ALERUS FINANCIAL CORP Income Taxes Disclosure

NOTE 20 Income Taxes

 

The components of income tax expense (benefit) for the years ended December 31, 2025, 2024, and 2023 were as follows:

 

		Year ended
		December 31,
(dollars in thousands)		2025				2024				2023
Current
Federal		$	(1,032	)		$	6,973			$	851
State			293				2,389				2,414
Current income tax			(739	)			9,362				3,265
Deferred
Federal			4,214				(3,105	)			1,151
State			1,678				(878	)			(258	)
Deferred income tax			5,892				(3,983	)			893
Total income tax expense		$	5,153			$	5,379			$	4,158

 

On July 4, 2025, the U.S. government enacted tax legislation commonly referred to as the One Big Beautiful Bill Act. The Company evaluated the impact of the legislation in accordance with ASC 740 and determined that it did not have a material effect on the Company's consolidated financial statements for the year ended December 31, 2025. 

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at  December 31, 2025 and 2024 were as follows:

 

		December 31,				December 31,
(dollars in thousands)		2025				2024
Deferred Tax Assets
Allowance for credit losses		$	16,069			$	15,526
Employee compensation and benefit accruals			3,010				2,593
Expense accruals			526				561
Deferred loan fees			556				691
Fair value adjustments on available-for-sale securities			660				3,509
Acquired loan discounts			10,695				17,487
Nonaccrual loan interest			2,352				750
Unrealized loss on available‑for‑sale investment securities			741				24,737
Unrealized loss on derivative and hedge instruments			6				—
Unfunded commitment liability			1,008				1,856
Operating lease liabilities			9,416				4,968
Other			131				264
Total deferred tax assets from temporary differences			45,170				72,942
Deferred Tax Liabilities
Accumulated depreciation			2,821				2,272
Goodwill and intangible amortization			8,171				10,246
Servicing assets			1,656				2,071
Prepaid expenses			1,705				1,571
Unrealized gain on derivative and hedge instruments			—				151
Operating lease right-of-use assets			7,600				3,651
Other			137				95
Total deferred tax liabilities from temporary differences			22,090				20,057
Net Deferred Tax Assets		$	23,080			$	52,885

 

The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" on a prospective basis beginning with the year ended December 31, 2025. A reconciliation of income tax expense at the U.S. federal statutory rate (21% in 2025) to the Company's actual income tax expense for the year ended December 31, 2025 is shown below. 

 

		Year Ended
		December 31, 2025
(dollars in thousands)		Amount				Percent
U.S. federal statutory income tax		$	4,744				21.0	%
State and local income taxes, net of federal benefits(1)			1,557				6.9	%
Tax credits
Proportional Amortization of LIHTC Credits			(536	)			-2.4	%
Nontaxable or nondeductible items
Tax Exempt Interest			(1,872	)			-8.3	%
Section 291 Interest			519				2.3	%
Other			(297	)			-1.3	%
Other adjustments
Reduction in Deficit			1,005				4.4	%
Other			33				0.1	%
Income tax expense		$	5,153				22.8	%

---

(1)	State taxes in Minnesota and North Dakota comprised the majority (greater than 50%) of the tax effect in this category.

 

The following table presents required disclosures prior to the Company's adoption of ASU 2023-09 and a reconciliation of income tax expense at the U.S. federal statutory rate (21% in both 2024 and 2023) to the Company's actual income tax expense for the years ended December 31, 2024 and 2023.

 

		Year ended December 31,
		2024								2023
						Percent of								Percent of
(dollars in thousands)		Amount				Pretax Income				Amount				Pretax Income
Taxes at statutory federal income tax rate		$	4,863				21.0	%		$	3,329				21.0	%
Tax effect of:
Tax exempt income			(1,131	)			(4.9	)%			(715	)			(4.5	)%
State income taxes, net of federal benefits			1,278				5.5	%			715				4.5	%
Nondeductible items and other			369				1.6	%			829				5.2	%
Applicable income taxes		$	5,379				23.2	%		$	4,158				26.2	%

 

It is the opinion of management that the Company has no significant uncertain tax positions that would be subject to change upon examination.

 

Cash Taxes Paid

 

The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and has included the following table as a result of this adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025. 

 

		Year Ended
(dollars in thousands)		December 31, 2025
Federal			1,000
Minnesota			703
North Dakota			280
Other States			661
Federal and State Income Tax Payable		$	2,644

 

The amount of cash income taxes paid by the Company during the years ended  December 31, 2024 and 2023 was $0.4 million and $10.8 million, respectively.