ALERUS FINANCIAL CORP Segments Disclosure

NOTE 22 Segment Reporting

 

Beginning with the annual period ended December 31, 2024, the Company adopted the guidance within ASU 2023-07, Segment Reporting (Topic 280), which expanded disclosure requirements for significant segment expenses and other segment items. In connection with this guidance, compensation, employee taxes and benefits, business services, software and technology expense, and merger and acquisition expense are presented separately as these expenses were previously included within total noninterest expense. Financial information for prior periods were recast to conform to the current presentation.

 

Operating segments are components of an enterprise, which are evaluated regularly by the “chief operating decision maker” in deciding how to allocate resources and assess performance. The Company’s chief operating decision maker is the President and Chief Executive Officer of the Company, and assesses overall segment performance based on net income (loss) before taxes and uses this metric to allocate resources for each segment, focusing on budgeting and forecasting.

 

Reportable segments are determined based on the services offered, the significance of the services offered, the significance of those services to the Company’s financial statements, and management’s regular review of the operating results of those services. The Company operates through three operating segments: banking, retirement and benefit services, and wealth. In prior periods, the Company had a fourth operating segment, mortgage. As of  January 1, 2024, the mortgage division was fully integrated into the banking division to reflect the way the Company currently manages and views the business. The Company has restated all historical periods presented within these financial statements, and has not included the mortgage operating segment.

 

The Company’s reportable segments include the following:

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	●	Banking: Offers a complete line of loan, deposit, cash management, and treasury services through fourteen offices in North Dakota, Minnesota, and Arizona. After the closing of the HMNF acquisition, the Company added 15 banking offices in Minnesota, Wisconsin, and Iowa. These products and services are supported through web and mobile based applications. The majority of the Company’s assets and liabilities are in the Banking segments’ balance sheet.
	●	Retirement and Benefit Services: Provides the following services nationally: record-keeping and administration services to qualified and other types of retirement plans, investment fiduciary services to retirement plans, health savings accounts, flexible spending accounts, and COBRA recordkeeping and administration services. The division operates within each of the banking markets, as well as in Lakewood, Colorado.
	●	Wealth: Provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

 

The Company’s segment reporting process begins with the assignment of income and expenses directly to the applicable segments based on different cost centers withing the Company. The net income (loss) before taxes for each reportable segment is further derived by the use of expense allocations. Certain expenses not directly attributable to a specific segment are allocated across all segments based on key metrics, such as number of employees and time spent working in each segment. These types of expenses include business services, software and technology expense, human resources, accounting and finance, risk management, legal, and marketing. 

 

The financial information presented for each segment includes net interest income, provision for credit losses, noninterest income, and direct and indirect noninterest expense. As discussed above, noninterest expense is broken out between significant noninterest expenses and other noninterest expense. Other noninterest expense consists of occupancy and equipment expense, intangible amortization expense, professional fees and assessments (less merger and acquisition expenses which are included within this expense item on the consolidated statements of income), marketing and business development, supplies and postage, travel, mortgage and lending expenses, and other noninterest expenses. Corporate administration includes all remaining income and expenses not allocated to the three operating segments, including all merger and acquisition expenses.

 

The assignment and allocation methodologies used in the segment reporting process discussed above change from time to time as systems are enhanced, methods for evaluating segment performance or product lines change or as business segments are realigned.

 

The following tables present key metrics related to the Company’s segments as of and for the periods presented:

 

		As of and for the year ended December 31, 2025
						Retirement and								Corporate
(dollars in thousands)		Banking				Benefit Services				Wealth				Administration				Consolidated
Net interest income (loss)		$	175,099			$	—			$	—			$	(2,600	)		$	172,499
Provision for credit losses			556				—				—				—				556
Noninterest income (loss)			(41,966	)			65,885				28,265				(308	)			51,876
Noninterest expense
Compensation			48,856				29,348				13,231				6,022				97,457
Employee taxes and benefits			13,175				8,339				2,577				2,724				26,815
Business services, software and technology expense			12,085				8,146				3,804				664				24,699
Merger and acquisition expense			—				—				—				142				142
Other noninterest expense			39,802				9,156				1,860				1,296				52,114
Total noninterest expense			113,918				54,989				21,472				10,848				201,227
Net income (loss) before taxes		$	18,659			$	10,896			$	6,793			$	(13,756	)		$	22,592
Total assets		$	5,129,514			$	30,417			$	5,897			$	64,256			$	5,230,084

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		As of and for the year ended December 31, 2024
						Retirement and								Corporate
(dollars in thousands)		Banking				Benefit Services				Wealth				Administration				Consolidated
Net interest income (loss)		$	109,753			$	—			$	—			$	(2,708	)		$	107,045
Provision for credit losses			18,141				—				—				—				18,141
Noninterest income			20,859				64,365				26,171				3,535				114,930
Noninterest expense
Compensation			43,130				28,427				10,065				5,689				87,311
Employee taxes and benefits			10,808				7,756				2,366				2,037				22,967
Business services, software and technology expense			10,950				7,575				2,506				727				21,758
Merger and acquisition expense			—				—				—				9,984				9,984
Other noninterest expense			23,629				12,797				704				1,525				38,655
Total noninterest expense			88,517				56,555				15,641				19,962				180,675
Net income (loss) before taxes		$	23,954			$	7,810			$	10,530			$	(19,135	)		$	23,159
Total assets		$	5,182,147			$	32,144			$	5,449			$	41,933			$	5,261,673

 

		As of and for the year ended December 31, 2023
						Retirement and								Corporate
(dollars in thousands)		Banking				Benefit Services				Wealth				Administration				Consolidated
Net interest income		$	90,520			$	—			$	—			$	(2,681	)		$	87,839
Provision for loan losses			2,057				—				—				—				2,057
Noninterest income			(7,017	)			65,294				21,855				97				80,229
Noninterest expense
Compensation			37,951				26,087				8,049				4,203				76,290
Employee taxes and benefits			9,295				7,144				1,850				1,762				20,051
Business services, software and technology expense			10,185				7,898				2,372				598				21,053
Merger and acquisition expense			—				—				—				—				—
Other noninterest expense			18,427				12,232				1,217				887				32,763
Total noninterest expense			75,858				53,361				13,488				7,450				150,157
Net income before taxes		$	5,588			$	11,933			$	8,367			$	(10,034	)		$	15,854
Total assets		$	3,833,725			$	34,352			$	4,757			$	34,879			$	3,907,713

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