ALERUS FINANCIAL CORP
For the period ended Dec 31, 2024. Filed Mar 14, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 14, 2025
ALRS$33.81-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-08.
0001558370-24-002829
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-14.
0001437749-25-007629
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 168 previous paragraphs and 165 current paragraphs.
64 unchanged; 73 reworded; 25 added; 27 removed; 4 previous and 3 current paragraphs rearranged.
Tables are not compared: 57 previous and 67 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
Noninterest Income
Current report
PCD loans are purchased loans, that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. An ACL is determined using either an expected loss method or discounted cash flow analysis to calculate gross expected losses on unpaid principal. The expected loss method utilizes PD and LGD assumptions applied to non-discounted cash flows at the instrument level. The discounted cash flow analysis uses assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, loss given defaults, and estimates of prevailing discount rates. The initial ACL determined on a collective basis is allocated to individual loans. The sum of a loan’s purchase price, allowance for credit losses, and non-credit discount or premium becomes its initial unpaid principal. The non-credit discount or premium is amortized into interest income over the life of the loan.
Current report
Non-purchased credit deteriorated (“non-PCD”) loans are purchased loans, that, as of the date of acquisition, have not experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The loan’s purchase price becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the unpaid principal of the loan is a discount or premium, which is comprised of a credit and non-credit component, and is accreted or amortized into interest income over the life of the loan. An ACL is determined using the same methodology as other loans held for investment, but no “day one” ACL is established on the date of acquisition. Instead, a subsequent “day two” ACL for non-PCD loans is recorded through the provision for credit losses, which reflects the estimated lifetime credit losses.
Current report
Management utilizes their best judgement and information available; however, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s control which are inherently difficult to predict. The most significant factor is the macroeconomic scenario forecasts that determine the economic variables utilized in the loss driver models. Due to the inherent uncertainty in the macroeconomic forecasts, management utilized baseline, upside, and downside macroeconomic scenarios and weights the scenarios each period. At December 31, 2024, the quantitative portion of the ACL estimate for collectively evaluated loans ranged from approximately $29.5 million when weighting the upside scenario to 100%, to approximately $65.1 million when weighting the most severe downside scenario 100%. Management determined that a $33.2 million reserve for the quantitative portion of the ACL for collectively evaluated loans was appropriate as of December 31, 2024.
Current report
In the Company’s impairment analysis, the discount rates used for each reporting segment had the most significant impact on the analysis. Based on the goodwill impairment analysis, adjusting the discount rate +/- 100 basis points did not impact the final results which indicated no impairment.
Current report
Fair values of loans acquired in business combinations—Loans acquired in business combinations are initially recorded at fair value as adjusted for credit risk and an ACL at the date of acquisition for PCD loans. For loans with no significant evidence of credit deterioration since origination, the difference between the fair value and the unpaid principal balance of the loan at the acquisition date is amortized into interest income using the effective interest method over the remaining period to contractual maturity.
Current report
Loans acquired with evidence of deterioration in credit quality since origination, or PCD loans, are accounted for in accordance with Accounting Standards Codification (“ASC”) 326. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and then discounting those cash flows at an appropriate market rate of interest. An ACL is recognized by estimating the expected credit losses of the purchased asset and recording an adjustment to the acquisition date fair value to establish the initial amortized cost basis of the asset. Differences between the established fair value and the unpaid principal balance of the asset is considered to be a non-credit discount/premium and is accreted/amortized into interest income using the interest method accounted for in accordance with ASC 310. Subsequent changes to the ACL are recorded through provision for credit loss expense using the same methodology as other loans held for investment.
Current report
Fair values for loans acquired in the HMNF acquisition were based on a discounted cash flow methodology that forecasts expected credit and prepayment adjusted cash flows, which were discounted using market-based discount rates. This approach also considered factors including the type of loan and related collateral, fixed or variable interest rate, remaining term, credit quality ratings or scores, and amortization status.
Current report
Selected larger loans with adverse risk ratings were specifically reviewed to evaluate fair value. Loans with similar risk characteristics were pooled together when applying various valuation techniques. The discount rates used for loans were based on an evaluation of current market rates for new originations of comparable loans, indices of corporate and other bond spreads, and required rates of return for market participants to purchase similar assets, including adjustments for liquidity, servicing costs, and credit quality when necessary. In the Company’s valuation analysis, the discount rate had the most significant impact on the valuation. An increase of 0.25% to the discount rates used to derive the fair value of the loans at the time of the merger would have reduced the approximate fair value by $7.3 million, whereas a decrease of 0.25% to the discount rates would have increased the fair value by approximately $7.4 million.
Current report
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.
Current report
Noninterest Income
Current report
Total noninterest expense increased $30.5 million, or 20.3%, to $180.7 million for the year ended December 31, 2024, from $150.2 million for the year ended December 31, 2023. The increase in noninterest expense was primarily driven by an $11.0 million increase in compensation expense and an $12.9 million increase in professional fees and assessments expense. The increase in compensation expense was primarily driven by acquisition-related compensation expenses, experienced talent acquisitions, and increased labor costs. Professional fees and assessments expenses increased due to acquisition-related expenses and an increase in FDIC assessments.
Current report
The following table presents the banking segment income statement, net of corporate administration, for the years ended December 31, 2024 and 2023:
Current report
Retirement and Benefit Services
Current report
The following table presents the retirement and benefit services segment income statement for the years ended December 31, 2024 and 2023:
Current report
Wealth
Current report
The following table presents the wealth segment income statement for the years ended December 31, 2024 and 2023:
Current report
Total loans outstanding were $4.0 billion as of December 31, 2024, an increase of $1.2 billion, or 44.7%, from December 31, 2023. The increase in total loans was a combination of organic loan growth and loans acquired in the HMNF transaction. The fair value of net loans acquired in the HMNF transaction, which was completed on October 9, 2024, was $786.2 million. Additionally, the Company continued to invest in talent to support organic loan growth and added an equipment finance team in 2024. Loan growth included increases of $786.1 million in CRE loans, $280.1 million in RRE loans, and $104.5 million in C&I loans.
