# Alerus Financial Corp: Form 10-Q for the period ended Jun 30, 2024

- Company: [Alerus Financial Corp](/companies/alrs.md) (CIK 903419)
- Form: 10-Q
- Filed: 2024-08-08
- Accepted by EDGAR: Aug 8, 2024, 16:31 ET
- Period: 2024-06-30
- Accession: 0001558370-24-011623
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/903419/000155837024011623/alrs-20240630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/903419/000155837024011623/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $29.0m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $55.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-04-01 to 2024-06-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-01-01 to 2024-06-30 | $4.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $6.2m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $12.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.31 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.31 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $0.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 20,050,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 20,018,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $502.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-01-01 to 2024-06-30 | $4.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $7.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2024-01-01 to 2024-06-30 | $156.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $438.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-06-30 | $4.36bn | us-gaap:Assets |
| Total liabilities | at 2024-06-30 | $3.99bn | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $59.0m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2024-06-30 | $555.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-06-30 | $373.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 108,880 characters.

### General

*The following discussion explains the Company’s financial condition and results of operations as of and for the three and six months ended June 30, 2024 and 2023. Annualized results for this interim period may not be indicative of results for the full year or future periods. The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes presented elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 8, 2024.*

### Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 the Company’s 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 the Company’s current beliefs, expectations and assumptions regarding the Company’s 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 the Company’s control. The Company’s 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 the Company’s 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 sustained high interest rates;
- the Company’s ability to successfully manage credit risk, including in the commercial real estate portfolio, and maintain an adequate level of allowance for credit losses;
- new or revised accounting standards;
- business and economic conditions generally and in the financial services industry, nationally and within the Company’s market areas, including high rates of inflation 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 recent bank failures;
- the overall health of the local and national real estate market;
- concentrations within the Company’s loan portfolio;
- the level of nonperforming assets on the Company’s balance sheet;
- the Company’s ability to implement organic and acquisition growth strategies, including the integration of Metro Phoenix Bank which the Company acquired in 2022 and the pending acquisition of HMNF;
- the impact of economic or market conditions on the Company’s fee-based services;
- the Company’s ability to continue to grow the retirement and benefit services business;
- the Company’s ability to continue to originate a sufficient volume of residential mortgages;
- the occurrence of fraudulent activity, breaches or failures of the Company’s or the Company’s third party vendors’ information security controls or cybersecurity-related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools;
- interruptions involving the Company’s information technology and telecommunications systems or third-party servicers;
- potential losses incurred in connection with mortgage loan repurchases;
- the composition of the Company’s executive management team and the Company’s ability to attract and retain key personnel;
- rapid and expensive technological change in the financial services industry;
- increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers;
- the Company’s ability to successfully manage liquidity risk, including the Company’s 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, who have balances above current Federal Deposit Insurance Corporation (“FDIC”) insurance limits;
- the effectiveness of the Company’s risk management framework;
- the commencement and outcome of litigation and other legal proceedings and regulatory actions against the Company or to which the Company may become subject;
- potential impairment to the goodwill the Company recorded in connection with the Company’s past acquisitions, including the acquisition of Metro Phoenix Bank and the pending acquisition of HMNF;
- the extensive regulatory framework that applies to the Company;
- the impact of recent and future legislative and regulatory changes, including in response to recent bank failures;
- fluctuations in the values of the securities held in the Company’s 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 the Company’s customers and their businesses;
- severe weather, natural disasters, widespread disease or pandemics;
- acts of war or terrorism, including the ongoing Israeli-Palestinian conflict and the Russian invasion of Ukraine, or other adverse external events;
- any material weaknesses in the Company’s internal control over financial reporting;
- changes to U.S. or state tax laws, regulations and guidance;
- potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election;
- talent and labor shortages and employee turnover;
- the Company’s success at managing the risks involved with the foregoing items; and
- any other risks described in the “Risk Factors” section of this report and in other reports filed by Alerus Financial Corporation with the SEC.

Any forward-looking statement made by the Company in this report is based only on information currently available to the Company 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.

### Overview

The Company is a commercial wealth bank and national retirement services provider headquartered in Grand Forks, North Dakota. Through the Company’s subsidiary, Alerus Financial, National Association, the Company provides financial solutions to businesses and consumers through three distinct business lines—banking, retirement and benefit services, and wealth management. These solutions are delivered through a relationship-oriented primary point of contact along with responsive and client-friendly technology.

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. The Company generates a majority of overall revenue from noninterest income, which is driven primarily by the Company’s retirement and benefit services, wealth management and mortgage business lines. The remainder of the Company’s revenue consists of net interest income, which the Company derives from offering traditional banking products and services.

### Critical Accounting Policies

Critical accounting policies are defined as those that are reflective of significant judgements and uncertainties and could potentially result in materially different results under different assumptions and conditions. In preparing the Company’s consolidated financial statements, management is required to make significant estimates and assumptions that affect assets, liabilities, revenues, and expenses reported. Actual results could differ materially from our current estimates as a result of changing conditions and future events. Several estimates are particularly critical and are susceptible to significant near term change, including (i) the ACL, including the ACL on investment securities, loans, and unfunded commitments; (ii) goodwill and intangible assets impairment; and (iii) fair value measurements.

There have been no material changes to the Company’s critical accounting policies from those disclosed within its Annual Report on Form 10-K for the year ended December 31, 2023. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for discussion of the Company’s critical accounting policies.

Refer to “NOTE 2 Recent Accounting Pronouncements” of the consolidated financial statements for discussion of accounting pronouncements issued but yet to be adopted and implemented.

The JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to take advantage of this extended transition period, which means that the financial statements included in this report, as well as any financial statements filed in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as the Company remains an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period under the JOBS Act.

### Recent Developments

### Business Combination

On May 15, 2024, the Company and HMNF jointly announced the signing of a merger agreement pursuant to which the Company will acquire HMNF and its wholly-owned banking subsidiary, Home Federal Savings Bank. Under the terms of the merger agreement, HMNF will merge with and into the Company, and Home Federal Savings Bank will merge with and into the Bank. Under the terms of the merger agreement, HMNF stockholders will receive 1.25 shares of the Company’s common stock for each share of HMNF common stock, which exchange ratio is subject to potential downward adjustment if certain financial metrics of HMNF are not met at closing. The merger is expected to qualify as a tax-free reorganization for HMNF’s stockholders. Upon closing of the transaction, stockholders of HMNF are expected to hold approximately 22.0% of the Company’s outstanding common stock.

During both the three and six months ended June 30, 2024, the Company incurred $0.6 million in pre-tax acquisition expenses related to the planned acquisition of HMNF, comprised of legal and professional fees included in professional fees and assessments expense in the consolidated statements of income.

### Stockholder Dividend

On May 22, 2024, the Board of Directors of the Company declared a quarterly cash dividend of $0.20 per common share. This dividend was paid on July 12, 2024, to stockholders of record at the close of business on June 14, 2024.

### Property Sale

On July 1, 2024, the Company entered into a purchase agreement to sell its South Fargo branch in Fargo, North Dakota. The sale of this facility during 2024 is likely, and the Company expects to record a gain on the sale upon closing, since the offer of $5.3 million is greater than the property’s carrying value.

### Operating Results Overview

The following table summarizes key financial results as of and for the periods indicated:

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

| ​ ​ ​ Performance Ratios | ​ ​ ​ ​ | ​ ​ ​ Three months ended June 30, ​ 2024 ​ ​ | ​ ​ ​ March 31, ​ 2024 ​ ​ | ​ ​ ​ ​ June 30, ​ 2023 ​ ​ | ​ ​ ​ Six months ended June 30, ​ 2024 ​ ​ | ​ ​ ​ ​ June 30, ​ 2023 ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: |
| Return on average total assets | ​ | 0.58% | 0.63% | 0.96% | 0.60% | 0.92% |
| Return on average common equity | ​ | 6.76% | 7.04% | 10.14% | 6.90% | 9.66% |
| Return on average tangible common equity (1) | ​ | 9.40% | 9.78% | 13.71% | 9.58% | 13.15% |
| Noninterest income as a % of revenue | ​ | 53.28% | 53.26% | 53.69% | 53.27% | 52.65% |
| Net interest margin (taxable-equivalent basis) | ​ | 2.39% | 2.30% | 2.52% | 2.35% | 2.61% |
| Adjusted net interest margin (tax-equivalent basis) (1) | ​ | ​ 2.57% | ​ 2.44% | ​ 2.52% | ​ 2.50% | ​ 2.61% |
| Efficiency ratio (1) | ​ | 72.50% | 78.88% | 72.79% | 75.56% | 73.67% |
| Average equity to average assets | ​ | 8.59% | 8.87% | 9.52% | ​ 8.74% | ​ 9.53% |
| Net charge-offs/(recoveries) to average loans | ​ | ​ 0.36% | 0.01% | (0.07)% | 0.19% | (0.02)% |
| Dividend payout ratio | ​ | 64.52% | ​ 59.38% | ​ 42.22% | ​ 61.90% | ​ 43.53% |
| **Per Common Share** | ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| Earnings (losses) per common share − basic | ​ | $0.31 ​ | $0.32 ​ | $0.45 ​ | $0.64 ​ | $0.86 ​ |
| Earnings (losses) per common share − diluted | ​ | $0.31 ​ | $0.32 ​ | $0.45 ​ | $0.63 ​ | $0.85 ​ |
| Dividends declared per common share | ​ | $0.20 ​ | $0.19 ​ | $0.19 ​ | $0.39 ​ | $0.37 ​ |
| Book value per common share | ​ | $18.87 ​ | $18.79 ​ | $17.96 ​ | ​ ​ ​ | ​ ​ ​ |
| Tangible book value per common share (1) | ​ | $15.77 ​ | $15.63 ​ | $14.60 ​ | ​ ​ ​ | ​ ​ ​ |
| Average common shares outstanding − basic | ​ | 19,777 ​ | 19,739 ​ | 20,033 ​ | 19,758 ​ | 20,030 ​ |
| Average common shares outstanding − diluted | ​ | 20,050 ​ | 19,986 ​ | 20,241 ​ | 20,018 ​ | 20,243 ​ |
| **Other Data** | ​ | ​ ​ ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| Retirement and benefit services assets under administration/management | ​ | $39,389,533 ​ | $38,488,523 ​ | $35,052,652 ​ | ​ ​ ​ | ​ ​ ​ |
| Wealth management assets under administration/management | ​ | $4,172,290 ​ | $4,242,408 ​ | $3,857,710 ​ | ​ ​ ​ | ​ ​ ​ |
| Mortgage originations | ​ | $109,254 ​ | $54,101 ​ | $111,261 ​ | $163,355 ​ | $188,989 ​ |

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

### Selected Financial Data

The following tables summarize selected financial data as of and for the periods indicated:

*(dollars in thousands)*

| ​ ​ ​ Selected Average Balance Sheet Data | ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2024 ​ | ​ ​ ​ | ​ ​ March 31, 2024 ​ | ​ ​ ​ | ​ ​ June 30, 2023 ​ | ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2024 ​ | ​ ​ ​ | ​ ​ June 30, 2023 ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans | ​ | $2,837,232 | ​ | $2,768,514 | ​ | $2,482,413 | ​ | $2,802,873 | ​ | $2,469,853 |
| Investment securities | ​ | 756,413 | ​ | 775,305 | ​ | 1,007,792 | ​ | 765,859 | ​ | 1,020,967 |
| Assets | ​ | 4,297,294 | ​ | 4,139,054 | ​ | 3,785,487 | ​ | 4,218,443 | ​ | 3,788,494 |
| Deposits | ​ | 3,230,699 | ​ | 3,163,565 | ​ | 2,940,216 | ​ | 3,197,133 | ​ | 2,936,638 |
| Fed funds purchased and Bank Term Funding Program | ​ | 366,186 | ​ | 282,614 | ​ | 360,033 | ​ | 324,400 | ​ | 325,303 |
| FHLB short-term advances | ​ | ​ 200,000 | ​ | ​ 200,000 | ​ | ​ — | ​ | ​ 200,000 | ​ | ​ 39,779 |
| Long-term debt | ​ | 58,999 | ​ | 58,971 | ​ | 58,886 | ​ | 58,985 | ​ | 58,872 |
| Stockholders’ equity | ​ | 369,217 | ​ | 367,249 | ​ | 360,216 | ​ | 368,501 | ​ | 361,032 |

*(dollars in thousands)*

| ​ ​ Selected Period End Balance Sheet Data | ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ | ​ ​ ​ | ​ ​ March 31, 2024 ​ ​ | ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ | ​ ​ ​ | ​ ​ June 30, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Loans | ​ | $2,915,792 | ​ | $2,799,475 | ​ | $2,759,583 | ​ | $2,533,522 |
| Allowance for credit losses on loans | ​ | (38,332) | ​ | (36,584) | ​ | (35,843) | ​ | (35,696) |
| Investment securities | ​ | 748,745 | ​ | 768,757 | ​ | 786,251 | ​ | 985,870 |
| Assets | ​ | 4,358,623 | ​ | 4,338,093 | ​ | 3,907,713 | ​ | 3,832,978 |
| Deposits | ​ | 3,298,575 | ​ | 3,284,969 | ​ | 3,095,611 | ​ | 2,852,855 |
| Long-term debt | ​ | 59,013 | ​ | 58,985 | ​ | 58,956 | ​ | 58,900 |
| Total stockholders’ equity | ​ | 373,226 | ​ | 371,635 | ​ | 369,127 | ​ | 357,685 |

*(dollars in thousands)*

| ​ ​ ​ Selected Income Statement Data | ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2024 ​ ​ | ​ ​ ​ | ​ ​ March 31, 2024 ​ ​ | ​ ​ ​ | ​ ​ June 30, 2023 ​ ​ | ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2024 ​ ​ | ​ ​ ​ | ​ ​ June 30, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net interest income | ​ | $24,001 | ​ | $22,219 | ​ | $22,234 | ​ | $46,220 | ​ | $45,892 |
| Provision for credit losses | ​ | 4,489 | ​ | — | ​ | — | ​ | 4,489 | ​ | 550 |
| Noninterest income | ​ | 27,371 | ​ | 25,323 | ​ | 25,778 | ​ | 52,694 | ​ | 51,031 |
| Noninterest expense | ​ | 38,752 | ​ | 39,019 | ​ | 36,373 | ​ | 77,771 | ​ | 74,242 |
| Income before income taxes | ​ | 8,131 | ​ | 8,523 | ​ | 11,639 | ​ | 16,654 | ​ | 22,131 |
| Income tax expense | ​ | 1,923 | ​ | 2,091 | ​ | 2,535 | ​ | 4,014 | ​ | 4,841 |
| Net income | ​ | $6,208 | ​ | $6,432 | ​ | $9,104 | ​ | $12,640 | ​ | $17,290 |

### Non-GAAP to GAAP Reconciliations and Calculation of Non-GAAP Financial Measures

In addition to the results presented in accordance with GAAP, the Company routinely supplements its evaluation with an analysis of certain non-GAAP financial measures. These non-GAAP financial measures include the ratio of tangible common equity to tangible assets, adjusted tangible common equity to tangible assets, tangible book value per common share, return on average tangible common equity, efficiency ratio, net interest margin (tax-equivalent), and adjusted net interest margin (tax-equivalent). Management uses these non-GAAP financial measures in its analysis of its performance, and believes financial analysts and others frequently use these measures, and other similar measures, to evaluate capital adequacy. Management calculates: (i) tangible common equity as total common stockholders’ equity less goodwill and other intangible assets; (ii) adjusted tangible common equity as total common stockholders’ equity less goodwill, other intangible assets, and cash proceeds from BTFP; (iii) tangible book value per common share as tangible common equity divided by shares of common stock outstanding; (iv) tangible assets as total assets, less goodwill and other intangible assets; (v) return on average tangible common equity as net income adjusted for intangible amortization net of tax, divided by average tangible common equity; (vi) efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment; and (vii) adjusted net interest margin (tax equivalent) as net interest income less cash interest income and interest expense related to BTFP, adjusted for tax equivalent related to loans and securities, and adjust interest earning assets less average cash proceeds balance from BTFP.

