ALERUS FINANCIAL CORP
For the period ended Dec 31, 2025. Filed Mar 4, 2026.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2025 · Filed Mar 4, 2026
ALRS$33.81-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-03-14.
0001437749-25-007629
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2025-12-31; filed 2026-03-04.
0001437749-26-006820
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 165 previous paragraphs and 165 current paragraphs.
121 unchanged; 41 reworded; 3 added; 3 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 67 previous and 67 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (3)
Current report
Total assets were $5.2 billion at December 31, 2025, a decrease of $31.6 million, or 0.6%, compared to $5.3 billion at December 31, 2024. The decrease was primarily due a $74.0 million decrease in available-for-sale investment securities and a $21.1 million decrease in held-to-maturity securities, partially offset by an increase of $55.5 million in loans held for investment and an increase of $15.3 million in operating lease right-of-use assets.
Current report
As of December 31, 2025, restructured accruing loans totaled $1.4 million. As of December 31, 2024, there were no restructured accruing loans. These loans represent financing receivables whose terms were modified for borrowers experiencing financial difficulty, typically through term extensions or interest rate reductions, but which continue to perform under the modified contractual terms. The increase during 2025 reflects one Agricultural − Land relationship where the borrower requested payment relief tied to cash-flow pressures. All such loans were evaluated under the Company's CECL methodology, and management determined that no specific allowance was required beyond amounts already captured in the collective reserve. Restructured accruing loans remain on accrual status because borrowers are current on all payments and demonstrate the ability to continue performing under the modified terms. Management continues to monitor these credits for performance trends and early-warning indicators.
Current report
Total stockholders’ equity was $564.9 million at December 31, 2025, an increase of $69.5 million, or 14.0%, compared to $495.4 million at December 31, 2024. The increase was primarily driven by the $68.4 million loss on investment securities recognized in connection with the strategic balance sheet repositioning in the fourth quarter of 2025, which contributed to the $71.2 million increase in other comprehensive income during the year.
Removed paragraphs (3)
Previous report
In the Company’s impairment analysis, the discount rates used for each reporting segment had the most significant impact on the analysis. Based on the goodwill impairment analysis, adjusting the discount rate +/- 100 basis points did not impact the final results which indicated no impairment.
Previous report
Total assets were $5.3 billion at December 31, 2024, an increase of $1.4 billion, or 34.6%, compared to $3.9 billion at December 31, 2023. The increase in total assets was primarily due a $1.2 billion increase in loans held for investment and a $101.3 million increase in AFS investment securities, partially offset by a decrease of $68.7 million in cash and cash equivalents.
Previous report
Total stockholders’ equity was $495.4 million at December 31, 2024, an increase of $126.3 million, or 34.2%, compared to $369.1 million at December 31, 2023. The increase was primarily driven by the issuance of common stock in connection with the acquisition of HMNF.
Reworded paragraphs (41)
Previous wording
The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA and Rochester MSA, and Arizona, specifically, the Phoenix MSA. In addition to the Company’s offices located in the Company’s banking markets, its retirement and benefit services business administers plans in all 50 states through offices located in Michigan, Minnesota and Colorado.
Current wording
The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA and Rochester MSA, and Arizona, specifically, the Phoenix MSA. In addition to the Company’s offices located in the Company’s banking markets, its retirement and benefit services business administers plans in all 50 states through offices located in Minnesota and Colorado.
Previous wording
As of December 31, 2024, the Company had $5.3 billion of total assets, $4.0 billion of total loans, $4.4 billion of total deposits, $495.4 million of stockholders’ equity, $40.7 billion of AUA/AUM in the Company’s retirement and benefit services segment, and $4.6 billion of AUA/AUM in the Company’s wealth segment.
Current wording
As of December 31, 2025, the Company had $5.2 billion of total assets, $4.0 billion of total loans, $4.2 billion of total deposits, $564.9 million of stockholders’ equity, $44.9 billion of assets under administration/management in the Company’s retirement and benefit services segment, and $4.9 billion of assets under administration/management in the Company’s wealth segment.
Previous wording
Management utilizes their best judgement and information available; however, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s control which are inherently difficult to predict. The most significant factor is the macroeconomic scenario forecasts that determine the economic variables utilized in the loss driver models. Due to the inherent uncertainty in the macroeconomic forecasts, management utilized baseline, upside, and downside macroeconomic scenarios and weights the scenarios each period. At December 31, 2024, the quantitative portion of the ACL estimate for collectively evaluated loans ranged from approximately $29.5 million when weighting the upside scenario to 100%, to approximately $65.1 million when weighting the most severe downside scenario 100%. Management determined that a $33.2 million reserve for the quantitative portion of the ACL for collectively evaluated loans was appropriate as of December 31, 2024.
