ALERUS FINANCIAL CORP

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Alerus Financial Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Alerus Financial Corporation and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated March 13, 2025 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters do not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses—Loans

The Company’s allowance for credit losses (ACL) on loans was $59.9 million at December 31, 2024. As described in Notes 1 and 6, the ACL on loans reduces the loan portfolio to the net amount expected to be collected and represents the expected losses over the life of all loans at the reporting date. Management disaggregates the loan portfolio into pools of similar risk characteristics and utilizes a discounted cash flow (DCF) or expected loss approach to calculate the expected loss for each segment. The DCF method incorporates forward-looking information and applies a reversion methodology beyond the reasonable and supportable forecast period. Within the loss driver models, a probability of default and loss given default assumption is applied to calculate the expected loss for each segment. The ACL on loans also considers various qualitative factors that are likely to cause estimated credit losses to differ from historical loss experience, such as: actual or expected changes in economic trends and conditions, changes in the value of underlying collateral for loans, changes to lending policies, underwriting standards and/or management personnel performing such functions, delinquency and other credit quality trends, credit risk concentrations, changes to the nature of the Company’s business impacting the loan portfolio and other external factors.

We identified the determination of the forecasted economic scenarios and qualitative factors of the ACL as a critical audit matter because auditing management’s underlying assumptions required a high degree of complexity and auditor judgment and involved a high degree of estimation uncertainty.

Our audit procedures related to the determination of the forecasted economic scenarios and qualitative factors of ACL for pooled loans included the following, among others:

Fair Value of Loans Held for Investment Acquired in Business Combinations

The Company completed an acquisition on October 9, 2024, acquiring loans held for investment with an estimated fair value of $785.4 million as of the acquisition date. As described in Notes 1 and 3 to the financial statements, the Company estimated the acquisition date fair value of loans held for investment by segmenting the acquired portfolio into purchase credit deteriorated (PCD) and non-PCD loans.

The estimated fair value of non-PCD loans and PCD loans at the acquisition date was $632.6 million and $152.8 million, respectively. Non-PCD loans were pooled based on similar characteristics and were valued using a discounted cash flow analysis, based on the cash flows projected for each loan pool. PCD loans were valued at the individual loan level or pooled with similar characteristics as non-PCD pooled loans. The discount rate utilized to determine the estimated fair value of non-PCD loans and PCD loans considered the projected future interest rates based on forward rates, a spread over the forward curve, spreads for estimated servicing costs and illiquidity. The credit discount for non-PCD loans and PCD loans was estimated based on probability of default and loss given default assumptions. The discounted cash flow approach models the credit losses directly in the projected cash flows.

The determination of the estimated fair value of loans held for investment required management to make certain estimates about discount rates, future expected cash flows, and market conditions at the time of the acquisition, as well as other future events that are highly subjective in nature.

We identified the estimated fair value of loans that were acquired in the current year as a critical audit matter because of the judgements necessary by management to determine the fair value of loans, and the related high degree of auditor judgement and the extensive audit effort involved in testing management’s estimates and assumptions. The significant estimates and assumptions necessary to estimate the fair value of non-PCD and PCD loans that required a high degree of auditor judgement and increased audit effort included assumptions included the probability of default, loss given default, and the discount rate.

Our audit procedures related to the determination of the significant estimates and assumptions necessary to estimate the fair value of non-PCD and PCD loans acquired in the current year included the following, among others:

/s/RSM US LLP

We have served as the Company’s auditor since 2022.

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Des Moines, Iowa

March 13, 2025

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Board of Directors and Stockholders

Alerus Financial Corporation

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Opinion on the Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows of Alerus Financial Corporation and Subsidiaries (the Company) for the year ended December 31, 2022, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

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/s/ CliftonLarsonAllen LLP

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CliftonLarsonAllen LLP

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We have served as the Company’s auditor from 2014 through 2022.

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Minneapolis, Minnesota

March 10, 2023

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CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer.

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Consolidated Balance Sheets

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Consolidated Statements of Income

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Consolidated Statements of Comprehensive Income

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Consolidated Statements of Changes in Stockholders’** Equity**

Consolidated Statements of Cash Flows

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Notes to Consolidated Financial Statement

NOTE 1 Significant Accounting Policies

Alerus Financial Corporation is a financial holding company organized under the laws of Delaware. Alerus Financial Corporation and its subsidiaries is a diversified financial services company headquartered in Grand Forks, North Dakota. Through its 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.

The Bank operates under a national charter and provides full banking services. As a national bank, the Bank is subject to regulation by the Office of the Comptroller of Currency and the FDIC.

Business Combinations

The Company accounts for all business combinations using the acquisition method of accounting. Under this method of accounting, acquired assets and assumed liabilities are included with the acquirer’s accounts as of the date of acquisition, with any excess of purchase price over the fair value of the net assets acquired recognized as either finite lived intangibles or capitalized as goodwill. In addition, acquisition related costs and restructuring costs are recognized as period expenses as incurred. Fair values are subject to refinement over the measurement period,not to exceedone year after the closing date.

Principles of Consolidation

The audited consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling interest. Significant intercompany balances and transactions have been eliminated in consolidation.

In the normal course of business, the Company* mayenter into a transaction with a variable interest entity (“VIE”). VIEs are legal entities whose investors lack the ability to make decisions about the entity’s activities, or whose equity investors donot* have the right to receive the residual returns of the entity. The applicable accounting guidance requires the Company to perform ongoing quantitative and qualitative analysis to determine whether it must consolidate any VIE. The Company doesnot have any ownership interest in or exert any control over any VIE, and thusno VIEs are included in the audited consolidated financial statements.

Reclassifications

Certain reclassifications have been made to prior year amounts, without impact to net income or total stockholders’ equity, to conform to the current year’s presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the fair value of assets acquired and liabilities assumed from an acquisition and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term include the valuation of investment securities, determination of the allowance for credit losses, valuation of reporting units for the purpose of testing goodwill and other intangible assets for impairment, valuation of deferred tax assets, and fair values of financial instruments.

Concentrations of Credit Risk

Substantially all of the Company’s lending activities are with clients located within North Dakota, Minnesota, and Arizona. At* December 31, 2024and2023*, respectively,16.7% and 20.3% of the Company’s loan portfolio consisted of C&I loans that werenot secured by real estate. The Company doesnot have any significant loan concentrations in anyone industry or with anyone client. Note6 (Loans and Allowance for Credit Losses) discusses the Company’s loan portfolio.

The Company invests in a variety of investment securities and doesnot have any significant concentrations in anyone industry or to anyone issuer. Note5 (Investment Securities) discusses the Company’s investment securities portfolio.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and due from banks includes cash and cash equivalents, balances due from banks, and federal funds sold, all of which have an original maturity within90 days. Cash flows from loans, FHLB stock, deposits, and short-term borrowings are reported net.

Interest-bearing deposits in banks are carried at cost.

Investment Securities

Trading securities are reported on the Company’s consolidated balance sheet at fair value. Changes in fair value of trading securities are recorded in other noninterest income on the Company’s consolidated statements of income. Most of these securities are held in a rabbi trust account and invested in mutual funds. The trading securities will be used for future payments associated with the Company’s deferred compensation plan for eligible employees, executives, and directors.

Debt securities are classified as AFS, and are carried at estimated fair value with unrealized gains and losses reported in OCI. Realized gains (losses) on AFS debt securities are included in net gains (losses) on investment securities in OCI. Gains (losses) on sales of investment securities are determined using the specific identification method on the trade date. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity.

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For AFS debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in fair value below the amortized cost basis, or impairment, is due to credit-related factors or noncredit-related factors. Any impairment that isnot credit related is recognized in OCI, net of applicable taxes. Credit-related impairment is recognized as an ACL related to AFS debt securities on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings as an expense (credit) within the provision for credit losses on the consolidated statements of income. Both the ACL and the adjustment to net income* maybe reversed if conditions change. However, if the Company intends to sell an impaired available-for-sale investment security or is required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there isno* ACL in this situation. Accrued interest receivable is excluded from the estimate of credit losses.

