolving

     

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

Loans Amortized

     

As of September 30, 2025

 

2025

  

2024

  

2023

  

2022

  

2021

  

Prior

  

Cost Basis

  

Total

 

Commercial and industrial

                                

Pass

 $159,909  $161,291  $84,573  $47,395  $23,382  $51,156  $134,079  $661,785 

Special mention

  324   10   26   —   651   44   —   1,055 

Substandard

  36   1,255   2,946   3,236   195   6,786   12,676   27,130 

Doubtful

  1,218   8,772   1,763   298   114   —   —   12,165 

Subtotal

 $161,487  $171,328  $89,308  $50,929  $24,342  $57,986  $146,755  $702,135 

Gross charge-offs for the period ended

 $—  $407  $152  $—  $5  $290  $—  $854 

CRE − Construction, land and development

                                

Pass

 $13,807  $157,432  $110,795  $21,082  $658  $1,117  $5,654  $310,545 

Special mention

  —   —   —   176   —   —   —   176 

Substandard

  —   10,204   —   28,378   —   165   300   39,047 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $13,807  $167,636  $110,795  $49,636  $658  $1,282  $5,954  $349,768 

Gross charge-offs for the period ended

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Multifamily

                                

Pass

 $5,158  $26,181  $82,828  $112,681  $32,774  $62,160  $—  $321,782 

Special mention

  —   —   —   23,247   826   1,030   —   25,103 

Substandard

  —   5,754   3,973   —   —   18,149   —   27,876 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $5,158  $31,935  $86,801  $135,928  $33,600  $81,339  $—  $374,761 

Gross charge-offs for the period ended

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Non-owner occupied

                                

Pass

 $52,409  $184,088  $151,333  $196,223  $88,658  $173,692  $1,971  $848,374 

Special mention

  —   —   —   —   —   1,053   —   1,053 

Substandard

  —   —   5,390   —   2,754   8,214   —   16,358 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $52,409  $184,088  $156,723  $196,223  $91,412  $182,959  $1,971  $865,785 

Gross charge-offs for the period ended

 $—  $—  $—  $632  $775  $1,994  $—  $3,401 

CRE − Owner occupied

                                

Pass

 $36,260  $87,147  $56,121  $62,381  $40,876  $133,091  $1,283  $417,159 

Special mention

  1,691   450   —   —   —   1,456   308   3,905 

Substandard

  —   —   1,476   2,907   2,358   7,515   —   14,256 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $37,951  $87,597  $57,597  $65,288  $43,234  $142,062  $1,591  $435,320 

Gross charge-offs for the period ended

 $—  $—  $4  $—  $—  $—  $—  $4 

Agricultural − Land

                                

Pass

 $7,878  $8,857  $8,482  $12,545  $5,214  $12,738  $1,902  $57,616 

Special mention

  241   —   —   3,372   —   —   —   3,613 

Substandard

  —   —   303   3,611   —   757   —   4,671 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $8,119  $8,857  $8,785  $19,528  $5,214  $13,495  $1,902  $65,900 

Gross charge-offs for the period ended

 $—  $—  $—  $—  $—  $—  $—  $— 

Agricultural − Production

                                

Pass

 $6,393  $7,240  $5,206  $3,816  $456  $811  $35,233  $59,155 

Special mention

  —   74   133   —   —   538   224   969 

Substandard

  —   22   546   1,237   28   —   1,094   2,927 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $6,393  $7,336  $5,885  $5,053  $484  $1,349  $36,551  $63,051 

Gross charge-offs for the period ended

 $—  $—  $—  $384  $—  $—  $—  $384 

Residential real estate − First lien

                                

Performing

 $44,627  $43,359  $129,319  $213,455  $238,409  $222,546  $—  $891,715 

Nonperforming

  —   —   512   —   652   1,523   —   2,687 

Subtotal

 $44,627  $43,359  $129,831  $213,455  $239,061  $224,069  $—  $894,402 

Gross charge-offs for the period ended

 $—  $—  $—  $—  $7  $47  $—  $54 

Residential real estate − Construction

                                

Performing

 $14,166  $12,335  $—  $—  $1,036  $—  $1,907  $29,444 

Nonperforming

  —   —   —   4,680   —   —   —   4,680 

Subtotal

 $14,166  $12,335  $—  $4,680  $1,036  $—  $1,907  $34,124 

Gross charge-offs for the period ended

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − HELOC

                                

Performing

 $543  $2,359  $4,230  $5,749  $967  $5,194  $214,426  $233,468 

Nonperforming

  —   —   25   1,152   —   36   —   1,213 

Subtotal

 $543  $2,359  $4,255  $6,901  $967  $5,230  $214,426  $234,681 

Gross charge-offs for the period ended

 $—  $100  $10  $250  $—  $—  $—  $360 

Residential real estate − Junior lien

                                

Performing

 $4,045  $5,990  $10,267  $7,752  $4,464  $5,476  $50  $38,044 

Nonperforming

  —   1,775   —   —   —   615   —   2,390 

Subtotal

 $4,045  $7,765  $10,267  $7,752  $4,464  $6,091  $50  $40,434 

Gross charge-offs for the period ended

 $—  $—  $—  $300  $—  $—  $—  $300 

Other consumer

                                

Performing

 $4,668  $3,212  $3,071  $3,456  $228  $4,071  $22,951  $41,657 

Nonperforming

  —   4   —   —   —   53   —   57 

Subtotal

 $4,668  $3,216  $3,071  $3,456  $228  $4,124  $22,951  $41,714 

Gross charge-offs for the period ended

 $—  $9  $31  $22  $—  $50  $—  $112 

Total loans

 $353,373  $727,811  $663,318  $758,829  $444,700  $719,986  $434,058  $4,102,075 

Gross charge-offs for the period ended

 $—  $516  $197  $1,588  $787  $2,381  $—  $5,469 

 

14
Table of Contents
 
                          

Revolving

     

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

Loans Amortized

     

As of December 31, 2024

 

2024

  

2023

  

2022

  

2021

  

2020

  

Prior

  

Cost Basis

  

Total

 

Commercial and industrial

                                

Pass

 $209,001  $141,028  $61,254  $34,645  $38,342  $36,136  $111,194  $631,600 

Special mention

  1,367   495   3,286   2,239   5,575   1   1,651   14,614 

Substandard

  —   12,663   220   780   3,154   2,447   1,198   20,462 

Doubtful

  —   —   —   —   —   51   —   51 

Subtotal

 $210,368  $154,186  $64,760  $37,664  $47,071  $38,635  $114,043  $666,727 

Gross charge-offs for the year ended

 $—  $218  $2  $397  $2,768  $342  $—  $3,727 

CRE − Construction, land and development

                                

Pass

 $97,244  $112,845  $40,890  $1,560  $517  $1,187  $2,801  $257,044 

Special mention

  —   —   172   —   —   —   —   172 

Substandard

  5,406   —   31,585   —   —   170   300   37,461 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $102,650  $112,845  $72,647  $1,560  $517  $1,357  $3,101  $294,677 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Multifamily

                                

Pass

 $35,112  $62,982  $138,698  $33,782  $33,157  $32,204  $—  $335,935 

Special mention

  —   —   7,644   272   1,241   —   —   9,157 

Substandard

  —   —   —   —   17,732   299   —   18,031 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $35,112  $62,982  $146,342  $34,054  $52,130  $32,503  $—  $363,123 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Non-owner occupied

                                

Pass

 $189,068  $149,368  $223,349  $98,309  $71,432  $188,617  $1,709  $921,852 

Special mention

  —   —   1,694   8,603   —   4,148   4,195   18,640 

Substandard

  —   —   —   7,767   6,347   12,419   —   26,533 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $189,068  $149,368  $225,043  $114,679  $77,779  $205,184  $5,904  $967,025 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Owner occupied

                                

Pass

 $63,721  $41,918  $60,788  $44,957  $38,941  $91,804  $1,652  $343,781 

Special mention

  451   —   —   937   2,981   2,735   —   7,104 

Substandard

  —   311   3,023   2,694   —   13,538   967   20,533 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $64,172  $42,229  $63,811  $48,588  $41,922  $108,077  $2,619  $371,418 

Gross charge-offs for the year ended

 $—  $12  $97  $—  $—  $128  $—  $237 

Agricultural − Land

                                

Pass

 $10,496  $8,864  $14,369  $5,840  $5,103  $8,473  $120  $53,265 

Special mention

  69   1,612   3,275   —   —   —   —   4,956 

Substandard

  —   303   2,166   —   609   —   —   3,078 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $10,565  $10,779  $19,810  $5,840  $5,712  $8,473  $120  $61,299 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

Agricultural − Production

                                

Pass

 $10,445  $6,440  $4,356  $724  $1,121  $582  $34,527  $58,195 

Special mention

  130   704   —   —   420   —   1,518   2,772 

Substandard

  —   —   1,987   —   —   54   —   2,041 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $10,575  $7,144  $6,343  $724  $1,541  $636  $36,045  $63,008 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $26  $—  $26 

Residential real estate − First lien

                                

Performing

 $49,414  $144,460  $226,993  $251,006  $127,200  $118,958  $—  $918,031 

Nonperforming

  —   576   —   744   12   1,656   —   2,988 

Subtotal

 $49,414  $145,036  $226,993  $251,750  $127,212  $120,614  $—  $921,019 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − Construction

                                

Performing

 $19,229  $6,449  $1,900  $1,289  $—  $—  $—  $28,867 

Nonperforming

  —   —   4,680   —   —   —   —   4,680 

Subtotal

 $19,229  $6,449  $6,580  $1,289  $—  $—  $—  $33,547 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − HELOC

                                

Performing

 $3,290  $5,558  $6,217  $1,622  $939  $2,717  $140,707  $161,050 

Nonperforming

  —   35   —   —   —   74   1,350   1,459 

Subtotal

 $3,290  $5,593  $6,217  $1,622  $939  $2,791  $142,057  $162,509 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $19  $—  $19 

Residential real estate − Junior lien

                                

Performing

 $7,762  $11,557  $9,553  $4,990  $2,760  $4,178  $50  $40,850 

Nonperforming

  1,775   —   300   108   —   1,027   —   3,210 

Subtotal

 $9,537  $11,557  $9,853  $5,098  $2,760  $5,205  $50  $44,060 

Gross charge-offs for the year ended

 $—  $—  $—  $—  $—  $638  $—  $638 

Other consumer

                                

Performing

 $9,618  $4,695  $4,853  $502  $2,541  $4,069  $17,505  $43,783 

Nonperforming

  —   11   272   —   7   49   —   339 

Subtotal

 $9,618  $4,706  $5,125  $502  $2,548  $4,118  $17,505  $44,122 

Gross charge-offs for the year ended

 $—  $8  $3  $150  $4  $21  $—  $186 

Total loans

 $713,598  $712,874  $853,524  $503,370  $360,131  $527,593  $321,444  $3,992,534 

Gross charge-offs for the year ended

 $—  $238  $102  $547  $2,772  $1,174  $—  $4,833 

 

15
Table of Contents
 

Past Due and Nonaccrual Loans

 

The Company closely monitors the performance of its loan portfolio. A loan is placed on nonaccrual status when the financial condition of the borrower is deteriorating, payment in full of both principal and interest is not expected as scheduled or principal or interest has been in default for 90 days or more. Exceptions may be made if the asset is secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. When one loan to a borrower is placed on nonaccrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on nonaccrual status. All previously accrued and unpaid interest is reversed at that time. A loan will return to accrual when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period, generally at least six months.

 

The following tables present a past due aging analysis of total loans outstanding, by portfolio segment, as of September 30, 2025 and December 31, 2024:

 

  

September 30, 2025

 
              

90 Days

         
  

Accruing

  

30 - 59 Days

  

60 - 89 Days

  

or More

      

Total

 

(dollars in thousands)

 

Current

  

Past Due

  

Past Due

  

Past Due

  

Nonaccrual

  

Loans

 

Commercial

                        

Commercial and industrial

 $689,204  $741  $—  $—  $12,190  $702,135 

Commercial real estate

                        

Construction, land and development

  318,453   —   —   —   31,315   349,768 

Multifamily

  370,027   —   3,973   —   761   374,761 

Non-owner occupied

  864,092   —   —   —   1,693   865,785 

Owner occupied

  433,336   567   —   —   1,417   435,320 

Total commercial real estate

  1,985,908   567   3,973   —   35,186   2,025,634 

Agricultural

                        

Land

  65,198   —   —   —   702   65,900 

Production

  62,184   329   —   —   538   63,051 

Total agricultural

  127,382   329   —   —   1,240   128,951 

Total commercial

  2,802,494   1,637   3,973   —   48,616   2,856,720 

Consumer

                        

Residential real estate

                        

First lien

  890,793   797   125   —   2,687   894,402 

Construction

  29,444   —   —   —   4,680   34,124 

HELOC

  233,127   320   21   —   1,213   234,681 

Junior lien

  37,947   96   —   —   2,391   40,434 

Total residential real estate

  1,191,311   1,213   146   —   10,971   1,203,641 

Other consumer

  41,270   33   354   —   57   41,714 

Total consumer

  1,232,581   1,246   500   —   11,028   1,245,355 

Total

 $4,035,075  $2,883  $4,473  $—  $59,644  $4,102,075 

 

  

December 31, 2024

 
              

90 Days

         
  

Accruing

  

30 - 59 Days

  

60 - 89 Days

  

or More

      

Total

 

(dollars in thousands)

 

Current

  

Past Due

  

Past Due

  

Past Due

  

Nonaccrual

  

Loans

 

Commercial

                        

Commercial and industrial

 $654,073  $903  $133  $8,400  $3,218  $666,727 

Commercial real estate

                        

Construction, land and development

  264,633   —   —   —   30,044   294,677 

Multifamily

  363,123   —   —   —   —   363,123 

Non-owner occupied

  961,808   —   —   —   5,217   967,025 

Owner occupied

  369,176   225   —   —   2,017   371,418 

Total commercial real estate

  1,958,740   225   —   —   37,278   1,996,243 

Agricultural

                        

Land

  60,690   —   —   —   609   61,299 

Production

  62,269   87   —   —   652   63,008 

Total agricultural

  122,959   87   —   —   1,261   124,307 

Total commercial

  2,735,772   1,215   133   8,400   41,757   2,787,277 

Consumer

                        

Residential real estate

                        

First lien

  915,167   2,104   707   53   2,988   921,019 

Construction

  28,867   —   —   —   4,680   33,547 

HELOC

  160,430   169   450   —   1,460   162,509 

Junior lien

  40,454   396   —   —   3,210   44,060 

Total residential real estate

  1,144,918   2,669   1,157   53   12,338   1,161,135 

Other consumer

  43,651   103   30   —   338   44,122 

Total consumer

  1,188,569   2,772   1,187   53   12,676   1,205,257 

Total

 $3,924,341  $3,987  $1,320  $8,453  $54,433  $3,992,534 

 

16
Table of Contents
 

In calculating expected credit losses, the Company includes loans on nonaccrual status and loans 90 days or more past due and still accruing. The following tables present the amortized cost basis on nonaccrual status loans and loans 90 days or more past due and still accruing as of September 30, 2025 and December 31, 2024: 

 

  

As of September 30, 2025

 
          

90 Days

 
  

Nonaccrual

      

or More

 
  

with no Allowance

      

Past Due

 

(dollars in thousands)

 

for Credit Losses

  

Nonaccrual

  

and Accruing

 

Commercial

            

Commercial and industrial

 $—  $12,190  $— 

Commercial real estate

            

Construction, land and development

  24,576   31,315   — 

Multifamily

  761   761   — 

Non-owner occupied

  1,693   1,693   — 

Owner occupied

  1,287   1,417   — 

Total commercial real estate

  28,317   35,186   — 

Agricultural

            

Land

  702   702   — 

Production

  538   538   — 

Total agricultural

  1,240   1,240   — 

Total commercial

  29,557   48,616   — 

Consumer

            

Residential real estate

            

First lien

  2,575   2,687   — 

Construction

  4,680   4,680   — 

HELOC

  1,100   1,213   — 

Junior lien

  2,305   2,391   — 

Total residential real estate

  10,660   10,971   — 

Other consumer

  —   57   — 

Total consumer

  10,660   11,028   — 

Total

 $40,217  $59,644  $— 

 

  

December 31, 2024

 
          

90 Days

 
  

Nonaccrual

      

or More

 
  

with no Allowance

      

Past Due

 

(dollars in thousands)

 

for Credit Losses

  

Nonaccrual

  

and Accruing

 

Commercial

            

Commercial and industrial

 $2,952  $3,218  $8,400 

Commercial real estate

            

Construction, land and development

  24,638   30,044   — 

Multifamily

  —   —   — 

Non-owner occupied

  5,217   5,217   — 

Owner occupied

  1,706   2,017   — 

Total commercial real estate

  31,561   37,278   — 

Agricultural

            

Land

  609   609   — 

Production

  652   652   — 

Total agricultural

  1,261   1,261   — 

Total commercial

  35,774   41,757   8,400 

Consumer

            

Residential real estate

            

First lien

  2,614   2,988   53 

Construction

  4,680   4,680   — 

HELOC

  —   1,460   — 

Junior lien

  2,696   3,210   — 

Total residential real estate

  9,990   12,338   53 

Other consumer

  —   338   — 

Total consumer

  9,990   12,676   53 

Total

 $45,764  $54,433  $8,453 

 

Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the three months ended September 30, 2025 and 2024, is estimated to have been $1.5 million and $1.9 million, respectively. 

 

The Company’s policy is to reverse previously recorded interest income when a loan is placed on nonaccrual status. As a result, the Company did not record any interest income on its nonaccrual loans for the three months ended September 30, 2025 or 2024. At September 30, 2025 and December 31, 2024, total accrued interest receivable on loans, which had been excluded from reported amortized cost basis on loans, was $18.3 million and $16.4 million, respectively, and was reported within accrued interest receivable on the consolidated statements of condition. An allowance was not carried on the accrued interest receivable at either date. 

 

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The following tables present the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans, as of September 30, 2025 and December 31, 2024: 

 

  

As of September 30, 2025

 
  

Primary Type of Collateral

 
                  

Allowance for

 

(dollars in thousands)

 

Real estate

  

Equipment

  

Other

  

Total

  

Credit Losses

 

Commercial

                    

Commercial and industrial

 $—  $—  $—  $—  $— 

Commercial real estate

                    

Construction, land and development

  31,315   —   —   31,315   4,984 

Multifamily

  761   —   —   761   — 

Non-owner occupied

  1,693   —   —   1,693   — 

Owner occupied

  1,341   —   —   1,341   4 

Total commercial real estate

  35,110   —   —   35,110   4,988 

Agricultural

                    

Land

  702   —   —   702   — 

Production

  538   —   —   538   — 

Total agricultural

  1,240   —   —   1,240   — 

Total commercial

  36,350   —   —   36,350   4,988 

Consumer

                    

Residential real estate

                    

First lien

  2,585   —   —   2,585   3 

Construction

  4,680   —   —   4,680   — 

HELOC

  1,100   —   —   1,100   — 

Junior lien

  2,305   —   —   2,305   — 

Total residential real estate

  10,670   —   —   10,670   3 

Other consumer

  —   —   —   —   — 

Total consumer

  10,670   —   —   10,670   3 

Total

 $47,020  $—  $—  $47,020  $4,991 

 

  

As of December 31, 2024

 
  

Primary Type of Collateral

 
                  

Allowance for

 

(dollars in thousands)

 

Real estate

  

Equipment

  

Other

  

Total

  

Credit Losses

 

Commercial

                    

Commercial and industrial

 $2,885  $275  $—  $3,160  $4 

Commercial real estate

                    

Construction, land and development

  30,044   —   —   30,044   4,984 

Multifamily

  —   —   —   —   — 

Non-owner occupied

  5,217   —   —   5,217   — 

Owner occupied

  1,936   —   —   1,936   9 

Total commercial real estate

  37,197   —   —   37,197   4,993 

Agricultural

                    

Land

  609   —   —   609   — 

Production

  —   652   —   652   — 

Total agricultural

  609   652   —   1,261   — 

Total commercial

  40,691   927   —   41,618   4,997 

Consumer

                    

Residential real estate

                    

First lien

  2,514   —   —   2,514   7 

Construction

  4,680   —   —   4,680   — 

HELOC

  1,366   —   —   1,366   252 

Junior lien

  3,105   —   —   3,105   330 

Total residential real estate

  11,665   —   —   11,665   589 

Other consumer

  —   —   289   289   50 

Total consumer

  11,665   —   289   11,954   639 

Total

 $52,356  $927  $289  $53,572  $5,636 

 

Collateral dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral when there are no other available and reliable sources of repayment. 

 

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Loan Modifications to Borrowers Experiencing Financial Difficulty 

 

Effective January 1, 2023, the Company evaluates all loan modifications in accordance with ASU 2022-02. Under ASU 2022-02, a loan is evaluated to consider whether the loan, as modified, represents a new loan or is a continuation of an existing loan. 

 

In cases where a borrower experiences financial difficulty, the Company may make certain concessions for which the terms of the loan are modified. Loans experiencing financial difficulty can include modifications allowing an interest rate reduction below current market rates, a forgiveness of principal balance, an extension of the loan term, an other than significant payment delay, or some combination of these or similar types of modifications. During the three months ended September 30, 2025, the Company did not provide any modifications to loans under these circumstances that were experiencing financial difficulty. 

 

The following table presents the amortized cost basis of loans as of September 30, 2025, by type of modification, that were experiencing financial difficulty during the nine months ended September 30, 2025. There were no loans that were modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of the class of financing receivable as of September 30, 2025, is also presented below. 