Current wording
Management utilizes their best judgement and information available; however, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s control which are inherently difficult to predict. The most significant factor is the macroeconomic scenario forecasts that determine the economic variables utilized in the loss driver models. Due to the inherent uncertainty in the macroeconomic forecasts, management utilized baseline, upside, and downside macroeconomic scenarios and weights the scenarios each period. At December 31, 2025, the quantitative portion of the ACL estimate for collectively evaluated loans ranged from approximately $22.7 million when weighting the upside scenario to 100%, to approximately $65.0 million when weighting the most severe downside scenario 100%. Management determined that a $31.4 million reserve for the quantitative portion of the ACL for collectively evaluated loans was appropriate as of December 31, 2025.
Previous wording
As of December 31, 2024, the recorded ACL on loans was $59.9 million and represented the Company’s best estimate of expected credit losses within the loan portfolio. However, the Company may adjust its assumptions to account for differences between expected and actual losses each period. A future change of the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within the loan portfolio, and the Company considers the impact of these trends on the ACL and the Company's financial condition, if any. The ACL on loans is reviewed and approved on a quarterly basis by the ACL Governance Committee, and later reviewed and ratified by the Bank’s Board of Directors.
Current wording
As of December 31, 2025, the recorded ACL on loans was $61.9 million and represented the Company’s best estimate of expected credit losses within the loan portfolio. However, the Company may adjust its assumptions to account for differences between expected and actual losses each period. A future change of the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition. The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within the loan portfolio, and the Company considers the impact of these trends on the ACL and the Company's financial condition, if any. The ACL on loans is reviewed and approved on a quarterly basis by the ACL Governance Committee, and later reviewed and ratified by the Bank’s Board of Directors.
Previous wording
Net income for the year ended December 31, 2024 was $17.8 million, an increase of $6.1 million, or 52.0%, compared to $11.7 million for the year ended December 31, 2023. Diluted earnings per common share were $0.83 in 2024, compared to $0.58 in 2023. Return on average total assets was 0.39% in 2024, compared to 0.31% for 2023. The increase in net income was primarily driven by a $34.7 million increase in noninterest income and a $19.2 million increase in net interest income, partially offset by a $30.5 million increase in noninterest expense and a $16.1 million increase in provision for credit losses expense. Noninterest income increased primarily due to the $24.6 million loss on investment securities recognized in connection with a strategic balance sheet repositioning in the fourth quarter of 2023, as well as a $4.3 million increase in wealth revenue. The increase in net interest income was due to increased income on higher earning assets, organic loan growth, and lower average rates paid on deposit balances. The increase in noninterest expense was primarily due to an $11.0 million increase in compensation expense and a $12.9 million increase in professional fees and assessments, primarily driven by acquisition-related expenses.
Current wording
Net income for the year ended December 31, 2025 was $17.4 million, a decrease of $0.3 million, or 1.9%, compared to $17.8 million for the year ended December 31, 2024. Diluted earnings per common share were $0.68 in 2025, compared to $0.83 in 2024. Return on average total assets was 0.33% in 2025, compared to 0.39% for 2024. The decrease in net income was primarily driven by a $63.1 million decrease in noninterest income and a $20.6 million increase in noninterest expense, offset by a $65.5 million increase in net interest income and a $17.6 million decrease in provision for credit losses expense. Noninterest income decreased primarily due to the $68.4 million loss on investment securities recognized in connection with a strategic balance sheet repositioning in the fourth quarter of 2025. The increase in net interest income was primarily driven by earning assets acquired in the HMNF acquisition, organic loan growth at higher yields, lower cost of funds, and purchase accounting accretion. The increase in noninterest expense was primarily due to a $10.1 million increase in compensation expense, a $4.2 million increase in occupancy and equipment expense, a $3.8 million increase in employee taxes and benefits expense, and a $3.7 million increase in intangible amortization expense, partially offset by a $8.5 million decrease in professional fees and assessments, as a result of the completion of the HMNF acquisition.
Previous wording
Net interest income totaled $107.0 million in 2024, an increase of $19.2 million, or 21.9%, from 2023. Net interest margin increased 10 basis points to 2.56% in 2024, from 2.46% reported in 2023. The increase in net interest margin was primarily the result of a $56.7 million increase in interest income on interest earning assets, partially offset by a $37.5 million increase in interest expense on interest-bearing liabilities. The increase in the interest income earned on interest-bearing assets was driven by a 54 basis point increase in the average rate earned on loans as well as a $563.9 million increase in the average balance of total loans, driven by strong organic growth at higher yields and increased loan balances from the acquisition of HMNF. The increase in interest expense on interest-bearing liabilities was driven by a 57 basis point increase in the average rate paid on interest-bearing liabilities as well as a $637.4 million increase in the average balance of interest-bearing liabilities, driven by the acquisition of HMNF and organic deposit growth.
