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Alerus Financial
ALRS
#6566
Rank
$0.85 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$34.50
Share price
0.67%
Change (1 day)
58.84%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Alerus Financial
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2026 Q3

Alerus Financial - 10-Q quarterly report FY2026 Q3


Text size:
0000903419ALERUS FINANCIAL CORPfalse--12-31Q32026576,039516,737198,035228,009111123112,000,0002,000,00000001160,000,00060,000,00024,744,26924,744,26925,406,27825,406,2780000000000002.60003.006.75March 30, 2036March 30, 20310.263.10June 26, 2033June 26, 2008http://fasb.org/us-gaap/2026#SecuredOvernightFinancingRateSofrMember0.261.80September 15, 2036September 15, 2011March 30, 2031March 31, 20260.263.10June 26, 2033June 26, 2008http://fasb.org/us-gaap/2026#SecuredOvernightFinancingRateSofrMember0.261.80September 15, 2036September 15, 2011http://fasb.org/us-gaap/2026#DomesticCountryMemberhttp://fasb.org/us-gaap/2026#DomesticCountryMemberhttp://fasb.org/us-gaap/2026#DomesticCountryMemberhttp://fasb.org/us-gaap/2026#DomesticCountryMember33000falsefalsefalsefalseThe difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of $134 thousand related to off-balance sheet credit exposure and ($4) thousand related to HTM investment securities. See Note 7 Loan Servicing for more information on mortgage servicing rights.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.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.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 3 Investment Securities” 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 ($1.2) million related to off-balance sheet credit exposure, ($2) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale.The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of $0.4 million related to off-balance sheet credit exposure and $8 thousand related to HTM investment securities. The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($0.3) million related to off-balance sheet credit exposure and ($12) thousand related to HTM investment securities.All of the tax benefits recognized were included in income tax expense.The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($2.7) million related to off-balance sheet credit exposure, ($4) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale.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.“Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.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, ($2) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale.Depreciation expense was $1.4 million and $1.1 million for the three months ended September 30, 2026 and 2025, respectively. Depreciation expense was $4.0 million and $3.3 million for the nine months ended September 30, 2026 and 2025, respectively.Reported fair values include accrued interest receivable and payable.Reclassified into interest expense on short-term borrowings on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further 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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, 2026

 

☐ 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 October 31, 2026 was 24,745,652. 

 
Table of Contents

 

 

Alerus Financial Corporation and Subsidiaries

 

Table of Contents

 

  

Page

Part I:

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

40

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63

Item 4.

Controls and Procedures

64

   

Part II:

OTHER INFORMATION

 

Item 1.

Legal Proceedings

65

Item 1A.

Risk Factors

65

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

66

   

Signatures

 

67

 

 
Table of Contents

 

 

PART I. 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)

 

2026

  

2025

 

Assets

        

Cash and cash equivalents

 $65,756  $67,192 

Investment securities

        

Trading

  818   1,758 

Available-for-sale, at fair value (amortized cost of $576,039 and $516,737, respectively)

  549,584   514,095 

Held-to-maturity, at amortized cost (fair value of $198,035 and $228,009, respectively, with an allowance for credit losses on investments of $111 and $123, respectively)

  232,988   254,448 

Loans held for sale

  19,829   21,934 

Loans

  4,184,760   4,048,022 

Allowance for credit losses on loans

  (51,448)  (61,915)

Net loans

  4,133,312   3,986,107 

Land, premises and equipment, net

  39,530   43,253 

Operating lease right-of-use assets

  31,528   28,761 

Accrued interest receivable

  21,011   21,742 

Bank-owned life insurance

  42,147   39,307 

Goodwill

  85,634   85,634 

Other intangible assets, net

  27,448   33,371 

Servicing rights

  7,416   6,383 

Deferred income taxes, net

  25,063   23,080 

Other assets

  121,039   103,019 

Total assets

 $5,403,103  $5,230,084 

Liabilities and Stockholders’ Equity

        

Liabilities

        

Deposits

        

Noninterest-bearing

 $813,493  $807,896 

Interest-bearing

  3,489,684   3,384,107 

Total deposits

  4,303,177   4,192,003 

Short-term borrowings

  318,400   308,800 

Long-term debt

  59,267   59,182 

Operating lease liabilities

  42,232   36,282 

Accrued expenses and other liabilities

  103,177   68,883 

Total liabilities

  4,826,253   4,665,150 

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 60,000,000 shares authorized: 24,744,269 and 25,406,278 issued and outstanding

  24,744   25,406 

Additional paid-in capital

  252,754   271,609 

Retained earnings

  316,826   270,075 

Accumulated other comprehensive income (loss)

  (17,474)  (2,156)

Total stockholders’ equity

  576,850   564,934 

Total liabilities and stockholders’ equity

 $5,403,103  $5,230,084 

 

 

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)

 

2026

  

2025

  

2026

  

2025

 

Interest Income

                

Loans, including fees

 $61,455  $63,875  $182,290  $189,222 

Investment securities

                

Taxable

  7,525   5,091   21,888   16,108 

Exempt from federal income taxes

  156   160   468   480 

Other

  1,056   1,518   3,149   3,440 

Total interest income

  70,192   70,644   207,795   209,250 

Interest Expense

                

Deposits

  19,538   24,350   57,550   70,643 

Short-term borrowings

  2,886   2,506   8,178   9,327 

Long-term debt

  1,045   652   2,720   1,955 

Total interest expense

  23,469   27,508   68,448   81,925 

Net interest income

  46,723   43,136   139,347   127,325 

Provision for (recovery of) credit losses

  2,199   —   (2,188)  863 

Net interest income after provision for (recovery of) credit losses

  44,524   43,136   141,535   126,462 

Noninterest Income

                

Retirement and benefit services

  17,664   16,496   52,418   48,625 

Wealth advisory services

  8,001   6,560   22,942   20,827 

Mortgage banking

  3,328   3,474   10,057   8,651 

Service charges on deposit accounts

  1,221   703   3,259   2,034 

Gain (loss) on sale of non-mortgage loans

  —   (35)  —   2,080 

Other

  4,136   2,232   9,464   6,607 

Total noninterest income

  34,350   29,430   98,140   88,824 

Noninterest Expense

                

Compensation

  26,096   24,984   76,338   72,288 

Employee taxes and benefits

  7,377   6,094   20,772   20,490 

Occupancy and equipment expense

  3,525   2,849   10,444   8,315 

Business services, software and technology expense

  5,457   6,285   16,736   17,905 

Intangible amortization expense

  1,974   2,710   5,923   8,129 

Professional fees and assessments

  3,796   2,676   11,377   8,010 

Marketing and business development

  1,227   1,069   2,957   2,821 

Supplies and postage

  573   569   1,719   1,690 

Travel

  464   385   1,181   1,019 

Mortgage and lending expenses

  707   1,025   2,030   2,501 

Other

  2,672   1,895   7,664   6,176 

Total noninterest expense

  53,868   50,541   157,141   149,344 

Income before income taxes

  25,006   22,025   82,534   65,942 

Income tax expense

  5,806   5,101   19,499   15,451 

Net income

 $19,200  $16,924  $63,035  $50,491 

Per Common Share Data

                

Basic earnings per common share

 $0.77  $0.66  $2.49  $1.97 

Diluted earnings per common share

 $0.76  $0.65  $2.46  $1.95 

Dividends declared per common share

 $0.22  $0.21  $0.65  $0.62 

Average common shares outstanding

  24,851   25,395   25,102   25,374 

Diluted average common shares outstanding

  25,161   25,713   25,410   25,693 

 

See accompanying notes to consolidated financial statements (unaudited)

 

2
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Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Net Income

 $19,200  $16,924  $63,035  $50,491 

Other Comprehensive Income (Loss), Net of Tax

                

Net change in unrealized gains (losses) on debt securities

  (18,940)  7,401   (23,854)  26,161 

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

  2,055   77   3,120   (510)

Net change in unrealized gain (losses) on other derivatives

  —   (123)  —   (246)

Total other comprehensive income (loss), before tax

  (16,885)  7,355   (20,734)  25,405 

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

  (4,390)  1,846   (5,416)  6,377 

Other comprehensive income (loss), net of tax

  (12,495)  5,509   (15,318)  19,028 

Total comprehensive income

 $6,705  $22,433  $47,717  $69,519 

 

See accompanying notes to consolidated financial statements (unaudited)

 

3
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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, 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 
                     

Balance as of June 30, 2026

  24,986  $260,066  $303,070  $(4,979) $583,143 

Net income

  —   —   19,200   —   19,200 

Other comprehensive income (loss)

  —   —   —   (12,495)  (12,495)

Common stock repurchased

  (253)  (8,049)  —   —   (8,302)

Common stock dividends

  —   —   (5,444)  —   (5,444)

Share‑based compensation expense

  —   748   —   —   748 

Vesting of restricted stock

  11   (11)  —   —   — 

Balance as of September 30, 2026

  24,744  $252,754  $316,826  $(17,474) $576,850 

 

  

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, 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 
                     

Balance as of December 31, 2025

  25,406  $271,609  $270,075  $(2,156) $564,934 

Net income

  —   —   63,035   —   63,035 

Other comprehensive income (loss)

  —   —   —   (15,318)  (15,318)

Common stock repurchased

  (777)  (21,167)  —   —   (21,944)

Common stock dividends

  —   —   (16,284)  —   (16,284)

Share‑based compensation expense

  —   2,427   —   —   2,427 

Vesting of restricted stock

  115   (115)  —   —   — 

Balance as of September 30, 2026

  24,744  $252,754  $316,826  $(17,474) $576,850 

 

See accompanying notes to consolidated financial statements (unaudited)

 

4
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Alerus Financial Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

 

  

Nine months ended

 
  

September 30,

 

(dollars in thousands)

 

2026

  

2025

 

Operating Activities

        

Net income

 $63,035  $50,491 

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

        

Deferred income taxes

  3,434   8,011 

Provision for (recovery of) credit losses

  (2,188)  863 

Depreciation and amortization

  10,026   11,548 

Amortization and accretion of premiums/discounts on investment securities

  138   573 

Amortization of operating lease right-of-use assets

  3,183   1,211 

Share‑based compensation expense

  2,427   2,027 

Purchase accounting accretion, net

  (10,212)  (21,454)

Originations of loans held for sale

  (313,941)  (120,539)

Proceeds on loans held for sale

  323,154   127,318 

Realized loss (gain) on mortgage loans sold

  (7,159)  (7,936)

Servicing rights capitalized upon sale of mortgage loans

  (89)  (154)

(Increase) in value of bank-owned life insurance

  (767)  (753)

Realized loss (gain) on sale of premises and equipment

  (2,186)  — 

Realized loss (gain) on derivative instruments

  703   (505)

Realized loss (gain) on sale of foreclosed assets

  (55)  60 

Change in fair value of mortgage servicing rights

  (944)  1,364 

Net change in:

        

Accrued interest receivable

  731   (1,527)

Other assets

  (5,549)  (649)

Accrued expenses and other liabilities

  33,956   1,241 

Net cash provided (used) by operating activities

  97,697   51,190 

Investing Activities

        

Proceeds from sales of trading investment securities

  3,355   6,233 

Purchases of trading investment securities

  (2,269)  (4,257)

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

  3,000   19,800 

Proceeds from maturities of investment securities available-for-sale

  49,413   63,536 

Purchases of investment securities available-for-sale

  (111,359)  — 

Proceeds from calls of investment securities held-to-maturity

  626   346 

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

  20,311   15,314 

Proceeds from sale of non-mortgage loans held for sale

  —   62,491 

Net (increase) decrease in loans

  (144,586)  (154,466)

Purchases of FHLB stock

  (96,645)  (115,905)

Sales of FHLB stock

  96,163   116,541 

Purchases of BOLI

  (2,073)  (2,211)

Proceeds from sale of premises and equipment

  3,149   — 

Purchases of premises and equipment

  (1,258)  (7,651)

Proceeds from sales of foreclosed assets

  389   824 

Net cash provided (used) by investing activities

  (181,784)  595 

Financing Activities

        

Net increase (decrease) in deposits

  111,174   34,243 

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

  9,600   (38,960)

Cash dividends paid on common stock

  (16,179)  (15,746)

Repurchase of common stock

  (21,944)  (518)

Net cash provided (used) by financing activities

  82,651   (20,981)

Net change in cash and cash equivalents

  (1,436)  30,804 

Cash and cash equivalents at beginning of period

  67,192   61,239 

Cash and cash equivalents at end of period

 $65,756  $92,043 

 

See accompanying notes to consolidated financial statements (unaudited)

 

5
Table of Contents

 

  

Nine months ended

 
  

September 30,

 
  

2026

  

2025

 

Supplemental Cash Flow Disclosures

        

Interest paid

 $68,150  $83,247 

Income taxes paid

  631   2,212 

Cash dividends declared, not paid

  5,443   5,338 

Supplemental Disclosures of Noncash Investing and Financing Activities

        

Loan collateral transferred to foreclosed assets

  (9,475)  (1,351)

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

  5,582   19,816 

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 Alerus Financial Corporation ("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 the Company as of  September 30, 2026 and December 31, 2025, the consolidated statements of income for the three and nine months ended September 30, 2026 and 2025, the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2026 and 2025, the consolidated statements of changes in stockholders’ equity for the three and nine months ended September 30, 2026 and 2025, and the consolidated statements of cash flows for the nine months ended September 30, 2026 and 2025.

 

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, 2025, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 4, 2026.

 

 

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, 2026, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of September 30, 2026. 

 

Adopted Pronouncements

 

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements (“ASU 2025-09”). ASU 2025-09 amends existing hedge accounting guidance to improve the alignment of financial reporting with the economics of an entity's risk management activities. ASU 2025-09 is effective for annual reporting periods beginning after December 15, 2026, including interim periods within those annual reporting periods. Early adoption is permitted. The amendments in this update apply to any entity that elects to apply hedge accounting in accordance with Topic 815 and generally are to be adopted on a prospective basis, with an election available to apply the guidance to existing hedging relationships as of the adoption date. The Company adopted ASU 2025-09 on January 1, 2026 on a prospective basis. The adoption did not have a material impact on the Company's consolidated financial statements. 

 

Pronouncements Not Yet Effective

 

Management evaluated recently issued accounting standards and determined that none are expected to have a material effect on the Company's consolidated financial statements. 

 

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 $0.8 million and $1.8 million as of  September 30, 2026 and  December 31, 2025, 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, 2026 and December 31, 2025:

 

  

September 30, 2026

 
  

Amortized

  

Unrealized

  

Unrealized

  

Allowance for

  

Fair

 

(dollars in thousands)

 

Cost

  

Gains

  

Losses

  

Credit Losses

  

Value

 

Available-for-sale

                    

U.S. Treasury and agencies

 $19,619  $28  $(25) $—  $19,622 

Mortgage backed securities

                    

Residential agency

  499,423   —   (24,920)  —   474,502 

Asset backed securities

  13   —   —   —   13 

Corporate bonds

  56,984   7   (1,544)  —   55,447 

Total available-for-sale investment securities

  576,039   35   (26,489)  —   549,584 

Held-to-maturity

                    

Obligations of state and political agencies

  100,804   —   (9,549)  65   91,255 

Mortgage backed securities

                    

Residential agency

  132,295   —   (25,515)  46   106,780 

Total held-to-maturity investment securities

  233,099   —   (35,064)  111   198,035 

Total investment securities

 $809,138  $35  $(61,553) $111  $747,619 

 

7
Table of Contents
 
  

December 31, 2025

 
  

Amortized

  

Unrealized

  

Unrealized

  

Allowance for

  

Fair

 

(dollars in thousands)

 

Cost

  

Gains

  

Losses

  

Credit Losses

  

Value

 

Available-for-sale

                    

U.S. Treasury and agencies

 $406  $—  $(1)  —  $405 

Mortgage backed securities

                    

Residential agency

  476,334   988   (576)  —   476,746 

Asset backed securities

  15   —   —   —   15 

Corporate bonds

  39,982   —   (3,053)  —   36,929 

Total available-for-sale investment securities

  516,737   988   (3,630)  —   514,095 

Held-to-maturity

                    

Obligations of state and political agencies

  111,866   1   (6,462)  72   105,405 

Mortgage backed securities

                    

Residential agency

  142,705   —   (20,101)  51   122,604 

Total held-to-maturity investment securities

  254,571   1   (26,563)  123   228,009 

Total investment securities

 $771,308  $989  $(30,193) $123  $742,104 

 

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, 2026 represented a credit loss impairment. As of both September 30, 2026 and December 31, 2025, 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, 2026 and December 31, 2025; however, all such bonds had an investment grade rating as of both dates. 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 $111 thousand and $123 thousand as of September 30, 2026 and December 31, 2025, 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, 2026. 

 

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, 2026, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $2.4 million and $0.8 million, respectively. As of December 31, 2025, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $1.9 million and $1.2 million, respectively. 

 

The Company had no sales of AFS investment securities during the three and nine months ended September 30, 2026 and 2025. The Company had no calls of AFS investment securities during the three months ended September 30, 2026 and calls with proceeds of $3.0 million during the nine months ended September 30, 2026.  For the three and nine months ended September 30, 2025, the Company had calls of AFS investment securities with proceeds of  $0.8 million and $19.0 million, respectively. 

 

The Company had no sales of HTM investment securities for the three and nine months ended September 30, 2026 and 2025. 

