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What changed in ALERUS FINANCIAL CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ALERUS FINANCIAL CORP's 2023 and 2024 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 2024 report.

+1056 added−165 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-08)

Top changes in ALERUS FINANCIAL CORP's 2024 10-K

1056 paragraphs added · 165 removed · 147 edited across 3 sections

Item 1. Business

Business — how the company describes what it does

138 edited+622 added−14 removed83 unchanged
Biggest changeThe Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital and required deductions from Common Equity Tier 1 Capital if such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital. 13 Table of Contents The Basel III Rule requires minimum capital ratios as follows: ● A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; ● A ratio of Tier 1 Capital equal to 6% of risk-weighted assets; ● A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and ● A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
Biggest changeThe Basel III Rule requires banking organizations to maintain minimum capital ratios as follows: ● A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; ● A ratio of Tier 1 Capital equal to 6% of risk-weighted assets; ● A ratio of Total Capital (Tier 1 plus Tier 2) equal to 8% of risk-weighted assets; and ● A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
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.
Wealth The Company’s wealth 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 division offers brokerage services to compliment the unique needs of its clients.
As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification.
Deposit Insurance . As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification.
Not only did Basel III increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.
Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.
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.
More specifically, the federal banking 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.
These tests provide an incentive for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).
These tests provide an incentive for banks and bank holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).
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.
For example, a client who has multiple products with the Company, such as banking accounts, a mortgage, wealth 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.
If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency.
If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the agency is required to issue an order directing the institution to cure the deficiency.
The accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations.
These accords recognized that bank assets for the purpose of the capital ratio calculations needed to be risk weighted (the theory being that riskier assets should require more capital) and that off-balance sheet exposures needed to be factored in the calculations.
The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers.
The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal and confidential information of their customers.
The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies.
The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
SUPERVISION AND REGULATION General Alerus Financial Corporation, a financial holding company, and its subsidiary, Alerus Financial, N.A., a national banking association, are extensively regulated under federal law.
SUPERVISION AND REGULATION General Alerus Financial Corporation, a financial holding company, and its subsidiary, Alerus Financial, National Association, a national banking association, are extensively regulated under federal law.
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.
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, 2024: (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.
FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable bank regulators.
FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable banking regulators.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.
The purpose of the conservation buffer is to ensure that banking organizations maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.
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.
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 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.
As consideration for the merger, the Company issued $64.0 million of its common stock (valued at $23.81 per share as of July 1, 2022) in a stock-for-stock transaction. As a result of the acquisition, the Company acquired $270.4 million in loans and $353.7 million in deposits from Metro Phoenix Bank. Banking Lending.
As consideration for the merger, the Company issued $64.0 million of its common stock (valued at $23.81 per share as of July 1, 2022) in a stock-for-stock transaction. As a result of the acquisition, the Company acquired $270.4 million in loans and $353.7 million in deposits from Metro Phoenix Bank.
The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.
The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.
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.
The Bank’s Retirement and Benefit and Wealth 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.
Basel III includes a liquidity framework that requires the largest insured institutions to measure their liquidity against specific liquidity tests.
The Basel III Rule includes a liquidity framework that requires the largest insured institutions to measure their liquidity against specific liquidity tests.
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance, or CRE Guidance, provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant commercial real estate loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
The interagency Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices guidance (the “CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
The OCC examines the Bank’s Banking and Mortgage business segments as part of its safety and soundness examinations, which consider not only compliance with applicable laws and regulations, but also capital levels, asset quality (with rigorous loan portfolio reviews) and risk, management ability and performance, earnings, liquidity, and various other factors. Many of these subjects are discussed further below.
The OCC examines the Bank’s Banking business segment as part of its safety and soundness examinations, which consider not only compliance with applicable laws and regulations, but also capital levels, asset quality (with rigorous loan portfolio reviews) and risk, management ability and performance, earnings, liquidity, and various other factors. Many of these subjects are discussed further below.
Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Depending upon the capital category to which a banking organization is assigned, the agencies’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies. The Company and the Bank are each subject to the Basel III Rule.
The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including national and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies. The Company and the Bank are each subject to the Basel III Rule.
Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during periods of severe stress.
Although capital has historically been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the banking agencies recognized that the amount and quality of capital held by banking organizations prior to that crisis was insufficient to absorb losses during periods of severe stress.
Well-Capitalized Requirements . The ratios described above are minimum standards for banking organizations to be considered “adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
The capital ratios described above are minimum standards for banking organizations to be considered “adequately capitalized.” Banking agencies uniformly encourage banking organizations to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies recognized in connection with the global financial crisis. The Basel III Rule .
Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement on a strengthened set of capital requirements for banking organizations around the world, known as the Basel III accords, to address deficiencies recognized in connection with the global financial crisis.
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.
The federal banking agencies have 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.
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.
These federal and state laws, and the regulations of the banking agencies issued under them, affect, among other things, the scope of the Company’s business; the kinds and amounts of investments that the Company and the Bank 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 and the Bank’s ability to merge, consolidate and acquire; dealings with the Company’s and Bank’s insiders and affiliates; and the Company’s payment of dividends.
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.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (“Regulatory Relief Act”), eliminated questions about the applicability of certain of the Dodd-Frank Act reforms to community banking 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.
The Bank is expected to have active board and senior management oversight; adequate policies, procedures and limits; adequate risk measurement, monitoring and management information systems; and comprehensive internal controls. Privacy and Cybersecurity .
The Bank is expected to have active board and senior management oversight; adequate policies, procedures and limits; adequate risk measurement, monitoring and management information systems; and comprehensive internal controls.
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.
In addition, banking organizations 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.
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.
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.
The Company provides recordkeeping and administration services to qualified retirement plans. ● ESOP Administration. The Company provides recordkeeping and administration services to employee stock ownership plans. ● Health and Welfare. The Company provides HSA, FSA, and government health insurance program recordkeeping and administration services to employers.
The Company provides investment fiduciary services to retirement plans. ● Retirement. The Company provides recordkeeping and administration services to qualified retirement plans. ● ESOP Administration. The Company provides recordkeeping and administration services to employee stock ownership plans. ● Health and Welfare. The Company provides HSA, FSA, and government health insurance program recordkeeping and administration services to employers.
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.
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, third-party relationships, and the size and speed of financial transactions have changed the nature of banking markets.
The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance .
The Company’s common stock is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance .
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).
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 benefit, and wealth).
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.
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, 2024, the Bank paid supervisory assessments to the OCC totaling $461 thousand. Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses.
The Company offers both owner occupied and non-owner occupied commercial real estate loans, as well as construction and land development loans. The Company’s consumer lending products include residential first mortgage loans. In addition to originating these loans for the Company’s own portfolio, it originates and sells, primarily servicing released, whole loans in the secondary market.
The Company offers both owner occupied and non-owner occupied CRE loans, as well as construction and land development loans. The Company’s consumer lending products include residential first mortgage loans. In addition to originating these loans for the Company’s own portfolio, it originates and sells, primarily servicing released, whole loans in the secondary market.
The other test, known as the Net Stable Funding Ratio, or NSFR, is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.
The other test, known as the Net Stable Funding Ratio (“NSFR”) is designed to promote more medium- and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon.
However, while Federal law permits state and national banks to merge with banks in other states, such mergers are subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.
However, while Federal law permits state and national banks to merge with banks in other states, such mergers are subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. 13 Table of Contents Financial Subsidiaries.
Operating in an unsafe or unsound manner will also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
Operating in an unsafe or unsound manner will also constitute grounds for other enforcement action by the federal banking agencies, including cease and desist orders and civil money penalty assessments.