Current wording
Net interest income totaled $172.5 million in 2025, an increase of $65.5 million, or 61.1%, from 2024. Net interest margin increased 97 basis points to 3.53% in 2025, from 2.56% in 2024. The increase in net interest margin was primarily the result of a $58.1 million increase in interest income on interest-earning assets and a $7.4 million decrease in interest expense on interest-bearing liabilities. The increase in the interest income earned on interest-earning assets was driven by a 35 basis point increase in the average rate earned on loans as well as a $948.0 million increase in the average balance of total loans, driven by increased loan balances from the acquisition of HMNF and strong organic growth at higher yields. The decrease in interest expense on interest-bearing liabilities was driven by a 70 basis point decrease in the average rate paid on interest-bearing liabilities, partially offset by a $562.3 million increase in the average balance of interest-bearing liabilities, driven primarily by the acquisition of HMNF.
Previous wording
The Company recorded a provision for credit losses expense of $18.1 million for the year ended December 31, 2024, compared to a provision for credit losses expense of $2.1 million for the year ended December 31, 2023. The provision for credit losses expense for the year ended December 31, 2024 included $18.1 million in provision for credit losses on loans, $0.1 million in provision for credit losses on unfunded commitments and ($0.1) million recovery for credit losses on investment securities held-to-maturity (“HTM”). The CECL accounting standard requires the Company to recognize losses over the expected life of the loan as opposed to the losses expected to already have been incurred. The increase in provision for credit losses was primarily a result a $7.3 million day one provision in connection with the acquisition of HMNF along with strong organic loan growth and increased nonaccrual loans.
Current wording
The Company recorded a provision for credit losses expense of $0.6 million for the year ended December 31, 2025, compared to a provision for credit losses expense of $18.1 million for the year ended December 31, 2024. The provision for credit losses expense for the year ended December 31, 2025 included $4.2 million in provision for credit losses on loans, ($3.6) million in provision release for credit losses on unfunded commitments, and ($8) thousand recovery for credit losses on investment securities held-to-maturity (“HTM”). The CECL accounting standard requires the Company to recognize losses over the expected life of the loan as opposed to the losses expected to already have been incurred. The decrease in provision for credit losses was primarily a result of a $7.3 million day one provision in connection with the acquisition of HMNF in 2024 and a reduction in the unfunded commitment reserve of $3.6 million.
Previous wording
Total noninterest income increased $34.7 million, or 43.3%, to $114.9 million in 2024, from $80.2 million for 2023. The increase in noninterest income was primarily driven by the strategic balance sheet repositioning transaction in the fourth quarter of 2023, which resulted in a $24.6 million loss on the sale of investment securities. Wealth revenue increased $4.3 in 2024 primarily driven by an increase in assets under administration/management of 13.9%. Other noninterest income increased $4.3 million in 2024 primarily as a result of a $3.9 million gain on the sale of fixed assets driven by the sale of two branches during the year.
Current wording
Total noninterest income decreased $63.1 million, or 54.9%, to $51.9 million in 2025, from $114.9 million for 2024. The decrease in noninterest income was almost entirely driven by the strategic balance sheet repositioning transaction in the fourth quarter of 2025, which resulted in a $68.4 million loss on the sale of investment securities. Wealth revenue increased $2.1 million in 2025 primarily driven by an increase in assets under administration/management of 5.9%.
Previous wording
Noninterest income as a percent of total operating revenue, which consists of net interest income plus noninterest income, was 51.78% in 2024, up from 47.7% the prior year. The increase in 2024 was due to a 43.3% increase in noninterest income and a 21.9% increase in net interest income.
Current wording
Noninterest income as a percent of total operating revenue, which consists of net interest income plus noninterest income, was 23.12% in 2025, down from 51.78% the prior year. The decrease in 2025 was primarily driven by the strategic balance sheet repositioning transaction in the fourth quarter of 2025, which resulted in a $68.4 million loss on the sale of investment securities. Excluding the $68.4 million loss on the sale of investment securities associated with the strategic balance sheet repositioning transaction in the fourth quarter of 2025, adjusted noninterest income as a percent of total operating revenue, which consists of net interest income plus noninterest income, was 41.08% in 2025.
Previous wording
Total noninterest expense increased $30.5 million, or 20.3%, to $180.7 million for the year ended December 31, 2024, from $150.2 million for the year ended December 31, 2023. The increase in noninterest expense was primarily driven by an $11.0 million increase in compensation expense and an $12.9 million increase in professional fees and assessments expense. The increase in compensation expense was primarily driven by acquisition-related compensation expenses, experienced talent acquisitions, and increased labor costs. Professional fees and assessments expenses increased due to acquisition-related expenses and an increase in FDIC assessments.