The following tables present these non-GAAP financial measures along with the most directly comparable financial measures calculated in accordance with GAAP as of and for the periods indicated:

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

| ​ ​ Tangible common equity to tangible assets | ​ | ​ ​ ​ June 30, ​ 2024 ​ ​ | ​ ​ ​ March 31, ​ 2024 ​ ​ ​ | ​ ​ ​ December 31, ​ 2023 ​ ​ ​ | ​ ​ ​ June 30, ​ 2023 ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Total common stockholders’ equity | ​ | $373,226 ​ | $371,635 ​ | $369,127 ​ | $357,685 ​ |
| Less: Goodwill | ​ | 46,783 ​ | 46,783 ​ | 46,783 ​ | 47,087 ​ |
| Less: Other intangible assets | ​ | 14,510 ​ | 15,834 ​ | 17,158 ​ | 19,806 ​ |
| Tangible common equity (a) | ​ | 311,933 ​ | 309,018 ​ | 305,186 ​ | 290,792 ​ |
| Total assets | ​ | 4,358,623 ​ | 4,338,093 ​ | 3,907,713 ​ | 3,832,978 ​ |
| Less: Goodwill | ​ | 46,783 ​ | 46,783 ​ | 46,783 ​ | 47,087 ​ |
| Less: Other intangible assets | ​ | 14,510 ​ | 15,834 ​ | 17,158 ​ | 19,806 ​ |
| Tangible assets (b) | ​ | 4,297,330 ​ | 4,275,476 ​ | 3,843,772 ​ | 3,766,085 ​ |
| Tangible common equity to tangible assets (a)/(b) | ​ | 7.26% | 7.23% | 7.94% | 7.72% |
| **Adjusted Tangible Common Equity to Tangible Assets** | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Tangible assets (b) | ​ | $4,297,330 ​ | $4,275,476 ​ | $3,843,772 ​ | $3,766,085 ​ |
| Less: Cash proceeds from BTFP | ​ | ​ 355,000 ​ | ​ 355,000 ​ | ​ — ​ | ​ — ​ |
| Adjusted tangible assets (c) | ​ | ​ 3,942,330 ​ | ​ 3,920,476 ​ | ​ 3,843,772 ​ | ​ 3,766,085 ​ |
| Adjusted tangible common equity to tangible assets (a)/(c) | ​ | ​ 7.91% | ​ 7.88% | ​ 7.94% | ​ 7.72% |
| **Tangible book value per common share** | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Total common stockholders’ equity | ​ | $373,226 ​ | $371,635 ​ | $369,127 ​ | $357,685 ​ |
| Less: Goodwill | ​ | ​ 46,783 ​ | ​ 46,783 ​ | ​ 46,783 ​ | ​ 47,087 ​ |
| Less: Other intangible assets | ​ | ​ 14,510 ​ | ​ 15,834 ​ | ​ 17,158 ​ | ​ 19,806 ​ |
| Tangible common equity (d) | ​ | ​ 311,933 ​ | ​ 309,018 ​ | ​ 305,186 ​ | ​ 290,792 ​ |
| Total common shares issued and outstanding (e) | ​ | ​ 19,778 ​ | ​ 19,777 ​ | 19,734 ​ | 19,915 ​ |
| Tangible book value per common share (d)/(e) | ​ | $15.77 ​ | $15.63 ​ | $15.46 ​ | $14.60 ​ |

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

| ​ ​ ​ Return on average tangible common equity | ​ ​ ​ ​ | ​ ​ ​ Three months ended June 30, ​ 2024 ​ ​ ​ | ​ ​ ​ March 31, ​ 2024 ​ ​ ​ | ​ ​ ​ ​ June 30, ​ 2023 ​ ​ ​ | ​ ​ ​ Six months ended June 30, ​ 2024 ​ ​ ​ | ​ ​ ​ ​ June 30, ​ 2023 ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: | ---: |
| Net income | ​ | $6,208 ​ | $6,432 ​ | $9,104 ​ | $12,640 ​ | $17,290 ​ |
| Add: Intangible amortization expense (net of tax) | ​ | 1,046 ​ | 1,046 ​ | 1,046 ​ | 2,092 ​ | 2,092 ​ |
| Net income, excluding intangible amortization (f) | ​ | 7,254 ​ | 7,478 ​ | 10,150 ​ | 14,732 ​ | 19,382 ​ |
| Average total equity | ​ | 369,217 ​ | 367,249 ​ | 360,216 ​ | 368,501 ​ | 361,032 ​ |
| Less: Average goodwill | ​ | 46,783 ​ | 46,783 ​ | 47,087 ​ | 46,783 ​ | 47,087 ​ |
| Less: Average other intangible assets (net of tax) | ​ | 11,969 ​ | 13,018 ​ | 16,153 ​ | 12,494 ​ | 16,678 ​ |
| Average tangible common equity (g) | ​ | 310,466 ​ | 307,448 ​ | 296,976 ​ | 309,224 ​ | 297,267 ​ |
| Return on average tangible common equity (f)/(g) | ​ | 9.40% | 9.78% | 13.71% | 9.58% | 13.15% |
| **Efficiency ratio** | ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| Noninterest expense | ​ | $38,752 ​ | $39,019 ​ | $36,373 ​ | $77,771 ​ | $74,242 ​ |
| Less: Intangible amortization expense | ​ | 1,324 ​ | 1,324 ​ | 1,324 ​ | 2,648 ​ | 2,648 ​ |
| Adjusted noninterest expense (h) | ​ | 37,428 ​ | 37,695 ​ | 35,049 ​ | 75,123 ​ | 71,594 ​ |
| Net interest income | ​ | 24,001 ​ | 22,219 ​ | 22,234 ​ | 46,220 ​ | 45,892 ​ |
| Noninterest income | ​ | 27,371 ​ | 25,323 ​ | 25,778 ​ | 52,694 ​ | 51,031 ​ |
| Tax-equivalent adjustment | ​ | 255 ​ | 247 ​ | 140 ​ | 502 ​ | 265 ​ |
| Total tax-equivalent revenue (i) | ​ | 51,627 ​ | 47,789 ​ | 48,152 ​ | 99,416 ​ | 97,188 ​ |
| Efficiency ratio (h)/(i) | ​ | 72.50% | 78.88% | 72.79% | 75.56% | 73.67% |
| **Adjusted Net Interest Margin (Tax-Equivalent)** | ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ |
| Net interest income | ​ | $24,001 ​ | $22,219 ​ | $22,234 ​ | $46,220 ​ | $45,892 ​ |
| Less: BTFP cash interest income | ​ | ​ 4,766 ​ | ​ 3,615 ​ | ​ — ​ | ​ 8,381 ​ | ​ — ​ |
| Add: BTFP interest expense | ​ | ​ 4,307 ​ | ​ 3,266 ​ | ​ — ​ | ​ 7,573 ​ | ​ — ​ |
| Net interest income excluding BTFP impact | ​ | ​ 23,542 ​ | ​ 21,870 ​ | ​ 22,234 ​ | ​ 45,412 ​ | ​ 45,892 ​ |
| Add: Tax equivalent adjustment for loans and securities | ​ | ​ 255 ​ | ​ 247 ​ | ​ 140 ​ | ​ 502 ​ | ​ 265 ​ |
| Adjusted net interest income (j) | ​ | $23,797 ​ | $22,117 ​ | $22,374 ​ | $45,914 ​ | $46,157 ​ |
| Interest earning assets | ​ | ​ 4,075,003 ​ | ​ 3,921,530 ​ | ​ 3,564,883 ​ | ​ 3,998,265 ​ | ​ 3,566,136 ​ |
| Less: Average cash proceeds balance from BTFP | ​ | ​ 355,000 ​ | ​ 269,176 ​ | ​ — ​ | ​ 312,088 ​ | ​ — ​ |
| Adjusted interest earning assets (k) | ​ | $3,720,003 ​ | $3,652,354 ​ | $3,564,883 ​ | $3,686,177 ​ | $3,566,136 ​ |
| Adjusted net interest margin (tax-equivalent) (j)/(k) | ​ | ​ 2.57% | ​ 2.44% | ​ 2.52% | ​ 2.50% | ​ 2.61% |

### Discussion and Analysis of Results of Operations

### Net Income

Net income for the three months ended June 30, 2024, was $6.2 million, or $0.31 per diluted common share, a $2.9 million, or 31.8%, decrease compared to $9.1 million, or $0.45 per diluted common share, for the three months ended June 30, 2023. Earnings for the second quarter of 2024 compared to the second quarter of 2023 decreased primarily due to a $4.5 million increase in provision for credit losses and $2.4 million increase in noninterest expense. This negative result was partially offset by a $1.8 million increase in net interest income and $1.6 million increase in noninterest income.

Net income for the six months ended June 30, 2024, was $12.6 million, or $0.63 per diluted common share, a $4.7 million, or 26.9%, decrease compared to $17.3 million, or $0.85 per diluted common share, for the six months ended June 30, 2023. Earnings for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 decreased primarily due to a $3.9 million increase in provision for credit losses and $3.5 million increase in noninterest expense. This negative result was partially offset by a $1.7 million increase in noninterest income.

### Net Interest Income

Net interest income is the difference between interest income and yield related fees earned on assets and interest expense paid on liabilities. Net interest margin is the difference between the yield on interest earning assets and the cost of interest-bearing liabilities as a percentage of interest earning assets. Net interest margin is presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to a pre-tax-equivalent income, assuming a federal income tax rate of 21% for the three and six months ended June 30, 2024 and 2023.

Net interest income for the three months ended June 30, 2024 was $24.0 million, an increase of $1.8 million, or 7.9%, compared to $22.2 million for the three months ended June 30, 2023. Net interest income for the second quarter of 2024 increased compared to the second quarter of 2023 primarily due to a $12.7 million increase in interest income, as interest earning assets increased $510.1 million while the average interest earning asset yield increased 71 basis points. This was partially offset by the increasing cost of interest-bearing liabilities as interest expense increased $10.9 million, mainly driven by an increase of 88 basis points in the average rate paid on interest-bearing liabilities. In addition, the average balance of interest-bearing liabilities increased $579.8 million. The increase in interest earning assets was primarily due to organic loan growth and increased cash balances from deposit growth and BTFP borrowings. The increase in interest-bearing liabilities was due to core deposit growth, a shift from noninterest-bearing deposits to interest-bearing deposits and BTFP borrowings.

Net interest income for the six months ended June 30, 2024 was $46.2 million, an increase of $0.3 million, or 0.7%, compared to $45.9 million for the six months ended June 30, 2023. Net interest income for the first six months of 2024 increased compared to the first six months of 2023 primarily due to a $23.9 million increase in interest income, as average interest earning assets increased $432.1 million while the average interest earning asset yield increased 73 basis points. This was partially offset by the increasing cost of interest-bearing liabilities as interest expense increased $23.6 million, mainly driven by an increase of 110 basis points in the average rate paid on interest-bearing liabilities. In addition, the average balance of interest-bearing liabilities increased $517.9 million. The increase in interest earning assets was primarily due to organic loan growth and increased cash balances from deposit growth and BTFP borrowings. The increase in interest-bearing liabilities was due to core deposit growth, a shift from noninterest-bearing deposits to interest-bearing deposits and BTFP borrowings.

Net interest margin (on a tax-equivalent basis) for the three months ended June 30, 2024 was 2.39%, compared to 2.52% for the same period in 2023. The decrease in net interest margin (on a tax-equivalent basis) was mainly attributable to higher earning assets at lower yields resulting from the BTFP funding as those proceeds are held at the Federal Reserve Bank. Adjusted net interest margin (on a tax-equivalent basis) (non-GAAP), which excludes BTFP borrowings, was 2.57% for the second quarter of 2024, a 5 basis point increase from 2.52% for the second quarter of 2023.

The high target federal funds interest rate continues to pressure funding costs. However, the Company anticipates that net interest income and net interest margin (on an adjusted tax equivalent basis) will continue to recover in future periods as interest earning assets reprice at higher rates and the increases in deposit costs slow.

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields on assets, average yields earned, and rates paid for the three and six months ended June 30, 2024 and 2023. The Company derived these yields and rates by dividing income or expense by the average balance of the corresponding assets or liabilities. The Company derived average balances from the daily balances throughout the periods indicated. Average loan balances include loans that have been placed on nonaccrual status, while interest previously accrued on these loans is reversed against interest income. In these tables, adjustments are made to the yields on tax-exempt assets in order to present tax-exempt income and fully taxable income on a fully taxable equivalent (“FTE”) basis.

