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What changed in ALERUS FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ALERUS FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+928 added−869 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-13)

Top changes in ALERUS FINANCIAL CORP's 2023 10-K

928 paragraphs added · 869 removed · 739 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

129 edited+16 added−15 removed90 unchanged
Biggest changeThese laws mandate financial services companies to have policies and procedures with respect to measures designed to address the following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. Concentrations in Commercial Real Estate.
Biggest changeThe so-called Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) regime under the BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, finance terrorist acts or move funds for other illicit purposes. 20 Table of Contents The laws mandate financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities.
Under the capital regulations of the Federal Reserve for the Company and the OCC for the Bank, in order to be well-capitalized, we must maintain: ● A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; ● A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; ● A ratio of Total Capital to total risk-weighted assets of 10% or more; and ● A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.
Under the capital regulations of the Federal Reserve for the Company and the OCC for the Bank, in order to be well capitalized, the Company must maintain: ● A Common Equity Tier 1 Capital ratio to risk-weighted assets of 6.5% or more; ● A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more; ● A ratio of Total Capital to total risk-weighted assets of 10% or more; and ● A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.
Furthermore, if non-compliance is based on the failure of the Bank to achieve a satisfactory CRA rating, we would not be able to commence any new financial activities or acquire a company that engages in such activities. Change in Control .
Furthermore, if non-compliance is based on the failure of the Bank to achieve a satisfactory CRA rating, the Company would not be able to commence any new financial activities or acquire a company that engages in such activities. Change in Control .
Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate, or CRE, is one example of regulatory concern.
Concentrations in Commercial Real Estate. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate, or CRE, is one example of regulatory concern.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, or Regulatory Relief Act, eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving us of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, or Regulatory Relief Act, eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving the Company of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.
Typically, loans with a fixed interest rate of greater than 10 years are available-for-sale and sold on the secondary market. Our mortgage banking loan sales activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding.
Typically, loans with a fixed interest rate of greater than 10 years are available-for-sale and sold on the secondary market. The Company’s mortgage banking loan sales activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan funding and are delivered to the investor shortly after funding.
After accessing the website, the filings are available upon selecting “Investor Relations” and “SEC Filings.” Reports available include the Company’s proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonable practicable after the documents and reports are electronically filed with or furnished to the SEC.
After accessing the website, the filings are available upon selecting “Investor Relations” and “SEC Filings.” Reports available include the Company’s proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after the documents and reports are electronically filed with or furnished to the SEC.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2022: (i) the Bank was not subject to a directive from the OCC to increase its capital and (ii) the Bank was well-capitalized, as defined by OCC regulations.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2023: (i) the Bank was not subject to a directive from the OCC to increase its capital and (ii) the Bank was well-capitalized, as defined by OCC regulations.
The advisor is equipped to tailor this diverse set of products and services to each client’s unique goals and is empowered to reach across our organization to bring the client in contact with product specialists as needed. One Alerus bridges the gaps between our business units with a focus on client advocacy.
The advisor is equipped to tailor this diverse set of products and services to each client’s unique goals and is empowered to reach across the Company’s organization to bring the client in contact with product specialists as needed. One Alerus bridges the gaps between the Company’s business units with a focus on client advocacy.
Once our clients have integrated or linked all of their financial information, the data can be used to create a custom financial fitness score to help clients save for emergencies, plan for retirement, manage their debt, optimize health savings and protect them from unexpected events with insurance.
Once the Company’s clients have integrated or linked all of their financial information, the data can be used to create a custom financial fitness score to help clients save for emergencies, plan for retirement, manage their debt, optimize health savings and protect them from unexpected events with insurance.
Our products and services include traditional bank offerings such as checking accounts, debit cards, savings accounts, personal and business loans, credit cards, online banking, mobile banking / wallet, private banking, deposit and payment solutions and mortgages, as well as fee income services such as individual retirement accounts, or IRAs, 401(k) rollovers, retirement planning, employer-sponsored plans, employee stock ownership plans, health savings account, or HSA, flex spending account, or FSA, administration and government health insurance program services, and wealth management services such as advisory, investment management and trust and fiduciary services.
The Company’s products and services include traditional bank offerings such as checking accounts, debit cards, savings accounts, personal and business loans, credit cards, online banking, mobile banking / wallet, private banking, deposit and payment solutions, and mortgages, as well as fee income services such as individual retirement accounts, or IRAs, 401(k) rollovers, retirement planning, employer sponsored plans, employee stock ownership plans, health savings account, or HSA, flex spending account, or FSA, administration and government health insurance program services, and wealth management services such as advisory, investment management, and trust and fiduciary services.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, or FASB, securities laws administered by the Securities and Exchange Commission, or SEC, and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury, or Treasury, have an impact on our business.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board, or FASB, securities laws administered by the Securities and Exchange Commission, or SEC, and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the Treasury, or Treasury, have an impact on the Company’s business.
As a national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, the chartering authority for national banks. Our defined business lines of Banking, Mortgage, Retirement and Benefits and Wealth Management are each subject to that authority. The FDIC, as administrator of the DIF, also has regulatory authority over the Bank.
As a national bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the OCC, the chartering authority for national banks. The Company’s defined business lines of Banking, Mortgage, Retirement and Benefits and Wealth Management are each subject to that authority. The FDIC, as administrator of the DIF, also has regulatory authority over the Bank.
For example, a client who has multiple products with our Company, such as banking accounts, a mortgage, wealth management accounts, a retirement account, and a health benefit account, can now access all of these accounts online and effect transactions via one, single login through My Alerus.
For example, a client who has multiple products with the Company, such as banking accounts, a mortgage, wealth management accounts, a retirement account, and a health benefit account, can now access all of these accounts online and effect transactions via one, single login through My Alerus.
Mortgage Our mortgage business offers first and second mortgage loans through a centralized mortgage unit located in Minneapolis, Minnesota, as well as through our banking office locations. These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner.
Mortgage The Company’s mortgage business offers first and second mortgage loans through a centralized mortgage unit located in Minneapolis, Minnesota, as well as through the Company’s banking office locations. These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner.
The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords (known as “Basel” rules) adopted by the Basel Committee on Banking Supervision, a committee of central 12 Table of Contents banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis.
The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” The capital guidelines for U.S. banks beginning in 1989 have been based upon international capital accords (known as “Basel” rules) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. bank regulatory agencies on an interagency basis.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. The reserve ratio is the DIF balance divided by estimated insured deposits.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. For this purpose, the reserve ratio is the DIF balance divided by estimated insured deposits.
On July 1, 2022, we completed our acquisition of MPB BHC, Inc., the holding company of Metro Phoenix Bank. The primary reasons for the acquisition were to expand the Company’s business in the Phoenix-Mesa-Scottsdale metropolitan statistical area, or Phoenix MSA, and grow the size of the Company’s business.
On July 1, 2022, the Company completed the acquisition of MPB BHC, Inc., the holding company of Metro Phoenix Bank. The primary reasons for the acquisition were to expand the Company’s business in the Phoenix-Mesa-Scottsdale metropolitan statistical area, or Phoenix MSA, and grow the size of the Company’s business.
Through our relationship-oriented lending approach, our strategy is to offer a broad range of customized commercial and consumer lending products for the personal investment and business needs of our clients. Our commercial lending products include commercial loans, business term loans and lines of credit for a diversified mix of small and midsized businesses.
Through the Company’s relationship-oriented lending approach, the Company’s strategy is to offer a broad range of customized commercial and consumer lending products for the personal investment and business needs of the Company’s clients. The Company’s commercial lending products include commercial loans, business term loans and lines of credit for a diversified mix of small and midsized businesses.
More specifically, the bank regulatory agencies described the goals of the CRA Proposal as follows: (i) to expand access to credit, investment, and basic banking services in low and moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and under served rural communities; (iv) to tailor CRA rules and data collection to bank size and business model; and (v) to maintain a unified approach among the regulators.
More specifically, the bank regulatory agencies described the goals of the CRA Rule as follows: (i) to expand access to credit, investment, and basic banking services in low and moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and underserved rural communities; (iv) to tailor CRA rules and data collection to bank size and business model; and (v) to maintain a unified approach among the regulators.
The Company’s compensation programs are designed to align the compensation of our employees with the Company’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.
The Company’s compensation programs are designed to align the compensation of its employees with the Company’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of the Company’s compensation programs balances incentive earnings for both short-term and long-term performance.
Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused our compliance and risk management processes, and the costs thereof, to increase.
Although the reforms primarily targeted systemically important financial service providers, their influence filtered down in varying degrees to community banks over time and caused the Company’s compliance and risk management processes, and the costs thereof, to increase.
The State of North Dakota also features one of the only state-owned banks in the nation, the Bank of North Dakota, which offers services, many of which are similar to those offered by a correspondent bank, only to banks like ours that are headquartered in the state.
The State of North Dakota also features one of the only state-owned banks in the nation, the Bank of North Dakota, which offers services, many of which are similar to those offered by a correspondent bank, only to banks like the Company that are headquartered in the state.
Instead of being forced to use different usernames and passwords for each system, we’ve created a single login dashboard to access the most used information on client accounts and coupled that with the ability to link into more detailed information within each transaction system (banking, retirement, and benefits, wealth management and mortgage).
Instead of being forced to use different usernames and passwords for each system, the Company has created a single login dashboard to access the most used information on client accounts and coupled that with the ability to link into more detailed information within each transaction system (banking, retirement, and benefits, wealth management and mortgage).
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, we experienced heightened regulatory requirements and scrutiny.
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank Act, the Company experienced heightened regulatory requirements and scrutiny.
Our investment management services offer two unique and proprietary strategies called Dimension and Blueprint, which are primarily targeted toward IRAs, and agency account relationships. A Dimension account is a proprietary, separately managed account designed for individual investors, foundations, endowments and institutions with assets typically greater than $500 thousand.
The Company’s investment management services offer two unique and proprietary strategies called Dimension and Blueprint, which are primarily targeted toward IRAs, and agency account relationships. A Dimension account is a proprietary, separately managed account designed for individual investors, foundations, endowments and institutions with assets typically greater than $500 thousand.
These federal and state laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of our business; the kinds and amounts of investments we may make; required capital levels relative to our assets; the nature and amount of collateral for loans; the establishment of branches; our ability to merge, consolidate and acquire; dealings with our insiders and affiliates; and our payment of dividends.
These federal and state laws, and the regulations of the bank regulatory agencies issued under them, affect, among other things, the scope of the Company’s business; the kinds and amounts of investments the Company may make; required capital levels relative to the Company’s assets; the nature and amount of collateral for loans; the establishment of branches; the Company’s ability to merge, consolidate and acquire; dealings with insiders and affiliates; and the Company’s payment of dividends.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority permits us to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority permits the Company to 15 Table of Contents engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
If the Federal Reserve determines that either we or the Bank is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on us that it deems appropriate.
If the Federal Reserve determines that either the Company or the Bank is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the Company that it deems appropriate.
In addition, as a part of its operational risk mitigation, the Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information and to require the same of its service providers.
In addition, as a part of its operational risk mitigation, the Bank is required to implement a comprehensive information security program that 19 Table of Contents includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information and to require the same of its service providers.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the 11 Table of Contents requirements of applicable statutes and by the regulations and policies of various bank regulatory agencies, including our primary regulator, the Board of Governors of the Federal Reserve System, or Federal Reserve, and the Bank’s primary regulator, the Office of the Comptroller of the Currency, or OCC, as well as the FDIC, as the insurer of our deposits, and the Consumer Financial Protection Bureau, or CFPB, as the regulator of consumer financial services and their providers.
As a result, the Company’s growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of applicable statutes and by the regulations and policies of various bank regulatory agencies, including the Company’s primary regulator, the Board of Governors of the Federal Reserve System, or Federal Reserve, and the Bank’s primary regulator, the Office of the Comptroller of the Currency, or OCC, as well as the FDIC, as the insurer of the Company’s deposits, and the Consumer Financial Protection Bureau, or CFPB, as the regulator of consumer financial services and their providers.
Finally, the Bank of North Dakota enables state banks to take deposits and manage funds for municipal and county governments without meeting collateral requirements, which are waived by a letter of credit from the Bank of North Dakota. Minnesota We serve the Minnesota market through six full-service banking offices all located in the Twin Cities MSA.
Finally, the Bank of North Dakota enables state banks to take deposits and manage funds for municipal and county governments without meeting collateral requirements, which are waived by a letter of credit from the Bank of North Dakota. Minnesota The Company serves the Minnesota market through six full-service banking offices all located in the Twin Cities MSA.
“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. We are subject to the complex consolidated capital requirements of the Basel III Rule, see “—the Role of Capital” above. Dividend Payments.
“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. The Company is subject to the complex consolidated capital requirements of the Basel III Rule, see “—the Role of Capital” above.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of 18 Table of Contents financial transactions have changed the nature of banking markets.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.
Based on the Bank’s loan portfolio as of December 31, 2022, we did not exceed the guidelines for CRE lending. Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.
Based on the Bank’s loan portfolio as of December 31, 2023, the Company did not exceed the guidelines for CRE lending. Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.
Wealth Management Our wealth management division provides fiduciary services to consumer and commercial clients. These services include financial planning, investment management, personal and corporate trust services, estate administration, and custody services. In addition, our wealth management division offers brokerage services to compliment the unique needs of our clients.
Wealth Management The Company’s wealth management division provides fiduciary services to consumer and commercial clients. These services include financial planning, investment management, personal and corporate trust services, estate administration, and custody services. In addition, the wealth management division offers brokerage services to compliment the unique needs of its clients.
The amount of the assessment is calculated using a formula that considers the bank’s size and its supervisory condition. During the year ended December 31, 2022, the Bank paid supervisory assessments to the OCC totaling $497 thousand. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
The amount of the assessment is calculated using a formula that considers the bank’s size and its supervisory condition. During the year ended December 31, 2023, the Bank paid supervisory assessments to the OCC totaling $431 thousand. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
In 2000, we changed our name to Alerus Financial Corporation, reflecting our evolution from a traditional community bank to a high-value financial services company focused on serving the needs of businesses and consumers who desire comprehensive financial solutions delivered through relationship-based advice and service.
In 2000, the Company changed its name to Alerus Financial Corporation, reflecting the Company’s evolution from a traditional community bank to a high value financial services company focused on serving the needs of businesses and consumers who desire comprehensive financial solutions delivered through relationship-based advice and service.
Attributes of the relevant business market or industry include the competitive environment, client and supplier availability, the threat of substitutes, and barriers to entry and exit. Deposits. We provide a broad range of deposit products and services, including demand deposits, interest-bearing transaction accounts, money market accounts, time and savings deposits, and certificates of deposit.
Attributes of the relevant business market or industry include the competitive environment, client and supplier availability, the threat of substitutes, and barriers to entry and exit. Deposits. The Company provides a broad range of deposit products and services, including demand deposits, interest-bearing transaction accounts, money market accounts, time and savings deposits, and certificates of deposit.
The Bank’s Retirement and Benefits and Wealth Management business segments are subject to separate examination as trust activities (generally on the same cycle as safety and soundness examinations). The OCC’s trust examinations evaluate compliance with applicable law, management ability, operations, internal controls, and auditing, 16 Table of Contents earnings, compliance, and asset management.
The Bank’s Retirement and Benefits and Wealth Management business segments are subject to separate examination as trust activities (generally on the same cycle as safety and soundness examinations). The OCC’s trust examinations evaluate compliance with applicable law, management ability, operations, internal controls, and auditing, earnings, compliance, and asset management.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
In addition, institutions that want to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction must also maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis points.
For institutions like the Bank that are not considered large and highly complex banking organizations, assessments are now based on examination ratings and financial ratios. The total base assessment rates currently range from 2.5 basis points to 32 basis points.
The Phoenix MSA is defined by attractive market demographics, including a large number of high- net- worth households, dense populations, low unemployment, and the presence of a diverse group of small-to-medium sized businesses. Our National Market Our retirement and benefit services business serves clients in all 50 states.
The Phoenix MSA is 9 Table of Contents defined by attractive market demographics, including a large number of high-net-worth households, dense populations, low unemployment, and the presence of a diverse group of small-to-medium sized businesses. The Company’s National Market The Company’s retirement and benefit services business serves clients in all 50 states.
The Company hired Lighthouse Services to provide employees with a confidential reporting mechanism for misconduct, including discrimination, ethics, harassment and hostility, human resource issues, privacy, security and safety. Corporate Information Our principal executive office is located at 401 Demers Avenue, Grand Forks, North Dakota 58201, and our telephone number at that address is (701) 795-3200. Our website address is www.alerus.com.
The Company hired Lighthouse Services to provide employees with a confidential reporting mechanism for misconduct, including discrimination, ethics, harassment and hostility, human resource issues, privacy, security and safety. Corporate Information The Company’s principal executive office is located at 401 Demers Avenue, Grand Forks, North Dakota 58201, and the Company’s telephone number at that address is (701) 795-3200.