 

  

Nine months ended September 30, 2025

 
                  

Combination Term

  

Combination Term

     
  

Interest Rate

  

Principal

  

Term

  

Payment

  

Extension and

  

Extension and Interest

  

Total %

 

(dollars in thousands)

 

Reduction

  

Forgiveness

  

Extension

  

Delay

  

Principal Forgiveness

  

Rate Reduction

  

of Portfolio

 

Agricultural − Land

 $—  $—  $—  $1,463  $—  $—   2.2%

 

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts and relevant factors are considered while assessing the adequacy of the ACL. For the three and nine months ended September 30, 2025 and 2024, there were no modified loans to borrowers experiencing financial difficulty that were past due or for which the borrower subsequently defaulted. 

 

NOTE 5 Land, Premises and Equipment, Net

 

Components of land, premises and equipment, net at September 30, 2025 and December 31, 2024 were as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Land (1)

 $7,155  $7,155 

Buildings and improvements (1)

  40,715   36,961 

Leasehold improvements

  2,657   2,657 

Furniture, fixtures, and equipment

  42,253   38,540 
   92,780   85,313 

Less accumulated depreciation

  (48,683)  (45,533)

Total

 $44,097  $39,780 

(1)

Excludes assets held for sale.

 

Depreciation expense was $1.1 million and $0.7 million for the three months ended September 30, 2025 and 2024, respectively. Depreciation expense was $3.3 million and $2.1 million for the nine months ended September 30, 2025 and 2024, respectively. 

 

The Company’s West Fargo, North Dakota branch is listed for sale for $3.8 million and is expected to sell within the next 12 months. At  September 30, 2025, the facility had a carrying value of approximately $0.4 million. The Company expects to record a gain on the sale upon closing, as the expected sale price is greater than the property’s carrying value. Total assets held for sale by the Company at  September 30, 2025 were $0.4 million and were included in other assets on the Company’s consolidated balance sheet and not included in the table above. 

 

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NOTE 6 Goodwill and Other Intangible Assets

 

The following table summarizes the carrying amount of goodwill, by segment, as of September 30, 2025 and December 31, 2024: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Banking

 $74,111  $74,111 

Retirement and benefit services

  11,523   11,523 

Total goodwill

 $85,634  $85,634 

 

Goodwill is evaluated for impairment on an annual basis, at a minimum, and more frequently when the economic environment or specific circumstances warrant. The Company determined that there was no goodwill impairment as of September 30, 2025. 

 

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset, as of September 30, 2025 and December 31, 2024, were as follows: 

 

  

September 30, 2025

  

December 31, 2024

 

(dollars in thousands)

 

Gross Carrying Amount

  

Accumulated Amortization

  

Total

  

Gross Carrying Amount

  

Accumulated Amortization

  

Total

 

Identifiable customer intangibles

 $27,504  $(21,797) $5,707  $41,423  $(33,736) $7,687 

Core deposit intangible assets

  41,092   (11,046)  30,046   41,092   (4,897)  36,195 

Total intangible assets

 $68,596  $(32,843) $35,753  $82,515  $(38,633) $43,882 

 

Amortization of total intangible assets was $2.7 million and $1.3 million for the three months ended September 30, 2025 and 2024, respectively. Amortization of total intangible assets was $8.1 million and $4.0 million for the nine months ended September 30, 2025 and 2024, respectively. 

 

NOTE 7 Loan Servicing

 

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled $679.1 million and $728.5 million as of September 30, 2025 and December 31, 2024, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and collection and foreclosure processing. Loan servicing income is recorded on an accrual basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees, and is net of fair value adjustments to capitalized mortgage servicing rights. As of and for the year ended December 31, 2024, the Company elected to subsequently measure mortgage servicing rights (“MSRs”) at fair value. The Company accounted for MSRs at the lower of amortized cost or fair value for all periods prior to December 31, 2024. 

 

The following table presents the changes in fair value of the Company’s MSR portfolio for the three and nine months ended September 30, 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2025

 

Balance at beginning of period

 $7,184  $7,918 

Additions from loans sold with servicing rights retained

  53   154 

Change in fair value

  (529)  (1,364)

Balance at end of period

 $6,708  $6,708 

 

The following table summarizes the Company’s activity related to servicing rights for the three and nine months ended September 30, 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2024

  

2024

 

Servicing Assets:

        

Balance at beginning of period

 $1,963  $2,052 

Additions, net of valuation reserve (1)

  225   358 

Amortization (2)

  (105)  (327)

Balance at end of period

  2,083   2,083 

Less valuation reserve (3)

  (209)  (209)

Balance at end of period, net of valuation reserve

 $1,874  $1,874 

Fair value, beginning of period

 $2,082  $2,062 

Fair value, end of period

 $1,874  $1,874 

(1)

Associated income was reported within mortgage banking income, net on the consolidated statements of income.

(2)

Associated amortization expense was reported within other noninterest income on the consolidated statements of income.

(3)

Associated valuation reserve was reported within mortgage and lending expenses on the consolidated statements of income.

 

The following is a summary of key data and assumptions used in the valuation of servicing rights as of September 30, 2025 and December 31, 2024. Increases or decreases in any one of these assumptions would result in lower or higher fair value measurements. 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Fair value of servicing rights

 $6,708  $7,918 

Weighted-average remaining term, years

  21.6   22.0 

Prepayment speeds

  13.4%  9.9%

Discount rate

  10.3%  10.5%

 

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NOTE 8 Leases

 

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of an identified property, plant or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee are comprised of real property for offices and office equipment rentals with terms extending through 2045. Substantially all of the Company’s leases are classified as operating leases. The Company has no existing finance leases. 

 

The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements. The following table presents the classification of the Company’s right-of-use (“ROU”) assets and lease liabilities on the consolidated financial statements as of September 30, 2025 and December 31, 2024: 

 

   

September 30,

  

December 31,

 

(dollars in thousands)

  

2025

  

2024

 

Lease Right-of-Use Assets

Classification

        

Operating lease right-of-use assets

Operating lease right-of-use assets

 $30,154  $13,438 

Lease Liabilities

         

Operating lease liabilities

Operating lease liabilities

 $36,918  $18,991 

 

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception. 

 

  

September 30,

  

December 31,

 
  

2025

  

2024

 

Weighted-average remaining lease term, years

        

Operating leases

  17.0   12.6 

Weighted-average discount rate

        

Operating leases

  5.0%  4.5%

 

As the Company elected, for all classes of underlying assets, not to separate lease and non‑lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities. Variable lease cost also includes payments for usage or maintenance of those capitalized equipment operating leases. 

 

The following table presents lease costs and other lease information for the three and nine months ended September 30, 2025 and 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Lease costs

                

Operating lease cost

 $621  $500  $1,861  $1,404 

Variable lease cost

  132   269   258   741 

Short-term lease cost

  146   54   605   158 

Finance lease cost

                

Interest on lease liabilities

  —   —   —   — 

Amortization of right-of-use assets

  —   —   —   — 

Sublease income

  (43)  (47)  (164)  (146)

Net lease cost

 $856  $776  $2,560  $2,157 

Other information

                

Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases

 $719  $549  $1,916  $1,469 

Right-of-use assets obtained in exchange for new operating lease liabilities

  19,750   5,136   19,816   5,244 

 

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of September 30, 2025 were as follows: 

 

  

Operating

 

(dollars in thousands)

 

Leases

 

Twelve months ended

    

September 30, 2026

 $3,420 

September 30, 2027

  3,262 

September 30, 2028

  3,032 

September 30, 2029

  2,993 

September 30, 2030

  3,031 

Thereafter

  42,737 

Total future minimum lease payments

 $58,475 

Amounts representing interest

  (21,557)

Total operating lease liabilities

 $36,918 

 

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NOTE 9 Deposits

 

The components of deposits in the consolidated balance sheets as of September 30, 2025 and December 31, 2024 were as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Noninterest-bearing

 $776,791  $903,466 

Interest-bearing

        

Interest-bearing demand

  1,256,687   1,220,173 

Savings accounts

  174,113   165,882 

Money market savings

  1,460,006   1,381,924 

Time deposits

  745,056   706,965 

Total interest-bearing

  3,635,862   3,474,944 

Total deposits

 $4,412,653  $4,378,410 

 

Certificates of deposit in excess of $250,000 totaled $347.2 million and $248.1 million at September 30, 2025 and December 31, 2024, respectively. 

 

NOTE 10 Short‑Term Borrowings

 

Short-term borrowings at September 30, 2025 and December 31, 2024 consisted of the following: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Fed funds purchased

 $—  $38,960 

FHLB short-term advances

  200,000   200,000 

Total

 $200,000  $238,960 

 

 

NOTE 11 Long‑Term Debt

 

Long‑term debt as of September 30, 2025 and December 31, 2024 consisted of the following: 

 

  

September 30, 2025

            

Period End

     
  

Face

  

Carrying

    

Interest

  

Maturity

  

(dollars in thousands)

 

Value

  

Value

  

Interest Rate

 

Rate

  

Date

 

Call Date

Subordinated notes payable

 $50,000  $50,000  

Fixed

  3.50% 

3/30/2031

 

3/31/2026

Junior subordinated debenture (Trust I)

  4,124   3,662  

Three-month CME SOFR + 0.26% + 3.10%

  7.36% 

6/26/2033

 

6/26/2008

Junior subordinated debenture (Trust II)

  6,186   5,492  

Three-month CME SOFR + 0.26% + 1.80%

  6.10% 

9/15/2036

 

9/15/2011

Total long-term debt

 $60,310  $59,154           

 

  

December 31, 2024

            

Period End

     
  

Face

  

Carrying

    

Interest

  

Maturity

  

(dollars in thousands)

 

Value

  

Value

  

Interest Rate

 

Rate

  

Date

 

Call Date

Subordinated notes payable

 $50,000  $50,000.00  

Fixed

  3.50% 

3/30/2031

 

3/31/2026

Junior subordinated debenture (Trust I)

  4,124   3,628  

Three-month CME SOFR + 0.26% + 3.10%

  7.69% 

6/26/2033

 

6/26/2008

Junior subordinated debenture (Trust II)

  6,186   5,441  

Three-month CME SOFR + 0.26% + 1.80%

  6.42% 

9/15/2036

 

9/15/2011

Total long-term debt

 $60,310  $59,069           

 

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NOTE 12 Commitments and Contingencies 

 

Commitments

 

In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the statements of financial condition. 

 

A summary of the contractual amounts of the Company’s exposure to off-balance sheet risk as of September 30, 2025 and December 31, 2024, respectively, was as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Commitments to extend credit

 $1,007,983  $1,090,114 

Standby letters of credit

  19,418   30,033 

Total

 $1,027,400  $1,120,147 

 

The Company establishes an ACL on unfunded commitments, except those that are unconditionally cancellable by the Company. As of  September 30, 2025 and December 31, 2024, the ACL on unfunded commitments was $3.7 million and $7.5 million, respectively. The ACL on unfunded commitments was presented within accrued expenses and other liabilities on the consolidated balance sheets. For the nine months ended September 30, 2025 and 2024, the provision (recovery) for credit losses on unfunded commitments was ($3.9) million and ($31) thousand, respectively. 

 

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses, and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income producing commercial properties.

 

The Company was not required to perform on any financial guarantees and did not incur any losses on its commitments during the past two years. 

 

The Company utilizes standby letters of credit issued by either the FHLB or the Bank of North Dakota to secure public unit deposits. The Company had letters of credit outstanding with the FHLB in the amount of $8.6 million as of September 30, 2025 and $12.0 million as of  December 31, 2024. With the Bank of North Dakota, the Company had no letters of credit outstanding as of  September 30, 2025 and had letters of credit outstanding in the amount of $50.0 million as of  December 31, 2024. Letters of credit with the Bank of North Dakota were collateralized by loans pledged to the Bank of North Dakota in the amount of $540.3 million and $524.9 million as of September 30, 2025 and December 31, 2024, respectively. 

 

Legal Contingencies

 

In the normal course of business, including in connection with business combinations pursued by the Company, the Company and its subsidiaries are subject to pending and threatened litigation, claims investigations and legal and administrative cases and proceedings. 

 

Under applicable accounting standards, reserves are established for legal claims only when losses associated with the claims are judged to be probable, and the loss can be reasonably estimated. When a material loss contingency is reasonably possible, but not probable, the Company does not record a liability, but instead discloses the nature of the matter and an estimate of the loss or range of losses, to the extent such estimate can be made. Significant judgment is required in both the determination of possibility or probability, and whether the loss or range of losses is reasonably estimable. The Company’s judgments are subjective and based on the status of the legal or regulatory proceedings, the merits of the Company’s defenses and consultation with in-house and outside legal counsel. Because of uncertainties related to these matters, accruals are based on the best information available to the Company and its advisors at the time, including, among other information, settlement agreements. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and  may revise its estimates accordingly. Due to the inherent uncertainties of the legal and regulatory processes, such judgments  may be materially different than the actual outcomes. Legal costs such as outside counsel fees are expensed in the period in which the services are rendered.

 

Assessments of litigation exposure are difficult because they involve inherently unpredictable factors including, but not limited to: whether the proceeding is in the early stages; whether damages are unspecified, unsupported or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery has begun or is not complete; whether meaningful settlement discussions have commenced; whether the Company has insurance coverage; and whether the proceeding involves class allegations. In many lawsuits and arbitrations, it is not possible to determine whether a liability will be incurred, or to estimate the ultimate or minimum amount of that liability, until the matter is close to resolution, in which case a reserve will not be recognized until that time. As a result, the Company  may be unable to estimate reasonably possible losses with respect to litigation matters it faces. 

 

In 2023, the Company sold its ESOP fiduciary services business but currently remains subject to pending lawsuits related to the sold business, including one brought by the DOL.

 

In  November 2023, the DOL brought suit against several defendants, including the Bank, alleging that the Bank, in its capacity as trustee to an ESOP, (1) breached certain of its fiduciary duties in connection with a transaction which allegedly caused the ESOP to pay more than fair market value to acquire stock, and (2) engaged in a prohibited transaction by causing the ESOP to acquire the stock from an existing company shareholder for more than adequate consideration. The Bank continues to dispute the allegations made by the DOL and intends to continue to defend itself vigorously.

 

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The Company believes a material loss contingency related to the DOL complaint is reasonably possible, but not probable, based on currently-available information. However, the Company is unable to estimate the ultimate or minimum loss or range of losses, if any, at this time due to a number of uncertainties, including, but not limited to: (1) the current early stages of the proceedings and discovery not having commenced, (2) the absence of specificity as to alleged damages, and (3) the lack of resolution of significant factual and legal issues. 

 

The Company did not have any accrued liabilities recorded for loss contingencies that were required to be disclosed as of September 30, 2025 and December 31, 2024, respectively. 

 

NOTE 13 Share-Based Compensation

 

On May 6, 2019, the Company’s stockholders approved the Alerus Financial Corporation 2019 Equity Incentive Plan. This plan allows the compensation committee of the Board of Directors of the Company the ability to grant a wide variety of equity awards, including stock options, stock appreciation rights, stock awards, and cash incentive awards in such forms and amounts as it deems appropriate to accomplish the goals of the plan. Since inception, all awards issued under the plan have been restricted stock and restricted stock units. Any shares subject to an award that is cancelled, forfeited, or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the plan. However, shares subject to an award shall not again be made available for issuance or delivery under the plan if such shares are (a) tendered in payment of the exercise price of a stock option, (b) delivered to, or withheld by, the Company to satisfy any tax withholding obligation, or (c) covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the award. Restricted stock units issued do not participate in dividends and recipients are not entitled to vote these restricted stock units until shares of the Company’s common stock are delivered after vesting of the restricted stock units. Shares vest, become exercisable and contain such other terms and conditions as determined by the compensation committee and set forth in individual agreements with the participant receiving the award. Awards issued to Company directors vest on the earlier of the first anniversary of the grant date and the next annual meeting of stockholders. The plan authorizes the issuance of up to 1,100,000 shares of common stock. As of September 30, 2025, 562,540 shares of common stock were still available for issuance under the plan. 

 

The compensation expense relating to awards under these plans was $780 thousand and $488 thousand for the three months ended September 30, 2025 and 2024, respectively. The compensation expense relating to awards under these plans was $2.0 million and $1.2 million for the nine months ended September 30, 2025 and 2024, respectively. 

 

The following table presents the activity in the stock plans for the nine months ended September 30, 2025 and 2024:

 

  

Nine months ended September 30,

 
  

2025

  

2024

 
      

Weighted-

      

Weighted-

 
      

Average Grant

      

Average Grant

 
  

Awards

  

Date Fair Value

  

Awards

  

Date Fair Value

 

Restricted Stock and Restricted Stock Unit Awards

                

Outstanding at beginning of period

  289,549  $21.94   231,657  $22.96 

Granted

  123,055   20.16   108,561   20.93 

Vested

  (64,014)  22.44   (55,429)  23.87 

Forfeited or cancelled

  (33,074)  25.80   —   — 

Outstanding at end of period

  315,516  $20.74   284,789  $22.00 

 

As of September 30, 2025, there was $3.6 million of unrecognized compensation expense related to non-vested awards granted under the plans. The expense is expected to be recognized over a weighted-average period of 2.1 years. 

 

NOTE 14 Income Taxes

 

The components of income tax expense (benefit) for the three and nine months ended September 30, 2025 and 2024 were as follows:

 

  

Three months ended September 30,

 
  

2025

  

2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Amount

  

Pretax Income

  

Amount

  

Pretax Income

 

Taxes at statutory federal income tax rate

 $4,625   21.0% $1,427   21.0%

Tax effect of:

                

Tax exempt income

  (584)  (2.7)%  (308)  (4.5)%

State income taxes, net of federal benefits

  1,071   4.9%  332   4.9%

Nondeductible items and other

  (11)  -%  139   2.0%

Applicable income taxes

 $5,101   23.2% $1,590   23.4%

 

  

Nine months ended September 30,

 
  

2025

  

2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Amount

  

Pretax Income

  

Amount

  

Pretax Income

 

Taxes at statutory federal income tax rate

 $13,848   21.0% $4,925   21.0%

Tax effect of:

                

Tax exempt income

  (1,539)  (2.3)%  (776)  (3.3)%

State income taxes, net of federal benefits

  3,256   4.9%  1,143   4.9%

Nondeductible items and other

  (114)  (0.2)%  312   1.3%

Applicable income taxes

 $15,451   23.4% $5,604   23.9%

 

 

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It is the opinion of management that, as of September 30, 2025, the Company had no significant uncertain tax positions that would be subject to change upon examination. 

 

On July 4, 2025, the One Big Beautiful Bill (“OBBB”) Act, which includes a broad range of tax reform provisions, was signed into law by the President of the United States. The OBBB Act did not have a material impact on the Company's estimated annual effective tax rate in 2025. 

 

NOTE 15 Tax Credit Investments

 

The Company invests in qualified affordable housing projects for the purpose of community reinvestment and obtaining tax credits. The Company’s tax credit investments are limited to existing lending relationships with well-known developers and projects within the Company’s market area.

 

The following table presents a summary of the Company’s investments in qualified affordable housing project tax credits as of September 30, 2025 and December 31, 2024:

 

   

September 30, 2025

  

December 31, 2024

 

(dollars in thousands)

  

Investment

  

Unfunded Commitment

  

Investment

  

Unfunded Commitment

 

Investment

Accounting Method

                

Low income housing tax credit

Proportional amortization

 $22,906  $6,511  $17,906  $3,968 

 

The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects for the three and nine months ended September 30, 2025 and 2024:

 

  

Three months ended September 30,

 
  

2025

  

2024

 
  

Amortization

  

Tax Benefit

  

Amortization

  

Tax Benefit

 

(dollars in thousands)

 

Expense (1)

  

Recognized (2)

  

Expense (1)

  

Recognized (2)

 

Low income housing tax credit

 $455  $(513) $432  $(352)

(1)

The amortization expense for low income housing tax credits was included in the income tax expense.

(2)

All of the tax benefits recognized were included in income tax expense.

 

  

Nine months ended September 30,

 
  

2025

  

2024

 
  

Amortization

  

Tax Benefit

  

Amortization

  

Tax Benefit

 

(dollars in thousands)

 

Expense (1)

  

Recognized (2)

  

Expense (1)

  

Recognized (2)

 

Low income housing tax credit

 $1,369  $(1,538) $1,296  $(1,103)

(1)

The amortization expense for low income housing tax credits was included in the income tax expense.

(2)

All of the tax benefits recognized were included in income tax expense.

 

NOTE 16 Segment Reporting

 

Beginning with the annual period ended  December 31, 2024, the Company adopted the guidance within ASU 2023-07, Segment Reporting (Topic 280), which expanded disclosure requirements for significant segment expenses and other segment items. In connection with this guidance, compensation, employee taxes and benefits, business services, software and technology expense, and merger and acquisition expense are presented separately as these expenses were previously included within total noninterest expense. Financial information for prior periods were recast to conform to the current presentation.

 

Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company, and assesses overall segment performance based on net income (loss) before taxes and uses this metric to allocate resources for each segment, focusing on budgeting and forecasting.

 

Reportable segments are determined based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial statements, and management’s regular review of the operating results of those services. The Company currently operates through three operating segments: banking, retirement and benefit services, and wealth. 

 

The Company’s reportable segments include the following:

 

 

●

Banking: Offers a complete line of loan, deposit, cash management, and treasury services through 28 offices in North Dakota, Minnesota, Wisconsin, Iowa, and Arizona, including 15 banking offices acquired in the HMN Financial, Inc. (“HMNF”) transaction. These products and services are supported through web and mobile based applications. The majority of the Company’s assets and liabilities are in the Banking segment’s balance sheet.