 

The following tables present investment securities with gross unrealized losses, for which an ACL was not recorded at September 30, 2026 and December 31, 2025, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position: 

 

      

September 30, 2026

 
      

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

  6  $(25) $9,566  $—  $317  $(25) $9,883 

Mortgage backed securities

                            

Residential agency

  63   (24,873)  473,086   (47)  1,399   (24,920)  474,485 

Asset backed securities

  3   —   11   —   1   —   12 

Corporate bonds

  9   (183)  15,817   (1,361)  35,137   (1,544)  50,954 

Total available-for-sale investment securities

  81  $(25,081) $498,480  $(1,408) $36,854  $(26,489) $535,334 

 

 

      

December 31, 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  $(1) $198  $—  $199  $(1) $397 

Mortgage backed securities

                            

Residential agency

  39   (541)  317,084   (35)  4,908   (576)  321,992 

Asset backed securities

  1   —   —   —   1   —   1 

Corporate bonds

  8   (4)  478   (3,049)  36,452   (3,053)  36,930 

Total available-for-sale investment securities

  50  $(546) $317,760  $(3,084) $41,560  $(3,630) $359,320 

 

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As of September 30, 2026 and December 31, 2025, 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, 2026 and 2025.

 

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, 2026, 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

 $18,051  $16,565  $—  $— 

Due after one year through five years

  33,254   29,455   45,018   44,096 

Due after five years through ten years

  18,449   17,017   6,772   6,761 

Due after 10 years

  31,050   28,217   24,827   24,226 
   100,804   91,254   76,617   75,083 

Mortgage-backed securities

                

Residential agency

  132,295   106,781   499,422   474,501 

Total investment securities

 $233,099  $198,035  $576,039  $549,584 

 

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 $263.3 million and $115.1 million were pledged as of September 30, 2026 and December 31, 2025, respectively, to secure public deposits and for other purposes required or permitted by law.

 

As of September 30, 2026 and December 31, 2025, 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)

 

2026

  

2025

 

Federal Reserve

 $8,631  $8,631 

FHLB

  18,450   17,968 

 

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, 2026, the conversion ratio was 1.5400. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (10,663 Class A equivalents) that the Company owned as of September 30, 2026 and December 31, 2025, 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, 2026 and December 31, 2025: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Commercial

        

Commercial and business lending

        

Commercial and industrial

 $861,135  $736,833 

Commercial real estate − Owner occupied

  690,988   427,260 

Total commercial and business lending

  1,552,123   1,164,093 

Investor commercial real estate

        

Construction, land and development

  87,615   246,238 

Multifamily

  332,535   383,505 

Non-owner occupied

  905,170   875,862 

Total investor commercial real estate

  1,325,320   1,505,605 

Agricultural

        

Land

  53,725   64,799 

Production

  54,597   62,500 

Total agricultural

  108,322   127,299 

Total commercial

  2,985,765   2,796,997 

Consumer

        

Residential real estate

        

First lien

  809,835   874,737 

Construction

  32,620   33,703 

HELOC

  280,771   260,883 

Junior lien

  31,566   36,844 

Total residential real estate

  1,154,792   1,206,167 

Other consumer

  44,203   44,858 

Total consumer

  1,198,995   1,251,025 

Total loans

 $4,184,760  $4,048,022 

 

Total loans included net deferred loan (costs) fees of ($5.3) million and $0.1 million at September 30, 2026 and December 31, 2025, respectively. Unearned discounts associated with bank acquisitions totaled $33.4 million and $43.5 million as of September 30, 2026 and December 31, 2025, respectively. 

 

Accrued interest receivable on loans is recorded within accrued interest receivable, and totaled $17.1 million at September 30, 2026 and $18.1 million at December 31, 2025. 

 

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 have approval authority and oversight responsibility for the ACL adequacy and methodology. 

 

Loans with a carrying value of $2.6 billion as of both  September 30, 2026 and  December 31, 2025, 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, 2026 and 2025: 

 

  

Three months ended September 30, 2026

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $10,477  $987  $(131) $1,265  $12,598 

Commercial real estate − Owner occupied

  5,887   780   —   11   6,678 

Total commercial and business lending

  16,364   1,767   (131)  1,276   19,276 

Investor commercial real estate

                    

Construction, land and development

  2,979   (138)  —   —   2,841 

Multifamily

  3,918   (145)  (93)  —   3,680 

Non-owner occupied

  10,580   (1,399)  —   —   9,181 

Total investor commercial real estate

  17,477   (1,682)  (93)  —   15,702 

Agricultural

                    

Land

  883   (57)  —   —   826 

Production

  567   (47)  —   30   550 

Total agricultural

  1,450   (104)  —   30   1,376 

Total commercial

  35,291   (19)  (224)  1,306   36,354 

Consumer

                    

Residential real estate

                    

First lien

  9,366   1,329   —   —   10,695 

Construction

  366   40   —   —   406 

HELOC

  2,332   555   (71)  —   2,816 

Junior lien

  397   89   —   2   488 

Total residential real estate

  12,461   2,013   (71)  2   14,405 

Other consumer

  609   75   (22)  27   689 

Total consumer

  13,070   2,088   (93)  29   15,094 

Total

 $48,361  $2,069  $(317) $1,335  $51,448 

(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 $134 thousand related to off-balance sheet credit exposure and ($4) thousand related to HTM investment securities. 

 

  

Nine months ended September 30, 2026

 
  

Beginning

  

Provision for (Recovery

  

Loan

  

Loan

  

Ending

 

(dollars in thousands)

 

Balance

  

of) Credit Losses(1)

  

Charge-offs

  

Recoveries

  

Balance

 

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $16,216  $2,941  $(8,884) $2,325  $12,598 

Commercial real estate − Owner occupied

  3,097   3,548   —   33   6,678 

Total commercial and business lending

  19,313   6,489   (8,884)  2,358   19,276 

Investor commercial real estate

                    

Construction, land and development

  13,210   (10,369)  —   —   2,841 

Multifamily

  4,380   449   (1,149)  —   3,680 

Non-owner occupied

  11,006   (1,825)  —   —   9,181 

Total investor commercial real estate

  28,596   (11,745)  (1,149)  —   15,702 

Agricultural

                    

Land

  959   (133)  —   —   826 

Production

  623   (247)  (50)  224   550 

Total agricultural

  1,582   (380)  (50)  224   1,376 

Total commercial

  49,491   (5,636)  (10,083)  2,582   36,354 

Consumer

                    

Residential real estate

                    

First lien

  9,358   1,337   —   —   10,695 

Construction

  274   132   —   —   406 

HELOC

  1,787   1,100   (71)  —   2,816 

Junior lien

  395   1,021   (931)  3   488 

Total residential real estate

  11,814   3,590   (1,002)  3   14,405 

Other consumer

  610   161   (168)  86   689 

Total consumer

  12,424   3,751   (1,170)  89   15,094 

Total

 $61,915  $(1,885) $(11,253) $2,671  $51,448 

(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 ($0.3) million related to off-balance sheet credit exposure and ($12) thousand related to HTM investment securities. 

 

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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 business lending

                    

Commercial and industrial

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

Commercial real estate − Owner occupied

  3,818   (537)  —   10   3,291 

Total commercial and business lending

  12,144   2,733   (606)  2,425   16,696 

Investor 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 

Total investor commercial real estate

  36,324   (4,607)  —   —   31,717 

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, ($2) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale. 

 

  

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 business lending

                    

Commercial and industrial

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

Commercial real estate − Owner occupied

  3,226   37   (4)  32   3,291 

Total commercial and business lending

  11,396   3,313   (858)  2,845   16,696 

Investor 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 

Total investor commercial real estate

  37,506   (2,388)  (3,401)  —   31,717 

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. 

 

The ACL on loans at September 30, 2026 was $51.4 million, a decrease of $10.5 million, or 16.9%, from December 31, 2025. The decrease was primarily due to resolution of nonperforming loans. 

 

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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, 2026.

 

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.

 

13
Table of Contents
 

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, 2026 and December 31, 2025:

 

                          

Revolving

     

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

Loans Amortized

     

As of September 30, 2026

 

2026 YTD

  

2025

  

2024

  

2023

  

2022

  

Prior

  

Cost Basis

  

Total

 

Commercial and industrial

                                

Pass

 $262,486  $206,276  $80,327  $50,062  $29,325  $56,810  $149,619  $834,905 

Special mention

  —   2,250   454   874   605   133   2,873   7,189 

Substandard

  —   176   811   13,009   761   2,076   692   17,525 

Doubtful

  —   —   1,360   156   —   —   —   1,516 

Subtotal

 $262,486  $208,702  $82,952  $64,101  $30,691  $59,019  $153,184  $861,135 

Gross charge-offs

 $—  $973  $5,891  $1,443  $247  $330  $—  $8,884 

CRE − Owner occupied

                                

Pass

 $157,174  $57,327  $143,882  $107,122  $63,700  $146,491  $2,195  $677,891 

Special mention

  —   1,268   448   —   —   2,692   —   4,408 

Substandard

  —   —   —   1,394   2,744   4,551   —   8,689 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $157,174  $58,595  $144,330  $108,516  $66,444  $153,734  $2,195  $690,988 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Construction, land and development

                                

Pass

 $18,608  $29,701  $33,523  $2,046  $1,174  $1,222  $1,341  $87,615 

Special mention

  —   —   —   —   —   —   —   — 

Substandard

  —   —   —   —   —   —   —   — 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $18,608  $29,701  $33,523  $2,046  $1,174  $1,222  $1,341  $87,615 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Multifamily

                                

Pass

 $34,675  $6,251  $36,371  $71,020  $92,602  $76,659  $—  $317,578 

Special mention

  —   —   —   —   —   —   —   — 

Substandard

  —   —   2,691   —   —   12,266   —   14,957 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $34,675  $6,251  $39,062  $71,020  $92,602  $88,925  $—  $332,535 

Gross charge-offs

 $—  $—  $93  $500  $—  $556  $—  $1,149 

CRE − Non-owner occupied

                                

Pass

 $125,930  $82,474  $220,960  $100,979  $156,797  $204,765  $721  $892,626 

Special mention

  —   —   —   —   —   1,003   —   1,003 

Substandard

  —   —   300   4,461   —   6,780   —   11,541 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $125,930  $82,474  $221,260  $105,440  $156,797  $212,548  $721  $905,170 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Agricultural − Land

                                

Pass

 $3,821  $2,890  $7,614  $5,999  $11,671  $15,172  $—  $47,167 

Special mention

  5,026   —   —   —   —   —   —   5,026 

Substandard

  720   229   —   —   449   134   —   1,532 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $9,567  $3,119  $7,614  $5,999  $12,120  $15,306  $—  $53,725 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Agricultural − Production

                                

Pass

 $4,344  $2,216  $3,870  $3,193  $2,312  $585  $33,171  $49,691 

Special mention

  —   447   126   655   —   —   2,858   4,086 

Substandard

  —   —   —   —   —   —   820   820 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $4,344  $2,663  $3,996  $3,848  $2,312  $585  $36,849  $54,597 

Gross charge-offs

 $—  $—  $—  $50  $—  $—  $—  $50 

Residential real estate − First lien

                                

Performing

 $31,819  $50,620  $32,524  $99,151  $186,717  $406,518  $—  $807,349 

Nonperforming

  —   —   —   —   —   2,486   —   2,486 

Subtotal

 $31,819  $50,620  $32,524  $99,151  $186,717  $409,004  $—  $809,835 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − Construction

                                

Performing

 $10,649  $16,564  $5,407  $—  $—  $—  $—  $32,620 

Nonperforming

  —   —   —   —   —   —   —   — 

Subtotal

 $10,649  $16,564  $5,407  $—  $—  $—  $—  $32,620 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − HELOC

                                

Performing

 $626  $952  $1,864  $3,669  $4,104  $7,736  $261,139  $280,090 

Nonperforming

  —   150   —   —   186   344   1   681 

Subtotal

 $626  $1,102  $1,864  $3,669  $4,290  $8,080  $261,140  $280,771 

Gross charge-offs

 $—  $—  $—  $25  $46  $—  $—  $71 

Residential real estate − Junior lien

                                

Performing

 $4,546  $3,612  $3,485  $6,602  $5,330  $7,581  $336  $31,492 

Nonperforming

  —   —   —   —   —   74   —   74 

Subtotal

 $4,546  $3,612  $3,485  $6,602  $5,330  $7,655  $336  $31,566 

Gross charge-offs for the year ended

 $—  $—  $565  $—  $—  $366  $—  $931 

Other consumer

                                

Performing

 $2,263  $4,392  $1,471  $1,555  $2,094  $2,545  $29,586  $43,906 

Nonperforming

  —   26   271   —   —   —   —   297 

Subtotal

 $2,263  $4,418  $1,742  $1,555  $2,094  $2,545  $29,586  $44,203 

Gross charge-offs

 $—  $18  $8  $104  $—  $38  $—  $168 

Total loans

 $662,687  $467,821  $577,759  $471,947  $560,571  $958,623  $485,352  $4,184,760 

Gross charge-offs

 $—  $991  $6,557  $2,122  $293  $1,290  $—  $11,253 

 

14
Table of Contents
 
                          

Revolving

     

(dollars in thousands)

 

Term Loans Amortized Cost Basis by Origination Year

  

Loans Amortized

     

As of December 31, 2025

 

2025

  

2024

  

2023

  

2022

  

2021

  

Prior

  

Cost Basis

  

Total

 

Commercial and industrial

                                

Pass

 $242,893  $131,308  $67,934  $43,513  $21,143  $51,586  $145,133  $703,510 

Special mention

  316   10   560   —   —   28   —   914 

Substandard

  35   26   2,701   2,970   1,072   6,459   7,115   20,378 

Doubtful

  1,218   8,638   1,763   298   114   —   —   12,031 

Subtotal

 $244,462  $139,982  $72,958  $46,781  $22,329  $58,073  $152,248  $736,833 

Gross charge-offs

 $—  $407  $152  $10  $5  $342  $—  $916 

CRE − Owner occupied

                                

Pass

 $42,468  $86,030  $55,069  $61,790  $39,654  $126,951  $1,240  $413,202 

Special mention

  —   449   —   —   —   1,465   769   2,683 

Substandard

  —   —   1,402   2,867   2,342   4,764   —   11,375 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $42,468  $86,479  $56,471  $64,657  $41,996  $133,180  $2,009  $427,260 

Gross charge-offs

 $—  $—  $6  $—  $—  $—  $—  $6 

CRE − Construction, land and development

                                

Pass

 $26,108  $148,261  $18,056  $9,738  $650  $995  $8,229  $212,037 

Special mention

  —   —   —   178   —   —   —   178 

Substandard

  —   11,178   —   22,685   —   160   —   34,023 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $26,108  $159,439  $18,056  $32,601  $650  $1,155  $8,229  $246,238 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Multifamily

                                

Pass

 $6,338  $26,236  $115,983  $115,403  $30,191  $60,813  $—  $354,964 

Special mention

  —   —   —   —   831   —   —   831 

Substandard

  —   5,751   3,972   —   —   17,987   —   27,710 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $6,338  $31,987  $119,955  $115,403  $31,022  $78,800  $—  $383,505 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

CRE − Non-owner occupied

                                

Pass

 $102,426  $196,932  $134,443  $169,100  $86,273  $168,082  $1,015  $858,271 

Special mention

  —   —   —   —   —   1,040   —   1,040 

Substandard

  —   —   5,344   7,489   2,729   989   —   16,551 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $102,426  $196,932  $139,787  $176,589  $89,002  $170,111  $1,015  $875,862 

Gross charge-offs

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

Agricultural − Land

                                

Pass

 $8,201  $8,285  $8,410  $12,363  $5,202  $12,221  $2,464  $57,146 

Special mention

  233   —   —   3,315   —   —   —   3,548 

Substandard

  —   —   303   3,583   —   219   —   4,105 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $8,434  $8,285  $8,713  $19,261  $5,202  $12,440  $2,464  $64,799 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Agricultural − Production

                                

Pass

 $4,778  $6,219  $4,652  $3,154  $370  $720  $38,945  $58,838 

Special mention

  —   48   112   —   —   —   213   373 

Substandard

  —   21   553   1,237   29   342   1,107   3,289 

Doubtful

  —   —   —   —   —   —   —   — 

Subtotal

 $4,778  $6,288  $5,317  $4,391  $399  $1,062  $40,265  $62,500 

Gross charge-offs

 $—  $—  $—  $384  $—  $—  $—  $384 

Residential real estate − First lien

                                

Performing

 $53,688  $37,893  $122,651  $210,228  $234,461  $213,214  $—  $872,135 

Nonperforming

  —   —   499   —   642   1,461   —   2,602 

Subtotal

 $53,688  $37,893  $123,150  $210,228  $235,103  $214,675  $—  $874,737 

Gross charge-offs

 $—  $—  $—  $—  $7  $48  $—  $55 

Residential real estate − Construction

                                

Performing

 $18,097  $10,459  $—  $—  $467  $—  $—  $29,023 

Nonperforming

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

Subtotal

 $18,097  $10,459  $—  $4,680  $467  $—  $—  $33,703 

Gross charge-offs

 $—  $—  $—  $—  $—  $—  $—  $— 

Residential real estate − HELOC

                                

Performing

 $757  $2,121  $3,716  $5,252  $975  $5,649  $242,285  $260,755 

Nonperforming

  —   —   25   50   —   53   —   128 

Subtotal

 $757  $2,121  $3,741  $5,302  $975  $5,702  $242,285  $260,883 

Gross charge-offs

 $—  $100  $10  $438  $—  $—  $—  $548 

Residential real estate − Junior lien

                                

Performing

 $4,753  $4,995  $8,609  $7,090  $3,977  $4,995  $50  $34,469 

Nonperforming

  —   1,775   —   —   —   600   —   2,375 

Subtotal

 $4,753  $6,770  $8,609  $7,090  $3,977  $5,595  $50  $36,844 

Gross charge-offs

 $—  $—  $—  $300  $—  $—  $—  $300 

Other consumer

                                

Performing

 $5,330  $2,318  $3,016  $3,056  $157  $3,651  $26,982  $44,510 

Nonperforming

  —   319   —   —   —   29   —   348 

Subtotal

 $5,330  $2,637  $3,016  $3,056  $157  $3,680  $26,982  $44,858 

Gross charge-offs

 $—  $16  $31  $22  $—  $69  $—  $138 

Total loans

 $517,639  $689,272  $559,773  $690,039  $431,279  $684,473  $475,547  $4,048,022 

Gross charge-offs

 $—  $523  $199  $1,786  $787  $2,453  $—  $5,748 

 