Current report
Criticized loans represented 4.97% and 2.23% of total loans as of December 31, 2024 and 2023, respectively. The increase in criticized loans in 2024 was driven by normalization of credit quality, the increase in nonperforming loans, and the acquisition of loans in the HMNF transaction. Criticized assets acquired from HMNF were identified and accounted for at closing.
Current report
The ACL on loans was $59.9 million at December 31, 2024, compared to $35.8 million at December 31, 2023. The $24.1 million increase in the ACL was primarily due to the acquisition of HMNF, which resulted in an additional ACL on PCD acquired loans of $10.2 million and a day one provision for credit losses on non-PCD acquired loans of $7.3 million.
Current report
The following table presents information concerning the components of the ACL for the periods presented:
Current report
Total deposits were $4.4 billion as of December 31, 2024, an increase of $1.3 billion, or 41.4%, from December 31, 2023. Interest-bearing deposits increased $1.1 billion while noninterest-bearing deposits increased $175.4 million. The increase in interest-bearing deposits consisted of increases of $432.6 million in money market and savings, $379.5 million in interest-bearing demand deposits, and $295.4 million in time deposits. The increase in total deposits was primarily driven by the recent acquisition of HMNF, expanded and new commercial deposit relationships, and synergistic deposit growth.
Current report
The following table presents the composition of the Company's deposit portfolio by client segment for the periods indicated:
Current report
Total stockholders’ equity was $495.4 million at December 31, 2024, an increase of $126.3 million, or 34.2%, compared to $369.1 million at December 31, 2023. The increase was primarily driven by the issuance of common stock in connection with the acquisition of HMNF.
Current report
As of December 31, 2024, the Company had off balance sheet liquidity of $2.3 billion, compared to $1.6 billion as of December 31, 2023. Off balance sheet liquidity includes FHLB borrowing capacity, federal fund lines, and brokered deposit capacity.
Removed paragraphs (27)
Previous report
costs to maintain or prepare other real estate owned, or OREO, for sale, and other general corporate expenses that do not fit within one of the specific noninterest expense lines described above. Other operational expenses are generally impacted by the Company’s business activities and needs.
Previous report
ASU 2016-13 also changed the Company’s methodology and accounting for credit losses within the investment portfolio designated as AFS. To the extent the fair value of a security designated as AFS is less than its amortized cost and the Company either intends to sell the security or it is more-likely-than-not the Company will be required to sell the security before recovery of its amortized cost basis, then the investment is permanently impaired and the amortized cost basis is written down to fair value and a corresponding impairment charge is recorded within the consolidated statements of income. If neither of the above is true, but the fair value of the investment is below its amortized cost basis at the reporting date, then an allowance is established on the AFS investment for the portion of the impairment that is due to credit reasons (e.g. credit rating downgrades, past due receivables, and/or other macro- or micro-adverse trends). The allowance established on an AFS investment due to credit losses is limited to the amount the fair value of the investment is below its amortized cost basis as of the reporting date. If the fair value of the investment is below its amortized cost basis for non-credit-related reasons (e.g. interest rate environment), then the impairment continues to be recognized within stockholders' equity through AOCI.
Previous report
*ACL on Off Balance Sheet Credit Exposures.*The Company considers the ACL on off balance sheet credit exposures to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses on expected future loan fundings of, primarily, unfunded loan commitments for those that are not unconditionally cancellable by the Company. The expected credit loss factor calculated for each loan segment using the ACL on loans methodology described above, as well as within Note 1 of the consolidated financial statements, is used to calculate the ACL on off balance sheet credit exposures for each applicable loan segment, and, thus, are subject to the same level of estimation risk and volatility previously described. In addition, one other key assumption is used to derive the allowance on off balance sheet credit exposures and that is the expected funding rate. The expected funding rate is derived using historical loan level data for credit line usage, and is applied to total off balance sheet credit exposures at each reporting date, excluding any that are unconditionally cancellable by the Company, to determine the expected funding amount. As unfunded loan commitments are funded, the allowance migrates from that provided for off balance sheet credit exposures to the ACL on loans. If the expected funding rate or any other key assumption used is not reasonable, then this could have an adverse impact on the total ACL upon funding.
Previous report
As of December 31, 2023, the recorded ACL on off balance sheet credit exposures was $7.4 million and presented within accrued interest and other liabilities on the consolidated balance sheet. Increases (decreases) to the allowance are presented within provision (credit) for credit losses on the consolidated statements of income. The allowance at December 31, 2023, represented the Company’s best estimate, however, it may adjust assumptions to account for differences between expected and actual losses from period to period. A future change to the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition.
Previous report
*ACL for HTM Debt Securities.*The estimate of expected credit losses on the Company’s HTM investment portfolio utilizes external PD and LGD data by credit rating to determine a loss rate. Management may exercise discretion to make adjustments based on various environmental factors.
Previous report
At December 31, 2023, the Company held securities in its HTM portfolio with an amortized cost basis of $299.7 million that primarily consisted of MBS and CMO debt securities issued, municipal bonds or guaranteed by U.S. government-sponsored agencies. Under ASU 2016-13 the Company has the ability to exclude certain securities when the historical credit loss information, adjusted for current conditions and forecasts, resulting in zero risk of nonpayment of the amortized cost basis of the security. Management has evaluated and determined zero risk of nonpayment on all securities guaranteed by the U.S government agencies. At December 31, 2023, the Company recorded an ACL on HTM debt securities of $213 thousand.
Previous report
Refer to “—Financial Condition—Investments” and Note 5 of the consolidated financial statements for further discussion.
Previous report
ACL on AFS Debt Securities. The Company considers the ACL on AFS debt securities to be a critical accounting policy given the size of the investment portfolio and level of estimation used to determine the allowance, as appropriate. As of December 31, 2023, the Company's AFS portfolio was entirely made up of assets that are fair valued using level 2 valuation techniques in accordance with ASC 820,Fair Value Measurement. The Company engages a third party pricing agency to assist with the valuation of such debt securities and the assets are carried at fair value at each reporting period. An allowance is recorded on an AFS debt security to the extent an event has occurred that suggests receipt of full contractual payments are at risk. When such an event has been identified, a discounted cash flow model is used to determine the expected losses due to credit risk, and an allowance is recorded to reduce the carrying value of the debt security by the calculated expected loss amount, limited to the amount by which the fair value of the debt security is below its amortized cost basis.