The primary components of One Alerus are: ● the Company puts the client first in every decision it makes; ● the Company provides comprehensive products and services, including banking, mortgage, wealth management, and retirement and benefits; ● the Company’s diverse business model providing revenue funding and growth opportunities; ● each client is paired with a primary point of contact to help with individual needs and integrate specialists when needed; ● proactively invest in technology to integrate all business lines and enhance client engagement; and ● the Company consistently seeks new ways to improve the client experience and enhance efficiencies to build scalability.
The primary components of One Alerus are: ● the Company puts the client first in every decision it makes; ● the Company provides comprehensive products and services, including banking, retirement and benefit services, and wealth; ● the Company’s diverse business model provides revenue funding and growth opportunities; ● each client is paired with a primary point of contact to help with individual needs and integrate specialists when needed; ● the Company proactively invests in technology to integrate all business lines and enhance client engagement; and ● the Company consistently seeks new ways to improve the client experience and enhance efficiencies to build scalability.
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.
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 18 full-service banking offices located primarily in the Twin Cities MSA and Rochester MSA.
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.
In reaction to the global financial crisis and particularly following passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“the Dodd-Frank Act”), the Company experienced heightened regulatory requirements and scrutiny.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions that they supervise.
During the past decade, the banking agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions that they supervise.
One test, referred to as the Liquidity Coverage Ratio, or LCR, is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
One test, referred to as the Liquidity Coverage Ratio (“LCR”) is designed to ensure that the banking organization has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.
The concept of being “well-capitalized” is part of a regulatory regime that provides the federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.
The concept of a banking organization being “well-capitalized” is part of a regulatory regime that provides the federal banking agencies with broad power to take “prompt corrective action” to resolve the problems of undercapitalized depository institutions based on the capital level of each particular institution.
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.
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 (“IRAs”), 401(k) rollovers, retirement planning, employer sponsored plans, employee stock ownership plans, health savings account (“HSA”), flex spending account (“FSA”), administration and government health insurance program services, and wealth services such as advisory, investment management, and trust and fiduciary services.
The Bank is a member of the FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances.
Federal Home Loan Bank System. The Bank is a member of a Federal Home Loan Bank (“FHLB”), which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances.
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.
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 (the “BHCA”).
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.
The minimum capital levels for banking organizations have been expressed in terms of ratios of “capital” divided by “total assets.” The capital guidelines for U.S. banking organizations beginning in 1989 have been based upon international capital accords (known as “Basel” accords) 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. federal banking agencies on an interagency basis.
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.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2024. 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.
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 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. The Company ’ s National Market The Company’s retirement and benefit services business serves clients in all 50 states.
In addition, the Company has created a National Market to focus on growing the synergistic deposits from the retirement and benefits services and wealth management segments.
In addition, the Company has created a National Market to focus on growing the synergistic deposits from the retirement and benefit services and wealth segments.
Dividend Payments. The Company’s ability to pay dividends to stockholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law, or the DGCL.
Dividend Payments. The Company’s ability to pay dividends to stockholders may be affected by both general corporate law considerations and policies and capital requirements of the Federal Reserve applicable to bank holding companies . As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law (the “DGCL”).
Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits or require the institution to take any action that the regulator deems appropriate under the circumstances.
Until the deficiency cited in the banking agency’s order is cured, the agency may restrict the FDIC-insured institution’s rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits or require the institution to take any action that the agency deems appropriate under the circumstances.
The Company 6 Table of Contents believes the One Alerus initiative will enable the Company to achieve future organic growth by leveraging its existing client base and help continue to provide strong returns to the Company’s stockholders.
The Company believes the One Alerus initiative will enable the Company to achieve future organic growth by leveraging its existing client base and help continue to provide strong returns to the Company’s stockholders.
Core deposits, which consist of noninterest-bearing deposits, interest-bearing checking accounts, certificates of deposit less than $250,000, and money market accounts, provide the Company’s major source of funds from individuals, businesses and local governments. As of December 31, 2023, core deposits totaled $3.0 billion or 96.1% of the Company’s total deposits.