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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, 2026 and December 31, 2025:

 

  

September 30, 2026

 
              

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 business lending

                        

Commercial and industrial

 $847,326  $1,381  $9,832  $—  $2,596  $861,135 

Commercial real estate − Owner occupied

  689,588   —   1,267   —   133   690,988 

Total commercial and business lending

  1,536,914   1,381   11,099   —   2,729   1,552,123 

Investor commercial real estate

                        

Construction, land and development

  87,615   —   —   —   —   87,615 

Multifamily

  331,246   —   416   —   873   332,535 

Non-owner occupied

  905,024   —   —   —   146   905,170 

Total investor commercial real estate

  1,323,885   —   416   —   1,019   1,325,320 

Agricultural

                        

Land

  52,980   229   382   —   134   53,725 

Production

  54,387   45   165   —   —   54,597 

Total agricultural

  107,367   274   547   —   134   108,322 

Total commercial

  2,968,166   1,655   12,062   —   3,882   2,985,765 

Consumer

                        

Residential real estate

                        

First lien

  807,074   345   441   —   1,975   809,835 

Construction

  32,620   —   —   —   —   32,620 

HELOC

  279,857   212   —   21   681   280,771 

Junior lien

  31,406   —   86   —   74   31,566 

Total residential real estate

  1,150,957   557   527   21   2,730   1,154,792 

Other consumer

  43,895   11   —   —   297   44,203 

Total consumer

  1,194,852   568   527   21   3,027   1,198,995 

Total

 $4,163,018  $2,223  $12,589  $21  $6,909  $4,184,760 

 

  

December 31, 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 business lending

                        

Commercial and industrial

 $723,436  $689  $—  $—  $12,708  $736,833 

Commercial real estate − Owner occupied

  426,803   —   314   —   143   427,260 

Total commercial and business lending

  1,150,239   689   314   —   12,851   1,164,093 

Investor commercial real estate

                        

Construction, land and development

  212,515   —   —   —   33,723   246,238 

Multifamily

  373,308   —   —   —   10,197   383,505 

Non-owner occupied

  874,042   163   —   —   1,657   875,862 

Total investor commercial real estate

  1,459,865   163   —   —   45,577   1,505,605 

Agricultural

                        

Land

  63,961   674   —   —   164   64,799 

Production

  62,105   53   —   —   342   62,500 

Total agricultural

  126,066   727   —   —   506   127,299 

Total commercial

  2,736,170   1,579   314   —   58,934   2,796,997 

Consumer

                        

Residential real estate

                        

First lien

  869,291   2,051   794   —   2,601   874,737 

Construction

  29,023   —   —   —   4,680   33,703 

HELOC

  260,467   287   —   —   129   260,883 

Junior lien

  34,362   107   —   —   2,375   36,844 

Total residential real estate

  1,193,143   2,445   794   —   9,785   1,206,167 

Other consumer

  44,471   37   4   —   346   44,858 

Total consumer

  1,237,614   2,482   798   —   10,131   1,251,025 

Total

 $3,973,784  $4,061  $1,112  $—  $69,065  $4,048,022 

 

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, 2026 and December 31, 2025: 

 

  

As of September 30, 2026

 
          

90 Days

 
  

Nonaccrual

      

or More

 
  

with no Allowance

      

Past Due

 

(dollars in thousands)

 

for Credit Losses

  

Nonaccrual

  

and Accruing

 

Commercial

            

Commercial and business lending

            

Commercial and industrial

 $2,596  $2,596  $— 

Commercial real estate − Owner occupied

  133   133   — 

Total commercial and business lending

  2,729   2,729   — 

Investor commercial real estate

            

Construction, land and development

  —   —   — 

Multifamily

  873   873   — 

Non-owner occupied

  146   146   — 

Total investor commercial real estate

  1,019   1,019   — 

Agricultural

            

Land

  134   134   — 

Production

  —   —   — 

Total agricultural

  134   134   — 

Total commercial

  3,882   3,882   — 

Consumer

            

Residential real estate

            

First lien

  603   1,975   — 

Construction

  —   —   — 

HELOC

  682   681   21 

Junior lien

  74   74   — 

Total residential real estate

  1,359   2,730   21 

Other consumer

  297   297   — 

Total consumer

  1,656   3,027   21 

Total

 $5,538  $6,909  $21 

 

  

December 31, 2025

 
          

90 Days

 
  

Nonaccrual

      

or More

 
  

with no Allowance

      

Past Due

 

(dollars in thousands)

 

for Credit Losses

  

Nonaccrual

  

and Accruing

 

Commercial

            

Commercial and business lending

            

Commercial and industrial

 $—  $12,708  $— 

Commercial real estate − Owner occupied

  89   143   — 

Total commercial and business lending

  89   12,851   — 

Investor commercial real estate

            

Construction, land and development

  26,475   33,723   — 

Multifamily

  4,733   10,197   — 

Non-owner occupied

  1,657   1,657   — 

Total investor commercial real estate

  32,865   45,577   — 

Agricultural

            

Land

  164   164   — 

Production

  —   342   — 

Total agricultural

  164   506   — 

Total commercial

  33,118   58,934   — 

Consumer

            

Residential real estate

            

First lien

  2,298   2,601   — 

Construction

  4,680   4,680   — 

HELOC

  —   129   — 

Junior lien

  2,305   2,375   — 

Total residential real estate

  9,283   9,785   — 

Other consumer

  —   346   — 

Total consumer

  9,283   10,131   — 

Total

 $42,401  $69,065  $— 

 

Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the nine months ended September 30, 2026 and 2025, is estimated to have been $1.4 million and $3.8 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, 2026 or 2025. At September 30, 2026 and December 31, 2025, total accrued interest receivable on loans, which had been excluded from reported amortized cost basis on loans, was $17.1 million and $18.1 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. 

 

17
Table of Contents
 

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, 2026 and December 31, 2025: 

 

  

As of September 30, 2026

 
  

Primary Type of Collateral

 
                  

Allowance for

 

(dollars in thousands)

 

Real estate

  

Equipment

  

Other

  

Total

  

Credit Losses

 

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $—  $1,516  $992  $2,508  $1,541 

Commercial real estate − Owner occupied

  133   —   —   133   28 

Total commercial and business lending

  133   1,516   992   2,641   1,569 

Investor commercial real estate

                    

Construction, land and development

  —   —   —   —   — 

Multifamily

  873   —   —   873   261 

Non-owner occupied

  146   —   —   146   44 

Total investor commercial real estate

  1,019   —   —   1,019   305 

Agricultural

                    

Land

  134   —   —   134   40 

Production

  —   —   —   —   — 

Total agricultural

  134   —   —   134   40 

Total commercial

  1,286   1,516   992   3,794   1,914 

Consumer

                    

Residential real estate

                    

First lien

  1,878   —   —   1,878   22 

Construction

  —   —   —   —   — 

HELOC

  388   —   —   388   116 

Junior lien

  —   —   —   —   — 

Total residential real estate

  2,266   —   —   2,266   138 

Other consumer

  —   —   266   266   266 

Total consumer

  2,266   —   266   2,532   404 

Total

 $3,552  $1,516  $1,258  $6,326  $2,318 

 

  

As of December 31, 2025

 
  

Primary Type of Collateral

 
                  

Allowance for

 

(dollars in thousands)

 

Real estate

  

Equipment

  

Other

  

Total

  

Credit Losses

 

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $651  $—  $—  $651  $43 

Commercial real estate − Owner occupied

  142   —   —   142   4 

Total commercial and business lending

  793   —   —   793   47 

Investor commercial real estate

                    

Construction, land and development

  33,723   —   —   33,723   5,635 

Multifamily

  10,197   —   —   10,197   865 

Non-owner occupied

  1,657   —   —   1,657   — 

Total investor commercial real estate

  45,577   —   —   45,577   6,500 

Agricultural

                    

Land

  164   —   —   164   — 

Production

  —   —   342   342   42 

Total agricultural

  164   —   342   506   42 

Total commercial

  46,534   —   342   46,876   6,589 

Consumer

                    

Residential real estate

                    

First lien

  2,528   —   —   2,528   229 

Construction

  4,680   —   —   4,680   — 

HELOC

  —   —   —   —   — 

Junior lien

  2,304   —   —   2,304   — 

Total residential real estate

  9,512   —   —   9,512   229 

Other consumer

  —   —   319   319   319 

Total consumer

  9,512   —   319   9,831   548 

Total

 $56,046  $—  $661  $56,707  $7,137 

 

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. 

 

The following table presents the amortized cost basis of loans as of  September 30, 2026, by class of type of modification, that were experiencing financial difficulty during the three and nine months ended September 30, 2026. 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, 2026 is also presented below. 

 

  

Three months ended September 30, 2026

 
                  

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

 

Commercial and industrial

 $—  $—  $—  $149  $—  $—   0.0%

 

  

Nine months ended September 30, 2026

 
                  

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

 

Commercial and industrial

 $—  $—  $—  $946  $—  $—   0.1%

 

The following table presents the amortized cost basis of loans as of September 30, 2025, by class of type of modification, that were experiencing financial difficulty during the three and nine months ended September 30, 2025. 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. 

 

  

Three 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

  —   —   —   —   —   —   0.0%

 

  

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  $—  $—   2.3%

 

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of modification efforts and relevant factors are considered while assessing the adequacy of the ACL. For the three months ended September 30, 2026 and 2025, there were no modified loans to borrowers experiencing financial difficulty that were past due or for which the borrower subsequently defaulted. 

 

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 NOTE 5 Land, Premises and Equipment, Net

 

Components of land, premises and equipment, net at September 30, 2026 and December 31, 2025 were as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Land (1)

 $5,345  $6,425 

Buildings and improvements (1)

  36,694   39,979 

Leasehold improvements

  2,657   2,657 

Furniture, fixtures, and equipment

  43,692   42,933 
   88,388   91,994 

Less accumulated depreciation

  (48,858)  (48,741)

Total

 $39,530  $43,253 

(1)

Excludes assets held for sale.

 

Depreciation expense was $1.4 million and $1.1 million for the three months ended September 30, 2026 and 2025, respectively. Depreciation expense was $4.0 million and $3.3 million for the nine months ended September 30, 2026 and 2025, respectively. 

 

The Company has entered into an agreement to sell the Civic Center branch building in Rochester, Minnesota for $6.5 million.  As of September 30, 2026, the facility had a carrying value of approximately $7.4 million. As a result, the carrying value of these assets was adjusted to fair value less estimated selling costs, resulting in a loss of $0.9 million. The loss was included in other non-interest income on the Company’s consolidated income statement as the West Fargo, North Dakota facility sale also closed in the third quarter, resulting in a total net gain on sale of fixed assets of $1.6 million.  As of September 30, 2026, the assets held for sale consisted of land and buildings totaling $6.5 million, which are included in other assets on the Company’s consolidated balance sheet and were not included in the table above.

 

 

NOTE 6 Goodwill and Other Intangible Assets

 

The following table summarizes the carrying amount of goodwill, by segment, as of September 30, 2026 and December 31, 2025: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

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, 2026. 

 

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset, as of September 30, 2026 and December 31, 2025, were as follows: 

 

  

September 30, 2026

  

December 31, 2025

 

(dollars in thousands)

 

Gross Carrying Amount

  

Accumulated Amortization

  

Total

  

Gross Carrying Amount

  

Accumulated Amortization

  

Total

 

Identifiable customer intangibles

 $27,504  $(23,214) $4,290  $27,504  $(22,456) $5,048 

Core deposit intangible assets

  41,092   (17,934)  23,158   41,092   (12,769)  28,323 

Total intangible assets

 $68,596  $(41,148) $27,448  $68,596  $(35,225) $33,371 

 

Amortization of total intangible assets was $2.0 million and $2.7 million for the three months ended September 30, 2026 and 2025, respectively. Amortization of total intangible assets was $5.9 million and $8.1 million for the nine months ended September 30, 2026 and 2025, 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 $601.9 million and $660.7 million as of September 30, 2026 and December 31, 2025, 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, 2025 and 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, 2023. 

 

The following table presents the changes in fair value of the Company’s MSR portfolio for the three and nine months ended September 30, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Balance at beginning of period

 $7,022  $7,184  $6,383  $7,918 

Additions from loans sold with servicing rights retained

  33   53   89   154 

Change in fair value

  361   (529)  944   (1,364)

Balance at end of period

 $7,416  $6,708  $7,416  $6,708 

 

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The following is a summary of key data and assumptions used in the valuation of servicing rights as of September 30, 2026 and December 31, 2025. 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)

 

2026

  

2025

 

Fair value of servicing rights

 $7,416  $6,383 

Weighted-average remaining term, years

  21.6   21.5 

Prepayment speeds

  7.2%  14.4%

Discount rate

  10.8%  10.0%

 

 

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, 2026 and December 31, 2025: 

 

   

September 30,

  

December 31,

 

(dollars in thousands)

  

2026

  

2025

 

Lease Right-of-Use Assets

Classification

        

Operating lease right-of-use assets

Operating lease right-of-use assets

 $31,528  $28,761 

Lease Liabilities

         

Operating lease liabilities

Operating lease liabilities

 $42,232  $36,282 

 

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. 

 

  

September 30,

  

December 31,

 
  

2026

  

2025

 

Weighted-average remaining lease term, years

        

Operating leases

  15.6   16.9 

Weighted-average discount rate

        

Operating leases

  5.0%  5.1%

 

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, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Lease costs

                

Operating lease cost

 $945  $621  $2,520  $1,861 

Variable lease cost

  365   132   862   258 

Short-term lease cost

  50   146   197   605 

Sublease income

  (19)  (43)  (55)  (164)

Net lease cost

 $1,341  $856  $3,524  $2,560 

Other information

                

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

 $945  $719  $2,520  $1,916 

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

  300   19,750   5,582   19,816 

 

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of September 30, 2026 were as follows: 

 

  

Operating

 

(dollars in thousands)

 

Leases

 

Twelve months ended

    

September 30, 2027

 $3,774 

September 30, 2028

  3,816 

September 30, 2029

  3,975 

September 30, 2030

  4,038 

September 30, 2031

  4,147 

Thereafter

  45,406 

Total future minimum lease payments

 $65,156 

Amounts representing interest

  (22,924)

Total operating lease liabilities

 $42,232 

 

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NOTE 9 Deposits

 

The components of deposits in the consolidated balance sheets as of September 30, 2026 and December 31, 2025 were as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Noninterest-bearing

 $813,493  $807,896 

Interest-bearing

        

Interest-bearing demand

  1,430,016   1,296,315 

Savings accounts

  169,556   173,759 

Money market savings

  1,307,677   1,337,491 

Time deposits

  582,435   576,542 

Total interest-bearing

  3,489,684   3,384,107 
  $4,303,177  $4,192,003 

 

Certificates of deposit in excess of $250,000 totaled $194.2 million and $190.5 million at September 30, 2026 and December 31, 2025, respectively. 

 

 

NOTE 10 Short‑Term Borrowings

 

Short-term borrowings at September 30, 2026 and December 31, 2025 consisted of the following: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Fed funds purchased

 $98,400  $58,800 

FHLB short-term advances

  220,000   250,000 

Total

 $318,400  $308,800 

 

 

NOTE 11 Long‑Term Debt

 

Long‑term debt as of September 30, 2026 and December 31, 2025 consisted of the following: 

 

  

September 30, 2026

            

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 for first 5 years, then repriced at the FHLB rate + 3.00%

  6.75% 

3/30/2036

 

3/30/2031

Junior subordinated debenture (Trust I)

  4,124   3,707  

Three-month CME SOFR + 0.26% + 3.10%

  7.44% 

6/26/2033

 

6/26/2008

Junior subordinated debenture (Trust II)

  6,186   5,560  

Three-month CME SOFR + 0.26% + 1.80%

  5.96% 

9/15/2036

 

9/15/2011

Total long-term debt

 $60,310  $59,267           

 

  

December 31, 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   3,673  

Three-month CME SOFR + 0.26% + 3.10%

  7.05% 

6/26/2033

 

6/26/2008

Junior subordinated debenture (Trust II)

  6,186   5,509  

Three-month CME SOFR + 0.26% + 1.80%

  5.78% 

9/15/2036

 

9/15/2011

Total long-term debt

 $60,310  $59,182           

 

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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, 2026 and December 31, 2025, respectively, was as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Commitments to extend credit

 $1,078,522  $1,038,347 

Standby letters of credit

  16,113   14,393 

Total

 $1,094,635  $1,052,740 

 

The Company establishes an ACL on unfunded commitments, except those that are unconditionally cancellable by the Company. As of  September 30, 2026 and December 31, 2025, the ACL on unfunded commitments was $3.6 million and $3.9 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, 2026 and 2025, the provision (recovery) for credit losses on unfunded commitments was ($0.3) million and ($3.9) million, 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 Federal Home Loan Bank or the Bank of North Dakota to secure public unit deposits. Letters of credit outstanding with the Federal Home Loan Bank totaled $4.9 million as of September 30, 2026, compared to $33.6 million as of  December 31, 2025. The Company had no letters of credit outstanding with the Bank of North Dakota as of  September 30, 2026, compared to $126.0 million as of  December 31, 2025. As a result, no loans were pledged to the Bank of North Dakota as collateral as of September 30, 2026.  As of  December 31, 2025, letters of credit issued by the Bank of North Dakota were collateralized by loans pledged in the amount of $549.0 million. 

 

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; 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 two 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, (2) the absence of specificity as to alleged damages, and (3) the lack of resolution of significant factual and legal issues. 

 

As of September 30, 2026 and December 31, 2025, the Company did not have any accrued liabilities recorded for loss contingencies that were required to be disclosed. 