Previous report
As further described within “—Financial Condition—Investments,” the Company's AFS portfolio, as of December 31, 2023, primarily consisted of MBS and CMO debt securities issued or guaranteed by U.S. government-sponsored agencies, and, thus, presenting little to no credit risk. As of December 31, 2023, the Company had not identified indications of credit risk and did not carry any allowance for credit losses on its AFS portfolio, nor did it record any permanent impairments during 2023, 2022 or 2021.
Previous report
Refer to “—Financial Condition—Investments” and Note 5 of the consolidated financial statements for further discussion.
Previous report
Fair value measurements—Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices, or observable market inputs. For financial instruments that are traded actively and have quoted market prices, or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgement may be necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs.
Previous report
Financial assets that are recorded at fair value on a recurring basis include investment securities, available-for-sale and derivative financial instruments. As of December 31, 2023 and 2022, $495.2 million, or 12.7%, and $723.7 million, or 19.1%, respectively, of the Company’s total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities. The fair value of financial assets on a recurring basis are classified in either Levels 1 or 2 of the fair value hierarchy. Financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments. As of December 31, 2023 and 2022, $9.2 million and $6.3 million of derivative financial instruments, respectively, were classified as Level 2 of the fair value hierarchy, representing less than 1% of the Company’s total liabilities in those years. As of December 31, 2023, the Company had no fair value assets or liabilities classified in Level 3 of the fair value hierarchy.
Previous report
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. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), the efficiency ratio, and the adjusted efficiency ratio. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and others frequently use these measures, and other similar measures, to evaluate capital adequacy. Management calculates: (i) tangible common equity as total common stockholders’ equity, less goodwill and other intangible assets; (ii) tangible common equity per share as tangible common equity divided by shares of common stock outstanding; (iii) tangible assets as total assets, less goodwill and other intangible assets; (iv) return on average tangible common equity as net income adjusted for intangible amortization net of tax, divided by average tangible common equity; (v) net interest margin (tax-equivalent) as net interest income plus a tax-equivalent adjustment, divided by average earning assets; (vi) efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment; and (vii) adjusted efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment less net gains (losses) on investment securities.
Previous report
Total noninterest expense decreased $8.6 million, or 5.4%, to $150.2 million for the year ended December 31, 2023, from $158.8 million for the year ended December 31, 2022. The decrease in noninterest expense was primarily driven by a $4.4 million decrease in compensation expense, a $1.9 million decrease in employee taxes and benefits expense, and a $1.6 million decrease in professional fees and assessments expense, partially offset by an increase of $1.6 million in business services, software and technology expense. The decreases in compensation expense and employee taxes and benefits expenses were primarily driven by a decrease in mortgage incentives associated with the decrease in mortgage originations, and decreased expenses related to group insurance. Professional fees and assessments expenses decreased due to merger related expenses associated with the acquisition of Metro Phoenix Bank in 2022, partially offset by an increase in FDIC assessments. Business services, software and technology expense increased primarily due to higher contract renewals due to inflationary pressures and equipment purchases.
Previous report
The banking segment reported net income before taxes of $7.1 million for the year ended December 31, 2023, a decrease of $25.4 million compared to the year ended December 31, 2022. The decrease was primarily driven by a $21.6 million decrease in noninterest income and a $10.5 million decrease in net interest income, partially offset by a $8.8 million decrease in noninterest expense. During the fourth quarter of 2023, the Company sold $171.8 million of available-for-sale (AFS) securities in a balance sheet repositioning. The sale resulted in a one-time pre-tax net loss of $24.6 million. Proceeds from the sale were reinvested into loans to new and existing clients throughout the communities the Company serves, in addition to paying down borrowings.
Previous report
The retirement and benefit services segment reported net income before taxes of $14.7 million for the year ended December 31, 2023, a decrease of $4.5 million compared to the year ended December 31, 2022. Revenue of $65.3 million, comprised of $23.1 million in asset-based revenue and $42.2 million in participant and transaction revenues, decreased $1.8 million, or 2.7%, primarily due to the divestiture of the payroll services line of business.
Previous report
Wealth management reported net income before taxes of $9.8 million for the year ended December 31, 2023, a decrease of $3.1 million, or 23.9%, compared to the year ended December 31, 2022. Noninterest expense in 2023 increased $4.1 million, or 51.3%, as compared to 2022, primarily due to an increase of allocated expenses.
Previous report
The mortgage division offers first and second mortgage loans through the banking office locations.
Previous report
Mortgage reported a net loss before taxes of $5.4 million for the year ended December 31, 2023, an increase of $2.9 million, or 117.2%, from the $2.5 million net loss reported for the year ended December 31, 2022. Mortgage noninterest income for 2023 of $8.4 million decreased $8.5 million, or 50.3%, from 2022. The decrease was primarily driven by a decrease in mortgage originations and a 32 basis point decrease in the gain on sale margin, partially offset by a $2.0 million increase in the change in fair value of the secondary market derivatives.
Previous report
Total loans outstanding were $2.8 billion as of December 31, 2023, an increase of $315.6 million, or 12.9%, from December 31, 2022. The increase in total loans was primarily due to organic loan growth due to the Company’s expanded commercial lending team. The increases in organic loan growth included increases of $245.2 million in CRE, $47.3 million in residential real estate first mortgages, $26.2 million in real estate construction, and $11.0 million in commercial and industrial loans, partially offset by a $21.3 million decrease in other revolving and installment loans.
Previous report
Criticized loans represented 2.23% and 1.44% of total loans as of December 31, 2023 and 2022, respectively. The increase in criticized loans was primarily due to one $20.6 million multi-family construction loan that became criticized in the third quarter of 2023.
Previous report
The following table presents, by loan type, the changes in the allowance for credit losses, after the opening adjustment related to the adoption of CECL in 2023, for the periods presented:
Previous report
The ACL on loans was $35.8 million at December 31, 2023, compared to $31.1 million at December 31, 2022. The $4.7 million increase in the allowance for credit losses was primarily due to the adoption of CECL, which resulted in an additional allowance of $3.9 million in the ACL on loans. The ratio of nonperforming loans to total loans at December 31, 2023 was 0.32%, compared to 0.16% at December 31, 2022.