The effect of these statutes, regulations, regulatory policies and accounting rules are significant to our operations and results.
The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the Company’s operations and results.
As a bank holding company, we are registered with, and subject to regulation, supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended, or the BHCA.
As a bank holding company, the Company is registered with, and subject to regulation, supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended, or the BHCA.
Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding the Company and the Bank as the Federal Reserve may require. Acquisitions and Activities/ Financial Holding Company Election.
Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and the Bank as the Federal Reserve may require. Acquisitions and Activities/ Financial Holding Company Election.
The CRA Proposal is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
The CRA Rule is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.
The information contained on our website is not a part of, or incorporated by reference into, this report. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, as the Company does. The website is www.sec.gov.
The Company’s website address is www.alerus.com. The information contained on the Company’s website is not a part of, or incorporated by reference into, this report. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, as the Company does. The website is www.sec.gov.
The Bank of North Dakota expands our lending capacity by purchasing participations from the Bank. In addition, the Bank of North Dakota offers us additional financing options such as bank stock loans, lines of credit and subordinated debt at competitive rates.
The Bank of North Dakota expands the Company’s lending capacity by purchasing participations from the Bank. In addition, the Bank of North Dakota offers the Company additional financing options such as bank stock loans, lines of credit and subordinated debt at competitive rates.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the 18 Table of Contents payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
In addition to our offices located in our banking markets, our retirement and benefit services business administers plans in all 50 states through offices located in Colorado, Michigan, and Minnesota.
In addition to offices located in the Company’s banking markets, the retirement and benefit services business administers plans in all 50 states through offices located in Colorado, Michigan, and Minnesota.
Through One Alerus, we strive to provide each client with a primary point of contact—a trusted advisor—who takes the time to develop an in-depth understanding of the client’s needs and goals. Our advisors work holistically with clients in a guidance-based manner to proactively help them with their financial decisions.
Through One Alerus, the Company strives to provide each client with a primary point of contact—a trusted advisor—who takes the time to develop an in depth understanding of the client’s needs and goals. The Company’s advisors work holistically with clients in a guidance-based manner to proactively help them with their financial decisions.
We have elected to operate as a financial holding company. In order to maintain our status as a financial holding company, both the Company and the Bank must be well-capitalized, well-managed, and the Bank must have at least a satisfactory CRA rating.
The Company has elected to operate as a financial holding company. In order to maintain the Company’s status as a financial holding company, both the Company and the Bank must be well-capitalized, well-managed, and the Bank must have at least a satisfactory CRA rating.
The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law 20 Table of Contents combating predatory lending practices.
The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and augmented federal law combating predatory lending practices.
The DGCL allows us to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if we have no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
The DGCL allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Underlying the One Alerus initiative is our strategy of serving clients through a combination of technology and skilled advisors—a “high-tech, high-touch” approach that we believe clients demand and deserve. One Alerus lays the strategic foundation for current and future technology investments and the synergistic growth strategies of a diversified financial services firm.
Underlying the One Alerus initiative is the Company’s strategy of serving clients through a combination of technology and skilled advisors—a “high tech, high touch” approach that the Company believes clients demand and deserve. One Alerus lays the strategic foundation for current and future technology investments and the synergistic growth strategies of a diversified financial services firm.
Our clients can further personalize their dashboard by integrating or linking financial accounts held at other institutions into My Alerus.
The Company’s clients can further personalize their dashboard by integrating or linking financial accounts held at other institutions into My Alerus.
Competition involves efforts to retain current clients, obtain new loans, deposits, and advisory services, increase the scope and type of services offered, and offer competitive interest rates paid on deposits, charged on loans, or charged for advisory services. We believe our integrated and high-touch service offering, along with our sophisticated relationship-oriented approach sets us apart from our competitors.
Competition involves efforts to retain current clients, obtain new loans, deposits, and advisory services, increase the scope and type of services offered, and offer competitive interest rates paid on deposits, charged on loans, or charged for advisory services. The Company believes its integrated and high-touch service offering, along with its sophisticated relationship-oriented approach sets the Company apart from competitors.
North Dakota Our corporate headquarters, which is a full-service banking office located at 401 Demers Avenue, Grand Forks, North Dakota 58201, primarily serves the eastern North Dakota market along with two other full-service banking offices 8 Table of Contents located in Grand Forks, North Dakota, three full-service banking offices located in Fargo and West Fargo, North Dakota, and one full-service banking office located in Northwood, North Dakota.
North Dakota The Company’s corporate headquarters, which is a full-service banking office located at 401 Demers Avenue, Grand Forks, North Dakota 58201, primarily serves the eastern North Dakota market along with two other full-service banking offices located in Grand Forks, North Dakota, three full-service banking offices located in Fargo and West Fargo, North Dakota, and one full-service banking office located in Northwood, North Dakota.
The trusted advisor relationship is supported and enhanced through an integrated client-access portal we call “My Alerus.” By collaborating with a key technology partner, we have integrated the diverse client applications of our full product suite into a unified system and layered in new technology to bring a client’s entire financial picture into one view.
The trusted advisor relationship is supported and enhanced through an integrated client access portal called “My Alerus.” By collaborating with a key technology partner, the Company has integrated the diverse client applications of the Company’s full product suite into a unified system and layered in new technology to bring a client’s entire financial picture into one view.
We believe these reforms have been favorable to our operations. The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.
The Company believes these reforms have been favorable to operations. 12 Table of Contents The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their business.
We believe this market is rich in low-cost, core deposits and is strengthened by the Bakken Oil region. We can use these low-cost, core deposits to fund loans in our higher-growth metropolitan markets.
The Company believes this market is rich in low-cost, core deposits and is strengthened by the Bakken Oil region. The Company can use these low-cost, core deposits to fund loans in higher-growth metropolitan markets.
The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of December 31, 2022, we had mortgage loans held for sale of $9.5 million from the residential mortgage loans we originated.
The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as the Company’s pricing and asset liability management strategies. As of December 31, 2023, the Company had mortgage loans held for sale of $11.5 million from the residential mortgage loans originated.
Retirement and Benefit Services Our retirement and benefit services business offers retirement plan administration and investment advisory services, employee stock ownership plan, or ESOP, fiduciary services, HSA and other benefit services to clients on a nationwide basis. A breakdown of these services is as follows: ● Advisory. We provide investment fiduciary services to retirement plans. ● Retirement.
Retirement and Benefit Services The Company’s retirement and benefit services business offers retirement plan administration and investment advisory services, employee stock ownership plan, or ESOP, administration, fiduciary services, HSA and other benefit services to clients on a nationwide basis. A breakdown of these services is as follows: ● Advisory. The Company provides investment fiduciary services to retirement plans. ● Retirement.
Our benefits package provides employees medical, dental, vision, life, disability and accidental death insurance and paid time off benefits. We also provide our employees with retirement benefits designed to assist our employees with planning for and securing appropriate levels of income during retirement.
The Company’s benefits package provides employees medical, dental, vision, life, disability and accidental death insurance and paid time off benefits. The Company also provides its employees with retirement benefits designed to assist employees with planning for and securing appropriate levels of income during retirement.
As of December 31, 2022, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. We also remain in compliance with the capital conservation buffer of 2.5 % as of December 31, 2022. Prompt Corrective Action .
As of December 31, 2023, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. The Company also remains in compliance with the capital conservation buffer of 2.5 % as of December 31, 2023. 14 Table of Contents Prompt Corrective Action .
Since this rebranding, we have experienced significant growth, both organically and through a series of strategic acquisitions. This growth has allowed us to build a diversified franchise and expand our geographic footprint into growing metropolitan areas.
Since this rebranding, the Company has experienced significant growth, both organically and through a series of strategic acquisitions. This growth has allowed the Company to build a diversified franchise and expand its geographic footprint into growing metropolitan areas.
We target businesses with sales between $2.0 million and $100.0 million. Our commitment to delivering diversified solutions is driven by our “One Alerus” initiative, launched in 2017, which enables us to bring all of our product and service offerings to clients in a cohesive and seamless manner.
The Company targets businesses with sales between $2.0 million and $100.0 million. The Company’s commitment to delivering diversified solutions is driven by the Company’s “One Alerus” initiative, launched in 2017, which enables the Company to bring all of its product and service offerings to clients in a cohesive and seamless manner.
In order to attract and retain deposits, we rely on providing quality service, offering a suite of consumer and commercial products and services and introducing new products and services that meet our clients’ needs as they evolve.
In order to attract and retain deposits, the Company relies on providing quality service, offering a suite of consumer and commercial products and services and introducing new products and services that meet the Company’s clients’ needs as they evolve.
Specifically, we compensate our employees through a combination of base salary, sales incentive programs, an annual performance bonus program tied to individual, team and company success measures and a long-term equity program tied to Company long-term performance. Each element of compensation is designed to achieve a compensation package that is competitive in our markets and within our industry.
Specifically, the Company compensates most of its employees through a combination of base salary, sales incentive programs, an annual performance bonus program tied to company success measures and a long-term equity program tied to Company long-term performance. Each element of compensation is designed to achieve a compensation package that is competitive in the Company’s markets and within the Company’s industry.
We believe these plans help us attract and retain quality employees by offering benefits comparative with those offered by our competitors. The Company provides policies and training on ethical conduct. We maintain an open-door policy to encourage open communication, feedback and discussion about any matter of importance to any employees.
The Company believes these plans help attract and retain quality employees by offering benefits comparative with those offered by competitors. 11 Table of Contents The Company provides policies and training on ethical conduct. The Company maintains an open-door policy to encourage open communication, feedback and discussion about any matter of importance to any employees.
By offering sound financial advice and a long-term partnership, we believe we align best with clients who are achievement-oriented in their purpose and will allow us to play an active role in their success at all stages of their businesses and lives.
By offering sound financial advice and a long-term partnership, the Company believes it aligns best with clients who are achievement oriented in their purpose and will allow the Company to play an active role in their success at all stages of their businesses and lives.
In short, our long-term success depends on our ability to attract and retain top performers in every aspect of our business. We believe a diverse workforce better enables us to understand our client base, and to help our clients meet their own goals and expectations.
In short, the Company’s long-term success depends on the Company’s ability to attract and retain top performers in every aspect of the Company’s business. The Company believes a diverse workforce better enables the Company to understand its client base, and to help its clients meet their own goals and expectations.
We are legally obligated to act as a source of financial and managerial strength to the Bank and to commit 14 Table of Contents resources to support the Bank in circumstances where we might not otherwise do so.
The Company is legally obligated to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so.
It also brings together our product and service offerings in a unified way, which we believe differentiates us from our competitors and allows us to impact clients more meaningfully and generate long-term value for our Company.
It also brings together the Company’s product and service offerings in a unified way, which the Company believes differentiates itself from competitors and allows the Company to impact clients more meaningfully and generate long term value for the Company.
For the year ended December 31, 2022, our mortgage segment originated $812.3 million of mortgage loans. Our Banking Market Areas Our primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA, and Arizona, specifically, the Phoenix MSA.
For the year ended December 31, 2023, the Company’s mortgage segment originated $364.1 million of mortgage loans. The Company’s Banking Market Areas The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA, and Arizona, specifically, the Phoenix MSA.
We offer retirement and benefit services at all of our banking offices located in our three primary market areas. In addition, we operate one retirement and benefits services office in Minnesota, one in Colorado and one in Michigan. In addition, our National Market President oversees the development of the national market’s client base.
It offers retirement and benefit services at all of the Company’s banking offices located in the three primary market areas. In addition, the Company operates one retirement and benefits services office in Minnesota, one in Colorado and one in Michigan. In addition, the Company’s National Market President oversees the development of the national market’s client base.
The client service divisions include: ● Sales and Service: 222 employees; ● Client Service Center: 35 employees; and ● Human Resources, Information Technology, Audit, Legal, Compliance, and the Executives staff areas: 138 employees. Banking is a people- and relationship-driven business and our employees are vital to our success in the financial services industry.
The staff and support divisions include: ● Client Service Center: 39 employees; and ● Human Resources, Information Technology, Marketing, Audit, Legal, Compliance, and the Executives staff areas: 123 employees. Banking is a people- and relationship-driven business and the Company’s employees are vital to the Company’s success in the financial services industry.
For the year ended December 31, 2022, we had $812.3 million of mortgage originations. Our business model produces strong financial performance and a diversified revenue stream, which has helped us establish a brand and culture yielding both a loyal client base and passionate and dedicated employees.
For the year ended December 31, 2023, the Company had $364.1 million of mortgage originations. The Company’s business model produces strong financial performance and a diversified revenue stream, which has helped the Company establish a brand and culture yielding both a loyal client base and passionate and dedicated employees.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOperational, Strategic and Reputational Risks ● The impact of economic or market conditions on our fee-based services; ● our ability to implement our organic and acquisition growth strategies; ● potential impairment to the goodwill we recorded in connection with our past acquisitions, including the acquisition of Metro Phoenix Bank; ● our ability to continue to grow our retirement and benefit services business; 21 Table of Contents ● our ability to continue to originate a sufficient volume of residential mortgages; ● the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; ● interruptions involving our information technology and telecommunications systems or third-party services; ● developments and uncertainty related to the future use and availability of some reference rates, such as the expected discontinuation of LIBOR as well as the development and implementation of alternative reference rates; ● potential losses incurred in connection with mortgage loan repurchases; ● the composition of our executive management team and our ability to attract and retain key personnel; ● labor shortages; ● any material weaknesses in our internal control over financial reporting; and ● severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 pandemic, acts of war or terrorism, or other adverse external events.
Biggest changeOperational, Strategic and Reputational Risks ● The impact of economic or market conditions on the Company’s fee-based services; ● the Company’s ability to implement organic and strategic acquisition growth strategies; ● potential impairment to the goodwill the Company recorded in connection with the Company’s past acquisitions; ● the Company’s ability to continue to grow retirement and benefit services business; ● the Company’s ability to continue to originate a sufficient volume of residential mortgages to make the mortgage division profitable; ● the occurrence of fraudulent activity, breaches or failures of the Company’s information security controls or cybersecurity-related incidents, including those employing artificial intelligence; ● interruptions involving the Company’s information technology and telecommunications systems or third-party services; ● potential losses incurred in connection with mortgage loan repurchases; 22 Table of Contents ● the composition of the Company’s executive management team and the Company’s ability to attract and retain key personnel; ● labor shortages; ● any material weaknesses in the Company’s internal control over financial reporting; and ● severe weather, natural disasters, effects of climate change, widespread disease or pandemics, acts of war or terrorism, civil unrest or other adverse external events.
Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio.
Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to accurately evaluate the total funds required to complete a project and the related loan-to-value ratio.
In a lower interest rate environment, the demand for mortgage loans and refinancing activity will tend to increase. This has the effect of increasing fee income but could adversely impact the estimated fair value of our Company’s mortgage servicing rights as the rate of loan prepayments increase.
In a lower interest rate environment, the demand for mortgage loans and refinancing activity will tend to increase. This has the effect of increasing fee income but could adversely impact the estimated fair value of the Company’s mortgage servicing rights as the rate of loan prepayments increase.
The Federal Reserve may require us to commit capital resources to support the Bank. As a matter of policy, the Federal Reserve expects a financial holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank.
The Federal Reserve may require the Company to commit capital resources to support the Bank. As a matter of policy, the Federal Reserve expects a financial holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank.
Our certificate of incorporation has an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty by any of our directors, officers, employees or agents; (iii) any action asserting a claim arising pursuant to the DGCL, our certificate of incorporation or our bylaws; or (iv) any action asserting a claim that is governed by the internal affairs doctrine.
The Company’s certificate of incorporation has an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on the Company’s behalf; (ii) any action asserting a claim of breach of fiduciary duty by any of the Company’s directors, officers, employees or agents; (iii) any action asserting a claim arising pursuant to the DGCL, the Company’s certificate of incorporation or the Company’s bylaws; or (iv) any action asserting a claim that is governed by the internal affairs doctrine.
A decline in residential real estate market prices or home sales has the potential to adversely affect our one-to-four family residential mortgage portfolio in several ways, such as a decrease in collateral values and an increase in non-performing loans, each of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
A decline in residential real estate market prices or home sales has the potential to adversely affect the Company’s one-to-four family residential mortgage portfolio in several ways, such as a decrease in collateral values and an increase in non-performing loans, each of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
These issues include, but are not limited to, legal and regulatory requirements; privacy; client and other third-party fraud; properly maintaining and safeguarding client and employee personal information; money-laundering; illegal or fraudulent sales practices; ethical issues; appropriately addressing potential conflicts of interest; and the proper identification and disclosure of the legal, reputational, credit, liquidity, and market risks inherent in our products.