In evaluating AFS debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, macroeconomic trends of the industry specific to the security, and any other adverse conditions specifically related to the security, among other factors.

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As of* December 31, 2024and2023*, there wasno ACL carried on the Company’s AFS debt securitiesnor were there any permanent write-offs for the years ended* December 31, 2024,*2023 and2022. Refer to Note5 (Investment Securities) for further discussion.

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Certain debt securities that the Company has an intent to hold to maturity are classified as HTM, and recorded at amortized cost. Interest earned on HTM debt securities is included in interest income. Amortization or accretion of premiums and discounts is also recognized in interest income using the effective interest method over the contractual life of the security and is adjusted to reflect actual prepayments. Transfers of debt securities from AFS to HTM are made at fair value at the date of transfer. Unrealized holding gains and losses at the date of transfer are included in OCI and in the carrying value of HTM security and are amortized over the remaining life of the security.

Management measures expected credit losses on HTM debt securities on a collective basis by major security type. The Company evaluates HTM debt securities by credit rating and an external study, updated quarterly, that includes historical information such as probability of default and loss going back several years. Accrued interest receivable on HTM debt securities is excluded from the estimate of credit losses.

A change in the ACL related to HTM debt securities is recorded as an expense (credit) within the provision for credit losses on the consolidated statements of income.

There was $131 thousand and $213 thousand of ACL carried on the Company’s HTM debt securities as of* December 31, 2024and2023*, respectively. For the years ended* December 31, 2024,*2023 and2022, there wereno permanent write-offs. Refer to Note5 (Investment Securities) for further discussion.

Nonmarketable Equity Securities

Nonmarketable equity securities include the Bank’s required investments in the stock of the FHLB of Des Moines and the Federal Reserve Bank (the “FRB”). The Bank is a member of the FHLB as well as its regional FRB. Members are required to own a certain amount of stock based of the level of borrowing and other factors, and* may*invest in additional amounts. FHLB stock and FRB stock are carried at cost, classified as other assets, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. Gains (losses) on loan sales are recorded in mortgage banking revenue on the consolidated statements of income.

Loans

Loans are stated at the amount of unpaid principal, reduced by an allowance for credit losses. Loans that management has the intent and ability to hold for the foreseeable future, until maturity or pay-off, generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, and the allowance for credit losses. Loan fees received that are associated with originating or acquiring certain loans are deferred, net of costs, and amortized over the life of the loan as a yield adjustment to interest income.

The accrual of interest on loans is discontinued at the time the loan is90 days past due unless the credit is well-secured and in process of collection. Consumer loans are typically charged-offno later than120 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest in considered doubtful.

All interest accrued butnot collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

ACL on Loans

Upon adoption of ASU2016-13, Financial Instruments–* Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments* (“ASU2016-13”), as amended, effective* January 1, 2023,*the Company used a modified-prospective approach. Upon adoption, the Company recorded a cumulative-effective adjustment of $4.5 million reducing retained earnings, with a corresponding adjustment of $172 thousand increasing the ACL on HTM debt securities, $3.9 million increasing the ACL on loans, and $1.9 million increasing other liabilities for the ACL on off-balance sheet credit exposures.

Under the CECL accounting standard the ACL is a valuation estimated at each balance sheet date and deducted from the amortized cost basis or unpaid principal balance of loans held for investment to present the net amount expected to be collected.

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The Company estimates the ACL based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for collection of cash and charge-offs, as well as applicable accretion or amortization of premium, discount and net deferred fees or costs, or unpaid principal balance for PCD loans, which is the sum of the purchase price, ACL, and discount or premium. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made the policy election to exclude accrued interest from the measurement of ACL.

The ACL on loans is increased by charges to provision for credit losses and reduced by charge-offs, net of recoveries. Management evaluates the appropriateness of the ACL on loans quarterly. This evaluation is inherently subjective as it requires material estimates that* may*be susceptible to significant change from period to period. The ACL on loans is presented on the consolidated statements of condition.

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Loans past due30 days or more are considered delinquent. In general, secured loans that are delinquent for90 consecutive days are placed on non-accrual status and* maybe subject to individual loss assessment in accordance with established internal policy. In general, unsecured loans that are delinquent for90* consecutive days have a provision taken for the full amount of the loan.

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Effective* January 1, 2023,the Company adopted prospectively ASU2022*-02, Financial Instruments–* Credit Losses (Topic326): Troubled Debt Restructurings and Vintage Disclosures* (“ASU2022-02”). ASU2022-02 provided guidance that eliminated the recognition and measurement of TDRs. Following the adoption of this guidance, the Company evaluates all loan modifications made to borrowers experiencing financial difficulty according to the accounting guidance for loan refinancing and restructuring to determine whether such loan modification should be accounted for as a new loan or a continuation of the existing loan. All loans previously recognized as a TDR will continue to be classified as such until the loan is paid off. Refer to Note6 (Loans and Allowance for Credit Losses) for further discussion.

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The ACL on loans reduces the loan portfolio to the net amount expected to be collected, and represents the expected losses over the life of all loans at the reporting date. The allowance incorporates forward-looking information and applies a reversion methodology beyond the reasonable and supportable forecast.

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The ACL on loans represents the Company's estimated risk of loss within its loan portfolio as of the reporting date. To appropriately measure expected credit losses, management disaggregates the loan portfolio into pools of similar risk characteristics (i.e. “segments”). The Company utilizes a discounted cash flow or expected loss (collectively loss driver models) approach to calculate the expected loss for each segment. Within the loss driver models, a PD and LGD assumption is applied to calculate the expected loss for each segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of assetsnot expected to be collected due to default. The Company's PD and LGD assumptions is derived using a combination of external data and internal historical default and loss experience.

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As of* December 31, 2024*, the primary macroeconomic drivers used within the loss driver models included forecasts of National Unemployment, changes in National GDP, and changes in the National Housing Price Index. These macroeconomic drivers* may*change from time to time as a result of management’s assessment of continued suitability of each factor.

To determine its reasonable and supportable forecast, management* mayleverage macroeconomic forecasts obtained from various reputable sources, which mayinclude, but isnot* limited to, the Federal Open Market Committee forecast and other publicly available forecasts from well recognized, leading economists or firms. External baseline forecasts are supplemented by an assessment of the likelihood of standard alternative scenarios occurring over the forecast period. The Company’s reasonable and supportable forecast period generally ranges fromone totwo years, depending on the facts and circumstances of the current state of the economy, portfolio segment and management’s judgement of what can be reasonably supported. The model reversion period generally ranges fromone totwo years, and it also depends on the current state of the economy and management’s judgments of such. Management monitors and assesses the forecast and reversion period at least annually. The Company used aone-year forecast and reversion period to calculate the ACL on loans as of* December 31, 2024*, except for the agricultural land and agricultural production which utilize static PD and LGD assumptions.

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The ACL on loans is calculated over a loan’s contractual life. For term loans, the contractual life is calculated based on the maturity date. For revolving loans, the contractual life is based on either the estimated maturity date or a default date. For revolving loans withno stated maturity date, the contractual life is calculated based on the annual attrition rate for the pool. The contractual term doesnot include expected extension, renewals or modifications.

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The Company's loan portfolio is segmented into13 homogenous pools as follows based on the various risk profiles of the Company's loans:

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In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments to arrive at expected cash flows. The Company models term loans using an annualized prepayment. When the Company has a specific expectation of differing payment behavior for a given loan, the loan* maybe evaluated individually. For revolving loans that donot* have a principal payment schedule, a curtailment rate is factored into the cash flow.