 

 

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, 2026, 455,196 shares of common stock were still available for issuance under the plan. 

 

The compensation expense relating to awards under this plan was $0.7 million and $0.8 million for the three months ended September 30, 2026 and 2025, respectively. The compensation expense relating to awards under this plan was $2.4 million and $2.0 million for the nine months ended September 30, 2026 and 2025, respectively. 

 

The following table presents the activity in the stock plan for the nine months ended September 30, 2026 and 2025:

 

  

Nine months ended September 30,

 
  

2026

  

2025

 
      

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

  296,468  $20.61   289,549  $21.94 

Granted

  117,838   26.21   123,055   20.16 

Vested

  (91,021)  20.39   (64,014)  22.44 

Forfeited or cancelled

  (10,208)  20.68   (33,074)  25.80 

Outstanding at end of period

  313,077  $22.78   315,516  $20.74 

 

As of September 30, 2026, there was $4.1 million of unrecognized compensation expense related to non-vested awards granted under the plan. The expense is expected to be recognized over a weighted-average period of 2.0 years. 

 

 

NOTE 14 Income Taxes

 

The components of income tax expense (benefit) for the three and nine months ended September 30, 2026 and 2025 were as follows:

 

  

Three months ended September 30,

 
  

2026

  

2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Amount

  

Pretax Income

  

Amount

  

Pretax Income

 

Taxes at statutory federal income tax rate

 $5,251   21.0% $4,625   21.0%

Tax effect of:

                

Tax exempt income

  (662)  (2.6)%  (584)  (2.7)%

State income taxes, net of federal benefits

  1,204   4.8%  1,071   4.9%

Nondeductible items and other

  13   0.1%  (11)  —%

Applicable income taxes

 $5,806   23.3% $5,101   23.2%

 

  

Nine months ended September 30,

 
  

2026

  

2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Amount

  

Pretax Income

  

Amount

  

Pretax Income

 

Taxes at statutory federal income tax rate

 $17,332   21.0% $13,848   21.0%

Tax effect of:

                

Tax exempt income

  (1,855)  (2.2)%  (1,539)  (2.3)%

State income taxes, net of federal benefits

  3,414   4.1%  3,256   4.9%

Nondeductible items and other

  608   0.7%  (114)  (0.2)%

Applicable income taxes

 $19,499   23.6% $15,451   23.4%

 

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It is the opinion of management that, as of September 30, 2026, the Company had no significant uncertain tax positions that would be subject to change upon examination. 

 

 

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, 2026 and December 31, 2025:

 

   

September 30, 2026

  

December 31, 2025

 

(dollars in thousands)

  

Investment

  

Unfunded Commitment

  

Investment

  

Unfunded Commitment

 

Investment

Accounting Method

                

Low income housing tax credit

Proportional amortization

 $37,906  $15,481  $22,906  $5,082 

 

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, 2026 and 2025:

 

  

Three months ended September 30,

 
  

2026

  

2025

 
  

Amortization

  

Tax Benefit

  

Amortization

  

Tax Benefit

 

(dollars in thousands)

 

Expense (1)

  

Recognized (2)

  

Expense (1)

  

Recognized (2)

 

Low income housing tax credit

 $601  $(748) $455  $(513)

(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,

 
  

2026

  

2025

 
  

Amortization

  

Tax Benefit

  

Amortization

  

Tax Benefit

 

(dollars in thousands)

 

Expense (1)

  

Recognized (2)

  

Expense (1)

  

Recognized (2)

 

Low income housing tax credit

 $1,765  $(2,237) $1,369  $(1,538)

(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 advisory services. 

 

The Company’s reportable segments include the following:

 

 

●

Banking: Offers a complete line of loan, deposit, cash management, and treasury services through 25 offices in North Dakota, Minnesota, Wisconsin, Iowa, and Arizona. 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 serves clients nationally, including within the Company's banking markets, through a geographically dispersed workforce, and maintains an office in Lakewood, Colorado. 
   
 ●Wealth Advisory Services: Provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

 

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The Company’s segment reporting process begins with the assignment of income and expenses directly to the applicable segments based on different cost centers within 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. 

 

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, 2026

 
     Retirement and  Wealth Advisory  Corporate    

(dollars in thousands)

 

Banking

  

Benefit Services

  

Services

  

Administration

  

Consolidated

 

Net interest income (loss)

 $47,767  $—  $—  $(1,044) $46,723 

Provision for credit losses

  2,199   —   —   —   2,199 

Noninterest income (loss)

  7,163   17,664   8,001   1,522   34,350 

Noninterest expense

                    

Compensation

  13,475   7,968   3,131   1,522   26,096 

Employee taxes and benefits

  3,519   2,307   688   863   7,377 

Business services, software and technology expense

  2,661   1,585   1,088   123   5,457 

Merger and acquisition expense

  —   —   —   15   15 

Other noninterest expense

  10,199   3,159   1,255   310   14,923 

Total noninterest expense

  29,854   15,019   6,162   2,833   53,868 

Net income (loss) before taxes

 $22,877  $2,645  $1,839  $(2,355) $25,006 

Total assets

 $5,297,439  $33,538  $466  $71,660  $5,403,103 

 

  

As of and for the nine months ended September 30, 2026

 
      

Retirement and

  

Wealth Advisory

  

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Services

  

Administration

  

Consolidated

 

Net interest income (loss)

 $142,065  $—  $—  $(2,718) $139,347 

Provision for credit losses

  (2,188)  —   —   —   (2,188)

Noninterest income (loss)

  20,550   52,418   22,942   2,230   98,140 

Noninterest expense

                    

Compensation

  37,732   23,565   9,908   5,133   76,338 

Employee taxes and benefits

  9,805   6,659   2,072   2,236   20,772 

Business services, software and technology expense

  8,077   5,029   3,236   394   16,736 

Merger and acquisition expense

  —   —   —   (13)  (13)

Other noninterest expense

  29,890   9,452   3,047   919   43,308 

Total noninterest expense

  85,504   44,705   18,263   8,669   157,141 

Net income (loss) before taxes

 $79,299  $7,713  $4,679  $(9,157) $82,534 

Total assets

 $5,297,439  $33,538  $466  $71,660  $5,403,103 

 

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

 
      

Retirement and

  

Wealth Advisory

  

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Services

  

Administration

  

Consolidated

 

Net interest income (loss)

 $43,788  $—  $—  $(652) $43,136 

Provision for credit losses

  —   —   —   —   — 

Noninterest income

  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

  

Wealth Advisory

  

Corporate

     

(dollars in thousands)

 

Banking

  

Benefit Services

  

Services

  

Administration

  

Consolidated

 

Net interest income (loss)

 $129,279  $—  $—  $(1,954) $127,325 

Provision for credit losses

  863   —   —   —   863 

Noninterest income

  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 

 

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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, 2026 and 2025 are presented below:

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

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

 

2026

  

2025

  

2026

  

2025

 

Net income

 $19,200  $16,924  $63,035  $50,491 

Dividends and undistributed earnings allocated to participating securities

  171   147   571   445 

Net income available to common stockholders

 $19,029  $16,777  $62,464  $50,046 

Weighted-average common shares outstanding for basic earnings per share

  24,851   25,395   25,102   25,374 

Dilutive effect of stock-based awards

  310   318   308   319 

Weighted-average common shares outstanding for diluted earnings per share

  25,161   25,713   25,410   25,693 

Earnings per common share:

                

Basic earnings per common share

 $0.77  $0.66  $2.49  $1.97 

Diluted earnings per common share

 $0.76  $0.65  $2.46  $1.95 

 

There were no antidilutive shares for the three and nine months ended September 30, 2026 and 2025.

 

 

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, 2026, 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, 2026. As of September 30, 2026, the maximum length of time over which forecasted transactions are hedged was 38 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, 2026 and December 31, 2025:

 

  

Derivative Assets (1)

  

Derivative Liabilities (2)

 
  

Notional

  

Fair

  

Notional

  

Fair

 

(dollars in thousands)

 

Amount

  

Value

  

Amount

  

Value

 

September 30, 2026

                

Designated as hedging instruments:

                

Cash flow hedges:

                

Interest rate swaps

  200,000   3,101   —   — 

Total derivatives designated as hedging instruments

 $200,000  $3,101  $—  $— 

Not designated as hedging instruments:

                

Interest rate swaps (3)

 $540,526  $13,452  $556,526  $14,301 

Interest rate lock commitments

  —   —   24,415   133 

Forward loan sales commitments

  —   —   —   3 

To-be-announced mortgage backed securities

  36,000   626   —   — 

Total asset derivatives not designated as hedging instruments

 $576,526  $14,078  $580,941  $14,437 

December 31, 2025

                

Designated as hedging instruments:

                

Cash flow hedges:

                

Interest rate swaps

  —   —   200,000   19 

Total derivatives designated as hedging instruments

 $—  $—  $200,000  $19 

Not designated as hedging instruments:

                

Interest rate swaps (3)

 $490,341  $10,454  $507,341  $10,603 

Interest rate lock commitments

  17,985   256   —   — 

Forward loan sales commitments

  12,082   248   —   — 

To-be-announced mortgage backed securities

  —   —   30,500   60 

Total asset derivatives not designated as hedging instruments

 $520,408  $10,958  $537,841  $10,663 

(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, 2026

        

Cash flow hedges:

        

Interest rate swaps

 $2,055  $— 
         

For the three months ended September 30, 2025

        

Cash flow hedges:

        

Interest rate swaps

 $77  $— 
         

For the nine months ended September 30, 2026

        

Cash flow hedges:

        

Interest rate swaps

 $3,120  $— 
         

For the nine months ended September 30, 2025

        

Cash flow hedges:

        

Interest rate swaps

 $(532) $(22)

 

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, 2026

            

Total amounts in the Consolidated Statements of Income

 $61,455  $7,525  $2,886 

Fair value hedges:

            

Interest rate swaps

  —   (1)  — 

Cash flow hedges:

            

Interest rate swaps

  —   —   — 

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 nine months ended September 30, 2026

            

Total amounts in the Consolidated Statements of Income

 $182,290  $21,888  $8,178 

Fair value hedges:

            

Interest rate swaps

  —   (12)  — 

Cash flow hedges:

            

Interest rate swaps

  —   —   — 

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

  —   —   (22)

 

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The gain (loss) recognized on derivatives not designated as hedging relationships for the three and nine months ended September 30, 2026 and 2025 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

 

2026

  

2025

  

2026

  

2025

 

Interest rate swaps

Mortgage banking

  (654)  14   (705)  392 

Interest rate lock commitments

Mortgage banking

  (676)  (247)  (439)  350 

Forward loan sales commitments

Mortgage banking

  (65)  100   (251)  (97)

To-be-announced mortgage backed securities

Mortgage banking

  1,053   (223)  1,240   (563)

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

 $(342) $(356) $(155) $82 

 

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 either  September 30, 2026 or  December 31, 2025. If any, the amount of collateral posted with third parties would be 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, 2026 and December 31, 2025, 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 $14.3 million and $10.6 million, respectively. As of September 30, 2026 the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had $16.2 million posted cash collateral, compared to no posted collateral as of December 31, 2025. If the Company had breached any of these provisions at September 30, 2026 or December 31, 2025, it could have been required to settle its obligations under the agreements at their termination value of $14.3 million and $10.6 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, 2026

                    

Derivative assets:

                    

Interest rate swaps − Company (1)

 $3,101  $—  $3,101  $—  $3,101 

Interest rate swaps − dealer bank (1)

  13,301   —   13,301   (680)  12,621 

Interest rate swaps − customer (2)

  151   —   151   —   151 

To-be-announced mortgage backed securities

  626   —   626   —   626 

Total

 $17,179  $—  $17,179  $(680) $16,499 

Derivative liabilities:

                    

Interest rate swaps − Company (1)

 $—  $—  $—  $—  $— 

Interest rate swaps − dealer bank (1)

  931   —   931   16,190   (15,259)

Interest rate swaps − customer (2)

  13,370   —   13,370   —   13,370 

To-be-announced mortgage backed securities

  —   —   —   —   — 

Total

 $14,301  $—  $14,301  $16,190  $(1,889)

(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, 2025

                    

Derivative assets:

                    

Interest rate swaps − Company (1)

 $—  $—  $—  $—  $— 

Interest rate swaps − dealer bank (1)

  2,902   —   2,902   (5,710)  (2,808)

Interest rate swaps − customer (2)

  7,552   —   7,552      7,552 

To-be-announced mortgage backed securities

  —   —   —   —   — 

Total

 $10,454  $—  $10,454  $(5,710) $4,744 

Derivative liabilities:

                    

Interest rate swaps − Company (1)

 $19  $—  $19  $34  $(15)

Interest rate swaps − dealer bank (1)

  7,567   —   7,567   (34)  7,601 

Interest rate swaps − customer (2)

  3,036  $—   3,036   —   3,036 

To-be-announced mortgage backed securities

  60   —   60   —   60 

Total

 $10,682  $—  $10,682  $—  $10,682 

(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, 2026 and December 31, 2025, 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, 2026 and December 31, 2025:

 

 

  

September 30, 2026

 
                  

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)

 $484,924   10.52% $207,382   4.50%  N/A   N/A 

Bank

  481,601   10.57%  205,099   4.50%  296,254   6.50%

Tier 1 capital to risk weighted assets

                        

Consolidated (1)

  494,191   10.72%  276,509   6.00%  N/A   N/A 

Bank

  481,601   10.57%  273,465   6.00%  364,621   8.00%

Total capital to risk weighted assets

                        

Consolidated (1)

  599,343   13.01%  368,679   8.00%  N/A   N/A 

Bank

  536,753   11.78%  364,621   8.00%  455,776   10.00%

Tier 1 capital to average assets

                        

Consolidated (1)

  494,191   9.58%  206,299   4.00%  N/A   N/A 

Bank

  481,601   9.35%  205,927   4.00%  257,408   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, 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)

 $452,125   10.28% $198,002   4.50%  N/A   N/A 

Bank

  448,675   10.41%  194,009   4.50%  280,235   6.50%

Tier 1 capital to risk weighted assets

                        

Consolidated (1)

  461,307   10.48%  264,002   6.00%  N/A   N/A 

Bank

  448,675   10.41%  258,679   6.00%  344,905   8.00%

Total capital to risk weighted assets

                        

Consolidated (1)

  566,443   12.87%  352,003   8.00%  N/A   N/A 

Bank

  502,714   11.66%  344,905   8.00%  431,131   10.00%

Tier 1 capital to average assets

                        

Consolidated (1)

  461,307   8.86%  208,235   4.00%  N/A   N/A 

Bank

  448,675   8.62%  208,160   4.00%  260,200   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, 2026, 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, 2026 and December 31, 2025, 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 (loss) for the periods indicated, including the amount of tax (expense) benefit allocated to each component: 

 

  

For the three months ended

 
  

September 30, 2026

  

September 30, 2025

 
      

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

 $(18,931) $4,924  $(14,007) $7,440  $(1,868) $5,572 

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

  9   (2)  7   39   (10)  29 

Net change

  (18,940)  4,926   (14,014)  7,401   (1,858)  5,543 

Cash Flow Hedges:

                        

Change in fair value

  2,055   (536)  1,519   77   (19)  58 

Less: reclassified AOCI gain (loss) into interest expense (2)

  —   —   —   —   —   — 

Net change

  2,055   (536)  1,519   77   (19)  58 

Other Derivatives:

                        

Change in fair value

  —   —   —   (123)  31   (92)

Other comprehensive income (loss)

 $(16,885) $4,390  $(12,495) $7,355  $(1,846) $5,509 

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

 

  

For the nine months ended

 
  

September 30, 2026

  

September 30, 2025

 
      

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

 $(23,812) $6,215  $(17,597) $26,294  $(6,600) $19,694 

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

  42   (13)  29   133   (33)  100 

Net change

  (23,854)  6,228   (17,626)  26,161   (6,567)  19,594 

Cash Flow Hedges:

                        

Change in fair value

  3,120   (812)  2,308   (532)  134   (398)

Less: reclassified AOCI gain (loss) into interest expense (2)

  —   —   —   (22)  6   (16)

Net change

  3,120   (812)  2,308   (510)  128   (382)

Other Derivatives:

                        

Change in fair value

  —   —   —   (246)  62   (184)

Other comprehensive income (loss)

 $(20,734) $5,416  $(15,318) $25,405  $(6,377) $19,028 

(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 interest expense on short-term borrowings 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, 2026

                

Balance at June 30, 2026

 $(5,658) $760  $(81) $(4,979)

Other comprehensive income (loss) before reclassifications

  (14,007)  1,519   —   (12,488)

Less: Amounts reclassified from AOCI

  7   —   —   7 

Less: reclassification adjustment for net realized losses

  —   —   —   — 

Other comprehensive income (loss)

  (14,014)  1,519   —   (12,495)

Balance at September 30, 2026

 $(19,672)  2,279   (81)  (17,474)
                 

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 Nine Months Ended September 30, 2026

                

Balance at December 31, 2025

 $(2,046) $(29) $(81) $(2,156)

Other comprehensive income (loss) before reclassifications

  (17,597)  2,308   —   (15,289)

Less: Amounts reclassified from AOCI

  29   —   —   29 

Other comprehensive income (loss)

  (17,626)  2,308   —   (15,318)

Balance at September 30, 2026

 $(19,672)  2,279   (81)  (17,474)
                 

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)

(1)

All amounts net of tax.

 

 

NOTE 21 Stock Repurchase Program

 

On August 26, 2026, the Board approved a new stock repurchase program (the “New Stock Repurchase Program”) which authorizes the Company to repurchase up to 1,250,000 shares of its common stock, subject to certain limitations and conditions. This New Stock Repurchase Program will automatically become effective upon the earlier of: (i) the repurchase by the Company of the full 1,000,000 shares of common stock authorized for repurchase under the Company’s existing stock repurchase program which was originally announced on December 14, 2023 and became effective on February 18, 2024 (the “Prior Stock Repurchase Program”); or (ii) the expiration or earlier termination of the Prior Stock Repurchase Program (the “Transition Date”), and will expire on August 26, 2029. Effective as of the Transition Date, the Prior Stock Repurchase Program will automatically terminate, to the extent it has not previously expired or terminated, and be replaced and superseded in its entirety by the New Stock Repurchase Program. The Prior Stock Repurchase Program is currently scheduled to expire on February 18, 2027.

