ALERUS FINANCIAL CORP

Notes** to Consolidated Financial Statements (Unaudited)

NOTE 1 Basis of Presentation

The accompanying unaudited consolidated interim financial statements and notes thereto of the Company have been prepared in accordance with instructions for Form10-Q and, therefore, donot include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete presentation of financial statements. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated balance sheets of Alerus Financial Corporation (“the Company”) as of* March 31, 2025* and* December 31, 2024*, the consolidated statements of income for thethree months ended* March 31, 2025and2024*, the consolidated statements of comprehensive income (loss) for thethree months ended* March 31, 2025and2024*, the consolidated statements of changes in stockholders’ equity for thethree months ended* March 31, 2025and2024*, and the consolidated statements of cash flows for thethree months ended* March 31, 2025and2024*.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s principal operating subsidiary is Alerus Financial, National Association (the “Bank”). Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications didnot affect net income or stockholders’ equity. The results of operations for the interim periods arenot necessarily indicative of the results for the full year or any other period. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form10-Q. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended* December 31, 2024*, included in the Company’s Annual Report on Form10-K filed with the SEC on* March 14, 2025.*

NOTE 2 Recent Accounting Pronouncements

The following Financial Accounting Standards Board (“FASB”) Accounting Standards Updates (“ASUs”) are divided into pronouncements which have been adopted by the Company since* January**1,* 2025, and those which arenot yet effective and have been evaluated or are currently being evaluated by management as of* March 31, 2025*.

Adopted Pronouncements

There have beenno new ASUs adopted by the Company since* January 1, 2025.*

PronouncementsNot Yet Effective

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, to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction disclosures. The amendments allow investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The other amendments in this ASU improve the effectiveness and comparability of disclosures by adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (the “SEC”) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and removing disclosures 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.Early adoption is permitted for annual financial statements that havenot* yet been issued or made available for issuance. The amendments in this ASU should be applied on a prospective basis. Retrospective application is also permitted.

NOTE 3 Investment Securities

Trading securities are reported on the Company’s consolidated balance sheet at fair value. The fair value of the Company’s trading securities was $3.0 million and $3.3 million as of* March 31, 2025* and* December 31, 2024*, respectively. Changes in the fair value of trading securities are recorded in other noninterest income on the Company’s consolidated statements of income.

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

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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* March 31, 2025* represented a credit loss impairment. As of both* March 31, 2025* and* December 31, 2024*, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history ofzero credit loss. Additionally, there were corporate bonds in gross unrealized loss positions as of both* March 31, 2025* and* December 31, 2024*; however, all such bonds had an investment grade rating as of both* March 31, 2025* and* December 31, 2024*. 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.

The ACL on HTM debt securities is estimated using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Using a probability of default and loss given default analysis, the ACL on HTM debt securities was $129 thousand and $131 thousand as of* March 31, 2025* and* December 31, 2024*, respectively. The change in the ACL on HTM debt securities was due to a change in the provision for credit losses, withno charge-offs or recoveries for thethree months ended* March 31, 2025*.

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

The Company hadno sales of AFS investment securities for thethree months ended* March 31, 2025and2024*. The Company had calls with proceeds of $10.0 million of AFS investment securities for thethree months ended* March 31, 2025* andno calls for thethree months ended* March 31, 2024*.

The Company hadno sales of HTM investment securities for thethree months ended* March 31, 2025and2024*.

The following tables present investment securities with gross unrealized losses, for which an ACL wasnot recorded at* March 31, 2025* and* December 31, 2024*, aggregated by investment category and length of time that individual investment securities have been in a continuous loss position:

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As of* March 31, 2025* and* December 31, 2024*, none of the Company’s HTM debt securities were past due or on nonaccrual status. The Company didnot recognize any interest income on nonaccrual HTM debt securities during thethree months ended* March 31, 2025and2024*.

The following table presents the carrying value and fair value of HTM investment securities and the amortized cost and fair value of AFS investment securities as of* March 31, 2025*, 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 $509.4 million and $340.2 million were pledged as of* March 31, 2025* and* December 31, 2024*, respectively, to secure public deposits and for other purposes required or permitted by law.