Core deposits, which consist of noninterest-bearing deposits, interest-bearing checking accounts, certificates of deposit less than $250,000, and money market accounts, provide the Company’s major source of funds from individuals, businesses and local governments. As of December 31, 2024, core deposits totaled $4.1 billion or 94.3% of the Company’s total deposits.
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.
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 benefit services office Colorado and one in Michigan. In addition, the Company’s Chief Retirement Services Officer oversees the development of the national market’s client base.
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.
Retirement and Benefit Services The Company’s retirement and benefit services business offers retirement plan administration and investment advisory services, employee stock ownership plan (“ESOP”) administration, investment fiduciary services to retirement plans, HSA and other benefit services to clients on a nationwide basis. A breakdown of these services is as follows: ● Advisory.
Arizona The Company serves the Arizona market through full-service banking offices located in Phoenix and Scottsdale, Arizona. The Phoenix MSA had total deposits of $167.2 billion as of June 30, 2023, and ranks as the 20 th largest metropolitan statistical area in the United States in total deposits, based on FDIC data.
Arizona The Company serves the Arizona market through full-service banking offices located in Phoenix and Scottsdale, Arizona. The Phoenix MSA had total deposits of $171.9 billion as of June 30, 2024, and ranks as the 20 th largest metropolitan statistical area in the United States in total deposits, based on FDIC data.
Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal banking agency.
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.
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, effective as of January 1, 2023, currently range from 2.5 basis points to 32 basis points.
The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investments in financial subsidiaries). The Bank has not applied for approval to establish any financial subsidiaries. Federal Home Loan Bank System.
The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank’s outstanding investments in financial subsidiaries). At this time, the Bank has not applied for approval to establish any financial subsidiaries.
As of December 31, 2023, the Company had $176.7 million of HSA deposits which are included in the synergistic deposit total. The Company offers a range of treasury management products, including electronic receivables management, remote deposit capture, cash vault services, merchant services, and other cash management services.
As of December 31, 2024, the Company had $190.3 million of HSA deposits which are included in the synergistic deposit total. The Company offers a range of treasury management products, including electronic receivables management, remote deposit capture, cash vault services, merchant services, and other cash management services.
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 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 Community Reinvestment Act (“CRA”) rating.
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.
On July 1, 2022, the Company completed the acquisition of MPB BHC, Inc. (“MPB”), 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, Arizona metropolitan statistical area (“Phoenix MSA”), and grow the size of the Company’s business.
On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.
On December 18, 2015, and again in recent years, the federal banking agencies have issued statements to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.
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.
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 banking agencies, including the Company’s primary regulator, the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Bank’s primary regulator, the Office of the Comptroller of the Currency (“OCC”), as well as the FDIC, as the insurer of the Bank’s deposits, and the Consumer Financial Protection Bureau (“CFPB”), as the regulator of consumer financial services and their providers.
The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.
The extent of the banking agencies’ powers depends on whether the banking organization in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation.
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 .
As of December 31, 2024, 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 remained in compliance with the capital conservation buffer of 2.5 % as of December 31, 2024. Prompt Corrective Action .
The deposit accounts of the Bank are insured by the deposit insurance fund, or DIF, to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category, and the Bank is a member of the Federal Reserve System.
The Bank is a national bank, chartered by the OCC under the National Bank Act. The deposit accounts of the Bank are insured by the deposit insurance fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category, and the Bank is a member of the Federal Reserve System.
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.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC, and state securities authorities, and anti-money laundering and sanctions laws enforced by the U.S. Department of the Treasury (“Treasury”), have an impact on the Company’s business.
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.
Although the reforms primarily targeted large banking organizations and systemically important financial institutions, their influence filtered down in varying degrees to community banking organizations over time and caused the Company’s compliance and risk management processes, and the costs thereof, to increase.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
In addition to approval from the Federal Reserve that may be required in certain circumstances, prior approval for acquisitions by the Company may be required from other agencies that regulate the target company of an acquisition. 10 Table of Contents Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower and the borrower’s market or industry. The Company underwrites for strong cash flow, multiple sources of repayment, adequate collateral, borrower experience and backup guarantors.