Current wording
Total noninterest expense increased $20.6 million, or 11.4%, to $201.2 million for the year ended December 31, 2025, from $180.7 million for the year ended December 31, 2024. The increase in noninterest expense was primarily driven by a $10.1 million increase in compensation expense, a $4.2 million increase in occupancy and equipment expense, a $3.8 million increase in employee taxes and benefits expense, and a $3.7 million increase in intangible amortization expense, partially offset by a $8.5 million decrease in professional fees and assessments, as a result of the completion of the HMNF acquisition.
Previous wording
For the year ended December 31, 2024, the Company recognized income tax expense of $5.4 million on $23.2 million of pre-tax income, resulting in an effective tax rate of 23.2%. For the year ended December 31, 2023, the Company recognized an income tax expense of $4.2 million on $15.9 million of pre-tax income, resulting in an effective tax rate of 26.2%. The decrease in the effective tax rate was primarily driven by items related to the acquisition of HMNF in 2024 and increased tax-exempt income.
Current wording
For the year ended December 31, 2025, the Company recognized income tax expense of $5.2 million on $22.6 million of pre-tax income, resulting in an effective tax rate of 22.8%. For the year ended December 31, 2024, the Company recognized income tax expense of $5.4 million on $23.2 million of pre-tax income, resulting in an effective tax rate of 23.2%. The decrease in the effective tax rate was primarily driven by items related to the acquisition of HMNF in 2024 and increased tax-exempt income.
Previous wording
The banking division offers a complete line of loan, deposit, cash management, and treasury services through 29 offices in North Dakota, Minnesota, Arizona, Wisconsin, and Iowa. These products and services are supported through various digital applications. The majority of the Company’s assets and liabilities are on the banking segment balance sheet.
Current wording
The banking division offers a complete line of loan, deposit, cash management, and treasury services through 27 offices in North Dakota, Minnesota, Arizona, Wisconsin, and Iowa. These products and services are supported through various digital applications. The majority of the Company’s assets and liabilities are on the banking segment balance sheet.
Previous wording
The retirement and benefit services business provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. The division services approximately 8,600 retirement plans and more than 500,200 plan participants and operates within the Company’s banking markets, as well as East Lansing, Michigan, and Lakewood, Colorado.
Current wording
The retirement and benefit services business provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. The division services approximately 8,800 retirement plans and more than 495,000 plan participants and operates within the Company’s banking markets, as well as Lakewood, Colorado.
Previous wording
AUA and AUM for the retirement and benefit services segment was $40.7 billion at December 31, 2024, an increase of $4.0 billion, or 11.0%, compared to the total at December 31, 2023. The increase was primarily driven by an increase of $4.1 billion in market impact, driven by improved bond and equity markets.
Current wording
Total AUA and AUM for the retirement and benefit services segment was $44.9 billion at December 31, 2025, an increase of $4.2 billion, or 10.3%, compared to the total at December 31, 2024. The increase was primarily driven by an increase of $5.1 billion in market impact, driven by improved bond and equity markets.
Previous wording
AUA and AUM for the wealth segment was $3.4 billion, excluding $892.3 million of brokerage assets, at December 31, 2024, an increase of $0.3 million, or 8.1%, compared to the total at December 31, 2023. The increase was driven by a $0.3 million increase in market impact driven by improved bond and equity markets.
Current wording
Total AUA and AUM for the wealth segment was $4.9 billion at December 31, 2025, an increase of $0.3 billion, or 5.9%, compared to the total at December 31, 2024. The increase was driven by a $0.7 billion increase in market impact driven by improved bond and equity markets.
Previous wording
At December 31, 2024, the total fair value of investment securities was $825.0 million compared to $745.4 million at December 31, 2023. The fair value of investment securities as a percentage of total assets was 15.7% and 19.1%, as of December 31, 2024 and December 31, 2023, respectively. The increase in investment securities was primarily due to investment securities acquired in the HMNF transaction in the fourth quarter of 2024. Securities with a carrying value of $340.2 million were pledged at December 31, 2024, to secure public deposits and for other purposes required or permitted by law.
Current wording
At December 31, 2025, the total fair value of investment securities was $742.1 million compared to $825.0 million at December 31, 2024. The fair value of investment securities as a percentage of total assets was 14.2% and 15.7%, as of December 31, 2025 and December 31, 2024, respectively. The decrease in investment securities was primarily due to principal paydowns on mortgage securities and maturities. Securities with a carrying value of $115.1 million were pledged at December 31, 2025, to secure public deposits and for other purposes required or permitted by law.