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

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* March 31, 2025*, 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* March 31, 2025* and* December 31, 2024*, were carried at azero cost basis.

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NOTE 4 Loans and Allowance for Credit Losses

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

Total loans included net deferred loan fees and costs of $1.0 million and $1.1 million at* March 31, 2025* and* December 31, 2024*, respectively. Unearned discounts associated with bank acquisitions totaled $65.1 million and $70.6 million as of* March 31, 2025* and* December 31, 2024*, respectively.

Accrued interest receivable on loans is recorded within accrued interest receivable, and totaled $17.0 million at* March 31, 2025* and $16.4 million at* December 31, 2024*.

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

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

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ACL on Loans

The following tables present, by loan portfolio segment, a summary of the changes in the ACL on loans for thethree months ended* March 31, 2025and2024*:

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The ACL on loans at* March 31, 2025* was $61.9 million, an increase of $2.0 million, or 3.3%, from* December 31, 2024*. The increase was primarily due to an increase of $2.1 million in the provision for credit losses on construction, land and development loans. This increase was primarily due to organic loan growth driven by existing commitments funded during the period.

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 commercial and industrial and owner occupied real estate loans are assigned Standard Industrial Classification codes, North American Industry Classification System codes and state and county codes. Property type coding is used for investment real estate. There wereno* industry concentrations exceeding10% of the Company’s total loan portfolio as of* March 31, 2025*.

Credit Quality Indicators

The Company’s consumer loan portfolio is primarily comprised of secured loans that are evaluated at origination on a centralized basis against standardized underwriting criteria. The Company generally 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 nonperforming.

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

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

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The following tables set forth the amortized cost basis of loans by credit quality indicator and vintage based on the most recent analysis performed, as of* March 31, 2025* and* 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 nonaccrual status 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 nonaccrual status, all other loans to the borrower are re-evaluated to determine if they should also be placed on nonaccrual status. All previously accrued and unpaid interest is reversed at that time. A loan will return to accrual when collection of principal and interest is assured and the borrower has demonstrated timely payments of principal and interest for a reasonable period, generally at leastsix months.

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

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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 tables present the amortized cost basis on nonaccrual status loans and loans90 days or more past due and still accruing as of* March 31, 2025* and* December 31, 2024*:

Interest income that would have been recognized if loans on nonaccrual status had been current in accordance with their original terms for thethree months ended* March 31, 2025and2024*, is estimated to have been $1.1 million and $0.7 million, respectively.

The Company’s policy is to reverse previously recorded interest income when a loan is placed on nonaccrual status. As a result, the Company didnot record any interest income on its nonaccrual loans for thethree months ended* March 31, 2025* or2024. At* March 31, 2025* and* December 31, 2024*, total accrued interest receivable on loans, which had been excluded from reported amortized cost basis on loans, was $17.0 million and $16.4 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.

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In cases where a borrower experiences financial difficulty, the Company* maymake certain concessions for which the terms of the loan are modified. 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. During both thethree* months ended* March 31, 2025and2024*, the Company didnot provide any modifications to loans under these circumstances that were experiencing financial difficulty.

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

Collateral dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral when there areno other available and reliable sources of repayment.

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NOTE 5 Land, Premises and Equipment, Net

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

Depreciation expense was $1.1 million and $0.7 million for thethree months ended* March 31, 2025and2024*, respectively.

The Company’s West Fargo, North Dakota branch is listed for sale for $3.8 million and is expected to sell within the next12 months. At* March 31, 2025*, the facility had a carrying value of approximately $0.4 million. The Company expects to record a gain on the sale upon closing, as the expected sale price is greater than the property’s carrying value. Total assets held for sale by the Company at* March 31, 2025* were $0.4 million and was included in other assets on the Company’s consolidated balance sheet andnot included in the table above.

NOTE 6 Goodwill and Other Intangible Assets

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

Goodwill is evaluated for impairment on an annual basis, at a minimum, and more frequently when the economic environment or specific circumstances warrant. The Company determined that there wasno goodwill impairment as of* March 31, 2025*.

