Equibles

10-Q

ALERUS FINANCIAL CORP (ALRS)

10-Q 2025-11-05 For: 2025-09-30
View Original
Added on April 04, 2026

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2025

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

Commission File Number: 001-39036

ALERUS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware 45-0375407
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
401 Demers Avenue
Grand Forks, ND 58201
(Address of principal executive offices) (Zip Code)

(701) 795‑3200

(Registrant’s telephone number, including area code)

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

Title of each class Trading symbol Name of each exchange on which registered
Common Stock, par value $1.00 per share ALRS The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐<br> <br>Emerging growth company ☐

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

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

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

Table of Contents

Alerus Financial Corporation and Subsidiaries

Table of Contents

Page
Part 1: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 1
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Comprehensive Income 3
Consolidated Statements of Changes in Stockholders’ Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 39
Item 3. Quantitative and Qualitative Disclosures About Market Risk 62
Item 4. Controls and Procedures 63
Part 2: OTHER INFORMATION
Item 1. Legal Proceedings 64
Item 1A. Risk Factors 64
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 64
Item 3. Defaults Upon Senior Securities 64
Item 4. Mine Safety Disclosures 64
Item 5. Other Information 64
Item 6. Exhibits 65
Signatures 66

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PART 1. FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

December 31,
(dollars in thousands, except share and per share data) 2024
Assets
Cash and cash equivalents 92,043 $ 61,239
Investment securities
Trading 1,411 3,309
Available-for-sale, at fair value (amortized cost of 603,221 and 686,556, respectively) 531,014 588,053
Held-to-maturity, at amortized cost (fair value of 230,597 and 236,986, respectively, with an allowance for credit losses on investments of 126 and 131, respectively) 259,225 275,585
Loans held for sale 17,757 16,518
Loans 4,102,075 3,992,534
Allowance for credit losses on loans (62,127 ) (59,929 )
Net loans 4,039,948 3,932,605
Land, premises and equipment, net 44,097 39,780
Operating lease right-of-use assets 30,154 13,438
Accrued interest receivable 21,602 20,075
Bank-owned life insurance 38,997 36,033
Goodwill 85,634 85,634
Other intangible assets, net 35,753 43,882
Servicing rights 6,708 7,918
Deferred income taxes, net 38,497 52,885
Other assets 87,733 84,719
Total assets 5,330,573 $ 5,261,673
Liabilities and Stockholders’ Equity **** ****
Liabilities **** ****
Deposits
Noninterest-bearing 776,791 $ 903,466
Interest-bearing 3,635,862 3,474,944
Total deposits 4,412,653 4,378,410
Short-term borrowings 200,000 238,960
Long-term debt 59,154 59,069
Operating lease liabilities 36,918 18,991
Accrued expenses and other liabilities 71,160 70,833
Total liabilities 4,779,885 4,766,263
Commitments and contingencies (Note 12) **** ****
Stockholders’ equity **** ****
Preferred stock, 1 par value, 2,000,000 shares authorized: 0 issued and outstanding — —
Common stock, 1 par value, 60,000,000 and 30,000,000 shares authorized: 25,396,686 and 25,344,803 issued and outstanding 25,397 25,345
Additional paid-in capital 271,165 269,708
Retained earnings 308,464 273,723
Accumulated other comprehensive income (loss) (54,338 ) (73,366 )
Total stockholders’ equity 550,688 495,410
Total liabilities and stockholders’ equity 5,330,573 $ 5,261,673

All values are in US Dollars.

See accompanying notes to consolidated financial statements (unaudited)

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Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

Three months ended Nine months ended
September 30, September 30,
(dollars and shares in thousands, except per share data) 2025 2024 2025 2024
Interest Income ****
Loans, including fees $ 63,875 $ 42,593 $ 189,222 $ 123,551
Investment securities
Taxable 5,091 4,596 16,108 14,008
Exempt from federal income taxes 160 169 480 512
Other 1,518 4,854 3,440 16,200
Total interest income 70,644 52,212 209,250 154,271
Interest Expense ****
Deposits 24,350 22,285 70,643 63,721
Short-term borrowings 2,506 6,706 9,327 19,748
Long-term debt 652 679 1,955 2,041
Total interest expense 27,508 29,670 81,925 85,510
Net interest income 43,136 22,542 127,325 68,761
Provision for credit losses — 1,661 863 6,150
Net interest income after provision for credit losses 43,136 20,881 126,462 62,611
Noninterest Income ****
Retirement and benefit services 16,496 16,144 48,625 47,876
Wealth 6,560 6,684 20,827 19,161
Mortgage banking 3,474 2,573 8,651 6,796
Service charges on deposit accounts 703 488 2,034 1,333
Gain on sale of non-mortgage loans (35 ) — 2,080 —
Other 2,232 2,474 6,607 5,891
Total noninterest income 29,430 28,363 88,824 81,057
Noninterest Expense ****
Compensation 24,984 21,058 72,288 60,655
Employee taxes and benefits 6,094 5,400 20,490 16,722
Occupancy and equipment expense 2,849 2,082 8,315 5,803
Business services, software and technology expense 6,285 4,879 17,905 14,823
Intangible amortization expense 2,710 1,324 8,129 3,972
Professional fees and assessments 2,676 4,267 8,010 8,633
Marketing and business development 1,069 764 2,821 2,200
Supplies and postage 569 422 1,690 1,321
Travel 385 330 1,019 954
Mortgage and lending expenses 1,025 684 2,501 1,592
Other 1,895 1,237 6,176 3,543
Total noninterest expense 50,541 42,447 149,344 120,218
Income before income taxes 22,025 6,797 65,942 23,450
Income tax expense 5,101 1,590 15,451 5,604
Net income $ 16,924 $ 5,207 $ 50,491 $ 17,846
Per Common Share Data ****
Basic earnings per common share $ 0.66 $ 0.26 $ 1.97 $ 0.90
Diluted earnings per common share $ 0.65 $ 0.26 $ 1.95 $ 0.89
Dividends declared per common share $ 0.21 $ 0.20 $ 0.62 $ 0.59
Average common shares outstanding 25,395 19,788 25,374 19,768
Diluted average common shares outstanding 25,713 20,075 25,693 20,037

See accompanying notes to consolidated financial statements (unaudited)

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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) 2025 2024 2025 2024
Net Income $ 16,924 $ 5,207 $ 50,491 $ 17,846
Other Comprehensive Income (Loss), Net of Tax **** **** **** ****
Net change in unrealized gains (losses) on debt securities 7,401 19,431 26,161 14,692
Net change in unrealized gain (losses) on cash flow hedging derivatives 77 (869 ) (510 ) (160 )
Net change in unrealized gain (losses) on other derivatives (123 ) (3,068 ) (246 ) (872 )
Total other comprehensive income (loss), before tax 7,355 15,494 25,405 13,660
Income tax expense (benefit) related to items of other comprehensive income (loss) 1,846 3,889 6,377 3,429
Other comprehensive income (loss), net of tax 5,509 11,605 19,028 10,231
Total comprehensive income (loss) $ 22,433 $ 16,812 $ 69,519 $ 28,077

See accompanying notes to consolidated financial statements (unaudited)

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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, 2024 19,778 $ 150,857 $ 277,620 $ (75,029 ) $ 373,226
Net income — — 5,207 — 5,207
Other comprehensive income (loss) — — — 11,605 11,605
Common stock repurchased — (76 ) — — (76 )
Common stock dividends — — (3,964 ) — (3,964 )
Share‑based compensation expense — 488 — — 488
Vesting of restricted stock 12 (12 ) — — —
Balance as of September 30, 2024 19,790 $ 151,257 $ 278,863 $ (63,424 ) $ 386,486
Balance as of June 30, 2025 25,389 $ 270,735 $ 296,878 $ (59,847 ) $ 533,155
Net income — — 16,924 — 16,924
Other comprehensive income (loss) — — — 5,509 5,509
Common stock repurchased (3 ) (339 ) — — (342 )
Common stock dividends — — (5,338 ) — (5,338 )
Share‑based compensation expense — 780 — — 780
Vesting of restricted stock 11 (11 ) — — —
Balance as of September 30, 2025 25,397 $ 271,165 $ 308,464 $ (54,338 ) $ 550,688
Nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
**** **** **** Accumulated ****
**** Additional **** Other ****
Common Paid-in Retained Comprehensive ****
(dollars and shares in thousands) Stock Capital Earnings Income (Loss) Total
Balance as of December 31, 2023 19,734 $ 150,343 $ 272,705 $ (73,655 ) $ 369,127
Net income — — 17,846 — 17,846
Other comprehensive income (loss) — — — 10,231 10,231
Common stock repurchased (7 ) (225 ) — — (232 )
Common stock dividends — — (11,688 ) — (11,688 )
Share‑based compensation expense — 1,202 — — 1,202
Vesting of restricted stock 63 (63 ) — — —
Balance as of September 30, 2024 19,790 $ 151,257 $ 278,863 $ (63,424 ) $ 386,486
Balance as of December 31, 2024 25,345 $ 269,708 $ 273,723 $ (73,366 ) $ 495,410
Net income — — 50,491 — 50,491
Other comprehensive income (loss) — — — 19,028 19,028
Common stock repurchased (11 ) (507 ) — — (518 )
Common stock dividends — — (15,750 ) — (15,750 )
Share‑based compensation expense — 2,027 — — 2,027
Vesting of restricted stock 63 (63 ) — — —
Balance as of September 30, 2025 25,397 $ 271,165 $ 308,464 $ (54,338 ) $ 550,688

See accompanying notes to consolidated financial statements (unaudited)

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Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

Nine months ended
September 30,
(dollars in thousands) 2025 2024
Operating Activities **** ****
Net income $ 50,491 $ 17,846
Adjustments to reconcile net income to net cash provided (used) by operating activities
Deferred income taxes 8,011 (1,888 )
Provision for credit losses 863 6,150
Depreciation and amortization 11,548 6,456
Amortization and accretion of premiums/discounts on investment securities 573 1,301
Amortization of operating lease right-of-use assets 1,211 60
Share‑based compensation expense 2,027 1,202
Purchase accounting accretion, net (21,454 ) —
Originations of loans held for sale (120,539 ) (233,656 )
Proceeds on loans held for sale 127,318 238,113
Realized loss (gain) on mortgage loans sold (7,936 ) (6,545 )
Servicing rights capitalized upon sale of mortgage loans (154 ) —
(Increase) in value of bank-owned life insurance (753 ) (622 )
Realized loss (gain) on sale of premises and equipment — (476 )
Realized loss (gain) on derivative instruments (505 ) 421
Realized loss (gain) on sale of foreclosed assets 60 (1 )
Change in fair value of mortgage servicing rights 1,364 —
Realized loss (gain) on servicing rights — (149 )
Net change in:
Accrued interest receivable (1,527 ) (769 )
Other assets (649 ) 127
Accrued expenses and other liabilities 1,241 (8,129 )
Net cash provided (used) by operating activities 51,190 19,441
Investing Activities **** ****
Proceeds from sales of trading investment securities 6,233 8,684
Purchases of trading investment securities (4,257 ) (11,220 )
Proceeds from sales or calls of investment securities available-for-sale 19,800 —
Proceeds from maturities of investment securities available-for-sale 63,536 35,011
Proceeds from calls of investment securities held-to-maturity 346 611
Proceeds from maturities and paydowns of investment securities held-to-maturity 15,314 16,180
Proceeds from sale of non-mortgage loans held for sale 62,491 —
Net (increase) decrease in loans (154,466 ) (275,760 )
Net (increase) decrease in FHLB stock 636 2,809
Purchases of BOLI (2,211 ) (1,935 )
Proceeds from sale of premises and equipment — 2,799
Purchases of premises and equipment (7,651 ) (7,331 )
Proceeds from sales of foreclosed assets 824 37
Net cash provided (used) by investing activities 595 (230,115 )
Financing Activities **** ****
Net increase (decrease) in deposits 34,243 227,939
Net increase (decrease) in short-term borrowings with maturities of three months or less (38,960 ) (69,470 )
Cash dividends paid on common stock (15,746 ) (11,481 )
Repurchase of common stock (518 ) (232 )
Net cash provided (used) by financing activities (20,981 ) 146,756
Net change in cash and cash equivalents 30,804 (63,918 )
Cash and cash equivalents at beginning of period 61,239 129,893
Cash and cash equivalents at end of period $ 92,043 $ 65,975

See accompanying notes to consolidated financial statements (unaudited)

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Nine months ended
September 30,
2025 2024
Supplemental Cash Flow Disclosures **** ****
Interest paid $ 83,247 $ 84,700
Income taxes paid 2,212 260
Cash dividends declared, not paid 5,338 3,963
Supplemental Disclosures of Noncash Investing and Financing Activities **** ****
Loan collateral transferred to foreclosed assets (1,351 ) (5 )
Premises and equipment transferred to other assets — 2,086
Right-of-use assets obtained in exchange for new operating lease liabilities, net 19,816 5,244
Change in fair value hedges presented within residential real estate loans and other assets — 98
Loans transferred to non-mortgage loans held for sale 62,491 —

See accompanying notes to consolidated financial statements (unaudited)

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Alerus Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 Basis of Presentation

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

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

NOTE 2 Recent Accounting Pronouncements

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

Adopted Pronouncements

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

Pronouncements Not Yet Effective

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

NOTE 3 Investment Securities

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

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

September 30, 2025
Amortized Unrealized Unrealized Allowance for Fair
(dollars in thousands) Cost Gains Losses Credit Losses Value
Available-for-sale
U.S. Treasury and agencies $ 448 $ — $ (2 ) $ — $ 446
Mortgage backed securities
Residential agency 548,245 765 (69,173 ) — 479,837
Commercial 1,329 — (50 ) — 1,279
Asset backed securities 16 — — — 16
Corporate bonds 53,183 — (3,747 ) — 49,436
Total available-for-sale investment securities 603,221 765 (72,972 ) — 531,014
Held-to-maturity
Obligations of state and political agencies 113,485 — (7,219 ) 75 106,266
Mortgage backed securities
Residential agency 145,866 — (21,535 ) 51 124,331
Total held-to-maturity investment securities 259,351 — (28,754 ) 126 230,597
Total investment securities $ 862,572 $ 765 $ (101,726 ) $ 126 $ 761,611

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December 31, 2024
Amortized Unrealized Unrealized Allowance for Fair
(dollars in thousands) Cost Gains Losses Credit Losses Value
Available-for-sale
U.S. Treasury and agencies $ 30,691 $ 18 $ (2 ) — $ 30,707
Mortgage backed securities
Residential agency 596,510 1 (92,805 ) — 503,706
Commercial 1,350 — (99 ) — 1,251
Asset backed securities 19 — — — 19
Corporate bonds 57,986 — (5,616 ) — 52,370
Total available-for-sale investment securities 686,556 19 (98,522 ) — 588,053
Held-to-maturity
Obligations of state and political agencies 119,623 — (11,638 ) 77 107,985
Mortgage backed securities
Residential agency 156,093 — (27,092 ) 54 129,001
Total held-to-maturity investment securities 275,716 — (38,730 ) 131 236,986
Total investment securities $ 962,272 $ 19 $ (137,252 ) $ 131 $ 825,039

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

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

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

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

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

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

September 30, 2025
Less than 12 Months Over 12 Months Total
Number of Unrealized Fair Unrealized Fair Unrealized Fair
(dollars in thousands) Holdings Losses Value Losses Value Losses Value
Available-for-sale
U.S. Treasury and agencies 2 $ — $ — $ (2 ) $ 446 $ (2 ) $ 446
Mortgage backed securities
Residential agency 123 — 54 (69,173 ) 479,783 (69,173 ) 479,837
Commercial 1 — — (50 ) 1,280 (50 ) 1,280
Asset backed securities 3 — — — 16 — 16
Corporate bonds 11 — — (3,747 ) 49,435 (3,747 ) 49,435
Total available-for-sale investment securities 140 $ — $ 54 $ (72,972 ) $ 530,960 $ (72,972 ) $ 531,014
December 31, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Less than 12 Months Over 12 Months Total
Number of Unrealized Fair Unrealized Fair Unrealized Fair
(dollars in thousands) Holdings Losses Value Losses Value Losses Value
Available-for-sale
U.S. Treasury and agencies 1 $ — $ — $ (2 ) $ 327 $ (2 ) $ 327
Mortgage backed securities
Residential agency 124 (1,715 ) 116,800 (91,090 ) 386,864 (92,805 ) 503,664
Commercial 1 — — (99 ) 1,251 (99 ) 1,251
Asset backed securities 3 — — — 18 — 18
Corporate bonds 12 — — (5,616 ) 52,370 (5,616 ) 52,370
Total available-for-sale investment securities 141 $ (1,715 ) $ 116,800 $ (96,807 ) $ 440,830 $ (98,522 ) $ 557,630

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

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

Held-to-maturity Available-for-sale
Carrying Fair Amortized Fair
(dollars in thousands) Value Value Cost Value
Due within one year or less $ 11,648 $ 11,504 $ — $ —
Due after one year through five years 57,043 54,041 4,777 4,723
Due after five years through ten years 37,390 34,026 49,998 46,254
Due after 10 years 7,404 6,695 201 200
113,485 106,266 54,976 51,177
Mortgage-backed securities
Residential agency 145,866 124,331 548,245 479,837
Total investment securities $ 259,351 $ 230,597 $ 603,221 $ 531,014

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

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

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

September 30, December 31,
(dollars in thousands) 2025 2024
Federal Reserve $ 8,631 $ 7,519
FHLB 13,020 13,656

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

Visa Class B Restricted Shares

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

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NOTE 4 Loans and Allowance for Credit Losses

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

September 30, December 31,
(dollars in thousands) 2025 2024
Commercial
Commercial and industrial $ 702,135 $ 666,727
Commercial real estate
Construction, land and development 349,768 294,677
Multifamily 374,761 363,123
Non-owner occupied 865,785 967,025
Owner occupied 435,320 371,418
Total commercial real estate 2,025,634 1,996,243
Agricultural
Land 65,900 61,299
Production 63,051 63,008
Total agricultural 128,951 124,307
Total commercial 2,856,720 2,787,277
Consumer
Residential real estate
First lien 894,402 921,019
Construction 34,124 33,547
HELOC 234,681 162,509
Junior lien 40,434 44,060
Total residential real estate 1,203,641 1,161,135
Other consumer 41,714 44,122
Total consumer 1,245,355 1,205,257
Total loans $ 4,102,075 $ 3,992,534

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

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

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

● The Credit Risk team, Collection and Special Assets team and the Credit Governance Committee, which is an internal management committee comprised of various executives and senior managers across business lines, including Accounting and Finance, Credit Underwriting, Collections and Special Assets, Risk, and Commercial and Retail Banking, oversee the Company’s systems and procedures to monitor the credit quality of its loan portfolio, conduct a loan review program, and maintain the integrity of the loan rating system.
● The Loan Committee is responsible for reviewing and approving all credit requests that exceed individual limits that have not been countersigned by an individual with sufficient assigned authority. This committee has full authority to commit the Bank to any request that fits within its assigned approval authority.
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● 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.
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● 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.
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● The ACL Governance Committee and Bank Board of Directors has approval authority and oversight responsibility for the ACL adequacy and methodology.
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Loans with a carrying value of $2.6 billion as of September 30, 2025 and $2.9 billion as of December 31, 2024, were pledged to secure public deposits, and for other purposes required or permitted by law.

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ACL on Loans

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

Three months ended September 30, 2025
Beginning Provision for (Recovery Loan Loan Ending
(dollars in thousands) Balance of) Credit Losses(1) Charge-offs Recoveries Balance
Commercial
Commercial and industrial $ 8,326 $ 3,270 $ (606 ) $ 2,415 $ 13,405
Commercial real estate
Construction, land and development 18,529 (1,272 ) — — 17,257
Multifamily 4,876 (539 ) — — 4,337
Non-owner occupied 12,919 (2,796 ) — — 10,123
Owner occupied 3,818 (537 ) — 10 3,291
Total commercial real estate 40,142 (5,144 ) — 10 35,008
Agricultural
Land 615 384 — — 999
Production 623 65 — — 688
Total agricultural 1,238 449 — — 1,687
Total commercial 49,706 (1,425 ) (606 ) 2,425 50,100
Consumer
Residential real estate
First lien 7,059 2,235 — — 9,294
Construction 416 (144 ) — — 272
HELOC 1,358 395 (100 ) 26 1,679
Junior lien 376 63 — — 439
Total residential real estate 9,209 2,549 (100 ) 26 11,684
Other consumer 363 12 (34 ) 2 343
Total consumer 9,572 2,561 (134 ) 28 12,027
Total $ 59,278 $ 1,136 $ (740 ) $ 2,453 $ 62,127
(1) The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($1.1) million related to off-balance sheet credit exposure and ($2) thousand related to HTM investment securities.
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Nine months ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning Provision for (Recovery Loan Loan Ending
(dollars in thousands) Balance of) Credit Losses(1) Charge-offs Recoveries Balance
Commercial
Commercial and industrial $ 8,170 $ 3,276 $ (854 ) $ 2,813 $ 13,405
Commercial real estate
Construction, land and development 16,277 980 — — 17,257
Multifamily 4,716 (379 ) — — 4,337
Non-owner occupied 16,513 (2,989 ) (3,401 ) — 10,123
Owner occupied 3,226 37 (4 ) 32 3,291
Total commercial real estate 40,732 (2,351 ) (3,405 ) 32 35,008
Agricultural
Land 597 402 — — 999
Production 631 429 (384 ) 12 688
Total agricultural 1,228 831 (384 ) 12 1,687
Total commercial 50,130 1,756 (4,643 ) 2,857 50,100
Consumer
Residential real estate
First lien 6,921 2,427 (54 ) — 9,294
Construction 357 (85 ) — — 272
HELOC 1,339 674 (360 ) 26 1,679
Junior lien 742 (3 ) (300 ) — 439
Total residential real estate 9,359 3,013 (714 ) 26 11,684
Other consumer 440 (112 ) (112 ) 127 343
Total consumer 9,799 2,901 (826 ) 153 12,027
Total $ 59,929 $ 4,657 $ (5,469 ) $ 3,010 $ 62,127
(1) The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($3.9) million related to off-balance sheet credit exposure, ($6) thousand related to HTM investment securities, and $78 thousand related to non-mortgage loans transferred to held for sale.
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Table of Contents

Three months ended September 30, 2024
Beginning Provision for (Recovery Loan Loan Ending
(dollars in thousands) Balance of) Credit Losses(1) Charge-offs Recoveries Balance
Commercial
Commercial and industrial $ 6,234 $ 660 $ (246 ) $ 153 $ 6,801
Commercial real estate
Construction, land and development 10,820 (447 ) — — 10,373
Multifamily 2,430 161 — — 2,591
Non-owner occupied 8,772 (260 ) — — 8,512
Owner occupied 2,280 233 (98 ) 14 2,429
Total commercial real estate 24,302 (313 ) (98 ) 14 23,905
Agricultural
Land 259 (2 ) — 20 277
Production 185 (3 ) — — 182
Total agricultural 444 (5 ) — 20 459
Total commercial 30,980 342 (344 ) 187 31,165
Consumer
Residential real estate
First lien 5,366 74 — — 5,440
Construction 458 (355 ) — — 103
HELOC 886 68 — — 954
Junior lien 314 807 — — 1,121
Total residential real estate 7,024 594 — — 7,618
Other consumer 328 190 (161 ) 2 359
Total consumer 7,352 784 (161 ) 2 7,977
Total $ 38,332 $ 1,126 $ (505 ) $ 189 $ 39,142
(1) The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($549) thousand related to off-balance sheet credit exposure and ($14) thousand related to HTM investment securities.
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Nine months ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- --- ---
Beginning Provision for (Recovery Loan Loan Ending
(dollars in thousands) Balance of) Credit Losses(1) Charge-offs Recoveries Balance
Commercial
Commercial and industrial $ 9,705 $ (159 ) $ (3,140 ) $ 395 $ 6,801
Commercial real estate
Construction, land and development 6,135 4,238 — — 10,373
Multifamily 1,776 815 — — 2,591
Non-owner occupied 7,726 786 — — 8,512
Owner occupied 2,449 73 (127 ) 34 2,429
Total commercial real estate 18,086 5,912 (127 ) 34 23,905
Agricultural
Land 96 161 — 20 277
Production 84 98 — — 182
Total agricultural 180 259 — 20 459
Total commercial 27,971 6,012 (3,267 ) 449 31,165
Consumer
Residential real estate
First lien 6,087 (647 ) — — 5,440
Construction 485 (382 ) — — 103
HELOC 835 119 — — 954
Junior lien 264 786 (3 ) 74 1,121
Total residential real estate 7,671 (124 ) (3 ) 74 7,618
Other consumer 201 307 (174 ) 25 359
Total consumer 7,872 183 (177 ) 99 7,977
Total $ 35,843 $ 6,195 $ (3,444 ) $ 548 $ 39,142
(1) The difference in the credit loss expense reported herein compared to the consolidated statements of income is associated with the credit loss expense of ($31) thousand related to off-balance sheet credit exposure and ($76) thousand related to HTM investment securities.
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The ACL on loans at September 30, 2025 was $62.1 million, an increase of $2.2 million, or 3.7%, from December 31, 2024. The increase was primarily due to an increase in nonperforming loans, loan growth and economic conditions.

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Credit Concentrations

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

Credit Quality Indicators

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

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

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

● Pass: A pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.
● Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
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● 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.
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● 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.
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● Loss: Loans classified as loss are considered uncollectible and charged off immediately.
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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, 2025 and December 31, 2024:

Revolving
(dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Loans Amortized
As of September 30, 2025 2025 2024 2023 2022 2021 Prior Cost Basis Total
Commercial and industrial
Pass $ 159,909 $ 161,291 $ 84,573 $ 47,395 $ 23,382 $ 51,156 $ 134,079 $ 661,785
Special mention 324 10 26 — 651 44 — 1,055
Substandard 36 1,255 2,946 3,236 195 6,786 12,676 27,130
Doubtful 1,218 8,772 1,763 298 114 — — 12,165
Subtotal $ 161,487 $ 171,328 $ 89,308 $ 50,929 $ 24,342 $ 57,986 $ 146,755 $ 702,135
Gross charge-offs for the period ended $ — $ 407 $ 152 $ — $ 5 $ 290 $ — $ 854
CRE − Construction, land and development
Pass $ 13,807 $ 157,432 $ 110,795 $ 21,082 $ 658 $ 1,117 $ 5,654 $ 310,545
Special mention — — — 176 — — — 176
Substandard — 10,204 — 28,378 — 165 300 39,047
Doubtful — — — — — — — —
Subtotal $ 13,807 $ 167,636 $ 110,795 $ 49,636 $ 658 $ 1,282 $ 5,954 $ 349,768
Gross charge-offs for the period ended $ — $ — $ — $ — $ — $ — $ — $ —
CRE − Multifamily
Pass $ 5,158 $ 26,181 $ 82,828 $ 112,681 $ 32,774 $ 62,160 $ — $ 321,782
Special mention — — — 23,247 826 1,030 — 25,103
Substandard — 5,754 3,973 — — 18,149 — 27,876
Doubtful — — — — — — — —
Subtotal $ 5,158 $ 31,935 $ 86,801 $ 135,928 $ 33,600 $ 81,339 $ — $ 374,761
Gross charge-offs for the period ended $ — $ — $ — $ — $ — $ — $ — $ —
CRE − Non-owner occupied
Pass $ 52,409 $ 184,088 $ 151,333 $ 196,223 $ 88,658 $ 173,692 $ 1,971 $ 848,374
Special mention — — — — — 1,053 — 1,053
Substandard — — 5,390 — 2,754 8,214 — 16,358
Doubtful — — — — — — — —
Subtotal $ 52,409 $ 184,088 $ 156,723 $ 196,223 $ 91,412 $ 182,959 $ 1,971 $ 865,785
Gross charge-offs for the period ended $ — $ — $ — $ 632 $ 775 $ 1,994 $ — $ 3,401
CRE − Owner occupied
Pass $ 36,260 $ 87,147 $ 56,121 $ 62,381 $ 40,876 $ 133,091 $ 1,283 $ 417,159
Special mention 1,691 450 — — — 1,456 308 3,905
Substandard — — 1,476 2,907 2,358 7,515 — 14,256
Doubtful — — — — — — — —
Subtotal $ 37,951 $ 87,597 $ 57,597 $ 65,288 $ 43,234 $ 142,062 $ 1,591 $ 435,320
Gross charge-offs for the period ended $ — $ — $ 4 $ — $ — $ — $ — $ 4
Agricultural − Land
Pass $ 7,878 $ 8,857 $ 8,482 $ 12,545 $ 5,214 $ 12,738 $ 1,902 $ 57,616
Special mention 241 — — 3,372 — — — 3,613
Substandard — — 303 3,611 — 757 — 4,671
Doubtful — — — — — — — —
Subtotal $ 8,119 $ 8,857 $ 8,785 $ 19,528 $ 5,214 $ 13,495 $ 1,902 $ 65,900
Gross charge-offs for the period ended $ — $ — $ — $ — $ — $ — $ — $ —
Agricultural − Production
Pass $ 6,393 $ 7,240 $ 5,206 $ 3,816 $ 456 $ 811 $ 35,233 $ 59,155
Special mention — 74 133 — — 538 224 969
Substandard — 22 546 1,237 28 — 1,094 2,927
Doubtful — — — — — — — —
Subtotal $ 6,393 $ 7,336 $ 5,885 $ 5,053 $ 484 $ 1,349 $ 36,551 $ 63,051
Gross charge-offs for the period ended $ — $ — $ — $ 384 $ — $ — $ — $ 384
Residential real estate − First lien
Performing $ 44,627 $ 43,359 $ 129,319 $ 213,455 $ 238,409 $ 222,546 $ — $ 891,715
Nonperforming — — 512 — 652 1,523 — 2,687
Subtotal $ 44,627 $ 43,359 $ 129,831 $ 213,455 $ 239,061 $ 224,069 $ — $ 894,402
Gross charge-offs for the period ended $ — $ — $ — $ — $ 7 $ 47 $ — $ 54
Residential real estate − Construction
Performing $ 14,166 $ 12,335 $ — $ — $ 1,036 $ — $ 1,907 $ 29,444
Nonperforming — — — 4,680 — — — 4,680
Subtotal $ 14,166 $ 12,335 $ — $ 4,680 $ 1,036 $ — $ 1,907 $ 34,124
Gross charge-offs for the period ended $ — $ — $ — $ — $ — $ — $ — $ —
Residential real estate − HELOC
Performing $ 543 $ 2,359 $ 4,230 $ 5,749 $ 967 $ 5,194 $ 214,426 $ 233,468
Nonperforming — — 25 1,152 — 36 — 1,213
Subtotal $ 543 $ 2,359 $ 4,255 $ 6,901 $ 967 $ 5,230 $ 214,426 $ 234,681
Gross charge-offs for the period ended $ — $ 100 $ 10 $ 250 $ — $ — $ — $ 360
Residential real estate − Junior lien
Performing $ 4,045 $ 5,990 $ 10,267 $ 7,752 $ 4,464 $ 5,476 $ 50 $ 38,044
Nonperforming — 1,775 — — — 615 — 2,390
Subtotal $ 4,045 $ 7,765 $ 10,267 $ 7,752 $ 4,464 $ 6,091 $ 50 $ 40,434
Gross charge-offs for the period ended $ — $ — $ — $ 300 $ — $ — $ — $ 300
Other consumer
Performing $ 4,668 $ 3,212 $ 3,071 $ 3,456 $ 228 $ 4,071 $ 22,951 $ 41,657
Nonperforming — 4 — — — 53 — 57
Subtotal $ 4,668 $ 3,216 $ 3,071 $ 3,456 $ 228 $ 4,124 $ 22,951 $ 41,714
Gross charge-offs for the period ended $ — $ 9 $ 31 $ 22 $ — $ 50 $ — $ 112
Total loans $ 353,373 $ 727,811 $ 663,318 $ 758,829 $ 444,700 $ 719,986 $ 434,058 $ 4,102,075
Gross charge-offs for the period ended $ — $ 516 $ 197 $ 1,588 $ 787 $ 2,381 $ — $ 5,469

Table of Contents

Revolving
(dollars in thousands) Term Loans Amortized Cost Basis by Origination Year Loans Amortized
As of December 31, 2024 2024 2023 2022 2021 2020 Prior Cost Basis Total
Commercial and industrial
Pass $ 209,001 $ 141,028 $ 61,254 $ 34,645 $ 38,342 $ 36,136 $ 111,194 $ 631,600
Special mention 1,367 495 3,286 2,239 5,575 1 1,651 14,614
Substandard — 12,663 220 780 3,154 2,447 1,198 20,462
Doubtful — — — — — 51 — 51
Subtotal $ 210,368 $ 154,186 $ 64,760 $ 37,664 $ 47,071 $ 38,635 $ 114,043 $ 666,727
Gross charge-offs for the year ended $ — $ 218 $ 2 $ 397 $ 2,768 $ 342 $ — $ 3,727
CRE − Construction, land and development
Pass $ 97,244 $ 112,845 $ 40,890 $ 1,560 $ 517 $ 1,187 $ 2,801 $ 257,044
Special mention — — 172 — — — — 172
Substandard 5,406 — 31,585 — — 170 300 37,461
Doubtful — — — — — — — —
Subtotal $ 102,650 $ 112,845 $ 72,647 $ 1,560 $ 517 $ 1,357 $ 3,101 $ 294,677
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
CRE − Multifamily
Pass $ 35,112 $ 62,982 $ 138,698 $ 33,782 $ 33,157 $ 32,204 $ — $ 335,935
Special mention — — 7,644 272 1,241 — — 9,157
Substandard — — — — 17,732 299 — 18,031
Doubtful — — — — — — — —
Subtotal $ 35,112 $ 62,982 $ 146,342 $ 34,054 $ 52,130 $ 32,503 $ — $ 363,123
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
CRE − Non-owner occupied
Pass $ 189,068 $ 149,368 $ 223,349 $ 98,309 $ 71,432 $ 188,617 $ 1,709 $ 921,852
Special mention — — 1,694 8,603 — 4,148 4,195 18,640
Substandard — — — 7,767 6,347 12,419 — 26,533
Doubtful — — — — — — — —
Subtotal $ 189,068 $ 149,368 $ 225,043 $ 114,679 $ 77,779 $ 205,184 $ 5,904 $ 967,025
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
CRE − Owner occupied
Pass $ 63,721 $ 41,918 $ 60,788 $ 44,957 $ 38,941 $ 91,804 $ 1,652 $ 343,781
Special mention 451 — — 937 2,981 2,735 — 7,104
Substandard — 311 3,023 2,694 — 13,538 967 20,533
Doubtful — — — — — — — —
Subtotal $ 64,172 $ 42,229 $ 63,811 $ 48,588 $ 41,922 $ 108,077 $ 2,619 $ 371,418
Gross charge-offs for the year ended $ — $ 12 $ 97 $ — $ — $ 128 $ — $ 237
Agricultural − Land
Pass $ 10,496 $ 8,864 $ 14,369 $ 5,840 $ 5,103 $ 8,473 $ 120 $ 53,265
Special mention 69 1,612 3,275 — — — — 4,956
Substandard — 303 2,166 — 609 — — 3,078
Doubtful — — — — — — — —
Subtotal $ 10,565 $ 10,779 $ 19,810 $ 5,840 $ 5,712 $ 8,473 $ 120 $ 61,299
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
Agricultural − Production
Pass $ 10,445 $ 6,440 $ 4,356 $ 724 $ 1,121 $ 582 $ 34,527 $ 58,195
Special mention 130 704 — — 420 — 1,518 2,772
Substandard — — 1,987 — — 54 — 2,041
Doubtful — — — — — — — —
Subtotal $ 10,575 $ 7,144 $ 6,343 $ 724 $ 1,541 $ 636 $ 36,045 $ 63,008
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ 26 $ — $ 26
Residential real estate − First lien
Performing $ 49,414 $ 144,460 $ 226,993 $ 251,006 $ 127,200 $ 118,958 $ — $ 918,031
Nonperforming — 576 — 744 12 1,656 — 2,988
Subtotal $ 49,414 $ 145,036 $ 226,993 $ 251,750 $ 127,212 $ 120,614 $ — $ 921,019
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
Residential real estate − Construction
Performing $ 19,229 $ 6,449 $ 1,900 $ 1,289 $ — $ — $ — $ 28,867
Nonperforming — — 4,680 — — — — 4,680
Subtotal $ 19,229 $ 6,449 $ 6,580 $ 1,289 $ — $ — $ — $ 33,547
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ — $ — $ —
Residential real estate − HELOC
Performing $ 3,290 $ 5,558 $ 6,217 $ 1,622 $ 939 $ 2,717 $ 140,707 $ 161,050
Nonperforming — 35 — — — 74 1,350 1,459
Subtotal $ 3,290 $ 5,593 $ 6,217 $ 1,622 $ 939 $ 2,791 $ 142,057 $ 162,509
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ 19 $ — $ 19
Residential real estate − Junior lien
Performing $ 7,762 $ 11,557 $ 9,553 $ 4,990 $ 2,760 $ 4,178 $ 50 $ 40,850
Nonperforming 1,775 — 300 108 — 1,027 — 3,210
Subtotal $ 9,537 $ 11,557 $ 9,853 $ 5,098 $ 2,760 $ 5,205 $ 50 $ 44,060
Gross charge-offs for the year ended $ — $ — $ — $ — $ — $ 638 $ — $ 638
Other consumer
Performing $ 9,618 $ 4,695 $ 4,853 $ 502 $ 2,541 $ 4,069 $ 17,505 $ 43,783
Nonperforming — 11 272 — 7 49 — 339
Subtotal $ 9,618 $ 4,706 $ 5,125 $ 502 $ 2,548 $ 4,118 $ 17,505 $ 44,122
Gross charge-offs for the year ended $ — $ 8 $ 3 $ 150 $ 4 $ 21 $ — $ 186
Total loans $ 713,598 $ 712,874 $ 853,524 $ 503,370 $ 360,131 $ 527,593 $ 321,444 $ 3,992,534
Gross charge-offs for the year ended $ — $ 238 $ 102 $ 547 $ 2,772 $ 1,174 $ — $ 4,833

Table of Contents

Past Due and Nonaccrual Loans

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

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

September 30, 2025
90 Days
Accruing 30 - 59 Days 60 - 89 Days or More Total
(dollars in thousands) Current Past Due Past Due Past Due Nonaccrual Loans
Commercial
Commercial and industrial $ 689,204 $ 741 $ — $ — $ 12,190 $ 702,135
Commercial real estate
Construction, land and development 318,453 — — — 31,315 349,768
Multifamily 370,027 — 3,973 — 761 374,761
Non-owner occupied 864,092 — — — 1,693 865,785
Owner occupied 433,336 567 — — 1,417 435,320
Total commercial real estate 1,985,908 567 3,973 — 35,186 2,025,634
Agricultural
Land 65,198 — — — 702 65,900
Production 62,184 329 — — 538 63,051
Total agricultural 127,382 329 — — 1,240 128,951
Total commercial 2,802,494 1,637 3,973 — 48,616 2,856,720
Consumer
Residential real estate
First lien 890,793 797 125 — 2,687 894,402
Construction 29,444 — — — 4,680 34,124
HELOC 233,127 320 21 — 1,213 234,681
Junior lien 37,947 96 — — 2,391 40,434
Total residential real estate 1,191,311 1,213 146 — 10,971 1,203,641
Other consumer 41,270 33 354 — 57 41,714
Total consumer 1,232,581 1,246 500 — 11,028 1,245,355
Total $ 4,035,075 $ 2,883 $ 4,473 $ — $ 59,644 $ 4,102,075
December 31, 2024
--- --- --- --- --- --- --- --- --- --- --- --- ---
90 Days
Accruing 30 - 59 Days 60 - 89 Days or More Total
(dollars in thousands) Current Past Due Past Due Past Due Nonaccrual Loans
Commercial
Commercial and industrial $ 654,073 $ 903 $ 133 $ 8,400 $ 3,218 $ 666,727
Commercial real estate
Construction, land and development 264,633 — — — 30,044 294,677
Multifamily 363,123 — — — — 363,123
Non-owner occupied 961,808 — — — 5,217 967,025
Owner occupied 369,176 225 — — 2,017 371,418
Total commercial real estate 1,958,740 225 — — 37,278 1,996,243
Agricultural
Land 60,690 — — — 609 61,299
Production 62,269 87 — — 652 63,008
Total agricultural 122,959 87 — — 1,261 124,307
Total commercial 2,735,772 1,215 133 8,400 41,757 2,787,277
Consumer
Residential real estate
First lien 915,167 2,104 707 53 2,988 921,019
Construction 28,867 — — — 4,680 33,547
HELOC 160,430 169 450 — 1,460 162,509
Junior lien 40,454 396 — — 3,210 44,060
Total residential real estate 1,144,918 2,669 1,157 53 12,338 1,161,135
Other consumer 43,651 103 30 — 338 44,122
Total consumer 1,188,569 2,772 1,187 53 12,676 1,205,257
Total $ 3,924,341 $ 3,987 $ 1,320 $ 8,453 $ 54,433 $ 3,992,534

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

As of September 30, 2025
90 Days
Nonaccrual or More
with no Allowance Past Due
(dollars in thousands) for Credit Losses Nonaccrual and Accruing
Commercial
Commercial and industrial $ — $ 12,190 $ —
Commercial real estate
Construction, land and development 24,576 31,315 —
Multifamily 761 761 —
Non-owner occupied 1,693 1,693 —
Owner occupied 1,287 1,417 —
Total commercial real estate 28,317 35,186 —
Agricultural
Land 702 702 —
Production 538 538 —
Total agricultural 1,240 1,240 —
Total commercial 29,557 48,616 —
Consumer
Residential real estate
First lien 2,575 2,687 —
Construction 4,680 4,680 —
HELOC 1,100 1,213 —
Junior lien 2,305 2,391 —
Total residential real estate 10,660 10,971 —
Other consumer — 57 —
Total consumer 10,660 11,028 —
Total $ 40,217 $ 59,644 $ —
December 31, 2024
--- --- --- --- --- --- ---
90 Days
Nonaccrual or More
with no Allowance Past Due
(dollars in thousands) for Credit Losses Nonaccrual and Accruing
Commercial
Commercial and industrial $ 2,952 $ 3,218 $ 8,400
Commercial real estate
Construction, land and development 24,638 30,044 —
Multifamily — — —
Non-owner occupied 5,217 5,217 —
Owner occupied 1,706 2,017 —
Total commercial real estate 31,561 37,278 —
Agricultural
Land 609 609 —
Production 652 652 —
Total agricultural 1,261 1,261 —
Total commercial 35,774 41,757 8,400
Consumer
Residential real estate
First lien 2,614 2,988 53
Construction 4,680 4,680 —
HELOC — 1,460 —
Junior lien 2,696 3,210 —
Total residential real estate 9,990 12,338 53
Other consumer — 338 —
Total consumer 9,990 12,676 53
Total $ 45,764 $ 54,433 $ 8,453

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

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

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

As of September 30, 2025
Primary Type of Collateral
Allowance for
(dollars in thousands) Real estate Equipment Other Total Credit Losses
Commercial
Commercial and industrial $ — $ — $ — $ — $ —
Commercial real estate
Construction, land and development 31,315 — — 31,315 4,984
Multifamily 761 — — 761 —
Non-owner occupied 1,693 — — 1,693 —
Owner occupied 1,341 — — 1,341 4
Total commercial real estate 35,110 — — 35,110 4,988
Agricultural
Land 702 — — 702 —
Production 538 — — 538 —
Total agricultural 1,240 — — 1,240 —
Total commercial 36,350 — — 36,350 4,988
Consumer
Residential real estate
First lien 2,585 — — 2,585 3
Construction 4,680 — — 4,680 —
HELOC 1,100 — — 1,100 —
Junior lien 2,305 — — 2,305 —
Total residential real estate 10,670 — — 10,670 3
Other consumer — — — — —
Total consumer 10,670 — — 10,670 3
Total $ 47,020 $ — $ — $ 47,020 $ 4,991
As of December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Primary Type of Collateral
Allowance for
(dollars in thousands) Real estate Equipment Other Total Credit Losses
Commercial
Commercial and industrial $ 2,885 $ 275 $ — $ 3,160 $ 4
Commercial real estate
Construction, land and development 30,044 — — 30,044 4,984
Multifamily — — — — —
Non-owner occupied 5,217 — — 5,217 —
Owner occupied 1,936 — — 1,936 9
Total commercial real estate 37,197 — — 37,197 4,993
Agricultural
Land 609 — — 609 —
Production — 652 — 652 —
Total agricultural 609 652 — 1,261 —
Total commercial 40,691 927 — 41,618 4,997
Consumer
Residential real estate
First lien 2,514 — — 2,514 7
Construction 4,680 — — 4,680 —
HELOC 1,366 — — 1,366 252
Junior lien 3,105 — — 3,105 330
Total residential real estate 11,665 — — 11,665 589
Other consumer — — 289 289 50
Total consumer 11,665 — 289 11,954 639
Total $ 52,356 $ 927 $ 289 $ 53,572 $ 5,636

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

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Loan Modifications to Borrowers Experiencing Financial Difficulty

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

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

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

Nine months ended September 30, 2025
Combination Term Combination Term ****
Interest Rate Principal Term Payment Extension and Extension and Interest Total %
(dollars in thousands) Reduction Forgiveness Extension Delay Principal Forgiveness Rate Reduction of Portfolio
Agricultural − Land $ — $ — $ — $ 1,463 $ — $ — 2.2 %

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

NOTE 5 Land, Premises and Equipment, Net

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

September 30, December 31,
(dollars in thousands) 2025 2024
Land ^(1)^ $ 7,155 $ 7,155
Buildings and improvements ^(1)^ 40,715 36,961
Leasehold improvements 2,657 2,657
Furniture, fixtures, and equipment 42,253 38,540
92,780 85,313
Less accumulated depreciation (48,683 ) (45,533 )
Total $ 44,097 $ 39,780
(1) Excludes assets held for sale.
--- ---

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

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

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NOTE 6 Goodwill and Other Intangible Assets

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

September 30, December 31,
(dollars in thousands) 2025 2024
Banking $ 74,111 $ 74,111
Retirement and benefit services 11,523 11,523
Total goodwill $ 85,634 $ 85,634

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

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

September 30, 2025 December 31, 2024
(dollars in thousands) Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total
Identifiable customer intangibles $ 27,504 $ (21,797 ) $ 5,707 $ 41,423 $ (33,736 ) $ 7,687
Core deposit intangible assets 41,092 (11,046 ) 30,046 41,092 (4,897 ) 36,195
Total intangible assets $ 68,596 $ (32,843 ) $ 35,753 $ 82,515 $ (38,633 ) $ 43,882

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

NOTE 7 Loan Servicing

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2025
Balance at beginning of period $ 7,184 $ 7,918
Additions from loans sold with servicing rights retained 53 154
Change in fair value (529 ) (1,364 )
Balance at end of period $ 6,708 $ 6,708

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2024 2024
Servicing Assets: **** ****
Balance at beginning of period $ 1,963 $ 2,052
Additions, net of valuation reserve ^(1)^ 225 358
Amortization ^(2)^ (105 ) (327 )
Balance at end of period 2,083 2,083
Less valuation reserve^(3)^ (209 ) (209 )
Balance at end of period, net of valuation reserve $ 1,874 $ 1,874
Fair value, beginning of period $ 2,082 $ 2,062
Fair value, end of period $ 1,874 $ 1,874
(1) Associated income was reported within mortgage banking income, net on the consolidated statements of income.
--- ---
(2) Associated amortization expense was reported within other noninterest income on the consolidated statements of income.
--- ---
(3) Associated valuation reserve was reported within mortgage and lending expenses on the consolidated statements of income.
--- ---

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

September 30, December 31,
(dollars in thousands) 2025 2024
Fair value of servicing rights $ 6,708 $ 7,918
Weighted-average remaining term, years 21.6 22.0
Prepayment speeds 13.4 % 9.9 %
Discount rate 10.3 % 10.5 %

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NOTE 8 Leases

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

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

September 30, December 31,
(dollars in thousands) 2025 2024
Lease Right-of-Use Assets Classification
Operating lease right-of-use assets Operating lease right-of-use assets $ 30,154 $ 13,438
Lease Liabilities
Operating lease liabilities Operating lease liabilities $ 36,918 $ 18,991

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

September 30, December 31,
2025 2024
Weighted-average remaining lease term, years **** ****
Operating leases 17.0 12.6
Weighted-average discount rate **** ****
Operating leases 5.0 % 4.5 %

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Lease costs
Operating lease cost $ 621 $ 500 $ 1,861 $ 1,404
Variable lease cost 132 269 258 741
Short-term lease cost 146 54 605 158
Finance lease cost
Interest on lease liabilities — — — —
Amortization of right-of-use assets — — — —
Sublease income (43 ) (47 ) (164 ) (146 )
Net lease cost $ 856 $ 776 $ 2,560 $ 2,157
Other information
Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases $ 719 $ 549 $ 1,916 $ 1,469
Right-of-use assets obtained in exchange for new operating lease liabilities 19,750 5,136 19,816 5,244

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

Operating
(dollars in thousands) Leases
Twelve months ended
September 30, 2026 $ 3,420
September 30, 2027 3,262
September 30, 2028 3,032
September 30, 2029 2,993
September 30, 2030 3,031
Thereafter 42,737
Total future minimum lease payments $ 58,475
Amounts representing interest (21,557 )
Total operating lease liabilities $ 36,918

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NOTE 9 Deposits

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

September 30, December 31,
(dollars in thousands) 2025 2024
Noninterest-bearing $ 776,791 $ 903,466
Interest-bearing
Interest-bearing demand 1,256,687 1,220,173
Savings accounts 174,113 165,882
Money market savings 1,460,006 1,381,924
Time deposits 745,056 706,965
Total interest-bearing 3,635,862 3,474,944
Total deposits $ 4,412,653 $ 4,378,410

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

NOTE 10 Short‑Term Borrowings

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

September 30, December 31,
(dollars in thousands) 2025 2024
Fed funds purchased $ — $ 38,960
FHLB short-term advances 200,000 200,000
Total $ 200,000 $ 238,960

NOTE 11 Long‑Term Debt

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

September 30, 2025
Period End
Face Carrying Interest Maturity
(dollars in thousands) Value Value Interest Rate Rate Date Call Date
Subordinated notes payable $ 50,000 $ 50,000 Fixed 3.50 % 3/30/2031 3/31/2026
Junior subordinated debenture (Trust I) 4,124 3,662 Three-month CME SOFR + 0.26% + 3.10% 7.36 % 6/26/2033 6/26/2008
Junior subordinated debenture (Trust II) 6,186 5,492 Three-month CME SOFR + 0.26% + 1.80% 6.10 % 9/15/2036 9/15/2011
Total long-term debt $ 60,310 $ 59,154
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Period End
Face Carrying Interest Maturity
(dollars in thousands) Value Value Interest Rate Rate Date Call Date
Subordinated notes payable $ 50,000 $ 50,000.00 Fixed 3.50 % 3/30/2031 3/31/2026
Junior subordinated debenture (Trust I) 4,124 3,628 Three-month CME SOFR + 0.26% + 3.10% 7.69 % 6/26/2033 6/26/2008
Junior subordinated debenture (Trust II) 6,186 5,441 Three-month CME SOFR + 0.26% + 1.80% 6.42 % 9/15/2036 9/15/2011
Total long-term debt $ 60,310 $ 59,069

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NOTE 12 Commitments and Contingencies

Commitments

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

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

September 30, December 31,
(dollars in thousands) 2025 2024
Commitments to extend credit $ 1,007,983 $ 1,090,114
Standby letters of credit 19,418 30,033
Total $ 1,027,400 $ 1,120,147

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

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

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

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

Legal Contingencies

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

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

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

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

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

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

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

NOTE 13 Share-Based Compensation

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

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

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

Nine months ended September 30,
2025 2024
**** Weighted- **** Weighted-
**** Average Grant **** Average Grant
Awards Date Fair Value Awards Date Fair Value
Restricted Stock and Restricted Stock Unit Awards
Outstanding at beginning of period 289,549 $ 21.94 231,657 $ 22.96
Granted 123,055 20.16 108,561 20.93
Vested (64,014 ) 22.44 (55,429 ) 23.87
Forfeited or cancelled (33,074 ) 25.80 — —
Outstanding at end of period 315,516 $ 20.74 284,789 $ 22.00

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

NOTE 14 Income Taxes

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

Three months ended September 30,
2025 2024
**** Percent of **** Percent of
(dollars in thousands) Amount Pretax Income Amount Pretax Income
Taxes at statutory federal income tax rate $ 4,625 21.0 % $ 1,427 21.0 %
Tax effect of:
Tax exempt income (584 ) (2.7 )% (308 ) (4.5 )%
State income taxes, net of federal benefits 1,071 4.9 % 332 4.9 %
Nondeductible items and other (11 ) - % 139 2.0 %
Applicable income taxes $ 5,101 23.2 % $ 1,590 23.4 %
Nine months ended September 30,
--- --- --- --- --- --- --- --- --- --- --- --- ---
2025 2024
**** Percent of **** Percent of
(dollars in thousands) Amount Pretax Income Amount Pretax Income
Taxes at statutory federal income tax rate $ 13,848 21.0 % $ 4,925 21.0 %
Tax effect of:
Tax exempt income (1,539 ) (2.3 )% (776 ) (3.3 )%
State income taxes, net of federal benefits 3,256 4.9 % 1,143 4.9 %
Nondeductible items and other (114 ) (0.2 )% 312 1.3 %
Applicable income taxes $ 15,451 23.4 % $ 5,604 23.9 %

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

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

NOTE 15 Tax Credit Investments

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

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

September 30, 2025 December 31, 2024
(dollars in thousands) Investment Unfunded Commitment Investment Unfunded Commitment
Investment Accounting Method
Low income housing tax credit Proportional amortization $ 22,906 $ 6,511 $ 17,906 $ 3,968

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

Three months ended September 30,
2025 2024
Amortization Tax Benefit Amortization Tax Benefit
(dollars in thousands) Expense ^(1)^ Recognized ^(2)^ Expense^(1)^ Recognized^(2)^
Low income housing tax credit $ 455 $ (513 ) $ 432 $ (352 )
(1) The amortization expense for low income housing tax credits was included in the income tax expense.
--- ---
(2) All of the tax benefits recognized were included in income tax expense.
--- ---
Nine months ended September 30,
--- --- --- --- --- --- --- --- --- --- ---
2025 2024
Amortization Tax Benefit Amortization Tax Benefit
(dollars in thousands) Expense^(1)^ Recognized^(2)^ Expense ^(1)^ Recognized ^(2)^
Low income housing tax credit $ 1,369 $ (1,538 ) $ 1,296 $ (1,103 )
(1) The amortization expense for low income housing tax credits was included in the income tax expense.
--- ---
(2) All of the tax benefits recognized were included in income tax expense.
--- ---

NOTE 16 Segment Reporting

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

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

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

The Company’s reportable segments include the following:

● Banking: Offers a complete line of loan, deposit, cash management, and treasury services through 28 offices in North Dakota, Minnesota, Wisconsin, Iowa, and Arizona, including 15 banking offices acquired in the HMN Financial, Inc. (“HMNF”) transaction. These products and services are supported through web and mobile based applications. The majority of the Company’s assets and liabilities are in the Banking segment’s balance sheet.
● Retirement and Benefit Services: Provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. The division operates within each of the banking markets, as well as in East Lansing, Michigan and Lakewood, Colorado.
● Wealth: Provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

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

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

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

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

As of and for the three months ended September 30, 2025
Retirement and Corporate ****
(dollars in thousands) Banking Benefit Services Wealth Administration Consolidated
Net interest income (loss) $ 43,788 $ — $ — $ (652 ) $ 43,136
Provision for credit losses — — — — —
Noninterest income (loss) 6,216 16,496 6,560 158 29,430
Noninterest expense
Compensation 12,562 7,364 3,519 1,539 24,984
Employee taxes and benefits 3,001 1,899 561 633 6,094
Business services, software and technology expense 2,909 1,852 1,379 145 6,285
Merger and acquisition expense — — — (43 ) (43 )
Other noninterest expense 10,225 2,279 424 293 13,221
Total noninterest expense 28,697 13,394 5,883 2,567 50,541
Net income (loss) before taxes $ 21,307 $ 3,102 $ 677 $ (3,061 ) $ 22,025
Total assets $ 5,236,412 $ 30,941 $ 5,777 $ 57,443 $ 5,330,573
As of and for the nine months ended September 30, 2025
--- --- --- --- --- --- --- --- --- --- --- ---
Retirement and Corporate
(dollars in thousands) Banking Benefit Services Wealth Administration Consolidated
Net interest income (loss) $ 129,279 $ — $ — $ (1,954 ) $ 127,325
Provision for credit losses 863 — — — 863
Noninterest income (loss) 19,298 48,625 20,827 74 88,824
Noninterest expense
Compensation 36,476 21,644 9,954 4,214 72,288
Employee taxes and benefits 10,170 6,225 2,023 2,072 20,490
Business services, software and technology expense 8,957 5,776 2,683 489 17,905
Merger and acquisition expense — — — 254 254
Other noninterest expense 29,753 6,532 1,192 930 38,407
Total noninterest expense 85,356 40,177 15,852 7,959 149,344
Net income (loss) before taxes $ 62,358 $ 8,448 $ 4,975 $ (9,839 ) $ 65,942
Total assets $ 5,236,412 $ 30,941 $ 5,777 $ 57,443 $ 5,330,573
As of and for the three months ended September 30, 2024
--- --- --- --- --- --- --- --- --- --- --- ---
Retirement and Wealth Corporate
(dollars in thousands) Banking Benefit Services Management Administration Consolidated
Net interest income (loss) $ 23,220 $ — $ — $ (678 ) $ 22,542
Provision for credit losses 1,661 — — — 1,661
Noninterest income 4,940 16,144 6,684 595 28,363
Noninterest expense
Compensation 9,972 7,209 2,349 1,528 21,058
Employee taxes and benefits 2,441 1,896 538 525 5,400
Business services, software and technology expense 2,219 1,825 703 132 4,879
Merger and acquisition expense — — — 1,661 1,661
Other noninterest expense 5,637 3,224 249 339 9,449
Total noninterest expense 20,269 14,154 3,839 4,185 42,447
Net income (loss) before taxes $ 6,230 $ 1,990 $ 2,845 $ (4,268 ) $ 6,797
Total assets $ 4,009,535 $ 32,882 $ 5,288 $ 310,918 $ 4,358,623

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As of and for the nine months ended September 30, 2024
Retirement and Corporate
(dollars in thousands) Banking Benefit Services Wealth Administration Consolidated
Net interest income (loss) $ 70,803 $ — $ — $ (2,042 ) $ 68,761
Provision for credit losses 6,150 — — — 6,150
Noninterest income 13,428 47,876 19,161 592 81,057
Noninterest expense
Compensation 28,016 21,005 7,445 4,189 60,655
Employee taxes and benefits 7,693 5,794 1,851 1,384 16,722
Business services, software and technology expense 7,033 5,512 1,881 397 14,823
Merger and acquisition expense — — — 2,252 2,252
Other noninterest expense 15,113 9,454 320 879 25,766
Total noninterest expense 57,855 41,765 11,497 9,101 120,218
Net income (loss) before taxes $ 20,226 $ 6,111 $ 7,664 $ (10,551 ) $ 23,450
Total assets $ 4,009,535 $ 32,882 $ 5,288 $ 310,918 $ 4,358,623

NOTE 17 Earnings Per Share

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

Three months ended Nine months ended
September 30, September 30,
(dollars and shares in thousands, except per share data) 2025 2024 2025 2024
Net income $ 16,924 $ 5,207 $ 50,491 $ 17,846
Dividends and undistributed earnings allocated to participating securities 148 24 444 102
Net income available to common stockholders $ 16,776 $ 5,183 $ 50,047 $ 17,744
Weighted-average common shares outstanding for basic earnings per share 25,395 19,788 25,374 19,768
Dilutive effect of stock-based awards 318 287 319 269
Weighted-average common shares outstanding for diluted earnings per share 25,713 20,075 25,693 20,037
Earnings per common share:
Basic earnings per common share $ 0.66 $ 0.26 $ 1.97 $ 0.90
Diluted earnings per common share $ 0.65 $ 0.26 $ 1.95 $ 0.89

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

NOTE 18 Derivative Instruments

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

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

Derivatives Designated as Hedging Instruments

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

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

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

Derivatives Not Designated as Hedging Instruments

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

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

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

Derivative Assets ^(1)^ Derivative Liabilities ^(2)^
Notional Fair Notional Fair
(dollars in thousands) Amount Value Amount Value
September 30, 2025
Designated as hedging instruments:
Fair value hedges:
Interest rate swaps $ — $ — $ 200,000 $ 97
Cash flow hedges:
Interest rate swaps — — 200,000 55
Total derivatives designated as hedging instruments $ — $ — $ 400,000 $ 152
Not designated as hedging instruments:
Interest rate swaps ^(3)^ $ 238,867 $ 10,660 $ 655,867 $ 10,664
Interest rate lock commitments 36,252 425 — —
Forward loan sales commitments 638 12 — —
To-be-announced mortgage backed securities — — 47,500 9
Total asset derivatives not designated as hedging instruments $ 275,757 $ 11,097 $ 703,367 $ 10,673
December 31, 2024
Designated as hedging instruments:
Fair value hedges:
Interest rate swaps $ 200,000 $ 149 $ — $ —
Cash flow hedges:
Interest rate swaps 200,000 477 200,000 21
Total derivatives designated as hedging instruments $ 400,000 $ 626 $ 200,000 $ 21
Not designated as hedging instruments:
Interest rate swaps ^(3)^ $ 347,575 $ 8,182 $ 364,575 $ 8,579
Interest rate lock commitments 14,647 153 — —
Forward loan sales commitments 6,645 109 — —
To-be-announced mortgage backed securities 39,000 35 — —
Total asset derivatives not designated as hedging instruments $ 407,867 $ 8,479 $ 364,575 $ 8,579
(1) Derivative assets are included in other assets on the Company’s consolidated balance sheet.
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(2) Derivative liabilities are included in accrued expenses and other liabilities on the Company’s consolidated balance sheet.
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(3) Reported fair values include accrued interest receivable and payable.
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The following table shows the effective portion of the gains (losses) recognized in OCI and the gains (losses), before tax, reclassified from OCI into earnings for the periods indicated:

**** Gains (Losses)
Gains (Losses) Reclassified
Recognized in from OCI
(dollars in thousands) OCI into Earnings
Derivatives designated as hedging instruments ****
For the three months ended September 30, 2025 ******
Cash flow hedges:
Interest rate swaps $ 77 $ —
For the three months ended September 30, 2024 ******
Cash flow hedges:
Interest rate swaps $ (616 ) $ 253
For the nine months ended September 30, 2025
Cash flow hedges:
Interest rate swaps $ 211 $ 721
For the nine months ended September 30, 2024
Cash flow hedges:
Interest rate swaps $ 625 $ 785

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

Location and Amount of Gains (Losses) Recognized in Income
Interest Income Interest Expense
Loans, Investment **** **** ****
including securities - Short-term
(dollars in thousands) fees Taxable borrowings
For the three months ended September 30, 2025 **** **** **** **** **** **** ****
Total amounts in the Consolidated Statements of Income $ 63,875 $ 5,091 $ 2,506
Fair value hedges:
Interest rate swaps — 150 —
Cash flow hedges:
Interest rate swaps — — —
For the three months ended September 30, 2024 **** **** **** **** **** **** ****
Total amounts in the Consolidated Statements of Income $ 42,593 $ 4,596 $ 6,706
Fair value hedges:
Interest rate swaps 46 653 —
Cash flow hedges:
Interest rate swaps — — (253 )
For the nine months ended September 30, 2025 **** **** **** **** **** **** ****
Total amounts in the Consolidated Statements of Income $ 189,222 $ 16,108 $ 9,327
Fair value hedges:
Interest rate swaps — 441 —
Cash flow hedges:
Interest rate swaps — — 721
For the nine months ended September 30, 2024 **** **** **** **** **** **** ****
Total amounts in the Consolidated Statements of Income $ 123,551 $ 14,008 $ 19,748
Fair value hedges:
Interest rate swaps 367 1,954 —
Cash flow hedges:
Interest rate swaps — — (785 )

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

September 30, 2025
Cumulative Fair
Value Hedging
Adjustment in the
Carrying Amount Carrying Amount of
Notional of Hedged Assets/ Hedged Assets/
(dollars in thousands) Amount Liabilities Liabilities
Mortgage-backed securities
Residential agency ^(1)^ $ 200,000 $ 200,100 $ 100
Total $ 200,000 $ 200,100 $ 100
(1) Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At September 30, 2025, the amortized cost of the closed portfolios used in these hedging relationships was $273.9 million.
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December 31, 2024
--- --- --- --- --- --- --- ---
Cumulative Fair
Value Hedging
Adjustment in the
Carrying Amount Carrying Amount of
Notional of Hedged Assets/ Hedged Assets/
(dollars in thousands) Amount Liabilities Liabilities
Mortgage-backed securities
Residential agency ^(1)^ $ 200,000 $ 199,854 $ (146 )
Total $ 200,000 $ 199,854 $ (146 )
(1) Includes amounts related to residential agency mortgage-backed securities currently designated as the hedged item in a fair value hedge using the portfolio layer method. At December 31, 2024, the amortized cost of the closed portfolios used in these hedging relationships was $296.9 million.
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The gain (loss) recognized on derivatives not designated as hedging relationships for the three and nine months ended September 30, 2025 and 2024 was as follows:

(dollars in thousands) Three months ended September 30, Nine months ended September 30,
Derivatives not designated as hedging instruments Consolidated Statements of Income Location 2025 2024 2025 2024
Interest rate swaps Other noninterest income $ — $ — $ — $ 21
Interest rate swaps Mortgage banking 14 — 392 —
Interest rate lock commitments Mortgage banking (247 ) (111 ) 350 100
Forward loan sales commitments Mortgage banking 100 (116 ) (97 ) 54
To-be-announced mortgage backed securities Mortgage banking (223 ) (315 ) (563 ) (189 )
Total gain (loss) from derivatives not designated as hedging instruments $ (356 ) $ (542 ) $ 82 $ (14 )

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

Credit Risk-Related Contingent Features

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

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

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

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Balance Sheet Offsetting

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

Gross Amount ****
Not Offset in the ****
Consolidated ****
Balance Sheets ****
Gross Amount Gross Amount Net Amount **** ****
Recognized in the Offset in the Presented in the **** ****
Consolidated Consolidated Consolidated Cash Collateral ****
(dollars in thousands) Balance Sheets Balance Sheets Balance Sheets Pledged (Received) Net Amount
September 30, 2025 ****** ******
Derivative assets: **** ****
Interest rate swaps − Company ^(1)^ $ — $ — $ — $ 115 $ 115
Interest rate swaps − dealer bank ^(1)^ 3,056 — 3,056 (4,585 ) (1,529 )
Interest rate swaps − customer ^(2)^ 7,604 — 7,604 — 7,604
To-be-announced mortgage backed securities — — — — —
Total $ 10,660 $ — $ 10,660 $ (4,470 ) $ 6,190
Derivative liabilities: **** ****
Interest rate swaps − Company ^(1)^ $ 152 $ — $ 152 $ — $ 152
Interest rate swaps − dealer bank ^(1)^ 7,607 — 7,607 — 7,607
Interest rate swaps − customer ^(2)^ 3,057 — 3,057 — 3,057
To-be-announced mortgage backed securities 9 — 9 — 9
Total $ 10,825 $ — $ 10,825 $ — $ 10,825
(1) The Company maintains a master netting agreement with each counterparty and settles collateral on a net basis for all interest rate swaps with counterparty banks.
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(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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Gross Amount ****
--- --- --- --- --- --- --- --- --- --- --- --- ---
Not Offset in the ****
Consolidated ****
Balance Sheets ****
Gross Amount Gross Amount Net Amount **** ****
Recognized in the Offset in the Presented in the **** ****
Consolidated Consolidated Consolidated Cash Collateral ****
(dollars in thousands) Balance Sheets Balance Sheets Balance Sheets Pledged (Received) Net Amount
December 31, 2024 ****** ******
Derivative assets: **** ****
Interest rate swaps − Company ^(1)^ $ 626 $ — $ 626 $ (683 ) $ (57 )
Interest rate swaps − dealer bank ^(1)^ 5,606 — 5,606 (177 ) 5,429
Interest rate swaps − customer ^(2)^ 2,576 — 2,576 2,576
To-be-announced mortgage backed securities 35 — 35 — 35
Total $ 8,843 $ — $ 8,843 $ (860 ) $ 7,983
Derivative liabilities: **** ****
Interest rate swaps − Company ^(1)^ $ 21 $ — $ 21 $ 59 $ (38 )
Interest rate swaps − dealer bank ^(1)^ 2,863 — 2,863 3,841 (978 )
Interest rate swaps − customer ^(2)^ 5,716 $ — 5,716 — 5,716
To-be-announced mortgage backed securities — — — — —
Total $ 8,600 $ — $ 8,600 $ 3,900 $ 4,700
(1) The Company maintains a master netting agreement with each counterparty and settles collateral on a net basis for all interest rate swaps with counterparty banks.
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(2) The Company manages its net exposure on its customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post collateral to its customers as part of its contract.
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NOTE 19 Regulatory Matters

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

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

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

September 30, 2025
**** **** Minimum to be
**** Minimum Required Well Capitalized
**** for Capital Under Prompt
Actual Adequacy Purposes Corrective Action ^(1)^
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated ^(1)^ $ 487,811 10.84 % $ 202,452 4.50 % N/A N/A
Bank 488,376 11.00 % 199,868 4.50 % 288,698 6.50 %
Tier 1 capital to risk weighted assets
Consolidated ^(1)^ 496,966 11.05 % 269,936 6.00 % N/A N/A
Bank 488,376 11.00 % 266,490 6.00 % 355,321 8.00 %
Total capital to risk weighted assets
Consolidated ^(1)^ 603,322 13.41 % 359,915 8.00 % N/A N/A
Bank 544,023 12.25 % 355,321 8.00 % 444,151 10.00 %
Tier 1 capital to average assets
Consolidated ^(1)^ 496,966 9.49 % 209,439 4.00 % N/A N/A
Bank 488,376 9.31 % 209,767 4.00 % 262,208 5.00 %
(1) “Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.
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December 31, 2024
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
**** **** Minimum to be
**** Minimum Required Well Capitalized
**** for Capital Under Prompt
Actual Adequacy Purposes Corrective Action ^(1)^
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated ^(1)^ $ 443,833 9.91 % $ 201,441 4.50 % N/A N/A
Bank 449,497 10.18 % 198,743 4.50 % 287,074 6.50 %
Tier 1 capital to risk weighted assets
Consolidated ^(1)^ 452,903 10.12 % 268,588 6.00 % N/A N/A
Bank 449,497 10.18 % 264,991 6.00 % 353,322 8.00 %
Total capital to risk weighted assets
Consolidated ^(1)^ 559,002 12.49 % 358,118 8.00 % N/A N/A
Bank 504,857 11.43 % 353,322 8.00 % 441,652 10.00 %
Tier 1 capital to average assets
Consolidated ^(1)^ 452,903 8.65 % 209,532 4.00 % N/A N/A
Bank 449,497 8.69 % 206,832 4.00 % 258,540 5.00 %
(1) “Minimum to be Well Capitalized Under Prompt Corrective Action” is not formally defined under applicable banking regulations for bank holding companies.
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The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior regulatory approval, including rules requiring a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to the limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of September 30, 2025, the capital ratios for the Company and the Bank were sufficient to meet the conservation buffer. In addition, the Company must adhere to various U.S. Department of Housing and Urban Development (“HUD”) regulatory guidelines including required minimum capital and liquidity to maintain their Federal Housing Administration approval status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of September 30, 2025 and December 31, 2024, the Company was in compliance with the aforementioned guidelines.

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NOTE 20 Other Comprehensive Income (Loss)

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

For the three months ended
September 30, 2025 September 30, 2024
**** Tax **** **** Tax ****
Pre-Tax (Expense) After-Tax Pre-Tax (Expense) After-Tax
(dollars in thousands) Amount Benefit Amount Amount Benefit Amount
Debt Securities: **** **** **** **** **** ****
Change in fair value $ 7,440 $ (1,868 ) $ 5,572 $ 19,497 $ (4,894 ) $ 14,603
Less: reclassification adjustment from amortization of securities transferred from AFS to HTM ^(1)^ 39 (10 ) 29 66 (16 ) 50
Less: reclassification adjustment for net realized losses ^(2)^ — — — — — —
Net change 7,401 (1,858 ) 5,543 19,431 (4,878 ) 14,553
Cash Flow Hedges: **** **** **** **** **** ****
Change in fair value 77 (19 ) 58 (616 ) 706 90
Less: reclassified AOCI gain (loss) into interest expense ^(3)^ — — — 253 (64 ) 189
Net change 77 (19 ) 58 (869 ) 770 (99 )
Other Derivatives: **** **** **** **** **** ****
Change in fair value (123 ) 31 (92 ) (3,068 ) 219 (2,849 )
Less: reclassified AOCI gain (loss) into interest expense ^(4)^ — — — — — —
Net change (123 ) 31 (92 ) (3,068 ) 219 (2,849 )
Other comprehensive income (loss) $ 7,355 $ (1,846 ) $ 5,509 $ 15,494 $ (3,889 ) $ 11,605
(1) Reclassified into taxable and/or exempt from federal income taxes interest income on investment securities on the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details.
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(2) Reclassified into net gains (losses) on investment securities in the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details.
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(3) 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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(4) Reclassified into interest income on loans, including fees and/or interest income on taxable investment securities on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details.
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For the nine months ended
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
September 30, 2025 September 30, 2024
**** Tax **** **** Tax ****
Pre-Tax (Expense) After-Tax Pre-Tax (Expense) After-Tax
(dollars in thousands) Amount Benefit Amount Amount Benefit Amount
Debt Securities: **** **** **** **** **** ****
Change in fair value $ 26,294 $ (6,600 ) $ 19,694 $ 14,899 $ (3,740 ) $ 11,159
Less: reclassification adjustment from amortization of securities transferred from AFS to HTM ^(1)^ 133 (33 ) 100 207 (52 ) 155
Less: reclassification adjustment for net realized losses ^(2)^ — — — — — —
Net change 26,161 (6,567 ) 19,594 14,692 (3,688 ) 11,004
Cash Flow Hedges: **** **** **** **** **** ****
Change in fair value (532 ) 134 (398 ) 625 22 647
Less: reclassified AOCI gain (loss) into interest expense ^(3)^ (22 ) 6 (16 ) 785 (197 ) 588
Net change (510 ) 128 (382 ) (160 ) 219 59
Other Derivatives: **** **** **** **** **** ****
Change in fair value (246 ) 62 (184 ) (872 ) 40 (832 )
Less: reclassified AOCI gain (loss) into interest expense ^(4)^ — — — — — —
Net change (246 ) 62 (184 ) (872 ) 40 (832 )
Other comprehensive income (loss) $ 25,405 $ (6,377 ) $ 19,028 $ 13,660 $ (3,429 ) $ 10,231
(1) Reclassified into taxable and/or exempt from federal income taxes interest income on investment securities on the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details.
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(2) Reclassified into net gains (losses) on investment securities in the consolidated statements of income. Refer to “NOTE 3 Investment Securities” for further details.
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(3) 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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(4) Reclassified into interest income on loans, including fees and/or interest income on taxable investment securities on the consolidated statements of income. Refer to “NOTE 18 Derivative Instruments” for further details.
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**** Net Unrealized Net Unrealized ****
Net Unrealized Gains (Losses) on Gains (Losses) ****
Gains (Losses) on Cash Flow on Other ****
(dollars in thousands) Debt Securities ^(1)^ Hedges ^(1)^ Derivatives ^(1)^ AOCI ^(1)^
For the Three Months Ended September 30, 2025 ****** ****** ****** ******
Balance at June 30, 2025 $ (59,673 ) $ (113 ) $ (61 ) $ (59,847 )
Other comprehensive income (loss) before reclassifications 5,572 58 (92 ) 5,538
Less: Amounts reclassified from AOCI 29 — — 29
Other comprehensive income (loss) 5,543 58 (92 ) 5,509
Balance at September 30, 2025 $ (54,130 ) (55 ) (153 ) (54,338 )
For the Three Months Ended September 30, 2024 ****** ****** ****** ******
Balance at June 30, 2024 $ (76,707 ) $ (79 ) $ 1,757 $ (75,029 )
Other comprehensive income (loss) before reclassifications 14,603 90 (2,849 ) 11,844
Less: Amounts reclassified from AOCI 50 189 — 239
Other comprehensive income (loss) 14,553 (99 ) (2,849 ) 11,605
Balance at September 30, 2024 $ (62,154 ) (178 ) (1,092 ) (63,424 )
For the Nine Months Ended September 30, 2025
Balance at December 31, 2024 $ (73,724 ) $ 327 $ 31 $ (73,366 )
Other comprehensive income (loss) before reclassifications 19,694 (398 ) (184 ) 19,112
Less: Amounts reclassified from AOCI 100 (16 ) — 84
Other comprehensive income (loss) 19,594 (382 ) (184 ) 19,028
Balance at September 30, 2025 $ (54,130 ) (55 ) (153 ) (54,338 )
For the Nine Months Ended September 30, 2024
Balance at December 31, 2023 $ (73,158 ) $ (237 ) $ (260 ) $ (73,655 )
Other comprehensive income (loss) before reclassifications 11,159 647 (832 ) 10,974
Less: Amounts reclassified from AOCI 155 588 — 743
Other comprehensive income (loss) 11,004 59 (832 ) 10,231
Balance at September 30, 2024 $ (62,154 ) $ (178 ) $ (1,092 ) $ (63,424 )
(1) All amounts net of tax.
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NOTE 21 Stock Repurchase Program

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

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

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NOTE 22 Fair Value of Assets and Liabilities

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

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

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

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

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

Recurring Basis

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

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

September 30, 2025
(dollars in thousands) Level 1 Level 2 Level 3 Total
Trading $ 1,411 $ — $ — $ 1,411
Available-for-sale
U.S. treasury and government agencies — 446 — 446
Mortgage backed securities
Residential agency — 479,837 — 479,837
Commercial — 1,279 — 1,279
Asset backed securities — 16 — 16
Corporate bonds — 49,436 — 49,436
Total available-for-sale investment securities $ — $ 531,014 $ — $ 531,014
Servicing rights $ — $ — $ 6,708 $ 6,708
Other assets
Derivatives $ — $ 11,097 $ — $ 11,097
Other liabilities
Derivatives $ — $ 10,825 $ — $ 10,825
December 31, 2024
--- --- --- --- --- --- --- --- ---
(dollars in thousands) Level 1 Level 2 Level 3 Total
Trading $ 3,309 $ — $ — $ 3,309
Available-for-sale
U.S. treasury and government agencies — 30,707 — 30,707
Mortgage backed securities
Residential agency — 503,706 — 503,706
Commercial — 1,251 — 1,251
Asset backed securities — 19 — 19
Corporate bonds — 52,370 — 52,370
Total available-for-sale investment securities $ — $ 588,053 $ — $ 588,053
Servicing rights $ — $ — $ 7,918 $ 7,918
Other assets
Derivatives $ — $ 9,105 $ — $ 9,105
Other liabilities
Derivatives $ — $ 8,600 $ — $ 8,600

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

Investment Securities, Trading for Deferred Compensation

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

Investment Securities, Available-for-Sale

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

Derivatives

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

Servicing Rights

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

Nonrecurring Basis

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

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

September 30, 2025
(dollars in thousands) Level 1 Level 2 Level 3 Total
Collateral dependent loans — — 26,492 26,492
Foreclosed assets — — 467 467
December 31, 2024
--- --- --- --- --- --- --- --- ---
(dollars in thousands) Level 1 Level 2 Level 3 Total
Collateral dependent loans $ — $ — $ 34,088 $ 34,088

Loans Held for Sale

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

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

Collateral Dependent Loans

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

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

Foreclosed Assets

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

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

September 30, 2025
(dollars in thousands) **** Weighted
Asset Type Valuation Technique Unobservable Input Fair Value Range Average
Individually evaluated Appraisal value Property specific adjustment 26,492 10 - 35 % 34.7 %
Foreclosed assets Appraisal value Property specific adjustment 467 10.0 % 10.0 %
Servicing rights Discounted cash flows Prepayment speed assumptions 6,708 121 - 656 223
Discount rate 10.3 % 10.3 %
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands) **** Weighted
Asset Type Valuation Technique Unobservable Input Fair Value Range Average
Individually evaluated Appraisal value Property specific adjustment $ 34,088 10 - 35 % 28.9 %
Servicing rights Discounted cash flows Prepayment speed assumptions 7,918 103 - 495 165
Discount rate 10.5 % 10.5 %

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

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

Cash and Cash Equivalents and Accrued Interest

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

Investment Securities, Held-to-Maturity

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

Loans

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

Bank‑Owned Life Insurance

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

Deposits

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

Short‑Term Borrowings and Long‑Term Debt

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

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Off‑Balance Sheet Credit‑Related Commitments

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

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

September 30, 2025
Carrying Estimated Fair Value
(dollars in thousands) Amount Level 1 Level 2 Level 3 Total
Financial Assets
Cash and cash equivalents $ 92,043 $ 92,043 $ — $ — $ 92,043
Investment securities held-to-maturity 259,225 — 230,597 — 230,597
Loans, net 4,039,948 — — 4,039,948 4,039,948
Accrued interest receivable 21,602 21,602 — — 21,602
Bank-owned life insurance 38,997 — 38,997 — 38,997
Servicing rights 6,708 — — 6,708 6,708
Financial Liabilities
Noninterest-bearing deposits $ 776,791 $ — $ 776,791 $ — $ 776,791
Interest-bearing deposits 2,890,806 — 2,890,806 — 2,890,806
Time deposits 745,056 — 663,919 — 663,919
Short-term borrowings 200,000 200,000 — — 200,000
Long-term debt 59,154 — 59,379 — 59,379
Accrued interest payable 10,020 10,020 — — 10,020
December 31, 2024
--- --- --- --- --- --- --- --- --- --- ---
Carrying Estimated Fair Value
(dollars in thousands) Amount Level 1 Level 2 Level 3 Total
Financial Assets
Cash and cash equivalents $ 61,239 $ 61,239 $ — $ — $ 61,239
Investment securities held-to-maturity 275,585 — 236,986 — 236,986
Loans, net 3,932,605 — — 3,872,186 3,872,186
Accrued interest receivable 20,075 20,075 — — 20,075
Bank-owned life insurance 36,033 — 36,033 — 36,033
Servicing rights 7,918 — — 7,918 7,918
Financial Liabilities
Noninterest-bearing deposits $ 903,466 $ — $ 903,466 $ — $ 903,466
Interest-bearing deposits 2,767,979 — 2,767,979 — 2,767,979
Time deposits 706,965 — 696,976 — 696,976
Short-term borrowings 238,960 238,960 — — 238,960
Long-term debt 59,069 — 59,078 — 59,078
Accrued interest payable 11,343 11,343 — — 11,343

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

General

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

Forward-Looking Statements

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

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

● the strength of the local, state, national and international economies and financial markets (including effects of inflationary pressures and future monetary policies of the Federal Reserve in response thereto);
● interest rate risk, including the effects of changes in interest rates;
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● effects on the U.S. economy resulting from the threat or implementation of new, or changes to, existing policies, regulations, regulatory and other governmental agencies and executive orders, including tariffs, immigration, diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) initiatives, consumer protection, foreign policy and tax regulations;
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● disruptions to the global supply chain, including as a result of domestic or foreign policies;
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● the Company’s ability to successfully manage credit risk, including in the CRE portfolio, and maintain an adequate level of allowance for credit losses;
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● 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;
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● the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in several bank failures;
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● the Company’s ability to raise additional capital to implement its business plan;
● the overall health of the local and national real estate market;
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● credit risks and risks from concentrations (by type of borrower, geographic area, collateral, and industry) within the Company’s loan portfolio;
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● the concentration of large loans to certain borrowers (including CRE loans);
● the level of nonperforming assets on the Company’s balance sheet;
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● the Company’s ability to implement organic and acquisition growth strategies, including the integration HMNF;
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● 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;
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● the impact of economic or market conditions on the Company’s fee-based services;
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● the Company’s ability to continue to grow the retirement and benefit services business;
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● the Company’s ability to continue to originate a sufficient volume of residential mortgages;
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● the occurrence of fraudulent activity, breaches or failures of the Company’s or the Company’s third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud;
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● interruptions involving the Company’s information technology and telecommunications systems or third party servicers;
● potential losses incurred in connection with mortgage loan repurchases;
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● the composition of the Company’s executive management team and the Company’s ability to attract and retain key personnel;
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● 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;
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● increased competition in the financial services industry, including from non-banks such as credit unions, Fintech companies and digital asset service providers;
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● 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;
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● the concentration of large deposits from certain clients, including those who have balances above current Federal Deposit Insurance Corporation (“FDIC”) insurance limits;
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● the effectiveness of the Company’s risk management framework;
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● potential impairment to the goodwill the Company recorded in connection with the Company’s past acquisitions, including the acquisitions of Metro Phoenix Bank and HMNF;
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● the extensive regulatory framework that applies to the Company;
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● the ability of the Bank to pay dividends to the Company, and the Company's ability to pay dividends to its stockholders;
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● changes in local, state and federal laws, regulations and government policies concerning the Company’s general business, including interpretation and prioritization of such laws, regulations and policies;
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● 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;
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● fluctuations in the values of the securities held in the Company’s securities portfolio, including as a result of changes in interest rates;
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● governmental monetary, trade and fiscal policies;
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● risks related to climate change and the negative impact it may have on the Company’s customers and their businesses;
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● severe weather, natural disasters, and widespread disease or pandemics;
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● acts of war or terrorism, including ongoing conflicts in the Middle East, the Russian invasion of Ukraine, or other adverse external events;
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● any material weaknesses in the Company’s internal control over financial reporting;
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● talent and labor shortages and employee turnover;
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● the effects of the current U.S. government shutdown and its impact on the Company's customers;
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● the Company’s success at managing and responding to the risks involved in the foregoing items; and
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● any other risks described in the “Risk Factors” section of this report and in other reports filed by Alerus Financial Corporation with the SEC.
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Any forward-looking statement made by the Company in this report is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Overview

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

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

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Critical Accounting Policies

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

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

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

Recent Developments

Stockholder Dividend

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

Property Sale

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

Operating Results Overview

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

Three months ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
(dollars and shares in thousands, except per share data) 2025 2025 2024 2025 2024
Performance Ratios **** **** **** **** ****
Return on average total assets 1.27 % 1.53 % 0.48 % 1.28 % 0.56 %
Adjusted return on average total assets ^(1)^ 1.28 % 1.41 % 0.57 % 1.27 % 0.62 %
Return on average common equity 12.80 % 15.82 % 5.52 % 13.17 % 6.43 %
Return on average tangible common equity ^(1)^ 18.48 % 22.65 % 7.83 % 19.25 % 8.98 %
Adjusted return on average tangible common equity ^(1)^ 18.55 % 21.02 % 9.04 % 19.08 % 9.79 %
Noninterest income as a % of revenue 40.56 % 42.47 % 55.72 % 41.09 % 54.10 %
Net interest margin (taxable-equivalent basis) 3.50 % 3.51 % 2.23 % 3.47 % 2.31 %
Efficiency ratio ^(1)^ 65.34 % 60.66 % 80.29 % 64.81 % 77.17 %
Adjusted efficiency ratio ^(1)^ 65.22 % 62.35 % 77.71 % 64.78 % 75.50 %
Average equity to average assets 9.95 % 9.69 % 8.73 % 9.70 % 8.73 %
Net charge-offs (recoveries) to average loans (0.17 )% 0.37 % 0.04 % 0.08 % 0.14 %
Adjusted net charge-offs to average loans (0.17 )% 0.07 % 0.04 % (0.02 )% 0.14 %
Dividend payout ratio 32.31 % 26.92 % 76.92 % 31.79 % 66.29 %
Per Common Share **** **** **** **** ****
Earnings per common share − basic $ 0.66 $ 0.79 $ 0.26 $ 1.97 $ 0.90
Earnings per common share − diluted $ 0.65 $ 0.78 $ 0.26 $ 1.95 $ 0.89
Adjusted earnings per common share − diluted (1) $ 0.66 $ 0.72 $ 0.31 $ 1.93 $ 0.98
Dividends declared per common share $ 0.21 $ 0.21 $ 0.20 $ 0.62 $ 0.59
Book value per common share $ 21.68 $ 21.00 $ 19.53
Tangible book value per common share ^(1)^ $ 16.90 $ 16.11 $ 16.50
Average common shares outstanding − basic 25,395 25,368 19,788 25,374 19,768
Average common shares outstanding − diluted 25,713 25,714 20,075 25,693 20,037
Other Data **** **** **** **** ****
Retirement and benefit services assets under administration/management $ 44,005,277 $ 42,451,544 $ 41,249,280
Wealth assets under administration/management $ 4,812,250 $ 4,613,102 $ 4,397,505
Mortgage originations $ 142,768 $ 134,634 $ 82,388 $ 347,995 $ 245,743
(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”
--- ---

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Selected Financial Data

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

Three months ended Nine months ended
September 30, June 30, September 30, September 30, September 30,
(dollars in thousands) 2025 2025 2024 2025 2024
Selected Average Balance Sheet Data
Loans $ 4,036,936 $ 4,079,085 $ 2,968,947 $ 4,046,347 $ 2,858,634
Investment securities 796,759 823,463 749,062 826,409 760,219
Assets 5,273,306 5,302,728 4,298,080 5,282,798 4,245,181
Deposits 4,387,096 4,305,275 3,264,138 4,356,361 3,219,632
Fed funds purchased and Bank Term Funding Program 16,636 149,046 327,543 71,717 325,455
FHLB short-term advances 200,000 200,000 200,000 200,000 200,000
Long-term debt 59,137 59,112 59,027 59,111 58,999
Stockholders’ equity 524,459 513,606 375,229 512,533 370,758
September 30, June 30, March 31, September 30,
--- --- --- --- --- --- --- --- --- --- --- --- ---
(dollars in thousands) 2025 2025 2025 2024
Selected Period End Balance Sheet Data **** **** **** ****
Loans $ 4,102,075 $ 4,044,657 $ 4,085,483 $ 3,032,343
Allowance for credit losses on loans (62,127 ) (59,278 ) (61,929 ) (39,142 )
Investment securities 791,650 806,544 839,406 750,624
Assets 5,330,573 5,323,822 5,339,620 4,084,640
Deposits 4,412,653 4,337,468 4,485,291 3,323,550
Long-term debt 59,154 59,126 59,098 59,041
Total stockholders’ equity 550,688 533,155 514,232 386,486
Three months ended Nine months ended
--- --- --- --- --- --- --- --- --- --- ---
September 30, June 30, September 30, September 30, September 30,
(dollars in thousands) 2025 2025 2024 2025 2024
Selected Income Statement Data
Net interest income $ 43,136 $ 43,032 $ 22,542 $ 127,325 $ 68,761
Provision for credit losses — — 1,661 863 6,150
Noninterest income 29,430 31,763 28,363 88,824 81,057
Noninterest expense 50,541 48,439 42,447 149,344 120,218
Income before income taxes 22,025 26,356 6,797 65,942 23,450
Income tax expense 5,101 6,104 1,590 15,451 5,604
Net income $ 16,924 $ 20,252 $ 5,207 $ 50,491 $ 17,846

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

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

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

September 30, June 30, December 31, September 30,
(dollars and shares in thousands, except per share data) 2025 2025 2024 2024
Tangible common equity to tangible assets .
Total common stockholders’ equity $ 550,688 $ 533,155 $ 495,410 $ 386,486
Less: Goodwill 85,634 85,634 85,634 46,783
Less: Other intangible assets 35,753 38,462 43,882 13,186
Tangible common equity (a) 429,301 409,059 365,894 326,517
Total assets 5,330,573 5,323,822 5,261,673 4,084,640
Less: Goodwill 85,634 85,634 85,634 46,783
Less: Other intangible assets 35,753 38,462 43,882 13,186
Tangible assets (b) 5,209,186 5,199,726 5,132,157 4,024,671
Tangible common equity to tangible assets (a)/(b) 8.24 % 7.87 % 7.13 % 8.11 %
Tangible book value per common share **** **** **** ****
Tangible common equity (a) 429,301 409,059 365,894 326,517
Total common shares issued and outstanding (c) 25,397 25,389 25,345 19,790
Tangible book value per common share (a)/(c) $ 16.90 $ 16.11 $ 14.44 $ 16.50

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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) 2025 2025 2024 2025 2024
Return on Average Tangible Common Equity **** **** **** **** ****
Net income $ 16,924 $ 20,253 $ 5,207 $ 50,491 $ 17,846
Add: Intangible amortization expense (net of tax) ^(1)^ 2,141 2,141 1,046 6,421 3,138
Net income, excluding intangible amortization (d) 19,065 22,394 6,253 56,912 20,984
Average total equity 524,459 513,606 375,229 512,533 370,758
Less: Average goodwill 85,634 85,634 46,783 85,634 46,783
Less: Average other intangible assets (net of tax) ^(1)^ 29,540 31,436 10,933 31,549 11,969
Average tangible common equity (e) 409,285 396,536 317,513 395,350 312,006
Return on average tangible common equity (d)/(e) 18.48 % 22.65 % 7.83 % 19.25 % 8.98 %
Efficiency ratio **** **** **** **** ****
Noninterest expense $ 50,541 $ 48,438 $ 42,447 $ 149,344 $ 120,218
Less: Intangible amortization expense 2,710 2,710 1,324 8,129 3,972
Adjusted noninterest expense (f) 47,831 45,728 41,123 141,215 116,246
Net interest income 43,136 43,032 22,542 127,325 68,761
Noninterest income 29,430 31,763 28,363 88,824 81,057
Tax-equivalent adjustment 638 592 314 1,748 816
Total tax-equivalent revenue (g) 73,204 75,387 51,219 217,897 150,634
Efficiency ratio (f)/(g) 65.34 % 60.66 % 80.29 % 64.81 % 77.17 %
Pre-Provision Net Revenue **** **** **** **** ****
Net interest income $ 43,136 $ 43,032 $ 22,542 $ 127,325 $ 68,761
Add: Noninterest income 29,430 31,763 28,363 88,824 81,057
Less: Noninterest expense 50,541 48,438 42,447 149,344 120,218
Pre-provision net revenue $ 22,025 $ 26,357 $ 8,458 $ 66,805 $ 29,600
Adjusted Noninterest Income **** **** **** **** ****
Noninterest income $ 29,430 $ 31,763 $ 28,363 $ 88,824 $ 81,057
Less: Adjusted noninterest income items
Net gain (loss) on sale of loans (35 ) 2,115 — 2,080 —
Net gain on sale of premises and equipment — (84 ) 476 (84 ) 481
Total adjusted noninterest income items (h) (35 ) 2,031 476 1,996 481
Adjusted noninterest income (i) $ 29,465 $ 29,732 $ 27,887 $ 86,828 $ 80,576
Adjusted Noninterest Expense **** **** **** **** ****
Noninterest expense $ 50,541 $ 48,438 $ 42,447 $ 149,344 $ 120,218
Less: Adjusted noninterest expense items
HMNF merger- and acquisition-related expenses (43 ) 11 1,661 255 2,251
Severance and signing bonus expense 104 (23 ) 31 1,108 626
Total adjusted noninterest expense items (j) 61 (12 ) 1,692 1,363 2,877
Adjusted noninterest expense (k) $ 50,480 $ 48,450 $ 40,755 $ 147,981 $ 117,341
Adjusted Pre-Provision Net Revenue **** **** **** **** ****
Net interest income $ 43,136 $ 43,032 $ 22,542 $ 127,325 $ 68,761
Add: Adjusted noninterest income (i) 29,465 29,732 27,887 86,828 80,576
Less: Adjusted noninterest expense (k) 50,480 48,450 40,755 147,981 117,341
Adjusted pre-provision net revenue $ 22,121 $ 24,314 $ 9,674 $ 66,172 $ 31,996
Adjusted Efficiency Ratio **** **** **** **** ****
Adjusted noninterest expense (k) $ 50,480 $ 48,450 $ 40,755 $ 147,981 $ 117,341
Less: Intangible amortization expense 2,710 2,710 1,324 8,129 3,972
Adjusted noninterest expense for efficiency ratio (l) 47,770 45,740 39,431 139,852 113,369
Tax-equivalent revenue
Net interest income 43,136 43,032 22,542 127,325 68,761
Add: Adjusted noninterest income (i) 29,465 29,732 27,887 86,828 80,576
Add: Tax-equivalent adjustment 638 592 314 1,748 816
Total tax-equivalent revenue (m) 73,239 73,356 50,743 215,901 150,153
Adjusted efficiency ratio (l)/(m) 65.22 % 62.35 % 77.71 % 64.78 % 75.50 %
(1) Items calculated after-tax utilizing a marginal income tax rate of 21.0%.
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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) 2025 2025 2024 2025 2024
Adjusted Net Income **** **** **** **** ****
Net income $ 16,924 $ 20,253 $ 5,207 $ 50,491 $ 17,846
Less: Adjusted noninterest income items (net of tax) ^(1)^ (h) (28 ) 1,604 376 1,577 380
Add: Adjusted noninterest expense items (net of tax) ^(1)^ (j) 48 (9 ) 1,337 1,077 2,273
Adjusted net income (o) $ 17,000 $ 18,640 $ 6,168 $ 49,991 $ 19,739
Adjusted Return on Average Total Assets **** **** **** **** ****
Average total assets (o) $ 5,273,306 $ 5,302,728 $ 4,298,080 $ 5,282,798 $ 4,245,181
Adjusted return on average total assets (n)/(o) 1.28 % 1.41 % 0.57 % 1.27 % 0.62 %
Adjusted Return on Average Tangible Common Equity **** **** **** **** ****
Adjusted net income (n) $ 17,000 $ 18,640 $ 6,168 $ 49,991 $ 19,739
Add: Intangible amortization expense (net of tax) ^(1)^ 2,141 2,141 1,046 6,421 3,138
Adjusted net income, excluding intangible amortization (p) 19,141 20,781 7,214 56,412 22,877
Average total equity 524,459 513,606 375,229 512,533 370,758
Less: Average goodwill 85,634 85,634 46,783 85,634 46,783
Less: Average other intangible assets (net of tax) ^(1)^ 29,540 31,436 10,933 31,549 11,969
Average tangible common equity (q) 409,285 396,536 317,513 395,350 312,006
Adjusted return on average tangible common equity (p)/(q) 18.55 % 21.02 % 9.04 % 19.08 % 9.79 %
Adjusted Earnings Per Common Share − Diluted **** **** **** **** ****
Adjusted net income (o) $ 17,000 $ 18,640 $ 6,168 $ 49,991 $ 19,739
Less: Dividends and undistributed earnings allocated to participating securities 148 205 24 444 102
Adjusted net income available to common stockholders (r) 16,852 18,435 6,144 49,547 19,637
Weighted-average common shares outstanding for diluted earnings per share (s) 25,713 25,714 20,075 25,693 20,037
Adjusted earnings per common share − diluted (r)/(s) $ 0.66 $ 0.72 $ 0.31 $ 1.93 $ 0.98
Adjusted Net Charge-Offs to Average Loans **** **** **** **** ****
Net charge-offs (recoveries) $ (1,715 ) $ 3,767 $ 316 $ 2,459 $ 2,896
Less: Charge-off of PCD reserves on loans transferred to non-mortgage loans held for sale — 3,053 — 3,053 —
Adjusted net charge-offs (t) (1,715 ) 714 316 (594 ) 2,896
Average total loans (u) $ 4,036,936 $ 4,079,084 $ 2,968,947 $ 4,046,347 $ 2,858,634
Adjusted net charge-offs (recoveries) to average loans (t)/(u) (0.17 )% 0.07 % 0.04 % (0.02 )% 0.14 %
(1) Items calculated after-tax utilizing a marginal income tax rate of 21.0%.
--- ---

Discussion and Analysis of Results of Operations

Net Income

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

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

Net Interest Income

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

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

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

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

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

Three months ended September 30,
2025 2024
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate
Interest Earning Assets **** ****
Interest-bearing deposits with banks $ 89,568 $ 1,098 4.86 % $ 326,350 $ 4,490 5.47 %
Investment securities ^(1)^ 796,759 5,294 2.64 749,062 4,809 2.55
Fed funds sold — — — — — —
Loans held for sale 20,188 251 4.93 15,795 127 3.20
Loans
Commercial and industrial 650,787 12,321 7.51 593,685 10,837 7.26
CRE − Construction, land and development 363,466 5,285 5.77 184,611 2,637 5.68
CRE − Multifamily 340,709 5,549 6.46 242,558 3,427 5.62
CRE − Non-owner occupied 887,935 14,003 6.26 663,539 9,799 5.88
CRE − Owner occupied 435,469 8,487 7.73 289,963 3,943 5.41
Agricultural − Land 66,676 930 5.53 42,162 522 4.93
Agricultural − Production 64,685 1,109 6.80 40,964 704 6.84
RRE − First lien 898,011 10,923 4.83 689,382 6,903 3.98
RRE − Construction 33,834 564 6.61 16,792 163 3.86
RRE − HELOC 213,232 3,668 6.82 130,705 2,627 8.00
RRE − Junior lien 40,997 661 6.40 36,818 531 5.74
Other consumer 41,135 720 6.94 37,768 642 6.76
Total loans ^(1)^ 4,036,936 64,220 6.31 2,968,947 42,735 5.73
Federal Reserve/FHLB Stock 22,398 421 7.46 17,562 364 8.25
Total interest earning assets 4,965,849 71,284 5.70 4,077,716 52,525 5.12
Noninterest earning assets 307,457 220,364
Total assets $ 5,273,306 $ 4,298,080
Interest-Bearing Liabilities **** ****
Interest-bearing demand deposits $ 1,227,029 $ 5,565 1.80 % $ 1,003,595 $ 5,826 2.31 %
Money market and savings deposits 1,587,694 11,366 2.84 1,146,896 11,020 3.82
Time deposits 772,345 7,419 3.81 485,533 5,439 4.46
Fed funds purchased and BTFP 16,636 207 4.94 327,543 4,094 4.97
FHLB short-term advances 200,000 2,298 4.56 200,000 2,611 5.19
Long-term debt 59,137 652 4.37 59,027 679 4.58
Total interest-bearing liabilities 3,862,841 27,507 2.83 3,222,594 29,669 3.66
Noninterest-Bearing Liabilities and Stockholders' Equity **** ****
Noninterest-bearing deposits 800,028 628,114
Operating lease liabilities 24,199 9,896
Accrued expenses and other liabilities 61,779 62,247
Other noninterest-bearing liabilities 85,978 72,143
Stockholders’ equity 524,459 375,229
Total liabilities and stockholders’ equity $ 5,273,306 $ 4,298,080
Net interest income on FTE basis ^(1)^ $ 43,777 $ 22,856
Net interest rate spread on FTE basis ^(1)^ 2.87 % 1.46 %
Net interest margin on FTE basis ^(1)^ 3.50 % 2.23 %
(1) Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent.
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45

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Nine months ended September 30,
2025 2024
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate
Interest Earning Assets **** ****
Interest-bearing deposits with banks $ 53,187 $ 1,982 4.98 % $ 375,365 $ 15,146 5.39 %
Investment securities ^(1)^ 826,409 16,716 2.70 760,219 14,657 2.58
Loans held for sale 17,979 646 4.80 13,768 619 6.01
Loans
Commercial and industrial 654,061 36,421 7.44 578,839 31,228 7.21
CRE − Construction, land and development 348,093 15,242 5.85 146,454 7,710 7.03
CRE − Multifamily 350,658 17,060 6.50 245,372 10,223 5.57
CRE − Non-owner occupied 934,143 45,300 6.48 615,320 26,929 5.85
CRE − Owner occupied 419,608 21,236 6.77 284,315 11,519 5.41
Agricultural − Land 66,647 2,846 5.71 41,138 1,478 4.80
Agricultural − Production 64,357 3,434 7.13 38,110 1,897 6.65
RRE − First lien 898,910 32,539 4.84 695,313 20,927 4.02
RRE − Construction 36,798 2,083 7.57 19,847 727 4.89
RRE − HELOC 190,272 9,912 6.96 124,321 7,626 8.19
RRE − Junior lien 42,498 2,014 6.34 36,276 1,692 6.23
Other consumer 40,302 2,107 6.99 33,329 1,657 6.64
Total loans ^(1)^ 4,046,347 190,194 6.28 2,858,634 123,613 5.78
Federal Reserve/FHLB Stock 24,314 1,457 8.01 16,956 1,054 8.30
Total interest earning assets 4,968,236 210,995 5.68 4,024,942 155,089 5.15
Noninterest earning assets 314,562 220,239
Total assets $ 5,282,798 $ 4,245,181
Interest-Bearing Liabilities **** ****
Interest-bearing demand deposits $ 1,240,589 $ 16,712 1.80 % $ 944,143 $ 15,412 2.18 %
Money market and savings deposits 1,580,085 33,496 2.83 1,160,391 32,961 3.79
Time deposits 716,421 20,435 3.81 458,545 15,348 4.47
Fed funds purchased and BTFP 71,717 2,503 4.67 325,455 12,065 4.95
FHLB short-term advances 200,000 6,824 4.56 200,000 7,683 5.13
Long-term debt 59,111 1,955 4.42 58,999 2,041 4.62
Total interest-bearing liabilities 3,867,923 81,925 2.83 3,147,533 85,510 3.63
Noninterest-Bearing Liabilities and Stockholders' Equity **** ****
Noninterest-bearing deposits 819,266 656,553
Operating lease liabilities 20,477 6,959
Accrued expenses and other liabilities 62,599 63,378
Other noninterest-bearing liabilities 83,076 70,337
Stockholders’ equity 512,533 370,758
Total liabilities and stockholders’ equity $ 5,282,798 $ 4,245,181
Net interest income on FTE basis ^(1)^ $ 129,070 $ 69,579
Net interest rate spread on FTE basis ^(1)^ 2.85 % 1.52 %
Net interest margin on FTE basis ^(1)^ 3.47 % 2.31 %
(1) Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent.
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Interest Rates and Operating Interest Differential

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

Three months ended September 30, 2025 Nine months ended September 30, 2025
Compared with Compared with
Three months ended September 30, 2024 Nine months ended September 30, 2024
Change due to: Interest Change due to: Interest
(tax-equivalent basis, dollars in thousands) Volume Rate Variance Volume Rate Variance
Interest earning assets **** **** **** **** **** ****
Interest-bearing deposits with banks $ (3,265 ) $ (127 ) $ (3,392 ) $ (12,988 ) $ (176 ) $ (13,164 )
Investment securities 307 178 485 1,277 782 2,059
Loans held for sale 35 89 124 189 (162 ) 27
Loans
Commercial and industrial 818 666 1,484 4,056 1,137 5,193
CRE − Construction, land and development 2,534 114 2,648 10,602 (3,070 ) 7,532
CRE − Multifamily 1,455 667 2,122 4,386 2,451 6,837
CRE − Non-owner occupied 3,060 1,144 4,204 13,950 4,421 18,371
CRE − Owner occupied 2,509 2,035 4,544 5,474 4,243 9,717
Agricultural − Land 423 (15 ) 408 916 452 1,368
Agricultural − Production 238 167 405 1,305 232 1,537
RRE − First lien 2,030 1,990 4,020 6,122 5,490 11,612
RRE − Construction 344 57 401 620 736 1,356
RRE − HELOC 1,194 (153 ) 1,041 4,040 (1,754 ) 2,286
RRE − Junior lien 71 59 130 290 32 322
Other consumer 49 29 78 346 104 450
Total loans 14,725 6,760 21,485 52,107 14,474 66,581
Federal Reserve/FHLB Stock 101 (44 ) 57 457 (54 ) 403
Total interest income 11,903 6,856 18,759 41,042 14,864 55,906
Interest-bearing liabilities **** **** **** **** **** ****
Interest-bearing demand deposits 1,301 (1,562 ) (261 ) 4,834 (3,534 ) 1,300
Money market and savings deposits 4,244 (3,898 ) 346 11,897 (11,362 ) 535
Time deposits 3,224 (1,244 ) 1,980 8,622 (3,535 ) 5,087
Fed funds purchased and BTFP (3,895 ) 8 (3,887 ) (9,394 ) (168 ) (9,562 )
FHLB short-term advances — (313 ) (313 ) — (859 ) (859 )
Long-term debt 1 (28 ) (27 ) 4 (90 ) (86 )
Total interest expense 4,875 (7,037 ) (2,162 ) 15,963 (19,548 ) (3,585 )
Change in net interest income $ 7,028 $ 13,893 $ 20,921 $ 25,079 $ 34,412 $ 59,491

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Provision for Credit Losses

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Provision (recovery) for loan losses $ 1,136 $ 1,126 $ 4,657 $ 6,195
Provision (recovery) for credit losses on unfunded commitments (1,134 ) 549 (3,866 ) 31
Provision (recovery) for HTM debt securities (2 ) (14 ) (6 ) (76 )
Provision (recovery) for non-mortgage loans transferred to held for sale — — 78 —
Provision for credit losses $ — $ 1,661 $ 863 $ 6,150

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

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

Noninterest Income

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Retirement and benefit services $ 16,496 $ 16,144 $ 48,625 $ 47,876
Wealth 6,560 6,684 20,827 19,161
Mortgage banking 3,474 2,573 8,651 6,796
Service charges on deposit accounts 703 488 2,034 1,333
Gain on sale of non-mortgage loan (35 ) — 2,080 —
Other 2,232 2,474 6,607 5,891
Total noninterest income $ 29,430 $ 28,363 $ 88,824 $ 81,057
Noninterest income as a % of revenue 40.56 % 55.72 % 41.09 % 54.10 %

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

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

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

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Noninterest Expense

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Compensation $ 24,984 $ 21,058 $ 72,288 $ 60,655
Employee taxes and benefits 6,094 5,400 20,490 16,722
Occupancy and equipment expense 2,849 2,082 8,315 5,803
Business services, software and technology expense 6,285 4,879 17,905 14,823
Intangible amortization expense 2,710 1,324 8,129 3,972
Professional fees and assessments 2,676 4,267 8,010 8,633
Marketing and business development 1,069 764 2,821 2,200
Supplies and postage 569 422 1,690 1,321
Travel 385 330 1,019 954
Mortgage and lending expenses 1,025 684 2,501 1,592
Other 1,895 1,237 6,176 3,543
Total noninterest expense $ 50,541 $ 42,447 $ 149,344 $ 120,218

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

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

Income Tax Expense

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

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

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

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Segment Reporting

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

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

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

Banking

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Net interest income $ 43,136 $ 22,542 $ 127,325 $ 68,761
Provision for credit losses — 1,661 863 6,150
Noninterest income 6,374 5,535 19,372 14,020
Total revenue 49,510 26,416 145,834 76,631
Noninterest expense ^(1)^ 31,264 20,269 93,315 57,855
Net income before taxes $ 18,246 $ 6,147 $ 52,519 $ 18,776
(1) Noninterest expenses do not include corporate administration expenses. Corporate administration expenses include executive compensation, premises and fixed assets expenses, and information technology expenses. These expenses are not specific to any specific segment.
--- ---

Retirement and Benefit Services

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Recurring annual income ^(1)^ $ 13,288 $ 12,827 $ 39,170 $ 37,935
Transactional income ^(2)^ 3,208 3,317 9,455 9,941
Total noninterest income 16,496 16,144 48,625 47,876
Noninterest expense 13,394 14,154 40,177 41,765
Net income before taxes $ 3,102 $ 1,990 $ 8,448 $ 6,111
(1) Recurring annual income primarily includes asset based fees, administration fees, record-keeping fees, trust/custody fees, and health and welfare fees. $6.6 million and $6.4 million for the three months ended September 30, 2025 and 2024, respectively, were due to movements in the market.
--- ---
(2) Transactional income primarily includes advisory fees and distribution fees.

Wealth

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

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

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
Asset management $ 5,698 $ 5,971 $ 17,772 $ 16,790
Brokerage 488 365 1,323 1,170
Insurance and advisory 374 347 1,732 1,201
Total noninterest income 6,560 6,683 20,827 19,161
Noninterest expense 5,883 3,839 15,852 11,497
Net income before taxes $ 677 $ 2,844 $ 4,975 $ 7,664

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Financial Condition

Overview

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

Investment Securities

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

September 30, 2025 December 31, 2024
Percent of Percent of
(dollars in thousands) Balance Portfolio Balance Portfolio
Available-for-sale
U.S. Treasury and agencies $ 446 0.1 % $ 30,707 3.7 %
Mortgage backed securities
Residential agency 479,837 62.9 503,706 61.1
Commercial 1,279 0.2 1,251 0.2
Asset backed securities 16 — 19 —
Corporate bonds 49,436 6.5 52,370 6.3
Total available-for-sale investment securities 531,014 69.7 588,053 71.3
Held-to-maturity
Obligations of state and political agencies 106,266 14.0 107,985 13.1
Mortgage backed securities
Residential agency 124,331 16.3 129,001 15.6
Total held-to-maturity investment securities 230,597 30.3 236,986 28.7
Total investment securities $ 761,611 100.0 % $ 825,039 100.0 %

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

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

Maturity as of September 30, 2025
One year or less One to five years Five to ten years After ten years
Fair Average Fair Average Fair Average Fair Average
(dollars in thousands) Value Yield Value Yield Value Yield Value Yield
Available-for-sale
U.S. Treasury and agencies $ — — % $ 247 4.81 % $ — — % $ 199 4.94 %
Mortgage backed securities
Residential agency 54 2.70 2,517 3.52 26,866 3.68 450,400 2.32
Commercial — — 1,279 2.40 — — — —
Asset backed securities — — — — 16 4.62 — —
Corporate bonds — — 3,197 9.15 46,239 3.46 — —
Total available-for-sale investment securities 54 2.70 7,240 5.84 73,121 3.54 450,599 2.32
Held-to-maturity
Obligations of state and political agencies 11,504 1.40 54,041 1.85 34,026 2.26 6,695 2.24
Mortgage backed securities
Residential agency — — — — — — 124,331 2.18
Total held-to-maturity investment securities 11,504 1.40 54,041 1.85 34,026 2.26 131,026 2.19
Total investment securities $ 11,558 1.41 % $ 61,281 2.32 % $ 107,147 3.13 % $ 581,625 2.29 %

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Loans

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

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

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

September 30, 2025 December 31, 2024
Percent of Percent of
(dollars in thousands) Balance Portfolio Balance Portfolio
Commercial and industrial: **** ****
General business $ 269,555 6.6 % $ 340,702 8.5 %
Services 217,220 5.3 177,813 4.5
Retail trade 110,058 2.7 88,105 2.2
Manufacturing 105,302 2.6 60,107 1.5
Total commercial and industrial 702,135 17.2 666,727 16.7
Commercial real estate: **** ****
Construction, land and development 349,768 8.5 294,677 7.4
Multifamily 374,761 9.1 363,123 9.1
Non-owner occupied
Office 137,008 3.3 168,170 4.2
Industrial 166,018 4.0 169,391 4.2
Retail 137,695 3.4 154,325 3.9
Hotel 103,619 2.5 170,982 4.3
Medical office 197,015 4.8 139,939 3.5
Medical or nursing facility 79,867 1.9 110,164 2.8
Other commercial real estate 44,563 1.2 54,054 1.3
Total non-owner occupied 865,785 21.1 967,025 24.2
Owner occupied 435,320 10.6 371,418 9.3
Total commercial real estate 2,025,634 49.3 1,996,243 50.0
Agricultural: **** ****
Land 65,900 1.6 61,299 1.5
Production 63,051 1.5 63,008 1.6
Total agricultural 128,951 3.1 124,307 3.1
Consumer: **** ****
RRE − First lien 894,402 21.8 921,019 23.1
RRE − Construction 34,124 0.8 33,547 0.8
RRE − HELOC 234,681 5.7 162,509 4.1
RRE − Junior lien 40,434 1.0 44,060 1.1
Other consumer 41,714 1.1 44,122 1.1
Total consumer 1,245,355 30.4 1,205,257 30.2
Total loans $ 4,102,075 100.0 % $ 3,992,534 100.0 %

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

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

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

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

September 30, 2025 December 31, 2024
Percent of Percent of
(dollars in thousands) Balance Total Balance Total
Geographical Market: **** ****
Minnesota $ 620,364 50.0 % $ 668,395 50.2 %
North Dakota 200,829 16.2 221,693 16.7
Arizona 136,411 11.0 169,473 12.7
Texas 37,041 3.0 34,580 2.6
Colorado 23,365 1.9 23,386 1.8
Oregon 17,767 1.4 17,990 1.4
Wisconsin 101,013 8.1 111,502 8.4
Missouri 16,503 1.3 16,776 1.3
Kansas 16,569 1.3 15,183 1.1
South Dakota 12,551 1.0 14,554 1.1
Virginia 11,179 0.9 — —
Other 46,954 3.8 36,616 2.8
Total non-owner occupied and multifamily commercial real estate loans $ 1,240,546 100.0 % $ 1,330,148 100.0 %

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

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

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

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

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

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

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

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

September 30, 2025
After one After five
One year but within but within After
(dollars in thousands) or less five years fifteen years fifteen years Total
Commercial
Commercial and industrial $ 191,932 $ 300,891 $ 206,393 $ 2,919 $ 702,135
Commercial real estate
Construction, land and development 146,516 90,126 74,201 38,925 349,768
Multifamily 79,446 234,032 61,283 — 374,761
Non-owner occupied 119,569 598,842 128,188 19,186 865,785
Owner occupied 35,380 242,805 108,642 48,493 435,320
Total commercial real estate 380,911 1,165,805 372,314 106,604 2,025,634
Agricultural
Land 4,893 21,577 14,953 24,477 65,900
Production 39,267 22,667 1,117 — 63,051
Total agricultural 44,160 44,244 16,070 24,477 128,951
Total commercial 617,003 1,510,940 594,777 134,000 2,856,720
Consumer
Residential real estate
First lien 12,622 46,178 75,247 760,355 894,402
Construction 23,550 4,181 — 6,393 34,124
HELOC 4,281 12,399 24,389 193,612 234,681
Junior lien 1,648 7,450 20,622 10,714 40,434
Total residential real estate 42,101 70,208 120,258 971,074 1,203,641
Other consumer 15,597 21,799 4,284 34 41,714
Total consumer 57,698 92,007 124,542 971,108 1,245,355
Total loans $ 674,701 $ 1,602,947 $ 719,319 $ 1,105,108 $ 4,102,075
Loans with fixed interest rates:
Commercial
Commercial and industrial $ 39,825 $ 193,765 $ 87,249 $ — $ 320,839
Commercial real estate
Construction, land and development 46,079 27,837 751 — 74,667
Multifamily 31,000 145,880 27,166 — 204,046
Non-owner occupied 67,213 350,882 63,224 422 481,741
Owner occupied 30,011 168,304 44,947 1,178 244,440
Total commercial real estate 174,303 692,903 136,088 1,600 1,004,894
Agricultural
Land 4,802 21,522 13,227 17,677 57,228
Production 1,347 20,742 1,117 — 23,206
Total agricultural 6,149 42,264 14,344 17,677 80,434
Total commercial 220,277 928,932 237,681 19,277 1,406,167
Consumer
Residential real estate
First lien 10,810 37,620 66,372 428,601 543,403
Construction 9,669 509 — 1,608 11,786
HELOC 63 1,669 6,690 3,653 12,075
Junior lien 1,119 5,158 14,074 10,119 30,470
Total residential real estate 21,661 44,956 87,136 443,981 597,734
Other consumer 1,218 13,106 4,284 12 18,620
Total consumer 22,879 58,062 91,420 443,993 616,354
Total loans with fixed interest rates $ 243,156 $ 986,994 $ 329,101 $ 463,270 $ 2,022,521
Loans with floating interest rates:
Commercial
Commercial and industrial $ 152,107 $ 107,126 $ 119,144 $ 2,919 $ 381,296
Commercial real estate
Construction, land and development 100,437 62,289 73,450 38,925 275,101
Multifamily 48,446 88,152 34,117 — 170,715
Non-owner occupied 52,356 247,960 64,964 18,764 384,044
Owner occupied 5,369 74,501 63,695 47,315 190,880
Total commercial real estate 206,608 472,902 236,226 105,004 1,020,740
Agricultural
Land 91 55 1,726 6,800 8,672
Production 37,920 1,925 — — 39,845
Total agricultural 38,011 1,980 1,726 6,800 48,517
Total commercial 396,726 582,008 357,096 114,723 1,450,553
Consumer
Residential real estate
First lien 1,812 8,558 8,875 331,754 350,999
Construction 13,881 3,672 — 4,785 22,338
HELOC 4,218 10,730 17,699 189,959 222,606
Junior lien 529 2,292 6,548 595 9,964
Total residential real estate 20,440 25,252 33,122 527,093 605,907
Other consumer 14,379 8,693 — 22 23,094
Total consumer 34,819 33,945 33,122 527,115 629,001
Total loans with floating interest rates $ 431,545 $ 615,953 $ 390,218 $ 641,838 $ 2,079,554

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The expected life of the Company’s loan portfolio will differ from contractual maturities because borrowers may have the right to curtail or prepay their loans with or without penalties. Consequently, the table above includes information limited to contractual maturities of the underlying loans.

Asset Quality

The Company’s strategy for credit risk management includes well‑defined, centralized credit policies; uniform underwriting criteria; and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry, and client level; regular credit examinations; and management reviews of loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take necessary charge‑offs promptly, and maintain adequate reserve levels for credit losses inherent in the portfolio. Management performs ongoing, internal reviews of any problem credits and continually assesses the adequacy of the allowance. The Company utilizes an internal lending division, Special Credit Services, to develop and implement strategies for the management of individual nonperforming loans.

Credit Quality Indicators

Loans are assigned a risk rating and grouped into categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The risk ratings are aligned to pass and criticized categories. The criticized categories include special mention, substandard, and doubtful risk ratings. See “NOTE 4 Loans and Allowance for Credit Losses” of the consolidated financial statements for a definition of each of the risk ratings.

The table below presents criticized loans outstanding by loan portfolio segment as of September 30, 2025 and December 31, 2024:

September 30, December 31,
(dollars in thousands) 2025 2024
Commercial **** ****
Commercial and industrial $ 40,350 $ 35,127
Commercial real estate
Construction, land and development 39,223 37,633
Multifamily 52,979 27,188
Non-owner occupied 17,411 45,173
Owner occupied 18,161 27,637
Total commercial real estate 127,774 137,631
Agricultural
Land 8,284 8,034
Production 3,896 4,813
Total agricultural 12,180 12,847
Total commercial 180,304 185,605
Consumer **** ****
Residential real estate
First lien 2,687 2,988
Construction 4,680 4,680
HELOC 1,213 1,459
Junior lien 2,390 3,210
Total residential real estate 10,970 12,337
Other consumer 57 339
Total consumer 11,027 12,676
Total criticized loans $ 191,331 $ 198,281
Criticized loans as a percent of total loans 4.66 % 4.97 %

The following table presents information regarding nonperforming assets as of September 30, 2025 and December 31, 2024:

September 30, December 31,
(dollars in thousands) 2025 2024
Nonaccrual loans $ 59,644 $ 54,433
Accruing loans 90+ days past due — 8,453
Total nonperforming loans 59,644 62,886
OREO and repossessed assets 467 —
Total nonperforming assets 60,111 62,886
Total restructured accruing loans — —
Total nonperforming assets and restructured accruing loans $ 60,111 $ 62,886
Nonperforming loans to total loans 1.45 % 1.58 %
Nonperforming assets to total assets 1.13 % 1.20 %
ACL on loans to nonperforming loans 104 % 95 %

Interest income lost on nonaccrual loans was approximately $3.8 million and $2.8 million for the nine months ended September 30, 2025 and 2024, respectively. There was no interest income included in net interest income related to nonaccrual loans for the nine months ended September 30, 2025 and 2024.

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Allowance for Credit Losses

The ACL on loans is maintained at a level management believes is sufficient to absorb expected losses in the loan portfolio over the remaining estimated life of loans in the portfolio. Under the Current Expected Credit Loss accounting standard, the ACL is a valuation estimated at each balance sheet date and deducted from the amortized cost basis of loans held for investment to present the net amount expected to be collected. These evaluations are inherently subjective as they require management to make material estimates, all of which may be susceptible to significant change. The allowance is increased by provisions charged to expense and decreased by actual charge‑offs, net of recoveries.

Management estimates the ACL using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in the current loan-specific risk characteristics such as different underwriting standards, portfolio mix, delinquency level, or life of the loan, as well as changes in environmental conditions, levels of economic activity, unemployment rates, property values and other relevant factors. The calculation also contemplates that the Company may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical loss information.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. The ACL on individually evaluated loans is recognized on the basis of the present value of expected future cash flows discounted at the effective interest rate, the fair value of collateral adjusted of estimated costs to sell, or observable market price as of the relevant date.

The following table presents information concerning the components of the ACL for the periods presented:

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2025 2024 2025 2024
ACL on loans at the beginning of the period $ 59,278 $ 38,332 $ 59,929 $ 35,843
(Credit) provision for loan losses 1,136 1,126 4,657 6,195
Net charge-offs (recoveries) (1) **** **** **** ****
Commercial and industrial (1,809 ) 93 (1,959 ) 2,745
CRE − Construction, land and development — — — —
CRE − Multifamily — — — —
CRE − Non-owner occupied (2) — — 3,401 —
CRE − Owner occupied (10 ) 84 (28 ) 93
Agricultural − Land — (20 ) — (20 )
Agricultural − Production — — 372 —
RRE − First lien — — 54 —
RRE − Construction — — — —
RRE − HELOC 74 — 334 —
RRE − Junior lien — — 300 (71 )
Other consumer 32 159 (15 ) 149
Total net charge-offs (recoveries) (1,713 ) 316 2,459 2,896
ACL on loans at the end of the period 62,127 39,142 62,127 39,142
Components of ACL: **** **** **** ****
ACL on HTM debt securities 126 137 126 137
ACL on loans 62,127 39,142 62,127 39,142
ACL on off-balance sheet credit exposures 3,668 7,431 3,668 7,431
ACL at end of the period 65,921 46,710 65,921 46,710
Total loans $ 4,102,075 $ 3,032,343 $ 4,102,075 $ 3,032,343
Average total loans 4,036,936 2,968,947 4,046,347 2,858,634
ACL on loans to total loans 1.51 % 1.29 % 1.51 % 1.29 %
ACL on loans to nonaccrual loans 104.16 % 81.50 % 104.16 % 81.50 %
ACL on loans to nonperforming loans 104.16 % 81.50 % 104.16 % 81.50 %
Net charge-offs/(recoveries) to average total loans (annualized) (0.17 )% 0.04 % 0.08 % 0.14 %
(1) Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated.
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(2) The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting.
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For the three months ended
September 30,
**** Net Charge-offs
Total Total Net Charge-offs Average (Recoveries) to
(dollars in thousands) Charge-offs Recoveries (Recoveries) Loans Average Loans
2025: **** ****
Commercial
Commercial and industrial $ 606 $ 2,415 $ (1,809 ) $ 650,787 (1.10 )%
Commercial real estate
Construction, land and development — — — 363,466 —
Multifamily — — — 347,598 —
Non-owner occupied ^(1)^ — — — 899,302 —
Owner occupied — 10 (10 ) 441,000 (0.01 )
Total commercial real estate — 10 (10 ) 2,051,366 —
Agricultural
Land — — — 66,676 —
Production — — — 64,685 —
Total agricultural — — — 131,361 —
Total commercial 606 2,425 (1,819 ) 2,833,514 (0.25 )
Consumer
Residential real estate
First lien — — — 898,011 —
Construction — — — 33,834 —
HELOC 100 26 74 213,232 0.14
Junior lien — — — 40,997 —
Total residential real estate 100 26 74 1,186,074 0.02
Other consumer 34 2 32 41,135 0.31
Total consumer 134 28 106 1,227,209 0.03
Total loans $ 740 $ 2,453 $ (1,713 ) $ 4,060,723 (0.17 )%
2024: **** ****
Commercial
Commercial and industrial $ 246 $ 153 $ 93 $ 593,685 0.06 %
Commercial real estate
Construction, land and development — — — 184,611 —
Multifamily — — — 242,558 —
Non-owner occupied — — — 663,539 —
Owner occupied 98 14 84 289,963 0.12
Total commercial real estate 98 14 84 1,380,671 0.02
Agricultural
Land — 20 (20 ) 42,162 (0.19 )
Production — — — 40,964 —
Total agricultural — 20 (20 ) 83,126 (0.10 )
Total commercial 344 187 157 2,057,482 0.03
Consumer
Residential real estate
First lien — — — 689,382 —
Construction — — — 16,792 —
HELOC — — — 130,705 —
Junior lien — — — 36,818 —
Total residential real estate — — — 873,697 —
Other consumer 161 2 159 37,768 1.67
Total consumer 161 2 159 911,465 0.07
Total loans $ 505 $ 189 $ 316 $ 2,968,947 0.04 %
(1) The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting.
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For the nine months ended
September 30,
**** Net Charge-offs
Total Total Net Charge-offs Average (Recoveries) to
(dollars in thousands) Charge-offs Recoveries (Recoveries) Loans Average Loans
2025: **** ****
Commercial
Commercial and industrial $ 854 $ 2,813 $ (1,959 ) $ 654,061 (0.40 )%
Commercial real estate
Construction, land and development — — — 348,093 —
Multifamily — — — 358,280 —
Non-owner occupied ^(1)^ 3,401 — 3,401 951,568 0.48
Owner occupied 4 32 (28 ) 425,638 (0.01 )
Total commercial real estate 3,405 32 3,373 2,083,579 0.22
Agricultural
Land — — — 66,647 —
Production 384 12 372 64,357 0.77
Total agricultural 384 12 372 131,004 0.38
Total commercial 4,643 2,857 1,786 2,868,644 0.08
Consumer
Residential real estate
First lien 54 — 54 898,910 0.01
Construction — — — 36,798 —
HELOC 360 26 334 190,272 0.23
Junior lien 300 — 300 42,498 0.94
Total residential real estate 714 26 688 1,168,478 0.08
Other consumer 112 127 (15 ) 40,302 (0.05 )
Total consumer 826 153 673 1,208,780 0.07
Total loans $ 5,469 $ 3,010 $ 2,459 $ 4,077,424 0.08 %
2024: **** ****
Commercial
Commercial and industrial $ 3,140 $ 395 $ 2,745 $ 578,839 0.63 %
Commercial real estate
Construction, land and development — — — 146,454 —
Multifamily — — — 245,372 —
Non-owner occupied — — — 615,320 —
Owner occupied 127 34 93 284,315 0.04
Total commercial real estate 127 34 93 1,291,461 0.01
Agricultural
Land — 20 (20 ) 41,138 (0.06 )
Production — — — 38,110 —
Total agricultural — 20 (20 ) 79,248 (0.03 )
Total commercial 3,267 449 2,818 1,949,548 0.19
Consumer
Residential real estate
First lien — — — 695,313 —
Construction — — — 19,847 —
HELOC — — — 124,321 —
Junior lien 3 74 (71 ) 36,276 (0.26 )
Total residential real estate 3 74 (71 ) 875,757 (0.01 )
Other consumer 174 25 149 33,329 0.60
Total consumer 177 99 78 909,086 0.01
Total loans $ 3,444 $ 548 $ 2,896 $ 2,858,634 0.14 %
(1) The $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million, $3.1 million represented reserves on PCD loans acquired in the HMNF transaction that were reserved in the day 1 accounting.
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The following table presents the allocation of the ACL on loans as of the dates presented:

September 30, 2025 December 31, 2024
Percentage Percentage
Allocated of loans to Allocated of loans to
(dollars in thousands) Allowance total loans Allowance total loans
Commercial and industrial $ 13,405 17.2 % $ 8,170 16.7 %
CRE − Construction, land and development 17,257 8.5 16,277 7.4
CRE − Multifamily 4,337 9.1 4,716 9.1
CRE − Non-owner occupied 10,123 21.1 16,513 24.2
CRE − Owner occupied 3,291 10.6 3,226 9.3
Agricultural − Land 999 1.6 597 1.5
Agricultural − Production 688 1.5 631 1.6
RRE − First lien 9,294 21.8 6,921 23.1
RRE − Construction 272 0.8 357 0.8
RRE − HELOC 1,679 5.7 1,339 4.1
RRE − Junior lien 439 1.0 742 1.1
Other consumer 343 1.1 440 1.1
Total loans $ 62,127 100.0 % $ 59,929 100.0 %

In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under credit arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded. An ACL on off-balance sheet credit exposures is measured using similar internal and external assumptions as the ACL on loans. This allowance is located in accrued expenses and other liabilities on the consolidated balance sheets. The ACL for unfunded commitments was $3.7 million and $7.4 million as of September 30, 2025 and 2024, respectively.

Deposits

Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and economic conditions, and fluctuations in the Company’s customers’ own liquidity needs and may also be influenced by recent developments in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures.

Total deposits were $4.4 billion as of September 30, 2025, an increase of $34.2 million, or 0.8%, from December 31, 2024. Interest-bearing deposits increased $160.9 million during this period, while noninterest-bearing deposits decreased $126.7 million. The increase in total deposits was driven by growth in commercial deposits due to new and expanded client relationships and funding structure diversification through the utilization of callable brokered CDs. This growth was partially offset by outflows from our public funds depositors, which reached a typical seasonal low in the third quarter of 2025.

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

September 30, 2025 December 31, 2024 **** ****
Percent of Percent of Change
(dollars in thousands) Balance Portfolio Balance Portfolio Amount Percent
Noninterest-bearing demand $ 776,791 17.6 % $ 903,466 20.6 % $ (126,675 ) (14.0 )%
Interest-bearing demand 1,256,687 28.5 1,220,173 27.9 36,514 3.0
Money market and savings ^(1)^ 1,634,119 37.0 1,547,806 35.4 86,313 5.6
Time deposits 745,056 16.9 706,965 16.1 38,091 5.4
Total deposits $ 4,412,653 100.0 % $ 4,378,410 100.0 % $ 34,243 0.8 %
(1) Money market and savings deposits included health savings account deposits of $202.5 million and $190.3 million as of September 30, 2025 and December 31, 2024, respectively.
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The following table presents the average balances and rates of the Company’s deposit portfolio for the three months ended September 30, 2025 and 2024:

Three months ended September 30,
2025 2024
Average Average Average Average
(dollars in thousands) Balance Rate Balance Rate
Noninterest-bearing demand $ 800,028 — % $ 628,114 — %
Interest-bearing demand 1,227,029 1.80 1,003,595 2.31
Money market and savings 1,587,694 2.84 1,146,896 3.82
Time deposits 772,345 3.81 485,533 4.46
Total deposits $ 4,387,096 2.20 % $ 3,264,138 2.72 %

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The following table presents the composition of the Company’s deposit portfolio by client segment as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024 **** ****
Percent of Percent of Change
(dollars in thousands) Balance Portfolio Balance Portfolio Amount Percent
Commercial $ 1,696,724 38.4 % $ 1,647,131 37.7 % $ 49,593 3.0 %
Consumer 1,605,727 36.4 1,556,522 35.5 49,205 3.2
Public ^(1)^ 172,414 3.9 201,197 4.6 (28,783 ) (14.3 )
Synergistic ^(2)^
Retirement and benefit services ^(3)^ 687,418 15.6 683,149 15.6 4,269 0.6
Wealth ^(4)^ 250,370 5.7 290,411 6.6 (40,041 ) (13.8 )
Total synergistic 937,788 21.3 973,560 22.2 (35,772 ) (13.2 )
Total deposits $ 4,412,653 100.0 % $ 4,378,410 100.0 % $ 34,243 0.8 %
(1) Public deposits primarily represent municipalities, school districts, and other governmental entities that receive public funding.
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(2) Synergistic deposits represent the on-balance sheet money market balances that Alerus Retirement and Benefit Services and Alerus Wealth clients hold in proprietary Alerus money market products.
(3) $400.9 million and $361.3 million of retirement and benefit services synergistic deposits were indexed as of September 30, 2025 and December 31, 2024, respectively.
(4) $250.4 million and $290.4 million of wealth synergistic deposits were indexed as of September 30, 2025 and December 31, 2024, respectively.

The following table presents the contractual maturity of time deposits, including certificate of deposit account registry services and IRA deposits of $250,000 and over, that were outstanding as of September 30, 2025:

September 30,
(dollars in thousands) 2025
Maturing in:
3 months or less $ 65,500
3 months to 6 months 67,369
6 months to 1 year 40,869
1 year or greater 11,021
Total $ 184,759

The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.5 billion at both September 30, 2025 and December 31, 2024. These amounts were estimated based on the same methodologies used for regulatory reporting purposes.

Borrowings

Borrowings as of September 30, 2025 and December 31, 2024 were as follows:

September 30, 2025 December 31, 2024
Percent of Percent of
(dollars in thousands) Balance Portfolio Balance Portfolio
Fed funds purchased $ — — % $ 38,960 13.1 %
FHLB short-term advances 200,000 77.2 200,000 67.1
Subordinated notes 50,000 19.3 50,000 16.8
Junior subordinated debentures 9,154 3.5 9,069 3.0
Total borrowed funds $ 259,154 100.0 % $ 298,029 100.0 %

Capital Resources

Stockholders’ equity is influenced primarily by earnings, dividends, the Company’s sales and repurchases of its common stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on available-for-sale securities.

Stockholders’ equity increased $55.3 million, or 11.2%, to $550.7 million as of September 30, 2025, compared to $495.4 million as of December 31, 2024. Tangible common equity to tangible assets, a non-GAAP financial measure, increased to 8.24% as of September 30, 2025, from 7.13% as of December 31, 2024. Common equity tier 1 capital to risk weighted assets increased to 10.84% as of September 30, 2025, from 9.91% as of December 31, 2024.

The Company strives to maintain an adequate capital base to support the Company’s activities in a safe and sound manner while at the same time attempting to maximize stockholder value. Capital adequacy is assessed against the risk inherent in the Company’s balance sheet, recognizing that unexpected loss is the common denominator of risk, and that common equity has the greatest capacity to absorb unexpected loss.

The Company is subject to various regulatory capital requirements both at the Company and at the Bank level. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. The Company has consistently maintained regulatory capital ratios at or above the well-capitalized standards.

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At September 30, 2025 and December 31, 2024, the Company met all the capital adequacy requirements to which the Company was subject. The table below presents the Company’s and the Bank’s regulatory capital ratios and the Company’s tangible common equity to tangible assets ratio as of September 30, 2025 and December 31, 2024:

September 30, December 31,
Capital Ratios 2025 2024
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets 10.84 % 9.91 %
Tier 1 capital to risk weighted assets 11.05 % 10.12 %
Total capital to risk weighted assets 13.41 % 12.49 %
Tier 1 capital to average assets 9.49 % 8.65 %
Tangible common equity to tangible assets (1) 8.24 % 7.13 %
Alerus Financial, National Association
Common equity tier 1 capital to risk weighted assets 11.00 % 10.18 %
Tier 1 capital to risk weighted assets 11.00 % 10.18 %
Total capital to risk weighted assets 12.25 % 11.43 %
Tier 1 capital to average assets 9.31 % 8.69 %
(1) Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”
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The regulatory capital ratios for the Company and the Bank, as of September 30, 2025, as shown in the above table, were at levels above the regulatory minimums to be considered “well capitalized.” See “NOTE 19 Regulatory Matters” of the consolidated financial statements for additional information.

Off‑Balance Sheet Arrangements

The Company is a party to financial instruments with off‑balance sheet risk in the normal course of business to meet the financing needs of the Company’s customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to normal credit policies. Collateral may be required based on management’s assessment of the customer’s creditworthiness. The fair value of these commitments is considered immaterial for disclosure purposes.

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

September 30, December 31,
(dollars in thousands) 2025 2024
Commitments to extend credit $ 1,007,983 $ 1,090,114
Standby letters of credit 19,418 30,033
Total $ 1,027,400 $ 1,120,147

Liquidity

Liquidity management is the process by which the Company manages the flow of funds necessary to meet the Company’s financial commitments on a timely basis and at a reasonable cost and to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the Company’s operations, and capital expenditures. Liquidity is monitored and closely managed by the Company’s asset and liability committee (the “ALCO”), a group of senior officers from the finance, enterprise risk management, deposit, investment, treasury, and lending areas. It is the ALCO’s responsibility to ensure the Company has the necessary level of funds available for normal operations as well as maintain a contingency funding policy to ensure that potential liquidity stress events are planned for, quickly identified, and that management has plans in place to respond. The ALCO has created policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources.

As of September 30, 2025, the Company had on balance sheet liquidity of $566.9 million, compared to $579.0 million as of December 31, 2024. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, unencumbered securities available‑for‑sale, and over collateralized securities pledging positions available-for-sale.

As of September 30, 2025, the Company had off balance sheet liquidity of $2.2 billion, compared to $2.3 billion as of December 31, 2024. Off balance sheet liquidity includes FHLB borrowing capacity, federal funds lines, and brokered deposit capacity.

The Bank is a member of the FHLB, which provides short‑ and long‑term funding to its members through advances collateralized by real estate related assets and other select collateral, most typically in the form of debt securities. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of September 30, 2025, the Company did not have any federal funds purchased, and had $200.0 million in short-term borrowings from the FHLB. As of September 30, 2025, the Company had $2.1 billion of collateral pledged to the FHLB and, based on this collateral, the Company was eligible to borrow up to an additional $1.1 billion from the FHLB. In addition, the Company can borrow up to $127.0 million through the unsecured lines of credit the Company has established with five other correspondent banks.

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In addition, because the Bank is “well capitalized,” the Company can accept wholesale deposits up to 20.0% of total assets based on current policy limits, or $1.1 billion, as of September 30, 2025. Management believed that the Company had adequate resources to fund all of the Company’s commitments as of September 30, 2025 and December 31, 2024.

The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding.

Though remote, the possibility of a funding crisis exists at all financial institutions. Management has addressed this issue by formulating a liquidity contingency plan, which has been reviewed and approved by both the Bank’s Board of Directors and the ALCO. The plan addresses the actions that the Company would take in response to both a short‑term and long‑term funding crisis.

A short‑term funding crisis would most likely result from a shock to the financial system, either internal or external, which disrupts orderly short‑term funding operations. Such a crisis would likely be temporary in nature and would not involve a change in credit ratings. A long‑term funding crisis would most likely be the result of both external and internal factors and would most likely result in drastic credit deterioration. Management believes that both potential circumstances have been fully addressed through detailed action plans and the establishment of trigger points for monitoring such events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates. Interest rate risk is the risk to earnings and equity value arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of interest earning assets and the amount of interest‑bearing liabilities that are prepaid/withdrawn, re‑price, or mature in specified periods. The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. The ALCO oversees market risk management, monitoring risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. The Bank’s Board of Directors approves policy limits with respect to interest rate risk.

Interest Rate Risk

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective interest rate risk management begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk position given business activities, management objectives, market expectations and ALCO policy limits and guidelines.

Interest rate risk can come in a variety of forms, including repricing risk, basis risk, yield curve risk and option risk. Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes impact the Company’s assets and liabilities. Basis risk is the risk of adverse consequence resulting from unequal change in the spread between two or more rates for different instruments with the same maturity. Yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same or different instruments. Option risk in financial instruments arises from embedded options such as options provided to borrowers to make unscheduled loan prepayments, options provided to debt issuers to exercise call options prior to maturity, and depositor options to make withdrawals and early redemptions.

Management regularly reviews the Company’s exposure to changes in interest rates. Among the factors considered are changes in the mix of interest earning assets and interest‑bearing liabilities, interest rate spreads and repricing periods. The ALCO reviews, on at least a quarterly basis, the interest rate risk position.

The interest‑rate risk position is measured and monitored at the Bank using net interest income simulation models and economic value of equity sensitivity analysis that capture both short‑term and long‑term interest‑rate risk exposure.

Modeling the sensitivity of net interest income and the economic value of equity to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of the Company’s loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. The balance sheet composition and size are assumed to remain static in the simulation modeling process. The analysis provides a framework as to what the Company’s overall sensitivity position is as of the Company’s most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of the Company’s equity.

Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.

The estimated impact on the Company’s net interest income as of September 30, 2025 and December 31, 2024, assuming immediate parallel moves in interest rates, is presented in the table below:

September 30, 2025 December 31, 2024
Following Following Following Following
12 months 24 months 12 months 24 months
+400 basis points 1.2 % 10.9 % 1.7 % 13.6 %
+300 basis points 0.9 % 8.1 % 1.2 % 10.0 %
+200 basis points 0.9 % 6.1 % 1.1 % 7.2 %
+100 basis points 0.5 % 3.3 % 0.6 % 3.7 %
−100 basis points 1.2 % -2.6 % 0.4 % -3.1 %
−200 basis points 2.2 % -5.9 % 0.7 % -6.8 %
−300 basis points 3.9 % -8.0 % 0.8 % -10.5 %
−400 basis points 8.0 % -4.1 % 4.0 % -7.0 %

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Management strategies may impact future reporting periods, as actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes, the difference between actual experience and the characteristics assumed, as well as changes in market conditions. Market-based prepayment speeds are factored into the analysis for loan and securities portfolios. Rate sensitivity for transactional deposit accounts is modeled based on both historical experience and external industry studies.

Management uses an economic value of equity sensitivity analysis to understand the impact of interest rate changes on long‑term cash flows, income, and capital. Economic value of equity is based on discounting the cash flows for all balance sheet instruments under different interest rate scenarios. Deposit premiums are based on external industry studies and utilizing historical experience.

The table below presents the change in the economic value of equity as of September 30, 2025 and December 31, 2024, assuming immediate parallel shifts in interest rates:

September 30, December 31,
2025 2024
+400 basis points -7.3 % -6.2 %
+300 basis points -5.5 % -4.8 %
+200 basis points -2.7 % -2.4 %
+100 basis points -0.9 % -0.8 %
−100 basis points 0.4 % 0.1 %
−200 basis points -0.4 % -0.9 %
−300 basis points -3.7 % -3.6 %
−400 basis points -8.7 % -8.5 %

Operational Risk

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, disasters, and security risks. Management continuously strives to strengthen its system of internal controls, enterprise risk management, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of the Company’s operational risk.

Compliance Risk

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice. Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the expansion of the Company’s banking center network, employment and tax matters.

Strategic and/or Reputation Risk

Strategic and/or reputation risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products, and any other event not identified in the defined risk types mentioned previously. Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various risks, including those related to the development of new products and business initiatives.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the President and Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rule 13a‑15(e) under the Securities Exchange Act of 1934, or the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

In its Annual Report on Form 10-K for the period ended December 31, 2024, management concluded that the Company’s disclosure controls and procedures over financial reporting were not effective as of the end of such period, due to the existence of a material weakness related to a unique, one-time transaction, where goodwill initially calculated by the Company was inaccurate. The Company has since designed and implemented control activities to ensure that there is the appropriate periodic assessment of its business combination accounting policies and procedures, and its accounting department employees have participated in education and training related to business combination accounting and discussed with accounting experts to provide appropriate guidance in connection with accounting for business combinations. Other than disclosed herein, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a 15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1 – Legal Proceedings

For information regarding litigation, other disputes and regulatory proceedings see the section “Legal Contingencies” in “NOTE 12 Commitments and Contingencies” of the consolidated financial statements.

Item 1A – Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2025.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

The following table presents information related to repurchases of shares of the Company’s common stock for each calendar month in the third quarter of 2025:

Total Number of Maximum Number of
Total Number Average Shares Purchased as Shares that May
of Shares Price Paid Part of Publicly Yet be Purchased
(dollars in thousands, except per share data) Purchased^(1)^ per Share Announced Plans Under the Plan ^(2)^
July 1-31, 2025 3,329 $ 22.22 — 1,000,000
August 1-31, 2025 — — — 1,000,000
September 1-30, 2025 178 23.11 — 1,000,000
Total 3,507 $ 22.27 — 1,000,000
(1) Represents shares of the Company’s common stock purchased by the Company’s Employee Stock Ownership Plan in open market purchases and shares surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards.
--- ---
(2) On December 12, 2023, the Board of Directors of the Company approved a stock repurchase program (the “Program”), which authorized the Company to repurchase up to 1,000,000 shares of its common stock, subject to certain limitations and conditions. The Program became effective on February 18, 2024, and replaced a prior stock repurchase program. The Program will expire on February 18, 2027. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so. For the three months ended September 30, 2025, the Company did not repurchase any shares of common stock under the Program. Does not include shares that may be purchased by the Company’s Employee Stock Ownership Plan.
--- ---

Use of Proceeds from Registered Securities

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not Applicable.

Item 5 – Other Information

During the fiscal quarter ended September 30, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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Item 6 – Exhibits

Exhibit No. Description
3.1 Third Amended and Restated Certificate of Incorporation of Alerus Financial Corporation (incorporated herein by reference to Exhibit 3.1 on Form S-1 filed on August 16, 2019).
3.2 Amendment to Third Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 on Form 8-K filed on May 12, 2025).
3.3 Second Amended and Restated Bylaws of Alerus Financial Corporation (incorporated herein by reference to Exhibit 3.2 on Form S-1 filed on August 16, 2019).
10.1 Executive Severance Agreement by and Between Alerus Financial Corporation and Katie Lorenson, dated August 28, 2025 (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on August 28, 2025.
31.1 Chief Executive Officer’s Certifications required by Rule 13(a)‑14(a) – filed herewith.
31.2 Chief Financial Officer’s Certifications required by Rule 13(a)‑14(a) – filed herewith.
32.1 Chief Executive Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
32.2 Chief Financial Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
101.INS iXBRL Instance Document
101.SCH iXBRL Taxonomy Extension Schema
101.CAL iXBRL Taxonomy Extension Calculation Linkbase
101.DEF iXBRL Taxonomy Extension Definition Linkbase
101.LAB iXBRL Taxonomy Extension Label Linkbase
101.PRE iXBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted Inline XBRL and contained in Exhibits 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALERUS FINANCIAL CORPORATION
Date: November 5, 2025 By: /s/ Katie A. Lorenson
Name:    Katie A. Lorenson
Title:      President and Chief Executive Officer (Principal Executive Officer)
Date: November 5, 2025 By: /s/ Alan A. Villalon
Name:    Alan A. Villalon
Title:      Executive Vice President and Chief Financial Officer (Principal Financial Officer)

66

ex_852799.htm

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as

Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Katie A. Lorenson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Alerus Financial Corporation (the “Registrant”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
--- ---
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
--- ---
d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
--- ---
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
--- ---
Alerus Financial Corporation
--- ---
November 5, 2025 /s/ Katie A. Lorenson
Katie A. Lorenson<br> President and Chief Executive Officer<br> (Principal Executive Officer)

ex_852800.htm

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as

Adopted Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Alan A. Villalon, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Alerus Financial Corporation (the “Registrant”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
--- ---
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
--- ---
d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
--- ---
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
--- ---
Alerus Financial Corporation
--- ---
November 5, 2025 /s/ Alan A. Villalon
Alan A. Villalon<br> Executive Vice President and Chief Financial Officer<br> (Principal Financial Officer)

ex_852801.htm

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350 as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Katie A. Lorenson, President and Chief Executive Officer of Alerus Financial Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2025 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
--- ---
Alerus Financial Corporation
--- ---
November 5, 2025 /s/ Katie A. Lorenson
Katie A. Lorenson<br> President and Chief Executive Officer<br> (Principal Executive Officer)

ex_852802.htm

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350 as Adopted

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Alan A. Villalon, Executive Vice President and Chief Financial Officer of Alerus Financial Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2025 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
--- ---
Alerus Financial Corporation
--- ---
November 5, 2025 /s/ Alan A. Villalon
Alan A. Villalon<br> Executive Vice President and Chief Financial Officer<br> (Principal Financial Officer)

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