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The ACL on loans evaluation* mayalso consider various qualitative factors that are likely to cause estimated credit losses to differ from historical loss experience, such as: actual or expected changes in economic trends and conditions, changes in the value of underlying collateral for loans, changes to lending policies, underwriting standards and/or management personnel performing such functions, delinquency and other credit quality trends, credit risk concentrations, if any, changes to the nature of the Company's business impacting the loan portfolio, and other external factors, that mayinclude, but arenot* limited to, results of internal loan reviews, examinations by bank regulatory agencies, or other such events such as a natural disaster.

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Certain loans are individually evaluated for estimated credit losses, including those that are classified as substandard or doubtful and are on non-accrual or that have other unique characteristics differing from the segment. Specific reserves are established when appropriate for such loans based on the present value of expected future cash flows of the loan or the estimated realizable value of the collateral, if any.

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Management* may*also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management’s assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the allowance for credit losses are continually refined and enhanced.

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Off Balance Sheet Credit Related Financial Instruments

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.

ACL on Off Balance Sheet Credit Exposures

The ACL on off balance sheet credit exposures, excluding those that are unconditionally cancellable by the Company, estimates the expected losses on the unfunded commitments and standby letters of credit at each reporting date. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and standby letters of credit using the Company’s own historical experience to estimate the expected funded for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date.

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The ACL on off balance sheet credit exposures is presented within accrued expenses and other liabilities on the consolidated balance sheet. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the ACL on off-balance sheet exposures between reporting periods. The ACL on off-balance sheet credit related financial instruments was $7.5 million and $7.4 million as of* December 31, 2024and2023*, respectively.

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Accrued Interest Receivable

Accrued interest receivable, including receivables related to investments and loans, is excluded from the measurement of the ACL. Accrued interest receivable is written off by reversing previously recognized interest income. The Company has a robust policy in place to write off accrued interest when a loan is placed on non-accrual. For loans, a write-off typically occurs when a loan has been in default for90 days or more.

Land, Premises and Equipment, Net

Land is carried at cost. Other premises and equipment are carried at cost net of accumulated depreciation. Depreciation is computed on a straight-line method based principally on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains (losses) on dispositions are included in current operations.

Bank Owned Life Insurance

The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at its cash surrender value, or the amount that can be realized, if lower.

Goodwill and Other Intangibles, Net

Goodwill resulting from acquisitions isnot amortized, but is tested for impairment annually. As part of its testing, the Company performs a quantitative analysis to determine whether it is more likely thannot that the estimated fair value of a reporting unit is less than its carrying amount. If the Company determines the estimated fair value of a reporting unit is less than its carrying amount using certain qualitative factors, the Company then compares the estimated fair value of the goodwill with its carrying amount, and then measures impairment loss by comparing the estimated fair value of goodwill with the carrying amount of that goodwill.

Significant judgment is applied when goodwill is assessed for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, incorporating general economic and market conditions, and selecting an appropriate control premium. At* December 31, 2024*, the Company believes it didnot have any indications of potential impairment based on the estimated fair value of the reporting units.

Intangible assets determined to have definite lives are amortized over the remaining useful lives using either the sum-of-the-years digits or straight-line method. Intangible and other long-lived assets are reviewed for impairment whenever events occur, or circumstances indicate that the carrying amount* may**not* be recoverable.

Mortgage Banking

Residential real estate loans are originated for purposes of being held for investment and held for sale into the secondary market. The transfer of these financial assets is accounted for as a sale when control over the asset has been surrendered. Control is deemed to be surrendered when the asset has been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred asset, and the Company doesnot maintain effective control over the transferred asset through an agreement to repurchase it before its maturity. The Company records the gain on sale of the financial asset within mortgage banking income on the consolidated statements of income.

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The Company generates mortgage servicing rights (“MSR”) from its mortgage banking business. When the Company sells mortgage loans in the secondary market and retains the right to service these loans, a servicing right asset is capitalized at the time of the sale when the benefits of servicing are deemed to be greater than adequate compensation for performing the servicing activities. MSRs represent the then-current fair value of future net cash flows expected to be realized from performing servicing activities. The Company has elected to subsequently measure MSRs at fair value and report changes in fair value in current period income as a component of mortgage banking income on the consolidated statements of income as of and for the year ended* December 31, 2024.MSRs are recorded at fair value based on assumptions through athird*-party valuation service. The valuation model incorporates assumptions that are observable in the marketplace and that market participants would use in estimating future net servicing income, such as the servicing cost per loan, the discount rate, the escrow float, and inflation rate, ancillary income, prepayment speeds and default rates and losses.

MSRs were accounted for at the lower of amortized cost or fair value as of and for the years ended* December 31, 2023and2022.* MSRs were evaluated for impairment based upon the estimated fair value of the rights compared to amortized cost. Impairment was determined by stratifying rights by predominant characteristics, such as interest rates and terms. Impairment was recognized through a valuation allowance for an individual tranche, to the extent that estimated fair value was less than the capitalized amount for the tranche. If the Company later determined that all or a portion of the impairmentno longer existed for a particular tranche, a reduction of the allowance was recorded as an increase to income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal, or a fixed amount per loan, and are recorded as income when earned. The amortization of servicing rights is netted against loan servicing fee income.

Impairment of Long Lived Assets

The Company tests long lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset* may**not* be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset.

In the event such an asset is considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the asset exceeds the estimated fair value of the asset. Assets to be disposed of are reported at the lower of the carrying value of estimated fair value less estimated costs to sell.

Leases

The Company leases office space, space for ATM locations and certain branch locations under noncancellable operating leases, several of which have renewal options to extend the lease terms. Upon commencement of a new lease, the Company will recognize a right-of-use (“ROU”) asset and a corresponding lease liability. The Company makes the decision on whether to renew an option to extend a lease by considering various factors. The Company will recognize an adjustment to ROU asset and lease liability when lease agreements are amended and executed. The discount rate used in determining the present value of lease payments is based on the lessor’s implicit rate in the lease if known or the Company’s incremental borrowings rate for borrowing terms similar to each lease at commencement date. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, non-lease components, such as common area maintenance charges, real estate taxes and insurance, arenot included in the measurement of the lease liability since they are generally able to be segregated. The Company has elected the short-term lease recognition exemption for all leases that qualify.

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.

Transfers of Financial Assets and Participating Interests

Transfers of financial assets are accounted for as sales when control over assets has been surrendered or in the case of loan participation, a portion of the asset has been surrendered and meets the definition of a “participating interest.” Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the rights to pledge or exchange the transferred assets, and (3) the Company doesnot maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Should the transfernot meet thesethree criteria, the transaction is treated as a secured financing.

Loans serviced for others arenot included in the accompanying consolidated balance sheets. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and collection and foreclosure processing.

Short-Term and Long-Term Borrowings

Short-term borrowings are those that, at time of origination, are scheduled to mature withinone year. The Company’s short-term borrowings include, but arenot limited to, FHLB overnight and FHLB advances, federal funds purchased, and line-of-credit advances.

Long-term borrowings are those that, at time of origination, are scheduled to mature inone or more years. The Company’s long-term borrowings include, but arenot limited to, FHLB advances, subordinated notes payable, trust preferred securities, and junior subordinated debentures.

Short-term and long-term borrowings on the consolidated statements of income are presented net of unamortized issuance costs, if any, and amortized over the life of the borrowing.

The Company is required to post collateral for certain borrowings, for which it generally posts loans and/or investment securities as collateral.

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Derivatives and Hedging Activities

In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its clients.

Derivative instruments are reported in other assets or other liabilities at estimated fair value. The Company formally documents relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in OCI and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings. The Company will also enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting doesnot apply or the Company electsnot to apply hedge accounting. Changes in the fair value of the derivativesnot designated are recognized directly in earnings.

