Alerus Financial Corporation (NASDAQ:ALRS), or the Company, reported net income of $3.2 million for the fourth quarter of 2024, or $0.13 per diluted common share, compared to net income of $5.2 million, or $0.26 per diluted common share, for the third quarter of 2024, and net loss of $14.8 million, or ($0.73) per diluted common share, for the fourth quarter of 2023.

CEO Comments

President and Chief Executive Officer Katie Lorenson said, "We are pleased to end 2024 with a solid quarter on across-the-board improvements to our performance metrics. The fourth quarter of 2024 was highlighted by the closing and conversion of HMN Financial, Inc. ("HMNF"), the largest acquisition in our Company history, and we welcome HMNF's employees to the Alerus team. The combination of HMNF and meaningful organic growth in our underlying core business, drove an increase in earnings per share by a robust 41.9% versus the prior quarter. Notably, the net interest margin expanded 97 basis points, while our adjusted efficiency ratio improved significantly with a decrease to 69.0% from 77.7% in the third quarter.

For the full year 2024, we achieved market share gains and strong client base growth across all our business lines with our noninterest income, which represents nearly half of our total revenues. Noninterest income grew 19.4% quarter-over-quarter.

We enter 2025 with positive momentum and plan to continue making long term investments to support and grow our diversified revenue streams while continuing to prudently manage our expenses. While our capital ratios declined in the fourth quarter due to the HMNF acquisition, we remain above all well-capitalized thresholds and expect to build capital in 2025. We bolstered our reserves with the allowance for credit losses on loans to total loans moving up to 1.50%, while we continue to proactively identify and manage credit normalization.

Looking ahead, we remain committed to driving sustainable growth and delivering value to our shareholders. Our strategic focus on organic growth, diversification, valuable fee income, and maintaining strong asset quality will continue to guide our efforts in 2025 and beyond.

I want to thank all our team members - both the new team from HMNF and the long tenured legacy team - for your hard work, dedication and invaluable contributions supporting our company, our clients and our communities in 2024. Together, we will continue to build on our successes and return Alerus to top tier financial results."

Fourth Quarter Highlights

Adjusted earnings per common share (non-GAAP) of $0.44 in the fourth quarter of 2024, an increase of 41.9% from $0.31 in the third quarter of 2024.
Completed the acquisition of HMN Financial, Inc. and its subsidiary, Home Federal Savings Bank (together, "HMNF") in the fourth quarter of 2024, the 26th and largest acquisition in the Company's history.
Total loans were $4.0 billion as of December 31, 2024, an increase of $1.0 billion, or 31.7%, from September 30, 2024.
Total deposits were $4.4 billion as of December 31, 2024, an increase of $1.1 billion, or 31.7%, from September 30, 2024.
Non-interest bearing deposits were $903.5 million as of December 31, 2024, an increase of $245.9 million, or 37.4%, from September 30, 2024.
The loan to deposit ratio remained stable at 91.2% as of both December 31, 2024 and September 30, 2024.
Net interest income was $38.3 million in the fourth quarter of 2024, an increase of 69.8% from $22.5 million in the third quarter of 2024.
Net interest margin was 3.20% in the fourth quarter of 2024, an increase of 97 basis points from 2.23% in the third quarter of 2024.
Noninterest income was $33.9 million in the fourth quarter of 2024, which represented 46.9% of total revenues, an increase of 19.4% from $28.4 million in the third quarter of 2024.
Adjusted pre-provision net revenue was $18.2 million in the fourth quarter of 2024, an increase of 88.6% from $9.7 million in the third quarter of 2024.
Adjusted efficiency ratio (non-GAAP) was 69.0% in the fourth quarter of 2024, improved from 77.7% in the third quarter of 2024.
Allowance for credit losses on loans to total loans was 1.50% as of December 31, 2024, an increase of 21 basis points from 1.29% as of September 30, 2024.
Adjusted return on average tangible common equity (non-GAAP) was 14.7% in the fourth quarter of 2024, an increase from 9.0% in the third quarter of 2024.
Book value per common share was $19.68 as of December 31, 2024, a 0.8% increase from $19.53 as of September 30, 2024.

Full Year 2024 Highlights

Adjusted earnings per common share (non-GAAP) of $1.44 for the year ended December 31, 2024, a decrease of 0.7% from $1.45 for the year ended December 31, 2023.
Total loans were $4.0 billion as of December 31, 2024, an increase of $1.2 billion, or 44.7%, from December 31, 2023.
Total deposits were $4.4 billion as of December 31, 2024, an increase of $1.3 billion, or 41.4%, from December 31, 2023.
Non-interest bearing deposits were $903.5 million as of December 31, 2024, an increase of $175.4 million, or 24.1%, from December 31, 2023.
Net interest income was $107.0 million for the year ended December 31, 2024, an increase of 21.9% from $87.8 million for the year ended December 31, 2023.
Net interest margin was 2.56% for the year ended December 31, 2024, an increase of 10 basis points from 2.46% for the year ended December 31, 2023.
Noninterest income was $114.9 million for the year ended December 31, 2024, which represented 51.8% of total revenues, an increase of 43.3% from $80.2 million for the year ended December 31, 2023.
Total assets under administration/management at December 31, 2024 were $45.3 billion, an 11.3% increase from December 31, 2023.
Adjusted pre-provision net revenue was $50.2 for the year ended December 31, 2024, an increase of 24.3% from $40.4 million for the year ended December 31, 2023.
Adjusted efficiency ratio (non-GAAP) was 73.4% for the year ended December 31, 2024, improved from 75.5% for the year ended December 31, 2023.
Allowance for credit losses on loans to total loans was 1.50% as of December 31, 2024, an increase of 20 basis points from 1.30% as of December 31, 2023.
Book value per common share was $19.68 as of December 31, 2024, a 5.2% increase from $18.71 as of December 31, 2023.
Dividends paid per common share totaled $0.79 for the year ended December 31, 2024, an increase of 5.3% from $0.75 for the year ended December 31, 2023.

Selected Financial Data (unaudited)

	As of and for the
	Three months ended									Year ended
	December 31,			September 30,			December 31,			December 31,			December 31,
(dollars and shares in thousands, except per share data)	2024			2024			2023			2024			2023
Performance Ratios
Return on average total assets		0.24	%		0.48	%		(1.51	)%		0.47	%		0.31	%
Adjusted return on average total assets⁽¹⁾		0.83	%		0.57	%		0.52	%		0.68	%		0.77	%
Return on average common equity		2.68	%		5.52	%		(16.75	)%		5.30	%		3.26	%
Return on average tangible common equity⁽¹⁾		6.01	%		7.83	%		(18.85	)%		8.16	%		5.37	%
Adjusted return on average tangible common equity⁽¹⁾		14.65	%		9.04	%		8.38	%		11.15	%		11.30	%
Noninterest income as a % of revenue		46.94	%		55.72	%		3.54	%		51.78	%		47.74	%
Net interest margin (tax-equivalent)		3.20	%		2.23	%		2.37	%		2.56	%		2.46	%
Adjusted net interest margin (tax-equivalent)⁽¹⁾		2.81	%		2.35	%		2.31	%		2.53	%		2.42	%
Efficiency ratio⁽¹⁾		73.36	%		80.29	%		165.40	%		75.93	%		85.85	%
Adjusted efficiency ratio⁽¹⁾		68.97	%		77.71	%		78.18	%		73.44	%		75.50	%
Net charge-offs/(recoveries) to average loans		0.13	%		0.04	%		(0.04	)%		0.13	%		(0.04	)%
Dividend payout ratio		153.85	%		76.92	%		(26.03	)%		80.61	%		129.31	%
Per Common Share
Earnings per common share - basic	$	0.13		$	0.26		$	(0.73	)	$	1.00		$	0.59
Earnings per common share - diluted	$	0.13		$	0.26		$	(0.73	)	$	0.98		$	0.58
Adjusted earnings per common share - diluted ⁽¹⁾	$	0.44		$	0.31		$	0.26		$	1.44		$	1.45
Dividends declared per common share	$	0.20		$	0.20		$	0.19		$	0.79		$	0.75
Book value per common share	$	19.68		$	19.53		$	18.71
Tangible book value per common share ⁽¹⁾	$	14.49		$	16.50		$	15.46
Average common shares outstanding - basic		24,857			19,788			19,761			21,047			19,922
Average common shares outstanding - diluted		25,144			20,075			19,996			21,321			20,143
Other Data
Retirement and benefit services assets under administration/management	$	40,728,699		$	41,249,280		$	36,682,425
Wealth management assets under administration/management	$	4,579,189		$	4,397,505		$	4,018,846
Mortgage originations	$	88,576		$	82,388		$	65,488		$	334,318		$	364,114

____________________ (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 fourth quarter of 2024 was $38.3 million, a $15.7 million, or 69.8%, increase from the third quarter of 2024. The increase was primarily due to increased interest income on higher earning assets acquired in the HMNF transaction, organic loan growth, and lower average rates paid on deposit balances.

Net interest income increased $16.7 million, or 77.6%, from $21.6 million for the fourth quarter of 2023. Interest income increased $22.6 million, or 50.6%, from the fourth quarter of 2023, primarily driven by higher earning assets acquired in the HMNF transaction, strong organic loan growth at higher yields, and purchase accounting accretion. The increase in interest income was partially offset by a $5.9 million, or 25.4%, increase in interest expense, driven by an increase in interest-bearing deposits from the acquisition of HMNF and organic deposit growth.

Net interest margin (on a tax-equivalent basis) was 3.20% for the fourth quarter of 2024, a 97 basis point increase from 2.23% for the third quarter of 2024, and an 83 basis point increase from 2.37% for the fourth quarter of 2023. The increase in net interest margin (on a tax-equivalent basis) was mainly attributable to purchase accounting accretion, lower rates paid on deposits in the fourth quarter, the unwinding of the Bank Term Funding Program ("BTFP") arbitrage trade late in the third quarter of 2024, and organic loan and deposit growth.

Noninterest Income

Noninterest income for the fourth quarter of 2024 was $33.9 million, a $5.5 million increase from the third quarter of 2024. The quarter over quarter increase was primarily driven by improvement across all fee-based businesses. Mortgage banking revenue increased $1.1 million, from $2.6 million in the third quarter of 2024, primarily driven by higher mortgage originations and higher margins on sold mortgages. Wealth revenue increased $0.3 million during the fourth quarter of 2024, a 4.9% increase from the third quarter of 2024, primarily driven by the acquisition of HMNF. Retirement and benefit services revenue increased $0.3 million in the fourth quarter of 2024, a 2.1% increase from the third quarter of 2024, primarily driven by nonmarket-based fees. Combined assets under administration/management in wealth and retirement and benefit services decreased 0.7% from September 30, 2024. The slight decrease in combined assets under administration/management was primarily due to stable equity and bond markets. Additionally, other noninterest income increased $3.6 million during the fourth quarter of 2024, a 144.9% increase from the third quarter of 2024, primarily due to a gain on the sale of fixed assets related to the sale of a Fargo, North Dakota office and increased swap fee income generated from commercial loan originations.

Noninterest income for the fourth quarter of 2024 increased by $33.1 million from the fourth quarter of 2023. The year over year increase was primarily driven by the strategic balance sheet repositioning transaction completed in the fourth quarter of 2023, which resulted in a $24.6 million loss on the sale of investment securities. Year over year, the fee-based businesses each showed improvement. Mortgage banking revenue increased $2.4 million, from $1.3 million in the fourth quarter of 2023, primarily driven by higher mortgage originations and higher margins on sold mortgages. Retirement and benefit services revenue increased $1.2 million, or 7.6%, from $15.3 million in the fourth quarter of 2023, primarily driven by an increase in assets under administration/management of 11.0% during that same period. Wealth revenue increased $1.1 million, or 18.0%, in the fourth quarter of 2024, primarily driven by an increase in assets under administration/management of 13.9% during that same period. Other noninterest income increased $3.5 million, or 137.0%, in the fourth quarter of 2024 compared to the fourth quarter of 2023, primarily due to a gain on the sale of fixed assets related to the sale of a Fargo, North Dakota office and increased swap fee income generated from commercial loan originations.

Noninterest Expense

Noninterest expense for the fourth quarter of 2024 was $56.0 million, a $13.6 million, or 32.0%, increase from the third quarter of 2024. The quarter over quarter increase was primarily driven by the acquisition of HMNF and related expenses. Compensation expense increased $5.6 million, or 26.6%, from the third quarter of 2024, primarily driven by acquisition-related compensation expenses, experienced talent acquisitions, and increased labor costs. Professional fees and assessments increased $2.3 million, or 53.0%, from the third quarter of 2024, primarily driven by increased acquisition-related expenses of $1.6 million. Business services, software and technology expense increased $2.1 million, or 42.1%, from the third quarter of 2024, primarily driven by increased core processing fees and equipment purchases in connection with the HMNF acquisition. Intangible amortization expense was $2.8 million, a $1.5 million increase from the third quarter of 2024, primarily driven by amortization expense related to the $33.5 million core deposit intangible recorded in connection with the HMNF acquisition.

Noninterest expense for the fourth quarter of 2024 increased $17.4 million, or 44.9%, from $38.7 million in the fourth quarter of 2023. The increase was primarily driven by the acquisition of HMNF and related expenses. Compensation expense increased $7.4 million, or 38.7%, in the fourth quarter of 2024, primarily due to acquisition-related compensation expenses and increased labor costs. Professional fees and assessments increased primarily due to increased acquisition-related expenses of $3.3 million in connection with the acquisition of HMNF and an increase in Federal Deposit Insurance Corporation ("FDIC") assessments. Employee taxes and benefits expense increased $1.7 million, or 36.4%, primarily due to increased expense related to the employee stock ownership program ("ESOP") and costs related to group insurance. Business services, software and technology expense increased $1.2 million, or 22.0%, in the fourth quarter of 2024, primarily driven by increased core processing fees and equipment purchases in connection with the HMNF acquisition. Intangible amortization expense increased $1.5 million in the fourth quarter of 2024, primarily driven by amortization expense related to the $33.5 million core deposit intangible recorded in connection with the HMNF acquisition.

Financial Condition

Total assets were $5.3 billion as of December 31, 2024, an increase of $1.4 billion, or 34.7%, from December 31, 2023. The increase was primarily due to a $1.2 billion increase in loans, a $101.3 million increase in available-for-sale investment securities, a $40.8 million increase in goodwill, and a $26.7 million increase in other intangible assets, partially offset by a decrease of $68.7 million in cash and cash equivalents and a decrease of $23.9 million in held-to-maturity investment securities. The increase in goodwill and other intangible assets was related to the acquisition of HMNF.

Loans

Total loans were $4.0 billion as of December 31, 2024, an increase of $1.2 billion, or 44.7%, from December 31, 2023. The increase was primarily driven by a $938.0 million increase in commercial loans and a $294.9 million increase in consumer loans.

The following table presents the composition of our loan portfolio as of the dates indicated:


	December 31,		September 30,		June 30,		March 31,		December 31,
(dollars in thousands)	2024		2024		2024		2024		2023
Commercial
Commercial and industrial	$	666,727	$	606,245	$	591,779	$	575,259	$	562,180
Commercial real estate
Construction, land and development		294,677		173,629		161,751		125,966		124,034
Multifamily		363,123		275,377		242,041		260,609		245,103
Non-owner occupied		967,025		686,071		647,776		565,979		569,354
Owner occupied		371,418		296,366		283,356		285,211		271,623
Total commercial real estate		1,996,243		1,431,443		1,334,924		1,237,765		1,210,114
Agricultural
Land		61,299		45,821		41,410		41,149		40,832
Production		63,008		39,436		40,549		36,436		36,141
Total agricultural		124,307		85,257		81,959		77,585		76,973
Total commercial		2,787,277		2,122,945		2,008,662		1,890,609		1,849,267
Consumer
Residential real estate
First lien		921,019		690,451		686,286		703,726		697,900
Construction		33,547		11,808		22,573		18,425		28,979
HELOC		162,509		134,301		126,211		120,501		118,315
Junior lien		44,060		36,445		36,323		36,381		35,819
Total residential real estate		1,161,135		873,005		871,393		879,033		881,013
Other consumer		44,122		36,393		35,737		29,833		29,303
Total consumer		1,205,257		909,398		907,130		908,866		910,316
Total loans	$	3,992,534	$	3,032,343	$	2,915,792	$	2,799,475	$	2,759,583

Deposits

Total deposits were $4.4 billion as of December 31, 2024, an increase of $1.3 billion, or 41.4%, from December 31, 2023. Interest-bearing deposits increased $1.1 billion and noninterest-bearing deposits increased $175.4 million, from December 31, 2023. The increase in total deposits was due primarily to the recent acquisition of HMNF, expanded and new commercial deposit relationships, and synergistic deposit growth. Synergistic deposits were $973.6 million as of December 31, 2024, an increase of $122.0 million, or 14.3%, from December 31, 2023.

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

	December 31,		September 30,		June 30,		March 31,		December 31,
(dollars in thousands)	2024		2024		2024		2024		2023
Noninterest-bearing demand	$	903,466	$	657,547	$	701,428	$	692,500	$	728,082
Interest-bearing
Interest-bearing demand		1,220,173		1,034,694		1,003,585		938,751		840,711
Savings accounts		165,882		75,675		79,747		82,727		82,485
Money market savings		1,381,924		1,067,187		1,022,470		1,114,262		1,032,771
Time deposits		706,965		488,447		491,345		456,729		411,562
Total interest-bearing		3,474,944		2,666,003		2,597,147		2,592,469		2,367,529
Total deposits	$	4,378,410	$	3,323,550	$	3,298,575	$	3,284,969	$	3,095,611

Asset Quality

Total nonperforming assets were $62.9 million as of December 31, 2024, an increase of $54.1 million from December 31, 2023. $25.0 million of the increase was due to one construction, land and development loan moving to nonaccrual status in the second quarter of 2024. During the third and fourth quarters of 2024, management elected to make protective advances totaling $5.4 million in order for construction to continue on the project. Management is actively working with the borrower on strategies to complete construction, preserve value, and support repayment of the loan. One large residential real estate relationship and one CRE non-owner occupied loan moving to nonaccrual status during the third quarter of 2024 also contributed $13.6 million to the increase. A further $1.5 million of the increase in the fourth quarter of 2024 was driven by loans acquired from HMNF. Nonperforming assets included one loan over 90 days past due and still on accrual. This loan was renewed subsequent to year end.

As of December 31, 2024, the allowance for credit losses on loans was $59.9 million, or 1.50% of total loans, compared to $35.8 million, or 1.30% of total loans, as of December 31, 2023.

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

	As of and for the three months ended
	December 31,			September 30,			June 30,			March 31,			December 31,
(dollars in thousands)	2024			2024			2024			2024			2023
Nonaccrual loans	$	54,433		$	48,026		$	27,618		$	7,345		$	8,596
Accruing loans 90+ days past due		8,453			—			—			—			139
Total nonperforming loans		62,886			48,026			27,618			7,345			8,735
OREO and repossessed assets		—			—			—			3			32
Total nonperforming assets	$	62,886		$	48,026		$	27,618		$	7,348		$	8,767
Net charge-offs/(recoveries)		1,258			316			2,522			58			(238	)
Net charge-offs/(recoveries) to average loans		0.13	%		0.04	%		0.36	%		0.01	%		(0.04	)%
Nonperforming loans to total loans		1.58	%		1.58	%		0.95	%		0.26	%		0.32	%
Nonperforming assets to total assets		1.19	%		1.18	%		0.63	%		0.17	%		0.22	%
Allowance for credit losses on loans to total loans		1.50	%		1.29	%		1.31	%		1.31	%		1.30	%
Allowance for credit losses on loans to nonperforming loans		95	%		82	%		139	%		498	%		410	%

For the fourth quarter of 2024, the Company had net charge-offs of $1.3 million, compared to net charge-offs of $0.3 million for the third quarter of 2024 and net recoveries of $0.2 million for the fourth quarter of 2023. The quarter-over-quarter increase in net charge-offs was driven by a $0.6 million charge-off of one residential real estate loan and a $0.4 million charge-off of one commercial and industrial loan in the fourth quarter of 2024.

The Company recorded a provision for credit losses of $12.0 million for the fourth quarter of 2024, compared to a provision for credit losses of $1.7 million for the third quarter of 2024 and a provision for credit losses of $1.5 million for the fourth quarter of 2023. The provision for credit losses for the fourth quarter of 2024 was primarily driven by a $7.8 million day one provision for credit losses and unfunded commitment reserve related to the acquisition of HMNF, as well as loan growth and an increase in nonaccrual loans.

The unearned fair value adjustments on acquired loan portfolios were $70.6 million and $5.2 million as of December 31, 2024 and 2023, respectively.

Capital

Total stockholders' equity was $498.7 million as of December 31, 2024, an increase of $129.6 million from December 31, 2023. This change was primarily driven by the issuance of stock in connection with to the acquisition of HMNF. Tangible book value per common share (non-GAAP) decreased to $14.49 as of December 31, 2024, from $15.46 as of December 31, 2023. Tangible common equity to tangible assets (non-GAAP) decreased to 7.15% as of December 31, 2024, from 7.94% as of December 31, 2023. Common equity tier 1 capital to risk weighted assets decreased to 9.98% as of December 31, 2024, from 11.82% as of December 31, 2023.

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

	December 31,			September 30,			December 31,
	2024			2024			2023
Capital Ratios⁽¹⁾
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets		9.98	%		11.12	%		11.82	%
Tier 1 capital to risk weighted assets		10.18	%		11.38	%		12.10	%
Total capital to risk weighted assets		12.55	%		14.04	%		14.76	%
Tier 1 capital to average assets		8.68	%		9.30	%		10.57	%
Tangible common equity / tangible assets ⁽²⁾		7.15	%		8.11	%		7.94	%

Alerus Financial, N.A.
Common equity tier 1 capital to risk weighted assets		10.19	%		10.73	%		11.40	%
Tier 1 capital to risk weighted assets		10.19	%		10.73	%		11.40	%
Total capital to risk weighted assets		11.44	%		11.98	%		12.51	%
Tier 1 capital to average assets		8.66	%		8.90	%		9.92	%

____________________
(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 Wednesday, January 29, 2024, to discuss its financial results. Attendees are encouraged to register ahead of time for the call at investors.alerus.com. The call can also be accessed via telephone at +1 (833) 470-1428, using access code 092113. 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, 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 29 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 area; 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 assets, adjusted return on average tangible common equity, net interest margin (tax-equivalent), adjusted net interest margin (tax-equivalent), and adjusted earnings per common share - diluted. 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: interest rate risk, including the effects of changes in interest rates; effects on the U.S. economy resulting from the implementation of policies proposed by the new presidential administration, including tariffs, mass deportations, and tax regulations; our ability to successfully manage credit risk, including in the CRE 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 CRE loans); the level of nonperforming assets on our balance sheet; our ability to implement our organic and acquisition growth strategies, including the integration of HMNF which the Company acquired in the fourth quarter of 2024; 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 or 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 change in the financial services industry; 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 FDIC 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 impact of recent and future legislative and regulatory changes, including in response to prior bank failures; 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 and Russian invasion of Ukraine, or other adverse external events; any material weaknesses in our internal control over financial reporting; changes to U.S. or state tax laws, regulations and governmental policies concerning our general business, including changes in interpretation or prioritization and changes in response to prior bank failures; talent and labor shortages and employee turnover; our success at managing 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)

	December 31,			December 31,
	2024			2023
Assets	(Unaudited)
Cash and cash equivalents	$	61,239		$	129,893
Investment securities
Trading, at fair value		3,309			—
Available-for-sale, at fair value		588,053			486,736
Held-to-maturity, at amortized cost (with an allowance for credit losses on investments of $131 and $213, respectively)		275,585			299,515
Loans held for sale		16,518			11,497
Loans		3,992,534			2,759,583
Allowance for credit losses on loans		(59,929	)		(35,843	)
Net loans		3,932,605			2,723,740
Land, premises and equipment, net		39,780			17,940
Operating lease right-of-use assets		13,438			5,436
Accrued interest receivable		20,075			15,700
Bank-owned life insurance		36,033			33,236
Goodwill		87,564			46,783
Other intangible assets		43,882			17,158
Servicing rights		7,918			2,052
Deferred income taxes, net		48,766			34,595
Other assets		90,543			83,432
Total assets	$	5,265,308		$	3,907,713
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing	$	903,466		$	728,082
Interest-bearing		3,474,944			2,367,529
Total deposits		4,378,410			3,095,611
Short-term borrowings		238,960			314,170
Long-term debt		59,069			58,956
Operating lease liabilities		18,991			5,751
Accrued expenses and other liabilities		71,179			64,098
Total liabilities		4,766,609			3,538,586
Stockholders' equity
Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding		—			—
Common stock, $1 par value, 30,000,000 shares authorized: 25,344,803 and 19,734,077 issued and outstanding		25,345			19,734
Additional paid-in capital		269,708			150,343
Retained earnings		277,012			272,705
Accumulated other comprehensive loss		(73,366	)		(73,655	)
Total stockholders' equity		498,699			369,127
Total liabilities and stockholders' equity	$	5,265,308		$	3,907,713