*(dollars in thousands)*

| ​ ​ ​ ​ ​ Interest Earning Assets | ​ ​ ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2024 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ Interest Income/ Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Average ​ Yield/ ​ Rate ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ 2023 ​ ​ Average Balance ​ ​ | ​ ​ ​ ​ | ​ ​ Interest Income/ Expense ​ ​ | ​ ​ ​ ​ | ​ ​ ​ ​ Average ​ Yield/ ​ Rate ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Interest-bearing deposits with banks | ​ | $448,245 | ​ | $5,991 |  | 5.38% | ​ | $36,418 | ​ | $363 |  | 4.00% |
| Investment securities (1) | ​ | 756,413 | ​ | 5,059 |  | 2.69 ​ | ​ | 1,007,792 | ​ | 6,360 |  | 2.53 ​ |
| Loans held for sale | ​ | 16,473 | ​ | 365 |  | 8.91 ​ | ​ | 14,536 | ​ | 189 |  | 5.22 ​ |
| Loans | ​ |  | ​ |  |  | ​ | ​ |  | ​ |  |  | ​ |
| Commercial and industrial | ​ | 578,544 | ​ | 10,628 |  | 7.39 ​ | ​ | 516,943 | ​ | 8,925 |  | 6.92 ​ |
| CRE − Construction, land and development | ​ | 126,744 | ​ | 2,524 |  | 8.01 ​ | ​ | 87,905 | ​ | 1,629 |  | 7.43 ​ |
| CRE − Multifamily | ​ | 243,076 | ​ | 3,335 |  | 5.52 ​ | ​ | 191,100 | ​ | 2,453 |  | 5.15 ​ |
| CRE − Non-owner occupied | ​ | ​ 617,338 | ​ | ​ 9,056 | ​ | 5.90 ​ | ​ | ​ 473,728 | ​ | ​ 6,127 | ​ | 5.19 ​ |
| CRE − Owner occupied | ​ | ​ 283,754 | ​ | 3,856 |  | 5.47 ​ | ​ | 252,320 | ​ | 3,081 |  | 4.90 ​ |
| Agricultural − Land | ​ | ​ 40,932 | ​ | 480 |  | 4.72 ​ | ​ | 39,679 | ​ | 479 |  | 4.84 ​ |
| Agricultural − Production | ​ | ​ 38,004 | ​ | 632 |  | 6.69 ​ | ​ | 28,415 | ​ | 458 |  | 6.47 ​ |
| RRE − First lien | ​ | ​ 694,866 | ​ | 7,023 |  | 4.07 ​ | ​ | 665,519 | ​ | 6,155 |  | 3.71 ​ |
| RRE − Construction | ​ | ​ 21,225 | ​ | 284 |  | 5.38 ​ | ​ | 32,769 | ​ | 393 |  | 4.81 ​ |
| RRE − HELOC | ​ | ​ 123,233 | ​ | 2,543 |  | 8.30 ​ | ​ | 120,344 | ​ | 2,390 |  | 7.97 ​ |
| RRE − Junior lien | ​ | ​ 36,181 | ​ | 594 |  | 6.60 ​ | ​ | 35,932 | ​ | 510 |  | 5.69 ​ |
| Other consumer | ​ | ​ 33,335 | ​ | 553 |  | 6.67 ​ | ​ | 37,759 | ​ | 568 |  | 6.03 ​ |
| Total loans (1) | ​ | 2,837,232 | ​ | 41,508 |  | 5.88 ​ | ​ | 2,482,413 | ​ | 33,168 |  | 5.36 ​ |
| Federal Reserve/FHLB Stock | ​ | 16,640 | ​ | 353 |  | 8.53 ​ | ​ | 23,724 | ​ | 399 |  | 6.75 ​ |
| Total interest earning assets | ​ | 4,075,003 | ​ | ​ 53,276 |  | 5.26 ​ | ​ | 3,564,883 | ​ | 40,479 |  | 4.55 ​ |
| Noninterest earning assets | ​ | ​ 222,291 | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 220,604 | ​ | ​ ​ | ​ | ​ ​ |
| Total assets | ​ | $4,297,294 | ​ | ​ |  | ​ | ​ | $3,785,487 | ​ |  |  | ​ |
| **Interest-Bearing Liabilities** | ​ |  | ​ |  |  | ​ | ​ |  | ​ |  |  | ​ |
| Interest-bearing demand deposits | ​ | $959,119 | ​ | $5,338 |  | 2.24% | ​ | $775,818 | ​ | $2,431 |  | 1.26% |
| Money market and savings deposits | ​ | 1,147,525 | ​ | 10,824 |  | 3.79 ​ | ​ | 1,145,335 | ​ | 8,033 |  | 2.81 ​ |
| Time deposits | ​ | 458,125 | ​ | 5,122 |  | 4.50 ​ | ​ | 270,121 | ​ | 2,214 |  | 3.29 ​ |
| Fed funds purchased and Bank Term Funding Program | ​ | 366,186 | ​ | 4,463 |  | 4.90 ​ | ​ | 360,033 | ​ | 4,763 |  | 5.31 ​ |
| FHLB short-term advances | ​ | ​ 200,000 | ​ | 2,589 |  | 5.21 ​ | ​ | — | ​ | — |  | — ​ |
| Long-term debt | ​ | 58,999 | ​ | 684 |  | 4.66 ​ | ​ | 58,886 | ​ | 665 |  | 4.53 ​ |
| Total interest-bearing liabilities | ​ | 3,189,954 | ​ | 29,020 |  | 3.66 ​ | ​ | 2,610,193 | ​ | 18,106 |  | 2.78 ​ |
| **Noninterest-Bearing Liabilities and Stockholders' Equity** | ​ | ​ | ​ | ​ ​ |  | ​ | ​ | ​ | ​ |  |  | ​ |
| Noninterest-bearing deposits | ​ | 665,930 | ​ | ​ ​ |  | ​ | ​ | 748,942 | ​ |  |  | ​ |
| Other noninterest-bearing liabilities | ​ | 72,193 | ​ | ​ ​ |  | ​ | ​ | 66,136 | ​ |  |  | ​ |
| Stockholders’ equity | ​ | 369,217 | ​ | ​ ​ |  | ​ | ​ | 360,216 | ​ |  |  | ​ |
| Total liabilities and stockholders’ equity | ​ | $4,297,294 | ​ | ​ ​ |  | ​ | ​ | $3,785,487 | ​ |  |  | ​ |
| Net interest income on FTE basis (1) | ​ | ​ ​ | ​ | $24,256 |  | ​ | ​ |  | ​ | $22,373 |  | ​ |
| Net interest rate spread on FTE basis (1) | ​ | ​ | ​ | ​ | ​ | 1.60% | ​ |  | ​ |  |  | 1.77% |
| Net interest margin on FTE basis (1) | ​ | ​ | ​ | ​ | ​ | 2.39% | ​ |  | ​ |  |  | 2.52% |

(1) Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent.

*(dollars in thousands)*

| ​ ​ ​ ​ ​ Interest Earning Assets | ​ ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2024 ​ ​ Average Balance ​ | ​ ​ ​ | ​ ​ Interest Income/ Expense ​ | ​ ​ ​ | ​ ​ Average Yield/ Rate | ​ ​ ​ ​ ​ ​ | ​ ​ 2023 ​ ​ Average Balance ​ | ​ ​ ​ | ​ ​ Interest Income/ Expense ​ | ​ ​ ​ | ​ ​ ​ Average ​ Yield/ ​ Rate ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Interest-bearing deposits with banks | ​ | $400,141 | ​ | $10,656 | ​ | 5.36% | ​ | $39,167 | ​ | $697 | ​ | 3.59% |
| Investment securities (1) | ​ | 765,859 | ​ | 9,847 | ​ | 2.59 ​ | ​ | 1,020,967 | ​ | 12,552 | ​ | 2.48 ​ |
| Loans held for sale | ​ | 12,743 | ​ | 492 | ​ | 7.76 ​ | ​ | 12,452 | ​ | 316 | ​ | 5.12 ​ |
| Loans | ​ |  | ​ |  | ​ | ​ | ​ |  | ​ |  | ​ | ​ |
| Commercial and industrial | ​ | 571,334 | ​ | 20,391 | ​ | 7.18 ​ | ​ | 524,500 | ​ | 16,913 | ​ | 6.50 ​ |
| CRE − Construction, land and development | ​ | 127,165 | ​ | 5,073 | ​ | 8.02 ​ | ​ | 95,460 | ​ | 3,297 | ​ | 6.96 ​ |
| CRE − Multifamily | ​ | ​ 246,794 | ​ | ​ 6,796 | ​ | 5.54 ​ | ​ | ​ 151,740 | ​ | ​ 3,871 | ​ | 5.14 ​ |
| CRE − Non-owner occupied | ​ | ​ 590,946 | ​ | ​ 17,129 | ​ | 5.83 ​ | ​ | ​ 492,174 | ​ | ​ 12,325 | ​ | 5.05 ​ |
| CRE − Owner occupied | ​ | ​ 281,459 | ​ | ​ 7,576 | ​ | 5.41 ​ | ​ | ​ 251,669 | ​ | ​ 6,162 | ​ | 4.94 ​ |
| Agricultural − Land | ​ | 40,621 | ​ | 956 | ​ | 4.73 ​ | ​ | 38,773 | ​ | 908 | ​ | 4.72 ​ |
| Agricultural − Production | ​ | ​ 36,668 | ​ | 1,193 | ​ | 6.54 ​ | ​ | 27,848 | ​ | 865 | ​ | 6.26 ​ |
| RRE − First lien | ​ | 698,311 | ​ | 14,024 | ​ | 4.04 ​ | ​ | 659,636 | ​ | 12,109 | ​ | 3.70 ​ |
| RRE − Construction | ​ | ​ 21,392 | ​ | ​ 564 | ​ | 5.30 ​ | ​ | ​ 33,911 | ​ | ​ 826 | ​ | 4.91 ​ |
| RRE − HELOC | ​ | ​ 121,095 | ​ | ​ 4,999 | ​ | 8.30 ​ | ​ | ​ 118,459 | ​ | ​ 4,602 | ​ | 7.83 ​ |
| RRE − Junior lien | ​ | 36,003 | ​ | 1,162 | ​ | 6.49 ​ | ​ | 34,557 | ​ | 959 | ​ | 5.60 ​ |
| Other consumer | ​ | 31,085 | ​ | 1,015 | ​ | 6.57 ​ | ​ | 41,126 | ​ | 1,211 | ​ | 5.94 ​ |
| Total loans (1) | ​ | 2,802,873 | ​ | 80,878 | ​ | 5.80 ​ | ​ | 2,469,853 | ​ | 64,048 | ​ | 5.23 ​ |
| Federal Reserve/FHLB Stock | ​ | 16,649 | ​ | 690 | ​ | 8.33 ​ | ​ | 23,697 | ​ | 801 | ​ | 6.82 ​ |
| Total interest earning assets | ​ | 3,998,265 | ​ | 102,563 | ​ | 5.16 ​ | ​ | 3,566,136 | ​ | 78,414 | ​ | 4.43 ​ |
| Noninterest earning assets | ​ | ​ 220,178 | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ 222,358 | ​ | ​ ​ | ​ | ​ ​ |
| Total assets | ​ | $4,218,443 | ​ |  | ​ | ​ | ​ | $3,788,494 | ​ |  | ​ | ​ |
| **Interest-Bearing Liabilities** | ​ |  | ​ |  | ​ | ​ | ​ |  | ​ |  | ​ | ​ |
| Interest-bearing demand deposits | ​ | $914,090 | ​ | $9,587 | ​ | 2.11% | ​ | $761,319 | ​ | $4,025 | ​ | 1.07% |
| Money market and savings deposits | ​ | 1,167,213 | ​ | 21,941 | ​ | 3.78 ​ | ​ | 1,155,247 | ​ | 14,265 | ​ | 2.49 ​ |
| Time deposits | ​ | 444,902 | ​ | 9,909 | ​ | 4.48 ​ | ​ | 251,145 | ​ | 3,492 | ​ | 2.80 ​ |
| Fed funds purchased and Bank Term Funding Program | ​ | 324,400 | ​ | 7,971 | ​ | 4.94 ​ | ​ | 325,303 | ​ | 8,231 | ​ | 5.10 ​ |
| FHLB short-term advances | ​ | ​ 200,000 | ​ | 5,071 | ​ | 5.10 ​ | ​ | 39,779 | ​ | 926 | ​ | 4.69 ​ |
| Long-term debt | ​ | 58,985 | ​ | 1,362 | ​ | 4.64 ​ | ​ | 58,872 | ​ | 1,318 | ​ | 4.51 ​ |
| Total interest-bearing liabilities | ​ | 3,109,590 | ​ | 55,841 | ​ | 3.61 ​ | ​ | 2,591,665 | ​ | 32,257 | ​ | 2.51 ​ |
| **Noninterest-Bearing Liabilities and Stockholders' Equity** | ​ | ​ | ​ |  | ​ | ​ | ​ | ​ | ​ |  | ​ | ​ |
| Noninterest-bearing deposits | ​ | ​ 670,928 | ​ |  | ​ | ​ | ​ | 768,927 | ​ | ​ ​ | ​ | ​ ​ |
| Other noninterest-bearing liabilities | ​ | 69,424 | ​ |  | ​ | ​ | ​ | 66,870 | ​ |  | ​ | ​ |
| Stockholders’ equity | ​ | 368,501 | ​ |  | ​ | ​ | ​ | 361,032 | ​ |  | ​ | ​ |
| Total liabilities and stockholders’ equity | ​ | $4,218,443 | ​ |  | ​ | ​ | ​ | $3,788,494 | ​ |  | ​ | ​ |
| Net interest income on FTE basis (1) | ​ |  | ​ | $46,722 | ​ | ​ | ​ |  | ​ | $46,157 | ​ | ​ |
| Net interest rate spread on FTE basis (1) | ​ |  | ​ |  | ​ | 1.55% | ​ |  | ​ |  | ​ | 1.92% |
| Net interest margin on FTE basis (1) | ​ |  | ​ |  | ​ | 2.35% | ​ |  | ​ |  | ​ | 2.61% |

(1) Taxable equivalent adjustment was calculated utilizing a marginal income tax rate of 21.0 percent.

### Interest Rates and Operating Interest Differential

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest-bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume.

*(tax-equivalent basis, dollars in thousands)*

| ​ ​ ​ ​ ​ Interest earning assets | ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended June 30, 2024 Compared with Three Months Ended June 30, 2023 Change due to: Volume ​ ​ | ​ ​ | ​ ​ Rate ​ ​ | ​ ​ ​ | ​ ​ Interest Variance ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Six months ended June 30, 2024 Compared with Six months ended June 30, 2023 Change due to: Volume ​ | ​ | ​ ​ Rate ​ | ​ ​ | ​ ​ Interest Variance ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Interest-bearing deposits with banks | ​ | $4,096 | ​ | $1,532 | ​ | $5,628 | ​ | $6,444 | ​ | $3,515 | ​ | $9,959 |
| Investment securities | ​ | (1,581) | ​ | 280 | ​ | (1,301) | ​ | (3,146) | ​ | 441 | ​ | (2,705) |
| Loans held for sale | ​ | 25 | ​ | 151 | ​ | 176 | ​ | 7 | ​ | 169 | ​ | 176 |
| Loans | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  |
| Commercial and industrial | ​ | 1,138 | ​ | 565 | ​ | 1,703 | ​ | 1,514 | ​ | 1,964 | ​ | 3,478 |
| CRE − Construction, land and development | ​ | 497 | ​ | 398 | ​ | 895 | ​ | 1,097 | ​ | 679 | ​ | 1,776 |
| CRE − Multifamily | ​ | 671 | ​ | 211 | ​ | 882 | ​ | 2,430 | ​ | 495 | ​ | 2,925 |
| CRE − Non-owner occupied | ​ | 1,750 | ​ | 1,179 | ​ | 2,929 | ​ | 2,480 | ​ | 2,324 | ​ | 4,804 |
| CRE − Owner occupied | ​ | 506 | ​ | 269 | ​ | 775 | ​ | 732 | ​ | 682 | ​ | 1,414 |
| Agricultural − Land | ​ | ​ 20 | ​ | (19) | ​ | 1 | ​ | 43 | ​ | 5 | ​ | 48 |
| Agricultural − Production | ​ | 88 | ​ | 86 | ​ | 174 | ​ | 275 | ​ | 53 | ​ | 328 |
| RRE − First lien | ​ | ​ 351 | ​ | 517 | ​ | 868 | ​ | 712 | ​ | 1,203 | ​ | 1,915 |
| RRE − Construction | ​ | (229) | ​ | 120 | ​ | (109) | ​ | (306) | ​ | 44 | ​ | (262) |
| RRE − HELOC | ​ | 41 | ​ | 112 | ​ | 153 | ​ | 103 | ​ | 294 | ​ | 397 |
| RRE − Junior lien | ​ | 4 | ​ | 80 | ​ | 84 | ​ | 40 | ​ | 163 | ​ | 203 |
| Other consumer | ​ | (59) | ​ | 44 | ​ | (15) | ​ | (297) | ​ | 101 | ​ | (196) |
| Total loans | ​ | 4,778 | ​ | 3,562 | ​ | 8,340 | ​ | 8,823 | ​ | 8,007 | ​ | 16,830 |
| Federal Reserve/FHLB Stock | ​ | (119) | ​ | 73 | ​ | (46) | ​ | (239) | ​ | 128 | ​ | (111) |
| Total interest income | ​ | 7,199 | ​ | 5,598 | ​ | 12,797 | ​ | 11,889 | ​ | 12,260 | ​ | 24,149 |
| **Interest-bearing liabilities** | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  |
| Interest-bearing demand deposits | ​ | 574 | ​ | 2,333 | ​ | 2,907 | ​ | 813 | ​ | 4,749 | ​ | 5,562 |
| Money market and savings deposits | ​ | 15 | ​ | 2,776 | ​ | 2,791 | ​ | 148 | ​ | 7,528 | ​ | 7,676 |
| Time deposits | ​ | 1,538 | ​ | 1,370 | ​ | 2,908 | ​ | 2,698 | ​ | 3,719 | ​ | 6,417 |
| Fed funds purchased and Bank Term Funding Program | ​ | 81 | ​ | (381) | ​ | (300) | ​ | (23) | ​ | (237) | ​ | (260) |
| FHLB short-term advances | ​ | ​ — | ​ | 2,589 | ​ | 2,589 | ​ | 3,737 | ​ | 408 | ​ | 4,145 |
| Long-term debt | ​ | 1 | ​ | 18 | ​ | 19 | ​ | 3 | ​ | 41 | ​ | 44 |
| Total interest expense | ​ | 2,209 | ​ | 8,705 | ​ | 10,914 | ​ | 7,376 | ​ | 16,208 | ​ | 23,584 |
| Change in net interest income | ​ | $4,990 | ​ | $(3,107) | ​ | $1,883 | ​ | $4,513 | ​ | $(3,948) | ​ | $565 |

### Provision for Credit Losses

The provision for credit losses was made up of the following components for the periods presented:

*(dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Provision (recovery) for loan losses | ​ | $4,270 | ​ | $191 | ​ | $5,069 | ​ | $460 |
| Provision (recovery) for credit losses on unfunded commitments | ​ | 275 | ​ | (186) | ​ | (518) | ​ | 44 |
| Provision (recovery) for HTM debt securities | ​ | (56) | ​ | (5) | ​ | (62) | ​ | 46 |
| Provision for credit losses | ​ | $4,489 | ​ | $— | ​ | $4,489 | ​ | $550 |

The Company recorded a provision for credit losses of $4.5 million for the second quarter of 2024, compared to no provision for the second quarter of 2023. The increase in the provision for credit losses was primarily driven by loan growth, as well as an increased reserve related to a $21.5 million construction, land and development loan which moved to nonaccrual status during the second quarter of 2024.