Noninterest Income

Specific guidelines are established for recognition of certain noninterest income components related to the Company’s audited consolidated financial statements. In accordance with Topic606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic606, the Company performs the followingfive steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies thefive-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The material groups of noninterest income that this methodology is applied to are defined as follows:

Retirement and benefit services: Retirement and benefit services income is primarily comprised of fees earned from the administration of retirement plans, record-keeping, compliance services, health savings accounts, and flexible benefit plans. Fees are earned based on a combination of the market value of assets under administration and transaction-based fees for services provided. Fees that are determined based on the market value of the assets under administration are generally billed monthly or quarterly in arrears and recognized monthly as the Company’s performance obligations are met. Other transaction-based fees are recognized monthly as the performance obligation is satisfied.

Wealth: Wealth income is earned from a variety of sources including trust administration and other related fiduciary services, custody, investment management and advisory services, and brokerage. Fees are based on the market value of the assets under management and are generally billed monthly in arrears and recognized monthly as the Company’s performance obligations are met. Commissions on transactions are recognized on a trade-date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Other related services are based on a fixed fee schedule and the revenue is recognized when the services are rendered, which is when the Company has satisfied its performance obligation.

Service charges on deposit accounts: Service charges on deposit accounts primarily consist of account analysis fees, monthly maintenance fees, overdraft fees, and other deposit account related fees. Overdraft fees and certain service charges are fixed, and the performance obligation is typically satisfied at the time of the related transaction. The consideration for analysis fees and monthly maintenance fees are variable as the fee can be reduced if the customer meets certain qualifying metrics. The Company’s performance obligations are satisfied at the time of the transaction or over the course of a month.

Other noninterest income: Other noninterest income components include debit card interchange fees, bank-owned life insurance income and miscellaneous transactional fees. Income earned from these revenue streams is generally recognized concurrently with the satisfaction of the performance obligation.

Advertising Costs

Advertising costs are expensed as incurred.

Tax Credit Investments

The Company invests in qualified affordable housing projects for the purpose of community reinvestment and obtaining tax credits. These investments are included in other assets on the balance sheet, and any unfunded commitments in accrued expenses and other liabilities on the balance sheet. The qualified affordable housing projects are accounted for under the proportional amortization method. Under the proportional amortization method, the initial cost of the investment is recognized over the period that the Company expects to receive the tax credits, with the expense included within income tax expense on the consolidated statements of income. Management analyzes these investments for potential impairment when events or changes in circumstances indicate that it is more likely thannot that the carrying amount of the investment willnot be realized. An impairment loss is measured as the amount by which the carrying amount of an investment exceeds its fair value.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance would be recognized if it is “more likely thannot” that the deferred tax asset wouldnot be realized.

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These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal and state income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax liabilities.

The Company follows standards related to Accounting for Uncertainty in Income Taxes. These rules establish a higher standard for tax benefits to meet before they can be recognized in a Company’s consolidated financial statements. The Company can recognize in financial statements the impact of a tax position taken, or expected to be taken, if it is more likely thannot that the position will be sustained on an audit based on the technical merit of the position. See Note20 (Income Taxes) for additional disclosures. The Company recognizes both interest and penalties as components of other operating expenses.

The amount of the uncertain tax position wasnot determined to be material. It isnot expected that the unrecognized tax benefit will be material within the next12 months. The Company didnot incur any interest or penalties in2024,2023, and2022.

The Company files consolidated federal and state income tax returns. The Company isno longer subject to U.S. federal or state tax examinations by tax authorities for years before2021.

Comprehensive Income

Recognized revenue, expenses, gains, and losses are included in net income. Certain changes in assets and liabilities, such as unrealized gains (losses) on debt securities, unrealized gains (losses) on cash flow hedging derivatives, reclassification adjustments for losses (gains) realized in income, and unrealized gains (losses) on other derivatives, are reported as a separate component of the equity section of the consolidated balance sheets. Such items, along with net income, are components of comprehensive income.

Stock Compensation Plans

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. The cost will be measured based on the grant date estimated fair value of the equity or liability instruments issued. The grant date estimated fair value is determined using the closing price of the Company’s common stock. The stock compensation accounting guidance requires that compensation cost for all stock awards be calculated and recognized over the employee’s service period, generally defined as the vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Earnings per Share

Earnings per share are calculated utilizing thetwo-class method. Earnings per share calculations include shares related to the Alerus Financial Corporation Employee Stock Ownership Plan. Basic earnings per share is calculated by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share are calculated by dividing the sum of distributed earnings to common stockholders and undistributed earnings allocated to common stockholders by the weighted-average number of shares adjusted for the dilutive effect of common stock awards.

NOTE 2 New Accounting Pronouncements

The following FASB ASUs are divided into pronouncements which have been adopted by the Company since* January 1, 2023,and those which arenot* yet effective and have been evaluated or are currently being evaluated by management, as of* December 31, 2024*.

Adopted Pronouncements

In* November 2023,the FASB issued guidance within ASU2023*-07, Segment Reporting (Topic280). The amendments in this update are intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures related to significant segment expenses. The amendments donot change how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments, and all existing segment disclosure requirements in ASC280 and other Codification topics remain unchanged. The amendments in this update are incremental and require public entities that report segment information to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss as well as other segment items. Annual disclosure of the title and position of the chief operating decision maker and how the reported measures of segment profit or loss are used to assess performance and allocation of resources is also required.

The amendments in this update are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024,and are applied on a retrospective basis. The Company adopted this ASU retrospectively as of and for the year ended December 31, 2024.*

PronouncementsNot Yet Effective

In* March 2020,the FASB issued ASU2020*-04, Reference Rate Reform (Topic848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that the London Interbank Offered Rate (“LIBOR”) reference or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of* March 12, 2020,through December 31, 2022.In January 2021,the FASB issued ASU2021*-01. Reference Rate Reform (Topic848) in response to concerns about structural risks in accounting for reference rate reform. The ASU clarifies certain optional expedients and exceptions in Topic848 for contract modifications and hedge accounting apply to derivatives that affected by the discontinuing transition. LIBOR is used as an index rate for a portion of the Company’s available-for-sale securities, derivative contracts, subordinated notes payable, junior subordinated debentures, and approximately 5.3% of the Company’s loans, as of* December 31, 2024*.

If reference rates are discontinued, the existing contracts will be modified to replace the discounted rate with a replacement rate. For accounting purposes, such contract modifications would have to be evaluated to determine whether the modified contract is a new contract or a continuation of an existing contract. If they are considered new contracts, the previous contract would be extinguished. Underone of the optional expedients of ASU2020-04, modifications of contracts within the scope of Topic310, receivables, and470, Debt, will be accounted for by prospectively adjusting the effective interest rates andno such evaluation is required. When elected, the optional expedient for contract modifications must be applied consistently for all eligible contracts or eligible transactions. The Company is in the process of evaluating the impact of this pronouncement of those financial assets and liabilities where LIBOR is used as an index rate.

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In* December 2022,the FASB issued ASU2022*-06 Reference Rate Reform (Topic848) Deferral of the Sunset Date of Topic848. This amendment provides an update to defer the sunset date of Topic848 from* December 31, 2022,to December 31, 2024,after which all entities willno* longer be permitted to apply the relief in Topic848.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740): Improvements to Income Tax Disclosures. The amendments in this ASU related to the rate reconciliation and income taxes paid disclosures 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. 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 Update 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 (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and removing disclosures thatno 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.For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025.Early adoption is permitted for annual financial statements that havenot* yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is also permitted.

NOTE 3 Business Combinations

MPB BHC, Inc.