 

Neither the Prior Stock Repurchase Program nor the New Stock Repurchase Program obligates 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. Both the Prior Stock Repurchase Program and the New Stock Repurchase Program may be suspended or terminated at any time and, even if fully implemented, the Programs may not enhance long-term stockholder value. For the nine months ended September 30, 2026, the Company repurchased 750,000 shares of common stock 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, 2026 and December 31, 2025: 

 

  

September 30, 2026

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $818  $—  $—  $818 

Available-for-sale

                

U.S. treasury and government agencies

  —   19,622   —   19,622 

Mortgage backed securities

                

Residential agency

  —   474,502   —   474,502 

Commercial

  —   —   —   — 

Asset backed securities

  —   13   —   13 

Corporate bonds

  —   55,447   —   55,447 

Total available-for-sale investment securities

 $—  $549,584  $—  $549,584 

Servicing rights (1)

 $—  $—  $7,416  $7,416 

Other assets

                

Derivatives

 $—  $17,179  $—  $17,179 

Other liabilities

                

Derivatives

 $—  $14,437  $—  $14,437 

(1)

See Note 7 Loan Servicing for more information on mortgage servicing rights.

 

  

December 31, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Trading

 $1,758  $—  $—  $1,758 

Available-for-sale

                

U.S. treasury and government agencies

  —   405   —   405 

Mortgage backed securities

                

Residential agency

  —   476,746   —   476,746 

Asset backed securities

  —   15   —   15 

Corporate bonds

  —   36,929   —   36,929 

Total available-for-sale investment securities

 $—  $514,095  $—  $514,095 

Servicing rights (1)

 $—  $—  $6,383  $6,383 

Other assets

                

Derivatives

 $—  $10,958  $—  $10,958 

Other liabilities

                

Derivatives

 $—  $10,682  $—  $10,682 

(1)

See Note 7 Loan Servicing for more information on mortgage servicing rights.

 

36
Table of Contents
 

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, 2026 and December 31, 2025 consisted of the following: 

 

  

September 30, 2026

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Collateral dependent loans

  —   —   2,637   2,637 

Foreclosed assets

  —   —   9,449   9,449 

 

  

December 31, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Collateral dependent loans

 $—  $—  $33,484  $33,484 

Foreclosed assets

  —   —   308   308 

 

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, 2026 and December 31, 2025, were as follows:

 

    

September 30, 2026

 

(dollars in thousands)

           

Weighted

 

Asset Type

Valuation Technique

Unobservable Input

 

Fair Value

  

Range

  

Average

 

Collateral dependent loans

Appraisal value

Property specific adjustment

  2,637   19.0%  19.0%

Foreclosed assets

Appraisal value

Property specific adjustment

  9,449   10 - 20%  13.7%

Servicing rights

Discounted cash flows

Prepayment speed assumptions

  7,416   78 - 235   120 
  

Discount rate

      10.8%  10.8%

 

    

December 31, 2025

 

(dollars in thousands)

           

Weighted

 

Asset Type

Valuation Technique

Unobservable Input

 

Fair Value

  

Range

  

Average

 

Collateral dependent loans

Appraisal value

Property specific adjustment

 $33,484   10 - 35%  30.7%

Foreclosed assets

Appraisal value

Property specific adjustment (1)

  308   10.0%  10.0%

Servicing rights

Discounted cash flows

Prepayment speed assumptions

  6,383   130 - 730   239 
  

Discount rate

      10.0%  10.0%

 

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, 2026 and December 31, 2025, 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, 2026

 
  

Carrying

  

Estimated Fair Value

 

(dollars in thousands)

 

Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial Assets

                    

Cash and cash equivalents

 $65,756  $65,756  $—  $—  $65,756 

Investment securities held-to-maturity

  232,988   —   198,035   —   198,035 

Loans, net

  4,133,312   —   —   4,079,254   4,079,254 

Accrued interest receivable

  21,011   —   21,011   —   21,011 

Bank-owned life insurance

  42,147   —   42,147   —   42,147 

Servicing rights

  7,416   —   —   7,416   7,416 

Financial Liabilities

                    

Noninterest-bearing deposits

 $813,493  $—  $813,493  $—  $813,493 

Interest-bearing deposits

  2,907,249   —   2,907,249   —   2,907,249 

Time deposits

  582,435   —   583,239   —   583,239 

Short-term borrowings

  318,400   —   318,400   —   318,400 

Long-term debt

  59,267   —   63,442   —   63,442 

Accrued interest payable

  8,422   —   8,422   —   8,422 

 

  

December 31, 2025

 
  

Carrying

  

Estimated Fair Value

 

(dollars in thousands)

 

Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial Assets

                    

Cash and cash equivalents

 $67,192  $67,192  $—  $—  $67,192 

Investment securities held-to-maturity

  254,448   —   228,009   —   228,009 

Loans, net

  3,986,107   —   —   3,956,517   3,956,517 

Accrued interest receivable

  21,742   —   21,742   —   21,742 

Bank-owned life insurance

  39,307   —   39,307   —   39,307 

Servicing rights

  6,383   —   —   6,383   6,383 

Financial Liabilities

                    

Noninterest-bearing deposits

 $807,896  $—  $807,896  $—  $807,896 

Interest-bearing deposits

  2,807,565   —   2,807,565   —   2,807,565 

Time deposits

  576,542   —   580,473   —   580,473 

Short-term borrowings

  308,800   —   308,800   —   308,800 

Long-term debt

  59,182   —   59,911   —   59,911 

Accrued interest payable

  8,124   —   8,124   —   8,124 

 

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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, 2026 and 2025. 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, 2025, filed with the SEC on March 4, 2026. 

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by 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 known and unknown uncertainties, risks, changes in circumstances, and other factors 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 Board of Governors of the Federal Reserve System (the "Federal Reserve") and executive orders in response thereto);

 

 

●

interest rate risk, including the effects of changes in interest rates, such as the recent increase in the benchmark federal funds rate by the Federal Reserve;

 

 

●

effects on the U.S. economy resulting from actions taken by the federal government, including the threat or implementation of tariffs, immigration enforcement, executive orders, and changes in foreign policy; 

 

 

●

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

 

 

●

credit risks and risks from concentrations (including 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;

 

 

●

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 its 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;

 

 

●

emerging issues related to the development and use of artificial intelligence that could give rise to legal or regulatory action, damage our reputation, or otherwise materially harm our business or customers;

 

 

●

increased competition in the financial services industry, including from non-banks such as credit unions, financial technology 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 HMN Financial, Inc. (“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;

 

 

●

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, military conflicts, or terrorism, including the wars in Iran and Ukraine, ongoing conflicts in the Middle East, and other international military conflicts, or adverse external events and changes in foreign relations that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, affect global supply chains, increase the volatility of financial markets, and other matters beyond our control;

 

 

●

the availability of future equity and debt issuances and other capital raising opportunities on favorable terms;

 

 

●

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

 

 

●

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 advisory services bank and national retirement and benefit 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 advisory services. 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 advisory services 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, 2025 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, 2025. 

 

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 August 26, 2026, the Board of Directors of the Company declared a quarterly cash dividend of $0.22 per share of common stock. This dividend was paid on October 9, 2026, to stockholders of record at the close of business on September 25, 2026. 

 

Property Sales

 

The Company recognized a $1.6 million net gain in the third quarter of 2026 primarily driven by a gain on the sale of a property in the West Fargo, North Dakota market, partially offset by a loss on a property transferred to held for sale in the Rochester, Minnesota market.

 

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)

 

2026

  

2026

  

2025

  

2026

  

2025

 

Performance Ratios

                    

Return on average total assets

  1.45%  1.60%  1.27%  1.61%  1.28%

Adjusted return on average total assets (1)

  1.37%  1.58%  1.28%  1.58%  1.27%

Return on average common equity

  13.07%  14.56%  12.80%  14.66%  13.17%

Return on average tangible common equity (1)

  17.35%  19.33%  18.48%  19.46%  19.25%

Adjusted return on average tangible common equity (1)

  16.43%  19.04%  18.55%  19.08%  19.08%

Noninterest income as a % of revenue

  42.37%  40.85%  40.56%  41.32%  41.09%

Adjusted noninterest (loss) income as a % of revenue (1)

  41.24%  40.36%  40.58%  40.78%  40.54%

Net interest margin (taxable-equivalent basis) (1)

  3.84%  3.97%  3.50%  3.86%  3.47%

Efficiency ratio (1)

  63.41%  62.53%  65.34%  63.10%  64.81%

Adjusted efficiency ratio (1)

  64.44%  62.76%  65.22%  63.47%  64.78%

Net charge-offs (recoveries) to average loans

  (0.10)%  0.26%  (0.17)%  0.28%  0.08%

Dividend payout ratio

  28.95%  27.16%  32.31%  26.42%  31.79%

Per Common Share

                    

Earnings per common share − basic

 $0.77  $0.82  $0.66  $2.49  $1.97 

Earnings per common share − diluted

 $0.76  $0.81  $0.65  $2.46  $1.95 

Adjusted earnings per common share − diluted (1)

 $0.71  $0.80  $0.66  $2.41  $1.93 

Dividends declared per common share

 $0.22  $0.22  $0.21  $0.65  $0.62 

Book value per common share

 $23.31  $23.34  $22.24         

Tangible book value per common share (1)

 $18.74  $18.73  $17.55         

Average common shares outstanding − basic

  24,851   25,081   25,395   25,102   25,374 

Average common shares outstanding − diluted

  25,161   25,395   25,713   25,410   25,693 

Other Data

                    

Retirement and benefit services assets under administration/management

 $44,944,011  $45,163,767  $44,005,277         

Wealth advisory services assets under administration/management

 $5,163,688  $5,195,511  $4,812,250         

Mortgage originations

 $126,728  $113,450  $142,768  $334,612  $347,995 

(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)

 

2026

  

2026

  

2025

  

2026

  

2025

 

Selected Average Balance Sheet Data

                    

Loans

 $4,026,351  $4,032,142  $4,036,936  $4,029,390  $4,046,347 

Investment securities

  783,165   773,692   796,759   776,289   826,409 

Assets

  5,255,954   5,226,319   5,273,306   5,233,732   5,282,798 

Deposits

  4,206,981   4,180,857   4,387,096   4,208,734   4,356,361 

Fed funds purchased

  24,167   74,104   16,636   44,591   71,717 

FHLB short-term advances

  262,228   226,703   200,000   231,337   200,000 

Long-term debt

  59,253   59,225   59,137   59,225   59,111 

Stockholders’ equity

  582,770   574,862   524,459   574,789   512,533 

 

  

September 30,

  

June 30,

  

March 31,

  

December 31,

  

September 30,

 

(dollars in thousands)

 

2026

  

2026

  

2026

  

2025

  

2025

 

Selected Period End Balance Sheet Data

                    

Loans

 $4,184,760  $4,034,244  $4,034,744  $4,048,022  $4,102,075 

Allowance for credit losses on loans

  (51,448)  (48,361)  (50,505)  (61,915)  (62,127)

Investment securities

  783,390   777,208   771,296   770,301   791,650 

Assets

  5,403,103   5,288,718   5,287,971   5,230,084   5,330,573 

Deposits

  4,303,177   4,191,897   4,347,882   4,192,003   4,412,653 

Long-term debt

  59,267   59,239   59,211   59,182   59,154 

Total stockholders’ equity

  576,850   583,143   574,692   564,934   550,688 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

June 30,

  

September 30,

  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2026

  

2025

  

2026

  

2025

 

Selected Income Statement Data

                    

Net interest income

 $46,723  $47,712  $43,136  $139,347  $127,325 

Provision for (recovery of) credit losses

  2,199   495   —   (2,188)  863 

Noninterest income

  34,350   32,945   29,430   98,140   88,824 

Noninterest expense

  53,868   52,883   50,541   157,141   149,344 

Income before income taxes

  25,006   27,279   22,025   82,534   65,942 

Income tax expense

  5,806   6,414   5,101   19,499   15,451 

Net income

 $19,200  $20,865  $16,924  $63,035  $50,491 

 

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,

  

March

  

December 31,

 

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

 

2026

  

2026

  

2026

  

2025

 

Tangible common equity to tangible assets

          .     

Total common stockholders’ equity

 $576,850  $583,143  $574,692  $564,934 

Less: Goodwill

  85,634   85,634   85,634   85,634 

Less: Other intangible assets

  27,448   29,422   31,397   33,371 

Tangible common equity (a)

  463,768   468,087   457,661   445,929 

Total assets

  5,403,103   5,288,718   5,287,971   5,230,084 

Less: Goodwill

  85,634   85,634   85,634   85,634 

Less: Other intangible assets

  27,448   29,422   31,397   33,371 

Tangible assets (b)

  5,290,021   5,173,662   5,170,940   5,111,079 

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

  8.77%  9.05%  8.85%  8.72%

Tangible book value per common share

                

Tangible common equity (a)

  463,768   468,087   457,661   445,929 

Total common shares issued and outstanding (c)

  24,744   24,986   25,214   25,406 

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

 $18.74  $18.73  $18.15  $17.55 

 

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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)

 

2026

  

2026

  

2025

  

2026

  

2025

 

Return on Average Tangible Common Equity

                    

Net income

 $19,200  $20,865  $16,924  $63,035  $50,491 

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

  1,559   1,559   2,141   4,679   6,421 

Net income, excluding intangible amortization (d)

  20,759   22,424   19,065   67,714   56,912 

Average total equity

  582,770   574,862   524,459   574,789   512,533 

Less: Average goodwill

  85,634   85,634   85,634   85,634   85,634 

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

  22,447   24,003   29,540   24,026   31,549 

Average tangible common equity (e)

  474,689   465,225   409,285   465,129   395,350 

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

  17.35%  19.33%  18.48%  19.46%  19.25%

Efficiency ratio

                    

Noninterest expense

 $53,868  $52,883  $50,541  $157,141  $149,344 

Less: Intangible amortization expense

  1,974   1,974   2,710   5,923   8,129 

Adjusted noninterest expense (f)

  51,894   50,909   47,831   151,218   141,215 

Net interest income (v)

  46,723   47,712   43,136   139,347   127,325 

Noninterest income

  34,350   32,945   29,430   98,140   88,824 

Tax-equivalent adjustment

  771   755   638   2,145   1,748 

Total tax-equivalent revenue (g)

  81,844   81,412   73,204   239,632   217,897 

Efficiency ratio (f)/(g)

  63.41%  62.53%  65.34%  63.10%  64.81%

Pre-Provision Net Revenue

                    

Net interest income

 $46,723  $47,712  $43,136  $139,347  $127,325 

Add: Noninterest income

  34,350   32,945   29,430   98,140   88,824 

Less: Noninterest expense

  53,868   52,883   50,541   157,141   149,344 

Pre-provision net revenue

 $27,205  $27,774  $22,025  $80,346  $66,805 

Adjusted Noninterest Income

                    

Noninterest income

 $34,350  $32,945  $29,430  $98,140  $88,824 

Less: Adjusted noninterest income items

                    

Net gain (loss) on sale of loans

  —   —   (35)  —   2,080 

Net gain on sale of premises and equipment

  1,554   653   —   2,186   (84)

Total adjusted noninterest income items (h)

  1,554   653   (35)  2,186   1,996 

Adjusted noninterest income (i)

 $32,796  $32,292  $29,465  $95,954  $86,828 

Adjusted Noninterest (Loss) Income as a Percentage of Revenue

                    

Adjusted noninterest income (i)

 $32,796   32,292   29,465   95,954   86,828 

Net interest income (v)

  46,723   47,712   43,136   139,347   127,325 

Adjusted revenue (w)

  79,519   80,004   72,601   235,301   214,153 

Adjusted noninterest (loss) income as a percentage of revenue (i)/(w)

 $41.24%  40.36%  40.58%  40.78%  40.54%

Adjusted Noninterest Expense

                    

Noninterest expense

 $53,868  $52,883  $50,541  $157,141  $149,344 

Less: Adjusted noninterest expense items

                    

HMNF merger- and acquisition-related expenses

  15   6   (43)  (13)  255 

Severance and signing bonus expense

  144   216   104   526   1,108 

Total adjusted noninterest expense items (j)

  159   222   61   513   1,363 

Adjusted noninterest expense (k)

 $53,709  $52,661  $50,480  $156,628  $147,981 

Adjusted Pre-Provision Net Revenue

                    

Net interest income

 $46,723  $47,712  $43,136  $139,347  $127,325 

Add: Adjusted noninterest income (i)

  32,796   32,292   29,465   95,954   86,828 

Less: Adjusted noninterest expense (k)

  53,709   52,661   50,480   156,628   147,981 

Adjusted pre-provision net revenue

 $25,810  $27,343  $22,121  $78,673  $66,172 

 

 

 

 

(1)

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

 

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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)

 

2026

  

2026

  

2025

  

2026

  

2025

 

Adjusted Efficiency Ratio

                    

Adjusted noninterest expense (k)

 $53,709  $52,661  $50,480  $156,628  $147,981 

Less: Intangible amortization expense

  1,974   1,974   2,710   5,923   8,129 

Adjusted noninterest expense for efficiency ratio (l)

  51,735   50,687   47,770   150,705   139,852 

Tax-equivalent revenue

                    

Net interest income

  46,723   47,712   43,136   139,347   127,325 

Add: Adjusted noninterest income (i)

  32,796   32,292   29,465   95,954   86,828 

Add: Tax-equivalent adjustment

  771   755   638   2,145   1,748 

Total tax-equivalent revenue (m)