These issues include, but are not limited to, legal and regulatory requirements; privacy; client and other third-party fraud; properly maintaining and safeguarding client and employee personal information; money laundering; illegal or fraudulent sales practices; ethical issues; appropriately addressing potential conflicts of interest; and the proper identification and disclosure of the legal, reputational, credit, liquidity, and market risks inherent in the Company’s products.
The authority to examine depository institutions with $10.0 billion or less in assets, like us, for compliance with federal consumer laws remains largely with our primary federal regulator, the OCC. However, the CFPB may participate in examinations of smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators.
The authority to examine depository institutions with $10.0 billion or less in assets, like us, for compliance with federal consumer laws remains largely with the Company’s primary federal regulator, the OCC. However, the CFPB may participate in examinations of smaller institutions on a “sampling basis” and may refer potential enforcement actions against such institutions to their primary regulators.
The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2022, the Bank did not exceed these guidelines.
The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2023, the Bank did not exceed these guidelines.
Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The loss of any of the members of our executive management team or any of our other key personnel, including our client advisors, could have an adverse impact on our business and growth because of their skills, years of industry experience, knowledge of our market areas, the difficulty of finding qualified replacement personnel and any difficulties associated with transitioning of responsibilities to any new members of the executive management team.
The loss of any of the members of the Company’s executive management team or any of the Company’s other key personnel, including client advisors, could have an adverse impact on the Company’s business and growth because of their skills, years of industry experience, knowledge of the Company’s market areas, the difficulty of finding qualified replacement personnel and any difficulties associated with transitioning of responsibilities to any new members of the executive management team.
In addition, the success of our organic growth strategy will depend on maintaining sufficient regulatory capital levels and on favorable economic conditions in our primary market areas. Failure to adequately manage the risks associated with our anticipated organic growth could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
In addition, the success of the Company’s organic growth strategy will depend on maintaining sufficient regulatory capital levels and on favorable economic conditions in the Company’s primary market areas. Failure to adequately manage the risks associated with the Company’s anticipated organic growth could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions, reputational harm and legal risks, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines, and penalties and cause us to incur related costs and expenses.
Failure to appropriately address any of these issues could also give rise to additional regulatory restrictions, reputational harm and legal risks, which could, among other consequences, increase the size and number of litigation claims and damages asserted or subject the Company to enforcement actions, fines, and penalties and cause the Company to incur related costs and expenses.
If a relationship manager, asset manager or other employee were to misappropriate any client funds or client information, the reputation of our businesses could be negatively affected, which may result in the loss of accounts and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If a relationship manager, asset manager or other employee were to misappropriate any client funds or client information, the reputation of the Company’s businesses could be negatively affected, which may result in the loss of accounts and could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Further, a general economic slowdown could decrease the value of our AUA and AUM resulting in clients potentially seeking alternative investment opportunities with other providers, which could result in lower fee income. All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable.
Further, a general economic slowdown could decrease the value of the Company’s AUA and AUM resulting in clients potentially seeking alternative investment opportunities with other providers, which could result in lower fee income. All of these factors are detrimental to the Company’s business, and the interplay between these factors can be complex and unpredictable.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact the Company’s business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased.
Adverse developments affecting real estate values in our market areas could increase the credit risk associated with our loan portfolio. Additionally, the repayment of commercial real estate loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
Adverse developments affecting real estate values in the Company’s market areas could increase the credit risk associated with the Company’s loan portfolio. Additionally, the repayment of commercial real estate loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service.
The conversion of a home equity line of credit to a fully amortizing basis presents an increased level of default risk to us since the borrower no longer has the ability to make principal draws on the line, and the amount of the required monthly payment could substantially increase to provide for scheduled repayment of principal and interest.
The conversion of a home equity line of credit to a fully amortizing basis presents an increased level of default risk to the Company since the borrower no longer has the ability to make principal draws on the line, and the amount of the required monthly payment could substantially increase to provide for scheduled repayment of principal and interest.
Any such events could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences.
Any such events could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. The Company’s operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences.
Our board of directors also has the power, without stockholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up, and other terms.
The Company’s Board of Directors also has the power, without stockholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over the Company’s common stock with respect to dividends or in the event of a dissolution, liquidation or winding up, and other terms.
For as long as we remain an emerging growth company, as defined in the JOBS Act, we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, being permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the FASB or the SEC, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
For as long as the Company remains an emerging growth company, as defined in the JOBS Act, it will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, being permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the FASB or the SEC, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
It is possible that governmental responses to the current inflation environment could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls. The duration and severity of the current inflationary period cannot be estimated with precision.
It is possible that governmental responses to the current inflation environment, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls, could adversely affect the Company’s business. The duration and severity of the current inflationary period cannot be estimated with precision.
Our businesses and operations, which primarily consist of lending money to clients in the form of commercial and residential mortgage loans, borrowing money from clients in the form of deposits and savings accounts, investing in securities, and providing wealth management, trust and fiduciary and recordkeeping services, are sensitive to general business and economic conditions in the United States.
The Company’s businesses and operations, which primarily consist of lending money to clients in the form of commercial and residential mortgage loans, borrowing money from clients in the form of deposits and savings accounts, investing in securities, and providing wealth management, trust and fiduciary and recordkeeping services, are sensitive to general business and economic conditions in the United States.
If the United States economy weakens, our growth and profitability from our lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal policymaking process, the medium- and long-term fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States.
If the United States economy weakens, the Company’s growth and profitability from the Company’s lending, deposit and investment operations could be constrained. Uncertainty about the federal fiscal policymaking process, the medium- and long-term fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States.
The loss of the services of any senior executive or other key personnel, the inability to recruit and retain qualified personnel in the future or the failure to develop and implement a viable succession plan could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The loss of the services of any senior executive or other key personnel, the inability to recruit and retain qualified personnel in the future or the failure to develop and implement a viable succession plan could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission and the CFPB, as well as at the state level, such as with regard to mobile applications.
This could also increase the Company’s costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission and the CFPB, as well as at the state level, such as with regard to mobile applications.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations. Potential partnerships with digital asset companies, moreover, could also entail significant investment.
The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company’s business, financial condition and results of operations. Potential partnerships with digital asset companies, moreover, could also entail significant investment.
If material weaknesses or other deficiencies occur, our ability to report our financial results accurately and timely could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements, a decline in our stock price, suspension or delisting of our common stock from the Nasdaq Capital Market, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If material weaknesses or other deficiencies occur, the Company’s ability to report its financial results accurately and timely could be impaired, which could result in late filings of the Company’s annual and quarterly reports under the Exchange Act, restatements of the Company’s consolidated financial statements, a decline in the Company’s stock price, suspension or delisting of the Company’s common stock from the Nasdaq Capital Market, and could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The net deferred tax asset reported on our balance sheet generally represents the tax benefit of future deductions from taxable income for items that have already been recognized for financial reporting purposes. The bulk of these deferred tax assets consists of deferred loan loss deductions and deferred compensation deductions.
The net deferred tax asset reported on the Company’s balance sheet generally represents the tax benefit of future deductions from taxable income for items that have already been recognized for financial reporting purposes. The bulk of these deferred tax assets consists of deferred loan loss deductions and deferred compensation deductions.
Our failure to comply with the CRA could, among other things, result in the denial or delay of certain corporate applications filed by us, including applications for branch openings or relocations and applications to acquire, merge or consolidate with another banking institution or holding company.
The Company’s failure to comply with the CRA could, among other things, result in the denial or delay of certain corporate applications filed by us, including applications for branch openings or relocations and applications to acquire, merge or consolidate with another banking institution or holding company.
Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks.
Given the lack of empirical data on the credit and other financial risks posed by climate change, it is difficult to predict how climate change may impact the Company’s financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks.
A general economic slowdown could decrease the value of the AUA and AUM in our retirement and benefit services and wealth management businesses and result in clients potentially seeking alternative investment opportunities with other providers, which could result in lower fee income to our Company.
A general economic slowdown could decrease the value of the AUA and AUM in the Company’s retirement and benefit services and wealth management businesses and result in clients potentially seeking alternative investment opportunities with other providers, which could result in lower fee income to the Company.
In implementing, developing or marketing new lines of business, products, product enhancements or services, we may invest significant time and resources, although we may not assign the appropriate level of resources or expertise necessary to make these new lines of business, products, product enhancements or services successful or to realize their expected benefits.
In implementing, developing or marketing new lines of business, products, product enhancements or services, the Company may invest significant time and resources, although the Company may not assign the appropriate level of resources or expertise necessary to make these new lines of business, products, product enhancements or services successful or to realize their expected benefits.
In addition, the failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect client and investor confidence, our costs of funds and FDIC insurance costs and our ability to make acquisitions and result in a material adverse effect on our business, financial condition, results of operations and growth prospects.
In addition, the failure to meet applicable regulatory capital requirements could result in one or more of the Company’s regulators placing limitations or conditions on the Company’s activities, including its growth initiatives, or restricting the commencement of new activities, and could affect client and investor confidence, its costs of funds and FDIC insurance costs and its ability to make acquisitions and result in a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity, as well as environmental factors, could impair the value of collateral securing our real estate loans and result in loan and other losses.
Because a significant portion of the Company’s loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity, as well as environmental factors, could impair the value of collateral securing the Company’s real estate loans and result in loan and other losses.
Consumers and businesses may also change their behavior on their own as a result of these concerns. The impact on our customers will likely vary depending on their specific attributes, including reliance on, or role in, carbon intensive activities.
Consumers and businesses may also change their behavior on their own as a result of these concerns. The impact on the Company’s customers will likely vary depending on their specific attributes, including reliance on, or role in, carbon intensive activities.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in the Company’s capital, to restrict the Company’s growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Company’s deposit insurance and place the Company into receivership or conservatorship.
In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause us to fail to comply with applicable laws.
In addition, the implementation of technological changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing errors and system conversion delays and may cause the Company to fail to comply with applicable laws.
The CFPB has the authority to implement and enforce a variety of existing federal consumer protection statutes and to issue new regulations but, with respect to institutions of our size, does not have primary examination and enforcement authority with respect to such laws and regulations.
The CFPB has the authority to implement and enforce a variety of existing federal consumer protection statutes and to issue new regulations but, with respect to institutions of the Company’s size, does not have primary examination and enforcement authority with respect to such laws and regulations.
These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require us to expend significant capital and incur compliance, operating, maintenance, and remediation costs.
These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require the Company to expend significant capital and incur compliance, operating, maintenance, and remediation costs.
If any one of these borrowers becomes unable to repay its loan obligations as a result of business, economic or market conditions, or personal circumstances, such as divorce or death, our nonaccruing loans and our provision for loan losses could increase significantly, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If any one of these borrowers becomes unable to repay its loan obligations as a result of business, economic or market conditions, or personal circumstances, such as divorce or death, the Company’s nonaccruing loans and the Company’s provision for loan losses could increase significantly, which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Additional factors include, but are not limited to, rating agency downgrades of the securities or our own analysis of the value of the securities, defaults by the issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets.
Additional factors include, but are not limited to, rating agency downgrades of the securities or the Company’s own analysis of the value of the securities, defaults by the issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets.
To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our wealth management business will likely be reduced and our ability to attract new clients will likely be impaired.
To the extent the Company’s future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of the Company’s wealth management business will likely be reduced and the Company’s ability to attract new clients will likely be impaired.
Our risk management processes, internal controls, disclosure controls and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
The Company’s risk management processes, internal controls, disclosure controls and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
New and future rulemaking by the CFPB and other regulators, as well as enforcement of existing consumer protection laws, may have a material adverse effect on our business, financial condition, results of operations and growth prospects.
New and future rulemaking by the CFPB and other regulators, as well as enforcement of existing consumer protection laws, may have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Competition in the retirement and benefit services and wealth management businesses is especially strong in our geographic market areas because there are numerous well-established, well-resourced, well-capitalized, and successful investment management, wealth advisory and wealth management and trust firms in these areas.
Competition in the retirement and benefit services and wealth management businesses is especially strong in the Company’s geographic market areas because there are numerous well-established, well-resourced, well-capitalized, and successful investment management, wealth advisory and wealth management and trust firms in these areas.
Complying with these standards required enhancements to the design and operation of our internal control over financial reporting as well as additional financial reporting and accounting staff with appropriate training and experience in GAAP and SEC rules and regulations.
Complying with these standards required enhancements to the design and operation of the Company’s internal control over financial reporting as well as additional financial reporting and accounting staff with appropriate training and experience in GAAP and SEC rules and regulations.
For example, weather disasters, shifts in local climates, and other disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish the value of our loan portfolio.
For example, weather disasters, shifts in local climates, and other disruptions related to climate change may adversely affect the value of real properties securing the Company’s loans, which could diminish the value of the Company’s loan portfolio.
In addition, economic, market or other factors that reduce the level or rates of savings in or with our clients, either through reductions in financial asset valuations or through changes in investor preferences, could materially reduce our fee revenue.
In addition, economic, market or other factors that reduce the level or rates of savings in or with the Company’s clients, either through reductions in financial asset valuations or through changes in investor preferences, could materially reduce the Company’s fee revenue.
The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The occurrence of fraudulent activity, breaches or failures of the Company’s information security controls or cybersecurity related incidents could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
As a result, the performance of, or even rumors or questions about the integrity or performance of, any of those firms could adversely affect the confidence of our clients in the services provided by those firms or otherwise adversely impact their custodial holdings.
As a result, the performance of, or even rumors or questions about the integrity or performance of, any of those firms could adversely affect the confidence of the Company’s clients in the services provided by those firms or otherwise adversely impact their custodial holdings.
Many of our deposit clients and clients of our wealth management business are individuals involved in professional vocations, such as lawyers, accountants, and doctors. These clients are a significant source of referrals for new clients in both the deposit and wealth management areas.
Many of the Company’s deposit clients and clients of the Company’s wealth management business are individuals involved in professional vocations, such as lawyers, accountants, and doctors. These clients are a significant source of referrals for new clients in both the deposit and wealth management areas.
Our business is subject to increased litigation and regulatory risks because of a number of factors, including the highly regulated nature of the financial services industry and the focus of state and federal prosecutors on banks and the financial services industry generally.
The Company’s business is subject to increased litigation and regulatory risks because of a number of factors, including the highly regulated nature of the financial services industry and the focus of state and federal prosecutors on banks and the financial services industry generally.
Weak economic conditions in North Dakota, Minnesota and Arizona may affect our business, financial condition, results of operations and growth prospects, where adverse economic developments, among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of our loans and loan servicing portfolio.
Weak economic conditions in North Dakota, Minnesota or Arizona may affect the Company’s business, financial condition, results of operations and growth prospects, where adverse economic developments, among other things, could affect the volume of loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the value of the Company’s loans and loan servicing portfolio.
Because the financial services industry is experiencing rapid changes in technology, our future success will depend in part on our ability to address our clients’ needs by using technology. Client loyalty can be influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the client.
Because the financial services industry is experiencing rapid changes in technology, the Company’s future success will depend in part on its ability to address its clients’ needs by using technology. Client loyalty can be influenced by a competitor’s new products, especially offerings that could provide cost savings or a higher return to the client.
Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this high concentration of borrowers presents a risk to our lending operations.
Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this high concentration of borrowers presents a risk to the Company’s lending operations.
The holders of our debt obligations and preferred stock, if any, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.
The holders of the Company’s debt obligations and preferred stock, if any, will have priority over the Company’s common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.
Our Company is subject to supervision and regulation by the Federal Reserve, and the Bank is subject to supervision and regulation by the OCC and the FDIC.
The Company is subject to supervision and regulation by the Federal Reserve, and the Bank is subject to supervision and regulation by the OCC and the FDIC.
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn, could have a material adverse effect on the market price of our common stock.
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn, could have a material adverse effect on the market price of the Company’s common stock.
These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. Our interest earning assets and interest-bearing liabilities may react in different degrees to changes in market interest rates.
These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on the Company’s business, financial condition, liquidity, and results of operations. The Company’s interest earning assets and interest-bearing liabilities may react in different degrees to changes in market interest rates.
If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition results of operations and growth prospects. Our dividend policy may change.
If the Company’s internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on the Company’s business, financial condition results of operations and growth prospects. The Company’s dividend policy may change.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The Company’s failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to the Company’s reputation, which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The success of our organic growth strategy depends on our ability to increase loans, deposits, AUM and AUA at acceptable risk levels without incurring offsetting increases in noninterest expense.
The success of the Company’s organic growth strategy depends on the Company’s ability to increase loans, deposits, AUM and AUA at acceptable risk levels without incurring offsetting increases in noninterest expense.
An inability to raise funds through deposits, borrowings, the sale of loans or investment securities, and from other sources could have a substantial negative effect on our liquidity.
An inability to raise funds through deposits, borrowings, the sale of loans or investment securities, and from other sources could have a substantial negative effect on the Company’s liquidity.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to us about its business in a timely manner, or may present inaccurate or incomplete information to us, as well as risks relating to the value of collateral.