On* July 1, 2022,the Company acquired MPB BHC, Inc., the holding company for Metro Phoenix Bank located in Phoenix, Arizona, for a total purchase price of $64.0 million in a stock-for-stock transaction. The primary reasons for the acquisition were to expand the Company’s operations in the Phoenix MSA and grow the size of the Company’s business. As part of the transaction, $7.6 million was allocated to a customer deposit intangible and $15.1 million to goodwill, which isnot* deductible for income tax purposes. Goodwill resulting from the acquisition was allocated to the Company’s banking segment. The purchase consisted of $270.4 million in loans and $353.7 million in deposits. The purchased assets and assumed liabilities were recorded at their respective acquisition date estimate fair values indicated in the following table:

As part of the acquisition of MPB and its subsidiary, Metro Phoenix Bank, the Company acquired loans that displayed evidence of deterioration of credit quality since origination and the Company believed it to be probable that all contractually required payments wouldnot be collected. The carrying amounts and contractually required payments of these loans, which are included in the loan balances in Note6 (Loans and Allowance for Credit Losses) as of* December 31, 2022,*were as follows:

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Accretable yield, or income expected to be collected, is shown in the table below:

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The Company recorded acquisition related costs of $2.5 million for the year ended* December 31, 2022.*These costs were included in professional fees and assessments expenses in the Company’s consolidated statements of income.

Supplemental Pro Forma Financial Information (Unaudited)

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the years ended* December 31, 2022and2021,* as if MPB had been acquired on* January 1, 2021.This unaudited pro forma information combines the historical results of MPB with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information isnot* indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information doesnot consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.

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HMN Financial, Inc.

On* October 9, 2024,the Company completed the acquisition of 100% of the outstanding stock of HMN Financial, Inc. (Nasdaq: HMNF) and its wholly owned subsidiary, Home Federal Savings Bank (together, “Home Federal”), for a total purchase price of $123.6 million in common stock. As a result of the transaction, HMNF merged with and into Alerus Financial Corporation, and Home Federal Savings Bank merged with and into Alerus Financial, National Association. The acquisition enhances and extends the Company's presence in southern Minnesota. In connection with the acquisition, the Company issued 5.55 million shares of its common stock and acquired approximately $1.1 billion of identifiable assets. Goodwill of $38.9 million was recognized as a result of the merger and isnot* amortizable or deductible for tax purposes. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. As a result of the full integration of the operations of Home Federal, it isnot practicable to determine all revenue or net income included in the Company's operating results relating to Home Federal since the date of acquisition as Home Federal results cannot be separately identified.

The Company determined that this acquisition constitutes a business combination and therefore was accounted for using the acquisition method of accounting. Accordingly, as of the date of the acquisition, the Company recorded the assets acquired, liabilities assumed and consideration paid at fair value based on management's best estimates using information available at the date of the acquisition and these estimates are subject to adjustment based on updated informationnot available at the time of the acquisition. The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with Home Federal. Accrued income taxes and deferred taxes associated with the Home Federal acquisition were recorded on a provisional basis and could vary from the actual recorded balance and tax provisions when returns are finalized.

Direct costs related to the acquisition were expensed as incurred. Acquisition integration-related expenses were $10.0 million during the year ended* December 31, 2024*. There wereno merger and acquisition expenses during the year ended* December 31, 2023*. These amounts were included within professional fees and assessments on the consolidated statements of income and are included in operating activities in the consolidated statements of cash flows.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:

The Company determined the fair value of the assets and liabilities acquired with the assistance ofthird-party specialists. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

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Cash and cash equivalents

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities available-for-sale

Fair values for AFS securities are based on quoted market prices, where available. If quoted market prices arenot available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that arenot in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.

Net loans

A valuation of the loans portfolio was performed by athird party as of the acquisition date in accordance with ASC820 to assess the fair value of the loan portfolio, considering adjustments for interest rate risk, required equity return, servicing, credit, and liquidity risk. The loans portfolio was segmented intotwo groups including PCD loans and non-PCD loans. The non-PCD loans were pooled based on similar characteristics, such as loan type, interest rates, term to maturity, delinquency status, and collateral type. Non-PCD loans didnot include any loans more than60 days delinquent or any non-accrual status loans. Non-PCD loan pools were valued using a discounted cash flow analysis, based on the cash flows projected for each loan pool. The PCD loans were valued at the individual loan level or pooled with similar characteristics as non-PCD pooled loans. Individually valued PCD loans were valued using loan-level probability of default and loss given default estimates, reflecting the individual collateral position and circumstances of each loan. The fair value of pooled loans were calculated using a discounted cash flow analysis to estimate the fair value of the loans using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, loss given defaults, and estimates of prevailing discount rates. The discount rate utilized to analyze fair value considered projected future interest rates based on forward rates, a spread over the forward curve, spreads for estimated servicing costs and illiquidity. The discounted cash flow approach models the credit losses directly in the projected cash flows. The Company estimated the credit risks and principal losses of the loans using the Company’s assumptions of probability of default, loss given default, and foreclosures.

The Company is required to record PCD assets, defined as a more-than-insignificant deterioration in credit quality since origination or issuance, at the purchase price plus the allowance for credit losses expected at the time of acquisition. Under this method, there isno credit loss expense affecting net income on acquisition of PCD assets. Changes in estimates of expected credit losses after acquisition are recognized in subsequent periods as credit loss expense (or reversal of credit loss expense) arise. Any non-credit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration is allocated to each individual asset. At the acquisition date, the initial allowance for credit losses determined on a collective or individual basis is allocated to individual assets to appropriately allocate any non-credit discount or premium. For PCD loans, an allowance is recognized on day1 by adding it to the fair value of the loan, which is the “day1 amortized cost.” Non-PCD loans will have an allowance established on the acquisition date, which is recognized as an expense through the provision for credit losses. A day1 allowance for credit losses on non-PCD loans of $7.3 million was recorded through the provision for loan losses within the consolidated statements of income. The following table provides details related to the fair value of acquired PCD loans:

Land, premises and equipment

The fair values of land, premises and equipment are based on a combination of sales comparison approach and cost approach, usingthird-party appraisals and other analysis of value for land and premises.

Core deposit intangible

Core deposit intangible assets were determined using the income approach, after-tax cost savings method. This method estimates the fair value by discounting to present value the favorable funding spread attributable to the core deposit balances over their estimated average remaining life. The favorable funding spread is calculated as the difference in the alternative cost of funds and the net deposit cost. The core deposit intangible represents the costs saved by the Company between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. These costs are amortized using the sum of the years digits method over the estimated useful life of10 years for the related deposits.

Deposits

The fair values for time deposits were estimated using a discounted cash flow analysis asno active trading market exists with which to obtain pricing on comparable financial instruments. The projected cash flows included assumptions of interest paid at maturity andno early withdrawals. The time deposits were combined based on maturity into cash flow buckets, and an average interest rate for each bucket was used in conjunction with the months to maturity to project the cash flows required to settle the time deposits upon maturity. The projected cash flows were discounted using a discount rate curve to reflect current market rates at the acquisition date which included the acquired time deposit rates prior to acquisition, rate sheets for the acquired time deposits, and FHLB advance rates as of the acquisition date. For transactional deposits, carrying amounts approximate fair value.

Accrued expenses and other liabilities

Accrued expenses and other liabilities include items such as accrued interest payable, accounts payable, accrued liabilities, and other miscellaneous liabilities. For all accrued expenses and other liabilities it was determined that the carrying value equals book value, except for accrued liabilities related to contract terminations. Contract termination accrued liabilities werenot assumed by the Company as part of the business combination with HMNF, and were recorded separately in the postcombination period in accordance with the acquisition method of accounting.

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Supplemental Pro Forma Financial Information (Unaudited)

The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the years ended* December 31, 2024and2023,* as if Home Federal had been acquired on* January 1, 2023.This unaudited pro forma information combines the historical results of Home Federal with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information isnot* indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information doesnot consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.

NOTE 4 Restrictions on Cash and Due from Banks

Banking regulators require bank subsidiaries to maintain minimum average reserve balances, either in the form of vault cash or reserve balances held with central banks or other financial institutions. There wasno amount of required reserve balances at* December 31, 2024and2023*. In addition to vault cash, the Company held balances at the Federal Reserve Bank and other financial institutions of $25.5 million and $101.0 million at* December 31, 2024and2023*, respectively, to meet these requirements. The balances are included in cash and cash equivalents on the Consolidated Balance Sheets.