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

Amortization of total intangible assets was $2.7 million and $1.3 million for thethree months ended* March 31, 2025and2024*, respectively.

NOTE 7 Loan Servicing

Loans serviced for others arenot included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled $718.2 million and $728.5 million as of* March 31, 2025* and* December 31, 2024*, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and collection and foreclosure processing. Loan servicing income is recorded on an accrual basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees, and is net of fair value adjustments to capitalized mortgage servicing rights. As of and for the year ended* December 31, 2024*, the Company elected to subsequently measure mortgage servicing rights (“MSRs”) at fair value. The Company accounted for MSRs at the lower of amortized cost or fair value for all periods prior to* December 31, 2024*.

The following table presents the changes in fair value of the Company’s MSR portfolio for thethree months ended* March 31, 2025*:

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The following table summarizes the Company’s activity related to servicing rights for thethree months ended* March 31, 2024*:

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

NOTE 8 Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of an identified property, plant or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee are comprised of real property for offices and office equipment rentals with terms extending through2041. Portions of certain properties are subleased for terms extending through* July**2025.* 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 right-of-use (“ROU”) assets and lease liabilities on the consolidated financial statements as of* March 31, 2025* and* December 31, 2024*:

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 and utilities. Variable lease cost also includes payments for usage or maintenance of those capitalized equipment operating leases.

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The following table presents lease costs and other lease information for thethree months ended* March 31, 2025and2024*:

Future minimum payments for finance and operating leases with initial or remaining terms ofone year or more as of* March 31, 2025* were as follows:

NOTE 9 Deposits

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

Certificates of deposit in excess of*$250,000* totaled $227.4 million and $248.1 million at* March 31, 2025* and* December 31, 2024*, respectively.

NOTE 10 Short‑Term Borrowings

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

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NOTE 11 Long‑Term Debt

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

NOTE 12 Commitments and Contingencies

Commitments

In the normal course of business, the Company has outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which 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* March 31, 2025* and* December 31, 2024*, respectively, was as follows:

The Company establishes an ACL on unfunded commitments, except those that are unconditionally cancellable by the Company. As of* March 31, 2025* and* December 31, 2024*, the ACL on unfunded commitments was $6.0 million and $7.5 million, respectively. The ACL on unfunded commitments was presented within accrued expenses and other liabilities on the consolidated balance sheets. For thethree months ended* March 31, 2025and2024*, the provision (recovery) for credit losses on unfunded commitments was ($1.5) million and ($793) thousand, 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 had letters of credit outstanding with the FHLB in the amount of $6.4 million as of* March 31, 2025* and $12.0 million as of* December 31, 2024*. With the Bank of North Dakota, the Company hadno letters of credit outstanding as of* March 31, 2025* and had letters of credit outstanding in the amount of $50.0 million as of* December 31, 2024*. Letters of credit with the Bank of North Dakota were collateralized by loans pledged to the Bank of North Dakota in the amount of $517.9 million and $524.9 million as of* March 31, 2025* and* December 31, 2024*, respectively.

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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.

The Company didnot have any accrued liabilities recorded for loss contingencies that were required to be disclosed as of* March 31, 2025* and* December 31, 2024*, respectively.

NOTE 13 Share-Based Compensation

On* May**6,* 2019, the Company’s stockholders approved the Alerus Financial Corporation2019 Equity Incentive Plan. This plan allows the compensation committee of the Board of Directors of the Company the ability to grant a wide variety of equity awards, including stock options, stock appreciation rights, stock awards, and cash incentive awards in such forms and amounts as it deems appropriate to accomplish the goals of the plan. Since inception, all awards issued under the plan have been restricted stock and restricted stock units. Any shares subject to an award that is cancelled, forfeited, or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the plan. However, shares subject to an award 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* March 31, 2025*,588,404 shares of common stock are still available for issuance under the plan.

The compensation expense relating to awards under these plans was $599 thousand and $593 thousand for thethree months ended* March 31, 2025and2024*, respectively.