In addition, there are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, proper loan underwriting, changes in economic and industry conditions, and inherent in dealing with individual borrowers, including the risk that a borrower may not provide information to the Company about its business in a timely manner, or may present inaccurate or incomplete information to the Company, as well as risks relating to the value of collateral.
This decline in value has negatively affected our tangible book value. Higher interest rates can also negatively affect our customers’ businesses and financial condition, and the value of collateral securing loans in our portfolio.
This decline in value has negatively affected the Company’s tangible book value. Higher interest rates can also negatively affect the Company’s customers’ businesses and financial condition, and the value of collateral securing loans in the Company’s portfolio.
Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.
Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and the Company’s clients’ ability to repay indebtedness.
Even when economic and market conditions are generally favorable, our investment performance may be adversely affected by the investment style of our asset managers and the particular investments that they make.
Even when economic and market conditions are generally favorable, the Company’s investment performance may be adversely affected by the investment style of the Company’s asset managers and the particular investments that they make.
The repayment of such loans is highly dependent on the ability of the borrowers to meet their loan repayment obligations to us, which can be adversely affected by economic downturns that can lead to (i) declines in the rents and, therefore, in the cash flows generated by those real properties on which the borrowers depend to fund their loan payments to us, (ii) decreases in the values of those real properties, which make it 26 Table of Contents more difficult for the borrowers to sell those real properties for amounts sufficient to repay their loans in full, and (iii) job losses of residential home buyers, which makes it more difficult for these borrowers to fund their loan payments.
The repayment of such loans is highly dependent on the ability of the borrowers to meet their loan repayment obligations to us, which can be adversely affected by economic downturns that can lead to (i) declines in the rents or decreases in occupancy and, therefore, in the cash flows generated by those real properties on which the borrowers depend to fund their loan payments to us, (ii) decreases in the values of those real properties, which make it more difficult for the borrowers to sell those real properties for amounts sufficient to repay their loans in full, and (iii) job losses of residential home buyers, which makes it more difficult for these borrowers to fund their loan payments.
As a result of this election, our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates.
As a result of this election, the Company’s financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates.
The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships, as well as probable losses inherent in the loan portfolio that are not specifically identified.
The allowance contains provisions for expected losses that have been identified relating to specific borrowing relationships, as well as expected losses inherent in the loan portfolio that are not specifically identified.
We may also rely on representations of those clients or counterparties or of other third parties, such as independent auditors, as to the accuracy and completeness of that information.
The Company may also rely on representations of those clients or counterparties or of other third parties, such as independent auditors, as to the accuracy and completeness of that information.
Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including originating loans and investing in securities, or to fulfill obligations such as paying our expenses, repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Any decline in available funding could adversely impact the Company’s ability to continue to implement its strategic plan, including originating loans and investing in securities, or to fulfill obligations such as paying expenses, repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Variability in market conditions or in key assumptions could result in impairment of goodwill, which is recorded as a non-cash adjustment to income. An impairment of goodwill could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Variability in market conditions or in key assumptions could result in impairment of goodwill, which is recorded as a non-cash adjustment to income. An impairment of goodwill could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Acquiring other banks and financial service providers involve risks commonly associated with acquisitions, including: ● potential exposure to unknown or contingent liabilities of the banks and businesses we acquire; ● exposure to potential asset and credit quality issues of the acquired bank or related business; ● difficulty and expense of integrating the operations, culture and personnel of banks and businesses we acquire, including higher than expected deposit attrition; ● potential disruption to our business; ● potential restrictions on our business resulting from the regulatory approval process; ● an inability to realize the expected revenue increases, costs savings, market presence or other anticipated benefits; ● potential diversion of our management’s time and attention; and ● the possible loss of key employees and clients of the banks and businesses we acquire.
Acquiring other banks and financial service providers involve risks commonly associated with acquisitions, including: ● Potential exposure to unknown or contingent liabilities of the banks and businesses the Company acquires; ● exposure to potential asset and credit quality issues of the acquired bank or related business; ● difficulty and expense of integrating the operations, culture and personnel of banks and businesses the Company acquires, including higher than expected deposit attrition; ● potential disruption to the Company’s business; ● potential restrictions on the Company’s business resulting from the regulatory approval process; ● an inability to realize the expected revenue increases, costs savings, market presence or other anticipated benefits; ● potential diversion of the Company’s management’s time and attention; and ● the possible loss of key employees and clients of the banks and businesses the Company acquires.
If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then we may not be able to realize the full value of the collateral that we anticipated at the time of originating the loan, which could force us to take charge-offs or require us to increase our provision for loan losses, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then the Company may not be able to realize the full value of the collateral that the Company anticipated at the time of originating the loan, which could force the Company to take charge-offs or require the Company to increase the Company’s provision for loan losses, which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
If such an event occurs, we may need to seek out alternative sources of funding that may not be on the same terms as the deposits being replaced, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Our liquidity is largely dependent on dividends from the Bank.
If such an event occurs, the Company may need to seek out alternative sources of funding that may not be on the same terms as the deposits being replaced, which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. The Company’s liquidity is largely dependent on dividends from the Bank.
Additions to the allowance for loan losses, which are charged to earnings through the provision for loan losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience and an evaluation of current economic conditions in our market area.
Additions to the allowance for credit losses, which are charged to earnings through the provision for credit losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience and an evaluation of current economic conditions in the Company’s market area.
The market value of real estate can fluctuate significantly in a short period of time as a result of 27 Table of Contents interest rates and market conditions in the area in which the real estate is located and some of these values have been negatively affected by the recent rise in prevailing interest rates.
The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in the area in which the real estate is located and some of these values have been negatively affected by the recent rise in prevailing interest rates.
Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, our credit ratings, our ability to maintain a listing on Nasdaq and our financial condition and performance.
The Company’s ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, the Company’s credit ratings, its ability to maintain a listing on Nasdaq and its financial condition and performance.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe offer retirement and benefits, wealth management and mortgage products and services at all of our full-service banking offices. In addition, we operate one retirement and benefits services office in Minnesota, one in Colorado and one in Michigan.
Biggest changeThe Company offers retirement and benefits, wealth management and mortgage products and services at all of its full-service banking offices. In addition, the Company operates one retirement and benefits services office in each of Minnesota, Colorado and Michigan. The Company has remodeled several locations to utilize the Company’s spaces in a more efficient manner.
ITEM 2. PROPERTIES Our corporate headquarters are located at 401 Demers Avenue, Grand Forks, North Dakota 58201.
ITEM 2. PROPERTIES The Company’s corporate headquarters are located at 401 Demers Avenue, Grand Forks, North Dakota 58201.
In addition to our corporate headquarters, which includes a full service banking office, we operate two other full-service banking office located in Grand Forks, North Dakota, three full-service banking offices located in Fargo and West Fargo, North Dakota, one full-service banking office located in Northwood, North Dakota, six full-service banking offices located in the Twin Cities MSA, two full-service banking office located in the Phoenix MSA and one full-service banking office located in Mesa, Arizona.
In addition to the Company’s corporate headquarters, which includes a full service banking office, the Company operates two other full-service banking office located in Grand Forks, North Dakota, three full-service banking offices located in Fargo and West Fargo, North Dakota, one full-service banking office located in Northwood, North Dakota, six full-service banking offices located in the Twin Cities MSA, and two full-service banking office located in the Phoenix MSA.
As of December 31, 2022, 7 of our office properties were owned and 11 of our office properties were leased. ​
As of December 31, 2023, seven of the Company’s office properties were owned and eleven of the Company’s office properties were leased. ​
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We monitor client behavior and interactions with our banking and other offices, and in recent periods, we have shifted financial resources away from physical locations to technology solutions, as client demands continue to change. We have remodeled several locations to utilize our spaces in a more efficient manner.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries.
Biggest changeITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party, and no property of these entities is subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank’s business. ITEM 4. MINE SAFETY DISCLOSURES Not applicable.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShareholders As of February 28, 2023, the Company had 246 holders of record of the Company’s common stock and an estimated 1,373 additional beneficial holders of the Company’s common stock whose stock was held in street name by brokerages or fiduciaries. 56 Table of Contents Stock Repurchase Plans The following table presents information related to repurchases of our common stock for each calendar month in the fourth quarter of 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Maximum Number of ​ ​ Total Number ​ Average ​ Shares Purchased as ​ Shares that May ​ ​ of Shares ​ Price Paid ​ Part of Publicly ​ Yet be Purchased (dollars in thousands, except per share data) Purchased (1) per Share Announced Plans Under the Plan (2) October 1-31, 2022 — $ — — 770,000 November 1-30, 2022 — — — 770,000 December 1-31, 2022 — — — 770,000 Total — $ — — 770,000 (1) Shares repurchased by the Company represent shares surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards.
Biggest changeStockholders As of February 28, 2024, the Company had 227 holders of record of the Company’s common stock and an estimated 2,966 additional beneficial holders of the Company’s common stock whose stock was held in street name by brokerages or fiduciaries. ​ 60 Table of Contents Stock Repurchase Plans The following table presents information related to repurchases of the Company’s common stock for each calendar month in the fourth quarter of 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Maximum Number of ​ ​ Total Number ​ Average ​ Shares Purchased as ​ Shares that May ​ ​ of Shares ​ Price Paid ​ Part of Publicly ​ Yet be Purchased (dollars in thousands, except per share data) Purchased (1) per Share Announced Plans Under the Plan (2) October 1-31, 2023 71,700 $ 17.68 71,700 459,826 November 1-30, 2023 46,300 17.59 46,300 413,526 December 1-31, 2023 — — — 413,526 Total 118,000 $ 17.65 118,000 413,526 (1) Shares repurchased by the Company included shares surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the Nasdaq Stock Market, or Nasdaq, under the symbol “ALRS”.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock trades on the Nasdaq Stock Market, or Nasdaq, under the symbol “ALRS”.
Our dividend policy and practice may change in the future, however, and our board of directors may change or eliminate the payment of future dividends at its discretion, without notice to our stockholders.
The Company’s dividend policy and practice may change in the future, however, and the Company’s Board of Directors may change or eliminate the payment of future dividends at its discretion, without notice to the Company’s stockholders.
Surplus is defined as the 58 Table of Contents excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value.
Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation’s assets can be measured in a number of ways and may not necessarily equal their book value.
In the first quarter of 2021, we issued subordinated debt to the Bank of North Dakota pursuant to a Subordinated Note Purchase Agreement, dated March 30, 2021 (the “Note Purchase Agreement”).
In the first quarter of 2021, the Company issued subordinated debt to the Bank of North Dakota pursuant to a Subordinated Note Purchase Agreement, dated March 30, 2021 (the “Note Purchase Agreement”).
Under the terms of the Subordinated Note Purchase Agreement, if an event of default has occurred (as defined in the Subordinated Note Purchase Agreement), we cannot, subject to certain exceptions outlined in the Note Purchase Agreement, pay any dividends to our stockholders until such event of default or failure to comply with said covenants is cured, without the prior written consent of the Bank of North Dakota.
Under the terms of the Subordinated Note Purchase Agreement, if an event of default has occurred (as defined in the Subordinated Note Purchase Agreement), the Company cannot, subject to certain exceptions outlined in the Note Purchase Agreement, pay any dividends to its stockholders until such event of default or failure to comply with said covenants is cured, without the prior written consent of the Bank of North Dakota.
See “SUPERVISION AND REGULATION—Supervision and Regulation of the Bank—Dividend Payments.” Use of Proceeds None. ITEM 6. [RESERVED] ​
See “SUPERVISION AND REGULATION—Supervision and Regulation of the Bank—Dividend Payments.” Use of Proceeds None. ITEM 6. [RESERVED] Not applicable.
See “SUPERVISION AND REGULATION—Supervision and Regulation of the Company—Dividend Payments.” Because we are a holding company and do not engage directly in business activities of a material nature, our ability to pay dividends to our stockholders depends, in large part, upon our receipt of dividends from the Bank, which is also subject to numerous limitations on the payment of dividends under federal banking laws, regulations and policies.
See “SUPERVISION AND REGULATION—Supervision and Regulation of the Company—Dividend Payments.” Because the Company is a holding company and does not engage directly in business activities of a material nature, the Company’s ability to pay dividends to its stockholders depends, in large part, upon its receipt of dividends from the Bank, which is also subject to numerous limitations on the payment of dividends under federal banking laws, regulations and policies.
In addition, we are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies.
In addition, the Company is subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies.
Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, economic conditions, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant. Dividend Restrictions As a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL.
Any future determination to pay dividends to holders of the Company’s common stock will depend on its results of operations, financial condition, economic conditions, capital requirements, banking regulations, contractual restrictions and any other factors that the Company’s Board of Directors may deem relevant. 62 Table of Contents Dividend Restrictions As a Delaware corporation, the Company is subject to certain restrictions on dividends under the DGCL.
Under the terms of our junior subordinated debentures issued to our two statutory trusts, we are not permitted to pay dividends on our capital stock if an event of default occurs under the terms of the debentures, we are otherwise in default with respect to our payment obligations or we have elected to defer interest payments on the debentures.
Under the terms of the Company’s junior subordinated debentures issued to its two statutory trusts, the Company is not permitted to pay dividends on its capital stock if an event of default occurs under the terms of the debentures, the Company is otherwise in default with respect to the Company’s payment obligations or the Company has elected to defer interest payments on the debentures.
(2) On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Program, which authorizes the Company to repurchase up to 770,000 shares of its common stock, subject to certain limitations and conditions. The Program was effective immediately and will continue for a period of 36 months, until February 18, 2024.
(2) On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Existing Program, which authorized the Company to repurchase up to 770,000 shares of its common stock, subject to certain limitations and conditions. The Existing Program was effective immediately and continued until February 18, 2024.
The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so.
Neither the Existing Program nor the New Program obligates the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so.
Dividend Policy It has been our policy to pay quarterly dividends to holders of our common stock and we currently intend to maintain or increase our current dividend levels in future quarters.
Banks - Midwest Region Index ​ ​ 100.00 ​ ​ 85.98 ​ ​ 113.59 ​ ​ 98.03 ​ ​ 100.08 ​ Dividend Policy It has been the Company’s policy to pay quarterly dividends to holders of its common stock and the Company currently intends to maintain or increase its dividend levels in future quarters.
Removed
Performance Graph The following graph compares the percentage change in the cumulative stockholder return of the Company’s common stock during the period from the date of our initial public offering and listing on Nasdaq through December 31, 2022, with the cumulative return of the Nasdaq Composite Index and the total return of the SNL-U.S. Banks, Midwest Region Index.
Added
There were no shares surrendered by employees to the Company to pay withholding taxes on vesting of restricted stock awards in the fourth quarter of 2023.
Removed
This comparison assumes $100.00 was invested on September 13, 2019, the date of our initial public offering, and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. 57 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 13, ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ 2019 2019 2020 2021 2022 Alerus Financial Corporation ​ $ 100.00 ​ $ 105.21 ​ $ 129.70 ​ $ 141.67 ​ $ 116.32 Nasdaq Composite Index ​ ​ 100.00 ​ ​ 109.73 ​ ​ 157.62 ​ ​ 191.34 ​ ​ 131.19 S&P U.S.
Added
On December 12, 2023, the Board approved a new stock repurchase program, or the New Program, which authorizes the Company to repurchase up to 1,000,000 shares of its common stock, subject to certain limitations and conditions. The New Program became effective on February 18, 2024, and replaced the Existing Program. The New Program will expire on February 18, 2027.
Removed
Banks - Midwest Region Index ​ ​ 100.00 ​ ​ 107.90 ​ ​ 91.77 ​ ​ 122.56 ​ ​ 105.77 ​ The banks in the custom peer group, SNL-U.S.
Added
For the three months ended December 31, 2023, the Company repurchased 118,000 shares of common stock under the Existing Program. ​ ​ 61 Table of Contents Performance Graph The following graph compares the percentage change in the cumulative stockholder return of the Company’s common stock for the period December 31, 2019, through December 31, 2023.
Removed
Banks, Midwest Region Index, include all major exchange (NYSE, NYSE American, NASDAQ) banks in SNL’s coverage universe headquartered in Iowa, Indiana, Illinois, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
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For the purposes of comparison, the graph illustrates comparable stockholder returns of the Nasdaq Composite Index and the total return of the S&P U.S. BMI Banks - Midwest Region Index.