NOTE 5 Investment Securities

As of* December 31, 2024*, the fair value of the Company’s trading securities was $3.3 million. There wereno trading securities as of* December 31, 2023*.

The following tables present amortized cost, gross unrealized gains and losses, ACL, and fair value of the AFS investment securities and HTM investment securities as of* December 31, 2024and2023*:

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The adequacy of the ACL on investment securities is assessed at the end of each quarter. The Company doesnot believe that the AFS debt securities that were in an unrealized loss position as of* December 31, 2024* represent a credit loss impairment. As of both* December 31, 2024and2023*, 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 ofzero credit loss. Additionally, there were corporate bonds in gross unrealized loss positions; however, all bonds had an investment grade rating as of both* December 31, 2024and2023*. Total gross unrealized losses were attributable to changes in interest rates, relative to when the investment securities were purchased, andnot due to the credit quality of the investment securities. The Company doesnot intend to sell the investment securities that were in an unrealized loss position and it isnot more likely thannot that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which* may*be at maturity.

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The ACL on HTM debt securities is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable supportable forecasts. Using a probability of default and loss given default analysis, an ACL was established in the amount of $131 thousand and $213 thousand as of* December 31, 2024and2023*, respectively.

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* December 31, 2024*, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $2.0 million and $1.3 million, respectively. As of* December 31, 2023*, the accrued interest receivable on AFS investment securities and HTM investment securities totaled $1.5 million and $1.4 million, respectively.

Proceeds from the sale of AFS securities for the years ended* December 31, 2024*,2023, and2022 are displayed in the table below:

During the years ended* December 31, 2024,*2023 and2022, there wereno sales of HTM securities.

The following table presents investment securities with gross unrealized losses, for which an ACL hasnot been recorded at* December 31, 2024and2023*, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position:

As of* December 31, 2024and2023*, none of the Company’s HTM debt securities were past due or on non-accrual status. The Company didnot recognize any interest income on non-accrual HTM debt securities during years ended* December 31, 2024,*2023 and2022.

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The following table presents amortized cost and fair value of AFS investment securities and the carrying value and fair value of HTM investment securities at* December 31, 2024*, by contractual maturity:

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 $340.2 million and $250.0 million, were pledged at* December 31, 2024and2023*, respectively, to secure public deposits and for other purposes required or permitted by law.

As of* December 31, 2024and2023*, the carrying value of the Company’s Federal Reserve Bank stock and FHLB of Des Moines stock was as follows:

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

In2008, 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 willnot 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* December 31, 2024*, the conversion ratio was 1.5653. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (10,838 Class A equivalents) that the Company owned as of* December 31, 2024and2023*, were carried at azero cost basis.

NOTE 6 Loans and Allowance for Credit Losses

The following table presents total loans outstanding, by portfolio segment, as of* December 31, 2024and2023*:

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Total loans include net deferred loan fees and costs of $1.1 million and $0.2 million at* December 31, 2024and2023*, respectively. Unearned discounts associated with bank acquisitions totaled $70.6 million and $5.1 million as of* December 31, 2024and2023*, respectively.

Accrued interest receivable on loans is recorded within accrued interest receivable, and totaled $16.4 million at* December 31, 2024* and $12.2 million at* December 31, 2023*.

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:

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Loans with a carrying value of $2.9 billion and $1.6 billion were pledged at* December 31, 2024and2023*, respectively, to secure FHLB borrowings, public deposits, and for other purposes required or permitted by law.

Segmentation

For purposes of determining the ACL on loans, the Company disaggregates its loans into portfolio segments. Each portfolio segment possesses unique risk characteristics that are considered when determining the appropriate level of allowance. As of* December 31, 2024*, the Company's loan portfolio segments, as determined based on the unique risk characteristics of each, included the following:

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Commercial & Industrial: Commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and/or capital investment. Collateral generally consists of pledges of business assets including, butnot limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable. Commercial loans are primarily paid by the operating cash flow of the borrower. Commercial loans* may*be secured or unsecured.

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Commercial Real Estate–* Construction, Land & Development:* Construction, Land & Development commercial estate loans primarily consists of loans to CRE construction projects until they are completed. The construction projects are for real property that* mayinclude, but arenot* limited to multifamily residential, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. Construction, Land & Development CRE loans are typically written with interest only, variable rate, multi advance structures. Collateral values are determine based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

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Commercial Real Estate–* Multifamily:* Multifamily commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Multifamily CRE loans consist of mortgage loans to finance investments in real property including multifamily residential properties, CRE loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines.

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Commercial Real Estate–* Non-Owner Occupied:* Non-owner occupied commercial estate loans are investment properties in which the primary source for repayment of the loan by the borrower is derived from rental income associated with the property or the proceeds of the sale, refinancing, or permanent refinancing of the property. Non owner occupied CRE loans consist of mortgage loans to finance investments in real property that* mayinclude, but arenot* limited to, commercial/retail office space, industrial/warehouse space, hotels, assisted living facilities and other specific use properties. CRE loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan to value ratios at origination are governed by established policy and regulatory guidelines.

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Commercial Real Estate–* Owner Occupied:* Generally, owner occupied CRE loans are properties that are owned and operated by the borrower, and the primary source for repayment is the cash flow from the ongoing operations and activities conducted by the borrower's business. Owner occupied CRE loans consist of mortgage loans to finance investments in real property that* mayinclude, but arenot* limited to, commercial/retail office space, restaurants, educational and medical practice facilities and other specific use properties. CRE loans are typically written with amortizing payment structures. Collateral values are determined based upon appraisals and evaluations in accordance with established policy guidelines. Maximum loan to value ratios at origination are governed by established policy and regulatory guidelines.

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Agricultural–* Land*: Agricultural loans include loans secured by farmland. 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*: Agricultural loans include loans for agricultural production. 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, butnot 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.

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Residential–* 1st Lien:* Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. Collateral consists of senior mortgage liens onone tofour family residences, including for investment purposes.

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Residential–* Construction:* Residential real estate construction loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines. Residential real estate construction loans are typically written with interest only, variable rate, multi advance structures. Collateral consists of residential construction projects forone tofour family residences, including for investment purposes.

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HELOC: Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupiedone tofour family homes, condominiums, or vacation homes. Home equity lines of credit have a variable rate and are billed as interest only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios within established policy guidelines.

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Residential–* Junior Lien:* Residential real estate loans held in the Company's loan portfolio are made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan to value ratios within established policy guidelines. Collateral consists of junior mortgage liens onone tofour family residences, including for investment purposes.

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Consumer: Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as education, auto loans, debt consolidation, personal expenses or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines, as applicable. Consumer loans* may*be secured or unsecured.

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ACL on Loans

The following tables present, by loan portfolio segment, a summary of the changes in the ACL for thethree years ending* December 31, 2024*,2023, and2022:

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The ACL on loans at* December 31, 2024*, was $59.9 million, an increase of $24.1 million, or 67.2%, since* December**31,* 2023. The increase was primarily due to the acquisition of HMNF, which resulted in an additional ACL on PCD acquired loans of $10.2 million and a dayone provision for credit losses on non-PCD acquired loans of $7.3 million. In thesecond quarter of2024, the Company completed a periodic assessment of significant model inputs and assumptions within its discounted cash flow analysis used for estimating the ACL on loans. Refreshed assumptions were incorporated and didnot result in any material changes to the methodology. As of* December 31, 2024and2023*, the significant model inputs and assumptions used within the discounted cash flow model for purposes of estimating the ACL on loans were:

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Macroeconomic (loss) drivers: As of* December 31, 2024and2023*, the following loss drivers for each loan segment were used to calculate the expected PD over the forecast and reversion period:

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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* mayoccasionally emerge as a result of economic conditions, changes in local demand, natural loan growth and runoff. To identify credit concentrations effectively, all C&I 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 wereno* other industry concentrations exceeding10% of the Company's total loan portfolio as of* December 31, 2024and2023*.