   
 ●Retirement and Benefit Services: Provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. The division operates within each of the banking markets, as well as in East Lansing, Michigan and Lakewood, Colorado.
   
 ●Wealth: Provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

 

The Company’s segment reporting process begins with the assignment of income and expenses directly to the applicable segments based on different cost centers withing the Company. The net income (loss) before taxes for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees and time spent working in each segment. These types of expenses include business services, software and technology expense, human resources, accounting and finance, risk management, legal, and marketing. 

 

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The financial information presented for each segment includes net interest income, provision for credit losses, noninterest income, and direct and indirect noninterest expense. As discussed above, noninterest expense is broken out between significant noninterest expenses and other noninterest expense. Other noninterest expense consists of occupancy and equipment expense, intangible amortization expense, professional fees and assessments (less merger and acquisition expenses which are included within this expense item on the consolidated statements of income), marketing and business development, supplies and postage, travel, mortgage and lending expenses, and other noninterest expenses. Corporate administration includes all remaining income and expenses not allocated to the three operating segments, including all merger and acquisition expenses.

 

The assignment and allocation methodologies used in the segment reporting process discussed above change from time to time as systems are enhanced, methods for evaluating segment performance or product lines change or as business segments are realigned.

 

The following tables present key metrics related to the Company’s segments for the periods presented:

 

  

As of and for the three months ended September 30, 2025

 
      

Retirement and

      

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Wealth

  

Administration

  

Consolidated

 

Net interest income (loss)

 $43,788  $—  $—  $(652) $43,136 

Provision for credit losses

  —   —   —   —   — 

Noninterest income (loss)

  6,216   16,496   6,560   158   29,430 

Noninterest expense

                    

Compensation

  12,562   7,364   3,519   1,539   24,984 

Employee taxes and benefits

  3,001   1,899   561   633   6,094 

Business services, software and technology expense

  2,909   1,852   1,379   145   6,285 

Merger and acquisition expense

  —   —   —   (43)  (43)

Other noninterest expense

  10,225   2,279   424   293   13,221 

Total noninterest expense

  28,697   13,394   5,883   2,567   50,541 

Net income (loss) before taxes

 $21,307  $3,102  $677  $(3,061) $22,025 

Total assets

 $5,236,412  $30,941  $5,777  $57,443  $5,330,573 

 

  

As of and for the nine months ended September 30, 2025

 
      

Retirement and

      

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Wealth

  

Administration

  

Consolidated

 

Net interest income (loss)

 $129,279  $—  $—  $(1,954) $127,325 

Provision for credit losses

  863   —   —   —   863 

Noninterest income (loss)

  19,298   48,625   20,827   74   88,824 

Noninterest expense

                    

Compensation

  36,476   21,644   9,954   4,214   72,288 

Employee taxes and benefits

  10,170   6,225   2,023   2,072   20,490 

Business services, software and technology expense

  8,957   5,776   2,683   489   17,905 

Merger and acquisition expense

  —   —   —   254   254 

Other noninterest expense

  29,753   6,532   1,192   930   38,407 

Total noninterest expense

  85,356   40,177   15,852   7,959   149,344 

Net income (loss) before taxes

 $62,358  $8,448  $4,975  $(9,839) $65,942 

Total assets

 $5,236,412  $30,941  $5,777  $57,443  $5,330,573 

 

  

As of and for the three months ended September 30, 2024

 
      

Retirement and

  

Wealth

  

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Management

  

Administration

  

Consolidated

 

Net interest income (loss)

 $23,220  $—  $—  $(678) $22,542 

Provision for credit losses

  1,661   —   —   —   1,661 

Noninterest income

  4,940   16,144   6,684   595   28,363 

Noninterest expense

                    

Compensation

  9,972   7,209   2,349   1,528   21,058 

Employee taxes and benefits

  2,441   1,896   538   525   5,400 

Business services, software and technology expense

  2,219   1,825   703   132   4,879 

Merger and acquisition expense

  —   —   —   1,661   1,661 

Other noninterest expense

  5,637   3,224   249   339   9,449 

Total noninterest expense

  20,269   14,154   3,839   4,185   42,447 

Net income (loss) before taxes

 $6,230  $1,990  $2,845  $(4,268) $6,797 

Total assets

 $4,009,535  $32,882  $5,288  $310,918  $4,358,623 

 

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As of and for the nine months ended September 30, 2024

 
      

Retirement and

      

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Wealth

  

Administration

  

Consolidated

 

Net interest income (loss)

 $70,803  $—  $—  $(2,042) $68,761 

Provision for credit losses

  6,150   —   —   —   6,150 

Noninterest income

  13,428   47,876   19,161   592   81,057 

Noninterest expense

                    

Compensation

  28,016   21,005   7,445   4,189   60,655 

Employee taxes and benefits

  7,693   5,794   1,851   1,384   16,722 

Business services, software and technology expense

  7,033   5,512   1,881   397   14,823 

Merger and acquisition expense

  —   —   —   2,252   2,252 

Other noninterest expense

  15,113   9,454   320   879   25,766 

Total noninterest expense

  57,855   41,765   11,497   9,101   120,218 

Net income (loss) before taxes

 $20,226  $6,111  $7,664  $(10,551) $23,450 

Total assets

 $4,009,535  $32,882  $5,288  $310,918  $4,358,623 

 

 

NOTE 17 Earnings Per Share

 

The calculations of basic and diluted earnings per share using the two-class method for the three and nine months ended September 30, 2025 and 2024 are presented below:

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2024

  

2025

  

2024

 

Net income

 $16,924  $5,207  $50,491  $17,846 

Dividends and undistributed earnings allocated to participating securities

  148   24   444   102 

Net income available to common stockholders

 $16,776  $5,183  $50,047  $17,744 

Weighted-average common shares outstanding for basic earnings per share

  25,395   19,788   25,374   19,768 

Dilutive effect of stock-based awards

  318   287   319   269 

Weighted-average common shares outstanding for diluted earnings per share

  25,713   20,075   25,693   20,037 

Earnings per common share:

                

Basic earnings per common share

 $0.66  $0.26  $1.97  $0.90 

Diluted earnings per common share

 $0.65  $0.26  $1.95  $0.89 

 

There were no antidilutive shares for the three and nine months ended September 30, 2025 and 2024.

 

NOTE 18 Derivative Instruments

 

The Company uses a variety of derivative instruments to mitigate exposure to both market and credit risks inherent in its business activities. The Company manages these risks as part of its overall asset and liability management process and through its policies and procedures. Derivatives represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another type of asset to the other party based on a notional amount and an underlying as specified in the contract.

 

Derivatives are often measured in terms of notional amount, but this amount is generally not exchanged, and it is not recorded on the Company’s consolidated balance sheet. The notional amount is the basis to which the underlying is applied to determine required payments under the derivative contract. The underlying is a referenced interest rate, security price, credit spread, or other index. Residential and commercial real estate (“CRE”) loan commitments associated with loans to be sold also qualify as derivative instruments.

 

Derivatives Designated as Hedging Instruments

 

The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP. On the date the Company enters into a derivative contract designated as a hedging instrument, the derivative is designated as either a fair value hedge, cash flow hedge, or a net investment hedge. When a derivative is designated as a fair value, cash flow, or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s). As of September 30, 2025, the Company only used fair value and cash flow hedges.

 

Fair value hedges: These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying mortgage-backed investment securities and mortgage loan pools. The interest rate swaps are carried on the Company’s Consolidated Balance Sheet at their fair value in other assets (when the fair value is positive) or in accrued expenses and other liabilities (when the fair value is negative). The changes in fair value of the interest rate swaps are recorded in interest income. The unrealized gains or losses due to changes in fair value of the interest rate swaps due to changes in benchmark interest rates are recorded as an adjustment to the hedged instruments and offset in the same interest income line items.

 

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Cash flow hedges: These derivatives are interest rate swaps the Company uses to hedge the variability of expected future cash flows due to market interest changes. The interest rate swap is carried on the Company’s consolidated balance sheet at its fair value in other assets (when the fair value is positive) or in accrued expenses and other liabilities (when the fair value is negative). Changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) (“OCI”) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in OCI is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in OCI is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within accumulated other comprehensive income (loss) (“AOCI”). The Company estimates that no additional amounts will be reclassified as an increase to interest expense over the next 12 months. All cash flow hedges were highly effective for the three and nine months ended September 30, 2025. As of September 30, 2025, the maximum length of time over which forecasted transactions are hedged was 18 months.

 

Derivatives Not Designated as Hedging Instruments

 

Interest rate swaps: The Company periodically enters into commercial loan interest rate swap agreements in order to provide commercial loan customers with the ability to convert from variable to fixed interest rates. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

 

Interest rate lock commitments, forward loan sales commitments and to be announced mortgage backed securities: The Company enters into forward delivery contracts to sell mortgage loans at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.

 

The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of September 30, 2025 and December 31, 2024:

 

  

Derivative Assets (1)

  

Derivative Liabilities (2)

 
  

Notional

  

Fair

  

Notional

  

Fair

 

(dollars in thousands)

 

Amount

  

Value

  

Amount

  

Value

 

September 30, 2025

                

Designated as hedging instruments:

                

Fair value hedges:

                

Interest rate swaps

 $—  $—  $200,000  $97 

Cash flow hedges:

                

Interest rate swaps

  —   —   200,000   55 

Total derivatives designated as hedging instruments

 $—  $—  $400,000  $152 

Not designated as hedging instruments:

                

Interest rate swaps (3)

 $238,867  $10,660  $655,867  $10,664 

Interest rate lock commitments

  36,252   425   —   — 

Forward loan sales commitments

  638   12   —   — 

To-be-announced mortgage backed securities

  —   —   47,500   9 

Total asset derivatives not designated as hedging instruments

 $275,757  $11,097  $703,367  $10,673 

December 31, 2024

                

Designated as hedging instruments:

                

Fair value hedges:

                

Interest rate swaps

 $200,000  $149  $—  $— 

Cash flow hedges:

                

Interest rate swaps

  200,000   477   200,000   21 

Total derivatives designated as hedging instruments

 $400,000  $626  $200,000  $21 

Not designated as hedging instruments:

                

Interest rate swaps (3)

 $347,575  $8,182  $364,575  $8,579 

Interest rate lock commitments

  14,647   153   —   — 

Forward loan sales commitments

  6,645   109   —   — 

To-be-announced mortgage backed securities

  39,000   35   —   — 

Total asset derivatives not designated as hedging instruments

 $407,867  $8,479  $364,575  $8,579 

(1)

Derivative assets are included in other assets on the Company’s consolidated balance sheet. 

(2)

Derivative liabilities are included in accrued expenses and other liabilities on the Company’s consolidated balance sheet. 

(3)

Reported fair values include accrued interest receivable and payable. 

 

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The following table shows the effective portion of the gains (losses) recognized in OCI and the gains (losses), before tax, reclassified from OCI into earnings for the periods indicated:

 

      

Gains (Losses)

 
  

Gains (Losses)

  

Reclassified

 
  

Recognized in

  

from OCI

 

(dollars in thousands)

 

OCI

  

into Earnings

 

Derivatives designated as hedging instruments

        

For the three months ended September 30, 2025

        

Cash flow hedges:

        

Interest rate swaps

 $77  $— 
         

For the three months ended September 30, 2024

        

Cash flow hedges:

        

Interest rate swaps

 $(616) $253 
         

For the nine months ended September 30, 2025

        

Cash flow hedges:

        

Interest rate swaps

 $211  $721 
         

For the nine months ended September 30, 2024

        

Cash flow hedges:

        

Interest rate swaps

 $625  $785 

 

The following table shows the effect of fair value and cash flow hedge accounting on derivatives designated as hedging instruments in the Consolidated Statements of Income for the periods indicated:

 

  

Location and Amount of Gains (Losses) Recognized in Income

 
  

Interest Income

  

Interest Expense

 
  

Loans,

  

Investment

     
  

including

  

securities -

  

Short-term

 

(dollars in thousands)

 

fees

  

Taxable

  

borrowings

 

For the three months ended September 30, 2025

            

Total amounts in the Consolidated Statements of Income

 $63,875  $5,091  $2,506 

Fair value hedges:

            

Interest rate swaps

  —   150   — 

Cash flow hedges:

            

Interest rate swaps

  —   —   — 

For the three months ended September 30, 2024

            

Total amounts in the Consolidated Statements of Income

 $42,593  $4,596  $6,706 

Fair value hedges:

            

Interest rate swaps

  46   653   — 

Cash flow hedges:

            

Interest rate swaps

  —   —   (253)
             

For the nine months ended September 30, 2025

            

Total amounts in the Consolidated Statements of Income

 $189,222  $16,108  $9,327 

Fair value hedges:

            

Interest rate swaps

  —   441   — 

Cash flow hedges:

            

Interest rate swaps

  —   —   721 

For the nine months ended September 30, 2024

            

Total amounts in the Consolidated Statements of Income

 $123,551  $14,008  $19,748 

Fair value hedges:

            

Interest rate swaps

  367   1,954   — 

Cash flow hedges:

            

Interest rate swaps

  —   —   (785)

 

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The following tables show the notional amount, carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships at September 30, 2025 and December 31, 2024, respectively:

 

  

September 30, 2025

 
          

Cumulative Fair

 
          

Value Hedging

 
          

Adjustment in the

 
      

Carrying Amount

  

Carrying Amount of

 
  

Notional

  

of Hedged Assets/

  

Hedged Assets/

 

(dollars in thousands)

 

Amount

  

Liabilities

  

Liabilities

 

Mortgage-backed securities

            

Residential agency (1)

 $200,000  $200,100  $100 

Total

 $200,000  $200,100  $100 

(1)

Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At September 30, 2025, the amortized cost of the closed portfolios used in these hedging relationships was $273.9 million.

 

  

December 31, 2024

 
          

Cumulative Fair

 
          

Value Hedging

 
          

Adjustment in the

 
      

Carrying Amount

  

Carrying Amount of

 
  

Notional

  

of Hedged Assets/

  

Hedged Assets/

 

(dollars in thousands)

 

Amount

  

Liabilities

  

Liabilities

 

Mortgage-backed securities

            

Residential agency (1)

 $200,000  $199,854  $(146)

Total

 $200,000  $199,854  $(146)

(1)

Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At December 31, 2024, the amortized cost of the closed portfolios used in these hedging relationships was $296.9 million.

 

The gain (loss) recognized on derivatives not designated as hedging relationships for the three and nine months ended September 30, 2025 and 2024 was as follows:

 

(dollars in thousands)

  

Three months ended September 30,

  

Nine months ended September 30,

 

Derivatives not designated as hedging instruments

Consolidated Statements of Income Location

 

2025

  

2024

  

2025

  

2024

 

Interest rate swaps

Other noninterest income

 $—  $—  $—  $21 

Interest rate swaps

Mortgage banking

  14   —   392   — 

Interest rate lock commitments

Mortgage banking

  (247)  (111)  350   100 

Forward loan sales commitments

Mortgage banking

  100   (116)  (97)  54 

To-be-announced mortgage backed securities

Mortgage banking

  (223)  (315)  (563)  (189)

Total gain (loss) from derivatives not designated as hedging instruments

 $(356) $(542) $82  $(14)

 

The Company has third party agreements that require a minimum dollar transfer amount upon a margin call. These requirements are dependent on certain specified credit measures. There was no collateral posted with third parties at September 30, 2025. The amount of collateral posted with third parties was $3.9 million at December 31, 2024. The amount of collateral posted with third parties was deemed to be sufficient as of those dates to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. 

 

Credit Risk-Related Contingent Features

 

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. 

 

The Company has agreements with its derivative counterparties that contain a provision where, if the Company defaults on any of its indebtedness, including defaults where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where, if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative position(s) and the Company could be required to settle its obligations under the agreements. 

 

As of September 30, 2025 and December 31, 2024, the fair value of derivatives in a net liability position, which included accrued interest but excluded any adjustment for non-performance risk, related to these agreements was $10.8 million and $8.6 million, respectively. As of September 30, 2025 and December 31, 2024, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of $0.0 million and $3.9 million, respectively. If the Company had breached any of these provisions at September 30, 2025 or December 31, 2024, it could have been required to settle its obligations under the agreements at their termination value of $10.8 million and $8.6 million, respectively. 

 

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Balance Sheet Offsetting

 

The following tables present the Company’s derivative positions and the potential effect of netting arrangements on its financial position as of the dates indicated:

 

              

Gross Amount

     
              

Not Offset in the

     
              

Consolidated

     
              

Balance Sheets

     
  

Gross Amount

  

Gross Amount

  

Net Amount

         
  

Recognized in the

  

Offset in the

  

Presented in the

         
  

Consolidated

  

Consolidated

  

Consolidated

  

Cash Collateral

     

(dollars in thousands)

 

Balance Sheets

  

Balance Sheets

  

Balance Sheets

  

Pledged (Received)

  

Net Amount

 

September 30, 2025

                    

Derivative assets:

                    

Interest rate swaps − Company (1)

 $—  $—  $—  $115  $115 

Interest rate swaps − dealer bank (1)

  3,056   —   3,056   (4,585)  (1,529)

Interest rate swaps − customer (2)

  7,604   —   7,604   —   7,604 

To-be-announced mortgage backed securities

  —   —   —   —   — 

Total

 $10,660  $—  $10,660  $(4,470) $6,190 

Derivative liabilities:

                    

Interest rate swaps − Company (1)

 $152  $—  $152  $—  $152 

Interest rate swaps − dealer bank (1)

  7,607   —   7,607   —   7,607 

Interest rate swaps − customer (2)

  3,057   —   3,057   —   3,057 

To-be-announced mortgage backed securities

  9   —   9   —   9 

Total

 $10,825  $—  $10,825  $—  $10,825 

(1)

The Company maintains a master netting agreement with each counterparty and settles collateral on a net basis for all interest rate swaps with counterparty banks. 

(2)

The Company manages its net exposure on its customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its customers as part of its contract. 

 

              

Gross Amount

     
              

Not Offset in the

     
              

Consolidated

     
              

Balance Sheets

     
  

Gross Amount

  

Gross Amount

  

Net Amount

         
  

Recognized in the

  

Offset in the

  

Presented in the

         
  

Consolidated

  

Consolidated

  

Consolidated

  

Cash Collateral

     

(dollars in thousands)

 

Balance Sheets

  

Balance Sheets

  

Balance Sheets

  

Pledged (Received)

  

Net Amount

 

December 31, 2024

                    

Derivative assets:

                    

Interest rate swaps − Company (1)

 $626  $—  $626  $(683) $(57)

Interest rate swaps − dealer bank (1)

  5,606   —   5,606   (177)  5,429 

Interest rate swaps − customer (2)

  2,576   —   2,576      2,576 

To-be-announced mortgage backed securities

  35   —   35   —   35 

Total

 $8,843  $—  $8,843  $(860) $7,983 

Derivative liabilities:

                    

Interest rate swaps − Company (1)

 $21  $—  $21  $59  $(38)

Interest rate swaps − dealer bank (1)

  2,863   —   2,863   3,841   (978)

Interest rate swaps − customer (2)

  5,716  $—   5,716   —   5,716 

To-be-announced mortgage backed securities

  —   —   —   —   — 

Total

 $8,600  $—  $8,600  $3,900  $4,700 

(1)

The Company maintains a master netting agreement with each counterparty and settles collateral on a net basis for all interest rate swaps with counterparty banks. 

(2)

The Company manages its net exposure on its customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its customers as part of its contract. 

 

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NOTE 19 Regulatory Matters

 

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

 

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of common equity tier 1, tier 1, and total capital (as defined in the regulations) to risk weighted assets (as defined) and of tier 1 capital (as defined) to average assets (as defined). Management believes that, at September 30, 2025 and December 31, 2024, each of the Company and the Bank had met all of the capital adequacy requirements to which it was subject.

 

The following tables present the Company’s and the Bank’s actual capital amounts and ratios as of September 30, 2025 and December 31, 2024:

 

  

September 30, 2025

 
                  

Minimum to be

 
          

Minimum Required

  

Well Capitalized

 
          

for Capital

  

Under Prompt

 
  

Actual

  

Adequacy Purposes

  

Corrective Action (1)

 

(dollars in thousands)

 

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 

Common equity tier 1 capital to risk weighted assets

                        

Consolidated (1)

 $487,811   10.84% $202,452   4.50%  N/A   N/A 

Bank

  488,376   11.00%  199,868   4.50%  288,698   6.50%

Tier 1 capital to risk weighted assets

                        

Consolidated (1)

  496,966   11.05%  269,936   6.00%  N/A   N/A 

Bank

  488,376   11.00%  266,490   6.00%  355,321   8.00%

Total capital to risk weighted assets

                        

Consolidated (1)

  603,322   13.41%  359,915   8.00%  N/A   N/A 

Bank

  544,023   12.25%  355,321   8.00%  444,151   10.00%

Tier 1 capital to average assets

                        

Consolidated (1)

  496,966   9.49%  209,439   4.00%  N/A   N/A 

Bank

  488,376   9.31%  209,767   4.00%  262,208   5.00%

(1)

“Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.