Previous wording
The net pre-tax unrealized market value loss on the AFS investment portfolio as of December 31, 2024 was $98.5 million, as compared to a $98.0 million loss as of December 31, 2023. The slight increase was a result of additional investment securities acquired in the HMNF transaction, partially offset by improved markets.
Current wording
The net pre-tax unrealized market value loss on the AFS investment portfolio as of December 31, 2025 was $3.6 million, compared to a $98.5 million loss as of December 31, 2024. The decrease was primarily due to the $68.4 million loss on investment securities recognized in connection with the strategic balance sheet repositioning in the fourth quarter of 2025, as well as improved market conditions.
Previous wording
As of December 31, 2024 and December 31, 2023, the Company held 68 tax-exempt state and local municipal securities totaling $30.0 million and held 75 tax-exempt state and local municipal securities totaling $35.0 million, respectively. Other than the aforementioned investments, at December 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
Current wording
As of December 31, 2025 and December 31, 2024, the Company held 59 tax-exempt state and local municipal securities totaling $28.1 million, and 68 tax-exempt state and local municipal securities totaling $30.0 million, respectively. Other than the aforementioned investments, at December 31, 2025 and December 31, 2024, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.
Previous wording
The Company’s AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required in accordance with ASU 2016-13. As of and for the years ended years ended December 31, 2024 and 2023, the Company did not record any allowances or write-down any of the AFS debt securities in an unrealized loss position. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for AFS investments as of and for the year ended December 31, 2024.
Current wording
The Company’s AFS debt securities that are in an unrealized loss position are assessed to determine if an allowance should be recorded or if a write-down is required in accordance with ASU 2016-13. As of and for the years ended years ended December 31, 2025 and 2024, the Company did not record any allowances on or write-down any of the AFS debt securities in an unrealized loss position. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for AFS investments as of and for the year ended December 31, 2025.
Previous wording
In accordance with ASU 2016-13, each reporting period the Company’s HTM debt securities are assessed to determine if any allowance should be recorded or if a write-down is required. As of and for the years ended December 31, 2024 and 2023, the Company recorded an allowance of $131 thousand and $213, respectively, and did not write-down any HTM debt securities. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for HTM investments as of and for the years ended December 31, 2024 and 2023.
Current wording
In accordance with ASU 2016-13, in each reporting period the Company’s HTM debt securities are assessed to determine if any allowance should be recorded or if a write-down is required. As of and for the years ended December 31, 2025 and 2024, the Company recorded an allowance of $123 thousand and $131 thousand, respectively, and did not write-down any HTM debt securities. Refer to Note 1 (Significant Accounting Policies) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for additional details of the Company’s assessment of the allowance for HTM investments as of and for the years ended December 31, 2025 and 2024.
Previous wording
Total loans outstanding were $4.0 billion as of December 31, 2024, an increase of $1.2 billion, or 44.7%, from December 31, 2023. The increase in total loans was a combination of organic loan growth and loans acquired in the HMNF transaction. The fair value of net loans acquired in the HMNF transaction, which was completed on October 9, 2024, was $786.2 million. Additionally, the Company continued to invest in talent to support organic loan growth and added an equipment finance team in 2024. Loan growth included increases of $786.1 million in CRE loans, $280.1 million in RRE loans, and $104.5 million in C&I loans.
Current wording
Total loans outstanding were $4.0 billion as of December 31, 2025, an increase of $55.5 million, or 1.4%, from December 31, 2024. The increase in total loans was primarily driven by a $45.8 million increase in consumer loans and a $9.7 million increase in commercial loans. The fair value of net loans acquired in the HMNF transaction, which was completed on October 9, 2024, was $786.2 million.
Previous wording
The Company’s loan portfolio is highly diversified. As of December 31, 2024, approximately 16.7% of loans outstanding were C&I, while 50.0% of loans outstanding were CRE, 30.2% of loans outstanding were consumer, and 3.1% of loans outstanding were agricultural.
Current wording
The Company’s loan portfolio is highly diversified. As of December 31, 2025, approximately 18.3% of loans outstanding were C&I, while 47.8% of loans outstanding were CRE, 30.8% of loans outstanding were consumer, and 3.1% of loans outstanding were agricultural.
Previous wording
CRE loans may be adversely affected by conditions in the real estate markets or in the general economy. The Company does not monitor the CRE portfolio for attributes such as loan to value ratios, occupancy rates, and net operating income, as these characteristics are assessed and evaluated on an individual loan basis. Portfolio stress testing is completed based on property type and takes into consideration changes to net operating income and capitalization rates. The Company does not have exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with acceptable occupancy levels. As of December 31, 2024, at 331%, the Company’s applicable investor CRE loans, as a percentage of its risk-based capital, exceeded the regulatory guideline limit of 300%. Robust concentration management processes are in place to monitor this level of exposure. Quarterly, Bank management and its Board of Directors review the level of investor real estate assets, taking into consideration geographic location, detailed market analysis by property type, portfolio performance, and asset quality trends. Construction loans at 59% were below the regulatory guideline limit of 100%.