The following table presents the activity in the stock plans for thethree months ended* March 31, 2025and2024*:

As of* March 31, 2025*, there was $4.3 million of unrecognized compensation expense related to non-vested awards granted under the plans. The expense is expected to be recognized over a weighted-average period of 2.4 years.

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NOTE 14 Income Taxes

The components of income tax expense (benefit) for thethree months ended* March 31, 2025and2024* were as follows:

It is the opinion of management that, as of* March 31, 2025*, the Company hadno significant uncertain tax positions that would be subject to change upon examination.

NOTE15 Tax Credit Investments

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

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

The following table presents a summary of the amortization expense and tax benefit recognized for the Company’s qualified affordable housing projects for thethree months ended* March 31, 2025and2024*:

NOTE 16 Segment Reporting

Beginning with the annual period ended* December 31, 2024,the Company adopted the guidance within ASU2023-07, Segment Reporting (Topic *280), which expanded disclosure requirements for significant segment expenses and other segment items. In connection with this guidance, compensation, employee taxes and benefits, business services, software and technology expense, and merger and acquisition expense are presented separately as these expenses were previously included within total noninterest expense. Financial information for prior periods were recast to conform to the current presentation.

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

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

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The Company’s reportable segments include the following:

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.

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

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NOTE 17 Earnings Per Share

The calculation of basic and diluted earnings per share using thetwo-class method for thethree months ended* March 31, 2025and2024* are presented below:

There wereno antidilutive shares for thethree months ended* March 31, 2025and2024*.

NOTE 18 Derivative Instruments

The Company uses a variety of derivative instruments to mitigate exposure to both market and credit risks inherent in its business activities. The Company manages these risks as part of its overall asset and liability management process and through its policies and procedures. Derivatives represent contracts between parties that usually require little 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. Residential and commercial real estate (“CRE”) loan commitments associated with loans to be sold also qualify as derivative instruments.

Derivatives Designated as Hedging Instruments

The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP. On the date the Company enters into a derivative contract designated as a hedging instrument, the derivative is designated as either a fair value hedge, cash flow hedge, or a net investment hedge. When a derivative is designated as a fair value, cash flow, or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s). As of* March 31, 2025*, the Company only used fair value and cash flow hedges.

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

Cash flow hedges: These derivatives are interest rate swaps the Company uses to hedge the variability of expected future cash flows due to market interest changes. The interest rate swap is carried on the Company’s consolidated balance sheet at its fair value in other assets (when the fair value is positive) or in accrued expenses and other liabilities (when the fair value is negative). Changes in fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) (“OCI”) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in OCI is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction 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 thatno additional amounts will be reclassified as an increase to interest expense over the next12 months. All cash flow hedges were highly effective for thethree months ended* March 31, 2025*. As of* March 31, 2025*, the maximum length of time over which forecasted transactions are hedged was 21 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 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* March 31, 2025* and* December 31, 2024*:

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:

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

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* March 31, 2025* and* December 31, 2024*, respectively:

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The gain (loss) recognized on derivativesnot designated as hedging relationships for thethree months ended* March 31, 2025and2024* was as follows:

The Company hasthird party agreements that require a minimum dollar transfer amount upon a margin call. These requirements are dependent on certain specified credit measures. There wasno collateral posted withthird parties at* March 31, 2025*. The amount of collateral posted withthird parties was $3.9 million at* December 31, 2024*. The amount of collateral posted withthird parties was deemed to be sufficient as of those dates to collateralize both the fair market value change as well as any additional amounts that* may*be required as a result of a change in the specified credit measures.

Credit Risk-Related Contingent Features

By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts 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.

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* March 31, 2025* and* December 31, 2024*, the fair value of derivatives in a net liability position, which included accrued interest but excluded any adjustment for non-performance risk, related to these agreements was $9.7 million and $8.6 million, respectively. As of* March 31, 2025* and* December 31, 2024*, the Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of $0.0 million and $3.9 million, respectively. If the Company had breached any of these provisions at* March 31, 2025* or* December 31, 2024*, it could have been required to settle its obligations under the agreements at their termination value of $9.7 million and $8.6 million, respectively.