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The graph assumes a $100.00 investment on December 31, 2019 in each case, and measures the amount by which the market value, assuming reinvestment of dividends, has changed as of December 31, 2023. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ December 31, ​ 2019 2020 2021 2022 2023 Alerus Financial Corporation ​ $ 100.00 ​ $ 123.28 ​ $ 134.66 ​ $ 110.56 ​ $ 110.32 Nasdaq Composite Index ​ ​ 100.00 ​ ​ 145.05 ​ ​ 177.27 ​ ​ 119.63 ​ ​ 173.11 S&P U.S.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 59 ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 59 ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 86 ​ ​ Item 8. Financial Statements and Supplementary Data 89 ​ ​
Biggest changeItem 6. [Reserved] 63 ​ ​ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 63 ​ ​ Item 7A. Quantitative and Qualitative Disclosures About Market Risk 94 ​ ​ Item 8. Financial Statements and Supplementary Data 97 ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

132 edited+99 added−68 removed28 unchanged
Biggest changeIn these tables, adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a comparable basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ ​ Interest Average ​ ​ Interest Average ​ ​ Interest Average ​ ​ ​ Average ​ Income/ ​ Yield/ ​ Average ​ Income/ ​ Yield/ ​ Average ​ Income/ ​ Yield/ ​ (dollars in thousands) ​ Balance ​ Expense ​ Rate ​ Balance ​ Expense ​ Rate ​ Balance ​ Expense ​ Rate ​ Interest Earning Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits with banks ​ $ 58,149 ​ $ 586 ​ 1.01 % $ 222,916 ​ $ 322 ​ 0.14 % ​ 162,616 ​ $ 664 ​ 0.41 % Investment securities (1) ​ 1,135,426 ​ 24,333 ​ 2.14 % 864,273 ​ 14,172 ​ 1.64 % ​ 425,219 ​ 8,999 ​ 2.12 % Fed funds sold ​ ​ 7,313 ​ ​ 192 ​ 2.63 % ​ — ​ ​ — ​ — % ​ — ​ ​ — ​ — % Loans held for sale ​ 24,497 ​ 855 ​ 3.49 % 65,968 ​ 1,494 ​ 2.26 % ​ 79,201 ​ 1,948 ​ 2.46 % Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 507,040 ​ 26,004 ​ 5.13 % 579,002 ​ 28,445 ​ 4.91 % ​ 687,266 ​ 31,600 ​ 4.60 % Real estate construction ​ 63,296 ​ 3,300 ​ 5.21 % 41,751 ​ 1,712 ​ 4.10 % ​ 32,804 ​ 1,488 ​ 4.54 % Commercial real estate ​ 713,102 ​ 29,632 ​ 4.16 % 571,326 ​ 21,523 ​ 3.77 % ​ 523,219 ​ 21,884 ​ 4.18 % Total commercial ​ 1,283,438 ​ 58,936 ​ 4.59 % 1,192,079 ​ 51,680 ​ 4.34 % ​ 1,243,289 ​ 54,972 ​ 4.42 % Consumer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate first mortgage ​ 587,443 ​ 20,573 ​ 3.50 % 477,621 ​ 16,575 ​ 3.47 % ​ 463,174 ​ 18,391 ​ 3.97 % Residential real estate junior lien ​ 136,483 ​ 7,222 ​ 5.29 % 131,412 ​ 6,093 ​ 4.64 % ​ 159,844 ​ 7,696 ​ 4.81 % Other revolving and installment ​ 52,071 ​ 2,525 ​ 4.85 % 57,574 ​ 2,537 ​ 4.41 % ​ 79,238 ​ 3,621 ​ 4.57 % Total consumer ​ 775,997 ​ 30,320 ​ 3.91 % 666,607 ​ 25,205 ​ 3.78 % ​ 702,256 ​ 29,708 ​ 4.23 % Total loans (1) ​ 2,059,435 ​ 89,256 ​ 4.33 % 1,858,686 ​ 76,885 ​ 4.14 % ​ 1,945,545 ​ 84,680 ​ 4.35 % Federal Reserve/FHLB Stock ​ 13,824 ​ 784 ​ 5.67 % 6,329 ​ 276 ​ 4.36 % ​ 5,846 ​ 266 ​ 4.55 % Total interest earning assets ​ 3,298,644 ​ 116,006 ​ 3.52 % 3,018,172 ​ 93,149 ​ 3.09 % ​ 2,618,427 ​ 96,557 ​ 3.69 % Noninterest earning assets ​ ​ 202,011 ​ ​ ​ ​ ​ ​ ​ 160,648 ​ ​ ​ ​ ​ ​ ​ 156,713 ​ ​ ​ ​ ​ ​ Total assets ​ $ 3,500,655 ​ ​ ​ $ 3,178,820 ​ ​ ​ $ 2,775,140 ​ ​ ​ Interest-Bearing Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ $ 692,287 ​ $ 1,516 ​ 0.22 % $ 697,276 ​ $ 987 ​ 0.14 % $ 551,861 ​ $ 1,624 ​ 0.29 % Money market and savings deposits ​ 1,113,426 ​ 6,090 ​ 0.55 % 1,023,677 ​ 1,500 ​ 0.15 % ​ 920,072 ​ 4,863 ​ 0.53 % Time deposits ​ 221,997 ​ 1,563 ​ 0.70 % 215,624 ​ 1,174 ​ 0.54 % ​ 203,413 ​ 2,356 ​ 1.16 % Fed funds purchased ​ 63,296 ​ 1,554 ​ 2.46 % 3 ​ — ​ — % ​ 80 ​ — ​ — % Short-term borrowings ​ ​ 89,932 ​ 2,785 ​ 3.10 % — ​ — ​ — % ​ — ​ — ​ — % Long-term debt ​ 58,864 ​ 2,340 ​ 3.98 % 50,759 ​ 1,897 ​ 3.74 % ​ 58,742 ​ 3,413 ​ 5.81 % Total interest-bearing liabilities ​ 2,239,802 ​ 15,848 ​ 0.71 % 1,987,339 ​ 5,558 ​ 0.28 % ​ 1,734,168 ​ 12,256 ​ 0.71 % Noninterest-Bearing Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ ​ 851,821 ​ ​ ​ 784,998 ​ ​ ​ ​ ​ ​ ​ 673,676 ​ ​ ​ Other noninterest-bearing liabilities ​ 62,677 ​ ​ ​ 60,424 ​ ​ ​ ​ 57,088 ​ ​ ​ Stockholders’ equity ​ 346,355 ​ ​ ​ 346,059 ​ ​ ​ ​ 310,208 ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 3,500,655 ​ ​ ​ $ 3,178,820 ​ ​ ​ $ 2,775,140 ​ ​ ​ Net interest income ​ ​ $ 100,158 ​ ​ ​ $ 87,591 ​ ​ ​ ​ $ 84,301 ​ ​ Net interest rate spread ​ ​ ​ 2.81 % ​ ​ 2.81 % ​ ​ ​ 2.98 % Net interest margin on FTE basis (1) ​ ​ ​ 3.04 % ​ ​ 2.90 % ​ ​ ​ 3.22 % (1) Fully tax-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0% . 67 Table of Contents Rate/Volume Analysis The table below presents the effect of volume and rate changes on interest income and expense for the periods indicated.
Biggest changeIn these tables, adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a comparable basis. 73 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ ​ Interest Average ​ ​ ​ Interest Average ​ ​ ​ Interest Average ​ ​ Average ​ Income/ ​ Yield/ ​ Average ​ Income/ ​ Yield/ ​ Average ​ Income/ ​ Yield/ (dollars in thousands) ​ Balance ​ Expense ​ Rate ​ Balance ​ Expense ​ Rate ​ Balance ​ Expense ​ Rate Interest Earning Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits with banks ​ $ 35,395 ​ $ 1,202 ​ 3.40 % ​ $ 58,149 ​ $ 586 ​ 1.01 % ​ ​ 222,916 ​ $ 322 ​ 0.14 % Investment securities (1) ​ 983,545 ​ 25,199 ​ 2.56 % ​ 1,135,426 ​ 24,333 ​ 2.14 % ​ ​ 864,273 ​ 14,172 ​ 1.64 % Fed funds sold ​ ​ — ​ ​ — ​ — % ​ ​ 7,313 ​ ​ 192 ​ 2.63 % ​ ​ — ​ ​ — ​ — % Loans held for sale ​ 13,217 ​ 721 ​ 5.46 % ​ 24,497 ​ 855 ​ 3.49 % ​ ​ 65,968 ​ 1,494 ​ 2.26 % Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 558,458 ​ 36,986 ​ 6.62 % ​ 507,040 ​ 26,004 ​ 5.13 % ​ ​ 579,002 ​ 28,445 ​ 4.91 % Real estate construction ​ 99,315 ​ 7,607 ​ 7.66 % ​ 63,296 ​ 3,300 ​ 5.21 % ​ ​ 41,751 ​ 1,712 ​ 4.10 % Commercial real estate ​ 980,667 ​ 51,020 ​ 5.20 % ​ 713,102 ​ 29,632 ​ 4.16 % ​ ​ 571,326 ​ 21,523 ​ 3.77 % Total commercial ​ 1,638,440 ​ 95,613 ​ 5.84 % ​ 1,283,438 ​ 58,936 ​ 4.59 % ​ ​ 1,192,079 ​ 51,680 ​ 4.34 % Consumer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate first mortgage ​ 706,626 ​ 27,240 ​ 3.85 % ​ 587,443 ​ 20,573 ​ 3.50 % ​ ​ 477,621 ​ 16,575 ​ 3.47 % Residential real estate junior lien ​ 154,036 ​ 11,639 ​ 7.56 % ​ 136,483 ​ 7,222 ​ 5.29 % ​ ​ 131,412 ​ 6,093 ​ 4.64 % Other revolving and installment ​ 35,971 ​ 2,179 ​ 6.06 % ​ 52,071 ​ 2,525 ​ 4.85 % ​ ​ 57,574 ​ 2,537 ​ 4.41 % Total consumer ​ 896,633 ​ 41,058 ​ 4.58 % ​ 775,997 ​ 30,320 ​ 3.91 % ​ ​ 666,607 ​ 25,205 ​ 3.78 % Total loans (1) ​ 2,535,073 ​ 136,671 ​ 5.39 % ​ 2,059,435 ​ 89,256 ​ 4.33 % ​ ​ 1,858,686 ​ 76,885 ​ 4.14 % Federal Reserve/FHLB Stock ​ 25,246 ​ 1,761 ​ 6.98 % ​ 13,824 ​ 784 ​ 5.67 % ​ ​ 6,329 ​ 276 ​ 4.36 % Total interest earning assets ​ 3,592,476 ​ 165,554 ​ 4.61 % ​ 3,298,644 ​ 116,006 ​ 3.52 % ​ ​ 3,018,172 ​ 93,149 ​ 3.09 % Cash and due from banks ​ 30,422 ​ ​ ​ ​ 31,957 ​ ​ ​ ​ ​ 27,399 ​ ​ ​ Allowance for loan losses ​ (35,883) ​ ​ ​ ​ (32,011) ​ ​ ​ ​ ​ (34,054) ​ ​ ​ Land, premises and equipment, net ​ 17,510 ​ ​ ​ ​ 17,429 ​ ​ ​ ​ ​ 19,081 ​ ​ ​ Operating lease right-of-use assets ​ ​ 5,624 ​ ​ ​ ​ ​ ​ ​ ​ 3,626 ​ ​ ​ ​ ​ ​ ​ ​ 4,997 ​ ​ ​ ​ ​ ​ Accrued interest receivable ​ ​ 13,034 ​ ​ ​ ​ ​ ​ ​ ​ 9,377 ​ ​ ​ ​ ​ ​ ​ ​ 8,461 ​ ​ ​ ​ ​ ​ Bank-owned life insurance ​ ​ 33,059 ​ ​ ​ ​ ​ ​ ​ ​ 33,573 ​ ​ ​ ​ ​ ​ ​ ​ 32,760 ​ ​ ​ ​ ​ ​ Goodwill ​ 46,959 ​ ​ ​ ​ 39,415 ​ ​ ​ ​ ​ 30,385 ​ ​ ​ Other intangible assets ​ 19,777 ​ ​ ​ ​ 21,542 ​ ​ ​ ​ ​ 23,479 ​ ​ ​ Servicing rights ​ ​ 2,349 ​ ​ ​ ​ ​ ​ ​ ​ 2,246 ​ ​ ​ ​ ​ ​ ​ ​ 1,984 ​ ​ ​ ​ ​ ​ Deferred income taxes, net ​ ​ 43,443 ​ ​ ​ ​ ​ ​ ​ ​ 31,593 ​ ​ ​ ​ ​ ​ ​ ​ 11,685 ​ ​ ​ ​ ​ ​ Other assets ​ 48,247 ​ ​ ​ ​ 43,264 ​ ​ ​ ​ ​ 34,471 ​ ​ ​ Noninterest earning assets ​ ​ 224,541 ​ ​ ​ ​ ​ ​ ​ ​ 202,011 ​ ​ ​ ​ ​ ​ ​ ​ 160,648 ​ ​ ​ ​ ​ ​ Total assets ​ $ 3,817,017 ​ ​ ​ ​ $ 3,500,655 ​ ​ ​ ​ $ 3,178,820 ​ ​ ​ Interest-Bearing Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ $ 768,238 ​ $ 9,872 ​ 1.29 % ​ $ 692,287 ​ $ 1,516 ​ 0.22 % ​ $ 697,276 ​ $ 987 ​ 0.14 % Money market and savings deposits ​ 1,118,815 ​ 32,639 ​ 2.92 % ​ 1,113,426 ​ 6,090 ​ 0.55 % ​ ​ 1,023,677 ​ 1,500 ​ 0.15 % Time deposits ​ 303,746 ​ 10,876 ​ 3.58 % ​ 221,997 ​ 1,563 ​ 0.70 % ​ ​ 215,624 ​ 1,174 ​ 0.54 % Fed funds purchased ​ 287,768 ​ 15,283 ​ 5.31 % ​ 63,296 ​ 1,554 ​ 2.46 % ​ ​ 3 ​ — ​ — % Short-term borrowings ​ ​ 113,973 ​ 5,693 ​ 5.00 % ​ 89,932 ​ 2,785 ​ 3.10 % ​ ​ — ​ — ​ — % Long-term debt ​ 58,900 ​ 2,681 ​ 4.55 % ​ 58,864 ​ 2,340 ​ 3.98 % ​ ​ 50,759 ​ 1,897 ​ 3.74 % Total interest-bearing liabilities ​ 2,651,440 ​ 77,044 ​ 2.91 % ​ 2,239,802 ​ 15,848 ​ 0.71 % ​ ​ 1,987,339 ​ 5,558 ​ 0.28 % Noninterest-Bearing Liabilities and Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ ​ 737,365 ​ ​ ​ ​ 851,821 ​ ​ ​ ​ ​ ​ ​ ​ 784,998 ​ ​ ​ Other noninterest-bearing liabilities ​ 69,944 ​ ​ ​ ​ 62,677 ​ ​ ​ ​ ​ 60,424 ​ ​ ​ Stockholders’ equity ​ 358,268 ​ ​ ​ ​ 346,355 ​ ​ ​ ​ ​ 346,059 ​ ​ ​ Total liabilities and stockholders’ equity ​ $ 3,817,017 ​ ​ ​ ​ $ 3,500,655 ​ ​ ​ ​ $ 3,178,820 ​ ​ ​ Net interest income ​ ​ $ 88,510 ​ ​ ​ ​ $ 100,158 ​ ​ ​ ​ ​ $ 87,591 ​ ​ Net interest rate spread ​ ​ ​ 1.70 % ​ ​ ​ 2.81 % ​ ​ ​ ​ 2.81 % Net interest margin on FTE basis (1) ​ ​ ​ 2.46 % ​ ​ ​ 3.04 % ​ ​ ​ ​ 2.90 % (1) Fully tax-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0% . ​ 74 Table of Contents Interest Rates and Operating Interest Differential Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest-bearing liabilities, as well as changes in average interest rates.
These segments are components for which financial information is prepared and evaluated regularly by management in deciding how to allocate resources and assess performance. The selected financial information presented for each segment sets forth net interest income, provision for loan losses, noninterest income, and direct noninterest expense before indirect overhead allocations.
These segments are components for which financial information is prepared and evaluated regularly by management in deciding how to allocate resources and assess performance. The selected financial information presented for each segment sets forth net interest income, provision for loan losses, noninterest income, and direct and indirect noninterest expense overhead allocations.
Our Company earns trust, investment, and IRA fees from managing assets, including corporate trusts, personal trusts, and separately managed accounts. Trust and investment management fees are primarily based on a tiered scale relative to the market value of the AUM. Trust and investment management fees are primarily impacted by rates charged and increases and decreases in AUM.
The Company earns trust, investment, and IRA fees from managing assets, including corporate trusts, personal trusts, and separately managed accounts. Trust and investment management fees are primarily based on a tiered scale relative to the market value of the AUM. Trust and investment management fees are primarily impacted by rates charged and increases and decreases in AUM.
These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio.
These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible common equity per share, return on average tangible common equity, net interest margin (tax-equivalent), the efficiency ratio, and the adjusted efficiency ratio.