Current wording
CRE loans may be adversely affected by conditions in the real estate markets or in the general economy. The Company does not monitor the CRE portfolio for attributes such as loan to value ratios, occupancy rates, and net operating income, as these characteristics are assessed and evaluated on an individual loan basis. Portfolio stress testing is completed based on property type and takes into consideration changes to net operating income and capitalization rates. The Company does not have exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with acceptable occupancy levels. As of December 31, 2025, at 303.4%, the Bank's applicable investor CRE loans, as a percentage of its risk-based capital, slightly exceeded the regulatory guideline limit of 300%. Robust concentration management processes are in place to monitor this level of exposure. Quarterly, Bank management and its Board of Directors review the level of investor real estate assets, taking into consideration geographic location, detailed market analysis by property type, portfolio performance, and asset quality trends. Construction loans at 49.3% were below the regulatory guideline limit of 100%.
Previous wording
The Company’s consumer mortgage loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards. Volume in this portion of the loan portfolio increased over the last year due primarily to the acquisition of HMNF. As of December 31, 2024, the Company’s consumer mortgage portfolio was $1.2 billion, which represented a $280.1 million, or 31.8%, increase from $881.0 million as of December 31, 2023. Market interest rates, expected duration, and the Company’s overall interest rate sensitivity profile continue to be the most significant factors in determining whether the Company chooses to retain versus sell portions of new consumer mortgage originations.
Current wording
The Company’s consumer mortgage loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards. As of December 31, 2025, the Company’s consumer mortgage portfolio was $1.2 billion, which represented a $45.0 million, or 3.9%, increase from $1.2 billion as of December 31, 2024. Market interest rates, expected duration, and the Company’s overall interest rate sensitivity profile continue to be the most significant factors in determining whether the Company chooses to retain versus sell portions of new consumer mortgage originations.
Previous wording
Criticized loans represented 4.97% and 2.23% of total loans as of December 31, 2024 and 2023, respectively. The increase in criticized loans in 2024 was driven by normalization of credit quality, the increase in nonperforming loans, and the acquisition of loans in the HMNF transaction. Criticized assets acquired from HMNF were identified and accounted for at closing.
Current wording
Criticized loans represented 3.68% and 4.97% of total loans as of December 31, 2025 and 2024, respectively. The decrease in criticized loans in 2025 was driven by stabilization of credit quality and the sale of a pool of hospitality loans early in the third quarter of 2025.
Previous wording
The allowance for credit losses to nonperforming loans ratio decreased 315 basis points from December 31, 2023. The decrease was primarily the result of an increase in nonperforming loans for the year ended December 31, 2024. The increase in nonperforming loans was primarily driven by one construction, land and development loan of $25.0 million moving to nonaccrual status in the second quarter of 2024. During the third and fourth quarters of 2024, management elected to make protective advances totaling $5.4 million in order for construction to continue on the project. Management is actively working with the borrower on strategies to complete construction, preserve value, and support repayment of the loan. One large RRE relationship and one CRE non-owner occupied loan moving to nonaccrual status during the third quarter of 2024 also contributed $13.6 million to the increase. A further $1.5 million of the increase in the fourth quarter of 2024 was driven by loans acquired from HMNF. Nonperforming assets included one loan over 90 days past due and still on accrual. This loan was renewed subsequent to year end.
Current wording
The allowance for credit losses to nonperforming loans ratio decreased 565 basis points from December 31, 2024. The decrease was primarily the result of a $6.2 million increase in nonperforming loans for the year ended December 31, 2025. The increase in nonperforming loans was primarily driven by one commercial and industrial relationship of $12.2 million moving to nonaccrual status in the third quarter of 2025. In addition, two CRE – Multifamily relationships were moved to nonaccrual status in the fourth quarter of 2025, totaling $19.4 million. Protective advances totaling $5.4 million were made in order for construction to continue on a CRE – Construction, land and development loan totaling $33.6 million. Relief included the payoff of a CRE – Non-owner occupied relationship in the first quarter of 2025 and a commercial and industrial relationship in the third quarter of 2025 totaling $8.0 million, as well as an $8.5 million commercial and industrial loan which had been 90 days past due at December 31, 2024 that was paid current in 2025. The allowance for credit losses at December 31, 2025 also increased by $2.0 million over the allowance at December 31, 2024.