  80,290   80,759   73,239   237,446   215,901 

Adjusted efficiency ratio (l)/(m)

  64.44%  62.76%  65.22%  63.47%  64.78%

Adjusted Net Income

                    

Net income

 $19,200  $20,865  $16,924  $63,035  $50,491 

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

  1,228   516   (28)  1,727   1,577 

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

  126   175   48   405   1,077 

Adjusted net income (n)

 $18,098  $20,524  $17,000  $61,713  $49,991 

Adjusted Return on Average Total Assets

                    

Average total assets (o)

 $5,255,954  $5,226,319  $5,273,306  $5,233,732  $5,282,798 

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

  1.37%  1.58%  1.28%  1.58%  1.27%

Adjusted Return on Average Tangible Common Equity

                    

Adjusted net income (n)

 $18,098  $20,524  $17,000  $61,713  $49,991 

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

  1,559   1,559   2,141   4,679   6,421 

Adjusted net income, excluding intangible amortization (p)

  19,657   22,083   19,141   66,392   56,412 

Average total equity

  582,770   574,862   524,459   574,789   512,533 

Less: Average goodwill

  85,634   85,634   85,634   85,634   85,634 

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

  22,447   24,003   29,540   24,026   31,549 

Average tangible common equity (q)

  474,689   465,225   409,285   465,129   395,350 

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

  16.43%  19.04%  18.55%  19.08%  19.08%

Adjusted Earnings Per Common Share − Diluted

                    

Adjusted net income (n)

 $18,098  $20,524  $17,000  $61,713  $49,991 

Less: Dividends and undistributed earnings allocated to participating securities

  171   192   147   571   445 

Adjusted net income available to common stockholders (r)

  17,927   20,332   16,853   61,142   49,546 

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

  25,161   25,395   25,713   25,410   25,693 

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

 $0.71  $0.80  $0.66  $2.41  $1.93 

Net Charge-Offs (Recoveries) to Average Loans

                    

Net charge-offs (recoveries) (t)

 $(1,018) $2,575  $(1,715) $8,584  $2,459 

Average total loans (u)

 $4,026,351  $4,032,142  $4,036,936  $4,029,390  $4,046,347 

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

  (0.10)%  0.26%  (0.17)%  0.28%  0.08%

Net Interest Margin (on a Tax-Equivalent Basis)

                    

Net interest income (v)

 $46,723  $47,712  $43,136  $139,347  $127,325 

Add: Tax equivalent adjustment for loans and securities

  771   755   638   2,145   1,748 

Net interest income (on a tax-equivalent basis) (1) (w)

 $47,494  $48,467  $43,774  $141,492  $129,073 

Interest earning assets (x)

  4,912,782   4,896,740   4,965,849   4,903,681   4,968,236 

Net interest margin (on a tax-equivalent basis) (1) (w)/(x)

  3.84%  3.97%  3.50%  3.86%  3.47%

(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, 2026 was $19.2 million, or $0.76 per diluted common share, an increase of  $2.3 million, or 13.4%, compared to $16.9 million, or $0.65 per diluted common share, for the three months ended September 30, 2025. The increase in net income compared to the third quarter of 2025 was primarily driven by higher noninterest income, including increases to other noninterest income, retirement and benefit services revenue, wealth advisory services revenue, and service charges on deposit accounts.  These increases were partially offset by higher noninterest expense and provision. 

 

Net income for the nine months ended September 30, 2026 was $63.0 million, or $2.46 per diluted common share, an increase of  $12.5 million, or 24.8%, compared to $50.5 million, or $1.95 per diluted common share, for the nine months ended September 30, 2025. The increase in net income for the nine months ended September 30, 2026 was primarily driven by an increase in net interest income of $12.0 million and an increase in noninterest income of $9.3 million, partially offset by an increase in noninterest expense of $7.8 million. 

 

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, 2026 and 2025. 

 

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Table of Contents

 

Net interest income for the three months ended September 30, 2026 was $46.7 million, an increase of $3.6 million, or 8.3%, compared to $43.1 million for the three months ended September 30, 2025. Interest income decreased $0.5 million, or 0.6%, compared to the third quarter of 2025, primarily due to lower purchase accounting accretion and lower average interest-bearing cash balances, partially offset by higher interest income on investment securities following the strategic balance sheet repositioning completed during the fourth quarter of 2025.  Interest expense decreased $4.0 million, or 14.7%, from the third quarter of 2025, as average rates paid on deposits and short-term borrowings declined primarily driven by Federal Reserve rate cuts implemented during the second half of 2025. 

 

Net interest income for the nine months ended September 30, 2026 was $139.3 million, an increase of $12.0 million, or 9.4%, compared to $127.3 million for the nine months ended September 30, 2025. Interest income increased compared to the nine months ended September 30, 2025, primarily due to higher interest income on investment securities following the strategic balance sheet repositioning completed during the fourth quarter of 2025, partially offset by lower purchase accounting accretion. Interest expense decreased $13.5 million, or 16.5%, compared to the nine months ended September 30, 2025, as average rates paid on deposits and borrowings declined primarily driven by Federal Reserve rate cuts implemented during the second half of 2025. 

 

Net interest margin (on a tax-equivalent basis), a non-GAAP financial measure, was 3.84% for the three months ended September 30, 2026, compared to 3.50% for the same period in 2025, an increase of 34 basis points. The increase was primarily attributable to lower funding costs, as average rates paid on deposits and borrowings declined following Federal Reserve rate cuts implemented during the second half of 2025.  Higher yields on investment securities also contributed to the improvement in net interest margin.

 

The following tables present 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, 2026 and 2025. 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,

 
  

2026

  

2025

 
      

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

 $54,390  $513   3.74% $89,568  $1,098   4.86%

Investment securities (1)

  783,165   7,722   3.91   796,759   5,294   2.64 

Loans held for sale

  23,245   316   5.39   20,188   251   4.93 

Loans

                        

Commercial and industrial

  778,604   13,734   7.00   650,787   12,321   7.51 

CRE − Owner occupied

  649,436   9,784   5.98   435,469   8,487   7.73 

CRE − Construction, land and development

  89,571   1,689   7.48   363,466   5,285   5.77 

CRE − Multifamily

  341,997   5,144   5.97   340,709   5,549   6.46 

CRE − Non-owner occupied

  858,263   12,879   5.95   887,935   14,003   6.26 

Agricultural − Land

  54,978   1,328   9.58   66,676   930   5.53 

Agricultural − Production

  52,005   916   6.99   64,685   1,109   6.80 

RRE − First lien

  818,187   10,342   5.01   898,011   10,923   4.83 

RRE − Construction

  33,030   609   7.31   33,834   564   6.61 

RRE − HELOC

  275,470   4,189   6.03   213,232   3,668   6.82 

RRE − Junior lien

  31,353   541   6.85   40,997   661   6.40 

Other consumer

  43,457   715   6.53   41,135   720   6.94 

Total loans (1)

  4,026,351   61,870   6.10   4,036,936   64,220   6.31 

Federal Reserve/FHLB Stock

  25,631   543   8.41   22,398   421   7.46 

Total interest-earning assets

  4,912,782   70,964   5.73   4,965,849   71,284   5.70 

Noninterest-earning assets

  343,172           307,457         

Total assets

 $5,255,954          $5,273,306         

Interest-Bearing Liabilities

                        

Interest-bearing demand deposits

 $1,402,505  $6,014   1.70% $1,227,029  $5,565   1.80%

Money market and savings deposits

  1,454,053   8,719   2.38   1,587,694   11,366   2.84 

Time deposits

  573,526   4,805   3.32   772,345   7,419   3.81 

Fed funds purchased

  24,167   247   4.05   16,636   207   4.94 

FHLB short-term advances

  262,228   2,639   3.99   200,000   2,298   4.56 

Long-term debt

  59,253   1,044   6.99   59,137   652   4.37 

Total interest-bearing liabilities

  3,775,732   23,468   2.47   3,862,841   27,507   2.83 

Noninterest-Bearing Liabilities and Stockholders' Equity

                        

Noninterest-bearing deposits

  776,897           800,028         

Other noninterest-bearing liabilities

  120,555           85,978         

Stockholders’ equity

  582,770           524,459         

Total liabilities and stockholders’ equity

 $5,255,954          $5,273,306         

Net interest income on FTE basis (1)

     $47,496          $43,777     

Net interest rate spread on FTE basis (1)

          3.26%          2.87%

Net interest margin on FTE basis (1)

          3.84%          3.50%

(1)

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

 

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Table of Contents

 

  

Nine months ended September 30,

 
  

2026

  

2025

 
      

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

 $53,591  $1,620   4.04% $53,187  $1,982   4.98%

Investment securities (1)

  776,289   22,479   3.87   826,409   16,716   2.70 

Loans held for sale

  19,277   708   4.91   17,979   646   4.80 

Loans

                        

Commercial and industrial

  760,827   40,148   7.06   654,061   36,421   7.44 

CRE − Owner occupied

  528,217   24,051   6.09   419,608   21,236   6.77 

CRE − Construction, land and development

  134,534   7,768   7.72   348,093   15,242   5.85 

CRE − Multifamily

  376,509   16,727   5.94   350,658   17,060   6.50 

CRE − Non-owner occupied

  898,414   40,333   6.00   934,143   45,300   6.48 

Agricultural − Land

  56,178   2,987   7.11   66,647   2,846   5.71 

Agricultural − Production

  54,704   2,852   6.97   64,357   3,434   7.13 

RRE − First lien

  840,523   31,176   4.96   898,910   32,539   4.84 

RRE − Construction

  33,639   1,697   6.74   36,798   2,083   7.57 

RRE − HELOC

  269,487   12,145   6.03   190,272   9,912   6.96 

RRE − Junior lien

  33,427   1,647   6.59   42,498   2,014   6.34 

Other consumer

  42,931   2,072   6.45   40,302   2,107   6.99 

Total loans (1)

  4,029,390   183,603   6.09   4,046,347   190,194   6.28 

Federal Reserve/FHLB Stock

  25,134   1,529   8.13   24,314   1,457   8.01 

Total interest-earning assets

  4,903,681   209,939   5.72   4,968,236   210,995   5.68 

Noninterest-earning assets

  330,051           314,562         

Total assets

 $5,233,732          $5,282,798         

Interest-Bearing Liabilities

                        

Interest-bearing demand deposits

 $1,382,852  $17,286   1.67% $1,240,589  $16,712   1.80%

Money market and savings deposits

  1,466,135   25,924   2.36   1,580,085   33,496   2.83 

Time deposits

  571,305   14,340   3.36   716,421   20,435   3.81 

Fed funds purchased

  44,591   1,311   3.93   71,717   2,503   4.67 

FHLB short-term advances

  231,337   6,868   3.97   200,000   6,824   4.56 

Long-term debt

  59,225   2,720   6.14   59,111   1,955   4.42 

Total interest-bearing liabilities

  3,755,445   68,449   2.44   3,867,923   81,925   2.83 

Noninterest-Bearing Liabilities and Stockholders' Equity

                        

Noninterest-bearing deposits

  788,442           819,266         

Other noninterest-bearing liabilities

  115,056           83,076         

Stockholders’ equity

  574,789           512,533         

Total liabilities and stockholders’ equity

 $5,233,732          $5,282,798         

Net interest income on FTE basis (1)

     $141,490          $129,070     

Net interest rate spread on FTE basis (1)

          3.28%          2.85%

Net interest margin on FTE basis (1)

          3.86%          3.47%

(1)

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

 

47
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, 2026

  

Nine months ended September 30, 2026

 
  

Compared with

  

Compared with

 
  

Three months ended September 30, 2025

  

Nine months ended September 30, 2025

 
  

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

 $(431) $(154) $(585) $15  $(377) $(362)

Investment securities

  (90)  2,518   2,428   (1,012)  6,775   5,763 

Loans held for sale

  38   27   65   47   15   62 

Loans

                        

Commercial and industrial

  1,859   (446)  1,413   5,941   (2,214)  3,727 

CRE − Construction, land and development

  (4,460)  864   (3,596)  (9,344)  1,870   (7,474)

CRE − Multifamily

  20   (425)  (405)  1,257   (1,590)  (333)

CRE − Non-owner occupied

  (578)  (546)  (1,124)  (1,732)  (3,235)  (4,967)

CRE − Owner occupied

  3,667   (2,370)  1,297   5,500   (2,685)  2,815 

Agricultural − Land

  (201)  599   398   (447)  588   141 

Agricultural − Production

  (154)  (39)  (193)  (515)  (67)  (582)

RRE − First lien

  (1,330)  749   (581)  (2,114)  751   (1,363)

RRE − Construction

  (14)  59   45   (179)  (207)  (386)

RRE − HELOC

  1,004   (483)  521   4,124   (1,891)  2,233 

RRE − Junior lien

  (169)  49   (120)  (430)  63   (367)

Other consumer

  37   (42)  (5)  137   (172)  (35)

Total loans (1)

  (319)  (2,031)  (2,350)  2,198   (8,789)  (6,591)

Federal Reserve/FHLB Stock

  61   61   122   49   23   72 

Total interest income

  (741)  421   (320)  1,297   (2,353)  (1,056)

Interest-bearing liabilities

                        

Interest-bearing demand deposits

  796   (347)  449   1,915   (1,341)  574 

Money market and savings deposits

  (957)  (1,690)  (2,647)  (2,412)  (5,160)  (7,572)

Time deposits

  (1,909)  (705)  (2,614)  (4,135)  (1,960)  (6,095)

Fed funds purchased

  94   (54)  40   (947)  (245)  (1,192)

FHLB short-term advances

  715   (374)  341   1,069   (1,025)  44 

Long-term debt

  1   391   392   4   761   765 

Total interest expense

  (1,260)  (2,779)  (4,039)  (4,506)  (8,970)  (13,476)

Change in net interest income

 $519  $3,200  $3,719  $5,803  $6,617  $12,420 

 

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Table of Contents

 

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)

 

2026

  

2025

  

2026

  

2025

 

Provision (recovery) for credit losses on loans

 $2,069  $1,136  $(1,885) $4,657 

Provision (recovery) for credit losses on unfunded commitments

  134   (1,134)  (291)  (3,866)

Provision (recovery) for HTM debt securities

  (4)  (2)  (12)  (6)

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

  —   —   —   78 

Provision (recovery) for credit losses

 $2,199  $—  $(2,188) $863 

 

The Company recorded a provision for credit losses of $2.2 million for the third quarter of 2026, compared to no provision for credit losses for the third quarter of 2025. 

 

The Company recorded a provision release of $2.2 million for the nine months ended September 30, 2026, compared to a provision for credit losses of $0.9 million for the nine months ended September 30, 2025. The provision release recognized during the first nine months September 30, 2026 was primarily driven by changes to loan balances and loan mix, largely due to declines in balances within the commercial real estate construction, land and development portfolio, which carries a higher reserve rate than most other loan pools.  The release was also driven by lower reserves associated with individually evaluated loans. 

 

Noninterest Income 

 

The Company’s noninterest income is generated from retirement and benefit services, wealth advisory services, 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, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Retirement and benefit services

 $17,664  $16,496  $52,418  $48,625 

Wealth advisory services

  8,001   6,560   22,942   20,827 

Mortgage banking

  3,328   3,474   10,057   8,651 

Service charges on deposit accounts

  1,221   703   3,259   2,034 

Gain on sale of non-mortgage loan

  —   (35)  —   2,080 

Other

  4,136   2,232   9,464   6,607 

Total noninterest income

 $34,350  $29,430  $98,140  $88,824 

Noninterest income as a % of revenue

  42.37%  40.56%  41.32%  41.09%

 

Total noninterest income for the three months ended September 30, 2026 was $34.4 million, an increase of $4.9 million, or 16.7%, compared to $29.4 million for the three months ended September 30, 2025. The increase was primarily driven by higher other noninterest income, wealth advisory services revenue, retirement and benefit services revenue, and service charges on deposit accounts. Other noninterest income increased $1.9 million, or 85.3%, compared to the third quarter of 2025, primarily due to a gain on the sale of real estate in the West Fargo, North Dakota market, increased swap fee income, and mutual fund investment gains related to the underlying assets of the deferred compensation plans. Wealth advisory services revenue increased $1.4 million, or 22.0%, compared to the third quarter of 2025, primarily driven by higher asset-based fees and transaction-based revenue resulting from growth in assets under administration and management and increased client activity.  Retirement and benefit services revenue increased $1.2 million, or 7.1%, compared to the third quarter of 2025, primarily driven by higher recurring annual income and transactional revenue. Service charges on deposit accounts increased $0.5 million, or 73.7%, compared to the third quarter of 2025, primarily due to a reclassification of certain fees from other noninterest income to service charges on deposit accounts revenue beginning in the first quarter of 2026. 

 

Total noninterest income for the nine months ended September 30, 2026 was $98.1 million, an increase of $9.3 million, or 10.5%, compared to $88.8 million for the nine months ended September 30, 2025. The increase was primarily driven by higher retirement and benefit services revenue, mortgage banking revenue, other noninterest income, and service charges on deposit accounts, partially offset by the absence of a gain on sale of non-mortgage loans recognized in the prior-year period. Retirement and benefit services revenue increased $3.8 million, or 7.8%, compared to the nine months ended September 30, 2025, primarily driven by recurring annual income. Mortgage banking revenue increased $1.4 million, or 16.3%, primarily due to an increase in the mortgage servicing rights valuation and higher sold loan volume. Other noninterest income increased $2.9 million, or 43.2%, primarily driven by gains on the sale of real estate, increased swap fee income, and mutual fund investment gains related to the underlying assets of deferred compensation plans. Service charges on deposit accounts increased $1.2 million, or 60.2%, primarily due to the reclassification of certain fees from other noninterest income to service charges on deposit accounts revenue beginning in the first quarter of 2026.