Alerus Financial Corporation and Subsidiaries Consolidated Statements of Income (dollars and shares in thousands, except per share data)

	Three months ended							Year ended
	December 31,		September 30,		December 31,			December 31,		December 31,
	2024		2024		2023			2024		2023
Interest Income	(Unaudited)		(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Loans, including fees	$	60,009	$	42,593	$	37,731		$	183,560	$	136,918
Investment securities
Taxable		5,737		4,596		6,040			19,745		24,262
Exempt from federal income taxes		166		169		182			679		740
Other		1,395		4,854		742			17,595		2,963
Total interest income		67,307		52,212		44,695			221,579		164,883
Interest Expense
Deposits		25,521		22,285		17,169			89,243		53,387
Short-term borrowings		2,837		6,706		5,292			22,584		20,976
Long-term debt		665		679		682			2,707		2,681
Total interest expense		29,023		29,670		23,143			114,534		77,044
Net interest income		38,284		22,542		21,552			107,045		87,839
Provision for credit losses		11,992		1,661		1,507			18,141		2,057
Net interest income after provision for credit losses		26,292		20,881		20,045			88,904		85,782
Noninterest Income
Retirement and benefit services		16,488		16,144		15,317			64,365		65,294
Wealth management		7,010		6,684		5,940			26,171		21,855
Mortgage banking		3,673		2,573		1,279			10,469		8,411
Service charges on deposit accounts		644		488		341			1,976		1,280
Net gains (losses) on investment securities		—		—		(24,643	)		—		(24,643	)
Other		6,059		2,474		2,557			11,950		8,032
Total noninterest income		33,874		28,363		791			114,931		80,229
Noninterest Expense
Compensation		26,657		21,058		19,214			87,311		76,290
Employee taxes and benefits		6,245		5,400		4,578			22,967		20,051
Occupancy and equipment expense		1,963		2,082		1,858			7,766		7,477
Business services, software and technology expense		6,935		4,879		5,686			21,758		21,053
Intangible amortization expense		2,804		1,324		1,324			6,776		5,296
Professional fees and assessments		6,530		4,267		2,345			15,162		6,743
Marketing and business development		1,050		764		1,002			3,249		3,027
Supplies and postage		726		422		521			2,046		1,796
Travel		449		330		313			1,403		1,189
Mortgage and lending expenses		571		684		501			2,162		1,902
Other		2,093		1,237		1,312			5,641		5,333
Total noninterest expense		56,023		42,447		38,654			176,241		150,157
Income before income tax expense		4,143		6,797		(17,818	)		27,594		15,854
Income tax expense		921		1,590		(3,064	)		6,525		4,158
Net income	$	3,222	$	5,207	$	(14,754	)	$	21,069	$	11,696
Per Common Share Data
Earnings per common share	$	0.13	$	0.26	$	(0.73	)	$	1.00	$	0.59
Diluted earnings per common share	$	0.13	$	0.26	$	(0.73	)	$	0.98	$	0.58
Dividends declared per common share	$	0.20	$	0.20	$	0.19		$	0.79	$	0.75
Average common shares outstanding		24,857		19,788		19,761			21,047		19,922
Diluted average common shares outstanding		25,144		20,075		19,996			21,321		20,143

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)


	December 31,		September 30,		December 31,
	2024		2024		2023
Tangible Common Equity to Tangible Assets
Total common stockholders' equity	$	498,699	$	386,486	$	369,127
Less: Goodwill		87,564		46,783		46,783
Less: Other intangible assets		43,882		13,186		17,158
Tangible common equity (a)		367,253		326,517

Alerus Financial Corporation Reports Fourth Quarter 2024 Net Income of $3.2 Million