The investment securities presented in the following table are reported at fair value and by contractual maturity as of December 31, 2022. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, the mortgage backed securities receive monthly principal payments, which are not reflected below.
The investment securities presented in the following table are reported at fair value and by contractual maturity as of December 31, 2023. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, the mortgage backed securities receive monthly principal payments, which are not reflected below.
Accordingly, management has addressed this issue by formulating a liquidity contingency plan, which has been reviewed and approved by both the Bank’s board of directors and the ALCO. The plan addresses the actions that we would take in response to both a short-term and long-term funding crisis.
Accordingly, management has addressed this issue by formulating a liquidity contingency plan, which has been reviewed and approved by both the Bank’s Board of Directors and the ALCO. The plan addresses the actions that the Company would take in response to both a short-term and long-term funding crisis.
Consequently, the table above includes information limited to contractual maturities of the underlying loans. Asset Quality Our strategy for credit risk management includes well-defined, centralized credit policies; uniform underwriting criteria; and ongoing risk monitoring and review processes for all commercial and consumer credit exposures.
Consequently, the table above includes information limited to contractual maturities of the underlying loans. Asset Quality The Company’s strategy for credit risk management includes well-defined, centralized credit policies; uniform underwriting criteria; and ongoing risk monitoring and review processes for all commercial and consumer credit exposures.
Compensation and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs. ● Occupancy and equipment—costs related to owning and leasing our office space, depreciation charges for the furniture, fixtures and equipment, amortization of leasehold improvements, utilities and other occupancy-related expenses.
Compensation and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs. ● Occupancy and equipment—costs related to owning and leasing the Company’s office space, depreciation charges for the furniture, fixtures and equipment, amortization of leasehold improvements, utilities and other occupancy related expenses.
Other than the aforementioned investments, at December 31, 2022 and December 31, 2021, 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.
Other than the aforementioned investments, at December 31, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and our audited consolidated financial statements and related notes included elsewhere in this report.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the “Selected Financial Data” and the Company’s audited consolidated financial statements and related notes included elsewhere in this report.
Our exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments.
The Company’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual or notional amount of those instruments.
Liquidity is monitored and closely managed by our asset and liability committee, or ALCO, a group of senior officers from the finance, enterprise risk management, deposit, investment, treasury, and lending areas.
Liquidity is monitored and closely managed by the Company’s asset and liability committee, or ALCO, a group of senior officers from the finance, enterprise risk management, deposit, investment, treasury, and lending areas.
The policy decision process not only ensures compliance with current GAAP, but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting our financial performance.
The policy decision process not only ensures compliance with current GAAP, but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting the Company’s financial performance.
It is ALCO’s responsibility to ensure we have the necessary level of funds available for normal operations as well as maintain a contingency funding policy to ensure that potential liquidity stress events are planned for, quickly identified, and management has plans in place to respond.
It is ALCO’s responsibility to ensure the Company has the necessary level of funds available for normal operations as well as maintain a contingency funding policy to ensure that potential liquidity stress events are planned for, quickly identified, and management has plans in place to respond.
Noninterest Income Noninterest income primarily consists of the following: ● Our retirement and benefit services business, which includes retirement plan administration, retirement plan investment advisory, HSA, ESOP, and other benefit services, is our Company’s largest source of noninterest income.
Noninterest Income Noninterest income primarily consists of the following: ● The Company’s retirement and benefit services business, which includes retirement plan administration, retirement plan investment advisory, HSA, ESOP administration and recordkeeping, and other benefit services, is the Company’s largest source of noninterest income.
Results of operations for the year ended December 31, 2021 compared to results for the year ended December 31, 2020, can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2021 annual report on Form 10-K filed with the SEC on March 11, 2022.
Results of operations for the year ended December 31, 2022 compared to results for the year ended December 31, 2021, can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2022 annual report on Form 10-K filed with the SEC on March 10, 2023.
The Subordinated Note matures on March 30, 2031, and we have 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.
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.
AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values. ● Mortgage noninterest income consists of gains on originating and selling mortgages and origination fees.
AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values. 64 Table of Contents ● Mortgage noninterest income consists of gains on originating and selling mortgages and origination fees.
Real estate construction loans are also offered to consumers who wish to build their own homes and are often structured to be converted to permanent loans at the end of the construction phase, which is typically twelve months.
Real estate construction loans are also offered to consumers who wish to build their own homes and are often structured to be converted to permanent loans at the end of 83 Table of Contents the construction phase, which is typically twelve months.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. We have consistently maintained regulatory capital ratios at or above the well-capitalized standards.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. The Company has consistently maintained regulatory capital ratios at or above the well capitalized standards.
Results of operations for the year ended December 31, 2022 are compared to the results for the year ended December 31, 2021, and the consolidated financial condition of the Company as of December 31, 2022 is compared to December 31, 2021.
Results of operations for the year ended December 31, 2023 are compared to the results for the year ended December 31, 2022, and the consolidated financial condition of the Company as of December 31, 2023 is compared to December 31, 2022.
(2) Outflows include closed account assets, withdrawals and client fees. (3) Market impact reflects gains and losses on portfolio investments. (4) Wealth management noninterest income divided by simple average ending balances. (5) Total wealth management does not include brokerage assets of $797.1 million, $829.7 million, and $760.5 million for the years ended December 31, 2022 and 2021, and 2020, respectively.
(2) Outflows include closed account assets, withdrawals and client fees. (3) Market impact reflects gains and losses on portfolio investments. (4) Wealth management noninterest income divided by simple average ending balances. (5) Total wealth management does not include brokerage assets of $859.8 million, $797.1 million, and $829.7 million for the years ended December 31, 2023 and 2022, and 2021, respectively.
Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our financial statements.
Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company’s financial statements.
Management calculates: (i) tangible common equity as total common stockholders’ equity, less goodwill and other intangible assets; (ii) tangible common equity per share as tangible common equity divided by shares of common stock outstanding; (iii) tangible assets as total assets, less goodwill and other intangible assets; (iv) return on average tangible common equity as net income adjusted for intangible amortization net of tax, divided by average tangible common equity; (v) net interest margin (tax-equivalent) as net interest income plus a tax-equivalent adjustment, divided by average earning assets; and (vi) efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment.
Management calculates: (i) tangible common equity as total common stockholders’ equity, less goodwill and other intangible assets; (ii) tangible common equity per share as tangible common equity divided by shares of common stock outstanding; (iii) tangible assets as total assets, less goodwill and other intangible assets; (iv) return on average tangible common equity as net income adjusted for intangible amortization net of tax, divided by average tangible common equity; (v) net interest margin (tax-equivalent) as net interest income plus a tax-equivalent adjustment, divided by average earning assets; (vi) efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment; and (vii) adjusted efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment less net gains (losses) on investment securities.
Over half of our retirement and benefit services fees are transaction or participant-based fees and are impacted by the number of plans and participants.
Over half of the Company’s retirement and benefit services fees are transaction or participant-based fees and are impacted by the number of plans and participants.
In the ordinary course of business, we enter 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.
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.
See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.” Contractual Obligations and Off-Balance Sheet Arrangements Off-Balance Sheet Arrangements In the normal course of business, we enter into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets.
See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.” Contractual Obligations and Off-Balance Sheet Arrangements Off Balance Sheet Arrangements In the normal course of business, the Company enters into various transactions to meet the financing needs of clients, which, in accordance with GAAP, are not included in the consolidated balance sheets.
We originate both fixed and adjustable rate residential real estate loans conforming to the underwriting guidelines of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, as well as home equity loans and lines of credit that are secured by first or junior liens.
The Company originates both fixed and adjustable rate residential real estate loans conforming to the underwriting guidelines of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, as well as home equity loans and lines of credit that are secured by first or junior liens.
Occupancy and equipment costs are primarily impacted by the number and size of the locations we occupy. ● Business services, software and technology—costs related to contracts with core system and third-party data processing providers, software and information technology services to support office activities and internal networks.
Occupancy and equipment costs are primarily impacted by the number and size of the locations the Company occupies. ● Business services, software and technology—costs related to contracts with core system and third-party data processing providers, software and information technology services to support office activities and internal networks.
Capital adequacy is assessed against the risk inherent in our balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss. We are subject to various regulatory capital requirements both at the Company and at the Bank level.
Capital adequacy is assessed against the risk inherent in the Company’s balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss. The Company is subject to various regulatory capital requirements both at the Company and at the Bank level.
The following table sets forth information related to our average balance sheet, average yields on assets, and average rates of liabilities for the periods indicated. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated.
The following table sets forth information related to the Company’s average balance sheet, average yields on assets, and average rates of liabilities for the periods indicated. The Company derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. The Company derived average balances from the daily balances throughout the periods indicated.
FDIC insurance expense is also included in this line and represents the assessments that we pay to the FDIC for deposit insurance. ● Other operational expenses—includes costs related to marketing, donations, promotions, and expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned, or OREO, for sale, and other general corporate expenses that do not fit within one of the specific noninterest expense lines described above.
FDIC insurance expense is also included in this line and represents the assessments that the Company pays to the FDIC for deposit insurance. ● Other operational expenses—includes costs related to marketing, donations, promotions, and expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, 65 Table of Contents costs to maintain or prepare other real estate owned, or OREO, for sale, and other general corporate expenses that do not fit within one of the specific noninterest expense lines described above.
The strategy also emphasizes diversification on a geographic, industry, and client level; regular credit examinations; and management reviews of loans experiencing deterioration of credit quality. We strive to identify potential problem loans early, take necessary charge-offs promptly, and maintain adequate reserve levels for probable loan losses inherent in the portfolio.
The strategy also emphasizes diversification on a geographic, industry, and client level; regular credit examinations; and management reviews of loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take necessary charge-offs promptly, and maintain adequate reserve levels for credit losses inherent in the portfolio.
To evaluate net interest income, we measure and monitor: (i) yields on loans, available-for-sale securities and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets.
To evaluate net interest income, the Company measures and monitors: (i) yields on loans, available-for-sale securities and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets.
Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.
Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest the Company earns on interest-earning assets or pay on interest-bearing liabilities.
(6) Yield does not include brokerage revenue of $2.6 million, $3.1 million, and $2.7 million for the years ended December 31, 2022 and 2021, and 2020, respectively.
(6) Yield does not include brokerage revenue of $2.9 million, $2.6 million, and $3.1 million for the years ended December 31, 2023 and 2022, and 2021, respectively.
Liquidity Liquidity management is the process by which we manage the flow of funds necessary to meet our financial commitments on a timely basis and at a reasonable cost and to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of our operations, and capital expenditures.
Liquidity Liquidity management is the process by which the Company manages the flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost and to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the Company’s operations, and capital expenditures.
Investment Securities The following table presents the carrying amount of our investment securities portfolio at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 December 31, 2020 ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ (dollars in thousands) Balance Portfolio Balance Portfolio Balance Portfolio ​ Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S.
Investment Securities The following table presents the carrying amount of the Company’s investment securities portfolio at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of (dollars in thousands) Balance Portfolio ​ Balance Portfolio Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S.
The yields below are calculated on a tax equivalent basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity as of December 31, 2022 ​ ​ One year or less ​ One to five years ​ Five to ten years ​ After ten years ​ Fair Average Fair Average Fair Average Fair Average (dollars in thousands) ​ Value ​ Yield ​ Value ​ Yield ​ Value ​ Yield ​ Value ​ Yield Available-for-sale ​ ​ ​ ​ ​ U.S.
The yields below are calculated on a tax equivalent basis, assuming a 21.00% income tax rate. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturity as of December 31, 2023 ​ ​ One year or less ​ One to five years ​ Five to ten years ​ After ten years ​ Fair Average ​ Fair Average ​ Fair Average ​ Fair Average (dollars in thousands) ​ Value ​ Yield ​ Value ​ Yield ​ Value ​ Yield ​ Value ​ Yield Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ U.S.
ALCO has created policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources. 85 Table of Contents At December 31, 2022, we had on balance sheet liquidity of $778.9 billion, compared to $1.1 billion at December 31, 2021 and $511.1 million at December 31, 2020.
ALCO has created policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources. 93 Table of Contents At December 31, 2023, the Company had on balance sheet liquidity of $668.2 million, compared to $778.9 million at December 31, 2022 and $1.1 billion at December 31, 2021.
Most of our fixed rate residential loans, 75 Table of Contents along with some of our adjustable rate mortgages are sold to other financial institutions with which we have established a correspondent lending relationship. Our consumer mortgage loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards.
Most of the Company’s fixed rate residential loans, along with some of the Company’s adjustable rate mortgages are sold to other financial institutions with which the Company has established a correspondent lending relationship. The Company’s consumer mortgage loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards.
In the second quarter of 2021, we transferred our portfolio of obligations of state and political agencies from available-for-sale to held-to-maturity to protect capital and reduce volatility in other comprehensive income due to market value changes. At December 31, 2022, total investment securities were $1.0 billion compared to $1.2 billion at December 31, 2021.
In 2021, the Company transferred its portfolio of obligations of state and political agencies from available-for-sale to held-to-maturity to protect capital and reduce volatility in other comprehensive income due to market value changes. At December 31, 2023, total investment securities were $0.8 billion compared to $1.0 billion at December 31, 2022.
Junior subordinated debentures issued to capital trusts that issued trust preferred securities were $8.8 million as of December 31, 2022, compared to $8.7 million as of December 31, 2021. The increase was due to purchase accounting 83 Table of Contents amortization on the junior subordinated notes assumed in the Beacon Bank acquisition in 2016.
Junior subordinated debentures issued to capital trusts that issued trust preferred securities were $9.0 million as of December 31, 2023, compared to $8.8 million as of December 31, 2022. The increase was due to purchase accounting amortization on the junior subordinated notes assumed in the Beacon Bank acquisition in 2016.
At December 31, 2022, we had $58.2 million of cash and cash equivalents of which $24.9 million were interest-bearing deposits held at the Federal Reserve, FHLB and other correspondent banks. Though remote, the possibility of a funding crisis exists at all financial institutions.
At December 31, 2023, the Company had $129.9 million of cash and cash equivalents of which $91.2 million were interest-bearing deposits held at the Federal Reserve, FHLB and other correspondent banks. Though remote, the possibility of a funding crisis exists at all financial institutions.
Volume in this portion of the loan portfolio increased over the last few years due to low long-term interest rates and comparatively stable real estate valuations in our primary markets. As of December 31, 2022, our consumer mortgage portfolio was $830.0 million which was a $193.6 million, or 30.4%, increase from $636.4 million as of December 31, 2021.
Volume in this portion of the loan portfolio increased over the last few years due to low long-term interest rates and comparatively stable real estate valuations in the Company’s primary markets. As of December 31, 2023, the Company’s consumer mortgage portfolio was $881.0 million, which was a $51.0 million, or 9.4%, increase from $830.0 million as of December 31, 2022.
At December 31, 2022, 2021, and 2020, we met all capital adequacy requirements to which we were subject. 84 Table of Contents The table below sets forth the capital ratios for the Company and the Bank as of the dates indicated.
At December 31, 2023, 2022, and 2021, the Company met all capital adequacy requirements to which the Company was subject. 92 Table of Contents The table below sets forth the capital ratios for the Company and the Bank as of the dates indicated.
In addition, we can borrow up to $102.0 million through unsecured lines of credit we have established with four other banks. In addition, because the Bank is “well capitalized,” we can accept wholesale deposits up to 20.0% of total assets based on current policy limits.
In addition, the Company can borrow up to $107.0 million through unsecured lines of credit the Company has established with four other banks. In addition, because the Bank is “well capitalized,” it can accept brokered deposits up to 20.0% of total assets based on current policy limits.
Management believed that we had adequate resources to fund all of our commitments as of December 31, 2022 and December 31, 2021. Our primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding.
Management believed that the Company had adequate resources to fund all of its commitments as of December 31, 2023 and December 31, 2022. The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding.
We believe our client-first and advice-based philosophy, diversified business model and history of high performance and growth distinguishes us from other financial service providers. We generate a majority of our overall revenue from noninterest income, which is driven primarily by our retirement and benefit services, wealth management and mortgage business lines.
The Company believes its client first and advice based philosophy, diversified business model and history of high performance and growth distinguishes the Company from other financial service providers. The Company generates a majority of its overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services, wealth management and mortgage business lines.
Retirement and Benefit Services Retirement and benefit services provides the following services nationally: recordkeeping and administration services to qualified retirement plans; ESOP trustee, recordkeeping and administration; investment fiduciary services to retirement plans; HSA, flex spending account, and government health insurance program recordkeeping and administration services to employers. The division services approximately 8,100 retirement plans and more than 384,800 plan participants.
Retirement and Benefit Services Retirement and benefit services provide the following services nationally: recordkeeping and administration services to qualified retirement plans; ESOP recordkeeping and administration; investment fiduciary services to retirement plans; HSA, flex spending account, and government health insurance program recordkeeping and administration services to employers. The division services approximately 8,300 retirement plans and more than 474,000 plan participants.