 

 

 

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, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Compensation

 $26,096  $24,984  $76,338  $72,288 

Employee taxes and benefits

  7,377   6,094   20,772   20,490 

Occupancy and equipment expense

  3,525   2,849   10,444   8,315 

Business services, software and technology expense

  5,457   6,285   16,736   17,905 

Intangible amortization expense

  1,974   2,710   5,923   8,129 

Professional fees and assessments

  3,796   2,676   11,377   8,010 

Marketing and business development

  1,227   1,069   2,957   2,821 

Supplies and postage

  573   569   1,719   1,690 

Travel

  464   385   1,181   1,019 

Mortgage and lending expenses

  707   1,025   2,030   2,501 

Other

  2,672   1,895   7,664   6,176 

Total noninterest expense

 $53,868  $50,541  $157,141  $149,344 

 

Total noninterest expense for the three months ended September 30, 2026 was $53.9 million, an increase of  $3.3 million, or 6.6%, compared to $50.5 million for the three months ended September 30, 2025. The increase was primarily driven by higher compensation expense, professional fees and assessments, and other noninterest expense. Compensation increased $1.1 million, or 4.5%, primarily due to annual merit increases and increases in deferred compensation plan liabilities resulting from mutual fund investment gains on the underlying plan assets. Professional fees and assessments increased $1.1 million, or 41.9%, primarily due to the reclassification of consulting services and certain third-party vendor expenses from business services, software and technology expense, as well as higher legal fees. Other noninterest expense increased $0.8 million, or 41.0%, primarily due to higher other real estate owned balances and related holding costs, as well as increased corporate insurance costs. 

 

Total noninterest expense for the nine months ended September 30, 2026 was $157.1 million, an increase of  $7.8 million, or 5.2%, compared to $149.3 million for the nine months ended September 30, 2025. The increase was primarily driven by higher compensation expense, professional fees and assessments, occupancy and equipment expense, and other noninterest expense, partially offset by lower intangible amortization expense. Compensation expense increased $4.1 million, or 5.6%, primarily due to annual merit increases, and increases in deferred compensation plan liabilities resulting from mutual fund investment gains on the underlying plan assets. Professional fees and assessments increased $3.4 million, or 42.0%, primarily due to the reclassification of consulting services and certain third-party vendor expenses from business services, software and technology expense, as well as higher legal fees. Occupancy and equipment expense increased $2.1 million, or 25.6%, primarily due to facility investments and the strategic realignment of locations from owned to leased space. Other noninterest expense increased $1.5 million, or 24.1%, primarily due to higher other real estate owned balances and related holding costs, as well as increased corporate insurance costs. Intangible amortization expense decreased $2.2 million, or 27.1%, compared to the nine months ended September 30, 2025, primarily due to the annual reset of the $33.5 million core deposit intangible recorded in connection with 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, 2026, the Company recognized income tax expense of $5.8 million on pre-tax income of $25.0 million, resulting in an effective tax rate of 23.3%, compared to income tax expense of $5.1 million on pre-tax income of $22.0 million, resulting in an effective tax rate of 23.2%, for the three months ended September 30, 2025.

 

For the nine months ended September 30, 2026, the Company recognized income tax expense of $19.5 million on pre-tax income of $82.5 million, resulting in an effective tax rate of 23.6%, compared to income tax expense of $15.5 million on pre-tax income of $65.9 million, resulting in an effective tax rate of 23.4%, for the nine months ended September 30, 2025.

 

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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 advisory services. 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 (credit) 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 25 offices in North Dakota, Minnesota, Wisconsin, Iowa, and Arizona, including 13 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, inclusive of corporate administration income, for the three and nine months ended September 30, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Net interest income

 $46,723  $43,136  $139,347  $127,325 

Provision for (recovery of) credit losses

  2,199   —   (2,188)  863 

Noninterest income

  8,685   6,374   22,780   19,372 

Total revenue

  53,209   49,510   164,315   145,834 

Noninterest expense (1)

  29,854   28,697   85,504   85,356 

Net income before taxes

 $23,355  $20,813  $78,811  $60,478 

(1)

Noninterest expenses do not include corporate administration expenses. Corporate administration expenses include executive compensation, premises and fixed assets expenses, information technology expenses, and other 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 benefit services segment income statement for the three and nine months ended September 30, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Recurring annual income (1)

 $15,566  $14,683  $42,318  $39,406 

Transactional income (2)

  2,098   1,813   10,100   9,219 

Total noninterest income

  17,664   16,496   52,418   48,625 

Noninterest expense

  15,019   13,394   44,705   40,177 

Net income before taxes

 $2,645  $3,102  $7,713  $8,448 

(1)

Recurring annual income primarily includes asset-based fees, administration fees, record-keeping fees, trust/custody fees, advisory fees, and health and welfare fees. $6.5 million and $6.6 million for the three months ended September 30, 2026 and 2025, respectively, was from market sensitive revenue. 

(2)Transactional income primarily includes distribution fees. 

 

Wealth Advisory Services

 

The wealth advisory services 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 advisory services segment income statement for the  three and nine months ended September 30, 2026 and 2025: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

Asset management

 $6,885  $5,698  $20,169  $17,772 

Brokerage

  622   488   1,426   1,323 

Insurance and other

  494   374   1,347   1,732 

Total noninterest income

  8,001   6,560   22,942   20,827 

Noninterest expense

  6,162   5,883   18,263   15,852 

Net income before taxes

 $1,839  $677  $4,679  $4,975 

 

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Financial Condition 

 

Overview 

 

Total assets were $5.4 billion as of September 30, 2026, an increase of $173.0 million, or 3.3%, compared to December 31, 2025. The increase was primarily attributable to a $136.7 million increase in loans, a $35.5 million increase in available-for-sale investment securities, and an $18.0 million increase in other assets.  These increases were partially offset by decreases of $2.1 million in loans held for sale and $1.4 million in cash and cash equivalents.

 

Investment Securities 

 

The following table presents the fair value composition of the Company’s investment securities portfolio as of September 30, 2026 and December 31, 2025: 

 

  

September 30, 2026

  

December 31, 2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Available-for-sale

                

U.S. Treasury and agencies

 $19,622   2.6% $405   0.1%

Mortgage backed securities

                

Residential agency

  474,502   63.5   476,746   64.2 

Asset backed securities

  13   —   15   — 

Corporate bonds

  55,447   7.4   36,929   5.0 

Total available-for-sale investment securities

  549,584   73.5   514,095   69.3 

Held-to-maturity

                

Obligations of state and political agencies

  91,255   12.2   105,405   14.2 

Mortgage backed securities

                

Residential agency

  106,780   14.3   122,604   16.5 

Total held-to-maturity investment securities

  198,035   26.5   228,009   30.7 

Total investment securities

 $747,619   100.0% $742,104   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, 2026. 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, 2026

 
  

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

 $—   —% $132   4.02% $5,849   4.65% $13,641   4.81%

Mortgage backed securities

  —   —   —   —   —   —   —   — 

Residential agency

  40   2.39   7,906   4.10   7,253   4.21   459,303   4.73 

Commercial

  —   —   —   —   —   —   —   — 

Asset backed securities

  —   —   —   —   13   4.52   —   — 

Corporate bonds

  —   —   2,908   3.00   48,538   3.37   4,001   6.25 

Total available-for-sale investment securities

  40   2.39   10,946   3.87   61,653   3.65   476,945   4.75 

Held-to-maturity

                                

Obligations of state and political agencies

  12,106   1.78   53,243   2.11   21,503   2.63   4,403   2.37 

Mortgage backed securities

  —   —   —   —   —   —   —   — 

Residential agency

  —   —   —   —   —   —   106,780   2.21 

Total held-to-maturity investment securities

  12,106   1.78   53,243   2.11   21,503   2.63   111,183   2.21 

Total investment securities

 $12,146   1.78% $64,189   2.41% $83,156   3.28% $588,128   4.24%

 

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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 $4.2 billion as of September 30, 2026, an increase of $136.7 million, or 3.4%, from December 31, 2025. The increase was primarily driven by growth in commercial loans of $188.8 million, partially offset by a decrease in consumer loans of $52.0 million.  

 

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, 2026

  

December 31, 2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Commercial and business lending:

                

General business

 $420,873   10.1% $290,008   7.2%

Services

  234,004   5.6   237,966   5.9 

Retail trade

  101,076   2.4   101,374   2.5 

Manufacturing

  105,182   2.5   107,485   2.7 

Commercial real estate − Owner occupied

  690,988   16.4   427,260   10.6 

Total commercial and business lending

  1,552,123   37.0   1,164,093   28.9 

Investor commercial real estate:

                

Construction, land and development

  87,615   2.1   246,238   6.1 

Multifamily

  332,535   7.9   383,505   9.5 

Non-owner occupied

                

Office

  122,866   2.9   142,095   3.5 

Industrial

  234,877   5.6   193,041   4.8 

Retail

  111,524   2.7   116,735   2.9 

Hotel

  82,902   2.0   110,022   2.7 

Medical office

  183,189   4.4   174,891   4.3 

Medical or nursing facility

  98,622   2.4   85,918   2.1 

Other commercial real estate

  71,190   1.7   53,160   1.3 

Total non-owner occupied

  905,170   21.7   875,862   21.6 

Total investor commercial real estate

  1,325,320   31.7   1,505,605   37.2 

Agricultural:

                

Land

  53,725   1.3   64,799   1.6 

Production

  54,597   1.3   62,500   1.5 

Total agricultural

  108,322   2.6   127,299   3.1 

Consumer:

                

RRE − First lien

  809,835   19.3   874,737   21.6 

RRE − Construction

  32,620   0.8   33,703   0.8 

RRE − HELOC

  280,771   6.7   260,883   6.4 

RRE − Junior lien

  31,566   0.8   36,844   0.9 

Other consumer

  44,203   1.1   44,858   1.1 

Total consumer

  1,198,995   28.7   1,251,025   30.8 

Total loans

 $4,184,760   100.0% $4,048,022   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, 2026

  

December 31, 2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Total

  

Balance

  

Total

 

Geographical Market:

                

Minnesota

 $553,564   44.7% $621,747   49.4%

North Dakota

  228,489   18.5   212,077   16.8 

Arizona

  137,412   11.1   133,618   10.6 

Wisconsin

  62,432   5.0   88,229   7.0 

Texas

  66,370   5.4   37,113   2.9 

Illinois

  27,640   2.2   2,994   0.2 

Oregon

  16,692   1.3   17,698   1.4 

Colorado

  23,651   1.9   23,358   1.9 

Kansas

  25,789   2.1   16,656   1.3 

Missouri

  16,116   1.3   16,409   1.3 

Georgia

  14,563   1.2   14,569   1.2 

Virginia

  —   —   11,182   0.9 

Iowa

  13,779   1.1   11,155   0.9 

South Dakota

  10,258   0.8   10,415   0.8 

Other

  40,950   3.3   42,147   3.3 

Total non-owner occupied and multifamily commercial real estate loans

 $1,237,705   100.0% $1,259,367   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 if 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, 2026, the Company’s RRE portfolio was $1.2 billion, representing a $51.4 million, or 4.3%, decrease from December 31, 2025. 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, 2026: 

 

  

September 30, 2026

 
      

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 business lending

                    

Commercial and industrial

 $375,169  $157,134  $42,016  $286,816  $861,135 

Commercial real estate − Owner occupied

  162,905   53,692   88,261   386,130   690,988 

Total commercial and business lending

  538,074   210,827   130,277   672,946   1,552,123 

Investor commercial real estate

                    

Construction, land and development

  36,871   13,756   26,901   10,087   87,615 

Multifamily

  32,825   9,326   58,823   231,561   332,535 

Non-owner occupied

  169,988   54,192   209,941   471,049   905,170 

Total investor commercial real estate

  239,684   77,274   295,665   712,697   1,325,320 

Agricultural

                    

Land

  3,241   2,161   4,340   43,984   53,725 

Production

  2,930   1,562   18,955   31,149   54,597 

Total agricultural

  6,171   3,723   23,295   75,133   108,322 

Total commercial

  783,929   291,823   449,237   1,460,776   2,985,765 

Consumer

                    

Residential real estate

                    

First lien

  39,546   174,062   46,365   549,862   809,835 

Construction

  13,769   15,879   2,238   734   32,620 

HELOC

  60,583   104,375   19,906   95,907   280,771 

Junior lien

  4,858   6,610   1,769   18,329   31,566 

Total residential real estate

  118,756   300,926   70,277   664,833   1,154,792 

Other consumer

  22,115   10,606   4,288   7,194   44,203 

Total consumer

  140,871   311,532   74,565   672,027   1,198,995 

Total loans

 $924,800  $603,355  $523,803  $2,132,803  $4,184,760 

Loans with fixed interest rates:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $244,669  $61,018  $8,082  $120,696  $434,465 

Commercial real estate − Owner occupied

  29,848   15,737   31,710   199,163   276,459 

Total commercial and business lending

  274,517   76,755   39,792   319,859   710,923 

Investor commercial real estate

                    

Construction, land and development

  16,312   2,646   2,574   8,788   30,320 

Multifamily

  5,908   —   35,141   131,521   172,570 

Non-owner occupied

  41,860   20,932   81,579   316,133   460,504 

Total investor commercial real estate

  64,080   23,578   119,294   456,441   663,394 

Agricultural

                    

Land

  1,353   2,161   2,753   41,462   47,730 

Production

  2,002   728   1,069   10,857   14,656 

Total agricultural

  3,355   2,889   3,822   52,319   62,385 

Total commercial

  341,952   103,222   162,908   828,620   1,436,702 

Consumer

                    

Residential real estate

                    

First lien

  28,698   76,174   27,012   378,807   510,690 

Construction

  7,469   13,800   624   125   22,019 

HELOC

  673   725   142   7,454   8,994 

Junior lien

  4,858   4,405   1,251   15,881   26,396 

Total residential real estate

  41,698   95,104   29,029   402,267   568,098 

Other consumer

  2,542   3,890   3,497   4,289   14,218 

Total consumer

  44,240   98,994   32,526   406,556   582,316 

Total loans with fixed interest rates

 $386,193  $202,216  $195,434  $1,235,175  $2,019,018 

Loans with floating interest rates:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $130,500  $96,117  $33,934  $166,120  $426,671 

Commercial real estate − Owner occupied

  133,056   37,955   56,551   186,966   414,529 

Total commercial and business lending

  263,556   134,072   90,485   353,086   841,200 

Investor commercial real estate

                    

Construction, land and development

  20,559   11,109   24,326   1,300   57,295 

Multifamily

  26,917   9,326   23,682   100,040   159,965 

Non-owner occupied

  128,128   33,260   128,362   154,916   444,666 

Total investor commercial real estate

  175,605   53,695   176,371   256,256   661,926 

Agricultural

                    

Land

  1,888   —   1,586   2,522   5,996 

Production

  928   835   17,887   20,293   39,942 

Total agricultural

  2,816   835   19,473   22,814   45,937 

Total commercial

  441,977   188,601   286,329   632,157   1,549,064 

Consumer

                    

Residential real estate

                    

First lien

  10,848   97,888   19,353   171,055   299,145 

Construction

  6,300   2,079   1,613   609   10,602 

HELOC

  59,910   103,649   19,764   88,453   271,776 

Junior lien

  —   2,205   518   2,448   5,171 

Total residential real estate

  77,058   205,821   41,249   262,566   586,694 

Other consumer

  19,573   6,716   791   2,906   29,986 

Total consumer

  96,631   212,537   42,040   265,472   616,680 

Total loans with floating interest rates

 $538,607  $401,139  $328,369  $897,628  $2,165,742 

 

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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, 2026 and December 31, 2025: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Commercial

        

Commercial and business lending

        

Commercial and industrial

 $26,230  $33,323 

Commercial real estate − Owner occupied

  13,097   14,058 

Total commercial and business lending

  39,327   47,381 

Investor commercial real estate

        

Construction, land and development

  —   34,201 

Multifamily

  14,957   28,541 

Non-owner occupied

  12,544   17,591 

Total investor commercial real estate

  27,501   80,333 

Agricultural

        

Land

  6,558   7,653 

Production

  4,906   3,662 

Total agricultural

  11,464   11,315 

Total commercial

  78,292   139,029 

Consumer

        

Residential real estate

        

First lien

  2,486   2,602 

Construction

  —   4,680 

HELOC

  681   128 

Junior lien

  74   2,375 

Total residential real estate

  3,241   9,785 

Other consumer

  297   348 

Total consumer

  3,538   10,133 

Total criticized loans

 $81,830  $149,162 

Criticized loans as a percent of total loans

  1.96%  3.68%

 

The following table presents information regarding nonperforming assets as of September 30, 2026 and December 31, 2025: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Nonaccrual loans

 $6,909  $69,065 

Accruing loans 90+ days past due

  21   — 

Total nonperforming loans

  6,930   69,065 

OREO and repossessed assets

  9,449   308 

Total nonperforming assets

  16,379   69,373 

Total restructured accruing loans

  —   1,436 

Total nonperforming assets and restructured accruing loans

 $16,379  $70,809 

Nonperforming loans to total loans

  0.17%  1.71%

Nonperforming assets to total assets

  0.30%  1.33%

ACL on loans to nonperforming loans

  742.40%  89.65%

 

Interest income lost on nonaccrual loans was approximately $1.4 million and $3.8 million for the nine months ended September 30, 2026 and 2025, respectively. There was no interest income included in net interest income related to nonaccrual loans for the nine months ended September 30, 2026 and 2025. 

 

Total nonperforming loans were $6.9 million at September 30, 2026, compared to $69.1 million as of December 31, 2025. The decrease was primarily driven by the sale of three non-performing loans representing a construction, land and development relationship. There were no historical charge-offs on this relationship and there were no charge-offs recognized as a result of the transaction. 

 

OREO and repossessed assets were $9.4 million at September 30, 2026, compared to $0.3 million as of December 31, 2025. The increase was primarily driven by the transfer of one 1-4 family property and one apartment complex to OREO in the second quarter of 2026.  