The principal risk associated with each category of loans the Company makes is the creditworthiness of the borrower. Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower and the borrower’s market or industry. The Company underwrites for strong cash flow, multiple sources of repayment, adequate collateral, borrower experience and backup guarantors.
Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank’s Board of Directors deems prudent.
The primary source of funds for the Company is dividends from the Bank. Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank’s board of directors deems prudent.
Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio”, or CBLR, of between 8 and 10%.
Section 201 of the Regulatory Relief Act specifically instructed the federal banking agencies to establish a single “Community Bank Leverage Ratio” (“CBLR”), of between 8 and 10%.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. 16 Table of Contents Federal Securities Regulation.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits, which may impact the Company’s business and operations. Federal Securities Regulation.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
Biggest changeMARKET 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 (“Nasdaq”) under the symbol “ALRS.” Stockholders As of March 7, 2025, the Company had 418 holders of record of the Company’s common stock and an estimated 2,590 additional beneficial holders of the Company’s common stock whose stock was held in street name by brokerages or fiduciaries. 37 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 2024: 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, 2024 227 $ 21.96 — 1,000,000 November 1-30, 2024 88 22.10 — 1,000,000 December 1-31, 2024 2,778 21.50 — 1,000,000 Total 3,093 $ 21.55 — 1,000,000 (1) Represents shares of the Company’s common stock surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards.
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.
The Company’s dividend policy and practice may change in the future, however, and the Board may change or eliminate the payment of future dividends at its discretion, without notice to the Company’s stockholders.
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.
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 Board may deem relevant. Dividend Restrictions As a Delaware corporation, the Company is subject to certain restrictions on dividends under the DGCL.
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.
The graph assumes a $100.00 investment on December 31, 2020 in each case, and measures the amount by which the market value, assuming reinvestment of dividends, has changed as of December 31, 2024. ​ December 31, December 31, December 31, December 31, December 31, December 31, 2019 2020 2021 2022 2023 2024 Alerus Financial Corporation $ 100.00 $ 123.28 $ 134.66 $ 110.56 $ 110.32 $ 98.60 Nasdaq Composite Index 100.00 145.05 177.27 119.63 173.11 224.34 S&P U.S.
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.
Banks - Midwest Region Index 100.00 85.98 113.59 98.03 100.08 122.10 ​ 38 Table of Contents 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.
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 Bank—Dividend Payments.” Use of Proceeds None.
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.
(2) On December 12, 2023, the Board approved the Stock Repurchase Program, which authorized the Company to repurchase up to 1,000,000 shares of its common stock, subject to certain limitations and conditions. The Stock Repurchase Program became effective on February 18, 2024, and replaced and superseded the Old Stock Repurchase Program.
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.
The Stock Repurchase Program will expire on February 18, 2027. The Stock Repurchase 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.
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.
Does not include shares that may be purchased by the Company’s ESOP. ​ 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, 2020, through December 31, 2024.
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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”.
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For the three months ended December 31, 2024, the Company did not repurchase any shares of common stock under the Stock Repurchase Program.
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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
(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.

Item 6. [Reserved]

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

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Item 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 ​ ​
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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.
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In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
Added
Certain risks, uncertainties and other factors, including but not limited to those set forth under “ Cautionary Note Regarding Forward-Looking Statements, ” “ Risk Factors ” and elsewhere in this report, may cause actual results to differ materially from those projected in the forward-looking statements. The Company assumes no obligation to update any of these forward-looking statements.
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Results of operations for the year ended December 31, 2023 compared to results for the year ended December 31, 2022 can be found in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 8, 2024.
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Overview The Company is a diversified financial services company headquartered in Grand Forks, North Dakota. Through the Company’s subsidiary, Alerus Financial, National Association, the Company provides innovative and comprehensive financial solutions to businesses and consumers through three distinct business lines—banking, retirement and benefit services, and wealth. In prior periods, the Company had a fourth operating segment, mortgage.
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As of January 1, 2024, the mortgage division was fully integrated into the banking division to reflect the way the Company currently manages and views the business. These solutions are delivered through a relationship oriented primary point of contact along with responsive and client friendly technology.
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The Company’s primary banking market areas are the states of North Dakota, Minnesota, specifically, the Twin Cities MSA and Rochester MSA, and Arizona, specifically, the Phoenix MSA. In addition to the Company’s offices located in the Company’s banking markets, its retirement and benefit services business administers plans in all 50 states through offices located in Michigan, Minnesota and Colorado.
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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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The Company believes its client first and advice based philosophy, diversified business model and history of high performance and growth distinguishes the Company from other financial service providers. The Company generates a majority of its overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services and wealth business lines.
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As of December 31, 2024, the Company had $5.3 billion of total assets, $4.0 billion of total loans, $4.4 billion of total deposits, $495.4 million of stockholders’ equity, $40.7 billion of AUA/AUM in the Company’s retirement and benefit services segment, and $4.6 billion of AUA/AUM in the Company’s wealth segment. 39 Table of Contents Net Interest Income Net interest income represents interest income less interest expense.
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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.
Added
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.
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Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances along with the volume and type of interest-bearing liabilities.
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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.
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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.
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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.
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The remainder of noninterest income is based on the market value of the related AUA and AUM and impacted by the level of contributions, withdrawals, new business, lost business and fluctuation in market values. ● Wealth includes personal trust, investment and brokerage services.
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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.
Added
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.
Added
Mortgage gains are primarily impacted by the level of originations, amount of loans sold, the type of loans sold and market conditions. ● Service charges on deposit accounts are comprised of income generated through deposit account related service charges such as: electronic transfer fees, treasury management fees, bill pay fees, and other banking fees.
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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 certain key employees, loan servicing income net of the related amortization, income earned on wire transfer fees, gains on the sale of premises and equipment, income earned of swap fees, and any other income which does not fit within one of the specific noninterest income lines described above.
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Other noninterest income is generally impacted by business activities and level of transactions. Noninterest Expense Noninterest expense is comprised primarily of the following: ● Compensation and employee taxes and benefits—include all forms of personnel related expenses including salary, commissions, incentive compensation, payroll related taxes, stock-based compensation, benefit plans, health insurance, 401(k) plan match costs, ESOP and other benefit related expenses.
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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.
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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.
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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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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.
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Identified intangible assets with definite lives consist of client relationship intangibles and core deposit intangibles and are amortized on a straight-line basis or sum-of-the-years' digits basis over the period representing the estimated remaining lives of the assets.
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The amount of expense is impacted by the timing of acquisitions and the estimated remaining lives of the assets. ● Professional fees and assessments—costs related to legal, accounting, tax, consulting, personnel recruiting, directors fees, insurance, mergers and acquisitions and other outsourcing arrangements. Professional services costs are primarily impacted by corporate activities requiring specialized services.
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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, costs to maintain or prepare OREO, for sale, and other general corporate expenses that do not fit within one of the specific noninterest expense lines described above.
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Other operational expenses are generally impacted by the Company’s business activities and needs. 40 Table of Contents ​ Operating Segments The Company measures the overall profitability of business operations based on income before income tax.
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The Company allocates costs to its segments, which consist primarily of compensation and overhead expense directly attributable to the products and services within banking, retirement and benefit services and wealth.
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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.
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A description of each segment is provided in Note 22 (Segment Reporting) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K.
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Critical Accounting Policies As a result of the complex and dynamic nature of the Company’s business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations.
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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.
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It is management’s opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process.
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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.
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Allowance for credit losses ( “ ACL ” ) — In 2023, the Company adopted the new accounting standard for credit losses, Accounting Standards Update (“ASU”) No. 2016-13 , Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , as amended (“ASU 2016-13”).