### Noninterest Income

The Company’s noninterest income is generated from retirement and benefit services, wealth management, mortgage banking, and other general banking services.

The following table presents the Company’s noninterest income for the three and six months ended June 30, 2024 and 2023:

*(dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended June 30, 2024 | ​ ​ ​ ​ ​ 2023 | ​ ​ ​ Six months ended June 30, 2024 | ​ ​ ​ ​ ​ 2023 |
| --- | --- | ---: | ---: | ---: | ---: |
| Retirement and benefit services | ​ | $16,078 ​ | $15,890 ​ | $31,733 ​ | $31,372 ​ |
| Wealth management | ​ | 6,360 ​ | 5,449 ​ | 12,477 ​ | 10,644 ​ |
| Mortgage banking | ​ | 2,554 ​ | 2,905 ​ | 4,224 ​ | 4,622 ​ |
| Service charges on deposit accounts | ​ | 456 ​ | 311 ​ | 845 ​ | 612 ​ |
| Other | ​ | 1,923 ​ | 1,223 ​ | 3,415 ​ | 3,781 ​ |
| Total noninterest income | ​ | $27,371 ​ | $25,778 ​ | $52,694 ​ | $51,031 ​ |
| Noninterest income as a % of revenue | ​ | ​ 53.28% | ​ 53.69% | ​ 53.27% | ​ 52.65% |

Total noninterest income for the three months ended June 30, 2024 was $27.4 million, a $1.6 million, or 6.2%, increase compared to $25.8 million for the three months ended June 30, 2023. The increase in noninterest income was primarily driven by an increase of $0.9 million in wealth management revenue due to assets under administration/management growth, primarily driven by improved equity and bond markets, and an increase of $0.7 million in other noninterest income due to client swap fees in the second quarter of 2024. This increase was partially offset by a $0.4 million decrease in mortgage revenue, primarily due to timing differences related to the mortgage pipeline hedging.

Total noninterest income for the six months ended June 30, 2024 was $52.7 million, a $1.7 million, or 3.3%, increase compared to $51.0 million for the six months ended June 30, 2023. The increase in noninterest income was primarily driven by increases of $1.8 million in wealth management revenue and $0.4 million in retirement and benefit services revenue due to assets under administration/management growth, primarily driven by improved equity and bond markets. This increase was partially offset by a $0.4 million decrease in mortgage revenue, primarily due to a decrease in mortgage origination volume and timing differences related to the mortgage pipeline hedging.

The Company anticipates that noninterest income will continue to be significantly adversely affected in future periods if interest rates remain high and inflationary pressure continues. These factors have adversely affected mortgage originations and mortgage banking revenue in recent periods.

See “NOTE 17 Segment Reporting” of the consolidated financial statements for additional discussion regarding the Company’s business lines.

### Noninterest Expense

The following table presents noninterest expense for the three and six months ended June 30, 2024 and 2023:

*(dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three months ended June 30, 2024 | ​ | ​ ​ 2023 | ​ ​ ​ | ​ ​ Six months ended June 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Compensation | ​ | $20,265 | ​ | $18,847 | ​ | $39,597 | ​ | $38,005 |
| Employee taxes and benefits | ​ | 5,134 | ​ | 4,724 | ​ | 11,322 | ​ | 10,577 |
| Occupancy and equipment expense | ​ | 1,815 | ​ | 1,837 | ​ | 3,722 | ​ | 3,736 |
| Business services, software and technology expense | ​ | 4,599 | ​ | 5,269 | ​ | 9,944 | ​ | 10,593 |
| Intangible amortization expense | ​ | 1,324 | ​ | 1,324 | ​ | 2,648 | ​ | 2,648 |
| Professional fees and assessments | ​ | ​ 2,373 | ​ | 1,530 | ​ | 4,366 | ​ | 2,682 |
| Marketing and business development | ​ | ​ 651 | ​ | 665 | ​ | 1,436 | ​ | 1,389 |
| Supplies and postage | ​ | ​ 370 | ​ | 406 | ​ | 898 | ​ | 866 |
| Travel | ​ | ​ 332 | ​ | 306 | ​ | 624 | ​ | 554 |
| Mortgage and lending expenses | ​ | ​ 467 | ​ | 215 | ​ | 908 | ​ | 712 |
| Other | ​ | 1,422 | ​ | 1,250 | ​ | 2,306 | ​ | 2,480 |
| Total noninterest expense | ​ | $38,752 | ​ | $36,373 | ​ | $77,771 | ​ | $74,242 |

Total noninterest expense for the three months ended June 30, 2024 was $38.8 million, a $2.4 million, or 6.5%, increase compared to $36.4 million for the three months ended June 30, 2023. The year over year increase was primarily driven by higher compensation expenses due to labor costs and higher professional fees and assessments due to increased merger-related expenses in connection with the pending acquisition of HMNF and an increase in FDIC assessments.

Total noninterest expense for the six months ended June 30, 2024 was $77.8 million, a $3.5 million, or 4.8%, increase compared to $74.2 million for the six months ended June 30, 2023. The increase was primarily driven by increases of $1.7 million in professional fees and assessments, $1.6 million in compensation, and $0.7 million in employee taxes and benefits. The increase in professional fees and assessments was primarily due to increased merger-related expenses in connection with the pending acquisition of HMNF and an increase in FDIC assessments. The increase in compensation expense was primarily due to rising labor costs. The increase in employee taxes and benefits was primarily due to increased payroll taxes. These increases were partially offset by a $0.6 million decrease in business services, software and technology expense primarily due to reduced core processing and computer supplies expenses.

### Income Tax Expense

Income tax expense is an estimate based on the amount the Company expects to owe the applicable taxing authorities, plus the impact of deferred tax items. Accrued taxes represent the net estimated amount due, or to be received from, taxing authorities. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial, and regulatory guidance in the context of the Company’s tax position. If the final resolution of taxes payable differs from the Company’s estimates due to regulatory determination or legislative or judicial actions, adjustments to tax expense may be required.

For the three months ended June 30, 2024, the Company recognized income tax expense of $1.9 million on $8.1 million of pre-tax income, resulting in an effective tax rate of 23.7%, compared to income tax expense of $2.5 million on $11.6 million of pre-tax income for the three months ended June 30, 2023, resulting in an effective tax rate of 21.8%.

For the six months ended June 30, 2024, the Company recognized income tax expense of $4.0 million on $16.7 million of pre-tax income, resulting in an effective tax rate of 24.1%, compared to income tax expense of $4.8 million on $22.1 million of pre-tax income for the six months ended June 30, 2023, resulting in an effective tax rate of 21.9%.

### Financial Condition

### Overview

Total assets were $4.4 billion as of June 30, 2024, an increase of $450.9 million, or 11.5%, compared to December 31, 2023. The increase was primarily due to a $308.2 million increase in cash and cash equivalents and a $156.2 million increase in loans, partially offset by a decrease of $37.5 million in investment securities. The increase in cash and cash equivalents was primarily driven by the net proceeds from BTFP borrowings.

### Investment Securities

The following table presents the fair value composition of the Company’s investment securities portfolio as of June 30, 2024 and December 31, 2023:

*(dollars in thousands)*

| ​ ​ ​ Available-for-sale | ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ Balance ​ | ​ ​ ​ | ​ ​ Percent of Portfolio ​ ​ | ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ Balance ​ ​ | ​ ​ ​ | ​ ​ Percent of Portfolio ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: |
| U.S. Treasury and agencies | ​ | $766 | ​ | 0.1% | ​ | $1,120 | ​ | 0.2% |
| Mortgage backed securities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential agency | ​ | ​ 407,788 | ​ | 58.1 ​ | ​ | ​ 435,594 | ​ | 58.4 ​ |
| Commercial | ​ | ​ 1,353 | ​ | 0.2 ​ | ​ | ​ 1,353 | ​ | 0.2 ​ |
| Asset backed securities | ​ | ​ 21 | ​ | — ​ | ​ | ​ 25 | ​ | — ​ |
| Corporate bonds | ​ | ​ 49,417 | ​ | 7.0 ​ | ​ | ​ 48,644 | ​ | 6.5 ​ |
| Total available-for-sale investment securities | ​ | 459,345 | ​ | 65.4 ​ | ​ | 486,736 | ​ | 65.3 ​ |
| Held-to-maturity | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Obligations of state and political agencies | ​ | 109,953 | ​ | 15.6 ​ | ​ | 116,990 | ​ | 15.7 ​ |
| Mortgage backed securities | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential agency | ​ | ​ 133,736 | ​ | 19.0 ​ | ​ | ​ 141,627 | ​ | 19.0 ​ |
| Total held-to-maturity investment securities | ​ | ​ 243,689 | ​ | 34.6 ​ | ​ | ​ 258,617 | ​ | 34.7 ​ |
| Total investment securities | ​ | $703,034 | ​ | 100.0% | ​ | $745,353 | ​ | 100.0% |

The composition of the Company’s investment securities portfolio reflects the Company’s investment strategy of maintaining an appropriate level of liquidity for normal operations while providing an additional source of revenue. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet, while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as collateral.

The investment securities presented in the following table are reported at fair value and by contractual maturity as of June 30, 2024. Actual timing may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Additionally, residential mortgage backed securities and collateralized mortgage obligations receive monthly principal payments, which are not reflected below. The yields below are calculated on a tax-equivalent basis, assuming a 21.0% income tax rate.

*(dollars in thousands)*

| ​ ​ ​ ​ Available-for-sale | ​ ​ ​ ​ | ​ ​ Maturity as of June 30, 2024 One year or less Fair Value ​ | ​ ​ | ​ ​ Average Yield | ​ ​ ​ ​ ​ | ​ ​ One to five years Fair Value ​ | ​ ​ | ​ ​ Average Yield | ​ ​ ​ ​ ​ | ​ ​ Five to ten years Fair Value ​ | ​ ​ | ​ ​ Average Yield | ​ ​ ​ ​ ​ | ​ ​ After ten years Fair Value ​ | ​ ​ | ​ ​ Average Yield ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| U.S. Treasury and agencies | ​ | $— |  | —% | ​ | $401 |  | 5.87% | ​ | $— |  | —% | ​ | $365 |  | 5.94% |
| Mortgage backed securities | ​ |  |  | ​ | ​ |  |  | ​ ​ | ​ |  |  | ​ | ​ |  |  | ​ |
| Residential agency | ​ | 6 |  | 2.81 ​ | ​ | 2,746 |  | 2.48 ​ | ​ | 3,811 |  | 3.10 ​ | ​ | 401,225 |  | 1.70 ​ |
| Commercial | ​ | — |  | — ​ | ​ | 1,353 |  | 2.40 ​ | ​ | — |  | — ​ | ​ | — |  | — ​ |
| Asset backed securities | ​ | — |  | — ​ | ​ | — |  | — ​ | ​ | 4 |  | 4.37 ​ | ​ | 17 |  | 5.03 ​ |
| Corporate bonds | ​ | — |  | — ​ | ​ | — |  | — ​ | ​ | 49,417 |  | 3.69 ​ | ​ | — |  | — ​ |
| Total available-for-sale investment securities | ​ | ​ 6 |  | 2.81 ​ | ​ | ​ 4,500 |  | 2.75 ​ | ​ | ​ 53,232 |  | 3.65 ​ | ​ | ​ 401,607 |  | 1.71 ​ |
| Held-to-maturity | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Obligations of state and political agencies | ​ | ​ 7,823 | ​ | 1.15 ​ | ​ | ​ 46,779 | ​ | 1.49 ​ | ​ | ​ 45,159 | ​ | 2.06 ​ | ​ | ​ 10,192 | ​ | 2.22 ​ |
| Mortgage backed securities | ​ |  |  | ​ | ​ |  |  | ​ ​ | ​ |  |  | ​ | ​ |  |  | ​ |
| Residential agency | ​ | — |  | — ​ | ​ | — |  | — ​ | ​ | — |  | — ​ | ​ | 133,736 |  | 2.20 ​ |
| Total held-to-maturity investment securities | ​ | ​ 7,823 | ​ | 1.15 ​ | ​ | ​ 46,779 | ​ | 1.49 ​ | ​ | ​ 45,159 | ​ | 2.06 ​ | ​ | ​ 143,928 | ​ | 2.20 ​ |
| Total investment securities | ​ | $7,829 | ​ | 1.15% | ​ | $51,279 | ​ | 1.60% | ​ | $98,391 | ​ | 2.92% | ​ | $545,535 | ​ | 1.84% |

### Loans

The loan portfolio represents a broad range of borrowers comprised of commercial and industrial, real estate construction, commercial real estate (“CRE”), residential real estate, and other revolving and installment loans.

Total loans outstanding were $2.9 billion as of June 30, 2024, an increase of $156.2 million, or 5.7%, from December 31, 2023. The increase was primarily driven by a $78.4 million increase in non-owner occupied CRE loans, a $37.7 million increase in construction, land and development CRE loans, and a $29.6 million increase in commercial and industrial loans, partially offset by $11.6 million and $6.4 million decreases in residential real estate first lien and residential real estate construction loans, respectively.

The Company’s loan portfolio is highly diversified. As of June 30, 2024, approximately 20.3% of loans outstanding were commercial and industrial, 45.8% of loans outstanding were CRE, 2.8 % were agricultural, and 31.1% of loans outstanding were consumer.

*(dollars in thousands)*

| ​ ​ ​ Commercial and industrial: | ​ ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ Balance ​ | ​ ​ ​ | ​ ​ Percent of Portfolio | ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ Balance ​ | ​ ​ ​ | ​ ​ Percent of Portfolio |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: |
| General business | ​ | $288,752 | ​ | 10.0% | ​ | $258,008 | ​ | 9.3% |
| Services | ​ | ​ 140,562 | ​ | 4.8 ​ | ​ | ​ 146,318 | ​ | 5.3 ​ |
| Retail trade | ​ | ​ 91,173 | ​ | 3.1 ​ | ​ | ​ 91,216 | ​ | 3.3 ​ |
| Manufacturing | ​ | ​ 71,292 | ​ | 2.4 ​ | ​ | ​ 66,638 | ​ | 2.4 ​ |
| Total commercial and industrial | ​ | 591,779 | ​ | 20.3 ​ | ​ | 562,180 | ​ | 20.3 ​ |
| **Commercial real estate:** | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| Construction, land and development | ​ | ​ 161,751 | ​ | 5.5 ​ | ​ | ​ 124,034 | ​ | 4.5 ​ |
| Multifamily | ​ | ​ 242,041 | ​ | 8.3 ​ | ​ | ​ 245,103 | ​ | 8.9 ​ |
| Non-owner occupied | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Office | ​ | ​ 108,082 | ​ | 3.7 ​ | ​ | ​ 124,684 | ​ | 4.5 ​ |
| Industrial | ​ | ​ 111,603 | ​ | 3.8 ​ | ​ | ​ 104,241 | ​ | 3.8 ​ |
| Retail | ​ | ​ 112,626 | ​ | 3.9 ​ | ​ | ​ 96,578 | ​ | 3.5 ​ |
| Hotel | ​ | ​ 112,081 | ​ | 3.8 ​ | ​ | ​ 80,576 | ​ | 2.9 ​ |
| Medical office | ​ | ​ 110,736 | ​ | 3.8 ​ | ​ | ​ 63,788 | ​ | 2.3 ​ |
| Medical or nursing facility | ​ | ​ 46,215 | ​ | 1.6 ​ | ​ | ​ 47,625 | ​ | 1.7 ​ |
| Other commercial real estate | ​ | ​ 46,433 | ​ | 1.7 ​ | ​ | ​ 51,862 | ​ | 1.9 ​ |
| Total non-owner occupied | ​ | ​ 647,776 | ​ | 22.3 ​ | ​ | ​ 569,354 | ​ | 20.6 ​ |
| Owner occupied | ​ | ​ 283,356 | ​ | 9.7 ​ | ​ | ​ 271,623 | ​ | 9.8 ​ |
| Total commercial real estate | ​ | ​ 1,334,924 | ​ | 45.8 ​ | ​ | ​ 1,210,114 | ​ | 43.8 ​ |
| **Agricultural:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ 41,410 | ​ | 1.4 ​ | ​ | ​ 40,832 | ​ | 1.5 ​ |
| Production | ​ | ​ 40,549 | ​ | 1.4 ​ | ​ | ​ 36,141 | ​ | 1.3 ​ |
| Total agricultural | ​ | ​ 81,959 | ​ | 2.8 ​ | ​ | ​ 76,973 | ​ | 2.8 ​ |
| **Consumer** | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |
| RRE − First lien | ​ | ​ 686,286 | ​ | 23.6 ​ | ​ | ​ 697,900 | ​ | 25.3 ​ |
| RRE − Construction | ​ | ​ 22,573 | ​ | 0.8 ​ | ​ | ​ 28,979 | ​ | 1.1 ​ |
| RRE − HELOC | ​ | ​ 126,211 | ​ | 4.3 ​ | ​ | ​ 118,315 | ​ | 4.3 ​ |
| RRE − Junior lien | ​ | ​ 36,323 | ​ | 1.2 ​ | ​ | ​ 35,819 | ​ | 1.3 ​ |
| Other consumer | ​ | ​ 35,737 | ​ | 1.2 ​ | ​ | ​ 29,303 | ​ | 1.1 ​ |
| Total consumer | ​ | ​ 907,130 | ​ | 31.1 ​ | ​ | ​ 910,316 | ​ | 33.1 ​ |
| Total loans | ​ | $2,915,792 | ​ | 100.0% | ​ | $2,759,583 | ​ | 100.0% |

Despite headwinds from a higher interest rate environment and competition in the Company’s market areas, the Company anticipates continued loan growth in 2024 for the commercial and industrial and CRE loan portfolios as a result of recently added production talent.

Commercial and industrial loans represent loans for working capital, purchases of equipment and other needs of commercial customers primarily located within the Bank’s geographical footprint. These loans are underwritten individually and represent ongoing relationships based on a thorough knowledge of the customer, the customer’s industry and the customer’s market. While commercial loans are generally secured by the customer’s assets, including real property, inventory, accounts receivable, operating equipment and other property, and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the ongoing cash flow from operations of the customer’s business. In addition, revolving lines of credit are generally governed by a borrowing base. Inherent lending risks are monitored on a continuous basis through interim reporting, covenant testing and annual underwriting.

CRE loans consist of term loans secured by a mortgage lien on real property and include both owner occupied CRE loans as well as non-owner occupied loans. Non-owner occupied CRE loans consist of mortgage loans to finance investments in real property that may include, but are not limited to, multi-family, industrial, office, retail and other specific use properties as well as CRE construction loans that are offered to builders and developers generally within the Bank’s geographical footprint. The primary risk characteristics in the non-owner occupied portfolio include impacts of overall leasing rates, absorption timelines, levels of vacancy rates and operating expenses. The Company requires collateral values in excess of the loan amounts, cash flows in excess of expected debt service requirements and equity investment in the project. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. Inherent lending risks are monitored on a continuous basis through quarterly monitoring and the Bank’s annual underwriting process, incorporating an analysis of cash flow, collateral, market conditions and guarantor liquidity, if applicable. CRE loan policies are specific to individual product types and underwriting parameters vary depending on the risk profile of each asset class. CRE loan policies are reviewed no less than semi-annually by management and approved by the Bank’s Board of Directors to ensure they align with current market conditions and the Bank’s moderate risk appetite. Construction loans are monitored monthly and includes on-site inspections. Management reviews all construction loans quarterly to ensure projects are on time and within budget. CRE concentration limits have been established by product type and are monitored quarterly by the Bank’s Credit Governance Committee and Bank Board of Directors.

CRE loans may be adversely affected by conditions in the real estate markets or in the general economy. The Company does not monitor the CRE portfolio for attributes such as loan-to-value ratios, occupancy rates or net operating income, as these characteristics are assessed and evaluated on an individual loan basis. Portfolio stress testing is completed based on property type and takes into consideration changes to net operating income and capitalization rates. The Company does not have exposure to the office building sector in central business districts as the office portfolio is generally diversified in suburban markets with strong occupancy levels.

The following table presents the geographical markets of the collateral related to non-owner occupied and multifamily CRE loans for the periods presented:

*(dollars in thousands)*

| ​ ​ ​ Geographical Market: | ​ ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ Balance ​ | ​ ​ ​ | ​ ​ Percent of Total | ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ Balance ​ | ​ ​ ​ | ​ ​ Percent of Total ​ |
| --- | --- | --- | --- | ---: | --- | --- | --- | ---: |
| Minnesota | ​ | $412,907 | ​ | 46.4% | ​ | $394,754 | ​ | 48.5% |
| North Dakota | ​ | ​ 211,959 | ​ | 23.8% | ​ | ​ 214,884 | ​ | 26.4% |
| Arizona | ​ | ​ 156,154 | ​ | 17.5% | ​ | ​ 139,450 | ​ | 17.1% |
| Texas | ​ | ​ 21,892 | ​ | 2.5% | ​ | ​ — | ​ | —% |
| Missouri | ​ | ​ 16,864 | ​ | 1.9% | ​ | ​ 15,969 | ​ | 2.0% |
| Kansas | ​ | ​ 15,247 | ​ | 1.7% | ​ | ​ 4,343 | ​ | 0.5% |
| Oregon | ​ | ​ 14,895 | ​ | 1.7% | ​ | ​ 14,953 | ​ | 1.8% |
| South Dakota | ​ | ​ 14,661 | ​ | 1.6% | ​ | ​ 14,790 | ​ | 1.8% |
| Other | ​ | ​ 25,238 | ​ | 2.8% | ​ | ​ 15,314 | ​ | 1.9% |
| Total non-owner occupied commercial real estate loans | ​ | $889,817 | ​ | 100.0% | ​ | $814,457 | ​ | 100.0% |

The Bank does not currently monitor owner occupied CRE loans based on geographical markets, as the primary source of repayment for these loans is predicated on the cash flow from the underlying operating entity. These loans are generally located within the Company’s geographical footprint.

Highly competitive conditions continue to prevail in the small- and middle-market commercial segments in which the Company primarily operates. The Company maintains a commitment to generating growth in the Company’s business portfolio in a manner that adheres to its twin goals of maintaining strong asset quality and producing profitable margins. The Company continues to invest in additional personnel, technology and business development resources to further strengthen its capabilities.

Agricultural loans include loans secured by farmland and loans for agricultural production. Farmland includes purposes such as crop and livestock production. Farmland loans are typically written with amortizing payment structures. Collateral values for farmland are determined based upon appraisals and evaluations in accordance with established policy guidelines and maximum loan-to-value ratios at origination are governed by established policy and regulatory guidelines. Agricultural production loans are for the purpose of financing working capital and/or capital investment for agriculture production activities. Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate in applicable. Agricultural production loans are primarily paid by the operating cash flow of the borrower. Agricultural production loans may be secured or unsecured.

Residential real estate, or “RRE”, loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed over a 15- to 30-year term and, in most cases, are extended to borrowers to finance their primary residence with both fixed-rate and adjustable-rate terms. Real estate construction loans are also offered to consumers who wish to build their own homes and are often structured to be converted to permanent loans at the end of the construction phase, which is typically twelve months. RRE loans also include home equity loans and lines of credit that are secured by a first or second lien on the borrower’s residence. Home equity lines of credit, or “HELOC”, consist mainly of revolving lines of credit secured by residential real estate.

Other consumer loans include loans made to individuals not secured by real estate, including loans secured by automobiles or watercraft, and personal unsecured loans.

The Company originates both fixed and adjustable rate residential real estate loans conforming to the underwriting guidelines of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, as well as home equity loans and lines of credit that are secured by first or junior liens. Most of the Company’s fixed rate residential loans, along with some of the Company’s adjustable rate mortgages are sold to other financial institutions with which the Company has established a correspondent lending relationship.

The Company’s RRE loans have minimal direct exposure to subprime mortgages as the loans are underwritten to conform to secondary market standards. As of June 30, 2024, the Company’s RRE portfolio was $871.4 million, representing a $9.6 million, or 1.1%, decrease from $881.0 million as of December 31, 2023. Market interest rates, expected duration, and the Company’s overall interest rate sensitivity profile continue to be the most significant factors in determining whether the Company chooses to retain versus sell portions of new consumer mortgage originations.

The following table presents the maturities and types of interest rates for the loan portfolio as of June 30, 2024:

*(dollars in thousands)*

| ​ ​ ​ ​ Commercial | ​ ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ One year or less ​ | ​ ​ ​ | ​ ​ After one but within five years ​ | ​ ​ ​ | ​ ​ After five but within fifteen years ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ After fifteen years ​ ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Total ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial and industrial | ​ | $135,722 | ​ | $263,866 | ​ | $192,191 | ​ | $— | ​ | $591,779 |
| Commercial real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | 21,778 | ​ | 128,440 | ​ | 9,072 | ​ | 2,461 | ​ | 161,751 |
| Multifamily | ​ | ​ 20,399 | ​ | ​ 132,743 | ​ | ​ 87,802 | ​ | ​ 1,097 | ​ | ​ 242,041 |
| Non-owner occupied | ​ | ​ 67,686 | ​ | ​ 367,001 | ​ | ​ 190,163 | ​ | ​ 22,926 | ​ | ​ 647,776 |
| Owner occupied | ​ | ​ 26,519 | ​ | ​ 159,110 | ​ | ​ 76,224 | ​ | ​ 21,503 | ​ | ​ 283,356 |
| Total commercial real estate | ​ | ​ 136,382 | ​ | ​ 787,294 | ​ | ​ 363,261 | ​ | ​ 47,987 | ​ | ​ 1,334,924 |
| Agricultural | ​ | — | ​ | — | ​ | — | ​ | — | ​ | — |
| Land | ​ | ​ 612 | ​ | 10,835 | ​ | 10,665 | ​ | 19,298 | ​ | 41,410 |
| Production | ​ | ​ 21,925 | ​ | 14,955 | ​ | 3,669 | ​ | — | ​ | 40,549 |
| Total agricultural | ​ | ​ 22,537 | ​ | ​ 25,790 | ​ | ​ 14,334 | ​ | ​ 19,298 | ​ | ​ 81,959 |
| Total commercial | ​ | 294,641 | ​ | 1,076,950 | ​ | 569,786 | ​ | 67,285 | ​ | 2,008,662 |
| **Consumer** | ​ |  | ​ |  | ​ |  | ​ | ​ | ​ |  |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | 3,952 | ​ | 29,987 | ​ | 41,000 | ​ | 611,347 | ​ | 686,286 |
| Construction | ​ | ​ 2,272 | ​ | ​ 1,099 | ​ | ​ — | ​ | ​ 19,202 | ​ | ​ 22,573 |
| HELOC | ​ | ​ 4,278 | ​ | ​ 16,277 | ​ | ​ 14,075 | ​ | ​ 91,581 | ​ | ​ 126,211 |
| Junior lien | ​ | 4,124 | ​ | 5,588 | ​ | 17,461 | ​ | 9,150 | ​ | 36,323 |
| Total residential real estate | ​ | ​ 14,626 | ​ | ​ 52,951 | ​ | ​ 72,536 | ​ | ​ 731,280 | ​ | ​ 871,393 |
| Other consumer | ​ | 13,703 | ​ | 19,597 | ​ | 2,437 | ​ | — | ​ | 35,737 |
| Total consumer | ​ | 28,329 | ​ | 72,548 | ​ | 74,973 | ​ | 731,280 | ​ | 907,130 |
| Total loans | ​ | $322,970 | ​ | $1,149,498 | ​ | $644,759 | ​ | $798,565 | ​ | $2,915,792 |
| **Loans with fixed interest rates:** | ​ | ​ |  | ​ |  | ​ | ​ | ​ ​ |  | ​ |
| **Commercial** |  | ​ |  | ​ |  | ​ | ​ | ​ ​ |  | ​ |
| Commercial and industrial | ​ | $15,822 | ​ | $205,256 | ​ | $75,563 | ​ | $— | ​ | $296,641 |
| Commercial real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | 10,822 | ​ | 46,369 | ​ | 187 | ​ | — | ​ | 57,378 |
| Multifamily | ​ | ​ 17,236 | ​ | ​ 83,650 | ​ | ​ 66,093 | ​ | ​ 1,097 | ​ | ​ 168,076 |
| Non-owner occupied | ​ | ​ 55,528 | ​ | ​ 219,833 | ​ | ​ 117,227 | ​ | ​ 447 | ​ | ​ 393,035 |
| Owner occupied | ​ | ​ 18,246 | ​ | ​ 127,641 | ​ | ​ 34,430 | ​ | ​ — | ​ | ​ 180,317 |
| Total commercial real estate | ​ | ​ 101,832 | ​ | ​ 477,493 | ​ | ​ 217,937 | ​ | ​ 1,544 | ​ | ​ 798,806 |
| Agricultural | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ 612 | ​ | ​ 10,714 | ​ | ​ 10,593 | ​ | ​ 19,298 | ​ | ​ 41,217 |
| Production | ​ | ​ 1,150 | ​ | ​ 14,316 | ​ | ​ 2,848 | ​ | ​ — | ​ | ​ 18,314 |
| Total agricultural | ​ | ​ 1,762 | ​ | ​ 25,030 | ​ | ​ 13,441 | ​ | ​ 19,298 | ​ | ​ 59,531 |
| Total commercial | ​ | 119,416 | ​ | 707,779 | ​ | 306,941 | ​ | 20,842 | ​ | 1,154,978 |
| **Consumer** | ​ |  | ​ |  | ​ |  | ​ | ​ | ​ |  |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | 3,693 | ​ | 27,596 | ​ | 34,396 | ​ | 388,593 | ​ | 454,278 |
| Construction | ​ | ​ 1,193 | ​ | ​ 1,007 | ​ | ​ — | ​ | ​ 14,522 | ​ | ​ 16,722 |
| HELOC | ​ | ​ 25 | ​ | ​ 2,174 | ​ | ​ 8,331 | ​ | ​ 4,977 | ​ | ​ 15,507 |
| Junior lien | ​ | 2,367 | ​ | 4,168 | ​ | 13,754 | ​ | 9,150 | ​ | 29,439 |
| Total residential real estate | ​ | ​ 7,278 | ​ | ​ 34,945 | ​ | ​ 56,481 | ​ | ​ 417,242 | ​ | ​ 515,946 |
| Other consumer | ​ | 1,714 | ​ | 15,332 | ​ | 2,437 | ​ | — | ​ | 19,483 |
| Total consumer | ​ | 8,992 | ​ | 50,277 | ​ | 58,918 | ​ | 417,242 | ​ | 535,429 |
| Total loans with fixed interest rates | ​ | $128,408 | ​ | $758,056 | ​ | $365,859 | ​ | $438,084 | ​ | $1,690,407 |
| **Loans with floating interest rates:** |  | ​ |  | ​ |  | ​ | ​ | ​ ​ |  | ​ |
| **Commercial** | ​ | ​ |  | ​ |  | ​ | ​ | ​ ​ |  | ​ |
| Commercial and industrial | ​ | $119,900 | ​ | $58,610 | ​ | $116,628 | ​ | $— | ​ | $295,138 |
| Commercial real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | 10,956 | ​ | 82,071 | ​ | 8,885 | ​ | 2,461 | ​ | 104,373 |
| Multifamily | ​ | ​ 3,163 | ​ | ​ 49,093 | ​ | ​ 21,709 | ​ | ​ — | ​ | ​ 73,965 |
| Non-owner occupied | ​ | ​ 12,158 | ​ | ​ 147,168 | ​ | ​ 72,936 | ​ | ​ 22,479 | ​ | ​ 254,741 |
| Owner occupied | ​ | ​ 8,273 | ​ | ​ 31,469 | ​ | ​ 41,794 | ​ | ​ 21,503 | ​ | ​ 103,039 |
| Total commercial real estate | ​ | ​ 34,550 | ​ | ​ 309,801 | ​ | ​ 145,324 | ​ | ​ 46,443 | ​ | ​ 536,118 |
| Agricultural | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ — | ​ | ​ 121 | ​ | ​ 72 | ​ | ​ — | ​ | ​ 193 |
| Production | ​ | ​ 20,775 | ​ | ​ 639 | ​ | ​ 821 | ​ | ​ — | ​ | ​ 22,235 |
| Total agricultural | ​ | ​ 20,775 | ​ | ​ 760 | ​ | ​ 893 | ​ | ​ — | ​ | ​ 22,428 |
| Total commercial | ​ | 175,225 | ​ | 369,171 | ​ | 262,845 | ​ | 46,443 | ​ | 853,684 |
| **Consumer** | ​ |  | ​ |  | ​ |  | ​ | ​ | ​ |  |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | 259 | ​ | 2,391 | ​ | 6,604 | ​ | ​ 222,754 | ​ | 232,008 |
| Construction | ​ | ​ 1,079 | ​ | ​ 92 | ​ | ​ — | ​ | ​ 4,680 | ​ | ​ 5,851 |
| HELOC | ​ | ​ 4,253 | ​ | ​ 14,103 | ​ | ​ 5,744 | ​ | ​ 86,604 | ​ | ​ 110,704 |
| Junior lien | ​ | 1,757 | ​ | 1,420 | ​ | 3,707 | ​ | — | ​ | 6,884 |
| Total residential real estate | ​ | ​ 7,348 | ​ | ​ 18,006 | ​ | ​ 16,055 | ​ | ​ 314,038 | ​ | ​ 355,447 |
| Other consumer | ​ | 11,989 | ​ | 4,265 | ​ | — | ​ | — | ​ | 16,254 |
| Total consumer | ​ | 19,337 | ​ | 22,271 | ​ | 16,055 | ​ | 314,038 | ​ | 371,701 |
| Total loans with floating interest rates | ​ | $194,562 | ​ | $391,442 | ​ | $278,900 | ​ | $360,481 | ​ | $1,225,385 |

The expected life of the Company’s loan portfolio will differ from contractual maturities because borrowers may have the right to curtail or prepay their loans with or without penalties. Consequently, the table above includes information limited to contractual maturities of the underlying loans.

### Asset Quality

The Company’s strategy for credit risk management includes well-defined, centralized credit policies; uniform underwriting criteria; and ongoing risk monitoring and review processes for all commercial and consumer credit exposures. The strategy also emphasizes diversification on a geographic, industry, and client level; regular credit examinations; and management reviews of loans experiencing deterioration of credit quality. The Company strives to identify potential problem loans early, take necessary charge-offs promptly, and maintain adequate reserve levels for credit losses inherent in the portfolio. Management performs ongoing, internal reviews of any problem credits and continually assesses the adequacy of the allowance. The Company utilized an internal lending division, Special Credit Services, to develop and implement strategies for the management of individual nonperforming loans.

### Credit Quality Indicators

Loans are assigned a risk rating and grouped into categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The risk ratings are aligned to pass and criticized categories. The criticized categories include special mention, substandard, and doubtful risk ratings. See “NOTE 5 Loans and Allowance for Credit Losses” of the consolidated financial statements for a definition of each of the risk ratings.

The table below presents criticized loans outstanding by loan portfolio segment as of June 30, 2024 and December 31, 2023:

*(dollars in thousands)*

| ​ ​ Commercial | ​ ​ | ​ ​ ​ June 30, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ ​ December 31, 2023 ​ ​ ​ |
| --- | --- | --- | --- | --- |
| Commercial and industrial | ​ | $19,933 ​ | ​ | $29,840 ​ |
| Commercial real estate | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Construction, land and development | ​ | 21,475 ​ | ​ | ​ 20,667 ​ |
| Multifamily | ​ | ​ 13,188 ​ | ​ | ​ 310 ​ |
| Non-owner occupied | ​ | ​ 20,248 ​ | ​ | ​ 1,018 ​ |
| Owner occupied | ​ | 9,405 ​ | ​ | ​ 7,842 ​ |
| Total commercial real estate | ​ | 64,316 ​ | ​ | ​ 29,837 ​ |
| Agricultural | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Land | ​ | ​ 2,470 ​ | ​ | ​ — ​ |
| Production | ​ | ​ 1,347 ​ | ​ | ​ — ​ |
| Total agricultural | ​ | ​ 3,817 ​ | ​ | ​ — ​ |
| Total commercial | ​ | 88,066 ​ | ​ | ​ 59,677 ​ |
| **Consumer** | ​ | ​ ​ ​ | ​ | ​ ​ ​ |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ ​ |
| First lien | ​ | ​ 625 ​ | ​ | ​ 105 ​ |
| Construction | ​ | ​ — ​ | ​ | ​ — ​ |
| HELOC | ​ | 163 ​ | ​ | ​ — ​ |
| Junior lien | ​ | ​ 119 ​ | ​ | ​ 1,781 ​ |
| Total residential real estate | ​ | ​ 907 ​ | ​ | ​ 1,886 ​ |
| Other consumer | ​ | — ​ | ​ | ​ — ​ |
| Total consumer | ​ | ​ 907 ​ | ​ | ​ 1,886 ​ |
| Total loans | ​ | $88,973 ​ | ​ | $61,563 ​ |
| Criticized loans as a percent of total loans | ​ | ​ 3.05% | ​ | ​ 2.23% |

The following table presents information regarding nonperforming assets as of June 30, 2024 and December 31, 2023:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ ​ June 30, 2024 | ​ ​ ​ | ​ ​ ​ December 31, 2023 |
| --- | --- | ---: | --- | ---: |
| Nonaccrual loans |  | $27,618 | ​ | $8,596 |
| Accruing loans 90+ days past due |  | ​ — | ​ | ​ 139 |
| Total nonperforming loans | ​ | ​ 27,618 ​ | ​ | ​ 8,735 ​ |
| OREO and repossessed assets | ​ | — ​ | ​ | 32 ​ |
| Total nonperforming assets | ​ | ​ 27,618 ​ | ​ | ​ 8,767 ​ |
| Total restructured accruing loans | ​ | ​ — ​ | ​ | ​ — ​ |
| Total nonperforming assets and restructured accruing loans | ​ | $27,618 ​ | ​ | $8,767 ​ |
| Nonperforming loans to total loans | ​ | 0.95% | ​ | 0.32% |
| Nonperforming assets to total assets | ​ | 0.63% | ​ | 0.22% |
| ACL on loans to nonperforming loans | ​ | 139% | ​ | 410% |

The increase in nonperforming assets was driven by one previously identified construction, land and development loan of $21.5 million moving to nonaccrual status.

Interest income lost on nonaccrual loans approximated $839 thousand and $101 thousand for the six months ended June 30, 2024 and 2023, respectively. There was no interest income included in net interest income related to nonaccrual loans for the six months ended June 30, 2024 and 2023.

### Allowance for Credit Losses

The allowance for credit losses, or ACL, on loans is maintained at a level management believes is sufficient to absorb expected losses in the loan portfolio over the remaining estimated life of loans in the portfolio. Under the Current Expected Credit Loss accounting standard, the ACL is a valuation estimated at each balance sheet date and deducted from the amortized cost basis of loans held for investment to present the net amount expected to be collected. These evaluations are inherently subjective as they require management to make material estimates, all of which may be susceptible to significant change. The allowance is increased by provisions charged to expense and decreased by actual charge-offs, net of recoveries.

Management estimates the ACL using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in the current loan-specific risk characteristics such as different underwriting standards, portfolio mix, delinquency level, or life of the loan, as well as changes in environmental conditions, levels of economic activity, unemployment rates, property values and other relevant factors. The calculation also contemplates that the Company may not be able to make or obtain such forecasts for the entire life of the financial assets and requires a reversion to historical loss information.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. The ACL on individually evaluated loans is recognized on the basis of the present value of expected future cash flows discounted at the effective interest rate, the fair value of collateral adjusted of estimated costs to sell, or observable market price as of the relevant date.

The following table presents information concerning the components of the ACL for the periods presented:

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ At or for the three months ended June 30, 2024 | ​ ​ ​ ​ ​ ​ 2023 | ​ ​ ​ At or for the six months ended June 30, 2024 ​ | ​ ​ ​ ​ ​ ​ 2023 ​ |
| --- | --- | --- | --- | --- | --- |
| **ACL on loans at the beginning of the period** | ​ | $36,584 ​ | $35,102 ​ | $35,843 ​ | $31,146 ​ |
| Adoption of ASC 326 | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ 3,857 ​ |
| (Credit) provision for loan losses | ​ | 4,270 ​ | 191 ​ | 5,069 ​ | 460 ​ |
| **Net charge-offs (recoveries) (1)** | ​ | ​ ​ | ​ ​ | ​ ​ | ​ ​ |
| Commercial and industrial | ​ | 2,611 ​ | (353) ​ | 2,652 ​ | (234) ​ |
| CRE − Construction, land and development | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| CRE − Multifamily | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| CRE − Non-owner occupied | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| CRE − Owner occupied | ​ | ​ (9) ​ | ​ (11) ​ | ​ 9 ​ | ​ (22) ​ |
| Agricultural − Land | ​ | ​ — ​ | ​ (1) ​ | ​ — ​ | ​ (1) ​ |
| Agricultural − Production | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| RRE − First lien | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ (2) ​ |
| RRE − Construction | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ — ​ |
| RRE − HELOC | ​ | ​ — ​ | ​ — ​ | ​ — ​ | ​ (3) ​ |
| RRE − Junior lien | ​ | ​ (71) ​ | ​ (46) ​ | ​ (71) ​ | ​ 28 ​ |
| Other consumer | ​ | (9) ​ | 8 ​ | (10) ​ | 1 ​ |
| **Total net charge-offs (recoveries)** | ​ | 2,522 ​ | (403) ​ | 2,580 ​ | (233) ​ |
| **ACL on loans at the end of the period** | ​ | ​ 38,332 ​ | ​ 35,696 ​ | ​ 38,332 ​ | ​ 35,696 ​ |
| **Components of ACL:** | ​ | ​ | ​ | ​ | ​ |
| ACL on HTM debt securities | ​ | 151 ​ | 218 ​ | 151 ​ | 218 ​ |
| ACL on loans | ​ | 38,332 ​ | 35,696 ​ | 38,332 ​ | 35,696 ​ |
| ACL on off-balance sheet credit exposures | ​ | 6,882 ​ | 5,202 ​ | 6,882 ​ | 5,202 ​ |
| **ACL at end of the period** | ​ | 45,365 ​ | 41,116 ​ | 45,365 ​ | 41,116 ​ |
| Total loans | ​ | $2,915,792 ​ | $2,533,522 ​ | $2,915,792 ​ | $2,533,522 ​ |
| Average total loans | ​ | ​ 2,837,232 ​ | ​ 2,482,413 ​ | ​ 2,802,873 ​ | ​ 2,469,853 ​ |
| ACL on loans to total loans | ​ | 1.31% | 1.41% | 1.31% | 1.41% |
| ACL on loans to nonaccrual loans | ​ | ​ 138.79% | ​ 1,598.57% | ​ 138.79% | ​ 1,598.57% |
| ACL on loans to nonperforming loans | ​ | ​ 138.79% | ​ 1,383.57% | ​ 138.79% | ​ 1,383.57% |
| Net charge-offs/(recoveries) to average total loans (annualized) | ​ | 0.36% | (0.07)% | 0.19% | (0.02)% |

(1) Additional information related to net charge-offs (recoveries) is presented in the following table for the periods indicated:

*(dollars in thousands)*

| ​ ​ ​ ​ ​ 2024: Commercial | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Three months ended June 30, ​ ​ Total Charge-offs ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Total Recoveries ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Net Charge-offs (Recoveries) ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Average Loans ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Net Charge-offs (Recoveries) to Average Loans ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Commercial and industrial | ​ | $2,730 | ​ | $119 | ​ | $2,611 | ​ | $578,544 | ​ | 1.82% |
| Commercial real estate | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 126,744 | ​ | — ​ |
| Multifamily | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 243,076 | ​ | — ​ |
| Non-owner occupied | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 617,338 | ​ | — ​ |
| Owner occupied | ​ | ​ — | ​ | ​ 9 | ​ | ​ (9) | ​ | ​ 283,754 | ​ | (0.01) ​ |
| Total commercial real estate | ​ | ​ — | ​ | ​ 9 | ​ | ​ (9) | ​ | ​ 1,270,912 | ​ | — ​ |
| Agricultural | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 40,932 | ​ | — ​ |
| Production | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 38,004 | ​ | — ​ |
| Total agricultural | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 78,936 | ​ | — ​ |
| Total commercial | ​ | ​ 2,730 | ​ | ​ 128 | ​ | ​ 2,602 | ​ | ​ 1,928,392 | ​ | 0.54 ​ |
| Consumer | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 694,866 | ​ | — ​ |
| Construction | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 21,225 | ​ | — ​ |
| HELOC | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 123,233 | ​ | — ​ |
| Junior lien | ​ | ​ 3 | ​ | ​ 74 | ​ | ​ (71) | ​ | ​ 36,181 | ​ | (0.79) ​ |
| Total residential real estate | ​ | ​ 3 | ​ | ​ 74 | ​ | ​ (71) | ​ | ​ 875,505 | ​ | (0.03) ​ |
| Other consumer | ​ | ​ 1 | ​ | ​ 10 | ​ | ​ (9) | ​ | ​ 33,335 | ​ | (0.11) ​ |
| Total consumer | ​ | ​ 4 | ​ | ​ 84 | ​ | ​ (80) | ​ | ​ 908,840 | ​ | (0.04) ​ |
| Total loans | ​ | $2,734 | ​ | $212 | ​ | $2,522 | ​ | $2,837,232 | ​ | 0.36% |
| **2023:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Commercial |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| Commercial and industrial | ​ | $85 | ​ | $438 | ​ | $(353) | ​ | $516,943 | ​ | (0.27)% |
| Commercial real estate | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 87,905 | ​ | — ​ |
| Multifamily | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 191,100 | ​ | — ​ |
| Non-owner occupied | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 473,728 | ​ | — ​ |
| Owner occupied | ​ | ​ — | ​ | ​ 11 | ​ | ​ (11) | ​ | ​ 252,320 | ​ | (0.02) ​ |
| Total commercial real estate | ​ | ​ — | ​ | ​ 11 | ​ | ​ (11) | ​ | ​ 1,005,053 | ​ | — ​ |
| Agricultural | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ — | ​ | ​ 1 | ​ | ​ (1) | ​ | ​ 39,679 | ​ | (0.01) ​ |
| Production | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 28,415 | ​ | — ​ |
| Total agricultural | ​ | ​ — | ​ | ​ 1 | ​ | ​ (1) | ​ | ​ 68,094 | ​ | (0.01) ​ |
| Total commercial | ​ | ​ 85 | ​ | ​ 450 | ​ | ​ (365) | ​ | ​ 1,590,090 | ​ | (0.09) ​ |
| Consumer | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 665,518 | ​ | — ​ |
| Construction | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 32,769 | ​ | — ​ |
| HELOC | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 120,344 | ​ | — ​ |
| Junior lien | ​ | ​ — | ​ | ​ 46 | ​ | ​ (46) | ​ | ​ 35,932 | ​ | (0.51) ​ |
| Total residential real estate | ​ | ​ — | ​ | ​ 46 | ​ | ​ (46) | ​ | ​ 854,563 | ​ | (0.02) ​ |
| Other consumer | ​ | ​ 23 | ​ | ​ 15 | ​ | ​ 8 | ​ | ​ 37,759 | ​ | 0.08 ​ |
| Total consumer | ​ | ​ 23 | ​ | ​ 61 | ​ | ​ (38) | ​ | ​ 892,322 | ​ | (0.02) ​ |
| Total loans | ​ | $108 | ​ | $511 | ​ | $(403) | ​ | $2,482,412 | ​ | (0.07)% |