Previous wording
Interest income lost on nonaccrual loans approximated $4.8 million and $0.5 million for the years ended December 31, 2024 and 2023, respectively. There was no interest income included in net income related to nonaccrual loans for the years ended December 31, 2024 and 2023.
Current wording
Interest income lost on nonaccrual loans approximated $3.3 million and $4.8 million for the years ended December 31, 2025 and 2024, respectively. There was no interest income included in net income related to nonaccrual loans for the years ended December 31, 2025 and 2024.
Previous wording
The ACL on loans was $59.9 million at December 31, 2024, compared to $35.8 million at December 31, 2023. The $24.1 million increase in the ACL was primarily due to the acquisition of HMNF, which resulted in an additional ACL on PCD acquired loans of $10.2 million and a day one provision for credit losses on non-PCD acquired loans of $7.3 million.
Current wording
The ACL on loans was $61.9 million at December 31, 2025, compared to $59.9 million at December 31, 2024. The $2.0 million increase in the ACL was primarily due to an increase in reserves on individually evaluated loans.
Previous wording
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. A reserve for unfunded commitments is established using historical loss data and utilization assumptions. This reserve is located under accrued expenses and other liabilities on the Consolidated Balance Sheets. The expense for provision for unfunded commitments was $0.1 million and $2.2 million for the years ended years ended December 31, 2024 and 2023, respectively.
Current wording
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. A reserve for unfunded commitments is established using historical loss data and utilization assumptions. This reserve is located under accrued expenses and other liabilities on the Consolidated Balance Sheets. The provision release for unfunded commitments for the year ended December 31, 2025 was $3.6 million. The expense for provision for unfunded commitments for the year ended December 31, 2024 was $0.1 million.
Previous wording
Total deposits were $4.4 billion as of December 31, 2024, an increase of $1.3 billion, or 41.4%, from December 31, 2023. Interest-bearing deposits increased $1.1 billion while noninterest-bearing deposits increased $175.4 million. The increase in interest-bearing deposits consisted of increases of $432.6 million in money market and savings, $379.5 million in interest-bearing demand deposits, and $295.4 million in time deposits. The increase in total deposits was primarily driven by the recent acquisition of HMNF, expanded and new commercial deposit relationships, and synergistic deposit growth.
Current wording
Total deposits were $4.2 billion as of December 31, 2025, a decrease of $186.4 million, or 4.3%, from December 31, 2024. Noninterest-bearing deposits decreased $95.6 million and interest-bearing deposits decreased $90.8 million. The decrease in interest-bearing deposits consisted of decreases of $130.4 million in time deposits and $36.6 million in money market and savings, partially offset by an increase of $76.1 million in interest-bearing demand deposits. The decrease in interest-bearing deposits was primarily driven by a decrease in high-cost time deposits, which included $22.2 million of brokered CDs that matured in 2025 and were not renewed.
Previous wording
Interest-bearing deposit costs were 3.21% and 2.44% for the years ended December 31, 2024 and 2023, respectively. The increase in interest-bearing deposit costs was the result of a rising interest rate environment and a highly competitive deposit environment.
Current wording
Interest-bearing deposit costs were 2.63% and 3.21% for the years ended December 31, 2025 and 2024, respectively. The decrease in interest-bearing deposit costs was the result of a declining interest rate environment.
Previous wording
The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.5 billion and $1.1 billion at December 31, 2024 and 2023, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
Current wording
The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.4 billion and $1.5 billion at December 31, 2025 and 2024, respectively. These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes.
Previous wording
The Company utilizes both short term and long term borrowings as part of its asset/liability management and funding strategies. Short term borrowings consist of FHLB advances and federal funds purchased. The Company had $239.0 million and $314.2 million in short term borrowings outstanding at December 31, 2024 and 2023, respectively.
Current wording
The Company utilizes both short term and long term borrowings as part of its asset/liability management and funding strategies. Short term borrowings consist of FHLB advances and federal funds purchased. The Company had $308.8 million and $239.0 million in short term borrowings outstanding at December 31, 2025 and 2024, respectively.
Previous wording
FHLB advances were secured by specific investment securities and real estate loans with a carrying amount of approximately $2.4 billion and $1.7 billion at December 31, 2024 and 2023, respectively.
Current wording
FHLB advances were secured by specific investment securities and real estate loans with a carrying amount of approximately $2.1 billion and $2.4 billion at December 31, 2025 and 2024, respectively.