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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 doesnot 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 non-performing.

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, completes stress testing of economic factors and evaluates 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:

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The following table sets forth the amortized cost basis of loans by credit quality indicator and vintage based on the most recent analysis performed, as of* December 31, 2024*:

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Past Due and Nonaccrual Loans

The Company closely monitors the performance of its loan portfolio. A loan is placed on non-accrual when the financial condition of the borrower is deteriorating, payment in full of both principal and interest isnot expected as scheduled or principal or interest has been in default for90 days or more. Exceptions* maybe made if the asset is secured by collateral sufficient to satisfy both the principal and accrued interest in full and collection is reasonably assured. Whenone* loan to a borrower is placed on non-accrual, all other loans to the borrower are re-evaluated to determine if they should also be placed on non-accrual. 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 leastsix months.

The following tables present past due aging analysis of total loans outstanding, by portfolio segment, as of* December 31, 2024and2023*, respectively:

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In calculating expected credit losses, the Company includes loans on nonaccrual status and loans90 days or more past due and still accruing. The following table presents the amortized cost basis on nonaccrual status loans and loans90 days or more past due and still accruing as of* December 31, 2024and2023*:

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Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for the years ended* December 31, 2024*,2023, and2022 is estimated to have been $4.8 million, $0.5 million, and $0.2 million, respectively.

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The Company’s policy is to reverse previously recorded interest income when a loan is placed on nonaccrual. As a result, the Company didnot record any interest income on its nonaccrual loans for the years ended years ended* December 31, 2024,2023 and2022. As of December 31, 2024and2023*, total accrued interest receivable on loans, which had been excluded from reported amortized cost basis on loans; was $16.4 million and $12.2 million, respectively, and was reported within accrued interest receivable on the consolidated statements of condition. An allowance wasnot carried on the accrued interest receivable at either date.

The following table presents the amortized cost basis of collateral dependent loans, by the primary collateral type, which are individually evaluated to determine credit losses, and the related ACL allocated to these loans, as of* December 31, 2024*:

Collateral dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there areno 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 ASU2022*-02. Under ASU2022-02, 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 with the intention to minimize future losses and improve collectability. Loans experiencing financial difficulty can include modifications for 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 similar types of modifications.

The following table presents the amortized cost basis of loans as of* December 31, 2024*, by class of type of modification, that were both experiencing financial difficulty and modified during the year ended* December 31, 2024*. There wereno loans that were modified to borrowers experiencing financial difficulty during the year ended* December 31, 2023*. 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 each class of financing receivable as of* December 31, 2024*, is also presented below:

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended* December 31, 2024*:

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 years ended* December 31, 2024and2023*, there wereno modified loans to borrowers experiencing financial difficulty that were past due or for which the borrower subsequently defaulted.

NOTE 7 Land, Premises and Equipment, Net

Components of land, premises and equipment at* December 31, 2024and2023* were as follows:

Depreciation expense for the years ended* December 31, 2024*,2023, and2022 amounted to $3.0 million, $2.5 million, and $3.0 million, respectively.

NOTE 8 Goodwill and Other Intangible Assets

As of* December 31, 2024and2023*, goodwill totaled $85.6 million and $46.8 million, respectively.

The following table summarizes the carrying amounts of goodwill, by segment, as of* December 31, 2024and2023*:

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The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:

Aggregate amortization expense for the years ended* December 31, 2024*,2023, and2022 was $6.8 million, $5.3 million, and $4.8 million, respectively.

Estimated aggregate amortization expense for future years is as follows:

NOTE 9 Loan Servicing

Loans serviced for others arenot included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled $728.5 million and $190.0 million at* December 31, 2024and2023*, 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 MSRs at fair value. The Company accounted for MSRs at the lower of amortized cost or fair value as of and for the years ended* December 31, 2023* and2022.

The following table presents the changes in fair value of the Company’s MSR portfolio for the year ended* December 31, 2024*:

The following table summarizes the Company’s activity related to servicing rights for the years ended* December 31, 2023* and2022:

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The following is a summary of key data and assumptions used in the valuation of servicing rights as of* December 31, 2024and2023*. Increases or decreases in anyone of these assumptions would result in lower or higher fair value measurements.

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NOTE 10 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 the leases in which the Company is the lessee are comprised of real estate property for branches, and office equipment rentals with terms extending through2037. Portions of certain properties are subleased for terms extending through2024. Substantially all of the Company’s leases are classified as operating leases. The Company hasno existing finance leases.

The Company electednot to include short-term leases (i.e., leases with initial terms oftwelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements. The following table presents the classification of the Company’s ROU assets and lease liabilities on the consolidated financial statements as of* December 31, 2024and2023*:

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 includeone 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.

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 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 years ending* December 31, 2024,*2023 and2022:

Future minimum payments for leases with initial or remaining terms ofone year or more as of* December 31, 2024* are as follows:

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NOTE 11 Other Assets

Other assets on the balance sheet consisted of the following balances at* December 31, 2024and2023*:

NOTE 12 Deposits

The components of deposits in the consolidated balance sheets at* December 31, 2024and2023* were as follows:

The aggregate amount of deposit overdrafts included as loans were $979 thousand and $140 thousand at* December 31, 2024and2023*, respectively.

Certificates of deposit in excess of*$250,000* totaled $248.1 million and $121.8 million at* December 31, 2024and2023*, respectively.

At* December 31, 2024*, the scheduled maturities of certificates of deposit were as follows:

NOTE 13 Short-Term Borrowings

Short-term borrowings at* December 31, 2024*,2023, and2022 consisted of the following:

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The Company had outstanding credit capacity with the FHLB of $1.2 billion and $706.6 million at* December 31, 2024and2023*, respectively, secured by pledged loans and investment securities. The Company also had $87.0 million of unsecured federal funds agreements with correspondent banks with outstanding balances of $15.0 million at* December 31, 2024* andno outstanding balances at* December 31, 2023*. The Company has an unused $20.0 million unsecured line of credit with Bank of North Dakota.

NOTE 14 Long-Term Debt

Long-term debt at* December 31, 2024and2023* consisted of the following:

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NOTE 15 Commitments and Contingencies

In the normal course of business, the Company has outstanding commitment and contingent liabilities, such as commitments to extend credit and standby letters of credit, which arenot 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* December 31, 2024and2023*, respectively, was as follows:

The Company establishes an ACL on unfunded commitments, except those that are unconditionally cancellable by the Company. As of* December 31, 2024and2023*, the ACL on unfunded commitments was $7.5 million and $7.4 million, respectively. The ACL on unfunded commitments was presented within accrued expenses and other liabilities on the consolidated balance sheets. For the year ended* December 31, 2024and2023*, the provision for credit losses on unfunded commitments was $0.1 million and $2.2 million, respectively.

Commitments to extend credit are agreements to lend to a client as long as there isno violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and* mayrequire payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts donot* 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 wasnot required to perform on any financial guarantees and didnot incur any losses on its commitments during the pasttwo 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 hadfive letters of credit outstanding with the FHLB in the amount of $12.0 million as of* December 31, 2024* andno letters of credit outstanding with the FHLB as of* December 31, 2023*. With the Bank of North Dakota, the Company hadone letter of credit outstanding in the amount of $50.0 million and $182.0 million as of* December 31, 2024and2023*, respectively. Letters of credit with the Bank of North Dakota were collateralized by loans pledged to the Bank of North Dakota in the amount of $524.9 million and $454.6 million as of* December 31, 2024and2023*, respectively.

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NOTE 16 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, butnot probable, the Company doesnot 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 may*be materially different than the actual outcomes. Legal costs such as outside counsel fees are expensed in the period in which the services are rendered.

Assessments of litigation exposure are difficult because they involve inherently unpredictable factors including, butnot 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 isnot complete; whether meaningful settlement discussions have commenced; and whether the proceeding involves class allegations. In many lawsuits and arbitrations, it isnot 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 willnot be recognized until that time. As a result, the Company* may*be unable to estimate reasonably possible losses with respect to litigation matters it faces.