 

  

December 31, 2024

 
                  

Minimum to be

 
          

Minimum Required

  

Well Capitalized

 
          

for Capital

  

Under Prompt

 
  

Actual

  

Adequacy Purposes

  

Corrective Action (1)

 

(dollars in thousands)

 

Amount

  

Ratio

  

Amount

  

Ratio

  

Amount

  

Ratio

 

Common equity tier 1 capital to risk weighted assets

                        

Consolidated (1)

 $443,833   9.91% $201,441   4.50%  N/A   N/A 

Bank

  449,497   10.18%  198,743   4.50%  287,074   6.50%

Tier 1 capital to risk weighted assets

                        

Consolidated (1)

  452,903   10.12%  268,588   6.00%  N/A   N/A 

Bank

  449,497   10.18%  264,991   6.00%  353,322   8.00%

Total capital to risk weighted assets

                        

Consolidated (1)

  559,002   12.49%  358,118   8.00%  N/A   N/A 

Bank

  504,857   11.43%  353,322   8.00%  441,652   10.00%

Tier 1 capital to average assets

                        

Consolidated (1)

  452,903   8.65%  209,532   4.00%  N/A   N/A 

Bank

  449,497   8.69%  206,832   4.00%  258,540   5.00%

(1)

“Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.

 

The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior regulatory approval, including rules requiring a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to the limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of September 30, 2025, the capital ratios for the Company and the Bank were sufficient to meet the conservation buffer. In addition, the Company must adhere to various U.S. Department of Housing and Urban Development (“HUD”) regulatory guidelines including required minimum capital and liquidity to maintain their Federal Housing Administration approval status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of September 30, 2025 and December 31, 2024, the Company was in compliance with the aforementioned guidelines. 

 

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NOTE 20 Other Comprehensive Income (Loss)

 

The following tables present a reconciliation of the changes in the components of other comprehensive income and loss for the periods indicated, including the amount of tax (expense) benefit allocated to each component: 

 

  

For the three months ended

 
  

September 30, 2025

  

September 30, 2024

 
      

Tax

          

Tax

     
  

Pre-Tax

  

(Expense)

  

After-Tax

  

Pre-Tax

  

(Expense)

  

After-Tax

 

(dollars in thousands)

 

Amount

  

Benefit

  

Amount

  

Amount

  

Benefit

  

Amount

 

Debt Securities:

                        

Change in fair value

 $7,440  $(1,868) $5,572  $19,497  $(4,894) $14,603 

Less: reclassification adjustment from amortization of securities transferred from AFS to HTM (1)

  39   (10)  29   66   (16)  50 

Less: reclassification adjustment for net realized losses (2)

  —   —   —   —   —   — 

Net change

  7,401   (1,858)  5,543   19,431   (4,878)  14,553 

Cash Flow Hedges:

                        

Change in fair value

  77   (19)  58   (616)  706   90 

Less: reclassified AOCI gain (loss) into interest expense (3)

  —   —   —   253   (64)  189 

Net change

  77   (19)  58   (869)  770   (99)

Other Derivatives:

                        

Change in fair value

  (123)  31   (92)  (3,068)  219   (2,849)

Less: reclassified AOCI gain (loss) into interest expense (4)

  —   —   —   —   —   — 

Net change

  (123)  31   (92)  (3,068)  219   (2,849)

Other comprehensive income (loss)

 $7,355  $(1,846) $5,509  $15,494  $(3,889) $11,605 

(1)

Reclassified into taxable and/or exempt from federal income taxes interest income on investment securities on the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details. 

(2)

Reclassified into net gains (losses) on investment securities in the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details. 

(3)

Reclassified into interest expense on short-term borrowings on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details. 

(4)

Reclassified into interest income on loans, including fees and/or interest income on taxable investment securities on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details. 

 

  

For the nine months ended

 
  

September 30, 2025

  

September 30, 2024

 
      

Tax

          

Tax

     
  

Pre-Tax

  

(Expense)

  

After-Tax

  

Pre-Tax

  

(Expense)

  

After-Tax

 

(dollars in thousands)

 

Amount

  

Benefit

  

Amount

  

Amount

  

Benefit

  

Amount

 

Debt Securities:

                        

Change in fair value

 $26,294  $(6,600) $19,694  $14,899  $(3,740) $11,159 

Less: reclassification adjustment from amortization of securities transferred from AFS to HTM (1)

  133   (33)  100   207   (52)  155 

Less: reclassification adjustment for net realized losses (2)

  —   —   —   —   —   — 

Net change

  26,161   (6,567)  19,594   14,692   (3,688)  11,004 

Cash Flow Hedges:

                        

Change in fair value

  (532)  134   (398)  625   22   647 

Less: reclassified AOCI gain (loss) into interest expense (3)

  (22)  6   (16)  785   (197)  588 

Net change

  (510)  128   (382)  (160)  219   59 

Other Derivatives:

                        

Change in fair value

  (246)  62   (184)  (872)  40   (832)

Less: reclassified AOCI gain (loss) into interest expense (4)

  —   —   —   —   —   — 

Net change

  (246)  62   (184)  (872)  40   (832)

Other comprehensive income (loss)

 $25,405  $(6,377) $19,028  $13,660  $(3,429) $10,231 

(1)

Reclassified into taxable and/or exempt from federal income taxes interest income on investment securities on the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details. 

(2)

Reclassified into net gains (losses) on investment securities in the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details. 

(3)

Reclassified into interest expense on short-term borrowings on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details. 

(4)

Reclassified into interest income on loans, including fees and/or interest income on taxable investment securities on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details. 

 

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Net Unrealized

  

Net Unrealized

     
  

Net Unrealized

  

Gains (Losses) on

  

Gains (Losses)

     
  

Gains (Losses) on

  

Cash Flow

  

on Other

     

(dollars in thousands)

 

Debt Securities (1)

  

Hedges (1)

  

Derivatives (1)

  

AOCI (1)

 

For the Three Months Ended September 30, 2025

                

Balance at June 30, 2025

 $(59,673) $(113) $(61) $(59,847)

Other comprehensive income (loss) before reclassifications

  5,572   58   (92)  5,538 

Less: Amounts reclassified from AOCI

  29   —   —   29 

Other comprehensive income (loss)

  5,543   58   (92)  5,509 

Balance at September 30, 2025

 $(54,130)  (55)  (153)  (54,338)
                 

For the Three Months Ended September 30, 2024

                

Balance at June 30, 2024

 $(76,707) $(79) $1,757  $(75,029)

Other comprehensive income (loss) before reclassifications

  14,603   90   (2,849)  11,844 

Less: Amounts reclassified from AOCI

  50   189   —   239 

Other comprehensive income (loss)

  14,553   (99)  (2,849)  11,605 

Balance at September 30, 2024

 $(62,154)  (178)  (1,092)  (63,424)
                 

For the Nine Months Ended September 30, 2025

                

Balance at December 31, 2024

 $(73,724) $327  $31  $(73,366)

Other comprehensive income (loss) before reclassifications

  19,694   (398)  (184)  19,112 

Less: Amounts reclassified from AOCI

  100   (16)  —   84 

Other comprehensive income (loss)

  19,594   (382)  (184)  19,028 

Balance at September 30, 2025

 $(54,130)  (55)  (153)  (54,338)
                 

For the Nine Months Ended September 30, 2024

                

Balance at December 31, 2023

 $(73,158) $(237) $(260) $(73,655)

Other comprehensive income (loss) before reclassifications

  11,159   647   (832)  10,974 

Less: Amounts reclassified from AOCI

  155   588   —   743 

Other comprehensive income (loss)

  11,004   59   (832)  10,231 

Balance at September 30, 2024

 $(62,154) $(178) $(1,092) $(63,424)

(1)

All amounts net of tax.

 

NOTE 21 Stock Repurchase Program

 

On December 12, 2023, the Board of Directors of the Company approved a stock repurchase program (the “Program”) which authorizes the Company to repurchase up to 1,000,000 shares of its common stock subject to certain limitations and conditions. The Program became effective on February 18, 2024, replacing and superseding a prior stock repurchase program, and will expire on  February 18, 2027. 

 

The Program does not obligate the Company to repurchase any shares of its common stock, and other than repurchases that have been completed to date, there is no assurance that the Company will do so or that the Company will repurchase shares at favorable prices. The Program may be suspended or terminated at any time and, even if fully implemented, the Program may not enhance long-term stockholder value. For the nine months ended September 30, 2025, the Company did not repurchase any shares under the Program. The Company also repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units. 

 

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NOTE 22 Fair Value of Assets and Liabilities

 

The Company categorizes its assets and liabilities measured at estimated fair value into a three level hierarchy based on the priority of the inputs to the valuation technique used to determine estimated fair value. The estimated fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the estimated fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the estimated fair value measurement. Assets and liabilities valued at estimated fair value are categorized based on the following inputs to the valuation techniques as follows: 

 

Level 1—Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access. 

 

Level 2—Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Estimated fair values for these instruments are estimated using pricing models, quoted prices of investment securities with similar characteristics, or discounted cash flows. 

 

Level 3—Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. Subsequent to initial recognition, the Company may re‑measure the carrying value of assets and liabilities measured on a nonrecurring basis to estimated fair value. Adjustments to estimated fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their estimated fair value. 

 

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at estimated fair value for the initial and subsequent measurement on an instrument‑by‑instrument basis. The Company adopted the policy to value certain financial instruments at estimated fair value. The Company has not elected to measure any existing financial instruments at estimated fair value; however, it may elect to measure newly acquired financial instruments at estimated fair value in the future. 

 

Recurring Basis

 

The Company uses estimated fair value measurements to record estimated fair value adjustments to certain assets and liabilities and to determine estimated fair value disclosures. 

 

The following tables present the balances of the assets and liabilities measured at estimated fair value on a recurring basis as of September 30, 2025 and December 31, 2024: 

 

  

September 30, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $1,411  $—  $—  $1,411 

Available-for-sale

                

U.S. treasury and government agencies

  —  

446

   —  

446

 

Mortgage backed securities

                

Residential agency

  —  

479,837

   —  

479,837

 

Commercial

  —  

1,279

   —  

1,279

 

Asset backed securities

  —  

16

   —  

16

 

Corporate bonds

  —  

49,436

   —  

49,436

 

Total available-for-sale investment securities

 $—  $531,014  $—  $531,014 

Servicing rights

 $—  $—  $6,708  $6,708 

Other assets

                

Derivatives

 $—  $11,097  $—  $11,097 

Other liabilities

                

Derivatives

 $—  $10,825  $—  $10,825 

 

  

December 31, 2024

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $3,309  $—  $—  $3,309 

Available-for-sale

                

U.S. treasury and government agencies

  —   30,707   —   30,707 

Mortgage backed securities

                

Residential agency

  —   503,706   —   503,706 

Commercial

  —   1,251   —   1,251 

Asset backed securities

  —   19   —   19 

Corporate bonds

  —   52,370   —   52,370 

Total available-for-sale investment securities

 $—  $588,053  $—  $588,053 

Servicing rights

 $—  $—  $7,918  $7,918 

Other assets

                

Derivatives

 $—  $9,105  $—  $9,105 

Other liabilities

                

Derivatives

 $—  $8,600  $—  $8,600 

 

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The following is a description of the valuation methodologies used for instruments measured at estimated fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. 

 

Investment Securities, Trading for Deferred Compensation

 

The fair value of trading securities for deferred compensation is reported using market quoted prices as such securities and underlying securities are actively traded and no valuation adjustments have been applied and therefore are classified as Level 1. 

 

Investment Securities, Available-for-Sale

 

Generally, debt securities are valued using pricing for similar securities, recently executed transactions, and other pricing models utilizing observable inputs and therefore are classified as Level 2. 

 

Derivatives

 

All of the Company’s derivatives are traded in over‑the‑counter markets where quoted market prices are not readily available. For these derivatives, estimated fair value is measured using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities, and accordingly, classify as Level 2. Examples of Level 2 derivatives are basic interest rate swaps and forward contracts.

 

Servicing Rights

 

Servicing rights are measured based on valuation techniques using Level 3 inputs. The Company uses a discounted cash flow model that incorporates assumptions market participants would use in estimating the fair value of servicing rights, including, but not limited to, conditional prepayment rate utilizing the Public Securities Association (PSA) convention, servicing fee rate, ancillary fees, and cost to service. 

 

Nonrecurring Basis

 

Certain assets are measured at estimated fair value on a nonrecurring basis. These assets are not measured at estimated fair value on an ongoing basis; however, they are subject to estimated fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

 

The estimated fair value of certain assets on a nonrecurring basis as of September 30, 2025 and December 31, 2024 consisted of the following:

 

  

September 30, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Collateral dependent loans

  —   —   26,492   26,492 

Foreclosed assets

  —   —   467   467 

 

  

December 31, 2024

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Collateral dependent loans

 $—  $—  $34,088  $34,088 

 

Loans Held for Sale

 

Loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes indicate estimated fair value of the held for sale loans is greater than cost.

 

Impairment losses for loans held for sale that are carried at the lower of cost or estimated fair value represent additional net write‑downs during the period to record these loans at the lower of cost or estimated fair value, subsequent to their initial classification as loans held for sale.

 

Collateral Dependent Loans

 

The estimated fair value of collateral dependent loans is based on fair value, less estimated cost to sell. Collateral dependent impaired loans are classified within Level 3 of the fair value hierarchy. 

 

The Company considers appraisal analysis as the starting point for determining fair value, and then considers other factors and events in the environment that may affect fair value. Values of the collateral underlying collateral dependent loans are obtained when the loan is determined to be collateral dependent, and subsequently as deemed necessary by management. Values are reviewed for accuracy and consistency by management. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. 

 

Foreclosed Assets

 

Assets acquired through loan foreclosure are included in other assets and are initially recorded at estimated fair value less estimated selling costs. The estimated fair value of foreclosed assets is evaluated regularly and any decreases in value along with holding costs, such as taxes, insurance and utilities, are reported in noninterest expense. 

 

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The valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair values as of September 30, 2025 and December 31, 2024, were as follows:

 

    

September 30, 2025

 

(dollars in thousands)

           

Weighted

 

Asset Type

Valuation Technique

Unobservable Input

 

Fair Value

  

Range

  

Average

 

Individually evaluated

Appraisal value

Property specific adjustment

  26,492   10 - 35%  34.7%

Foreclosed assets

Appraisal value

Property specific adjustment

  467   10.0%  10.0%

Servicing rights

Discounted cash flows

Prepayment speed assumptions

  6,708   121 - 656   223 
  

Discount rate

      10.3%  10.3%

 

    

December 31, 2024

 

(dollars in thousands)

           

Weighted

 

Asset Type

Valuation Technique

Unobservable Input

 

Fair Value

  

Range

  

Average

 

Individually evaluated

Appraisal value

Property specific adjustment

 $34,088   10 - 35%  28.9%

Servicing rights

Discounted cash flows

Prepayment speed assumptions

  7,918   103 - 495   165 
  

Discount rate

      10.5%  10.5%

 

Disclosure of estimated fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases in which quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived estimated fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments, with an estimated fair value that is not practicable to estimate and all non‑financial instruments, are excluded from the disclosure requirements. Accordingly, the aggregate estimated fair value amounts presented do not necessarily represent the underlying value of the Company.

 

The following disclosures represent financial instruments for which the ending balances, as of September 30, 2025 and December 31, 2024, were not carried at estimated fair value in their entirety on the consolidated balance sheets.

 

Cash and Cash Equivalents and Accrued Interest

 

The carrying amounts reported in the consolidated balance sheets approximate those assets and liabilities estimated fair values.

 

Investment Securities, Held-to-Maturity

 

The fair values of debt securities held-to-maturity are based on quoted market prices for the same or similar securities, recently executed transactions and pricing models.

 

Loans

 

For variable‑rate loans that reprice frequently and with no significant change in credit risk, estimated fair values are based on carrying values. The estimated fair values of other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

 

Bank‑Owned Life Insurance

 

Bank‑owned life insurance is carried at the amount due upon surrender of the policy, which is also the estimated fair value. This amount was provided by the insurance companies based on the terms of the underlying insurance contract.

 

Deposits

 

The estimated fair values of demand deposits are, by definition, equal to the amount payable on demand at the consolidated balance sheet date. The estimated fair values of fixed‑rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

 

Short‑Term Borrowings and Long‑Term Debt

 

For variable‑rate borrowings that reprice frequently, estimated fair values are based on carrying values. The estimated fair values of fixed‑rate borrowings are estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

 

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Off‑Balance Sheet Credit‑Related Commitments

 

Off‑balance sheet credit related commitments are generally of short‑term nature. The contract amount of such commitments approximates their estimated fair value since the commitments are comprised primarily of unfunded loan commitments which are generally priced at market at the time of funding.

 

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments at the dates indicated were as follows:

 

  

September 30, 2025

 
  

Carrying

  

Estimated Fair Value

 

(dollars in thousands)

 

Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial Assets

                    

Cash and cash equivalents

 $92,043  $92,043  $—  $—  $92,043 

Investment securities held-to-maturity

  259,225   —   230,597   —   230,597 

Loans, net

  4,039,948   —   —   4,039,948   4,039,948 

Accrued interest receivable

  21,602   21,602   —   —   21,602 

Bank-owned life insurance

  38,997   —   38,997   —   38,997 

Servicing rights

  6,708   —   —   6,708   6,708 

Financial Liabilities

                    

Noninterest-bearing deposits

 $776,791  $—  $776,791  $—  $776,791 

Interest-bearing deposits

  2,890,806   —   2,890,806   —   2,890,806 

Time deposits

  745,056   —   663,919   —   663,919 

Short-term borrowings

  200,000   200,000   —   —   200,000 

Long-term debt

  59,154   —   59,379   —   59,379 

Accrued interest payable

  10,020   10,020   —   —   10,020 

 

  

December 31, 2024

 
  

Carrying

  

Estimated Fair Value

 

(dollars in thousands)

 

Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial Assets

                    

Cash and cash equivalents

 $61,239  $61,239  $—  $—  $61,239 

Investment securities held-to-maturity

  275,585   —   236,986   —   236,986 

Loans, net

  3,932,605   —   —   3,872,186   3,872,186 

Accrued interest receivable

  20,075   20,075   —   —   20,075 

Bank-owned life insurance

  36,033   —   36,033   —   36,033 

Servicing rights

  7,918   —   —   7,918   7,918 

Financial Liabilities

                    

Noninterest-bearing deposits

 $903,466  $—  $903,466  $—  $903,466 

Interest-bearing deposits

  2,767,979   —   2,767,979   —   2,767,979 

Time deposits

  706,965   —   696,976   —   696,976 

Short-term borrowings

  238,960   238,960   —   —   238,960 

Long-term debt

  59,069   —   59,078   —   59,078 

Accrued interest payable

  11,343   11,343   —   —   11,343 

 

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

The following discussion explains the Company’s financial condition and results of operations as of and for the three and nine months ended September 30, 2025 and 2024. Annualized results for this interim period may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 14, 2025.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized,” “target” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements the Company makes regarding the Company’s projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

 

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations and assumptions regarding the Company’s business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those indicated in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause the Company’s actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following:

 

 

●

the strength of the local, state, national and international economies and financial markets (including effects of inflationary pressures and future monetary policies of the Federal Reserve in response thereto);

 

 

●

interest rate risk, including the effects of changes in interest rates;

 

 

●

effects on the U.S. economy resulting from the threat or implementation of new, or changes to, existing policies, regulations, regulatory and other governmental agencies and executive orders, including tariffs, immigration, diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) initiatives, consumer protection, foreign policy and tax regulations; 

 

 

●

disruptions to the global supply chain, including as a result of domestic or foreign policies;

 

 

●

the Company’s ability to successfully manage credit risk, including in the CRE portfolio, and maintain an adequate level of allowance for credit losses;

 

 

●

business and economic conditions generally and in the financial services industry, nationally and within the Company’s market areas, including the level and impact of inflation rates and possible recession;

 

 

●

the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in several bank failures;

   
 ●the Company’s ability to raise additional capital to implement its business plan;

 

 

●

the overall health of the local and national real estate market;

 

 

●

credit risks and risks from concentrations (by type of borrower, geographic area, collateral, and industry) within the Company’s loan portfolio;

   
 ●the concentration of large loans to certain borrowers (including CRE loans);

 

 

●

the level of nonperforming assets on the Company’s balance sheet;

 

 

●

the Company’s ability to implement organic and acquisition growth strategies, including the integration HMNF;

 

 

●

the commencement, cost, and outcome of litigation and other legal proceedings and regulatory actions against the Company or to which the Company may become subject, including with respect to pending actions relating to the Company’s previous ESOP fiduciary services commenced by government and private parties;

 

 

●

the impact of economic or market conditions on the Company’s fee-based services;

 

 

●

the Company’s ability to continue to grow the retirement and benefit services business;

 

 

●

the Company’s ability to continue to originate a sufficient volume of residential mortgages;

 

 

●

the occurrence of fraudulent activity, breaches or failures of the Company’s or the Company’s third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud;

 

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●

interruptions involving the Company’s information technology and telecommunications systems or third party servicers;

 

 

●

potential losses incurred in connection with mortgage loan repurchases;

 

 

●

the composition of the Company’s executive management team and the Company’s ability to attract and retain key personnel;

 

 

●

rapid and expensive technological changes implemented by the Company and other parties in the financial services industry, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence;

 

 

●

increased competition in the financial services industry, including from non-banks such as credit unions, Fintech companies and digital asset service providers;

 

 

●

the Company’s ability to successfully manage liquidity risk, including the Company’s need to access higher cost sources of funds such as fed funds purchased and short-term borrowings;

 

 

●

the concentration of large deposits from certain clients, including those who have balances above current Federal Deposit Insurance Corporation (“FDIC”) insurance limits;

 

 

●

the effectiveness of the Company’s risk management framework;

 

 

●

potential impairment to the goodwill the Company recorded in connection with the Company’s past acquisitions, including the acquisitions of Metro Phoenix Bank and HMNF;

 

 

●

the extensive regulatory framework that applies to the Company;

 

 

●

the ability of the Bank to pay dividends to the Company, and the Company's ability to pay dividends to its stockholders;

 

 

●

changes in local, state and federal laws, regulations and government policies concerning the Company’s general business, including interpretation and prioritization of such laws, regulations and policies;

 

 

●

new or revised accounting standards, as may be adopted by state and federal regulatory agencies, the FASB, the SEC or the Public Company Accounting Oversight Board;

 

 

●

fluctuations in the values of the securities held in the Company’s securities portfolio, including as a result of changes in interest rates;

 

 

●

governmental monetary, trade and fiscal policies;

 

 

●

risks related to climate change and the negative impact it may have on the Company’s customers and their businesses;

 

 

●

severe weather, natural disasters, and widespread disease or pandemics;

 

 

●

acts of war or terrorism, including ongoing conflicts in the Middle East, the Russian invasion of Ukraine, or other adverse external events;

 

 

●

any material weaknesses in the Company’s internal control over financial reporting;

 

 

●

talent and labor shortages and employee turnover;

 

 

●

the effects of the current U.S. government shutdown and its impact on the Company's customers; 

 

 

●

the Company’s success at managing and responding to the risks involved in the foregoing items; and

 

 

●

any other risks described in the “Risk Factors” section of this report and in other reports filed by Alerus Financial Corporation with the SEC. 