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This new accounting standard, commonly referred to as “CECL,” significantly changed the Company’s methodology for accounting for reserves on loans, unfunded off balance sheet credit exposures, including certain unfunded loan commitments and standby guarantees, as well as introduced the consideration for an allowance on HTM investment securities.
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ASU 2016-13 replaced the “incurred loss” methodology used prior to 2023 to establish an allowance on loans and off-balance sheet credit exposures, with an “expected loss” approach.
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Under CECL, the ACL at each reporting period serves as the Company’s best estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. The Company considers the ACL on loans to be a critical accounting policy.
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The recorded ACL on loans is determined based on the amortized cost basis of the assets and may be determined at various levels, including homogeneous loan pools and individual credits with unique risk factors.
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Since adoption of CECL in 2023, the Company has used a discounted cash flow approach to calculate the ACL for each loan segment, except for purchase credit deteriorated (“PCD”) loans. Within the discounted cash flow model, a probability of default (“PD”) and loss given default (“LGD”) assumption is applied to calculate the expected loss for each loan segment.
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PD is the probability the asset will default within a given timeframe and LGD is the percentage of the assets not expected to be collected due to default. PD and LGD data is derived using a combination of external data and internal historical default and loss experience.
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The Company uses an expected loss method to calculate the ACL on the unpaid principal balance for PCD loans. This expected loss method utilizes PD and LGD assumptions applied to non-discounted cash flows at the instrument level. ​ CECL may create more volatility in the Company’s ACL.
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Under CECL, the Company’s ACL may increase or decrease period to period based on many factors, including, but not limited to: macroeconomic forecasts and conditions; a change in the prepayment speed assumption; an increase or decrease in loan balances, including changes to the Company’s loan portfolio mix; credit quality of the loan portfolio; and various qualitative factors outlined in ASU 2016-13.
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The Company considers the ACL on loans to be a critical accounting policy given the uncertainty in evaluating the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of the loans in its portfolio.
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Determining the appropriateness of the allowance is a key management function that requires significant judgment and estimate by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the current loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance in future periods.
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While the Company’s current evaluation indicates that the ACL on loans at December 31, 2024 and 2023 was appropriate, the allowance may need to be increased under adversely different conditions or assumptions.
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The significant key assumptions used with the ACL on loans calculation at December 31, 2024 using the CECL methodology, included: ​ ● Macroeconomic factors (loss drivers): Macroeconomic factors are used within our discounted cash flow model to forecast the PD over the forecast period.
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As macroeconomic factors worsen the PD increases, and the corresponding LGD increases, resulting in an increase in the ACL on loans. The Company utilizes national unemployment, changes in national gross domestic product (“GDP”), and changes in the National Housing Price Index in estimation of the ACL on loans.
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Macroeconomic factors used in the calculation of the ACL on loans may change from time to time and in times of greater uncertainty.
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The Company may consider a range of possible forecasts and evaluate the probability of each scenario. ​ ● Forecast period and reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers.
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Generally, the forecast period management believes to be reasonable and supportable is set annually and validated through an assessment of economic leading indicators.
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In periods of greater volatility and uncertainty, such as that seen across the global markets and economies, including the U.S., the Company may elect to use a shorter forecast period, whereas when markets, economies and various other factors are considered more stable and certain, the Company may elect to use a longer forecast period.
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Generally, the Company expects its forecast period to range from one to two years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments.
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In determining the length of time over which the reversion will take place ( i.e. “reversion speed”), the Company considers such factors such as, but not limited to, historical loan loss experience over previous economic cycles, as well as where the Company believes it is within the current economic cycle.
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At December 31, 2024, the Company used a one-year forecast period and one-year reversion period for each loan segment to measure the ACL on loans, except for the agricultural land and agricultural production loans which utilize static PD and LGD assumptions. ​ ● Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing the Company’s own historical loan data, as well as consideration of current environmental factors.
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The prepayment speed assumption is utilized with the discounted cash flow model ( i.e . the CECL model) to forecast expected cash flows over the contractual life of the loan, adjusted for expected prepayments.