Segment Reporting We determine reportable segments based on the significance of the services offered, the significance of those services to our financial condition and operating results, and our regular review of the operating results of those services. We have four operating segments—banking, retirement and benefit services, wealth management, and mortgage.
Segment Reporting The Company determined reportable segments based on the significance of the services offered, the significance of those services to the Company’s financial condition and operating results, and the Company’s regular review of the operating results of those services. The Company has four operating segments—banking, retirement and benefit services, wealth management, and mortgage.
Technology and information system costs are primarily impacted by the number of locations we occupy, the number of employees, clients and volume of transactions we have and the level of service we require from our third-party technology vendors. ● Intangible amortization expense is the result of acquisitions of fee income and banking companies.
Technology and information system costs are primarily impacted by the number of locations the Company occupies, the number of employees, clients and volume of transactions the Company has and the level of service the Company requires from its third party technology vendors. ● Intangible amortization expense is the result of acquisitions of fee income and banking companies.
The decrease was primarily driven by a decrease in mortgage originations, partially offset by a $6.5 million increase in the change in fair value of the secondary market derivatives and a modest 41 basis point increase in the gain on sale margin. 72 Table of Contents Financial Condition Overview Total assets were $3.8 billion at December 31, 2022, an increase of $386.9 million, or 11.4%, compared to $3.4 billion at December 31, 2021.
The decrease was primarily driven by a decrease in mortgage originations and a 32 basis point decrease in the gain on sale margin, partially offset by a $2.0 million increase in the change in fair value of the secondary market derivatives. 79 Table of Contents Financial Condition Overview Total assets were $3.9 billion at December 31, 2023, an increase of $128.1 million, or 3.4%, compared to $3.8 billion at December 31, 2022.
We decrease our exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. We assess the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses.
The Company decreased its exposure to losses under these commitments by subjecting them to credit approval and monitoring procedures. The Company assesses the credit risk associated with certain commitments to extend credit and establishes a liability for probable credit losses.
Summary Net income for the year ended December 31, 2022, was $40.0 million, a decrease of $12.7 million, or 24.1%, compared to $52.7 million for the year ended December 31, 2021. Diluted earnings per common share were $2.10 in 2022, compared to $2.97 in 2021. Return on average total assets was 1.14% in 2022, compared to 1.66% for 2021.
Summary Net income for the year ended December 31, 2023 was $11.7 million, a decrease of $28.3 million, or 70.8%, compared to $40.0 million for the year ended December 31, 2022. Diluted earnings per common share were $0.58 in 2023, compared to $2.10 in 2022. Return on average total assets was 0.31% in 2023, compared to 1.14% for 2022.
The 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 the interest rate will reset to a fixed interest rate equal to FHLB rate, plus 2.0%, with a minimum annual fixed rate of not less than 3.5%.
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%.
Banking fees are primarily impacted by the level of business activities and cash movement activities of our clients. 60 Table of Contents ● Other noninterest income consists of debit card interchange income, income earned on the growth of the cash surrender value of life insurance policies we hold on to certain key employees, loan servicing income net of the related amortization, and any other income which does not fit within one of the specific noninterest income lines described above.
Banking fees are primarily impacted by the level of business activities and cash movement activities of the Company’s clients. ● Net gains (losses) on investment securities consists of the realized gains or losses related to the sale of available-for-sale investment securities. ● Other noninterest income consists of debit card interchange income, income earned on the growth of the cash surrender value of life insurance policies the Company holds on to certain key employees, loan servicing income net of the related amortization, and any other income which does not fit within one of the specific noninterest income lines described above.
Recent Developments Shareholder Dividend On February 21, 2023, the Board of Directors of the Company declared a quarterly cash dividend of $0.18 per common share. This dividend is payable on April 14, 2023, to stockholders of record on March 15, 2023.
Recent Developments Stockholder Dividend On February 27, 2024, the Board of Directors of the Company declared a quarterly cash dividend of $0.19 per common share. This dividend is payable on April 12, 2024, to stockholders of record on March 15, 2024.
As of December 31, 2022, and 2021, $723.7 million or 19.1% and $857.0 million, or 25.3%, respectively, of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities.
As of December 31, 2023 and 2022, $495.2 million, or 12.7%, and $723.7 million, or 19.1%, respectively, of the Company’s total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities.
Selected financial information pertaining to the components of our borrowings and subordinated debt as of the dates indicated is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ December 31, 2020 ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ (dollars in thousands) Balance Portfolio Balance Portfolio Balance Portfolio Fed funds purchased $ 153,080 35.0 % $ — ​ — % $ — — % FHLB Short-term advances ​ ​ 225,000 ​ 51.6 % ​ — ​ — % ​ — ​ — % Subordinated notes ​ ​ 50,000 ​ 11.4 % ​ 50,000 ​ 84.9 % 49,688 ​ 84.6 % Junior subordinated debentures ​ 8,843 ​ 2.0 % ​ 8,730 ​ 14.8 % 8,617 ​ 14.7 % Finance lease liability ​ ​ — ​ — % ​ 203 ​ 0.3 % ​ 430 ​ 0.7 % Total borrowed funds ​ $ 436,923 ​ 100.0 % $ 58,933 ​ 100.0 % $ 58,735 ​ 100.0 % ​ Capital Resources The following table summarizes the changes in our stockholders’ equity for the periods indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (dollars in thousands) 2022 2021 2020 Beginning balance ​ $ 359,403 ​ $ 330,163 ​ $ 285,728 Net income ​ 40,005 ​ 52,681 ​ 44,675 Other comprehensive income (loss) ​ (94,386) ​ (14,893) ​ 8,702 Common stock repurchased ​ (738) ​ (712) ​ (482) Common stock issued ​ 63,830 ​ — ​ — Common stock dividends ​ (13,146) ​ (10,931) ​ (10,387) Stock‑based compensation expense ​ 1,904 ​ 3,095 ​ 1,927 Ending balance ​ $ 356,872 ​ $ 359,403 ​ $ 330,163 ​ Total stockholders’ equity was $356.9 million at December 31, 2022, a decrease of $2.5 million, or 0.7%, compared to $359.4 million at December 31, 2021.
Selected financial information pertaining to the components of the Company’s borrowings and subordinated debt as of the dates indicated is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ December 31, 2021 ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of (dollars in thousands) Balance Portfolio ​ Balance Portfolio ​ Balance Portfolio Fed funds purchased $ 114,170 30.6 % ​ $ 153,080 ​ 35.0 % ​ $ — — % FHLB Short-term advances ​ ​ 200,000 ​ 53.6 % ​ ​ 225,000 ​ 51.6 % ​ ​ — ​ — % Subordinated notes ​ ​ 50,000 ​ 13.4 % ​ ​ 50,000 ​ 11.4 % ​ 50,000 ​ 84.9 % Junior subordinated debentures ​ 8,956 ​ 2.4 % ​ ​ 8,843 ​ 2.0 % ​ 8,730 ​ 14.8 % Finance lease liability ​ ​ — ​ — % ​ ​ — ​ — ​ ​ ​ 203 ​ 0.3 % Total borrowed funds ​ $ 373,126 ​ 100.0 % ​ $ 436,923 ​ 100.0 % ​ $ 58,933 ​ 100.0 % ​ 91 Table of Contents Capital Resources The following table summarizes the changes in the Company’s stockholders’ equity for the periods indicated. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, (dollars in thousands) 2023 2022 2021 Beginning balance ​ $ 356,872 ​ $ 359,403 ​ $ 330,163 Cumulative effect of change in accounting principles, net of tax ​ ​ (4,452) ​ ​ — ​ ​ — Net income ​ 11,696 ​ 40,005 ​ 52,681 Other comprehensive income (loss) ​ 24,986 ​ (94,386) ​ (14,893) Common stock repurchased ​ (6,638) ​ (738) ​ (712) Common stock issued ​ — ​ 63,830 ​ — Common stock dividends ​ (14,965) ​ (13,146) ​ (10,931) Stock‑based compensation expense ​ 1,628 ​ 1,904 ​ 3,095 Ending balance ​ $ 369,127 ​ $ 356,872 ​ $ 359,403 ​ Total stockholders’ equity was $369.1 million at December 31, 2023, an increase of $12.3 million, or 3.4%, compared to $356.9 million at December 31, 2022.
These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes. Borrowings and Subordinated Debt We utilize both short-term and long-term borrowings as part of our asset/liability management and funding strategies. Short-term borrowings consist of FHLB advances and federal funds purchased. We had $378.1 million in short-term borrowings outstanding at December 31, 2022.
These amounts were estimated based on the same methodologies and assumptions used for regulatory reporting purposes. Borrowings and Subordinated Debt 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.
AUA and AUM for the wealth management segment was $2.8 billion, excluding $797.1 million of brokerage assets, at December 31, 2022, a decrease of $424.7 million, or 13.2%, compared to the total at December 31, 2021. The decrease was driven by a $378.2 million decrease in market impact.
AUA and AUM for the wealth management segment was $3.2 billion, excluding $859.8 million of brokerage assets, at December 31, 2023, an increase of $0.4 million, or 13.4%, compared to the total at December 31, 2022. The increase was driven by a $0.3 million increase in market impact.
See Note 14 (Long-Term Debt) of the Company’s audited consolidated financial statements included elsewhere in this report.
See Note 14 (Long-Term Debt) of the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of December 31, 2022, we had $909.8 million of collateral pledged to the FHLB. Based on this collateral we are eligible to borrow up to $909.8 million and had $531.6 million available capacity as of December 31, 2022.
The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of December 31, 2023, the Company had $1.0 billion of collateral pledged to the FHLB. Based on this collateral the Company is eligible to borrow up to $1.0 billion and had $706.6 million available capacity as of December 31, 2023.
For additional financial information on our segments see Note 22 (Segment Reporting) of the Company’s audited consolidated financial statements included elsewhere in this report. Banking The banking segment offers a complete line of loan, deposit, cash management, and treasury services through 16 offices in North Dakota, Minnesota, and Arizona. These products and services are supported through various digital applications.
For additional financial information on the Company’s segments see Note 22 (Segment Reporting) of the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K. Banking The banking segment offers a complete line of loan, deposit, cash management, and treasury services through 15 offices in North Dakota, Minnesota, and Arizona.
We maintain a commitment to generating growth in our business portfolio in a manner that adheres to our twin goals of maintaining strong asset quality and producing profitable margins. We continue to invest in additional personnel, technology, and business development resources to further strengthen our capabilities in this important product category.
The Company maintains a commitment to generating growth in the Company’s business portfolio in a manner that adheres to its twin goals of maintaining strong asset quality and producing profitable margins. The Company continues to invest in additional personnel, technology, and business development resources to further strengthen its capabilities.
Revenue of $67.1 million, comprised of $23.8 million in asset-based revenue and $43.4 million in participant and transaction revenues, decreased $4.6 million or 6.4% primarily due to a $4.6 billion, or 12.6%, decrease in assets under administration/management. 70 Table of Contents The following table presents changes in the combined AUA and AUM for our retirement and benefit services segment for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ December 31, ​ (dollars in thousands) 2022 2021 2020 AUA & AUM balance beginning of period ​ $ 36,732,938 ​ $ 34,199,954 ​ $ 31,904,648 ​ Acquired assets ​ ​ — ​ ​ — ​ ​ 1,258,382 ​ Inflows (1) ​ 5,735,604 ​ 5,589,925 ​ ​ 4,829,449 ​ Outflows (2) ​ (7,512,492) ​ (6,010,136) ​ ​ (6,828,573) ​ Market impact (3) ​ (2,833,530) ​ 2,953,195 ​ ​ 3,036,048 ​ AUA & AUM balance end of period ​ $ 32,122,520 ​ $ 36,732,938 ​ $ 34,199,954 ​ Yield (4) ​ 0.20 % 0.20 % ​ 0.18 % (1) Inflows include new account assets, contributions, dividends and interest.
Revenue of $65.3 million, comprised of $23.1 million in asset-based revenue and $42.2 million in participant and transaction revenues, decreased $1.8 million, or 2.7%, primarily due to the divestiture of the payroll services line of business. 77 Table of Contents The following table presents changes in the combined AUA and AUM for the Company’s retirement and benefit services segment for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (dollars in thousands) 2023 ​ 2022 ​ 2021 AUA & AUM balance beginning of period ​ $ 32,122,520 ​ ​ $ 36,732,938 ​ ​ $ 34,199,954 ​ Acquired assets ​ ​ — ​ ​ ​ — ​ ​ ​ — ​ Inflows (1) ​ 4,548,845 ​ ​ 5,735,604 ​ ​ ​ 5,589,925 ​ Outflows (2) ​ (4,836,524) ​ ​ (7,512,492) ​ ​ ​ (6,010,136) ​ Market impact (3) ​ 4,847,584 ​ ​ (2,833,530) ​ ​ ​ 2,953,195 ​ AUA & AUM balance end of period ​ $ 36,682,425 ​ ​ $ 32,122,520 ​ ​ $ 36,732,938 ​ Yield (4) ​ 0.19 % ​ 0.20 % ​ ​ 0.20 % (1) Inflows include new account assets, contributions, dividends and interest.
(4) Includes ESOP-owned shares. 64 Table of Contents Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, we routinely supplement our evaluation with an analysis of certain non-GAAP financial measures.
See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.” (2) Includes ESOP-owned shares. 70 Table of Contents Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures In addition to the results presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures.
As of December 31, 2022, we had $3.8 billion of total assets, $2.4 billion of total loans, $2.9 billion of total deposits, $356.9 million of stockholders’ equity, $32.1 billion of AUA/AUM in our retirement and benefit services segment, and $3.6 billion of AUA/AUM in our wealth management segment.
As of December 31, 2023, the Company had $3.9 billion of total assets, $2.8 billion of total loans, $3.1 billion of total deposits, $369.1 million of stockholders’ equity, $36.7 billion of AUA/AUM in the Company’s retirement and benefit services segment, and $4.0 billion of AUA/AUM in the Company’s wealth management segment.
For the year ended December 31, 2022, we had $812.3 billion of mortgage originations. Net Interest Income Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and available-for-sale securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings.
For the year ended December 31, 2023, the Company had $364.1 million of mortgage originations. Net Interest Income Net interest income represents interest income less interest expense. The Company generates interest income on interest-earning assets, primarily loans and available-for-sale securities. The Company incurs interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings.
The determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.
Core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives. The determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.
Noninterest Expense The following table presents noninterest expense for the years ended December 31, 2022, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ (dollars in thousands) 2022 2021 $ Change % Change ​ 2021 2020 $ Change % Change ​ Compensation ​ $ 80,656 ​ $ 93,386 ​ $ (12,730) ​ (13.6) % ​ $ 93,386 ​ $ 89,206 ​ $ 4,180 ​ 4.7 % Employee taxes and benefits ​ 21,915 ​ 22,033 ​ (118) ​ (0.5) % ​ 22,033 ​ ​ 20,050 ​ 1,983 ​ 9.9 % Occupancy and equipment expense ​ 7,605 ​ 8,148 ​ (543) ​ (6.7) % ​ 8,148 ​ ​ 10,058 ​ (1,910) ​ (19.0) % Business services, software and technology expense ​ 19,487 ​ 20,486 ​ (999) ​ (4.9) % ​ 20,486 ​ ​ 19,135 ​ 1,351 ​ 7.1 % Intangible amortization expense ​ 4,754 ​ 4,380 ​ 374 ​ 8.5 % ​ 4,380 ​ ​ 3,961 ​ 419 ​ 10.6 % Professional fees and assessments ​ 8,367 ​ 6,292 ​ 2,075 ​ 33.0 % ​ 6,292 ​ ​ 4,834 ​ 1,458 ​ 30.2 % Marketing and business development ​ 3,254 ​ 3,182 ​ 72 ​ 2.3 % ​ 3,182 ​ ​ 3,133 ​ 49 ​ 1.6 % Supplies and postage ​ 2,440 ​ 2,361 ​ 79 ​ 3.3 % ​ 2,361 ​ ​ 2,174 ​ 187 ​ 8.6 % Travel ​ 1,182 ​ 442 ​ 740 ​ 167.4 % ​ 442 ​ ​ 359 ​ 83 ​ 23.1 % Mortgage and lending expenses ​ 2,183 ​ 4,250 ​ (2,067) ​ (48.6) % ​ 4,250 ​ ​ 5,707 ​ (1,457) ​ (25.5) % Other ​ 6,927 ​ 3,949 ​ 2,978 ​ 75.4 % ​ 3,949 ​ ​ 5,182 ​ (1,233) ​ (23.8) % Total noninterest expense ​ $ 158,770 ​ $ 168,909 ​ $ (10,139) ​ (6.0) % ​ $ 168,909 ​ $ 163,799 ​ $ 5,110 ​ 3.1 % ​ Total noninterest expense decreased $10.1 million, or 6.0%, to $158.8 million for the year ended December 31, 2022, from $168.9 million for 2021.