 

Any forward-looking statement made by the Company in this report is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. 

 

Overview

 

The Company is a commercial wealth bank and national retirement services provider headquartered in Grand Forks, North Dakota. Through the Company’s subsidiary, Alerus Financial, National Association, the Company provides financial solutions to businesses and consumers through three distinct business lines—banking, retirement and benefit services, and wealth. These solutions are delivered through a relationship‑oriented primary point of contact along with responsive and client‑friendly technology. 

 

The Company’s business model produces strong financial performance and a diversified revenue stream, which has helped the Company establish a brand and culture yielding both a loyal client base and passionate and dedicated employees. The Company generates a majority of overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services and wealth business lines. The remainder of the Company’s revenue consists of net interest income, which the Company derives from offering traditional banking products and services. 

 

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Critical Accounting Policies

 

Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could differ materially from our current estimates as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near term change, including (i) the ACL on loans; (ii) goodwill impairment; and (iii) fair value of loans acquired in business combinations. 

 

The Company’s Annual Report on Form 10-K for the year ended December 31, 2024 includes a discussion of the Company’s critical accounting policies. There have been no material changes to the Company’s critical accounting policies from those disclosed within its Annual Report on Form 10-K for the year ended December 31, 2024. 

 

Refer to “NOTE 2 Recent Accounting Pronouncements” of the consolidated financial statements included in this report for a discussion of accounting pronouncements issued but yet to be adopted and implemented. 

 

Recent Developments

 

Stockholder Dividend

 

On September 2, 2025, the Board of Directors of the Company declared a quarterly cash dividend of $0.21 per common share. This dividend was paid on October 10, 2025, to stockholders of record at the close of business on September 26, 2025. 

 

Property Sale

 

The Company’s West Fargo, North Dakota branch is listed for sale for $3.8 million and is expected to sell within the next 12 months. At September 30, 2025, the facility had a carrying value of approximately $0.4 million. The Company expects to record a gain on the sale upon closing, as the expected sale price is greater than the property’s carrying value. 

 

Operating Results Overview

 

The following table summarizes key financial results as of and for the periods indicated: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2025

  

2024

  

2025

  

2024

 

Performance Ratios

                    

Return on average total assets

  1.27%  1.53%  0.48%  1.28%  0.56%

Adjusted return on average total assets (1)

  1.28%  1.41%  0.57%  1.27%  0.62%

Return on average common equity

  12.80%  15.82%  5.52%  13.17%  6.43%

Return on average tangible common equity (1)

  18.48%  22.65%  7.83%  19.25%  8.98%

Adjusted return on average tangible common equity (1)

  18.55%  21.02%  9.04%  19.08%  9.79%

Noninterest income as a % of revenue

  40.56%  42.47%  55.72%  41.09%  54.10%

Net interest margin (taxable-equivalent basis)

  3.50%  3.51%  2.23%  3.47%  2.31%

Efficiency ratio (1)

  65.34%  60.66%  80.29%  64.81%  77.17%

Adjusted efficiency ratio (1)

  65.22%  62.35%  77.71%  64.78%  75.50%

Average equity to average assets

  9.95%  9.69%  8.73%  9.70%  8.73%

Net charge-offs (recoveries) to average loans

  (0.17)%  0.37%  0.04%  0.08%  0.14%

Adjusted net charge-offs to average loans

  (0.17)%  0.07%  0.04%  (0.02)%  0.14%

Dividend payout ratio

  32.31%  26.92%  76.92%  31.79%  66.29%

Per Common Share

                    

Earnings per common share − basic

 $0.66  $0.79  $0.26  $1.97  $0.90 

Earnings per common share − diluted

 $0.65  $0.78  $0.26  $1.95  $0.89 

Adjusted earnings per common share − diluted (1)

 $0.66  $0.72  $0.31  $1.93  $0.98 

Dividends declared per common share

 $0.21  $0.21  $0.20  $0.62  $0.59 

Book value per common share

 $21.68  $21.00  $19.53         

Tangible book value per common share (1)

 $16.90  $16.11  $16.50         

Average common shares outstanding − basic

  25,395   25,368   19,788   25,374   19,768 

Average common shares outstanding − diluted

  25,713   25,714   20,075   25,693   20,037 

Other Data

                    

Retirement and benefit services assets under administration/management

 $44,005,277  $42,451,544  $41,249,280         

Wealth assets under administration/management

 $4,812,250  $4,613,102  $4,397,505         

Mortgage originations

 $142,768  $134,634  $82,388  $347,995  $245,743 

(1)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

 

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Selected Financial Data

 

The following tables summarize selected financial data as of and for the periods indicated:

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2025

  

2024

  

2025

  

2024

 

Selected Average Balance Sheet Data

                    

Loans

 $4,036,936  $4,079,085  $2,968,947  $4,046,347  $2,858,634 

Investment securities

  796,759   823,463   749,062   826,409   760,219 

Assets

  5,273,306   5,302,728   4,298,080   5,282,798   4,245,181 

Deposits

  4,387,096   4,305,275   3,264,138   4,356,361   3,219,632 

Fed funds purchased and Bank Term Funding Program

  16,636   149,046   327,543   71,717   325,455 

FHLB short-term advances

  200,000   200,000   200,000   200,000   200,000 

Long-term debt

  59,137   59,112   59,027   59,111   58,999 

Stockholders’ equity

  524,459   513,606   375,229   512,533   370,758 

 

  

September 30,

  

June 30,

  

March 31,

  

September 30,

 

(dollars in thousands)

 

2025

  

2025

  

2025

  

2024

 

Selected Period End Balance Sheet Data

                

Loans

 $4,102,075  $4,044,657  $4,085,483  $3,032,343 

Allowance for credit losses on loans

  (62,127)  (59,278)  (61,929)  (39,142)

Investment securities

  791,650   806,544   839,406   750,624 

Assets

  5,330,573   5,323,822   5,339,620   4,084,640 

Deposits

  4,412,653   4,337,468   4,485,291   3,323,550 

Long-term debt

  59,154   59,126   59,098   59,041 

Total stockholders’ equity

  550,688   533,155   514,232   386,486 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2025

  

2024

  

2025

  

2024

 

Selected Income Statement Data

                    

Net interest income

 $43,136  $43,032  $22,542  $127,325  $68,761 

Provision for credit losses

  —   —   1,661   863   6,150 

Noninterest income

  29,430   31,763   28,363   88,824   81,057 

Noninterest expense

  50,541   48,439   42,447   149,344   120,218 

Income before income taxes

  22,025   26,356   6,797   65,942   23,450 

Income tax expense

  5,101   6,104   1,590   15,451   5,604 

Net income

 $16,924  $20,252  $5,207  $50,491  $17,846 

 

Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures

 

In addition to the results presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. Management uses the non-GAAP financial measures presented in the tables below in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. 

 

The following tables present these non-GAAP financial measures along with the most directly comparable financial measures calculated in accordance with GAAP as of and for the periods indicated: 

 

  

September 30,

  

June 30,

  

December 31,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2025

  

2024

  

2024

 

Tangible common equity to tangible assets

          .     

Total common stockholders’ equity

 $550,688  $533,155  $495,410  $386,486 

Less: Goodwill

  85,634   85,634   85,634   46,783 

Less: Other intangible assets

  35,753   38,462   43,882   13,186 

Tangible common equity (a)

  429,301   409,059   365,894   326,517 

Total assets

  5,330,573   5,323,822   5,261,673   4,084,640 

Less: Goodwill

  85,634   85,634   85,634   46,783 

Less: Other intangible assets

  35,753   38,462   43,882   13,186 

Tangible assets (b)

  5,209,186   5,199,726   5,132,157   4,024,671 

Tangible common equity to tangible assets (a)/(b)

  8.24%  7.87%  7.13%  8.11%

Tangible book value per common share

                

Tangible common equity (a)

  429,301   409,059   365,894   326,517 

Total common shares issued and outstanding (c)

  25,397   25,389   25,345   19,790 

Tangible book value per common share (a)/(c)

 $16.90  $16.11  $14.44  $16.50 

 

42
Table of Contents

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2025

  

2024

  

2025

  

2024

 

Return on Average Tangible Common Equity

                    

Net income

 $16,924  $20,253  $5,207  $50,491  $17,846 

Add: Intangible amortization expense (net of tax) (1)

  2,141   2,141   1,046   6,421   3,138 

Net income, excluding intangible amortization (d)

  19,065   22,394   6,253   56,912   20,984 

Average total equity

  524,459   513,606   375,229   512,533   370,758 

Less: Average goodwill

  85,634   85,634   46,783   85,634   46,783 

Less: Average other intangible assets (net of tax) (1)

  29,540   31,436   10,933   31,549   11,969 

Average tangible common equity (e)

  409,285   396,536   317,513   395,350   312,006 

Return on average tangible common equity (d)/(e)

  18.48%  22.65%  7.83%  19.25%  8.98%

Efficiency ratio

                    

Noninterest expense

 $50,541  $48,438  $42,447  $149,344  $120,218 

Less: Intangible amortization expense

  2,710   2,710   1,324   8,129   3,972 

Adjusted noninterest expense (f)

  47,831   45,728   41,123   141,215   116,246 

Net interest income

  43,136   43,032   22,542   127,325   68,761 

Noninterest income

  29,430   31,763   28,363   88,824   81,057 

Tax-equivalent adjustment

  638   592   314   1,748   816 

Total tax-equivalent revenue (g)

  73,204   75,387   51,219   217,897   150,634 

Efficiency ratio (f)/(g)

  65.34%  60.66%  80.29%  64.81%  77.17%

Pre-Provision Net Revenue

                    

Net interest income

 $43,136  $43,032  $22,542  $127,325  $68,761 

Add: Noninterest income

  29,430   31,763   28,363   88,824   81,057 

Less: Noninterest expense

  50,541   48,438   42,447   149,344   120,218 

Pre-provision net revenue

 $22,025  $26,357  $8,458  $66,805  $29,600 

Adjusted Noninterest Income

                    

Noninterest income

 $29,430  $31,763  $28,363  $88,824  $81,057 

Less: Adjusted noninterest income items

                    

Net gain (loss) on sale of loans

  (35)  2,115   —   2,080   — 

Net gain on sale of premises and equipment

  —   (84)  476   (84)  481 

Total adjusted noninterest income items (h)

  (35)  2,031   476   1,996   481 

Adjusted noninterest income (i)

 $29,465  $29,732  $27,887  $86,828  $80,576 

Adjusted Noninterest Expense

                    

Noninterest expense

 $50,541  $48,438  $42,447  $149,344  $120,218 

Less: Adjusted noninterest expense items

                    

HMNF merger- and acquisition-related expenses

  (43)  11   1,661   255   2,251 

Severance and signing bonus expense

  104   (23)  31   1,108   626 

Total adjusted noninterest expense items (j)

  61   (12)  1,692   1,363   2,877 

Adjusted noninterest expense (k)

 $50,480  $48,450  $40,755  $147,981  $117,341 

Adjusted Pre-Provision Net Revenue

                    

Net interest income

 $43,136  $43,032  $22,542  $127,325  $68,761 

Add: Adjusted noninterest income (i)

  29,465   29,732   27,887   86,828   80,576 

Less: Adjusted noninterest expense (k)

  50,480   48,450   40,755   147,981   117,341 

Adjusted pre-provision net revenue

 $22,121  $24,314  $9,674  $66,172  $31,996 

Adjusted Efficiency Ratio

                    

Adjusted noninterest expense (k)

 $50,480  $48,450  $40,755  $147,981  $117,341 

Less: Intangible amortization expense

  2,710   2,710   1,324   8,129   3,972 

Adjusted noninterest expense for efficiency ratio (l)

  47,770   45,740   39,431   139,852   113,369 

Tax-equivalent revenue

                    

Net interest income

  43,136   43,032   22,542   127,325   68,761 

Add: Adjusted noninterest income (i)

  29,465   29,732   27,887   86,828   80,576 

Add: Tax-equivalent adjustment

  638   592   314   1,748   816 

Total tax-equivalent revenue (m)

  73,239   73,356   50,743   215,901   150,153 

Adjusted efficiency ratio (l)/(m)

  65.22%  62.35%  77.71%  64.78%  75.50%

(1)

Items calculated after-tax utilizing a marginal income tax rate of 21.0%.

 

43
Table of Contents

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars and shares in thousands, except per share data)

 

2025

  

2025

  

2024

  

2025

  

2024

 

Adjusted Net Income

                    

Net income

 $16,924  $20,253  $5,207  $50,491  $17,846 

Less: Adjusted noninterest income items (net of tax) (1) (h)

  (28)  1,604   376   1,577   380 

Add: Adjusted noninterest expense items (net of tax) (1) (j)

  48   (9)  1,337   1,077   2,273 

Adjusted net income (o)

 $17,000  $18,640  $6,168  $49,991  $19,739 

Adjusted Return on Average Total Assets

                    

Average total assets (o)

 $5,273,306  $5,302,728  $4,298,080  $5,282,798  $4,245,181 

Adjusted return on average total assets (n)/(o)

  1.28%  1.41%  0.57%  1.27%  0.62%

Adjusted Return on Average Tangible Common Equity

                    

Adjusted net income (n)

 $17,000  $18,640  $6,168  $49,991  $19,739 

Add: Intangible amortization expense (net of tax) (1)

  2,141   2,141   1,046   6,421   3,138 

Adjusted net income, excluding intangible amortization (p)

  19,141   20,781   7,214   56,412   22,877 

Average total equity

  524,459   513,606   375,229   512,533   370,758 

Less: Average goodwill

  85,634   85,634   46,783   85,634   46,783 

Less: Average other intangible assets (net of tax) (1)

  29,540   31,436   10,933   31,549   11,969 

Average tangible common equity (q)

  409,285   396,536   317,513   395,350   312,006 

Adjusted return on average tangible common equity (p)/(q)

  18.55%  21.02%  9.04%  19.08%  9.79%

Adjusted Earnings Per Common Share − Diluted

                    

Adjusted net income (o)

 $17,000  $18,640  $6,168  $49,991  $19,739 

Less: Dividends and undistributed earnings allocated to participating securities

  148   205   24   444   102 

Adjusted net income available to common stockholders (r)

  16,852   18,435   6,144   49,547   19,637 

Weighted-average common shares outstanding for diluted earnings per share (s)

  25,713   25,714   20,075   25,693   20,037 

Adjusted earnings per common share − diluted (r)/(s)

 $0.66  $0.72  $0.31  $1.93  $0.98 

Adjusted Net Charge-Offs to Average Loans

                    

Net charge-offs (recoveries)

 $(1,715) $3,767  $316  $2,459  $2,896 

Less: Charge-off of PCD reserves on loans transferred to non-mortgage loans held for sale

  —   3,053   —   3,053   — 

Adjusted net charge-offs (t)

  (1,715)  714   316   (594)  2,896 

Average total loans (u)

 $4,036,936  $4,079,084  $2,968,947  $4,046,347  $2,858,634 

Adjusted net charge-offs (recoveries) to average loans (t)/(u)

  (0.17)%  0.07%  0.04%  (0.02)%  0.14%

(1)

Items calculated after-tax utilizing a marginal income tax rate of 21.0%. 

 

Discussion and Analysis of Results of Operations

 

Net Income

 

Net income for the three months ended September 30, 2025, was $16.9 million, or $0.65 per diluted common share, a $11.7 million, or 225.0%, increase compared to $5.2 million, or $0.26 per diluted common share, for the three months ended September 30, 2024. Earnings for the third quarter of 2025 compared to the third quarter of 2024 increased primarily due to a $20.6 million increase in net interest income, partially offset by an $8.1 million increase in noninterest expense. 

 

Net income for the nine months ended September 30, 2025, was $50.5 million, or $1.95 per diluted common share, a $32.6 million, or 182.9%, increase compared to $17.8 million, or $0.89 per diluted common share, for the nine months ended September 30, 2024. Earnings for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 increased primarily due to a $58.6 million increase in net interest income, partially offset by a $29.1 million increase in noninterest expense. 

 

Net Interest Income

 

Net interest income is the difference between interest income and yield related fees earned on assets and interest expense paid on liabilities. Net interest margin is the difference between the yield on interest earning assets and the cost of interest-bearing liabilities as a percentage of interest earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pre-tax-equivalent income, assuming a federal income tax rate of 21% for the three and nine months ended September 30, 2025 and 2024. 

 

Net interest income for the three months ended September 30, 2025 was $43.1 million, an increase of $20.6 million, or 91.4%, compared to $22.5 million for the three months ended September 30, 2024. The increase in net interest income for the third quarter of 2025 compared to the third quarter of 2024 was primarily due to the earning assets acquired in the HMNF transaction, strong organic loan growth at higher yields, and purchase accounting accretion. Interest expense decreased $2.2 million, or 7.3%, from the third quarter of 2024, as average borrowing balances declined, alongside a decrease in the average rate paid on deposits, more than offset the increase in interest-bearing deposits stemming from the HMNF transaction and organic deposit growth. 

 

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Table of Contents

 

Net interest income for the nine months ended September 30, 2025 was $127.3 million, an increase of $58.6 million, or 85.2%, compared to $68.8 million for the nine months ended September 30, 2024. Net interest income for the nine months ended September 30, 2025 increased compared to the nine months ended September 30, 2024 primarily driven by the earning assets acquired in the HMNF transaction, strong organic loan growth at higher yields, and purchase accounting accretion. Interest expense decreased $3.6 million, or 4.2%, from the nine months ended September 30, 2024, as the decline in average borrowing balances, alongside a decrease in the average rate paid on deposits, more than offset the increase in interest-bearing deposits stemming from the HMNF transaction and organic deposit growth. 

 

Net interest margin (on a tax-equivalent basis) for the three months ended September 30, 2025 was 3.50%, compared to 2.23% for the same period in 2024. The increase in net interest margin (on a tax-equivalent basis) was mainly attributable to higher rates on interest earning assets from organic loan growth and the HMNF transaction, purchase accounting accretion, lower rates paid on deposits and lower borrowing balances. 

 

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields on assets, average yields earned, and rates paid for the three and nine months ended September 30, 2025 and 2024. The Company derived these yields and rates by dividing income or expense by the average balance of the corresponding assets or liabilities. The Company derived average balances from the daily balances throughout the periods indicated. Average loan balances include loans that have been placed on nonaccrual status, while interest previously accrued on these loans is reversed against interest income. In these tables, adjustments are made to the yields on tax‑exempt assets in order to present tax‑exempt income and fully taxable income on a fully taxable equivalent (“FTE”) basis. 

 

  

Three months ended September 30,

 
  

2025

  

2024

 
      

Interest

  

Average

      

Interest

  

Average

 
  

Average

  

Income/

  

Yield/

  

Average

  

Income/

  

Yield/

 

(dollars in thousands)

 

Balance

  

Expense

  

Rate

  

Balance

  

Expense

  

Rate

 

Interest Earning Assets

                        

Interest-bearing deposits with banks

 $89,568  $1,098   4.86% $326,350  $4,490   5.47%

Investment securities (1)

  796,759   5,294   2.64   749,062   4,809   2.55 

Fed funds sold

  —   —   —   —   —   — 

Loans held for sale

  20,188   251   4.93   15,795   127   3.20 

Loans

                        

Commercial and industrial

  650,787   12,321   7.51   593,685   10,837   7.26 

CRE − Construction, land and development

  363,466   5,285   5.77   184,611   2,637   5.68 

CRE − Multifamily

  340,709   5,549   6.46   242,558   3,427   5.62 

CRE − Non-owner occupied

  887,935   14,003   6.26   663,539   9,799   5.88 

CRE − Owner occupied

  435,469   8,487   7.73   289,963   3,943   5.41 

Agricultural − Land

  66,676   930   5.53   42,162   522   4.93 

Agricultural − Production

  64,685   1,109   6.80   40,964   704   6.84 

RRE − First lien

  898,011   10,923   4.83   689,382   6,903   3.98 

RRE − Construction

  33,834   564   6.61   16,792   163   3.86 

RRE − HELOC

  213,232   3,668   6.82   130,705   2,627   8.00 

RRE − Junior lien

  40,997   661   6.40   36,818   531   5.74 

Other consumer

  41,135   720   6.94   37,768   642   6.76 

Total loans (1)

  4,036,936   64,220   6.31   2,968,947   42,735   5.73 

Federal Reserve/FHLB Stock

  22,398   421   7.46   17,562   364   8.25 

Total interest earning assets

  4,965,849   71,284   5.70   4,077,716   52,525   5.12 

Noninterest earning assets

  307,457           220,364         

Total assets

 $5,273,306          $4,298,080         

Interest-Bearing Liabilities

                        

Interest-bearing demand deposits

 $1,227,029  $5,565   1.80% $1,003,595  $5,826   2.31%

Money market and savings deposits

  1,587,694   11,366   2.84   1,146,896   11,020   3.82 

Time deposits

  772,345   7,419   3.81   485,533   5,439   4.46 

Fed funds purchased and BTFP

  16,636   207   4.94   327,543   4,094   4.97 

FHLB short-term advances

  200,000   2,298   4.56   200,000   2,611   5.19 

Long-term debt

  59,137   652   4.37   59,027   679   4.58 

Total interest-bearing liabilities

  3,862,841   27,507   2.83   3,222,594   29,669   3.66 

Noninterest-Bearing Liabilities and Stockholders' Equity

                        

Noninterest-bearing deposits

  800,028           628,114         

Operating lease liabilities

  24,199           9,896         

Accrued expenses and other liabilities

  61,779           62,247         

Other noninterest-bearing liabilities

  85,978           72,143         

Stockholders’ equity

  524,459           375,229         

Total liabilities and stockholders’ equity

 $5,273,306          $4,298,080         

Net interest income on FTE basis (1)

     $43,777          $22,856     

Net interest rate spread on FTE basis (1)

          2.87%          1.46%

Net interest margin on FTE basis (1)

          3.50%          2.23%

(1)

Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent. 

 

45
Table of Contents

 

  

Nine months ended September 30,

 
  

2025

  

2024

 
      

Interest

  

Average

      

Interest

  

Average

 
  

Average

  

Income/

  

Yield/

  

Average

  

Income/

  

Yield/

 

(dollars in thousands)

 

Balance

  

Expense

  

Rate

  

Balance

  

Expense

  

Rate

 

Interest Earning Assets

                        

Interest-bearing deposits with banks

 $53,187  $1,982   4.98% $375,365  $15,146   5.39%

Investment securities (1)

  826,409   16,716   2.70   760,219   14,657   2.58 

Loans held for sale

  17,979   646   4.80   13,768   619   6.01 

Loans

                        

Commercial and industrial

  654,061   36,421   7.44   578,839   31,228   7.21 

CRE − Construction, land and development

  348,093   15,242   5.85   146,454   7,710   7.03 

CRE − Multifamily

  350,658   17,060   6.50   245,372   10,223   5.57 

CRE − Non-owner occupied

  934,143   45,300   6.48   615,320   26,929   5.85 

CRE − Owner occupied

  419,608   21,236   6.77   284,315   11,519   5.41 

Agricultural − Land

  66,647   2,846   5.71   41,138   1,478   4.80 

Agricultural − Production

  64,357   3,434   7.13   38,110   1,897   6.65 

RRE − First lien

  898,910   32,539   4.84   695,313   20,927   4.02 

RRE − Construction

  36,798   2,083   7.57   19,847   727   4.89 

RRE − HELOC

  190,272   9,912   6.96   124,321   7,626   8.19 

RRE − Junior lien

  42,498   2,014   6.34   36,276   1,692   6.23 

Other consumer

  40,302   2,107   6.99   33,329   1,657   6.64 

Total loans (1)

  4,046,347   190,194   6.28   2,858,634   123,613   5.78 

Federal Reserve/FHLB Stock

  24,314   1,457   8.01   16,956   1,054   8.30 

Total interest earning assets

  4,968,236   210,995   5.68   4,024,942   155,089   5.15 

Noninterest earning assets

  314,562           220,239         

Total assets

 $5,282,798          $4,245,181         

Interest-Bearing Liabilities

                        

Interest-bearing demand deposits

 $1,240,589  $16,712   1.80% $944,143  $15,412   2.18%

Money market and savings deposits

  1,580,085   33,496   2.83   1,160,391   32,961   3.79 

Time deposits

  716,421   20,435   3.81   458,545   15,348   4.47 

Fed funds purchased and BTFP

  71,717   2,503   4.67   325,455   12,065   4.95 

FHLB short-term advances

  200,000   6,824   4.56   200,000   7,683   5.13 

Long-term debt

  59,111   1,955   4.42   58,999   2,041   4.62 

Total interest-bearing liabilities

  3,867,923   81,925   2.83   3,147,533   85,510   3.63 

Noninterest-Bearing Liabilities and Stockholders' Equity

                        

Noninterest-bearing deposits

  819,266           656,553         

Operating lease liabilities

  20,477           6,959         

Accrued expenses and other liabilities

  62,599           63,378         

Other noninterest-bearing liabilities

  83,076           70,337         

Stockholders’ equity

  512,533           370,758         

Total liabilities and stockholders’ equity

 $5,282,798          $4,245,181         

Net interest income on FTE basis (1)

     $129,070          $69,579     

Net interest rate spread on FTE basis (1)

          2.85%          1.52%

Net interest margin on FTE basis (1)

          3.47%          2.31%

(1)

Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent. 

 

46
Table of Contents

 

Interest Rates and Operating Interest Differential 

 

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. 

 

  

Three months ended September 30, 2025

  

Nine months ended September 30, 2025

 
  

Compared with

  

Compared with

 
  

Three months ended September 30, 2024

  

Nine months ended September 30, 2024

 
  

Change due to:

  

Interest

  

Change due to:

  

Interest

 

(tax-equivalent basis, dollars in thousands)

 

Volume

  

Rate

  

Variance

  

Volume

  

Rate

  

Variance

 

Interest earning assets

                        

Interest-bearing deposits with banks

 $(3,265) $(127) $(3,392) $(12,988) $(176) $(13,164)

Investment securities

  307   178   485   1,277   782   2,059 

Loans held for sale

  35   89   124   189   (162)  27 

Loans

                        

Commercial and industrial

  818   666   1,484   4,056   1,137   5,193 

CRE − Construction, land and development

  2,534   114   2,648   10,602   (3,070)  7,532 

CRE − Multifamily

  1,455   667   2,122   4,386   2,451   6,837 

CRE − Non-owner occupied

  3,060   1,144   4,204   13,950   4,421   18,371 

CRE − Owner occupied

  2,509   2,035   4,544   5,474   4,243   9,717 

Agricultural − Land

  423   (15)  408   916   452   1,368 

Agricultural − Production

  238   167   405   1,305   232   1,537 

RRE − First lien

  2,030   1,990   4,020   6,122   5,490   11,612 

RRE − Construction

  344   57   401   620   736   1,356 

RRE − HELOC

  1,194   (153)  1,041   4,040   (1,754)  2,286 

RRE − Junior lien

  71   59   130   290   32   322 

Other consumer

  49   29   78   346   104   450 

Total loans

  14,725   6,760   21,485   52,107   14,474   66,581 

Federal Reserve/FHLB Stock

  101   (44)  57   457   (54)  403 

Total interest income

  11,903   6,856   18,759   41,042   14,864   55,906 

Interest-bearing liabilities

                        

Interest-bearing demand deposits

  1,301   (1,562)  (261)  4,834   (3,534)  1,300 

Money market and savings deposits

  4,244   (3,898)  346   11,897   (11,362)  535 

Time deposits

  3,224   (1,244)  1,980   8,622   (3,535)  5,087 

Fed funds purchased and BTFP

  (3,895)  8   (3,887)  (9,394)  (168)  (9,562)

FHLB short-term advances

  —   (313)  (313)  —   (859)  (859)

Long-term debt

  1   (28)  (27)  4   (90)  (86)

Total interest expense

  4,875   (7,037)  (2,162)  15,963   (19,548)  (3,585)

Change in net interest income

 $7,028  $13,893  $20,921  $25,079  $34,412  $59,491 

 

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Provision for Credit Losses

 

The provision for credit losses was comprised of the following components for the periods presented: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Provision (recovery) for loan losses

 $1,136  $1,126  $4,657  $6,195 

Provision (recovery) for credit losses on unfunded commitments

  (1,134)  549   (3,866)  31 

Provision (recovery) for HTM debt securities

  (2)  (14)  (6)  (76)

Provision (recovery) for non-mortgage loans transferred to held for sale

  —   —   78   — 

Provision for credit losses

 $—  $1,661  $863  $6,150 

 

The Company did not record a provision for credit losses for the third quarter of 2025, compared to a provision for credit losses of $1.7 million for the third quarter of 2024. The decrease in the provision for credit losses was primarily driven by the decrease in the provision for credit losses on unfunded commitments. 

 

The Company recorded a provision for credit losses of $0.9 million for the nine months ended September 30, 2025 compared to a provision for credit losses of $6.2 million for the nine months ended September 30, 2024. The decrease in the provision for credit losses was primarily driven by the decrease in the provision for credit losses on unfunded commitments. 

 

Noninterest Income

 

The Company’s noninterest income is generated from retirement and benefit services, wealth, mortgage banking, and other general banking services. 

 

The following table presents the Company’s noninterest income for the three and nine months ended September 30, 2025 and 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Retirement and benefit services

 $16,496  $16,144  $48,625  $47,876 

Wealth

  6,560   6,684   20,827   19,161 

Mortgage banking

  3,474   2,573   8,651   6,796 

Service charges on deposit accounts

  703   488   2,034   1,333 

Gain on sale of non-mortgage loan

  (35)  —   2,080   — 

Other

  2,232   2,474   6,607   5,891 

Total noninterest income

 $29,430  $28,363  $88,824  $81,057 

Noninterest income as a % of revenue

  40.56%  55.72%  41.09%  54.10%

 

Total noninterest income for the three months ended September 30, 2025 was $29.4 million, an increase of $1.1 million, or 3.8%, from the three months ended September 30, 2024. The increase in noninterest income was primarily driven by an increase of $0.9 million, or 35.0%, in mortgage banking revenue in the third quarter of 2025 compared to the third quarter of 2024, primarily driven by higher mortgage originations as a result of expansion into HMNF legacy markets. Retirement and benefit services revenue increased $0.4 million, or 2.2%, in the third quarter of 2025 compared to the third quarter of 2024, primarily driven by a 6.7% increase in assets under administration/management during that same period. 

 

Total noninterest income for the nine months ended September 30, 2025 was $88.8 million, an increase of $7.8 million, or 9.6%, from the nine months ended September 30, 2024. The increase in noninterest income was primarily driven by a $2.1 million gain on the sale of a PCD hospitality loan during the second quarter of 2025. Mortgage banking revenue increased $1.9 million, or 27.3%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by a higher gain on sale rate and increased mortgage servicing revenue from the HMNF transaction. Wealth revenue increased $1.7 million, or 8.7%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by an increase in assets under administration/management during that same period as a result of improved bond and equity markets as well as the HMNF transaction. 

 

See “NOTE 16 Segment Reporting” of the consolidated financial statements and Segment Reporting section below for additional discussion regarding the Company’s business lines.

 

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Noninterest Expense

 

The following table presents noninterest expense for the three and nine months ended September 30, 2025 and 2024:

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Compensation

 $24,984  $21,058  $72,288  $60,655 

Employee taxes and benefits

  6,094   5,400   20,490   16,722 

Occupancy and equipment expense

  2,849   2,082   8,315   5,803 

Business services, software and technology expense

  6,285   4,879   17,905   14,823 

Intangible amortization expense

  2,710   1,324   8,129   3,972 

Professional fees and assessments

  2,676   4,267   8,010   8,633 

Marketing and business development

  1,069   764   2,821   2,200 

Supplies and postage

  569   422   1,690   1,321 

Travel

  385   330   1,019   954 

Mortgage and lending expenses

  1,025   684   2,501   1,592 

Other

  1,895   1,237   6,176   3,543 

Total noninterest expense

 $50,541  $42,447  $149,344  $120,218 

 

Total noninterest expense for the three months ended September 30, 2025 was $50.5 million, an $8.1 million, or 19.1%, increase compared to $42.4 million for the three months ended September 30, 2024. The year over year increase was primarily driven by higher compensation expense, business services, software and technology expense, intangible amortization expense, occupancy and equipment expense, and employee taxes and benefits expense. Compensation expense and employee taxes and benefits expense increased primarily due to increased head count resulting from the HMNF transaction. Business services, software and technology expense increased primarily due to the increased company size following the HMNF transaction along with multiple platform upgrades. Intangible amortization expense increased primarily due to the $33.5 million core deposit intangible recorded in connection with the HMNF transaction. Occupancy and equipment expense increased primarily due to the increased branch footprint resulting from the HMNF transaction. 

 

Total noninterest expense for the nine months ended September 30, 2025 was $149.3 million, a $29.1 million, or 24.2%, increase compared to $120.2 million for the nine months ended September 30, 2024. The year over year increase was primarily driven by higher compensation expense, intangible amortization expense, employee taxes and benefits expense, business services, software and technology expense, other expense, and occupancy and equipment expense. Compensation expense and employee taxes and benefits expense increased primarily due to increased head count resulting from the HMNF transaction. Intangible amortization expense increased primarily due to the $33.5 million core deposit intangible recorded in connection with the HMNF transaction. Business services, software and technology expense increased primarily due to platform upgrades. Other expense increased primarily due to an insurance reimbursement. Occupancy and equipment expense increased primarily due to the increased branch footprint resulting from the HMNF transaction. 

 

Income Tax Expense 

 

Income tax expense is an estimate based on the amount the Company expects to owe the applicable taxing authorities, plus the impact of deferred tax items. Accrued taxes represent the net estimated amount due, or to be received from, taxing authorities. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. If the final resolution of taxes payable differs from the Company’s estimates due to regulatory determination or legislative or judicial actions, adjustments to tax expense may be required. 

 

For the three months ended September 30, 2025, the Company recognized income tax expense of $5.1 million on $22.0 million of pre-tax income, resulting in an effective tax rate of 23.2%, compared to income tax expense of $1.6 million on $6.8 million of pre-tax income for the three months ended September 30, 2024, resulting in an effective tax rate of 23.4%. 

 

For the nine months ended September 30, 2025, the Company recognized income tax expense of $15.5 million on $65.9 million of pre-tax income, resulting in an effective tax rate of 23.4%, compared to income tax expense of $5.6 million on $23.5 million of pre-tax income for the nine months ended September 30, 2024, resulting in an effective tax rate of 23.9%. 

 

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Segment Reporting

 

The Company determined reportable segments based on the significance of the services offered, the significance of those services to the Company’s financial condition and operating results, and the Company’s regular review of the operating results of those services. The Company has three operating segments—banking, retirement and benefit services, and wealth. These segments are components for which financial information is prepared and evaluated regularly by management in deciding how to allocate resources and assess performance. 

 

The selected financial information presented for each segment sets forth net interest income, provision for loan losses, noninterest income, and direct and indirect noninterest expense overhead allocations. Corporate administration includes all remaining income and expenses not allocated to the three operating segments. Certain reclassification adjustments have been made between corporate administration and the various lines of business for consistency in presentation. 

 

For additional financial information on the Company’s segments see “NOTE 16 Segment Reporting” of the Company’s consolidated financial statements. 

 

Banking

 

The banking segment offers a complete line of loan, deposit, cash management, and treasury services through 28 offices in North Dakota, Minnesota, Wisconsin, Iowa, and Arizona, including 15 banking offices acquired in the HMNF transaction. These products and services are supported through web and mobile based applications. The majority of the Company’s assets and liabilities are in the banking segment’s balance sheet. 

 

The following table presents the banking segment income statement, net of corporate administration, for the three and nine months ended September 30, 2025 and 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Net interest income

 $43,136  $22,542  $127,325  $68,761 

Provision for credit losses

  —   1,661   863   6,150 

Noninterest income

  6,374   5,535   19,372   14,020 

Total revenue

  49,510   26,416   145,834   76,631 

Noninterest expense (1)

  31,264   20,269   93,315   57,855 

Net income before taxes

 $18,246  $6,147  $52,519  $18,776 

(1)

Noninterest expenses do not include corporate administration expenses. Corporate administration expenses include executive compensation, premises and fixed assets expenses, and information technology expenses. These expenses are not specific to any specific segment. 

 

Retirement and Benefit Services

 

The retirement and benefit services segment provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. 

 

The following table presents the retirement and benefits services segment income statement for the three and nine months ended September 30, 2025 and 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Recurring annual income (1)

 $13,288  $12,827  $39,170  $37,935 

Transactional income (2)

  3,208   3,317   9,455   9,941 

Total noninterest income

  16,496   16,144   48,625   47,876 

Noninterest expense

  13,394   14,154   40,177   41,765 

Net income before taxes

 $3,102  $1,990  $8,448  $6,111 

(1)

Recurring annual income primarily includes asset based fees, administration fees, record-keeping fees, trust/custody fees, and health and welfare fees. $6.6 million and $6.4 million for the three months ended September 30, 2025 and 2024, respectively, were due to movements in the market. 

(2)Transactional income primarily includes advisory fees and distribution fees. 

 

Wealth

 

The wealth segment provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint. 

 

The following table presents the wealth segment income statement for the  three and nine months ended September 30, 2025 and 2024: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

Asset management

 $5,698  $5,971  $17,772  $16,790 

Brokerage

  488   365   1,323   1,170 

Insurance and advisory

  374   347   1,732   1,201 

Total noninterest income

  6,560   6,683   20,827   19,161 

Noninterest expense

  5,883   3,839   15,852   11,497 

Net income before taxes

 $677  $2,844  $4,975  $7,664 

 

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Financial Condition

 

Overview

 

Total assets were $5.3 billion as of September 30, 2025, an increase of $68.9 million, or 1.3%, compared to December 31, 2024. The increase was primarily due to a $109.5 million increase in loans held for investment, partially offset by a decrease of $57.0 million in available-for-sale investment securities. 

 

Investment Securities

 

The following table presents the fair value composition of the Company’s investment securities portfolio as of September 30, 2025 and December 31, 2024:

 

  

September 30, 2025

  

December 31, 2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Available-for-sale

                

U.S. Treasury and agencies

 $446   0.1% $30,707   3.7%

Mortgage backed securities

                

Residential agency

  479,837   62.9   503,706   61.1 

Commercial

  1,279   0.2   1,251   0.2 

Asset backed securities

  16   —   19   — 

Corporate bonds

  49,436   6.5   52,370   6.3 

Total available-for-sale investment securities

  531,014   69.7   588,053   71.3 

Held-to-maturity

                

Obligations of state and political agencies

  106,266   14.0   107,985   13.1 

Mortgage backed securities

                

Residential agency

  124,331   16.3   129,001   15.6 

Total held-to-maturity investment securities

  230,597   30.3   236,986   28.7 

Total investment securities

 $761,611   100.0% $825,039   100.0%

 

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maintaining an appropriate level of liquidity for normal operations while providing an additional source of revenue. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet, while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as collateral.

 

The investment securities presented in the following table are reported at fair value and by contractual maturity as of September 30, 2025. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below. The yields below are calculated on a tax-equivalent basis, assuming a 21.0% income tax rate.

 

  

Maturity as of September 30, 2025

 
  

One year or less

  

One to five years

  

Five to ten years

  

After ten years

 
  

Fair

  

Average

  

Fair

  

Average

  

Fair

  

Average

  

Fair

  

Average

 

(dollars in thousands)

 

Value

  

Yield

  

Value

  

Yield

  

Value

  

Yield

  

Value

  

Yield

 

Available-for-sale

                                

U.S. Treasury and agencies

 $—   —% $247   4.81% $—   —% $199   4.94%

Mortgage backed securities

                                

Residential agency

  54   2.70   2,517   3.52   26,866   3.68   450,400   2.32 

Commercial

  —   —   1,279   2.40   —   —   —   — 

Asset backed securities

  —   —   —   —   16   4.62   —   — 

Corporate bonds

  —   —   3,197   9.15   46,239   3.46   —   — 

Total available-for-sale investment securities

  54   2.70   7,240   5.84   73,121   3.54   450,599   2.32 

Held-to-maturity

                                

Obligations of state and political agencies

  11,504   1.40   54,041   1.85   34,026   2.26   6,695   2.24 

Mortgage backed securities

                                

Residential agency

  —   —   —   —   —   —   124,331   2.18 

Total held-to-maturity investment securities

  11,504   1.40   54,041   1.85   34,026   2.26   131,026   2.19 

Total investment securities

 $11,558   1.41% $61,281   2.32% $107,147   3.13% $581,625   2.29%

 

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Loans

 

The loan portfolio represents a broad range of borrowers comprised of commercial and industrial, commercial real estate, agricultural, and consumer loans. 

 

Total loans outstanding were $4.1 billion as of September 30, 2025, an increase of $109.5 million, or 2.7%, from December 31, 2024. The increase was primarily driven by a $40.1 million increase in consumer loans, a $35.4 million increase in commercial and industrial loans, and a $29.4 million increase in CRE loans. 

 

The Company’s loan portfolio is diversified. The following table presents the balance and percentage of loans outstanding by segment/industry as of the dates presented: 

 

  

September 30, 2025

  

December 31, 2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Commercial and industrial:

                

General business

 $269,555   6.6% $340,702   8.5%

Services

  217,220   5.3   177,813   4.5 

Retail trade

  110,058   2.7   88,105   2.2 

Manufacturing

  105,302   2.6   60,107   1.5 

Total commercial and industrial

  702,135   17.2   666,727   16.7 

Commercial real estate:

                

Construction, land and development

  349,768   8.5   294,677   7.4 

Multifamily

  374,761   9.1   363,123   9.1 

Non-owner occupied

                

Office

  137,008   3.3   168,170   4.2 

Industrial

  166,018   4.0   169,391   4.2 

Retail

  137,695   3.4   154,325   3.9 

Hotel

  103,619   2.5   170,982   4.3 

Medical office

  197,015   4.8   139,939   3.5 

Medical or nursing facility

  79,867   1.9   110,164   2.8 

Other commercial real estate

  44,563   1.2   54,054   1.3 

Total non-owner occupied

  865,785   21.1   967,025   24.2 

Owner occupied

  435,320   10.6   371,418   9.3 

Total commercial real estate

  2,025,634   49.3   1,996,243   50.0 

Agricultural:

                

Land

  65,900   1.6   61,299   1.5 

Production

  63,051   1.5   63,008   1.6 

Total agricultural

  128,951   3.1   124,307   3.1 

Consumer:

                

RRE − First lien

  894,402   21.8   921,019   23.1 

RRE − Construction

  34,124   0.8   33,547   0.8 

RRE − HELOC

  234,681   5.7   162,509   4.1 

RRE − Junior lien

  40,434   1.0   44,060   1.1 

Other consumer

  41,714   1.1   44,122   1.1 

Total consumer

  1,245,355   30.4   1,205,257   30.2 

Total loans

 $4,102,075   100.0% $3,992,534   100.0%

 

Commercial and industrial loans represent loans for working capital, purchases of equipment and other needs of commercial customers primarily located within the Bank’s geographical footprint. These loans are underwritten individually and represent ongoing relationships based on a thorough knowledge of the customer, the customer’s industry and the customer’s market. While commercial loans are generally secured by the customer’s assets, including real property, inventory, accounts receivable, operating equipment and other property, and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the ongoing cash flow from operations of the customer’s business. In addition, revolving lines of credit are generally governed by a borrowing base. Inherent lending risks are monitored on a continuous basis through interim reporting, covenant testing and annual underwriting. 

 

CRE loans consist of term loans secured by a mortgage lien on real property and include both owner occupied CRE loans as well as non-owner occupied loans. Non-owner occupied CRE loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family, industrial, office, retail and other specific use properties as well as CRE construction loans that are offered to builders and developers generally within the Bank’s geographical footprint. The primary risk characteristics in the non-owner occupied portfolio include impacts of overall leasing rates, absorption timelines, levels of vacancy rates and operating expenses. The Company requires collateral values in excess of the loan amounts, cash flows in excess of expected debt service requirements and equity investment in the project. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. Inherent lending risks are monitored on a continuous basis through quarterly monitoring and the Bank’s annual underwriting process, incorporating an analysis of cash flow, collateral, market conditions and guarantor liquidity, if applicable. CRE loan policies are specific to individual product types and underwriting parameters vary depending on the risk profile of each asset class. CRE loan policies are reviewed no less than semi-annually by management and approved by the Bank’s Board of Directors to ensure they align with current market conditions and the Bank’s moderate risk appetite. Construction loans are monitored monthly and includes on-site inspections. Management reviews all construction loans quarterly to ensure projects are on time and within budget. CRE concentration limits have been established by product type and are monitored quarterly by the Bank’s Credit Governance Committee and Bank Board of Directors. 

 

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CRE loans may be adversely affected by conditions in the real estate markets or in the general economy. The Company does not monitor the CRE portfolio for attributes such as loan-to-value ratios, occupancy rates or net operating income, as these characteristics are assessed and evaluated on an individual loan basis. Portfolio stress testing is completed based on property type and takes into consideration changes to net operating income and capitalization rates. The Company does not have exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with strong occupancy levels. 

 

The following table presents the geographical markets of the collateral related to non-owner occupied and multifamily CRE loans for the periods presented: 

 

  

September 30, 2025

  

December 31, 2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Total

  

Balance

  

Total

 

Geographical Market:

                

Minnesota

 $620,364   50.0% $668,395   50.2%

North Dakota

  200,829   16.2   221,693   16.7 

Arizona

  136,411   11.0   169,473   12.7 

Texas

  37,041   3.0   34,580   2.6 

Colorado

  23,365   1.9   23,386   1.8 

Oregon

  17,767   1.4   17,990   1.4 

Wisconsin

  101,013   8.1   111,502   8.4 

Missouri

  16,503   1.3   16,776   1.3 

Kansas

  16,569   1.3   15,183   1.1 

South Dakota

  12,551   1.0   14,554   1.1 

Virginia

  11,179   0.9   —   — 

Other

  46,954   3.8   36,616   2.8 

Total non-owner occupied and multifamily commercial real estate loans

 $1,240,546   100.0% $1,330,148   100.0%

 

The Bank does not currently monitor owner occupied CRE loans based on geographical markets, as the primary source of repayment for these loans is predicated on the cash flow from the underlying operating entity. These loans are generally located within the Company’s geographical footprint. 

 

Highly competitive conditions continue to prevail in the small- and middle-market commercial segments in which the Company primarily operates. The Company maintains a commitment to generating growth in the Company’s business portfolio in a manner that adheres to its twin goals of maintaining strong asset quality and producing profitable margins. The Company continues to invest in additional personnel, technology and business development resources to further strengthen its capabilities. 

 

Agricultural loans include loans secured by farmland and loans for agricultural production. Farmland includes purposes such as crop and livestock production. Farmland loans are typically written with amortizing payment structures. Collateral values for farmland are determined based upon appraisals and evaluations in accordance with established policy guidelines and maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Agricultural production loans are for the purpose of financing working capital and/or capital investment for agriculture production activities. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate in applicable. Agricultural production loans are primarily paid by the operating cash flow of the borrower. Agricultural production loans may be secured or unsecured. 

 

Residential real estate (“RRE”) loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed over a 15- to 30-year term and, in most cases, are extended to borrowers to finance their primary residence with both fixed-rate and adjustable-rate terms. Real estate construction loans are also offered to consumers who wish to build their own homes and are often structured to be converted to permanent loans at the end of the construction phase, which is typically twelve months. RRE loans also include home equity loans and lines of credit that are secured by a first or second lien on the borrower’s residence. Home equity lines of credit (“HELOC”) consist mainly of revolving lines of credit secured by residential real estate. 

 

Other consumer loans include loans made to individuals not secured by real estate, including loans secured by automobiles or watercraft, and personal unsecured loans. 

 

The Company originates both fixed and adjustable rate residential real estate loans conforming to the underwriting guidelines of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, as well as home equity loans and lines of credit that are secured by first or junior liens. Most of the Company’s fixed rate residential loans, along with some of the Company’s adjustable rate mortgages are sold to other financial institutions with which the Company has established a correspondent lending relationship. 

 

The Company’s RRE loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards. As of September 30, 2025, the Company’s RRE portfolio was $1.2 billion, representing a $42.5 million, or 3.7%, increase from December 31, 2024. Market interest rates, expected duration, and the Company’s overall interest rate sensitivity profile continue to be the most significant factors in determining whether the Company chooses to retain versus sell portions of new consumer mortgage originations. 

 

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The following table presents the maturities and types of interest rates for the loan portfolio as of September 30, 2025: 

 

  

September 30, 2025

 
      

After one

  

After five

         
  

One year

  

but within

  

but within

  

After

     

(dollars in thousands)

 

or less

  

five years

  

fifteen years

  

fifteen years

  

Total

 

Commercial

                    

Commercial and industrial

 $191,932  $300,891  $206,393  $2,919  $702,135 

Commercial real estate

                    

Construction, land and development

  146,516   90,126   74,201   38,925   349,768 

Multifamily

  79,446   234,032   61,283   —   374,761 

Non-owner occupied

  119,569   598,842   128,188   19,186   865,785 

Owner occupied

  35,380   242,805   108,642   48,493   435,320 

Total commercial real estate

  380,911   1,165,805   372,314   106,604   2,025,634 

Agricultural

                    

Land

  4,893   21,577   14,953   24,477   65,900 

Production

  39,267   22,667   1,117   —   63,051 

Total agricultural

  44,160   44,244   16,070   24,477   128,951 

Total commercial

  617,003   1,510,940   594,777   134,000   2,856,720 

Consumer

                    

Residential real estate

                    

First lien

  12,622   46,178   75,247   760,355   894,402 

Construction

  23,550   4,181   —   6,393   34,124 

HELOC

  4,281   12,399   24,389   193,612   234,681 

Junior lien

  1,648   7,450   20,622   10,714   40,434 

Total residential real estate

  42,101   70,208   120,258   971,074   1,203,641 

Other consumer

  15,597   21,799   4,284   34   41,714 

Total consumer

  57,698   92,007   124,542   971,108   1,245,355 

Total loans

 $674,701  $1,602,947  $719,319  $1,105,108  $4,102,075 

Loans with fixed interest rates:

                    

Commercial

                    

Commercial and industrial

 $39,825  $193,765  $87,249  $—  $320,839 

Commercial real estate

                    

Construction, land and development

  46,079   27,837   751   —   74,667 

Multifamily

  31,000   145,880   27,166   —   204,046 

Non-owner occupied

  67,213   350,882   63,224   422   481,741 

Owner occupied

  30,011   168,304   44,947   1,178   244,440 

Total commercial real estate

  174,303   692,903   136,088   1,600   1,004,894 

Agricultural

                    

Land

  4,802   21,522   13,227   17,677   57,228 

Production

  1,347   20,742   1,117   —   23,206 

Total agricultural

  6,149   42,264   14,344   17,677   80,434 

Total commercial

  220,277   928,932   237,681   19,277   1,406,167 

Consumer

                    

Residential real estate

                    

First lien

  10,810   37,620   66,372   428,601   543,403 

Construction

  9,669   509   —   1,608   11,786 

HELOC

  63   1,669   6,690   3,653   12,075 

Junior lien

  1,119   5,158   14,074   10,119   30,470 

Total residential real estate

  21,661   44,956   87,136   443,981   597,734 

Other consumer

  1,218   13,106   4,284   12   18,620 

Total consumer

  22,879   58,062   91,420   443,993   616,354 

Total loans with fixed interest rates

 $243,156  $986,994  $329,101  $463,270  $2,022,521 

Loans with floating interest rates:

                    

Commercial

                    

Commercial and industrial

 $152,107  $107,126  $119,144  $2,919  $381,296 

Commercial real estate

                    

Construction, land and development

  100,437   62,289   73,450   38,925   275,101 

Multifamily

  48,446   88,152   34,117   —   170,715 

Non-owner occupied

  52,356   247,960   64,964   18,764   384,044 

Owner occupied

  5,369   74,501   63,695   47,315   190,880 

Total commercial real estate

  206,608   472,902   236,226   105,004   1,020,740 

Agricultural

                    

Land

  91   55   1,726   6,800   8,672 

Production

  37,920   1,925   —   —   39,845 

Total agricultural

  38,011   1,980   1,726   6,800   48,517 

Total commercial

  396,726   582,008   357,096   114,723   1,450,553 

Consumer

                    

Residential real estate

                    

First lien

  1,812   8,558   8,875   331,754   350,999 

Construction

  13,881   3,672   —   4,785   22,338 

HELOC

  4,218   10,730   17,699   189,959   222,606 

Junior lien

  529   2,292   6,548   595   9,964 

Total residential real estate

  20,440   25,252   33,122   527,093   605,907 

Other consumer

  14,379   8,693   —   22   23,094 

Total consumer

  34,819   33,945   33,122   527,115   629,001 

Total loans with floating interest rates

 $431,545  $615,953  $390,218  $641,838  $2,079,554 

 

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The expected life of the Company’s loan portfolio will differ from contractual maturities because borrowers may have the right to curtail or prepay their loans with or without penalties. Consequently, the table above includes information limited to contractual maturities of the underlying loans. 

 

Asset Quality

 

The Company’s strategy for credit risk management includes well‑defined, centralized credit policies; uniform underwriting criteria; and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry, and client level; regular credit examinations; and management reviews of loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take necessary charge‑offs promptly, and maintain adequate reserve levels for credit losses inherent in the portfolio. Management performs ongoing, internal reviews of any problem credits and continually assesses the adequacy of the allowance. The Company utilizes an internal lending division, Special Credit Services, to develop and implement strategies for the management of individual nonperforming loans. 

 

Credit Quality Indicators

 

Loans are assigned a risk rating and grouped into categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The risk ratings are aligned to pass and criticized categories. The criticized categories include special mention, substandard, and doubtful risk ratings. See “NOTE 4 Loans and Allowance for Credit Losses” of the consolidated financial statements for a definition of each of the risk ratings. 

 

The table below presents criticized loans outstanding by loan portfolio segment as of September 30, 2025 and December 31, 2024: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Commercial

        

Commercial and industrial

 $40,350  $35,127 

Commercial real estate

        

Construction, land and development

  39,223   37,633 

Multifamily

  52,979   27,188 

Non-owner occupied

  17,411   45,173 

Owner occupied

  18,161   27,637 

Total commercial real estate

  127,774   137,631 

Agricultural

        

Land

  8,284   8,034 

Production

  3,896   4,813 

Total agricultural

  12,180   12,847 

Total commercial

  180,304   185,605 

Consumer

        

Residential real estate

        

First lien

  2,687   2,988 

Construction

  4,680   4,680 

HELOC

  1,213   1,459 

Junior lien

  2,390   3,210 

Total residential real estate

  10,970   12,337 

Other consumer

  57   339 

Total consumer

  11,027   12,676 

Total criticized loans

 $191,331  $198,281 

Criticized loans as a percent of total loans

  4.66%  4.97%

 

The following table presents information regarding nonperforming assets as of September 30, 2025 and December 31, 2024: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Nonaccrual loans

 $59,644  $54,433 

Accruing loans 90+ days past due

  —   8,453 

Total nonperforming loans

  59,644   62,886 

OREO and repossessed assets

  467   — 

Total nonperforming assets

  60,111   62,886 

Total restructured accruing loans

  —   — 

Total nonperforming assets and restructured accruing loans

 $60,111  $62,886 

Nonperforming loans to total loans

  1.45%  1.58%

Nonperforming assets to total assets

  1.13%  1.20%

ACL on loans to nonperforming loans

  104%  95%

 

Interest income lost on nonaccrual loans was approximately $3.8 million and $2.8 million for the nine months ended September 30, 2025 and 2024, respectively. There was no interest income included in net interest income related to nonaccrual loans for the nine months ended September 30, 2025 and 2024. 

 

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Allowance for Credit Losses

 

The ACL on loans is maintained at a level management believes is sufficient to absorb expected losses in the loan portfolio over the remaining estimated life of loans in the portfolio. Under the Current Expected Credit Loss accounting standard, the ACL is a valuation estimated at each balance sheet date and deducted from the amortized cost basis of loans held for investment to present the net amount expected to be collected. These evaluations are inherently subjective as they require management to make material estimates, all of which may be susceptible to significant change. The allowance is increased by provisions charged to expense and decreased by actual charge‑offs, net of recoveries. 

 

Management estimates the ACL using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in the current loan-specific risk characteristics such as different underwriting standards, portfolio mix, delinquency level, or life of the loan, as well as changes in environmental conditions, levels of economic activity, unemployment rates, property values and other relevant factors. The calculation also contemplates that the Company may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical loss information. 

 

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. The ACL on individually evaluated loans is recognized on the basis of the present value of expected future cash flows discounted at the effective interest rate, the fair value of collateral adjusted of estimated costs to sell, or observable market price as of the relevant date. 

 

The following table presents information concerning the components of the ACL for the periods presented: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2025

  

2024

  

2025

  

2024

 

ACL on loans at the beginning of the period

 $59,278  $38,332  $59,929  $35,843 

(Credit) provision for loan losses

  1,136   1,126   4,657   6,195 

Net charge-offs (recoveries) (1)

                

Commercial and industrial

  (1,809)  93   (1,959)  2,745 

CRE − Construction, land and development

  —   —   —   — 

CRE − Multifamily

  —   —   —   — 

CRE − Non-owner occupied (2)

  —   —   3,401   — 

CRE − Owner occupied

  (10)  84   (28)  93 

Agricultural − Land

  —   (20)  —   (20)

Agricultural − Production

  —   —   372   — 

RRE − First lien

  —   —   54   — 

RRE − Construction

  —   —   —   — 

RRE − HELOC

  74   —   334   — 

RRE − Junior lien

  —   —   300   (71)

Other consumer

  32   159   (15)  149 

Total net charge-offs (recoveries)

  (1,713)  316   2,459   2,896 

ACL on loans at the end of the period

  62,127   39,142   62,127   39,142 

Components of ACL:

                

ACL on HTM debt securities

  126   137   126   137 

ACL on loans

  62,127   39,142   62,127   39,142 

ACL on off-balance sheet credit exposures

  3,668   7,431   3,668   7,431 

ACL at end of the period

  65,921   46,710   65,921   46,710 

Total loans

 $4,102,075  $3,032,343  $4,102,075  $3,032,343 

Average total loans

  4,036,936   2,968,947   4,046,347   2,858,634 

ACL on loans to total loans

  1.51%  1.29%  1.51%  1.29%

ACL on loans to nonaccrual loans

  104.16%  81.50%  104.16%  81.50%

ACL on loans to nonperforming loans

  104.16%  81.50%  104.16%  81.50%

Net charge-offs/(recoveries) to average total loans (annualized)

  (0.17)%  0.04%  0.08%  0.14%
 

(1)

Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated. 

(2)

The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting. 

 

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For the three months ended

 
  

September 30,

 
                  

Net Charge-offs

 
  

Total

  

Total

  

Net Charge-offs

  

Average

  

(Recoveries) to

 

(dollars in thousands)

 

Charge-offs

  

Recoveries

  

(Recoveries)

  

Loans

  

Average Loans

 

2025:

                    

Commercial

                    

Commercial and industrial

 $606  $2,415  $(1,809) $650,787   (1.10)%

Commercial real estate

                    

Construction, land and development

  —   —   —   363,466   — 

Multifamily

  —   —   —   347,598   — 

Non-owner occupied (1)

  —   —   —   899,302   — 

Owner occupied

  —   10   (10)  441,000   (0.01)

Total commercial real estate

  —   10   (10)  2,051,366   — 

Agricultural

                    

Land

  —   —   —   66,676   — 

Production

  —   —   —   64,685   — 

Total agricultural

  —   —   —   131,361   — 

Total commercial

  606   2,425   (1,819)  2,833,514   (0.25)

Consumer

                    

Residential real estate

                    

First lien

  —   —   —   898,011   — 

Construction

  —   —   —   33,834   — 

HELOC

  100   26   74   213,232   0.14 

Junior lien

  —   —   —   40,997   — 

Total residential real estate

  100   26   74   1,186,074   0.02 

Other consumer

  34   2   32   41,135   0.31 

Total consumer

  134   28   106   1,227,209   0.03 

Total loans

 $740  $2,453  $(1,713) $4,060,723   (0.17)%

2024:

                    

Commercial

                    

Commercial and industrial

 $246  $153  $93  $593,685   0.06%

Commercial real estate

                    

Construction, land and development

  —   —   —   184,611   — 

Multifamily

  —   —   —   242,558   — 

Non-owner occupied

  —   —   —   663,539   — 

Owner occupied

  98   14   84   289,963   0.12 

Total commercial real estate

  98   14   84   1,380,671   0.02 

Agricultural

                    

Land

  —   20   (20)  42,162   (0.19)

Production

  —   —   —   40,964   — 

Total agricultural

  —   20   (20)  83,126   (0.10)

Total commercial

  344   187   157   2,057,482   0.03 

Consumer

                    

Residential real estate

                    

First lien

  —   —   —   689,382   — 

Construction

  —   —   —   16,792   — 

HELOC

  —   —   —   130,705   — 

Junior lien

  —   —   —   36,818   — 

Total residential real estate

  —   —   —   873,697   — 

Other consumer

  161   2   159   37,768   1.67 

Total consumer

  161   2   159   911,465   0.07 

Total loans

 $505  $189  $316  $2,968,947   0.04%

(1)

The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting. 

 

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For the nine months ended

 
  

September 30,

 
                  

Net Charge-offs

 
  

Total

  

Total

  

Net Charge-offs

  

Average

  

(Recoveries) to

 

(dollars in thousands)

 

Charge-offs

  

Recoveries

  

(Recoveries)

  

Loans

  

Average Loans

 

2025:

                    

Commercial

                    

Commercial and industrial

 $854  $2,813  $(1,959) $654,061   (0.40)%

Commercial real estate

                    

Construction, land and development

  —   —   —   348,093   — 

Multifamily

  —   —   —   358,280   — 

Non-owner occupied (1)

  3,401   —   3,401   951,568   0.48 

Owner occupied

  4   32   (28)  425,638   (0.01)

Total commercial real estate

  3,405   32   3,373   2,083,579   0.22 

Agricultural

                    

Land

  —   —   —   66,647   — 

Production

  384   12   372   64,357   0.77 

Total agricultural

  384   12   372   131,004   0.38 

Total commercial

  4,643   2,857   1,786   2,868,644   0.08 

Consumer

                    

Residential real estate

                    

First lien

  54   —   54   898,910   0.01 

Construction

  —   —   —   36,798   — 

HELOC

  360   26   334   190,272   0.23 

Junior lien

  300   —   300   42,498   0.94 

Total residential real estate

  714   26   688   1,168,478   0.08 

Other consumer

  112   127   (15)  40,302   (0.05)

Total consumer

  826   153   673   1,208,780   0.07 

Total loans

 $5,469  $3,010  $2,459  $4,077,424   0.08%

2024:

                    

Commercial

                    

Commercial and industrial

 $3,140  $395  $2,745  $578,839   0.63%

Commercial real estate

                    

Construction, land and development

  —   —   —   146,454   — 

Multifamily

  —   —   —   245,372   — 

Non-owner occupied

  —   —   —   615,320   — 

Owner occupied

  127   34   93   284,315   0.04 

Total commercial real estate

  127   34   93   1,291,461   0.01 

Agricultural

                    

Land

  —   20   (20)  41,138   (0.06)

Production

  —   —   —   38,110   — 

Total agricultural

  —   20   (20)  79,248   (0.03)

Total commercial

  3,267   449   2,818   1,949,548   0.19 

Consumer

                    

Residential real estate

                    

First lien

  —   —   —   695,313   — 

Construction

  —   —   —   19,847   — 

HELOC

  —   —   —   124,321   — 

Junior lien

  3   74   (71)  36,276   (0.26)

Total residential real estate

  3   74   (71)  875,757   (0.01)

Other consumer

  174   25   149   33,329   0.60 

Total consumer

  177   99   78   909,086   0.01 

Total loans

 $3,444  $548  $2,896  $2,858,634   0.14%

(1)

The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting. 