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A higher prepayment speed assumption will drive a lower ACL, and vice versa. ● Qualitative factors: ASU 2016-13 requires companies to consider various qualitative factors that may impact expected credit losses.
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The Company continues to consider qualitative factors in determining and arriving at our ACL on loans each reporting period. ​ 41 Table of Contents PCD loans are purchased loans, that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment.
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An ACL is determined using either an expected loss method or discounted cash flow analysis to calculate gross expected losses on unpaid principal. The expected loss method utilizes PD and LGD assumptions applied to non-discounted cash flows at the instrument level.
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The discounted cash flow analysis uses assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities, loss given defaults, and estimates of prevailing discount rates. The initial ACL determined on a collective basis is allocated to individual loans.
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The sum of a loan’s purchase price, allowance for credit losses, and non-credit discount or premium becomes its initial unpaid principal. The non-credit discount or premium is amortized into interest income over the life of the loan.
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Non-purchased credit deteriorated (“non-PCD”) loans are purchased loans, that, as of the date of acquisition, have not experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The loan’s purchase price becomes its initial amortized cost basis.
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The difference between the initial amortized cost basis and the unpaid principal of the loan is a discount or premium, which is comprised of a credit and non-credit component, and is accreted or amortized into interest income over the life of the loan.
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An ACL is determined using the same methodology as other loans held for investment, but no “day one” ACL is established on the date of acquisition. Instead, a subsequent “day two” ACL for non-PCD loans is recorded through the provision for credit losses, which reflects the estimated lifetime credit losses.
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Management utilizes their best judgement and information available; however, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s control which are inherently difficult to predict. The most significant factor is the macroeconomic scenario forecasts that determine the economic variables utilized in the loss driver models.
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Due to the inherent uncertainty in the macroeconomic forecasts, management utilized baseline, upside, and downside macroeconomic scenarios and weights the scenarios each period.
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At December 31, 2024, the quantitative portion of the ACL estimate for collectively evaluated loans ranged from approximately $29.5 million when weighting the upside scenario to 100%, to approximately $65.1 million when weighting the most severe downside scenario 100%.
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Management determined that a $33.2 million reserve for the quantitative portion of the ACL for collectively evaluated loans was appropriate as of December 31, 2024. As of December 31, 2024, the recorded ACL on loans was $59.9 million and represented the Company’s best estimate of expected credit losses within the loan portfolio.
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However, the Company may adjust its assumptions to account for differences between expected and actual losses each period. A future change of the Company’s assumptions will likely alter the level of allowance required and may have a material impact on future results of operations and financial condition.
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The ACL is reviewed periodically within a calendar quarter to assess trends in the aforementioned key assumptions, as well as asset quality within the loan portfolio, and the Company considers the impact of these trends on the ACL and the Company's financial condition, if any.
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The ACL on loans is reviewed and approved on a quarterly basis by the ACL Governance Committee, and later reviewed and ratified by the Bank’s Board of Directors.
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Refer to “–Results of Operations–Provision for Credit Losses,” “–Financial Condition–Asset Quality,” and Note 6 (Loans and Allowance for Credit Losses) to the Company’s audited consolidated financial statements included in Item 8 of this Form 10-K for further discussion. Goodwill —As a result of acquisitions, the Company carries goodwill.
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Goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date. Goodwill is evaluated at least annually or when business conditions suggest impairment may have occurred. Should impairment occur, goodwill will be reduced to its revised carrying value through a charge to earnings.
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The determination of whether or not impairment exists is based upon various valuation techniques, including the market approach and the income approach utilizing discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows.
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It also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates, required equity market premiums, and company-specific performance and risk metrics, all of which are susceptible to change based on changes in economic and market conditions and other factors.
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Future events or changes in the estimates used to determine the carrying value of goodwill could have a material impact on the Company’s results of operations. In the Company’s impairment analysis, the discount rates used for each reporting segment had the most significant impact on the analysis.

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