Previous wording
Long-term debt is utilized to fund longer term assets and as a source of regulatory capital. At December 31, 2024, the Company had a $50.0 million outstanding 3.50% Fixed Rate Subordinated Note due 2031 (the “Subordinated Note”). The Subordinated Note currently bears interest at a fixed rate of 3.50% per year, payable annually through March 31, 2026. At the fifth anniversary of the issuance date of the Subordinated Note, on March 30, 2026, the interest rate will reset to a fixed interest rate equal to the FHLB rate, plus 2.0%, with a minimum annual fixed rate of not less than 3.5%. The Subordinated Note matures on March 30, 2031, and the Company has the option to redeem or prepay any or all of the Subordinated Note without premium or penalty any time after March 31, 2026, or at any time in the event of certain changes that affect the deductibility of interest for tax purposes or the treatment of the notes as Tier 2 Capital.
Current wording
Long-term debt is utilized to fund longer term assets and as a source of regulatory capital. At December 31, 2025, the Company had a $50.0 million outstanding 3.50% Fixed Rate Subordinated Note due 2031 (the “Subordinated Note”). The Subordinated Note currently bears interest at a fixed rate of 3.50% per year, payable annually through March 31, 2026. At the fifth anniversary of the issuance date of the Subordinated Note, on March 30, 2026, the interest rate will reset to a fixed interest rate equal to the FHLB rate, plus 2.0%, with a minimum annual fixed rate of not less than 3.5%. The Subordinated Note matures on March 30, 2031, and the Company has the option to redeem or prepay any or all of the Subordinated Note without premium or penalty at the time of interest payment beginning or after March 31, 2026, or at any time in the event of certain changes that affect the deductibility of interest for tax purposes or the treatment of the notes as Tier 2 Capital.
Previous wording
Junior subordinated debentures issued to capital trusts that issued trust preferred securities were $9.1 million as of December 31, 2024, compared to $9.0 million as of December 31, 2023. The increase was due to purchase accounting amortization on the junior subordinated notes assumed in the Beacon Bank acquisition in 2016. See Note 14 (Long-Term Debt) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Current wording
Junior subordinated debentures issued to capital trusts that issued trust preferred securities were $9.2 million as of December 31, 2025, compared to $9.1 million as of December 31, 2024. The increase was due to purchase accounting amortization on the junior subordinated notes assumed in the Beacon Bank acquisition in 2016. See Note 14 (Long-Term Debt) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
Previous wording
As of December 31, 2024, the Company had on balance sheet liquidity of $579.0 million, compared to $668.2 million as of December 31, 2023. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, unencumbered securities available-for-sale and over collateralized securities pledging positions available-for-sale.
Current wording
As of December 31, 2025, the Company had on balance sheet liquidity of $568.8 million, compared to $579.0 million as of December 31, 2024. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, unencumbered securities available-for-sale and over collateralized securities pledging positions available-for-sale.
Previous wording
As of December 31, 2024, the Company had off balance sheet liquidity of $2.3 billion, compared to $1.6 billion as of December 31, 2023. Off balance sheet liquidity includes FHLB borrowing capacity, federal fund lines, and brokered deposit capacity.
Current wording
As of December 31, 2025, the Company had off balance sheet liquidity of $2.2 billion, compared to $2.3 billion as of December 31, 2024. Off balance sheet liquidity includes FHLB borrowing capacity, Federal Reserve Bank discount window capacity, federal fund lines, and brokered deposit capacity.
Previous wording
The Bank is a member of the FHLB, which provides short and long term funding to its members through advances collateralized by real estate related assets and other select collateral, most typically in the form of debt securities. The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of December 31, 2024, the Company had $2.4 billion of collateral pledged to the FHLB. Based on this collateral the Company is eligible to borrow up to $2.4 billion and had $1.2 billion available capacity as of December 31, 2024. In addition, the Company can borrow up to $92.0 million through unsecured lines of credit the Company has established with four other banks.
Current wording
The Bank is a member of the FHLB, which provides short and long term funding to its members through advances collateralized by real estate related assets and other select collateral, most typically in the form of debt securities. The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of December 31, 2025, the Company had $2.1 billion of collateral pledged to the FHLB. Based on this collateral the Company is eligible to borrow up to $1.3 billion and had $1.0 billion of available capacity as of December 31, 2025. As of December 31, 2025, the Company had borrowing capacity through the Federal Reserve Bank discount window of $40.6 million. In addition, the Company can borrow up to $127.0 million through unsecured lines of credit the Company has established with five other banks.
Previous wording
The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding. At December 31, 2024, the Company had $61.2 million of cash and cash equivalents of which $19.7 million were interest-bearing deposits held at the Federal Reserve, FHLB and other correspondent banks.
Current wording
The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding. At December 31, 2025, the Company had $67.2 million of cash and cash equivalents of which $29.5 million were interest-bearing deposits held at the Federal Reserve, FHLB and other correspondent banks.
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