Noninterest Expense The following table presents noninterest expense for the years ended December 31, 2023, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, (dollars in thousands) 2023 2022 $ Change % Change 2022 2021 $ Change % Change Compensation ​ $ 76,290 ​ $ 80,656 ​ $ (4,366) ​ (5.4) % ​ $ 80,656 ​ $ 93,386 ​ $ (12,730) ​ (13.6) % Employee taxes and benefits ​ 20,051 ​ 21,915 ​ (1,864) ​ (8.5) % ​ 21,915 ​ ​ 22,033 ​ (118) ​ (0.5) % Occupancy and equipment expense ​ 7,477 ​ 7,605 ​ (128) ​ (1.7) % ​ 7,605 ​ ​ 8,148 ​ (543) ​ (6.7) % Business services, software and technology expense ​ 21,053 ​ 19,487 ​ 1,566 ​ 8.0 % ​ 19,487 ​ ​ 20,486 ​ (999) ​ (4.9) % Intangible amortization expense ​ 5,296 ​ 4,754 ​ 542 ​ 11.4 % ​ 4,754 ​ ​ 4,380 ​ 374 ​ 8.5 % Professional fees and assessments ​ 6,743 ​ 8,367 ​ (1,624) ​ (19.4) % ​ 8,367 ​ ​ 6,292 ​ 2,075 ​ 33.0 % Marketing and business development ​ 3,027 ​ 3,254 ​ (227) ​ (7.0) % ​ 3,254 ​ ​ 3,182 ​ 72 ​ 2.3 % Supplies and postage ​ 1,796 ​ 2,440 ​ (644) ​ (26.4) % ​ 2,440 ​ ​ 2,361 ​ 79 ​ 3.3 % Travel ​ 1,189 ​ 1,182 ​ 7 ​ 0.6 % ​ 1,182 ​ ​ 442 ​ 740 ​ 167.4 % Mortgage and lending expenses ​ 1,902 ​ 2,183 ​ (281) ​ (12.9) % ​ 2,183 ​ ​ 4,250 ​ (2,067) ​ (48.6) % Other ​ 5,333 ​ 6,927 ​ (1,594) ​ (23.0) % ​ 6,927 ​ ​ 3,949 ​ 2,978 ​ 75.4 % Total noninterest expense ​ $ 150,157 ​ $ 158,770 ​ $ (8,613) ​ (5.4) % ​ $ 158,770 ​ $ 168,909 ​ $ (10,139) ​ (6.0) % ​ Total noninterest expense decreased $8.6 million, or 5.4%, to $150.2 million for the year ended December 31, 2023, from $158.8 million for the year ended December 31, 2022.
We measure the profitability of each segment based on the direct allocations of expense as we believe it better approximates the contribution generated by our reportable operating segments. All indirect overhead allocations and income tax expense is allocated to corporate administration.
The Company measures the profitability of each segment based on the direct and indirect allocations of expense as it believes it better approximates the contribution generated by the Company’s reportable operating segments. All indirect overhead allocations to each segment are determined by management based on an annual review of department expenses. Income tax expense is allocated to corporate administration.
These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could differ from these estimates. The most critical of the accounting policies are discussed below. Investment securities —Investment securities can be classified as trading, available-for-sale, held-to-maturity and equity.
These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could differ from these estimates. The most critical of the accounting policies is discussed below.
Future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on our results of operations. Income taxes —Income tax expense or benefit is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities.
Future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on our results of operations.
As of December 31, 2022 and 2021, $6.3 million and $1.4 million, respectively representing less than 1% of our total liabilities in those years were classified as Level 2 of the fair value hierarchy. As of December 31, 2022, we had no fair value assets or liabilities classified in Level 3 of the fair value hierarchy.
As of December 31, 2023 and 2022, $9.2 million and $6.3 million of derivative financial instruments, respectively, were classified as Level 2 of the fair value hierarchy, representing less than 1% of the Company’s total liabilities in those years.
Noninterest expense decreased $2.9 million, or 32.6%, as compared to 2021, primarily due to a decrease of allocated expenses. 71 Table of Contents The following table presents changes in the wealth management combined AUA and AUM, disaggregated by product, for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ December 31, ​ (dollars in thousands) 2022 2021 2020 Dimension balance beginning of period ​ $ 2,214,346 ​ $ 1,754,647 ​ $ 1,652,454 ​ Inflows (1) ​ 1,263,252 ​ 881,980 ​ 402,787 ​ Outflows (2) ​ (1,326,374) ​ (623,324) ​ (539,485) ​ Market impact (3) ​ (253,464) ​ 201,043 ​ 238,891 ​ Dimension balance end of period ​ $ 1,897,760 ​ $ 2,214,346 ​ $ 1,754,647 ​ Yield (4)(6) ​ 0.48 % 0.51 % 0.49 % Blue Print balance beginning of period ​ $ 716,312 ​ $ 569,936 ​ $ 469,937 ​ Inflows (1) ​ 143,355 ​ 162,537 ​ 131,436 ​ Outflows (2) ​ (115,458) ​ (89,829) ​ (83,142) ​ Market impact (3) ​ (108,542) ​ 73,668 ​ 51,705 ​ Blue Print balance end of period ​ $ 635,667 ​ $ 716,312 ​ $ 569,936 ​ Yield (4)(6) ​ 0.98 % 0.97 % 0.92 % Trust balance beginning of period ​ $ 279,584 ​ $ 253,470 ​ $ 290,677 ​ Inflows (1) ​ 73,446 ​ 259,790 ​ 194,897 ​ Outflows (2) ​ (84,668) ​ (244,642) ​ (251,542) ​ Market impact (3) ​ (16,203) ​ 10,966 ​ 19,438 ​ Trust balance end of period ​ $ 252,159 ​ $ 279,584 ​ $ 253,470 ​ Yield (4)(6) ​ 0.70 % 0.64 % 0.57 % Total Wealth Management balance beginning of period ​ $ 3,210,242 ​ $ 2,578,053 ​ $ 2,413,068 ​ Inflows (1) ​ 1,480,053 ​ 1,304,307 ​ 729,120 ​ Outflows (2) ​ (1,526,500) ​ (957,795) ​ (874,169) ​ Market impact (3) ​ (378,209) ​ 285,677 ​ 310,034 ​ Total Wealth Management balance end of period (5) ​ $ 2,785,586 ​ $ 3,210,242 ​ $ 2,578,053 ​ Yield (4)(6) ​ 0.61 % 0.62 % ​ 0.59 % (1) Inflows include new account assets, contributions, dividends and interest.
Noninterest expense in 2023 increased $4.1 million, or 51.3%, as compared to 2022, primarily due to an increase of allocated expenses. 78 Table of Contents The following table presents changes in the wealth management combined AUA and AUM, disaggregated by product, for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (dollars in thousands) 2023 ​ 2022 ​ 2021 Dimension balance beginning of period ​ $ 1,897,760 ​ ​ $ 2,214,346 ​ ​ $ 1,754,647 ​ Inflows (1) ​ 551,102 ​ ​ 1,263,252 ​ ​ 881,980 ​ Outflows (2) ​ (542,463) ​ ​ (1,326,374) ​ ​ (623,324) ​ Market impact (3) ​ 200,439 ​ ​ (253,464) ​ ​ 201,043 ​ Dimension balance end of period ​ $ 2,106,838 ​ ​ $ 1,897,760 ​ ​ $ 2,214,346 ​ Yield (4)(6) ​ 0.52 % ​ 0.48 % ​ 0.51 % Blue Print balance beginning of period ​ $ 635,667 ​ ​ $ 716,312 ​ ​ $ 569,936 ​ Inflows (1) ​ 129,170 ​ ​ 143,355 ​ ​ 162,537 ​ Outflows (2) ​ (108,673) ​ ​ (115,458) ​ ​ (89,829) ​ Market impact (3) ​ 97,599 ​ ​ (108,542) ​ ​ 73,668 ​ Blue Print balance end of period ​ $ 753,763 ​ ​ $ 635,667 ​ ​ $ 716,312 ​ Yield (4)(6) ​ 1.01 % ​ 0.98 % ​ 0.97 % Trust balance beginning of period ​ $ 252,159 ​ ​ $ 279,584 ​ ​ $ 253,470 ​ Inflows (1) ​ 88,702 ​ ​ 73,446 ​ ​ 259,790 ​ Outflows (2) ​ (85,831) ​ ​ (84,668) ​ ​ (244,642) ​ Market impact (3) ​ 43,420 ​ ​ (16,203) ​ ​ 10,966 ​ Trust balance end of period ​ $ 298,450 ​ ​ $ 252,159 ​ ​ $ 279,584 ​ Yield (4)(6) ​ 0.53 % ​ 0.70 % ​ 0.64 % Total Wealth Management balance beginning of period ​ $ 2,785,586 ​ ​ $ 3,210,242 ​ ​ $ 2,578,053 ​ Inflows (1) ​ 768,974 ​ ​ 1,480,053 ​ ​ 1,304,307 ​ Outflows (2) ​ (736,967) ​ ​ (1,526,500) ​ ​ (957,795) ​ Market impact (3) ​ 341,458 ​ ​ (378,209) ​ ​ 285,677 ​ Total Wealth Management balance end of period (5) ​ $ 3,159,051 ​ ​ $ 2,785,586 ​ ​ $ 3,210,242 ​ Yield (4)(6) ​ 0.64 % ​ 0.61 % ​ ​ 0.62 % (1) Inflows include new account assets, contributions, dividends and interest.
The increase in total assets was primarily due to an increase of $686.0 million in loans held for investment, partially offset by decreases of $184.1 million in cash and cash equivalents and $166.5 million in investment securities.
The increase in total assets was primarily due to increases of $312.1 million in loans held for investment and $64.2 million in cash and cash equivalents, partially offset by a decrease of $253.0 million in investment securities.
Agency, Commercial Mortgage Obligations, or CMOs, Corporate bonds and Municipal bonds. 73 Table of Contents As of December 31, 2022 and December 31, 2021 the Company held 85 tax-exempt state and local municipal securities totaling $40.9 million and held 94 tax-exempt state and local municipal securities totaling $49.4 million, respectively.
Treasury debentures, U.S. Agency mortgage-backed pass-throughs, U.S. Agency, Commercial Mortgage Obligations, or CMOs, Corporate bonds and Municipal bonds. 80 Table of Contents As of December 31, 2023 and December 31, 2022 the Company held 75 tax-exempt state and local municipal securities totaling $35.0 million and held 85 tax-exempt state and local municipal securities totaling $40.9 million, respectively.
We believe our technology spending enhances the efficiency of our employees and enables us to provide outstanding service to our clients.
The Company believes its technology spending enhances the efficiency of the Company’s employees and enables the Company to provide outstanding service to its clients.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+2 added−1 removed13 unchanged
Biggest changeThe estimated impact on our net interest income in hypothetical rising and declining rate scenarios assuming immediate, parallel moves in interest rates, calculated as of December 31, 2022 and December 31, 2021, are presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ Following Following Following Following ​ ​ 12 months ​ 24 months ​ 12 months ​ 24 months +400 basis points −25.1 % −8.2 % −8.2 % −2.9 % +300 basis points −18.9 % −6.4 % −6.1 % −2.3 % +200 basis points −12.7 % −4.4 % −4.1 % −1.8 % +100 basis points −6.2 % −1.8 % −2.0 % −1.3 % −100 basis points 5.2 % 0.5 % −10.6 % −15.7 % −200 basis points 7.9 % −1.7 % N/A % N/A % ​ The above interest rate simulation suggests that the Company’s balance sheet is liability sensitive, in the short-term, as of December 31, 2022, demonstrating that an increase in interest rates would have a negative impact on net 87 Table of Contents interest income over the next 12 and 24 months.
Biggest changeThe estimated impact on the Company’s net interest income in hypothetical rising and declining rate scenarios assuming immediate, parallel moves in interest rates, calculated as of December 31, 2023 and December 31, 2022, are presented in the table below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ Following ​ Following ​ Following ​ Following ​ ​ 12 months ​ 24 months ​ 12 months ​ 24 months +400 basis points 1.0 % ​ 2.4 % ​ −25.1 % ​ −8.2 % +300 basis points 0.5 % ​ 1.4 % ​ −18.9 % ​ −6.4 % +200 basis points 0.3 % ​ 0.9 % ​ −12.7 % ​ −4.4 % +100 basis points 0.4 % ​ 0.9 % ​ −6.2 % ​ −1.8 % −100 basis points −1.0 % ​ −1.7 % ​ 5.2 % ​ 0.5 % −200 basis points −2.3 % ​ −4.1 % ​ 7.9 % ​ −1.7 % ​ The above interest rate simulation suggests that the Company’s balance sheet is slightly asset sensitive, in the short-term, as of December 31, 2023, demonstrating that an increase in interest rates would have a marginal positive 95 Table of Contents impact on net interest income over the next 12 and 24 months.
The Bank’s board of directors approves policy limits with respect to interest rate risk. 86 Table of Contents Interest Rate Risk Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
The Bank’s Board of Directors approves policy limits with respect to interest rate risk. 94 Table of Contents Interest Rate Risk Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various risks, including those related to the development of new products and business initiatives. ​ 88 Table of Contents ​
Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various risks, including those related to the development of new products and business initiatives. ​ 96 Table of Contents ​
Management continuously strives to strengthen its system of internal controls, enterprise risk management, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of our operational risk.
Management continuously strives to strengthen its system of internal controls, enterprise risk management, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of the Company’s operational risk.
Option risk in financial instruments arises from embedded options such as options provided to borrowers to make unscheduled loan prepayments, options provided to debt issuers to exercise call options prior to maturity, and depositor options to make withdrawals and early redemptions. Management regularly reviews our exposure to changes in interest rates.
Option risk in financial instruments arises from embedded options such as options provided to borrowers to make unscheduled loan prepayments, options provided to debt issuers to exercise call options prior to maturity, and depositor options to make withdrawals and early redemptions. Management regularly reviews the Company’s exposure to changes in interest rates.
Activities which may expose us to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the expansion of our banking center network, employment and tax matters.
Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the expansion of the Company’s banking center network, employment and tax matters.
We seek to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. Our Asset and Liability Committee, or ALCO, oversees market risk management, monitoring risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.
The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. The Company’s Asset and Liability Committee, or ALCO, oversees market risk management, monitoring risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.
The table below presents the change in the economic value of equity as of December 31, 2022 and December 31, 2021, assuming immediate parallel shifts in interest rates. ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 +400 basis points −19.5 % −26.0 % +300 basis points −15.3 % −16.8 % +200 basis points −10.4 % −8.2 % +100 basis points −4.9 % −1.4 % −100 basis points 4.0 % −31.2 % −200 basis points 5.0 % N/A % ​ Operational Risk Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, disasters, and security risks.
The table below presents the change in the economic value of equity as of December 31, 2023 and December 31, 2022, assuming immediate parallel shifts in interest rates. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2023 ​ 2022 +400 basis points −15.5 % ​ −19.5 % +300 basis points −12.6 % ​ −15.3 % +200 basis points −7.7 % ​ −10.4 % +100 basis points −3.1 % ​ −4.9 % −100 basis points 1.6 % ​ 4.0 % −200 basis points 2.0 % ​ 5.0 % ​ Operational Risk Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, disasters, and security risks.
Yield curve risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different maturities for the same or different instruments.
Basis risk is the risk of adverse consequence resulting from unequal change in the spread between two or more rates for different instruments with the same maturity. Yield curve risk is the risk of adverse consequence resulting from unequal changes in the spread between two or more rates for different maturities for the same or different instruments.
The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of our loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. Balance sheet growth assumptions are also included in the simulation modeling process.
The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of the Company’s loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities.
The analysis provides a framework as to what our overall sensitivity position is as of our most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of our equity.
Balance sheet growth assumptions are also included in the simulation modeling process. The analysis provides a framework as to what the Company’s overall sensitivity position is as of the Company’s most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of the Company’s equity.
Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes impact our assets and liabilities. Basis risk is the risk of adverse consequence resulting from unequal change in the spread between two or more rates for different instruments with the same maturity.
Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes impact the Company’s assets and liabilities.
Removed
The balance sheet was more liability sensitive in a rising-rate environment as of December 31, 2022 than it was as of December 31, 2021. The increase is primarily related to repricing characteristics of our non-maturity deposits portfolio and changes to the interest rate environment.
Added
The balance sheet has shifted from being liability sensitive as of December 31, 2022.
Added
This change is attributable to both the derivatives strategies put in place throughout 2023 that will begin to mature in 2024 as well as deposit growth and the balance sheet repositioning that consisted of selling fixed rate securities and redeploying the funds into both fixed and floating-rate loans.

Other ALRS 10-K year-over-year comparisons