*(dollars in thousands)*

| ​ ​ ​ ​ ​ 2024: Commercial | ​ ​ ​ ​ ​ ​ ​ | ​ ​ Six months ended June 30, ​ ​ Total Charge-offs ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Total Recoveries ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Net Charge-offs (Recoveries) ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ Average Loans ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ Net Charge-offs (Recoveries) to Average Loans ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---: |
| Commercial and industrial | ​ | $2,894 | ​ | $242 | ​ | $2,652 | ​ | $571,334 | ​ | 0.93% |
| Commercial real estate | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 127,165 | ​ | — ​ |
| Multifamily | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 246,794 | ​ | — ​ |
| Non-owner occupied | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 590,946 | ​ | — ​ |
| Owner occupied | ​ | ​ 29 | ​ | ​ 20 | ​ | ​ 9 | ​ | ​ 281,459 | ​ | 0.01 ​ |
| Total commercial real estate | ​ | ​ 29 | ​ | ​ 20 | ​ | ​ 9 | ​ | ​ 1,246,364 | ​ | — ​ |
| Agricultural | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 40,621 | ​ | — ​ |
| Production | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 36,668 | ​ | — ​ |
| Total agricultural | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 77,289 | ​ | — ​ |
| Total commercial | ​ | ​ 2,923 | ​ | ​ 262 | ​ | ​ 2,661 | ​ | ​ 1,894,987 | ​ | 0.28 ​ |
| Consumer | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 698,311 | ​ | — ​ |
| Construction | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 21,392 | ​ | — ​ |
| HELOC | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 121,095 | ​ | — ​ |
| Junior lien | ​ | ​ 3 | ​ | ​ 74 | ​ | ​ (71) | ​ | ​ 36,003 | ​ | (0.40) ​ |
| Total residential real estate | ​ | ​ 3 | ​ | ​ 74 | ​ | ​ (71) | ​ | ​ 876,801 | ​ | (0.02) ​ |
| Other consumer | ​ | ​ 13 | ​ | ​ 23 | ​ | ​ (10) | ​ | ​ 31,085 | ​ | (0.06) ​ |
| Total consumer | ​ | ​ 16 | ​ | ​ 97 | ​ | ​ (81) | ​ | ​ 907,886 | ​ | (0.02) ​ |
| Total loans | ​ | $2,939 | ​ | $359 | ​ | $2,580 | ​ | $2,802,873 | ​ | 0.19% |
| **2023:** | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Commercial |  | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| Commercial and industrial | ​ | $260 | ​ | $494 | ​ | $(234) | ​ | $524,500 | ​ | (0.09)% |
| Commercial real estate | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Construction, land and development | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 95,460 | ​ | — ​ |
| Multifamily | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 151,740 | ​ | — ​ |
| Non-owner occupied | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 492,174 | ​ | — ​ |
| Owner occupied | ​ | ​ — | ​ | ​ 22 | ​ | ​ (22) | ​ | ​ 251,669 | ​ | (0.02) ​ |
| Total commercial real estate | ​ | ​ — | ​ | ​ 22 | ​ | ​ (22) | ​ | ​ 991,043 | ​ | — ​ |
| Agricultural | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Land | ​ | ​ — | ​ | ​ 1 | ​ | ​ (1) | ​ | ​ 38,773 | ​ | (0.01) ​ |
| Production | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 27,848 | ​ | — ​ |
| Total agricultural | ​ | ​ — | ​ | ​ 1 | ​ | ​ (1) | ​ | ​ 66,621 | ​ | — ​ |
| Total commercial | ​ | ​ 260 | ​ | ​ 517 | ​ | ​ (257) | ​ | ​ 1,582,164 | ​ | (0.03) ​ |
| Consumer | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Residential real estate | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| First lien | ​ | ​ — | ​ | ​ 2 | ​ | ​ (2) | ​ | ​ 659,636 | ​ | — ​ |
| Construction | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 33,911 | ​ | — ​ |
| HELOC | ​ | ​ — | ​ | ​ 3 | ​ | ​ (3) | ​ | ​ 118,460 | ​ | (0.01) ​ |
| Junior lien | ​ | ​ 77 | ​ | ​ 49 | ​ | ​ 28 | ​ | ​ 34,557 | ​ | 0.16 ​ |
| Total residential real estate | ​ | ​ 77 | ​ | ​ 54 | ​ | ​ 23 | ​ | ​ 846,564 | ​ | 0.01 ​ |
| Other consumer | ​ | ​ 28 | ​ | ​ 27 | ​ | ​ 1 | ​ | ​ 41,126 | ​ | — ​ |
| Total consumer | ​ | ​ 105 | ​ | ​ 81 | ​ | ​ 24 | ​ | ​ 887,690 | ​ | 0.01 ​ |
| Total loans | ​ | $365 | ​ | $598 | ​ | $(233) | ​ | $2,469,854 | ​ | (0.02)% |

74

The following table presents the allocation of the ACL on loans as of the dates presented:

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ Allocated Allowance | ​ ​ ​ | ​ ​ ​ Percentage ​ of loans to ​ total loans ​ | ​ ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ Allocated Allowance | ​ ​ ​ | ​ ​ ​ Percentage ​ of loans to ​ total loans ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Commercial and industrial | ​ | $6,234 | ​ | 20.3% | ​ | $9,705 | ​ | 20.4% |
| CRE − Construction, land and development | ​ | 10,820 | ​ | 5.5 ​ | ​ | 6,135 | ​ | 4.5 ​ |
| CRE − Multifamily | ​ | ​ 2,430 | ​ | 8.3 ​ | ​ | ​ 1,776 | ​ | 8.9 ​ |
| CRE − Non-owner occupied | ​ | ​ 8,772 | ​ | 22.3 ​ | ​ | ​ 7,726 | ​ | 20.5 ​ |
| CRE − Owner occupied | ​ | ​ 2,280 | ​ | 9.7 ​ | ​ | ​ 2,449 | ​ | 9.8 ​ |
| Agricultural − Land | ​ | 259 | ​ | 1.4 ​ | ​ | 96 | ​ | 1.5 ​ |
| Agricultural − Production | ​ | ​ 185 | ​ | 1.4 ​ | ​ | ​ 84 | ​ | 1.3 ​ |
| RRE − First lien | ​ | 5,366 | ​ | 23.6 ​ | ​ | 6,087 | ​ | 25.3 ​ |
| RRE − Construction | ​ | ​ 458 | ​ | 0.8 ​ | ​ | ​ 485 | ​ | 1.1 ​ |
| RRE − HELOC | ​ | ​ 886 | ​ | 4.3 ​ | ​ | ​ 835 | ​ | 4.3 ​ |
| RRE − Junior lien | ​ | 314 | ​ | 1.2 ​ | ​ | 264 | ​ | 1.3 ​ |
| Other consumer | ​ | 328 | ​ | 1.2 ​ | ​ | 201 | ​ | 1.1 ​ |
| Total loans | ​ | $38,332 | ​ | 100.0% | ​ | $35,843 | ​ | 100.0% |

In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under credit arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded. An ACL on off-balance sheet credit exposures is measured using similar internal and external assumptions as the ACL on loans. This allowance is located in accrued expenses and other liabilities on the consolidated balance sheets. The ACL for unfunded commitments was $6.9 million and $5.2 million as of June 30, 2024 and 2023, respectively.

### Deposits

Deposit inflows and outflows are influenced by prevailing market interest rates, competition, local and economic conditions, and fluctuations in the Company’s customers’ own liquidity needs and may also be influenced by recent developments in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in recent bank failures.

Total deposits were $3.3 billion as of June 30, 2024, an increase of $203.0 million, or 6.6%, from December 31, 2023. Interest-bearing deposits increased $229.6 million during this period, while noninterest-bearing deposits decreased $26.7 million. The increase in total deposits was due to both expanded and new commercial deposit relationships, along with time deposit and synergistic deposit growth. Noninterest-bearing deposits decreased from 23.5% of total deposits as of December 31, 2023 to 21.3% as of June 30, 2024, as higher yields on interest-bearing accounts and other investment alternatives, such as U.S. treasuries, attracted such funds. Time deposit balances increased as higher short-term CD rates attracted both existing non-maturity deposits as well as new deposits to the Company.

The following table presents the composition of the Company’s deposit portfolio as of June 30, 2024 and December 31, 2023:

*(dollars in thousands)*

| ​ ​ ​ | ​ ​ | ​ ​ June 30, 2024 ​ ​ Balance | ​ ​ | ​ ​ ​ Percent of ​ Portfolio | ​ ​ December 31, 2023 ​ ​ Balance | ​ ​ | ​ ​ ​ Percent of ​ Portfolio | ​ ​ ​ ​ Change Amount | ​ ​ | ​ ​ ​ ​ ​ Percent |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: | ---: | --- | ---: |
| Noninterest-bearing demand | ​ | $701,428 | ​ | 21.3% | $728,082 | ​ | 23.5% | $(26,654) | ​ | (3.7)% |
| Interest-bearing demand | ​ | 1,003,585 | ​ | 30.4 ​ | 840,711 | ​ | 27.2 ​ | 162,874 | ​ | 19.4 ​ |
| Money market and savings | ​ | 1,102,217 | ​ | 33.4 ​ | 1,115,256 | ​ | 36.0 ​ | (13,039) | ​ | (1.2) ​ |
| Time deposits | ​ | 491,345 | ​ | 14.9 ​ | 411,562 | ​ | 13.3 ​ | 79,783 | ​ | 19.4 ​ |
| Total deposits | ​ | $3,298,575 | ​ | 100.0% | $3,095,611 | ​ | 100.0% | $202,964 | ​ | 6.6% |

The following table presents the average balances and rates of the Company’s deposit portfolio for the three months ended June 30, 2024 and 2023:

*(dollars in thousands)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended June 30, 2024 Average Balance | ​ ​ | ​ ​ ​ Average ​ Rate | ​ ​ 2023 Average Balance | ​ ​ | ​ ​ ​ ​ Average ​ Rate | ​ ​ ​ ​ ​ |
| --- | --- | --- | --- | ---: | --- | --- | ---: | --- |
| Noninterest-bearing demand | ​ | $670,928 | ​ | —% | $768,927 | ​ | —% | ​ |
| Interest-bearing demand | ​ | ​ 914,090 | ​ | 2.24 ​ | ​ 761,319 | ​ | 1.26 ​ | ​ |
| Money market and savings | ​ | ​ 1,167,213 | ​ | 3.79 ​ | ​ 1,155,247 | ​ | 2.81 ​ | ​ |
| Time deposits | ​ | ​ 444,902 | ​ | 4.50 ​ | ​ 251,145 | ​ | 3.29 ​ | ​ |
| Total deposits | ​ | $3,197,133 | ​ | 2.68% | $2,936,638 | ​ | 1.73% | ​ |

The following table presents the contractual maturity of time deposits, including certificate of deposit account registry services and IRA deposits of $250,000 and over, that were outstanding as of June 30, 2024:

*(dollars in thousands)*

| ​ ​ Maturing in: | ​ ​ | ​ ​ June 30, 2024 ​ |
| --- | --- | ---: |
| 3 months or less | ​ | $126,211 |
| 3 months to 6 months | ​ | 44,144 |
| 6 months to 1 year | ​ | 13,625 |
| 1 year or greater | ​ | 6,834 |
| Total | ​ | $190,814 |

The Company’s total uninsured deposits, which are amounts of deposit accounts that exceed the FDIC insurance limit, currently $250,000, were approximately $1.2 billion at June 30, 2024, and approximately $1.1 billion at December 31, 2023. These amounts were estimated based on the same methodologies used for regulatory reporting purposes.

### Borrowings

Borrowings as of June 30, 2024 and December 31, 2023 were as follows:

*(dollars in thousands)*

| ​ ​ ​ | ​ ​ ​ | ​ ​ June 30, 2024 ​ ​ Balance | ​ ​ | ​ ​ Percent of Portfolio | ​ ​ ​ ​ | ​ ​ December 31, 2023 ​ ​ Balance | ​ ​ | ​ ​ Percent of Portfolio |
| --- | --- | ---: | --- | ---: | --- | --- | --- | ---: |
| Fed funds purchased |  | $— |  | —% | ​ | $114,170 | ​ | 30.6% |
| Bank Term Funding Program (1) | ​ | ​ 355,000 | ​ | 57.8 ​ | ​ | ​ — | ​ | — ​ |
| FHLB Short-term advances | ​ | ​ 200,000 | ​ | 32.6 ​ | ​ | ​ 200,000 | ​ | 53.6 ​ |
| Subordinated notes | ​ | ​ 50,000 | ​ | 8.1 ​ | ​ | ​ 50,000 | ​ | 13.4 ​ |
| Junior subordinated debentures | ​ | 9,013 | ​ | 1.5 ​ | ​ | ​ 8,956 | ​ | 2.4 ​ |
| Total borrowed funds | ​ | $614,013 | ​ | 100.0% | ​ | $373,126 | ​ | 100.0% |

(1) In the first quarter of 2024, the Company borrowed $355.0 million from BTFP for a period of up to one year at a fixed rate of 4.88%. Under the program, the Company may prepay these borrowings at any time without penalty and the borrowings are secured by the Company’s pledged collateral of investment securities.

### Capital Resources

Stockholders’ equity is influenced primarily by earnings, dividends, the Company’s sales and repurchases of its common stock and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on available-for-sale securities.

Stockholders’ equity increased $4.1 million, or 1.1%, to $373.2 million as of June 30, 2024, compared to $369.1 million as of December 31, 2023. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 7.26% as of June 30, 2024, from 7.94% as of December 31, 2023. Common equity tier 1 capital to risk weighted assets decreased to 11.80% as of June 30, 2024, from 11.82% as of December 31, 2023.

The Company strives to maintain an adequate capital base to support the Company’s activities in a safe and sound manner while at the same time attempting to maximize stockholder value. Capital adequacy is assessed against the risk inherent in the Company’s balance sheet, recognizing that unexpected loss is the common denominator of risk, and that common equity has the greatest capacity to absorb unexpected loss.

The Company is subject to various regulatory capital requirements both at the Company and at the Bank level. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital guidelines must be met that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. The Company has consistently maintained regulatory capital ratios at or above the well-capitalized standards.

At June 30, 2024 and December 31, 2023, the Company met all the capital adequacy requirements to which the Company was subject. The table below presents the Company’s and the Bank’s regulatory capital ratios and the Company’s tangible common equity to tangible assets ratio as of June 30, 2024 and December 31, 2023:

| ​ ​ Capital Ratios Alerus Financial Corporation Consolidated | ​ ​ | ​ ​ June 30, 2024 | ​ ​ ​ ​ | ​ ​ December 31, 2023 |
| --- | --- | ---: | --- | ---: |
| Common equity tier 1 capital to risk weighted assets | ​ | 11.80% | ​ | 11.82% |
| Tier 1 capital to risk weighted assets | ​ | 12.07% | ​ | 12.10% |
| Total capital to risk weighted assets | ​ | 14.85% | ​ | 14.76% |
| Tier 1 capital to average assets | ​ | 9.60% | ​ | 10.57% |
| Tangible common equity to tangible assets (1) | ​ | 7.26% | ​ | 7.94% |
| ​ | ​ | ​ | ​ | ​ |
| Alerus Financial, National Association | ​ | ​ | ​ | ​ |
| Common equity tier 1 capital to risk weighted assets | ​ | 11.23% | ​ | 11.40% |
| Tier 1 capital to risk weighted assets | ​ | 11.23% | ​ | 11.40% |
| Total capital to risk weighted assets | ​ | 12.48% | ​ | 12.51% |
| Tier 1 capital to average assets | ​ | 9.05% | ​ | 9.92% |

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

The regulatory capital ratios for the Company and the Bank, as of June 30, 2024, as shown in the above table, were at levels above the regulatory minimums to be considered “well capitalized.” See “NOTE 20 Regulatory Matters” of the consolidated financial statements for additional information.

### Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of the Company’s customers. These financial instruments consist primarily of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to customers, generally having fixed expiration dates or other termination clauses that may require payment of a fee. These commitments consist principally of unused commercial and consumer credit lines. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party. The credit risks associated with commitments to extend credit and standby letters of credit are essentially the same as that involved with extending loans to customers and are subject to normal credit policies. Collateral may be required based on management’s assessment of the customer’s creditworthiness. The fair value of these commitments is considered immaterial for disclosure purposes.

A summary of the contractual amounts of the Company’s exposure to off-balance sheet agreements as of June 30, 2024 and December 31, 2023, was as follows:

*(dollars in thousands)*

| ​ ​ | ​ ​ | ​ ​ June 30, 2024 | ​ ​ | ​ ​ December 31, 2023 |
| --- | --- | ---: | --- | ---: |
| Commitments to extend credit | ​ | $925,260 | ​ | $942,413 |
| Standby letters of credit | ​ | 15,853 | ​ | 10,045 |
| Total | ​ | $941,113 | ​ | $952,458 |

### Liquidity

Liquidity management is the process by which the Company manages the flow of funds necessary to meet the Company’s financial commitments on a timely basis and at a reasonable cost and to take advantage of earnings enhancement opportunities. These financial commitments include withdrawals by depositors, credit commitments to borrowers, expenses of the Company’s operations, and capital expenditures. Liquidity is monitored and closely managed by the Company’s asset and liability committee, or the ALCO, a group of senior officers from the finance, enterprise risk management, deposit, investment, treasury, and lending areas. It is the ALCO’s responsibility to ensure the Company has the necessary level of funds available for normal operations as well as maintain a contingency funding policy to ensure that potential liquidity stress events are planned for, quickly identified, and management has plans in place to respond. The ALCO has created policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources.

As of June 30, 2024, the Company had on balance sheet liquidity of $678.0 million, compared to $668.2 million as of December 31, 2023. On balance sheet liquidity includes cash and cash equivalents, federal funds sold, unencumbered securities available-for-sale, and over collateralized securities pledging positions available-for-sale.

As of June 30, 2024, the Company had off balance sheet liquidity of $1.9 billion, compared to $1.6 billion as of December 31, 2023. Off balance sheet liquidity includes FHLB borrowing capacity, federal funds lines, and brokered deposit capacity.

The Bank is a member of the FHLB, which provides short- and long-term funding to its members through advances collateralized by real estate related assets and other select collateral, most typically in the form of debt securities. Actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of June 30, 2024, the Company had no federal funds purchased and $200.0 million in short-term borrowings from the FHLB. As of June 30, 2024, the Company had $1.7 billion of collateral pledged to the FHLB and, based on this collateral, the Company was eligible to borrow up to an additional $878.5 million from the FHLB. In addition, the Company can borrow up to $107.0 million through the unsecured lines of credit the Company has established with four other correspondent banks.

In addition, because the Bank is “well capitalized,” the Company can accept wholesale deposits up to 20.0% of total assets based on current policy limits, or $871.7 million, as of June 30, 2024. Management believed that the Company had adequate resources to fund all of the Company’s commitments as of June 30, 2024 and December 31, 2023.

The Company’s primary sources of liquidity include liquid assets, as well as unencumbered securities that can be used to collateralize additional funding.

Though remote, the possibility of a funding crisis exists at all financial institutions. The economic impact of the recent rise in inflation and rising interest rates could place increased demand on the Company’s liquidity if the Company experiences significant credit deterioration and as the Company meets borrowers’ needs. Accordingly, management has addressed this issue by formulating a liquidity contingency plan, which has been reviewed and approved by both the Bank’s board of directors and the ALCO. The plan addresses the actions that the Company would take in response to both a short-term and long-term funding crisis.

A short-term funding crisis would most likely result from a shock to the financial system, either internal or external, which disrupts orderly short-term funding operations. Such a crisis would likely be temporary in nature and would not involve a change in credit ratings. A long-term funding crisis would most likely be the result of both external and internal factors and would most likely result in drastic credit deterioration. Management believes that both potential circumstances have been fully addressed through detailed action plans and the establishment of trigger points for monitoring such events.

## Market risk

As filed, 8,102 characters.

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates. Interest rate risk is the risk to earnings and equity value arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of interest earning assets and the amount of interest-bearing liabilities that are prepaid/withdrawn, re-price, or mature in specified periods. The Company seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. The ALCO oversees market risk management, monitoring risk measures, limits, and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. The Bank’s board of directors approves policy limits with respect to interest rate risk.

### Interest Rate Risk

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective interest rate risk management begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk position given business activities, management objectives, market expectations and ALCO policy limits and guidelines.

Interest rate risk can come in a variety of forms, including repricing risk, basis risk, yield curve risk and option risk. Repricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes impact the Company’s assets and liabilities. Basis risk is the risk of adverse consequence resulting from unequal change in the spread between two or more rates for different instruments with the same maturity. Yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same or different instruments. Option risk in financial instruments arises from embedded options such as options provided to borrowers to make unscheduled loan prepayments, options provided to debt issuers to exercise call options prior to maturity, and depositor options to make withdrawals and early redemptions.

Management regularly reviews the Company’s exposure to changes in interest rates. Among the factors considered are changes in the mix of interest earning assets and interest-bearing liabilities, interest rate spreads and repricing periods. The ALCO reviews, on at least a quarterly basis, the interest rate risk position.

The interest-rate risk position is measured and monitored at the Bank using net interest income simulation models and economic value of equity sensitivity analysis that capture both short-term and long-term interest-rate risk exposure.

Modeling the sensitivity of net interest income and the economic value of equity to changes in market interest rates is highly dependent on numerous assumptions incorporated into the modeling process. The models used for these measurements rely on estimates of the potential impact that changes in interest rates may have on the value and prepayment speeds on all components of the Company’s loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. The balance sheet composition and size are assumed to remain static in the simulation modeling process. The analysis provides a framework as to what the Company’s overall sensitivity position is as of the Company’s most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of the Company’s equity.

Net interest income simulation involves forecasting net interest income under a variety of interest rate scenarios including instantaneous shocks.

The estimated impact on the Company’s net interest income as of June 30, 2024 and December 31, 2023, assuming immediate parallel moves in interest rates, is presented in the table below:

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ June 30, 2024 Following 12 months | ​ ​ ​ | ​ ​ Following 24 months | ​ ​ ​ ​ | ​ ​ December 31, 2023 Following 12 months | ​ ​ ​ | ​ ​ Following 24 months |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| +400 basis points | 1.6% | ​ | 5.8% | ​ | 1.0% | ​ | 2.4% |
| +300 basis points | 1.0% | ​ | 4.0% | ​ | 0.5% | ​ | 1.4% |
| +200 basis points | 1.1% | ​ | 3.3% | ​ | 0.3% | ​ | 0.9% |
| +100 basis points | 0.7% | ​ | 1.9% | ​ | 0.4% | ​ | 0.9% |
| −100 basis points | 0.6% | ​ | −2.3% | ​ | −1.0% | ​ | −1.7% |
| −200 basis points | 1.0% | ​ | −4.9% | ​ | −2.3% | ​ | −4.1% |
| −300 basis points | 1.2% | ​ | −8.2% | ​ | −4.1% | ​ | −7.2% |
| −400 basis points | 3.6% | ​ | −8.2% | ​ | −5.0% | ​ | −7.6% |

Management strategies may impact future reporting periods, as actual results may differ from simulated results due to the timing, magnitude, and frequency of interest rate changes, the difference between actual experience, and the characteristics assumed, as well as changes in market conditions. Market-based prepayment speeds are factored into the analysis for loan and securities portfolios. Rate sensitivity for transactional deposit accounts is modeled based on both historical experience and external industry studies.

Management uses an economic value of equity sensitivity analysis to understand the impact of interest rate changes on long-term cash flows, income, and capital. Economic value of equity is based on discounting the cash flows for all balance sheet instruments under different interest rate scenarios. Deposit premiums are based on external industry studies and utilizing historical experience.

The table below presents the change in the economic value of equity as of June 30, 2024 and December 31, 2023, assuming immediate parallel shifts in interest rates:

| ​ ​ ​ +400 basis points +300 basis points +200 basis points +100 basis points | ​ ​ | ​ ​ June 30, 2024 −9.6% −7.8% −4.1% −1.5% | ​ ​ ​ ​ ​ ​ ​ | ​ ​ December 31, 2023 −15.5% −12.6% −7.7% −3.1% |
| --- | --- | ---: | --- | ---: |
| −100 basis points |  | 0.6% | ​ | 1.6% |
| −200 basis points | ​ | 0.3% | ​ | 2.0% |
| −300 basis points | ​ | −1.6% | ​ | −0.3% |
| −400 basis points |  | −5.1% | ​ | −5.6% |

### Operational Risk

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls, and external influences such as market conditions, fraudulent activities, disasters, and security risks. Management continuously strives to strengthen its system of internal controls, enterprise risk management, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of the Company’s operational risk.

### Compliance Risk

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice. Activities which may expose the Company to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the expansion of the Company’s banking center network, employment and tax matters.

### Strategic and/or Reputation Risk

Strategic and/or reputation risk represents the risk of loss due to impairment of reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products, and any other event not identified in the defined risk types mentioned previously. Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various risks, including those related to the development of new products and business initiatives.

## Controls and procedures

As filed, 1,727 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s management, including the President and Chief Executive Officer, the Chief Financial Officer, and the Chief Accounting Officer have evaluated the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the President and Chief Executive Officer, the Chief Financial Officer and the Chief Accounting Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer, its Chief Financial Officer and its Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 7,560 characters.

Other than as set forth below, there have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2024.

### Risks Related to the Proposed Merger

***Litigation may be Filed Against Alerus or HMN Financial, Inc. (or their Respective Boards of Directors) that Could Prevent or Delay the Consummation of the Merger or Result in the Payment of Damages Following Consummation of the Merger.***

It is possible that, in connection with the merger of HMN Financial, Inc. (“HMNF”) with and into Alerus, stockholders may file demands or putative class action lawsuits against Alerus or HMNF (or their respective boards of directors). Two purported stockholders of HMNF have sent demand letters to HMNF, alleging that the joint proxy statement/prospectus filed by Alerus omitted certain material information regarding the merger and threatening litigation. Among other remedies, these stockholders could seek financial damages or to enjoin the merger. The outcome of any such litigation is uncertain. Additionally, one of the conditions to the closing of the merger is that there must be no order, injunction, decree, statute, rule, regulation or other legal restraint or prohibition preventing or making illegal the consummation of the merger or any of the other transactions contemplated by the merger agreement. If a dismissal is not granted or a settlement is not reached and any plaintiff were successful in obtaining an injunction prohibiting Alerus or HMNF from completing the merger or any of the other transactions contemplated by the merger agreement between Alerus and HMNF (the “merger agreement”), then such injunction may delay or prevent the effectiveness of the merger and could result in significant costs to Alerus or HMNF, including any cost associated with the indemnification of directors and officers of each company. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is consummated may adversely affect the combined company’s business, financial condition, results of operations and cash flows and the market price of the combined company.

***Issuance of Shares of Alerus Common Stock Pursuant to the Merger Agreement May Adversely Affect the Market Price of Alerus Common Stock.***

Pursuant to the merger agreement, Alerus expects to issue approximately 5,578,194 shares of Alerus common stock to HMNF stockholders, which estimate does not include outstanding restricted stock awards and stock options of HMNF that will become fully vested and exercisable immediately prior to the effective time as a result of the merger. The dilution caused by the issuance of a large number of new shares of Alerus common stock may result in fluctuations in the market price of Alerus common stock, including a potential stock price decrease.

### Alerus May Fail to Realize the Anticipated Benefits of the Merger.

Alerus and HMNF have operated and, until the consummation of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend on, among other things, Alerus’ ability to combine the businesses of Alerus and HMNF in a manner that permits growth opportunities, including, among other things, enhanced revenues and revenue synergies, an expanded market reach and operating efficiencies, and does not materially disrupt the existing customer relationships of Alerus or HMNF nor result in decreased revenues due to any loss of customers. If Alerus is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could have an adverse effect on the surviving corporation’s business, financial condition, operating results, prospects and stock price.

While individuals employed by HMNF or Home Federal Savings Bank, the wholly-owned banking subsidiary of HMNF, immediately prior to the effective time will automatically become employees of Alerus or Alerus Financial following the merger, certain employees may not be retained by Alerus after the merger. In addition, certain employees that Alerus wishes to retain may elect to terminate their employment as a result of the merger, which could delay or disrupt the integration process. It is possible that the integration process could result in the disruption of Alerus’ or HMNF’s ongoing businesses or cause inconsistencies in standards, controls, procedures and policies that adversely affect the ability of Alerus or HMNF to maintain relationships with customers and employees or to achieve the anticipated benefits and cost savings of the merger.

Among the factors considered by the boards of directors of both Alerus and HMNF in connection with their respective approvals of the merger agreement were the anticipated benefits that could result from the merger. There can be no assurance that these benefits will be realized within the time periods contemplated or at all.

***Regulatory Approvals May Not be Received, May Take Longer than Expected or May Impose Conditions that are Not Presently Anticipated or Cannot be Met.***

Before the transactions contemplated in the merger agreement can be consummated, various approvals must be obtained from the bank regulatory and other governmental authorities. In deciding whether to grant regulatory clearances, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse condition or development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals, or delay their receipt. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs, or may place restrictions on the conduct of the combined company’s business.

Alerus and HMNF believe that the merger should not raise significant regulatory concerns, and that the parties will be able to obtain all requisite regulatory approvals in a timely manner. Despite the parties’ commitments to use their reasonable best efforts to comply with conditions imposed by regulatory entities, under the terms of the merger agreement, Alerus and HMNF will not be required to consummate the merger if any such approvals would reasonably be expected to materially restrict or burden Alerus following the merger. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions, or that such conditions, terms, obligations or restrictions will not have the effect of delaying the consummation of the merger, imposing additional material costs on or materially limiting the revenues of the combined company following the merger or otherwise reduce the anticipated benefits of the merger if the merger were consummated successfully within the expected timeframe. In addition, neither Alerus nor HMNF can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the merger. The consummation of the merger is further conditioned on the absence of certain orders, injunctions or decrees by any court or regulatory agency of competent jurisdiction that would prohibit or make illegal the consummation of the merger.

Filed Aug 8, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-011623. Last ingested by Listed: Nov 5, 2026, 18:54 ET. No prices; not investment advice.