In2023, the Company sold its ESOP fiduciary services business but currently remains subject to pending lawsuits related to the sold business, includingone 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.

The Company believes a material loss contingency related to the DOL complaint is reasonably possible, butnot 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, butnot limited to: (1) the current early stages of the proceedings and discoverynot having commenced, (2) the absence of specificity as to alleged damages, (3) the potential reinsertion of the selling shareholder as co-defendant in the suit and (4) and the lack of resolution of significant factual and legal issues.

As of* December 31, 2024and2023*, the Company didnot have any accrued liabilities recorded for loss contingencies in its audited consolidated financial statements.

NOTE 17 Share-Based Compensation Plan

On* May**6,* 2019, the Company’s stockholders approved the Alerus Financial Corporation2019 Equity Incentive Plan (the*“2019* Equity Incentive Plan”). This plan allows the Compensation Committee of the Board (the “Compensation Committee”) 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 shallnot 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 werenot issued upon the settlement of the award. Restricted stock units issued donot participate in dividends and recipients arenot 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 thefirst 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* December 31, 2024*,667,372 shares of common stock are still available for issue under the plan.

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The compensation expense relating to awards under these plans was $1.7 million in2024, $1.6 million in2023, and $1.9 million in2022. The number of unvested shares outstanding was 145,802 and 120,497 as of* December 31, 2024and2023*, respectively. The number of unvested units outstanding was 143,747 and 111,160 as of* December 31, 2024and2023*, respectively.

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The following table presents the activity in the stock plans for the years ended* December 31, 2024*, and2023 was as follows:

As of* December 31, 2024and2023*, there was $2.9 million and $2.7 million, respectively, 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 2.2 and 2.3 years, as of* December 31, 2024and2023*, respectively.

NOTE 18 Employee Benefits

The Company maintainstwo employee retirement plans including the Alerus Financial Corporation ESOP and a defined contribution salary reduction plan (the*“401*(k) plan”). The plans cover substantially all employees upon satisfying prescribed eligibility requirements for age and length of service. Contributions to the ESOP are determined annually by the Board, at its discretion, and allocated to participants based on a percentage of annual compensation. For the years ended* December 31, 2024,2023 and2022, there wereno unallocated ESOP shares outstanding. Shares of the Company stock within the ESOP are considered outstanding and dividends on these shares are charged to retained earnings. Under the401(k) plan, the Company contributes 100% of amounts deferred by employees up to 3% of eligible compensation and 50% of amounts deferred by employees between 3% and 6% of eligible compensation. Retirement plan contributions are reflected under employee benefits in the income statement and for the years ending December 31, 2024*,2023, and2022 were as follows:

NOTE 19 Noninterest Income

The following table presents the Company’s noninterest income for the years ended* December 31, 2024*,2023, and2022:

Contract balances: A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest income streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market value. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company doesnot typically enter into long-term revenue contracts with customers, and therefore, doesnot experience significant contract balances. As of* December 31, 2024and2023*, the Company didnot have any significant contract balances.

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Contract acquisition costs: In connection with the adoption of Topic606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it wouldnot have incurred if the contract hadnot been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset would have resulted from capitalizing these costs would have been amortized inone year or less.

NOTE 20 Income Taxes

The components of income tax expense (benefit) for the years ended* December 31, 2024*,2023, and2022 were as follows:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at* December 31, 2024and2023* were as follows:

The reconciliation between applicable income taxes and the amount computed at the applicable statutory federal tax rate for the years ending* December**31,* 2024,2023, and2022 was as follows:

It is the opinion of management that the Company hasno significant uncertain tax positions that would be subject to change upon examination.

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NOTE21 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 projects tax credit investments for the periods presented:

The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects for the periods presented:

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NOTE 22 Segment Reporting

Beginning with the annual period ended* December 31, 2024*, the Company adopted the guidance within ASU2023-07, Segment Reporting (Topic280*)*, 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 operates through three operating segments: banking, retirement and benefit services, and wealth. In prior periods, the Company had afourth 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. The Company has restated all historical periods presented within these financial statements, and hasnot* included the mortgage operating segment.

The Company’s reportable segments include the following:

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The Company’s segment reporting process begins with the assignment of income and expenses directly to the applicable segments based on different cost centers withing the Company. The net income (loss) before taxes for each reportable segment is further derived by the use of expense allocations. Certain expensesnot directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees and time spent working in each segment. These types of expenses include business services, software and technology expense, human resources, accounting and finance, risk management, legal, and marketing.

The financial information presented for each segment includes net interest income, provision for credit losses, noninterest income, and direct and indirect noninterest expense. As discussed above, noninterest expense is broken out between significant noninterest expenses and other noninterest expense. Other noninterest expense consists of occupancy and equipment expense, intangible amortization expense, professional fees and assessments (less merger and acquisition expenses which are included within this expense item on the consolidated statements of income), marketing and business development, supplies and postage, travel, mortgage and lending expenses, and other noninterest expenses. Corporate administration includes all remaining income and expensesnot allocated to thethree 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.

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The following table presents key metrics related to the Company’s segments as of and for the periods presented:

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NOTE 23 Earnings Per Share

The calculation of basic and diluted earnings per share using thetwo-class method for the years ending* December 31, 2024*,2023, and2022 is presented below:

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NOTE 24 Related Party Transactions

In the ordinary course of business, the Bank has extended loans to executive officers, directors, and their affiliates (related parties). These loans are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with outsiders and arenot considered to involve more than the normal risk of collectability. The following table presents the activity associated with loans made between related parties at* December 31, 2024and2023*:

Deposits from related parties held by the Bank at* December 31, 2024and2023*, amounted to $1.8 million and $0.7 million, respectively.

NOTE 25 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 orno initial net investment and result inone 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 generallynot exchanged, and it isnot 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. RRE and 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* December 31, 2024*, the Company only uses 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.

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 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 isno 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 an additional $21 thousand will be reclassified as an increase to interest expense over the next12 months. All cash flow hedges were highly effective for the year ended* December 31, 2024*. As of* December 31, 2024*, the maximum length of time over which forecasted transactions are hedged is24 months.

DerivativesNot 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 (TBA) 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.

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The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of* December 31, 2024and2023*:

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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:

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:

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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* December 31, 2024and2023*:

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The gain (loss) recognized on derivativesnot designated as hedging relationships for the years ended* December 31, 2024*,2023, and2022 was as follows:

The Company hasthird-party agreements that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted withthird parties at* December 31, 2024and2023* was $3.9 million and $0.6 million, respectively. The amount of collateral posted withthird parties is deemed to be sufficient to collateralize both the fair market value change a 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 donot 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.

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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 hasnot 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* December 31, 2024and2023*, the fair value of derivatives in a net liability position, which included accrued interest but excludes any adjustment for non-performance risk, related to these agreements was $8.6 million and $9.0 million, respectively. As of* December 31, 2024and2023*, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of $3.9 million and $0.6 million, respectively. If the Company had breached any of these provisions at* December 31, 2024* or2023, it could have been required to settle its obligations under the agreements at their termination value of $8.6 million and $9.0 million, respectively.

Balance Sheet Offsetting

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

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NOTE 26 Regulatory Matters

The Bank is 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 and the Bank’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 tier1, tier1, and total capital (as defined in the regulations) to risk weighted assets (as defined) and of tier1 capital (as defined) to average assets (as defined). Management believes at* December 31, 2024and2023*, each of the Company and the Bank met all of the capital adequacy requirements to which it is subject.

As of* December 31, 2024*, the most recent notification from the FDIC, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There areno conditions or events since the notification that management believe have changed in the Bank’s category.

Actual capital amounts and ratios for the Company (consolidated) and the Bank at* December 31, 2024and2023* are presented in the following table: