Alerus Financial Corporation Reports Third Quarter 2025 Net Income of $16.9 Million

MINNEAPOLIS--( BUSINESS WIRE)--Alerus Financial Corporation (Nasdaq: ALRS), or the Company, reported net income of $16.9 million for the third quarter of 2025, or $0.65 per diluted common share, compared to net income of $20.3 million, or $0.78 per diluted common share, for the second quarter of 2025, and net income of $5.2 million, or $0.26 per diluted common share, for the third quarter of 2024.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, “Alerus delivered another strong quarter, building on the momentum established earlier this year. Our results reflect the strength and resilience of our diversified business model, coupled with disciplined execution by an exceptional team of professionals. The strategic addition of the Home Federal franchise and team, in addition to the transformative changes made to the commercial wealth bank over the last several years, are driving stronger results with a return on total average assets of 1.28% through the first nine months of 2025.

In the third quarter, we continued to grow our balance sheet with strong sequential organic growth in both loans and deposits. This growth propelled net interest income to $43.1 million, a record level in our company history. Fee income remains resilient and, at over 40% of total revenues, is more than double the banking industry average. Our focus on relationship-driven commercial banking, combined with growth in our retirement, benefits, and wealth management businesses, positions us well for long-term success.

With an annualized return on tangible equity over 19%, we saw exceptional tangible book value growth of almost 5% in the third quarter. We remain committed to achieving superior returns and increasing shareholder value by organically growing revenues through client expansion, managing expenses prudently, and maintaining credit discipline. Our capital and reserve levels are ready to weather potential economic uncertainty as our tangible common equity ratio is now over 8% and our allowance for credit losses on loans to total loans was 1.51% as of the end of the third quarter.

As we continue to demonstrate the ability to deliver stronger returns, I am proud of our team’s commitment and dedication to executing our strategy, supporting our clients and communities, and delivering consistent results while building sustainable value for our shareholders.”

Third Quarter Highlights

(1)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Selected Financial Data (unaudited)

As of and for the

Three months ended

Nine months ended

September 30,

June 30,

September 30,

(dollars and shares in thousands, except per share data)

2025

2024

2025

2024

Performance Ratios

Return on average total assets

1.27

1.53

0.48

1.28

0.56

Adjusted return on average total assets (1)

1.28

1.41

0.57

1.27

0.62

Return on average common equity

12.80

15.82

5.52

13.17

6.43

Return on average tangible common equity (1)

18.48

22.65

7.83

19.25

8.98

Adjusted return on average tangible common equity (1)

18.55

21.02

9.04

19.08

9.79

Noninterest income as a % of revenue

40.56

42.47

55.72

41.09

54.10

Net interest margin (tax-equivalent)

3.50

3.51

2.23

3.47

2.31

Efficiency ratio (1)

65.34

60.66

80.29

64.81

77.17

Adjusted efficiency ratio (1)

65.22

62.35

77.71

64.78

75.50

Net charge-offs (recoveries) to average loans

(0.17

0.37

0.04

0.08

0.14

Adjusted net charge-offs (recoveries) to average loans

(0.17

0.07

0.04

(0.02

0.14

Dividend payout ratio

32.31

26.92

76.92

31.79

66.29

Per Common Share

Earnings per common share - basic

0.66

0.79

0.26

1.97

0.90

Earnings per common share - diluted

0.65

0.78

0.26

1.95

0.89

Adjusted earnings per common share - diluted (1)

0.66

0.72

0.31

1.93

0.98

Dividends declared per common share

0.21

0.20

0.62

0.59

Book value per common share

21.68

21.00

19.53

Tangible book value per common share (1)

16.90

16.11

16.50

Average common shares outstanding - basic

25,395

25,368

19,788

25,374

19,768

Average common shares outstanding - diluted

25,713

25,714

20,075

25,693

20,037

Other Data

Retirement and benefit services assets under administration/management

44,005,277

42,451,544

41,249,280

Wealth management assets under administration/management

4,812,250

4,613,102

4,397,505

Mortgage originations

142,768

134,634

82,388

347,995

245,743

(1)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Results of Operations

Net Interest Income

Net interest income for the third quarter of 2025 was $43.1 million, a $0.1 million, or 0.2%, increase from the second quarter of 2025. The increase was primarily due to strong organic loan growth and increased income from higher average interest-earning cash balances resulting from deposit growth.

Net interest income increased $20.6 million, or 91.4%, from $22.5 million for the third quarter of 2024. Interest income increased $18.4 million, or 35.3%, from the third quarter of 2024, primarily driven by earning assets acquired in the HMN Financial, Inc. (“HMNF”) acquisition, strong organic loan growth at higher yields, and purchase accounting accretion. Interest expense decreased $2.2 million, or 7.3%, from the third quarter of 2024, as the average borrowing balance declined, alongside a decrease in the average rate paid on deposits, which more than offset the increase in interest-bearing deposits stemming from the HMNF acquisition and organic deposit growth.

Net interest margin (on a tax-equivalent basis) (non-GAAP) was 3.50% for the third quarter of 2025, a one basis point decrease from 3.51% for the second quarter of 2025, and a 127 basis point increase from 2.23% for the third quarter of 2024. The quarter over quarter decrease was mainly attributable to lower average loan balances following the sale of a pool of hospitality loans early in the third quarter of 2025. The increase from the third quarter of 2024 was primarily driven by higher rates on interest earning assets from organic loan growth and the HMNF acquisition, purchase accounting accretion, lower rates paid on deposits, and lower borrowing balances.

Noninterest Income

Noninterest income for the third quarter of 2025 was $29.4 million, a $2.3 million, or 7.3%, decrease from the second quarter of 2025. The quarter over quarter decrease was primarily driven by decreases from the gain on sale of non-mortgage loans and wealth management revenue, partially offset by an increase in retirement and benefit services revenue. Gain on sale of non-mortgage loans decreased from the second quarter of 2025 due to a $2.1 million gain on the sale of a PCD hospitality loan during the second quarter of 2025. Wealth management revenue decreased $0.8 million, or 10.9%, from the second quarter of 2025, primarily due to the timing of the wealth management platform conversion and a decrease in brokerage and insurance commissions. Retirement and benefit services revenue increased $0.5 million, or 2.9%, from the second quarter of 2025, primarily driven by asset-based fees.

Noninterest income for the third quarter of 2025 increased by $1.1 million, or 3.8%, from the third quarter of 2024. Mortgage banking revenue increased $0.9 million, or 35.0%, in the third quarter of 2025 compared to the third quarter of 2024, primarily driven by higher mortgage originations as a result of expansion into HMNF legacy markets. Retirement and benefit services revenue increased $0.4 million, or 2.2%, in the third quarter of 2025 compared to the third quarter of 2024, primarily driven by a 6.7% increase in assets under administration/management during that same period.

Noninterest Expense

Noninterest expense for the third quarter of 2025 was $50.5 million, a $2.1 million, or 4.3%, increase from the second quarter of 2025. Compensation expense increased $0.6 million, or 2.6%, from the second quarter of 2025, primarily due to higher incentives paid. Other noninterest expense increased $0.5 million, or 33.3%, from the second quarter of 2025, primarily driven by an insurance reimbursement payment received in the second quarter of 2025. Business services, software and technology expense increased $0.4 million, or 7.1%, from the second quarter of 2025, primarily driven by platform upgrades. Professional fees and assessments increased $0.3 million, or 14.4%, from the second quarter of 2025, primarily driven by an increase in legal fees. Occupancy and equipment expense increased $0.3 million, or 11.3%, from the second quarter of 2025, primarily driven by the consolidation of two offices and the opening of a new facility in our Fargo, North Dakota market. Employee taxes and benefits expense decreased $0.5 million, or 8.1%, from the second quarter of 2025, primarily due to seasonal reductions in benefit related expenses.

Noninterest expense for the third quarter of 2025 increased $8.1 million, or 19.1%, from $42.4 million in the third quarter of 2024. The increase was primarily driven by increases in compensation expense, business services, software and technology expense, intangible amortization expense, occupancy and equipment expense, and employee taxes and benefits expense. In the third quarter of 2025, compensation expense increased $3.9 million, or 18.6%, and employee taxes and benefits expense increased $0.7 million, or 12.9%. Both compensation expense and employee taxes and benefits expense increased compared to the third quarter of 2024 primarily due to increased headcount resulting from the HMNF acquisition. Business services, software and technology expense increased $1.4 million, or 28.8%, from the third quarter of 2024, primarily driven by the increased company size following the HMNF acquisition along with multiple platform upgrades. Intangible amortization expense increased $1.4 million, or 104.7%, in the third quarter of 2025, primarily driven by the $33.5 million core deposit intangible recorded in connection with the HMNF acquisition. Occupancy and equipment expense increased $0.8 million, or 36.8%, from the third quarter of 2024, primarily driven by the increased branch footprint resulting from the HMNF acquisition.

Financial Condition

Total assets were $5.3 billion as of September 30, 2025, an increase of $68.9 million, or 1.3%, from December 31, 2024. The increase was primarily due to a $109.5 million increase in loans held for investment and a $30.8 million increase in cash and cash equivalents, partially offset by a decrease of $57.0 million in available-for-sale investment securities and a decrease of $16.4 million in held-to-maturity investment securities.

Loans Held for Investment

Total loans held for investment were $4.1 billion as of September 30, 2025, an increase of $109.5 million, or 2.7%, from December 31, 2024. The increase was primarily driven by a $69.4 million increase in commercial loans and a $40.1 million increase in consumer loans.

The following table presents the composition of our loans held for investment portfolio as of the dates indicated:

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2025

2024

Commercial

Commercial and industrial

702,135

675,892

658,446

666,727

606,245

Commercial real estate

Construction, land and development

349,768

352,749

360,024

294,677

173,629

Multifamily

374,761

333,307

353,060

363,123

275,377

Non-owner occupied

865,785

887,643

951,559

967,025

686,071

Owner occupied

435,320

440,170

424,880

371,418

296,366

Total commercial real estate

2,025,634

2,013,869

2,089,523

1,996,243

1,431,443

Agricultural

Land

65,900

66,395

68,894

61,299

45,821

Production

63,051

67,931

64,240

63,008

39,436

Total agricultural

128,951

134,326

133,134

124,307

85,257

Total commercial

2,856,720

2,824,087

2,881,103

2,787,277

2,122,945

Consumer

Residential real estate

First lien

894,402

901,738

907,534

921,019

690,451

Construction

34,124

35,754

38,553

33,547

11,808

HELOC

234,681

200,624

175,600

162,509

134,301

Junior lien

40,434

41,450

43,740

44,060

36,445

Total residential real estate

1,203,641

1,179,566

1,165,427

1,161,135

873,005

Other consumer

41,714

41,004

38,953

44,122

36,393

Total consumer

1,245,355

1,220,570

1,204,380

1,205,257

909,398

Total loans

4,102,075

4,044,657

4,085,483

3,992,534

3,032,343

Deposits

Total deposits were $4.4 billion as of September 30, 2025, an increase of $34.2 million, or 0.8%, from December 31, 2024. Interest-bearing deposits increased $160.9 million and noninterest-bearing deposits decreased $126.7 million from December 31, 2024. The increase in total deposits was driven by growth in commercial deposits due to new and expanded client relationships and funding structure diversification through the utilization of callable brokered CDs. This growth was partially offset by outflows from our public funds depositors, which reached a typical season low in the third quarter of 2025.

The following table presents the composition of the Company’s deposit portfolio as of the dates indicated:

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2025

2024

Noninterest-bearing demand

776,791

790,300

889,270

903,466

657,547

Interest-bearing

Interest-bearing demand

1,256,687

1,214,597

1,283,031

1,220,173

1,034,694

Savings accounts

174,113

175,586

177,341

165,882

75,675

Money market savings

1,460,006

1,358,516

1,472,127

1,381,924

1,067,187

Time deposits

745,056

798,469

663,522

706,965

488,447

Total interest-bearing

3,635,862

3,547,168

3,596,021

3,474,944

2,666,003

Total deposits

4,412,653

4,337,468

4,485,291

4,378,410

3,323,550

Asset Quality

Total nonperforming assets were $60.1 million as of September 30, 2025, a decrease of $2.8 million, or 4.4%, from December 31, 2024. As of September 30, 2025, the allowance for credit losses on loans was $62.1 million, or 1.51% of total loans, compared to $59.9 million, or 1.50% of total loans, as of December 31, 2024.

The following table presents selected asset quality data as of and for the periods indicated:

As of and for the three months ended

September 30,

June 30,

March 31,

December 31,

September 30,

(dollars in thousands)

2025

2024

Nonaccrual loans

59,644

51,276

50,517

54,433

48,026

Accruing loans 90+ days past due

—

202

—

8,453

—

Total nonperforming loans

59,644

51,478

50,517

62,886

48,026

OREO and repossessed assets

467

751

493

—

Total nonperforming assets

60,111

52,229

51,010

62,886

48,026

Net charge-offs (recoveries)

(1,715

)

3,767

407

1,258

316

Net charge-offs (recoveries) to average loans

(0.17

0.37

0.04

0.13

0.04

Nonperforming loans to total loans

1.45

1.27

1.24

1.58

Nonperforming assets to total assets

1.13

0.98

0.96

1.20

1.18

Allowance for credit losses on loans to total loans

1.51

1.47

1.52

1.50

1.29

Allowance for credit losses on loans to nonperforming loans

104

115

123

For the third quarter of 2025, the Company had net recoveries of $1.7 million, compared to net charge-offs of $3.8 million for the second quarter of 2025 and net charge-offs of $0.3 million for the third quarter of 2024. The quarter over quarter decrease in net charge-offs was primarily driven by a $1.9 million recovery in the third quarter of 2025 related to a loan that had previously been charged-off , compared to a $3.4 million charge-off related to the sale of one PCD non-owner occupied commercial real estate hospitality loan and the transfer of a pool of non-owner occupied commercial real estate hospitality loans to non-mortgage loans held for sale in the second quarter of 2025. Of the $3.4 million charge-off in the second quarter of 2025, $3.1 million represented reserves on PCD loans acquired in the HMNF acquisition that were reserved in the day 1 accounting of the acquisition. Excluding the charge-off of such PCD reserves, the Company had adjusted net charge-offs (non-GAAP) of $0.7 million and adjusted net charge-offs to average loans (non-GAAP) of 0.07% for the second quarter of 2025.

The Company recorded no provision for credit losses for both the third quarter of 2025 and the second quarter of 2025, compared to a provision for credit losses of $1.7 million for the third quarter of 2024.

The unearned fair value adjustments on acquired loan portfolios were $47.3 million as of September 30, 2025, $70.6 million as of December 31, 2024, and $3.8 million as of September 30, 2024.

Capital

Total stockholders’ equity was $550.7 million as of September 30, 2025, an increase of $55.3 million from December 31, 2024. The change was primarily driven by an increase in retained earnings of $34.7 million and an increase in accumulated other comprehensive income of $19.0 million. Tangible book value per common share (non-GAAP) increased to $16.90 as of September 30, 2025, from $14.44 as of December 31, 2024. Tangible common equity to tangible assets (non-GAAP) increased to 8.24% as of September 30, 2025, from 7.13% as of December 31, 2024. Common equity tier 1 capital to risk weighted assets increased to 10.84% as of September 30, 2025, from 9.91% as of December 31, 2024.

The following table presents our capital ratios as of the dates indicated:

September 30,

December 31,

September 30,

2025

2024

Capital Ratios (1)

Alerus Financial Corporation Consolidated

Common equity tier 1 capital to risk weighted assets

10.84

9.91

11.12

Tier 1 capital to risk weighted assets

11.05

10.12

11.38

Total capital to risk weighted assets

13.41

12.49

14.04

Tier 1 capital to average assets

9.49

8.65

9.30

Tangible common equity / tangible assets (2)

8.24

7.13

8.11

Alerus Financial, N.A.

Common equity tier 1 capital to risk weighted assets

11.00

10.18

10.73

Tier 1 capital to risk weighted assets

11.00

10.18

10.73

Total capital to risk weighted assets

12.25

11.43

11.98

Tier 1 capital to average assets

9.31

8.69

8.90

(1)

Capital ratios for the current quarter are to be considered preliminary until the Call Report for Alerus Financial, N.A. is filed.

(2)

Represents a non-GAAP financial measure. See “Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures.”

Conference Call

The Company will host a conference call at 11:00 a.m. Central Time on Friday, October 31, 2025, to discuss its financial results. Attendees are encouraged to register ahead of time for the call at investors.alerus.com. A recording of the call and transcript will be available on the Company’s investor relations website at investors.alerus.com following the call.

About Alerus Financial Corporation

Alerus Financial Corporation (Nasdaq: ALRS) is a commercial wealth bank and national retirement services provider with corporate offices in Grand Forks, North Dakota, and the Minneapolis-St. Paul, Minnesota metropolitan area. Through its subsidiary, Alerus Financial, National Association (the “Bank”), Alerus provides diversified and comprehensive financial solutions to business and consumer clients, including banking, wealth services, and retirement and benefit plans and services. Alerus provides clients with a primary point of contact to help fully understand their unique needs and delivery channel preferences. Clients are provided with competitive products, valuable insight, and sound advice supported by digital solutions designed to meet their needs.

Alerus operates 28 banking and commercial wealth offices, with locations in Grand Forks and Fargo, North Dakota; the Minneapolis-St. Paul, Minnesota metropolitan area; Rochester, Minnesota; Southern Minnesota; Marshalltown, Iowa; Pewaukee, Wisconsin; and Phoenix and Scottsdale, Arizona. Alerus also operates a commercial wealth office in La Crosse, Wisconsin. The Alerus Retirement and Benefit business serves advisors, brokers, employers, and plan participants across the United States.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized by U.S. Generally Accepted Accounting Principles, or GAAP. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, tangible book value per common share, return on average tangible common equity, efficiency ratio, pre-provision net revenue, adjusted noninterest income, adjusted noninterest expense, adjusted pre-provision net revenue, adjusted efficiency ratio, adjusted net income, adjusted return on average total assets, adjusted return on average tangible common equity, net interest margin (tax-equivalent), adjusted earnings per common share - diluted, and adjusted net charge-offs to average loans. Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and investors frequently use these measures, and other similar measures, to evaluate capital adequacy and financial performance. Reconciliations of non-GAAP disclosures used in this press release to the comparable GAAP measures are provided in the accompanying tables. Management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions.

These non-GAAP financial measures should not be considered in isolation or as a substitute for total stockholders’ equity, total assets, book value per share, return on average assets, return on average equity, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Company calculates these non-GAAP financial measures may differ from that of other companies reporting measures with similar names.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements concerning plans, estimates, calculations, forecasts and projections with respect to the anticipated future performance of Alerus Financial Corporation. These statements are often, but not always, identified by words such as “may”, “might”, “should”, “could”, “predict”, “potential”, “believe”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized”, “target” and “outlook”, or the negative version of those words or other comparable words of a future or forward-looking nature. Examples of forward-looking statements include, among others, statements the Company makes regarding our projected growth, anticipated future financial performance, financial condition, credit quality, management’s long-term performance goals, and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, the following: the strength of the local, state, national and international economies and financial markets (including effects of inflationary pressures and future monetary policies of the Federal Reserve in response thereto); interest rate risk, including the effects of changes in interest rates; effects on the U.S. economy resulting from the threat or implementation of new, or changes to, existing policies, regulations, regulatory and other governmental agencies and executive orders, including tariffs, immigration, diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) initiatives, consumer protection, foreign policy and tax regulations; disruptions to the global supply chain, including as a result of domestic or foreign policies; our ability to successfully manage credit risk, including in the commercial real estate portfolio, and maintain an adequate level of allowance for credit losses; business and economic conditions generally and in the financial services industry, nationally and within our market areas, including the level and impact of inflation rates and possible recession; the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in several bank failures; our ability to raise additional capital to implement our business plan; the overall health of the local and national real estate market; credit risks and risks from concentrations (by type of borrower, geographic area, collateral, and industry) within our loan portfolio; the concentration of large loans to certain borrowers (including commercial real estate loans); the level of nonperforming assets on our balance sheet; our ability to implement organic and acquisition growth strategies, including the integration of HMNF; the commencement, cost, and outcome of litigation and other legal proceedings and regulatory actions against us or to which the Company may become subject, including with respect to pending actions relating to the Company’s previous ESOP fiduciary services commenced by government and private parties; the impact of economic or market conditions on our fee-based services; our ability to continue to grow our retirement and benefit services business; our ability to continue to originate a sufficient volume of residential mortgages; the occurrence of fraudulent activity, breaches or failures of our or our third-party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider fraud; interruptions involving our information technology and telecommunications systems or third-party servicers; potential losses incurred in connection with mortgage loan repurchases; the composition of our executive management team and our ability to attract and retain key personnel; rapid and expensive technological changes implemented by us and other parties in the financial services industry, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence; increased competition in the financial services industry, including from non-banks such as credit unions, Fintech companies and digital asset service providers; our ability to successfully manage liquidity risk, including our need to access higher cost sources of funds such as fed funds purchased and short-term borrowings; the concentration of large deposits from certain clients, including those who have balances above current Federal Deposit Insurance Corporation insurance limits; the effectiveness of our risk management framework; potential impairment to the goodwill the Company recorded in connection with our past acquisitions, including the acquisitions of Metro Phoenix Bank and HMNF; the extensive regulatory framework that applies to us; the ability of the Bank to pay dividends to us and our ability to pay dividends to our stockholders; changes in local, state and federal laws, regulations and government policies concerning the Company’s general business, including interpretation and prioritization of such laws, regulations and policies; new or revised accounting standards, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission (the “SEC”) or the Public Company Accounting Oversight Board; fluctuations in the values of the securities held in our securities portfolio, including as a result of changes in interest rates; governmental monetary, trade and fiscal policies; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather and natural disasters, and widespread disease or pandemics; acts of war or terrorism, including ongoing conflicts in the Middle East, the Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; talent and labor shortages and employee turnover; the effects of the current U.S. government shutdown and its impact on our customers; our success at managing and responding to the risks involved in the foregoing items; and any other risks described in the “Risk Factors” sections of the reports filed by Alerus Financial Corporation with the SEC.

Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

(dollars in thousands, except share and per share data)

September 30,

December 31,

2025

2024

Assets

(Unaudited)

Cash and cash equivalents

92,043

61,239

Investment securities

Trading, at fair value

1,411

3,309

Available-for-sale, at fair value

531,014

588,053

Held-to-maturity, at amortized cost (with an allowance for credit losses on investments of $126 and $131, respectively)

259,225

275,585

Loans held for sale

17,757

16,518

Loans held for investment

4,102,075

3,992,534

Allowance for credit losses on loans

(62,127

)

(59,929

)

Net loans

4,039,948

3,932,605

Land, premises and equipment, net

44,097

39,780

Operating lease right-of-use assets

30,154

13,438

Accrued interest receivable

21,602

20,075

Bank-owned life insurance

38,997

36,033

Goodwill

85,634

Other intangible assets

35,753

43,882

Servicing rights

6,708

7,918

Deferred income taxes, net

38,497

52,885

Other assets

87,733

84,719

Total assets

5,330,573

5,261,673

Liabilities and Stockholders’ Equity

Deposits

Noninterest-bearing

776,791

903,466

Interest-bearing

3,635,862

3,474,944

Total deposits

4,412,653

4,378,410

Short-term borrowings

200,000

238,960

Long-term debt

59,154

59,069

Operating lease liabilities

36,918

18,991

Accrued expenses and other liabilities

71,160

70,833

Total liabilities

4,779,885

4,766,263

Stockholders’ equity

Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding

—

Common stock, $1 par value, 60,000,000 and 30,000,000 shares authorized: 25,396,686 and 25,344,803 issued and outstanding

25,397

25,345

Additional paid-in capital

271,165

269,708

Retained earnings

308,464

273,723

Accumulated other comprehensive loss

(54,338

)

(73,366

)

Total stockholders’ equity

550,688

495,410

Total liabilities and stockholders’ equity

5,330,573

5,261,673

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income

(dollars and shares in thousands, except per share data)

Three months ended

Nine months ended

September 30,

June 30,

September 30,

2025

2024

2025

2024

Interest Income

(Unaudited)

Loans, including fees

63,875

63,853

42,593

189,222

123,551

Investment securities

Taxable

5,091

5,310

4,596

16,108

14,008

Exempt from federal income taxes

160

169

480

512

Other

1,518

1,101

4,854

3,440

16,200

Total interest income

70,644

70,424

52,212

209,250

154,271

Interest Expense

Deposits

24,350

22,758

22,285

70,643

63,721

Short-term borrowings

2,506

3,982

6,706

9,327

19,748

Long-term debt

652

679

1,955

2,041

Total interest expense

27,508

27,392

29,670

81,925

85,510

Net interest income

43,136

43,032

22,542

127,325

68,761

Provision for credit losses

—

1,661

863

6,150

Net interest income after provision for credit losses

43,136

43,032

20,881

126,462

62,611

Noninterest Income

Retirement and benefit services

16,496

16,024

16,144

48,625

47,876

Wealth management

6,560

7,363

6,684

20,827

19,161

Mortgage banking

3,474

3,651

2,573

8,651

6,796

Service charges on deposit accounts

703

680

488

2,034

1,333

Gain on sale of non-mortgage loans

(35

)

2,115

—

2,080

—

Other

2,232

1,930

2,474

6,607

5,891

Total noninterest income (loss)

29,430

31,763

28,363

88,824

81,057

Noninterest Expense

Compensation

24,984

24,343

21,058

72,288

60,655

Employee taxes and benefits

6,094

6,633

5,400

20,490

16,722

Occupancy and equipment expense

2,849

2,559

2,082

8,315

5,803

Business services, software and technology expense

6,285

5,868

4,879

17,905

14,823

Intangible amortization expense

2,710

1,324

8,129

3,972

Professional fees and assessments

2,676

2,339

4,267

8,010

8,633

Marketing and business development

1,069

787

764

2,821

2,200

Supplies and postage

569

490

422

1,690

1,321

Travel

385

347

330

1,019

954

Mortgage and lending expenses

1,025

940

684

2,501

1,592

Other

1,895

1,422

1,237

6,176

3,543

Total noninterest expense

50,541

48,438

42,447

149,344

120,218

Income before income tax expense

22,025

26,357

6,797

65,942

23,450

Income tax expense

5,101

6,104

1,590

15,451

5,604

Net income (loss)

16,924

20,253

5,207

50,491

17,846

Per Common Share Data

Earnings per common share

0.66

0.79

0.26

1.97

0.90

Diluted earnings per common share

0.65

0.78

0.26

1.95

0.89

Dividends declared per common share

0.21

0.20

0.62

0.59

Average common shares outstanding

25,395

25,368

19,788

25,374

19,768

Diluted average common shares outstanding

25,713

25,714

20,075

25,693

20,037

Alerus Financial Corporation and Subsidiaries

Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures (unaudited)

(dollars and shares in thousands, except per share data)

September 30,

June 30,

December 31,

September 30,

2025

2024

Tangible Common Equity to Tangible Assets

Total common stockholders’ equity

550,688

533,155

495,410

386,486

Less: Goodwill

85,634

46,783

Less: Other intangible assets

35,753

38,462

43,882

13,186

Tangible common equity (a)

429,301

409,059

365,894

326,517

Total assets

5,330,573

5,323,822

5,261,673

4,084,640

Less: Goodwill

85,634

46,783

Less: Other intangible assets

35,753

38,462

43,882

13,186

Tangible assets (b)

5,209,186

5,199,726

5,132,157

4,024,671

Tangible common equity to tangible assets (a)/(b)

8.24

7.87

7.13

8.11

Tangible Book Value Per Common Share

Tangible common equity (a)

429,301

409,059

365,894

326,517

Total common shares issued and outstanding (c)

25,397

25,389

25,345

19,790

Tangible book value per common share (a)/(c)

16.90

16.11

14.44

16.50

Three months ended

Nine months ended

September 30,

June 30,

September 30,

2025

2024

2025

2024

Return on Average Tangible Common Equity

Net income

16,924

20,253

5,207

50,491

17,846

Add: Intangible amortization expense (net of tax) (1)

2,141

1,046

6,421

3,138

Net income, excluding intangible amortization (d)

19,065

22,394

6,253

56,912

20,984

Average total equity

524,459

513,606

375,229

512,533

370,758

Less: Average goodwill

85,634

46,783

85,634

46,783

Less: Average other intangible assets (net of tax) (1)

29,540

31,436

10,933

31,549

11,969

Average tangible common equity (e)

409,285

396,536

317,513

395,350

312,006

Return on average tangible common equity (d)/(e)

18.48

22.65

7.83

19.25

8.98

Efficiency Ratio

Noninterest expense

50,541

48,438

42,447

149,344

120,218

Less: Intangible amortization expense

2,710

1,324

8,129

3,972

Adjusted noninterest expense (f)

47,831

45,728

41,123

141,215

116,246

Net interest income

43,136

43,032

22,542

127,325

68,761

Noninterest income

29,430

31,763

28,363

88,824

81,057

Tax-equivalent adjustment

638

592

314

1,748

816

Total tax-equivalent revenue (g)

73,204

75,387

51,219

217,897

150,634

Efficiency ratio (f)/(g)

65.34

60.66

80.29

64.81

77.17

Pre-Provision Net Revenue

Net interest income

43,136

43,032

22,542

127,325

68,761

Add: Noninterest income

29,430

31,763

28,363

88,824

81,057

Less: Noninterest expense

50,541

48,438

42,447

149,344

120,218

Pre-provision net revenue

22,025

26,357

8,458

66,805

29,600

Adjusted Noninterest Income

Noninterest income

29,430

31,763

28,363

88,824

81,057

Less: Adjusted noninterest income items

Net gain (loss) on sale of loans

(35

)

2,115

—

2,080

—

Net gain (loss) on sale/disposal of premises and equipment

—

(84

)

476

(84

)

481

Total adjusted noninterest income items (h)

(35

)

2,031

476

1,996

481

Adjusted noninterest income (i)

29,465

29,732

27,887

86,828

80,576

Adjusted Noninterest Expense

Noninterest expense

50,541

48,438

42,447

149,344

120,218

Less: Adjusted noninterest expense items

HMNF merger- and acquisition-related expenses

(43

)

1,661

255

2,251

Severance and signing bonus expense

104

(23

)

1,108

626

Total adjusted noninterest expense items (j)

(12

)

1,692

1,363

2,877

Adjusted noninterest expense (k)

50,480

48,450

40,755

147,981

117,341

(1)

Items calculated after-tax utilizing a marginal income tax rate of 21.0%.

Alerus Financial Corporation and Subsidiaries

Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures (unaudited)

(dollars and shares in thousands, except per share data)

Three months ended

Nine months ended

September 30,

June 30,

September 30,

2025

2024

2025

2024

Adjusted Pre-Provision Net Revenue

Net interest income

43,136

43,032

22,542

127,325

68,761

Add: Adjusted noninterest income (i)

29,465

29,732

27,887

86,828

80,576

Less: Adjusted noninterest expense (k)

50,480

48,450

40,755

147,981

117,341

Adjusted pre-provision net revenue

22,121

24,314

9,674

66,172

31,996

Adjusted Efficiency Ratio

Adjusted noninterest expense (k)

50,480

48,450

40,755

147,981

117,341

Less: Intangible amortization expense

2,710

1,324

8,129

3,972

Adjusted noninterest expense for efficiency ratio (l)

47,770

45,740

39,431

139,852

113,369

Tax-equivalent revenue

Net interest income

43,136

43,032

22,542

127,325

68,761

Add: Adjusted noninterest income (i)

29,465

29,732

27,887

86,828

80,576

Add: Tax-equivalent adjustment

638

592

314

1,748

816

Total tax-equivalent revenue (m)

73,239

73,356

50,743

215,901

150,153

Adjusted efficiency ratio (l)/(m)

65.22

62.35

77.71

64.78

75.50

Adjusted Net Income

Net income

16,924

20,253

5,207

50,491

17,846

Less: Adjusted noninterest income items (net of tax) (1) (h)

(28

)

1,604

376

1,577

380

Add: Adjusted noninterest expense items (net of tax) (1) (j)

)

1,337

1,077

2,273

Adjusted net income (n)

17,000

18,640

6,168

49,991

19,739

Adjusted Return on Average Total Assets

Average total assets (o)

5,273,306

5,302,728

4,298,080

5,282,798

4,245,181

Adjusted return on average total assets (n)/(o)

1.28

1.41

0.57

1.27

0.62

Adjusted Return on Average Tangible Common Equity

Adjusted net income (n)

17,000

18,640

6,168

49,991

19,739

Add: Intangible amortization expense (net of tax) (1)

2,141

1,046

6,421

3,138

Adjusted net income, excluding intangible amortization (p)

19,141

20,781

7,214

56,412

22,877

Average total equity

524,459

513,606

375,229

512,533

370,758

Less: Average goodwill

85,634

46,783

85,634

46,783

Less: Average other intangible assets (net of tax)

29,540

31,436

10,933

31,549

11,969

Average tangible common equity (q)

409,285

396,536

317,513

395,350

312,006

Adjusted return on average tangible common equity (p)/(q)

18.55

21.02

9.04

19.08

9.79

Adjusted Earnings Per Common Share - Diluted

Adjusted net income (n)

17,000

18,640

6,168

49,991

19,739

Less: Dividends and undistributed earnings allocated to participating securities

148

205

444

102

Adjusted net income available to common stockholders (r)

16,852

18,435

6,144

49,547

19,637

Weighted-average common shares outstanding for diluted earnings per share (s)

25,713

25,714

20,075

25,693

20,037

Adjusted earnings per common share - diluted (r)/(s)

0.66

0.72

0.31

1.93

0.98

Adjusted Net Charge-Offs to Average Loans

Net charge-offs (recoveries)

(1,715

)

3,767

316

2,459

2,896

Less: Charge-off of PCD reserves on loans transferred to non-mortgage loans held for sale

—

3,053

Adjusted net charge-offs (recoveries) (t)

(1,715

)

714

316

(594

)

2,896

Average total loans (u)

4,036,936

4,079,084

2,968,947

4,046,347

2,858,634

Adjusted net charge-offs (recoveries) to average loans (t)/(u)

(0.17

0.07

0.04

(0.02

0.14

(1)

Items calculated after-tax utilizing a marginal income tax rate of 21.0%.

Alerus Financial Corporation and Subsidiaries

Analysis of Average Balances, Yields, and Rates (unaudited)

(dollars in thousands)

Three months ended

Nine months ended

September 30, 2025

June 30, 2025

September 30, 2024

September 30, 2025

September 30, 2024

Average

Yield/

Average

Yield/

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Balance

Rate

Interest Earning Assets

Interest-bearing deposits with banks

89,568

4.86

35,951

5.51

326,350

5.47

53,187

4.98

375,365

5.39

Investment securities (1)

796,759

2.64

823,463

2.69

749,062

2.55

826,409

2.70

760,219

2.58

Loans held for sale

20,188

4.93

22,302

4.44

15,795

3.20

17,979

4.80

13,768

6.01

Loans

Commercial and industrial

650,787

7.51

653,635

7.51

593,685

7.26

654,061

7.44

578,839

7.21

CRE − Construction, land and development

363,466

5.77

337,867

5.97

184,611

5.68

348,093

5.85

146,454

7.03

CRE − Multifamily

340,709

6.46

347,277

6.72

242,558

5.62

350,658

6.50

245,372

5.57

CRE − Non-owner occupied (2)

887,935

6.26

955,134

6.52

663,539

5.88

934,143

6.48

615,320

5.85

CRE − Owner occupied

435,469

7.73

442,796

6.29

289,963

5.41

419,608

6.77

284,315

5.41

Agricultural − Land

66,676

5.53

66,044

5.76

42,162

4.93

66,647

5.71

41,138

4.80

Agricultural − Production

64,685

6.80

67,412

7.32

40,964

6.84

64,357

7.13

38,110

6.65

RRE − First lien

898,011

4.83

898,903

4.92

689,382

3.98

898,910

4.84

695,313

4.02

RRE − Construction

33,834

6.61

39,682

7.62

16,792

3.86

36,798

7.57

19,847

4.89

RRE − HELOC

213,232

6.82

188,494

6.99

130,705

8.00

190,272

6.96

124,321

8.19

RRE − Junior lien

40,997

6.40

42,435

6.37

36,818

5.74

42,498

6.34

36,276

6.23

Other consumer

41,135

6.94

39,405

7.01

37,768

6.76

40,302

6.99

33,329

6.64

Total loans (1)

4,036,936

6.31

4,079,084

6.31

2,968,947

5.73

4,046,347

6.28

2,858,634

5.78

Federal Reserve/FHLB stock

22,398

7.46

28,146

8.65

17,562

8.25

24,314

8.01

16,956

8.30

Total interest earning assets

4,965,849

5.70

4,988,946

5.71

4,077,716

5.12

4,968,236

5.68

4,024,942

5.15

Noninterest earning assets

307,457

313,782

220,364

314,562

220,239

Total assets

5,273,306

5,302,728

4,298,080

5,282,798

4,245,181

Interest-Bearing Liabilities

Interest-bearing demand deposits

1,227,029

1.80

1,247,241

1.80

1,003,595

2.31

1,240,589

1.80

944,143

2.18

Money market and savings deposits

1,587,694

2.84

1,561,977

2.77

1,146,896

3.82

1,580,085

2.83

1,160,391

3.79

Time deposits

772,345

3.81

687,428

3.72

485,533

4.46

716,421

3.81

458,545

4.47

Fed funds purchased and BTFP

16,636

4.94

149,046

4.63

327,543

4.97

71,717

4.67

325,455

4.95

FHLB short-term advances

200,000

4.56

200,000

4.54

200,000

5.19

200,000

4.56

200,000

5.13

Long-term debt

59,137

4.37

59,112

4.42

59,027

4.58

59,111

4.42

58,999

4.62

Total interest-bearing liabilities

3,862,841

2.83

3,904,804

2.81

3,222,594

3.66

3,867,923

2.83

3,147,533

3.63

Noninterest-Bearing Liabilities and Stockholders' Equity

Noninterest-bearing deposits

800,028

808,629

628,114

819,266

656,553

Other noninterest-bearing liabilities

85,978

75,689

72,143

83,076

70,337

Stockholders’ equity

524,459

513,606

375,229

512,533

370,758

Total liabilities and stockholders’ equity

5,273,306

5,302,728

4,298,080

5,282,798

4,245,181

Net interest rate spread

2.87

2.90

1.46

2.85

1.52

Net interest margin, tax-equivalent (1)

3.50

3.51

2.23

3.47

2.31

(1)

Taxable-equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0%.

(2)

Average balances and average yield/rate includes non-mortgage loans sold and held for sale for the three months ended June 30, 2025 and the nine months ended September 30, 2025.