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Balance Sheet Offsetting

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

NOTE 19 Regulatory Matters

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

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of common equity 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 that, at* March 31, 2025* and* December 31, 2024*, each of the Company and the Bank had met all of the capital adequacy requirements to which it was subject.

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

The Bank is subject to certain restrictions on the amount of dividends that it* maypay without prior regulatory approval, including rules requiring a2.5* percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to the limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of* March 31, 2025*, the capital ratios for the Company and the Bank were sufficient to meet the conservation buffer. In addition, the Company must adhere to various U.S. Department of Housing and Urban Development (“HUD”) regulatory guidelines including required minimum capital and liquidity to maintain their Federal Housing Administration approval status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of* March 31, 2025* and* December 31, 2024*, the Company was in compliance with the aforementioned guidelines.

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NOTE 20 Other Comprehensive Income (Loss)

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

NOTE 21 Stock Repurchase Program

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

The Program doesnot obligate the Company to repurchase any shares of its common stock, and other than repurchases that have been completed to date, there isno assurance that the Company will do so or that the Company will repurchase shares at favorable prices. The Program* maybe suspended or terminated at any time and, even if fully implemented, the Program may**not* enhance long-term stockholder value. For thethree months ended* March 31, 2025*, the Company hadnot repurchased any shares under the Program. The Company also repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units.

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NOTE 22 Fair Value of Assets and Liabilities

The Company categorizes its assets and liabilities measured at estimated fair value into athree level hierarchy based on the priority of the inputs to the valuation technique used to determine estimated fair value. The estimated fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level1) and the lowest priority to unobservable inputs (Level3). If the inputs used in the determination of the estimated fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the estimated fair value measurement. Assets and liabilities valued at estimated fair value are categorized based on the following inputs to the valuation techniques as follows:

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

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

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

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at estimated fair value for the initial and subsequent measurement on an instrument‑by‑instrument basis. The Company adopted the policy to value certain financial instruments at estimated fair value. The Company hasnot elected to measure any existing financial instruments at estimated fair value; however, it* may*elect to measure newly acquired financial instruments at estimated fair value in the future.

Recurring Basis

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

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

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

Investment Securities, Trading for Deferred Compensation

The fair value of trading securities for deferred compensation is reported using market quoted prices as such securities and underlying securities are actively traded andno valuation adjustments have been applied and therefore are classified as Level1.

Investment Securities, Available-for-Sale

Generally, debt securities are valued using pricing for similar securities, recently executed transactions, and other pricing models utilizing observable inputs and therefore are classified as Level2.

Derivatives

All of the Company’s derivatives are traded in over‑the‑counter markets where quoted market prices arenot readily available. For these derivatives, estimated fair value is measured using internally developed models that use primarily market observable inputs, such as yield curves and option volatilities, and accordingly, classify as Level2. Examples of Level2 derivatives are basic interest rate swaps and forward contracts.

Nonrecurring Basis

Certain assets are measured at estimated fair value on a nonrecurring basis. These assets arenot measured at estimated fair value on an ongoing basis; however, they are subject to estimated fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

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

Loans Held for Sale

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

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

The valuation techniques and significant unobservable inputs used to measure Level3 estimated fair values as of* March 31, 2025* and* December 31, 2024*, were as follows:

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

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The following disclosures represent financial instruments for which the ending balances, as of* March 31, 2025* and* December 31, 2024*, werenot carried at estimated fair value in their entirety on the consolidated balance sheets.

Cash and Cash Equivalents and Accrued Interest

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

Investment Securities, Held-to-Maturity

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

Loans

For variable‑rate loans that reprice frequently and withno significant change in credit risk, estimated fair values are based on carrying values. The estimated fair values of other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Bank‑Owned Life Insurance

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

Deposits

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

Short‑Term Borrowings and Long‑Term Debt

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

Off‑Balance Sheet Credit‑Related Commitments

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

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

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