 

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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 tables present information concerning the components of the ACL for the periods presented: 

 

  

Three months ended

  

Nine months ended

 
  

September 30,

  

September 30,

 

(dollars in thousands)

 

2026

  

2025

  

2026

  

2025

 

ACL on loans at the beginning of the period

 $48,361  $59,278  $61,915  $59,929 

(Credit) provision for loan losses

  2,069   1,136   (1,885)  4,657 

Net charge-offs (recoveries) (1)

                

Commercial and industrial

  (1,134)  (1,809)  6,559   (1,959)

CRE − Owner occupied

  (11)  (10)  (33)  (28)

CRE − Construction, land and development

  —   —   —   — 

CRE − Multifamily

  93   —   1,149   — 

CRE − Non-owner occupied

  —   —   —   3,401 

Agricultural − Land

  —   —   —   — 

Agricultural − Production

  (30)  —   (174)  372 

RRE − First lien

  —   —   —   54 

RRE − Construction

  —   —   —   — 

RRE − HELOC

  71   74   71   334 

RRE − Junior lien

  (2)  —   928   300 

Other consumer

  (5)  32   82   (15)

Total net charge-offs (recoveries)

  (1,018)  (1,713)  8,582   2,459 

ACL on loans at the end of the period

  51,448   62,127   51,448   62,127 

Components of ACL:

                

ACL on HTM debt securities

  111   126   111   126 

ACL on loans

  51,448   62,127   51,448   62,127 

ACL on off-balance sheet credit exposures

  3,592   3,668   3,592   3,668 

ACL at end of the period

  55,151   65,921   55,151   65,921 

Total loans

 $4,184,760  $4,102,075  $4,184,760  $4,102,075 

Average total loans

  4,026,351   4,036,936   4,029,390   4,046,347 

ACL on loans to total loans

  1.23%  1.51%  1.23%  1.51%

ACL on loans to nonaccrual loans

  744.65%  121.16%  744.65%  121.16%

ACL on loans to nonperforming loans

  742.40%  115.15%  742.40%  115.15%

Net charge-offs/(recoveries) to average total loans (annualized)

  (0.10)%  (0.17)%  0.28%  0.08%
 

(1)

Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated. 

 

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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

 

2026:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $131  $1,265  $(1,134) $778,604   (0.58)%

Commercial real estate − Owner occupied

  —   11   (11)  649,436   (0.01)

Total commercial and business lending

  131   1,276   (1,145)  1,428,040   (0.32)

Investor commercial real estate

                    

Construction, land and development

  —   —   —   89,571   — 

Multifamily

  93   —   93   341,997   0.11 

Non-owner occupied (1)

  —   —   —   858,263   — 

Total investor commercial real estate

  93   —   93   1,289,831   0.03 

Agricultural

                    

Land

  —   —   —   54,978   — 

Production

  —   30   (30)  52,005   (0.23)

Total agricultural

  —   30   (30)  106,983   (0.11)

Total commercial

  224   1,306   (1,082)  2,824,854   (0.15)

Consumer

                    

Residential real estate

                    

First lien

  —   —   —   818,187   — 

Construction

  —   —   —   33,030   — 

HELOC

  71   —   71   275,470   0.10 

Junior lien

  —   2   (2)  31,353   (0.03)

Total residential real estate

  71   2   69   1,158,040   0.02 

Other consumer

  22   27   (5)  43,457   (0.05)

Total consumer

  93   29   64   1,201,497   0.02 

Total loans

 $317  $1,335  $(1,018) $4,026,351   (0.10)%

2025:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $606  $2,415  $(1,809) $650,787   (1.10)%

Commercial real estate − Owner occupied

  —   10   (10)  435,469   (0.01)

Total commercial and business lending

  606   2,425   (1,819)  1,086,256   (0.66)

Investor commercial real estate

                    

Construction, land and development

  —   —   —   363,466   — 

Multifamily

  —   —   —   340,709   — 

Non-owner occupied

  —   —   —   887,935   — 

Total investor commercial real estate

  —   —   —   1,592,110   — 

Agricultural

                    

Land

  —   —   —   66,676   — 

Production

  —   —   —   64,685   — 

Total agricultural

  —   —   —   131,361   — 

Total commercial

  606   2,425   (1,819)  2,809,727   (0.26)

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) $4,036,936   (0.17)%

 

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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

 

2026:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $8,884  $2,325  $6,559  $760,827   1.15%

Commercial real estate − Owner occupied

  —   33   (33)  528,217   (0.01)

Total commercial and business lending

  8,884   2,358   6,526   1,289,044   0.68 

Investor commercial real estate

                    

Construction, land and development

  —   —   —   134,534   — 

Multifamily

  1,149   —   1,149   376,509   0.41 

Non-owner occupied

  —   —   —   898,414   — 

Total investor commercial real estate

  1,149   —   1,149   1,409,457   0.11 

Agricultural

                    

Land

  —   —   —   56,178   — 

Production

  50   224   (174)  54,704   (0.43)

Total agricultural

  50   224   (174)  110,882   (0.21)

Total commercial

  10,083   2,582   7,501   2,809,383   0.36 

Consumer

                    

Residential real estate

                    

First lien

  —   —   —   840,523   — 

Construction

  —   —   —   33,639   — 

HELOC

  71   —   71   269,487   0.04 

Junior lien

  931   3   928   33,427   3.71 

Total residential real estate

  1,002   3   999   1,177,076   0.11 

Other consumer

  168   86   82   42,931   0.26 

Total consumer

  1,170   89   1,081   1,220,007   0.12 

Total loans

 $11,253  $2,671  $8,582  $4,029,390   0.28%

2025:

                    

Commercial

                    

Commercial and business lending

                    

Commercial and industrial

 $854  $2,813  $(1,959) $654,061   (0.40)%

Commercial real estate − Owner occupied

  4   32   (28)  419,608   (0.01)

Total commercial and business lending

  858   2,845   (1,987)  1,073,669   (0.25)

Investor commercial real estate

                    

Construction, land and development

  —   —   —   348,093   — 

Multifamily

  —   —   —   350,658   — 

Non-owner occupied

  3,401   —   3,401   934,143   0.49 

Total investor commercial real estate

  3,401   —   3,401   1,632,894   0.28 

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   2,837,567   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  $4,046,347   0.08%

 

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The following table presents the allocation of the ACL on loans as of the dates presented:

 

  

September 30, 2026

  

December 31, 2025

 
      

Percentage

      

Percentage

 
  

Allocated

  

of loans to

  

Allocated

  

of loans to

 

(dollars in thousands)

 

Allowance

  

total loans

  

Allowance

  

total loans

 

Commercial and industrial

 $12,598   20.6% $16,216   18.3%

CRE − Owner occupied

  6,678   16.4   3,097   10.6 

CRE − Construction, land and development

  2,841   2.1   13,210   6.1 

CRE − Multifamily

  3,680   7.9   4,380   9.5 

CRE − Non-owner occupied

  9,181   21.7   11,006   21.6 

Agricultural − Land

  826   1.3   959   1.6 

Agricultural − Production

  550   1.3   623   1.5 

RRE − First lien

  10,695   19.3   9,358   21.6 

RRE − Construction

  406   0.8   274   0.8 

RRE − HELOC

  2,816   6.7   1,787   6.4 

RRE − Junior lien

  488   0.8   395   0.9 

Other consumer

  689   1.1   610   1.1 

Total loans

 $51,448   100.0% $61,915   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 $3.6 million and $3.7 million as of September 30, 2026 and 2025, 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 bank failures. 

 

Total deposits were $4.3 billion as of September 30, 2026, an increase of $111.2 million, or 2.7%, from December 31, 2025. Interest-bearing deposits increased $105.6 million during this period, while noninterest-bearing deposits increased $5.6 million. 

 

The following table presents the composition of the Company’s deposit portfolio as of September 30, 2026 and December 31, 2025: 

 

  

September 30, 2026

  

December 31, 2025

         
      

Percent of

      

Percent of

  

Change

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

  

Amount

  

Percent

 

Noninterest-bearing demand

 $813,493   18.9% $807,896   19.3% $5,597   0.7%

Interest-bearing demand

  1,430,016   33.2   1,296,315   30.9   133,701   10.3 

Money market and savings (1)

  1,477,233   34.3   1,511,250   36.1   (34,017)  (2.3)

Time deposits

  582,435   13.6   576,542   13.7   5,893   1.0 

Total deposits

 $4,303,177   100.0% $4,192,003   100.0% $111,174   2.7%
 

(1)

Money market and savings deposits included health savings account deposits of $221.8 million and $203.4 million as of September 30, 2026 and December 31, 2025, respectively. 

 

The following table presents the average balances and rates of the Company’s deposit portfolio for the three and nine months ended September 30, 2026 and 2025: 

 

  

Three months ended September 30,

  

Nine months ended September 30,

 
  

2026

  

2025

  

2026

  

2025

 
  

Average

  

Average

  

Average

  

Average

  

Average

  

Average

  

Average

  

Average

 

(dollars in thousands)

 

Balance

  

Rate

  

Balance

  

Rate

  

Balance

  

Rate

  

Balance

  

Rate

 

Noninterest-bearing demand

 $776,897   —% $800,028   —% $788,442   —% $819,266   —%

Interest-bearing demand

  1,402,505   1.70   1,227,029   1.80   1,382,852   1.67%  1,240,589   1.80%

Money market and savings

  1,454,053   2.38   1,587,694   2.84   1,466,135   2.36%  1,580,085   2.83%

Time deposits

  573,526   3.32   772,345   3.81   571,305   3.36%  716,421   3.81%

Total deposits

 $4,206,981   1.84% $4,387,096   2.20% $4,208,734   1.83% $4,356,361   2.17%

 

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The following table presents the composition of the Company’s deposit portfolio by client segment as of September 30, 2026 and December 31, 2025: 

 

  

September 30, 2026

  

December 31, 2025

         
      

Percent of

      

Percent of

  

Change

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

  

Amount

  

Percent

 

Commercial

 $1,599,876   37.2% $1,563,239   37.3% $36,637   2.3%

Consumer

  1,514,889   35.2   1,469,813   35.1   45,076   3.1 

Public (1)

  238,612   5.5   180,755   4.3   57,857   32.0 

Synergistic (2)

                        

Retirement and benefit services (3)

  741,578   17.3   725,618   17.3   15,960   2.2 

Wealth advisory services (4)

  208,222   4.8   252,578   6.0   (44,356)  (17.6)

Total synergistic

  949,800   22.1   978,196   23.3   (28,396)  (2.9)

Total deposits

 $4,303,177   100.0% $4,192,003   100.0% $111,174   2.7%
 

(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 Advisory Services clients hold in proprietary Alerus money market products. 
 (3)$405.1 million and $395.7 million of retirement and benefit services synergistic deposits were indexed as of September 30, 2026 and December 31, 2025, respectively. 
 (4)$208.2 million and $252.6 million of wealth advisory services synergistic deposits were indexed as of September 30, 2026 and December 31, 2025, 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, 2026: 

 

  

September 30,

 

(dollars in thousands)

 

2026

 

Maturing in:

    

3 months or less

 $75,724 

3 months to 6 months

  64,058 

6 months to 1 year

  20,223 

1 year or greater

  34,149 

Total

 $194,154 

 

The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.6 billion at September 30, 2026 and approximately $1.4 billion December 31, 2025. These amounts were estimated based on the same methodologies used for regulatory reporting purposes. 

 

Borrowings 

 

Borrowings as of September 30, 2026 and December 31, 2025 were as follows: 

 

  

September 30, 2026

  

December 31, 2025

 
      

Percent of

      

Percent of

 

(dollars in thousands)

 

Balance

  

Portfolio

  

Balance

  

Portfolio

 

Fed funds purchased

 $98,400   26.1% $58,800   16.0%

FHLB short-term advances

  220,000   58.2   250,000   67.9 

Subordinated notes

  50,000   13.2   50,000   13.6 

Junior subordinated debentures

  9,267   2.5   9,182   2.5 

Total borrowed funds

 $377,667   100.0% $367,982   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 $11.9 million, or 2.1%, to $576.9 million as of September 30, 2026, compared to $564.9 million as of December 31, 2025. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 8.77% as of September 30, 2026, from 8.72% as of December 31, 2025. Common equity tier 1 capital to risk weighted assets increased to 10.52% as of September 30, 2026, from 10.28% as of December 31, 2025. 

 

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, 2026 and December 31, 2025, 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, 2026 and December 31, 2025: 

 

  

September 30,

  

December 31,

 

Capital Ratios

 

2026

  

2025

 

Alerus Financial Corporation Consolidated

        

Common equity tier 1 capital to risk weighted assets

  10.52%  10.28%

Tier 1 capital to risk weighted assets

  10.72%  10.48%

Total capital to risk weighted assets

  13.01%  12.87%

Tier 1 capital to average assets

  9.58%  8.86%

Tangible common equity to tangible assets (1)

  8.77%  8.72%
         

Alerus Financial, National Association

        

Common equity tier 1 capital to risk weighted assets

  10.57%  10.41%

Tier 1 capital to risk weighted assets

  10.57%  10.41%

Total capital to risk weighted assets

  11.78%  11.66%

Tier 1 capital to average assets

  9.35%  8.62%

(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, 2026, 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, 2026 and December 31, 2025, was as follows: 

 

  

September 30,

  

December 31,

 

(dollars in thousands)

 

2026

  

2025

 

Commitments to extend credit

 $1,078,522  $1,038,347 

Standby letters of credit

  16,113   14,393 

Total

 $1,094,635  $1,052,740 

 

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, 2026, the Company had on balance sheet liquidity of $403.3 million, compared to $547.7 million as of December 31, 2025. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, and unencumbered securities available‑for‑sale.

 

As of September 30, 2026 the Company had off balance sheet liquidity of $2.5 billion, compared to $2.2 billion as of December 31, 2025. 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, 2026, the Company had federal funds purchased in the amount of $98.4 million, and had $220.0 million in short-term borrowings from the FHLB. As of September 30, 2026, the Company had $2.0 billion of collateral pledged to the FHLB and, based on this collateral, the Company was eligible to borrow up to an additional $1.0 billion from the FHLB. In addition, the Company can borrow up to $145.0 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, 2026. Management believed that the Company had adequate resources to fund all of the Company’s commitments as of September 30, 2026 and December 31, 2025. 

 

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, 2026 and December 31, 2025, assuming immediate parallel moves in interest rates, is presented in the table below: 

 

  

September 30, 2026

  

December 31, 2025

 
  

Following

  

Following

  

Following

  

Following

 
  

12 months

  

24 months

  

12 months

  

24 months

 

+400 basis points

  0.6%  15.2%  -1.2%  14.0%

+300 basis points

  0.5%  11.5%  -0.7%  10.7%

+200 basis points

  0.6%  8.2%  -0.1%  7.8%

+100 basis points

  0.1%  4.0%  0.1%  4.1%

−100 basis points

  0.2%  -3.9%  0.6%  -4.2%

−200 basis points

  1.3%  -7.1%  2.0%  -7.9%

−300 basis points

  5.1%  -4.2%  4.2%  -9.5%

−400 basis points

  4.9%  -4.4%  5.4%  -8.0%

 

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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, 2026 and December 31, 2025, assuming immediate parallel shifts in interest rates: 

 

  

September 30,

  

December 31,

 
  

2026

  

2025

 

+400 basis points

  -7.4%  -5.4%

+300 basis points

  -5.3%  -3.5%

+200 basis points

  -2.6%  -1.2%

+100 basis points

  -1.0%  -0.1%

−100 basis points

  0.5%  -1.0%

−200 basis points

  0.1%  -3.6%

−300 basis points

  -3.1%  -9.0%

−400 basis points

  -12.7%  -18.4%

 

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 Reputation Risk

 

Strategic and 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 and the Chief Financial 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

 

There has been no change in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is 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 4, 2026. 

 

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 2026: 

 

          

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, 2026

  101,740  $31.97   98,967   401,033 

August 1-31, 2026

  94,500   33.36   94,500   306,533 

September 1-30, 2026

  56,712   33.07   56,533   250,000 

Total

  252,952  $32.74   250,000   250,000 

(1)

Includes 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 August 26, 2026, the Board approved a new stock repurchase program (the “New Stock Repurchase Program”) which authorizes the Company to repurchase up to 1,250,000 shares of its common stock, subject to certain limitations and conditions. This New Stock Repurchase Program will automatically become effective upon the earlier of: (i) the repurchase by the Company of the full 1,000,000 shares of common stock authorized for repurchase under the Company’s existing stock repurchase program which was originally announced on December 14, 2023 and became effective on February 18, 2024 (the “Prior Stock Repurchase Program”); or (ii) the expiration or earlier termination of the Prior Stock Purchase Program (the “Transition Date”), and will expire on August 26, 2029. Effective as of the Transition Date, the Prior Stock Repurchase Program will automatically terminate, to the extent it has not previously expired or terminated, and be replaced and superseded in its entirety by the New Stock Repurchase Program. Under the Prior Stock Repurchase Program approximately 320,033 shares of Company common stock remained authorized for repurchase as of August 26, 2026. The Prior Stock Repurchase Program is currently scheduled to expire on February 18, 2027.

 

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, 2026, none of the Company’s directors or executive officers adopted, terminated, or modified any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(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). 

   

31.1

 

Chief Executive Officer’s Certifications required by Rule 13a‑14(a) – filed herewith.

   

31.2

 

Chief Financial Officer’s Certifications required by Rule 13a‑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)

 

66
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 4, 2026

By:

 /s/ Katie A. Lorenson

  

Name:    Katie A. Lorenson

  

Title:      President and Chief Executive Officer (Principal Executive Officer)

   

Date: November 4, 2026

By:

 /s/ Alan A. Villalon

  

Name:    Alan A. Villalon

  

Title:      Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

67

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