Previous report
The following table summarized the activity of the allowance for credit losses on loans, after the opening adjustment related to the adoption of CECL in 2023, for the periods indicated:
Previous report
The increase in the allocation of the ACL on loans was primarily driven by the adoption of CECL and strong organic loan growth.
Previous report
Total deposits were $3.1 billion as of December 31, 2023, an increase of $180.1 million, or 6.2%, from December 31, 2022. Interest-bearing deposits increased $313.0 million while noninterest-bearing deposits decreased $132.9 million. The increase in interest-bearing deposits consisted primarily of increases of $134.4 million in interest-bearing demand deposits and $199.2 million in time deposits. Noninterest-bearing deposits decreased primarily due to heightened deposit competition, the impact of rising short-term interest rates on indexed money market deposits, and clients moving deposits out of noninterest bearing products into interest-bearing products.
Previous report
Total stockholders’ equity was $369.1 million at December 31, 2023, an increase of $12.3 million, or 3.4%, compared to $356.9 million at December 31, 2022. The increase was primarily due to a $119.4 million increase in other comprehensive income (loss). The increase in other comprehensive income (loss) was due in part to the sale of AFS securities as part of the previously reported balance sheet repositioning in the fourth quarter, as well as improved market conditions, which resulted in a higher fair value of the Company’s available-for-sale investment securities. This increase was partially offset by a $28.3 million decrease in net income and a $4.5 million decrease to opening stockholders’ equity related to the adoption of the CECL accounting standard.
Reworded paragraphs (73)
Previous wording
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and the Company’s audited consolidated financial statements and related notes included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected in the forward-looking statements. The Company assumes no obligation to update any of these forward-looking statements.
Current wording
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the“Selected Financial Data”* and the Company*’s audited consolidated financial statements and related notes included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Certain risks, uncertainties and other factors, including but not limited to those set forth under“Cautionary Note Regarding Forward-Looking Statements,”* “Risk Factors” and elsewhere in this report, may cause actual results to differ materially from those projected in the forward-looking statements. The Company assumes no obligation to update any of these forward-looking statements.*
Previous wording
The following discussion describes the consolidated operations and financial condition of the Company and the Bank. Results of operations for the year ended December 31, 2023 are compared to the results for the year ended December 31, 2022, and the consolidated financial condition of the Company as of December 31, 2023 is compared to December 31, 2022. Results of operations for the year ended December 31, 2022 compared to results for the year ended December 31, 2021, can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2022 annual report on Form 10-K filed with the SEC on March 10, 2023.
Current wording
Results of operations for the year ended December 31, 2023 compared to results for the year ended December 31, 2022 can be found in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 8, 2024.
Previous wording
The Company is a diversified financial services company headquartered in Grand Forks, North Dakota. Through the Company’s subsidiary, Alerus Financial, National Association, the Company provides innovative and comprehensive financial solutions to businesses and consumers through four distinct business lines—banking, retirement
Current wording
The Company is a diversified financial services company headquartered in Grand Forks, North Dakota. Through the Company’s subsidiary, Alerus Financial, National Association, the Company provides innovative and comprehensive financial solutions to businesses and consumers through three distinct business lines—banking, retirement and benefit services, and wealth. In prior periods, the Company had a fourth operating segment, mortgage. As of January 1, 2024, the mortgage division was fully integrated into the banking division to reflect the way the Company currently manages and views the business. These solutions are delivered through a relationship oriented primary point of contact along with responsive and client friendly technology.
Previous wording
The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA, and Arizona, specifically, the Phoenix MSA. In addition to the Company’s offices located in the Company’s banking markets, its retirement and benefit services business administers plans in all 50 states through offices located in Michigan, Minnesota and Colorado.
Current wording
The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA and Rochester MSA, and Arizona, specifically, the Phoenix MSA. In addition to the Company’s offices located in the Company’s banking markets, its retirement and benefit services business administers plans in all 50 states through offices located in Michigan, Minnesota and Colorado.
Previous wording
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 believes its client first and advice based philosophy, diversified business model and history of high performance and growth distinguishes the Company from other financial service providers. The Company generates a majority of its overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services, wealth management and mortgage business lines.
Current wording
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 believes its client first and advice based philosophy, diversified business model and history of high performance and growth distinguishes the Company from other financial service providers. The Company generates a majority of its overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services and wealth business lines.
Previous wording
As of December 31, 2023, the Company had $3.9 billion of total assets, $2.8 billion of total loans, $3.1 billion of total deposits, $369.1 million of stockholders’ equity, $36.7 billion of AUA/AUM in the Company’s retirement and benefit services segment, and $4.0 billion of AUA/AUM in the Company’s wealth management segment. For the year ended December 31, 2023, the Company had $364.1 million of mortgage originations.
Current wording
As of December 31, 2024, the Company had $5.3 billion of total assets, $4.0 billion of total loans, $4.4 billion of total deposits, $495.4 million of stockholders’ equity, $40.7 billion of AUA/AUM in the Company’s retirement and benefit services segment, and $4.6 billion of AUA/AUM in the Company’s wealth segment.
Previous wording
The Company measures the overall profitability of business operations based on income before income tax. The Company allocates costs to its segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within banking, retirement and benefit services, wealth management, and mortgage. The Company measures the profitability of each segment based on the direct and indirect allocations of expense as it believes it better approximates the contribution generated by the Company’s reportable operating segments. All indirect overhead allocations to each segment are determined by management based on an annual review of department expenses. Income tax expense is allocated to corporate administration. A description of each segment is provided in Note 22 (Segment Reporting) of the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Current wording
The Company measures the overall profitability of business operations based on income before income tax. The Company allocates costs to its segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within banking, retirement and benefit services and wealth. The Company measures the profitability of each segment based on the direct and indirect allocations of expense as it believes it better approximates the contribution generated by the Company’s reportable operating segments. All indirect overhead allocations to each segment are determined by management based on an annual review of department expenses. Income tax expense is allocated to corporate administration. A description of each segment is provided in Note 22 (Segment Reporting) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Previous wording
Allowance for credit losses (“ACL”)— In 2023, the Company adopted the new accounting standard for credit losses, ASU No. 2016-13*, Financial Instruments - Credit Losses* (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended (“ASU 2016-13”). This new accounting standard, commonly referred to as “CECL,” significantly changed the Company’s methodology for accounting for reserves on loans, unfunded off balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees, as well as introduced the consideration for an allowance on HTM investment securities. ASU 2016-13 replaced the “incurred loss” methodology used prior to 2023 to establish an allowance on loans and off-balance sheet credit exposures, with an “expected loss” approach. Under CECL, the ACL at each reporting period serves as our best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date.
Current wording
Allowance for credit losses (“ACL”)— In 2023, the Company adopted the new accounting standard for credit losses, Accounting Standards Update (“ASU”) No. 2016-13*, Financial Instruments - Credit Losses* (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended (“ASU 2016-13”). This new accounting standard, commonly referred to as “CECL,” significantly changed the Company’s methodology for accounting for reserves on loans, unfunded off balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees, as well as introduced the consideration for an allowance on HTM investment securities. ASU 2016-13 replaced the “incurred loss” methodology used prior to 2023 to establish an allowance on loans and off-balance sheet credit exposures, with an “expected loss” approach. Under CECL, the ACL at each reporting period serves as the Company’s best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. The Company considers the ACL on loans to be a critical accounting policy.
Previous wording
The recorded ACL on loans and HTM investment securities is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools, individual credits with unique risk factors, and homogenous HTM investment securities pools, by credit rating. Since adoption of CECL in 2023, the Company has used a discounted cash flow approach to calculate the ACL for each loan segment. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data is derived using a combination of external data and internal historical default and loss experience.
Current wording
The recorded ACL on loans is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools and individual credits with unique risk factors. Since adoption of CECL in 2023, the Company has used a discounted cash flow approach to calculate the ACL for each loan segment, except for purchase credit deteriorated (“PCD”) loans. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data is derived using a combination of external data and internal historical default and loss experience. The Company uses an expected loss method to calculate the ACL on the unpaid principal balance for PCD loans. This expected loss method utilizes PD and LGD assumptions applied to non-discounted cash flows at the instrument level.
Previous wording
CECL may create more volatility in our ACL, particularly our ACL on loans and ACL on off balance sheet credit exposures. Under CECL, our ACL may increase or decrease period to period based on many factors, including, but not limited to: macroeconomic forecasts and conditions; a change in the prepayment speed assumption; an increase or decrease in loan balances, including changes to the Company’s loan portfolio mix; credit quality of the loan portfolio; and various qualitative factors outlined in ASU 2016-13.
Current wording
CECL may create more volatility in the Company’s ACL. Under CECL, the Company’s ACL may increase or decrease period to period based on many factors, including, but not limited to: macroeconomic forecasts and conditions; a change in the prepayment speed assumption; an increase or decrease in loan balances, including changes to the Company’s loan portfolio mix; credit quality of the loan portfolio; and various qualitative factors outlined in ASU 2016-13.
Previous wording
*ACL on Loans.*The Company considers the ACL on loans to be a critical accounting policy given the uncertainty in evaluating the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment and estimate by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While the Company’s current evaluation indicates that the ACL on loans at December 31, 2023 and 2022 was appropriate, the allowance may need to be increased under adversely different conditions or assumptions.
Current wording
The Company considers the ACL on loans to be a critical accounting policy given the uncertainty in evaluating the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio. Determining the appropriateness of the allowance is a key management function that requires significant judgment and estimate by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods. While the Company’s current evaluation indicates that the ACL on loans at December 31, 2024 and 2023 was appropriate, the allowance may need to be increased under adversely different conditions or assumptions.
Previous wording
As of December 31, 2023, the recorded ACL on loans was $35.8 million and represented the Company’s best estimate of expected credit losses within the loan portfolio. However, the Company may adjust its assumptions to account for differences between expected and actual losses each period. A future change of the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within the loan portfolio, and the Company considers the impact of these trends on the ACL and the Company's financial condition, if any. The ACL on loans is reviewed and approved on a quarterly basis by the ACL Governance Committee, and later reviewed and ratified by the Bank's Board of Directors.
Current wording
As of December 31, 2024, the recorded ACL on loans was $59.9 million and represented the Company’s best estimate of expected credit losses within the loan portfolio. However, the Company may adjust its assumptions to account for differences between expected and actual losses each period. A future change of the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within the loan portfolio, and the Company considers the impact of these trends on the ACL and the Company's financial condition, if any. The ACL on loans is reviewed and approved on a quarterly basis by the ACL Governance Committee, and later reviewed and ratified by the Bank’s Board of Directors.
Previous wording
Refer to “—Results of Operations—Provision for Credit Losses,” “—Financial Condition—Asset Quality,” and Note 6 of the consolidated financial statements for further discussion.
Current wording
Refer to “–Results of Operations–Provision for Credit Losses,” “–Financial Condition–Asset Quality,” and Note 6 (Loans and Allowance for Credit Losses) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for further discussion.
Previous wording
Intangible assets—As a result of acquisitions, the Company carries goodwill and identifiable intangible assets. Goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date. Goodwill is evaluated at least annually or when business conditions suggest impairment may have occurred. Should impairment occur, goodwill will be reduced to its revised carrying value through a charge to earnings. Core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives. The determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, and company-specific performance and risk metrics, all of which are susceptible to change based on changes in economic and market conditions and other factors. Future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on our results of operations.
Current wording
Goodwill—As a result of acquisitions, the Company carries goodwill. Goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date. Goodwill is evaluated at least annually or when business conditions suggest impairment may have occurred. Should impairment occur, goodwill will be reduced to its revised carrying value through a charge to earnings. The determination of whether or not impairment exists is based upon various valuation techniques, including the market approach and the income approach utilizing discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows. It also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, and company-specific performance and risk metrics, all of which are susceptible to change based on changes in economic and market conditions and other factors. Future events or changes in the estimates used to determine the carrying value of goodwill could have a material impact on the Company’s results of operations.
Previous wording
A summary of the accounting policies used by management is disclosed in Note 1 (Significant Accounting Policies) of the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Current wording
A summary of the accounting policies used by management is disclosed in Note 1 (Significant Accounting Policies) and Note 3 (Business Combinations) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Previous wording
Net income for the year ended December 31, 2023 was $11.7 million, a decrease of $28.3 million, or 70.8%, compared to $40.0 million for the year ended December 31, 2022. Diluted earnings per common share were $0.58 in 2023, compared to $2.10 in 2022. Return on average total assets was 0.31% in 2023, compared to 1.14% for 2022. The decrease in net income was primarily driven by a $31.0 million decrease in noninterest income and a $11.9 million decrease in net interest income, partially offset by an $8.6 million decrease in noninterest expense. Noninterest income decreased primarily due to a $24.6 million loss on investment securities as a result of a strategic balance sheet repositioning in the fourth quarter, as well as an $8.5 million decrease in mortgage banking revenue, attributable to a decrease in mortgage originations due to the impact of higher interest rates. The decrease in net interest income was due to heightened deposit competition, the impact of rising short-term interest rates on indexed money market deposits, and clients moving deposits out of noninterest bearing products into interest-bearing products. The decrease in noninterest expense was primarily due to a $4.4 million decrease in compensation expense, driven by a decrease in mortgage incentives associated with the decrease in mortgage originations.
Current wording
Net income for the year ended December 31, 2024 was $17.8 million, an increase of $6.1 million, or 52.0%, compared to $11.7 million for the year ended December 31, 2023. Diluted earnings per common share were $0.83 in 2024, compared to $0.58 in 2023. Return on average total assets was 0.39% in 2024, compared to 0.31% for 2023. The increase in net income was primarily driven by a $34.7 million increase in noninterest income and a $19.2 million increase in net interest income, partially offset by a $30.5 million increase in noninterest expense and a $16.1 million increase in provision for credit losses expense. Noninterest income increased primarily due to the $24.6 million loss on investment securities recognized in connection with a strategic balance sheet repositioning in the fourth quarter of 2023, as well as a $4.3 million increase in wealth revenue. The increase in net interest income was due to increased income on higher earning assets, organic loan growth, and lower average rates paid on deposit balances. The increase in noninterest expense was primarily due to an $11.0 million increase in compensation expense and a $12.9 million increase in professional fees and assessments, primarily driven by acquisition-related expenses.
Previous wording
Net Interest Income—With Nontaxable Income Converted to Fully Taxable Equivalent, or FTE
Current wording
Net Interest Income—With Nontaxable Income Converted to Fully Taxable Equivalent (“FTE”)
Previous wording
Net interest income totaled $87.8 million in 2023, a decrease of $11.9 million, or 11.90%, from 2022. Net interest margin decreased 58 basis points to 2.46% in 2023, from the 3.04% reported in 2022. The decrease in net interest margin was primarily a result of a $61.2 million increase in interest expense on interest-bearing liabilities, partially offset by a $49.3 million increase in interest income on interest earning assets. The increase in interest expense was primarily driven by a 220 basis point increase in the average rate paid on interest-bearing liabilities due to increases in short-term interest rates and a highly competitive deposit environment. Additionally, the average balance of interest-bearing liabilities increased $411.6 million, driven by increased short-term borrowings to support loan growth, core deposit growth, and deposit migration from noninterest bearing deposit accounts into interest bearing deposit accounts. The increase in the interest income earned on interest bearing assets was driven by a 105 basis point increase in the average rate earned on loans as well as a $475.6 million increase in the average balance of total loans from organic growth.
Current wording
Net interest income totaled $107.0 million in 2024, an increase of $19.2 million, or 21.9%, from 2023. Net interest margin increased 10 basis points to 2.56% in 2024, from 2.46% reported in 2023. The increase in net interest margin was primarily the result of a $56.7 million increase in interest income on interest earning assets, partially offset by a $37.5 million increase in interest expense on interest-bearing liabilities. The increase in the interest income earned on interest-bearing assets was driven by a 54 basis point increase in the average rate earned on loans as well as a $563.9 million increase in the average balance of total loans, driven by strong organic growth at higher yields and increased loan balances from the acquisition of HMNF. The increase in interest expense on interest-bearing liabilities was driven by a 57 basis point increase in the average rate paid on interest-bearing liabilities as well as a $637.4 million increase in the average balance of interest-bearing liabilities, driven by the acquisition of HMNF and organic deposit growth.
Previous wording
The Company recorded a provision for credit losses expense of $2.1 million for the year ended December 31, 2023, compared to no provision for credit losses expense for the year ended December 31, 2022. The provision for credit losses expense for the year ended December 31, 2023, included $(225) thousand recovery for credit losses on loans, $2.2 million in provision for credit losses on unfunded commitments and $40 thousand in provision for credit losses on investment securities held-to-maturity. The Current Expected Credit Loss, or CECL, accounting standard requires the Company to recognize losses over the expected life of the loan as opposed to the losses expected to already have been incurred. The increase in provision for credit losses is primarily a result of a change in forecasting assumptions brought about by the new methodology as well as strong loan growth and unfunded commitments.
Current wording
The Company recorded a provision for credit losses expense of $18.1 million for the year ended December 31, 2024, compared to a provision for credit losses expense of $2.1 million for the year ended December 31, 2023. The provision for credit losses expense for the year ended December 31, 2024 included $18.1 million in provision for credit losses on loans, $0.1 million in provision for credit losses on unfunded commitments and ($0.1) million recovery for credit losses on investment securities held-to-maturity (“HTM”). The CECL accounting standard requires the Company to recognize losses over the expected life of the loan as opposed to the losses expected to already have been incurred. The increase in provision for credit losses was primarily a result a $7.3 million day one provision in connection with the acquisition of HMNF along with strong organic loan growth and increased nonaccrual loans.
Previous wording
Total noninterest income decreased $31.0 million, or 27.9%, to $80.2 million in 2023, from $111.2 million for 2022. The decrease in noninterest income was primarily driven by the previously announced balance sheet repositioning, as a result of which a $24.6 million loss on the sale of investment securities was recognized in the fourth quarter of 2023. Mortgage banking revenue decreased $8.5 million in 2023 primarily as a result of a $448.2 million, or 55.2%, decrease in mortgage originations due to the impact of higher interest rates.
Current wording
Total noninterest income increased $34.7 million, or 43.3%, to $114.9 million in 2024, from $80.2 million for 2023. The increase in noninterest income was primarily driven by the strategic balance sheet repositioning transaction in the fourth quarter of 2023, which resulted in a $24.6 million loss on the sale of investment securities. Wealth revenue increased $4.3 in 2024 primarily driven by an increase in assets under administration/management of 13.9%. Other noninterest income increased $4.3 million in 2024 primarily as a result of a $3.9 million gain on the sale of fixed assets driven by the sale of two branches during the year.
Previous wording
Noninterest income as a percent of total operating revenue, which consists of net interest income plus noninterest income, was 47.7% in 2023, down from 52.7% the prior year. The decrease in 2023 was due to a 27.9% decrease in noninterest income and an 11.9% decrease in net interest income.
Current wording
Noninterest income as a percent of total operating revenue, which consists of net interest income plus noninterest income, was 51.78% in 2024, up from 47.7% the prior year. The increase in 2024 was due to a 43.3% increase in noninterest income and a 21.9% increase in net interest income.
Previous wording
For the year ended December 31, 2023, the Company recognized income tax expense of $4.2 million on $15.9 million of pre-tax income, resulting in an effective tax rate of 26.2%. For the year ended December 31, 2022, the Company recognized an income tax expense of $12.2 million on $52.2 million of pre-tax income, resulting in an effective tax rate of 23.3%. The increase in the effective tax rate was primarily driven by items related to the acquisition of Metro Phoenix Bank in 2022 and an increase in state taxes driven by increased income earned in Minnesota and Arizona.
Current wording
For the year ended December 31, 2024, the Company recognized income tax expense of $5.4 million on $23.2 million of pre-tax income, resulting in an effective tax rate of 23.2%. For the year ended December 31, 2023, the Company recognized an income tax expense of $4.2 million on $15.9 million of pre-tax income, resulting in an effective tax rate of 26.2%. The decrease in the effective tax rate was primarily driven by items related to the acquisition of HMNF in 2024 and increased tax-exempt income.
Previous wording
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 four operating segments—banking, retirement and benefit services, wealth management, and mortgage. These segments are components for which financial information is prepared and evaluated regularly by management in deciding how to allocate resources and assess performance.
Current wording
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.
Previous wording
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 four operating segments. Certain reclassification adjustments have been made between corporate administration and the various lines of business for consistency in presentation.
Current wording
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.
Previous wording
For additional financial information on the Company’s segments see Note 22 (Segment Reporting) of the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Current wording
For additional financial information on the Company’s segments see Note 22 (Segment Reporting) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Previous wording
The banking segment offers a complete line of loan, deposit, cash management, and treasury services through 15 offices in North Dakota, Minnesota, and Arizona. These products and services are supported through various digital applications. The majority of the Company’s assets and liabilities are on the banking segment balance sheet.
Current wording
The banking division offers a complete line of loan, deposit, cash management, and treasury services through 29 offices in North Dakota, Minnesota, Arizona, Wisconsin, and Iowa. These products and services are supported through various digital applications. The majority of the Company’s assets and liabilities are on the banking segment balance sheet.
Previous wording
Retirement and benefit services provide the following services nationally: recordkeeping and administration services to qualified retirement plans; ESOP recordkeeping and administration; investment fiduciary services to retirement plans; HSA, flex spending account, and government health insurance program recordkeeping and administration services to employers. The division services approximately 8,300 retirement plans and more than 474,000 plan participants. In addition, the division employs approximately 243 professionals, and operates within the Company’s banking markets, as well as East Lansing, Michigan, and Lakewood, Colorado.
Current wording
The retirement and benefit services business 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 services approximately 8,600 retirement plans and more than 500,200 plan participants and operates within the Company’s banking markets, as well as East Lansing, Michigan, and Lakewood, Colorado.
Previous wording
AUA and AUM for the retirement and benefit services segment was $36.7 billion at December 31, 2023, an increase of $4.6 billion, or 14.2%, compared to the total at December 31, 2022. The increase was primarily driven by an increase of $4.8 billion in market impact, driven by improved bond and equity markets.
Current wording
AUA and AUM for the retirement and benefit services segment was $40.7 billion at December 31, 2024, an increase of $4.0 billion, or 11.0%, compared to the total at December 31, 2023. The increase was primarily driven by an increase of $4.1 billion in market impact, driven by improved bond and equity markets.
Previous wording
The wealth management division provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.
Current wording
The wealth division provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.
Previous wording
The following table presents changes in the wealth management combined AUA and AUM, disaggregated by product, for the periods presented.
Current wording
The following table presents changes in the wealth combined AUA and AUM, disaggregated by product, for the years ended December 31, 2024 and 2023:
Previous wording
AUA and AUM for the wealth management segment was $3.2 billion, excluding $859.8 million of brokerage assets, at December 31, 2023, an increase of $0.4 million, or 13.4%, compared to the total at December 31, 2022. The increase was driven by a $0.3 million increase in market impact. Additionally, there was a $32 thousand increase as inflows outpaced outflows in 2023, driven by improved bond and equity markets.
Current wording
AUA and AUM for the wealth segment was $3.4 billion, excluding $892.3 million of brokerage assets, at December 31, 2024, an increase of $0.3 million, or 8.1%, compared to the total at December 31, 2023. The increase was driven by a $0.3 million increase in market impact driven by improved bond and equity markets.
Previous wording
Total assets were $3.9 billion at December 31, 2023, an increase of $128.1 million, or 3.4%, compared to $3.8 billion at December 31, 2022. The increase in total assets was primarily due to increases of $312.1 million in loans held for investment and $64.2 million in cash and cash equivalents, partially offset by a decrease of $253.0 million in investment securities.
Current wording
Total assets were $5.3 billion at December 31, 2024, an increase of $1.4 billion, or 34.6%, compared to $3.9 billion at December 31, 2023. The increase in total assets was primarily due a $1.2 billion increase in loans held for investment and a $101.3 million increase in AFS investment securities, partially offset by a decrease of $68.7 million in cash and cash equivalents.
Previous wording
The following table presents the carrying amount of the Company’s investment securities portfolio at the dates indicated:
Current wording
The following table presents the fair value composition of the Company’s investment securities portfolio at the dates indicated:
Previous wording
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. In 2021, the Company transferred its portfolio of obligations of state and political agencies from available-for-sale to held-to-maturity to protect capital and reduce volatility in other comprehensive income due to market value changes.
Current wording
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.
Previous wording
At December 31, 2023, total investment securities were $0.8 billion compared to $1.0 billion at December 31, 2022. Investment securities as a percentage of total assets were 20.1% and 27.5%, as of December 31, 2023 and December 31, 2022, respectively. The decrease in investment securities was primarily due to a strategic balance sheet repositioning in the fourth quarter, in which the Company sold $171.8 million of available-for-sale securities. Proceeds from the sale were reinvested into loans to new and existing clients in addition to paying down borrowings. Securities with a carrying value of $250.0 million were pledged at December 31, 2023, to secure public deposits and for other purposes required or permitted by law.
Current wording
At December 31, 2024, the total fair value of investment securities was $825.0 million compared to $745.4 million at December 31, 2023. The fair value of investment securities as a percentage of total assets was 15.7% and 19.1%, as of December 31, 2024 and December 31, 2023, respectively. The increase in investment securities was primarily due to investment securities acquired in the HMNF transaction in the fourth quarter of 2024. Securities with a carrying value of $340.2 million were pledged at December 31, 2024, to secure public deposits and for other purposes required or permitted by law.
Previous wording
The net pre-tax unrealized market value loss on the available-for-sale investment portfolio as of December 31, 2023 was $98.0 million, as compared to a $132.2 million loss as of December 31, 2022. The decrease is a result of improved markets and an overall reduction of the size of the investment portfolio.
Current wording
The net pre-tax unrealized market value loss on the AFS investment portfolio as of December 31, 2024 was $98.5 million, as compared to a $98.0 million loss as of December 31, 2023. The slight increase was a result of additional investment securities acquired in the HMNF transaction, partially offset by improved markets.
Previous wording
The investment portfolio is composed of U.S. Treasury debentures, U.S. Agency mortgage-backed pass-throughs, U.S. Agency, Commercial Mortgage Obligations, or CMOs, Corporate bonds and Municipal bonds.
Current wording
The investment portfolio is composed of U.S. Treasury debentures, U.S. Agency mortgage-backed pass-throughs, U.S. Agency, Commercial Mortgage Obligations (“CMOs”), Corporate bonds and Municipal bonds.
Previous wording
As of December 31, 2023 and December 31, 2022 the Company held 75 tax-exempt state and local municipal securities totaling $35.0 million and held 85 tax-exempt state and local municipal securities totaling $40.9 million, respectively. Other than the aforementioned investments, at December 31, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
Current wording
As of December 31, 2024 and December 31, 2023, the Company held 68 tax-exempt state and local municipal securities totaling $30.0 million and held 75 tax-exempt state and local municipal securities totaling $35.0 million, respectively. Other than the aforementioned investments, at December 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
Previous wording
The Company’s available-for-sale (“AFS”) debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required in accordance with Accounting Standards Update (“ASU”) 2016-13. As of and for the years ended years ended December 31, 2023 and 2022, the Company did not record any allowances or write-down any of the AFS debt securities in an unrealized loss position. Refer to Note 1 (Significant Accounting Policies) of the consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for AFS investments as of and for the year ended December 31, 2023.
Current wording
The Company’s AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required in accordance with ASU 2016-13. As of and for the years ended years ended December 31, 2024 and 2023, the Company did not record any allowances or write-down any of the AFS debt securities in an unrealized loss position. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for AFS investments as of and for the year ended December 31, 2024.
Previous wording
In accordance with ASU 2016-13, each reporting period the Company’s held-to-maturity (“HTM”) debt securities are assessed to determine if any allowance should be recorded or if a write-down is required. As of and for the years ended December 31, 2023, the Company recorded an allowance of $213 thousand and did not write-down any HTM debt securities. As of and for the year ended December 31, 2022, the Company did not record any allowances or write-down any HTM debt securities. Refer to Note 1 (Significant Accounting Policies) of the consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for HTM investments as of and for the year ended December 31, 2023.
Current wording
In accordance with ASU 2016-13, each reporting period the Company’s HTM debt securities are assessed to determine if any allowance should be recorded or if a write-down is required. As of and for the years ended December 31, 2024 and 2023, the Company recorded an allowance of $131 thousand and $213, respectively, and did not write-down any HTM debt securities. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for HTM investments as of and for the years ended December 31, 2024 and 2023.
Showing the first 40 of 73 pairs. Open the source sections for the rest.
Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
A summary of the accounting policies used by management is disclosed in Note 1 (Significant Accounting Policies) and Note 8 (Goodwill and Other Intangible Assets) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Current report — wording carried from elsewhere
The following discussion describes the consolidated operations and financial condition of the Company and the Bank. Results of operations for the year ended December 31, 2024 are compared to the results for the year ended December 31, 2023, and the consolidated financial condition of the Company as of December 31, 2024 is compared to December 31, 2023.
Current report — wording carried from elsewhere
The following table presents the composition of the Company’s deposit portfolio by category for the periods indicated:
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
and benefit services, wealth management and mortgage. These solutions are delivered through a relationship oriented primary point of contact along with responsive and client friendly technology.
Previous report — wording carried elsewhere
Refer to “—Results of Operations—Provision for Credit Losses,” “—Financial Condition—Asset Quality,” and Note 6 of the consolidated financial statements for further discussion.
Previous report — wording carried elsewhere
CRE loans consist of term loans secured by a mortgage lien on the real property and includes 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
Previous report — wording carried elsewhere
the construction phase, which is typically twelve months. Residential real estate 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 consist mainly of revolving lines of credit secured by residential real estate.