 

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The following table presents the allocation of the ACL on loans as of the dates presented:

 

  

September 30, 2025

  

December 31, 2024

 
      

Percentage

      

Percentage

 
  

Allocated

  

of loans to

  

Allocated

  

of loans to

 

(dollars in thousands)

 

Allowance

  

total loans

  

Allowance

  

total loans

 

Commercial and industrial

 $13,405   17.2% $8,170   16.7%

CRE − Construction, land and development

  17,257   8.5   16,277   7.4 

CRE − Multifamily

  4,337   9.1   4,716   9.1 

CRE − Non-owner occupied

  10,123   21.1   16,513   24.2 

CRE − Owner occupied

  3,291   10.6   3,226   9.3 

Agricultural − Land

  999   1.6   597   1.5 

Agricultural − Production

  688   1.5   631   1.6 

RRE − First lien

  9,294   21.8   6,921   23.1 

RRE − Construction

  272   0.8   357   0.8 

RRE − HELOC

  1,679   5.7   1,339   4.1 

RRE − Junior lien

  439   1.0   742   1.1 

Other consumer

  343   1.1   440   1.1 

Total loans

 $62,127   100.0% $59,929   100.0%

 

In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under credit arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded. An ACL on off-balance sheet credit exposures is measured using similar internal and external assumptions as the ACL on loans. This allowance is located in accrued expenses and other liabilities on the consolidated balance sheets. The ACL for unfunded commitments was $3.7 million and $7.4 million as of September 30, 2025 and 2024, respectively. 

 

Deposits

 

Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and economic conditions, and fluctuations in the Company’s customers’ own liquidity needs and may also be influenced by recent developments in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures. 

 

Total deposits were $4.4 billion as of September 30, 2025, an increase of $34.2 million, or 0.8%, from December 31, 2024. Interest-bearing deposits increased $160.9 million during this period, while noninterest-bearing deposits decreased $126.7 million. The increase in total deposits was driven by growth in commercial deposits due to new and expanded client relationships and funding structure diversification through the utilization of callable brokered CDs. This growth was partially offset by outflows from our public funds depositors, which reached a typical seasonal low in the third quarter of 2025. 

 

The following table presents the composition of the Company’s deposit portfolio as of September 30, 2025 and December 31, 2024: 

 

  

September 30, 2025

  

December 31, 2024

         
      

Percent of

      

Percent of

  

Change

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

  

Amount

  

Percent

 

Noninterest-bearing demand

 $776,791   17.6% $903,466   20.6% $(126,675)  (14.0)%

Interest-bearing demand

  1,256,687   28.5   1,220,173   27.9   36,514   3.0 

Money market and savings (1)

  1,634,119   37.0   1,547,806   35.4   86,313   5.6 

Time deposits

  745,056   16.9   706,965   16.1   38,091   5.4 

Total deposits

 $4,412,653   100.0% $4,378,410   100.0% $34,243   0.8%
 

(1)

Money market and savings deposits included health savings account deposits of $202.5 million and $190.3 million as of September 30, 2025 and December 31, 2024, respectively. 

 

The following table presents the average balances and rates of the Company’s deposit portfolio for the three months ended September 30, 2025 and 2024: 

 

  

Three months ended September 30,

 
  

2025

  

2024

 
  

Average

  

Average

  

Average

  

Average

 

(dollars in thousands)

 

Balance

  

Rate

  

Balance

  

Rate

 

Noninterest-bearing demand

 $800,028   —% $628,114   —%

Interest-bearing demand

  1,227,029   1.80   1,003,595   2.31 

Money market and savings

  1,587,694   2.84   1,146,896   3.82 

Time deposits

  772,345   3.81   485,533   4.46 

Total deposits

 $4,387,096   2.20% $3,264,138   2.72%

 

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The following table presents the composition of the Company’s deposit portfolio by client segment as of September 30, 2025 and December 31, 2024: 

 

  

September 30, 2025

  

December 31, 2024

         
      

Percent of

      

Percent of

  

Change

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

  

Amount

  

Percent

 

Commercial

 $1,696,724   38.4% $1,647,131   37.7% $49,593   3.0%

Consumer

  1,605,727   36.4   1,556,522   35.5   49,205   3.2 

Public (1)

  172,414   3.9   201,197   4.6   (28,783)  (14.3)

Synergistic (2)

                        

Retirement and benefit services (3)

  687,418   15.6   683,149   15.6   4,269   0.6 

Wealth (4)

  250,370   5.7   290,411   6.6   (40,041)  (13.8)

Total synergistic

  937,788   21.3   973,560   22.2   (35,772)  (13.2)

Total deposits

 $4,412,653   100.0% $4,378,410   100.0% $34,243   0.8%
 

(1)

Public deposits primarily represent municipalities, school districts, and other governmental entities that receive public funding. 

 (2)Synergistic deposits represent the on-balance sheet money market balances that Alerus Retirement and Benefit Services and Alerus Wealth clients hold in proprietary Alerus money market products. 
 (3)$400.9 million and $361.3 million of retirement and benefit services synergistic deposits were indexed as of September 30, 2025 and December 31, 2024, respectively. 
 (4)$250.4 million and $290.4 million of wealth synergistic deposits were indexed as of September 30, 2025 and December 31, 2024, respectively. 

 

The following table presents the contractual maturity of time deposits, including certificate of deposit account registry services and IRA deposits of $250,000 and over, that were outstanding as of September 30, 2025: 

 

  

September 30,

 

(dollars in thousands)

 

2025

 

Maturing in:

    

3 months or less

 $65,500 

3 months to 6 months

  67,369 

6 months to 1 year

  40,869 

1 year or greater

  11,021 

Total

 $184,759 

 

The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.5 billion at both September 30, 2025 and December 31, 2024. These amounts were estimated based on the same methodologies used for regulatory reporting purposes. 

 

Borrowings

 

Borrowings as of September 30, 2025 and December 31, 2024 were as follows: 

 

  

September 30, 2025

  

December 31, 2024

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Fed funds purchased

 $—   —% $38,960   13.1%

FHLB short-term advances

  200,000   77.2   200,000   67.1 

Subordinated notes

  50,000   19.3   50,000   16.8 

Junior subordinated debentures

  9,154   3.5   9,069   3.0 

Total borrowed funds

 $259,154   100.0% $298,029   100.0%

 

Capital Resources

 

Stockholders’ equity is influenced primarily by earnings, dividends, the Company’s sales and repurchases of its common stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on available-for-sale securities. 

 

Stockholders’ equity increased $55.3 million, or 11.2%, to $550.7 million as of September 30, 2025, compared to $495.4 million as of December 31, 2024. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 8.24% as of September 30, 2025, from 7.13% as of December 31, 2024. Common equity tier 1 capital to risk weighted assets increased to 10.84% as of September 30, 2025, from 9.91% as of December 31, 2024. 

 

The Company strives to maintain an adequate capital base to support the Company’s activities in a safe and sound manner while at the same time attempting to maximize stockholder value. Capital adequacy is assessed against the risk inherent in the Company’s balance sheet, recognizing that unexpected loss is the common denominator of risk, and that common equity has the greatest capacity to absorb unexpected loss. 

 

The Company is subject to various regulatory capital requirements both at the Company and at the Bank level. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. The Company has consistently maintained regulatory capital ratios at or above the well-capitalized standards. 

 

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At September 30, 2025 and December 31, 2024, the Company met all the capital adequacy requirements to which the Company was subject. The table below presents the Company’s and the Bank’s regulatory capital ratios and the Company’s tangible common equity to tangible assets ratio as of September 30, 2025 and December 31, 2024: 

 

  

September 30,

  

December 31,

 

Capital Ratios

 

2025

  

2024

 

Alerus Financial Corporation Consolidated

        

Common equity tier 1 capital to risk weighted assets

  10.84%  9.91%

Tier 1 capital to risk weighted assets

  11.05%  10.12%

Total capital to risk weighted assets

  13.41%  12.49%

Tier 1 capital to average assets

  9.49%  8.65%

Tangible common equity to tangible assets (1)

  8.24%  7.13%
         

Alerus Financial, National Association

        

Common equity tier 1 capital to risk weighted assets

  11.00%  10.18%

Tier 1 capital to risk weighted assets

  11.00%  10.18%

Total capital to risk weighted assets

  12.25%  11.43%

Tier 1 capital to average assets

  9.31%  8.69%

(1)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.” 

 

The regulatory capital ratios for the Company and the Bank, as of September 30, 2025, as shown in the above table, were at levels above the regulatory minimums to be considered “well capitalized.” See “NOTE 19 Regulatory Matters” of the consolidated financial statements for additional information. 

 

Off‑Balance Sheet Arrangements

 

The Company is a party to financial instruments with off‑balance sheet risk in the normal course of business to meet the financing needs of the Company’s customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to normal credit policies. Collateral may be required based on management’s assessment of the customer’s creditworthiness. The fair value of these commitments is considered immaterial for disclosure purposes. 

 

A summary of the contractual amounts of the Company’s exposure to off‑balance sheet agreements as of September 30, 2025 and December 31, 2024, was as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2025

  

2024

 

Commitments to extend credit

 $1,007,983  $1,090,114 

Standby letters of credit

  19,418   30,033 

Total

 $1,027,400  $1,120,147 

 

Liquidity

 

Liquidity management is the process by which the Company manages the flow of funds necessary to meet the Company’s financial commitments on a timely basis and at a reasonable cost and to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the Company’s operations, and capital expenditures. Liquidity is monitored and closely managed by the Company’s asset and liability committee (the “ALCO”), a group of senior officers from the finance, enterprise risk management, deposit, investment, treasury, and lending areas. It is the ALCO’s responsibility to ensure the Company has the necessary level of funds available for normal operations as well as maintain a contingency funding policy to ensure that potential liquidity stress events are planned for, quickly identified, and that management has plans in place to respond. The ALCO has created policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources. 

 

As of September 30, 2025, the Company had on balance sheet liquidity of $566.9 million, compared to $579.0 million as of December 31, 2024. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, unencumbered securities available‑for‑sale, and over collateralized securities pledging positions available-for-sale. 

 

As of September 30, 2025, the Company had off balance sheet liquidity of $2.2 billion, compared to $2.3 billion as of December 31, 2024. Off balance sheet liquidity includes FHLB borrowing capacity, federal funds lines, and brokered deposit capacity. 

 

The Bank is a member of the FHLB, which provides short‑ and long‑term funding to its members through advances collateralized by real estate related assets and other select collateral, most typically in the form of debt securities. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of September 30, 2025, the Company did not have any federal funds purchased, and had $200.0 million in short-term borrowings from the FHLB. As of September 30, 2025, the Company had $2.1 billion of collateral pledged to the FHLB and, based on this collateral, the Company was eligible to borrow up to an additional $1.1 billion from the FHLB. In addition, the Company can borrow up to $127.0 million through the unsecured lines of credit the Company has established with five other correspondent banks. 

 

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In addition, because the Bank is “well capitalized,” the Company can accept wholesale deposits up to 20.0% of total assets based on current policy limits, or $1.1 billion, as of September 30, 2025. Management believed that the Company had adequate resources to fund all of the Company’s commitments as of September 30, 2025 and December 31, 2024. 

 

The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding. 

 

Though remote, the possibility of a funding crisis exists at all financial institutions. Management has addressed this issue by formulating a liquidity contingency plan, which has been reviewed and approved by both the Bank’s Board of Directors and the ALCO. The plan addresses the actions that the Company would take in response to both a short‑term and long‑term funding crisis. 

 

A short‑term funding crisis would most likely result from a shock to the financial system, either internal or external, which disrupts orderly short‑term funding operations. Such a crisis would likely be temporary in nature and would not involve a change in credit ratings. A long‑term funding crisis would most likely be the result of both external and internal factors and would most likely result in drastic credit deterioration. Management believes that both potential circumstances have been fully addressed through detailed action plans and the establishment of trigger points for monitoring such events. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates. Interest rate risk is the risk to earnings and equity value arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of interest earning assets and the amount of interest‑bearing liabilities that are prepaid/withdrawn, re‑price, or mature in specified periods. The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. The ALCO oversees market risk management, monitoring risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. The Bank’s Board of Directors approves policy limits with respect to interest rate risk. 

 

Interest Rate Risk 

 

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective interest rate risk management begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk position given business activities, management objectives, market expectations and ALCO policy limits and guidelines. 

 

Interest rate risk can come in a variety of forms, including repricing risk, basis risk, yield curve risk and option risk. Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes impact the Company’s assets and liabilities. Basis risk is the risk of adverse consequence resulting from unequal change in the spread between two or more rates for different instruments with the same maturity. Yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same or different instruments. Option risk in financial instruments arises from embedded options such as options provided to borrowers to make unscheduled loan prepayments, options provided to debt issuers to exercise call options prior to maturity, and depositor options to make withdrawals and early redemptions. 

 

Management regularly reviews the Company’s exposure to changes in interest rates. Among the factors considered are changes in the mix of interest earning assets and interest‑bearing liabilities, interest rate spreads and repricing periods. The ALCO reviews, on at least a quarterly basis, the interest rate risk position. 

 

The interest‑rate risk position is measured and monitored at the Bank using net interest income simulation models and economic value of equity sensitivity analysis that capture both short‑term and long‑term interest‑rate risk exposure. 

 

Modeling the sensitivity of net interest income and the economic value of equity to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of the Company’s loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. The balance sheet composition and size are assumed to remain static in the simulation modeling process. The analysis provides a framework as to what the Company’s overall sensitivity position is as of the Company’s most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of the Company’s equity. 

 

Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks. 

 

The estimated impact on the Company’s net interest income as of September 30, 2025 and December 31, 2024, assuming immediate parallel moves in interest rates, is presented in the table below: 

 

  

September 30, 2025

  

December 31, 2024

 
  

Following

  

Following

  

Following

  

Following

 
  

12 months

  

24 months

  

12 months

  

24 months

 

+400 basis points

  1.2%  10.9%  1.7%  13.6%

+300 basis points

  0.9%  8.1%  1.2%  10.0%

+200 basis points

  0.9%  6.1%  1.1%  7.2%

+100 basis points

  0.5%  3.3%  0.6%  3.7%

−100 basis points

  1.2%  -2.6%  0.4%  -3.1%

−200 basis points

  2.2%  -5.9%  0.7%  -6.8%

−300 basis points

  3.9%  -8.0%  0.8%  -10.5%

−400 basis points

  8.0%  -4.1%  4.0%  -7.0%

 

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Management strategies may impact future reporting periods, as actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes, the difference between actual experience and the characteristics assumed, as well as changes in market conditions. Market-based prepayment speeds are factored into the analysis for loan and securities portfolios. Rate sensitivity for transactional deposit accounts is modeled based on both historical experience and external industry studies. 

 

Management uses an economic value of equity sensitivity analysis to understand the impact of interest rate changes on long‑term cash flows, income, and capital. Economic value of equity is based on discounting the cash flows for all balance sheet instruments under different interest rate scenarios. Deposit premiums are based on external industry studies and utilizing historical experience. 

 

The table below presents the change in the economic value of equity as of September 30, 2025 and December 31, 2024, assuming immediate parallel shifts in interest rates: 

 

  

September 30,

  

December 31,

 
  

2025

  

2024

 

+400 basis points

  -7.3%  -6.2%

+300 basis points

  -5.5%  -4.8%

+200 basis points

  -2.7%  -2.4%

+100 basis points

  -0.9%  -0.8%

−100 basis points

  0.4%  0.1%

−200 basis points

  -0.4%  -0.9%

−300 basis points

  -3.7%  -3.6%

−400 basis points

  -8.7%  -8.5%

 

Operational Risk

 

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, disasters, and security risks. Management continuously strives to strengthen its system of internal controls, enterprise risk management, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of the Company’s operational risk. 

 

Compliance Risk

 

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice. Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the expansion of the Company’s banking center network, employment and tax matters. 

 

Strategic and/or Reputation Risk

 

Strategic and/or reputation risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products, and any other event not identified in the defined risk types mentioned previously. Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various risks, including those related to the development of new products and business initiatives. 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, including the President and Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 

 

Changes in Internal Control over Financial Reporting

 

In its Annual Report on Form 10-K for the period ended December 31, 2024, management concluded that the Company’s disclosure controls and procedures over financial reporting were not effective as of the end of such period, due to the existence of a material weakness related to a unique, one-time transaction, where goodwill initially calculated by the Company was inaccurate. The Company has since designed and implemented control activities to ensure that there is the appropriate periodic assessment of its business combination accounting policies and procedures, and its accounting department employees have participated in education and training related to business combination accounting and discussed with accounting experts to provide appropriate guidance in connection with accounting for business combinations. Other than disclosed herein, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 

 

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PART II—OTHER INFORMATION

 

Item 1 – Legal Proceedings

 

For information regarding litigation, other disputes and regulatory proceedings see the section “Legal Contingencies” in “NOTE 12 Commitments and Contingencies” of the consolidated financial statements. 

 

Item 1A – Risk Factors

 

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2025. 

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

Unregistered Sales of Equity Securities

 

None. 

 

Issuer Repurchases of Equity Securities

 

The following table presents information related to repurchases of shares of the Company’s common stock for each calendar month in the third quarter of 2025: 

 

          

Total Number of

  

Maximum Number of

 
  

Total Number

  

Average

  

Shares Purchased as

  

Shares that May

 
  

of Shares

  

Price Paid

  

Part of Publicly

  

Yet be Purchased

 

(dollars in thousands, except per share data)

 

Purchased (1)

  

per Share

  

Announced Plans

  

Under the Plan (2)

 

July 1-31, 2025

  3,329  $22.22   —   1,000,000 

August 1-31, 2025

  —   —   —   1,000,000 

September 1-30, 2025

  178   23.11   —   1,000,000 

Total

  3,507  $22.27   —   1,000,000 

(1)

Represents shares of the Company’s common stock purchased by the Company’s Employee Stock Ownership Plan in open market purchases and shares surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards. 

(2)

On December 12, 2023, the Board of Directors of the Company approved a stock repurchase program (the “Program”), which authorized the Company to repurchase up to 1,000,000 shares of its common stock, subject to certain limitations and conditions. The Program became effective on February 18, 2024, and replaced a prior stock repurchase program. The Program will expire on February 18, 2027. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so. For the three months ended September 30, 2025, the Company did not repurchase any shares of common stock under the Program. Does not include shares that may be purchased by the Company’s Employee Stock Ownership Plan. 

 

Use of Proceeds from Registered Securities

 

None. 

 

Item 3 – Defaults Upon Senior Securities

 

None. 

 

Item 4 – Mine Safety Disclosures

 

Not Applicable. 

 

Item 5 – Other Information

 

During the fiscal quarter ended September 30, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any non-Rule 10b5-1 trading arrangement. 

 

 

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Item 6 – Exhibits

   

Exhibit No.

 

Description

   

3.1

 

Third Amended and Restated Certificate of Incorporation of Alerus Financial Corporation (incorporated herein by reference to Exhibit 3.1 on Form S-1 filed on August 16, 2019). 

   
3.2 Amendment to Third Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on May 12, 2025).
   

3.3

 

Second Amended and Restated Bylaws of Alerus Financial Corporation (incorporated herein by reference to Exhibit 3.2 on Form S-1 filed on August 16, 2019). 

   
10.1 Executive Severance Agreement by and Between Alerus Financial Corporation and Katie Lorenson, dated August 28, 2025 (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on August 28, 2025.
   

31.1

 

Chief Executive Officer’s Certifications required by Rule 13(a)‑14(a) – filed herewith.

   

31.2

 

Chief Financial Officer’s Certifications required by Rule 13(a)‑14(a) – filed herewith.

   

32.1

 

Chief Executive Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.

   

32.2

 

Chief Financial Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.

   

101.INS

 

iXBRL Instance Document

   

101.SCH

 

iXBRL Taxonomy Extension Schema

   

101.CAL

 

iXBRL Taxonomy Extension Calculation Linkbase

   

101.DEF

 

iXBRL Taxonomy Extension Definition Linkbase

   

101.LAB

 

iXBRL Taxonomy Extension Label Linkbase

   

101.PRE

 

iXBRL Taxonomy Extension Presentation Linkbase

   

104

 

Cover Page Interactive Data File (formatted Inline XBRL and contained in Exhibits 101)

 

65
Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   
 

ALERUS FINANCIAL CORPORATION

  

Date: November 5, 2025

By:

 /s/ Katie A. Lorenson

  

Name:    Katie A. Lorenson

  

Title:      President and Chief Executive Officer (Principal Executive Officer)

   

Date: November 5, 2025

By:

 /s/ Alan A. Villalon

  

Name:    Alan A. Villalon

  

Title:      Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

66

What is the market capitalization of a company?

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