10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-39036

ALERUS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	45-0375407
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)
401 Demers Avenue
Grand Forks, ND	58201
(Address of principal executive offices)	(Zip Code)

(701) 795-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	ALRS	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻ Accelerated filer ⌧ Non-accelerated filer ◻ Smaller reporting company ☐ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐  No ⌧

The number of shares of the registrant’s common stock outstanding at April 30, 2021 was 17,190,481.

Alerus Financial Corporation and Subsidiaries

Table of Contents

		Page
Part 1:	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Consolidated Statements of Income for the three months ended March 31, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020	3
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2021 and 2020	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	57
Part 2:	OTHER INFORMATION
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		61

PART 1. FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

Alerus Financial Corporation and Subsidiaries

Consolidated Balance Sheets

	March 31,		December 31,
(dollars in thousands, except share and per share data)	2021		2020
Assets	(Unaudited)		(Audited)
Cash and cash equivalents	$	190,217	$	172,962
Investment securities, at fair value
Available-for-sale		795,097		592,342
Equity		—		—
Loans held for sale		78,665		122,440
Loans		1,937,345		1,979,375
Allowance for loan losses		(33,758)		(34,246)
Net loans		1,903,587		1,945,129
Land, premises and equipment, net		19,605		20,289
Operating lease right-of-use assets		6,293		6,918
Accrued interest receivable		9,271		9,662
Bank-owned life insurance		32,556		32,363
Goodwill		30,201		30,201
Other intangible assets		24,768		25,919
Servicing rights		1,952		1,987
Deferred income taxes, net		13,700		9,409
Other assets		45,844		44,150
Total assets	$	3,151,756	$	3,013,771
Liabilities and Stockholders’ Equity
Deposits
Noninterest-bearing	$	775,434	$	754,716
Interest-bearing		1,942,139		1,817,277
Total deposits		2,717,573		2,571,993
Long-term debt		59,020		58,735
Operating lease liabilities		7,140		7,861
Accrued expenses and other liabilities		38,789		45,019
Total liabilities		2,822,522		2,683,608
Stockholders’ equity
Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding		—		—
Common stock, $1 par value, 30,000,000 shares authorized: 17,190,481 and 17,125,270 issued and outstanding		17,190		17,125
Additional paid-in capital		90,520		90,237
Retained earnings		224,480		212,163
Accumulated other comprehensive income (loss)		(2,956)		10,638
Total stockholders’ equity		329,234		330,163
Total liabilities and stockholders’ equity	$	3,151,756	$	3,013,771

See accompanying notes to consolidated financial statements (unaudited)

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Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

	Three months ended
	March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Interest Income
Loans, including fees	$	20,567	$	20,542
Investment securities
Taxable		2,401		1,759
Exempt from federal income taxes		236		235
Other		117		570
Total interest income		23,321		23,106
Interest Expense
Deposits		995		3,392
Short-term borrowings		—		—
Long-term debt		288		877
Total interest expense		1,283		4,269
Net interest income		22,038		18,837
Provision for loan losses		—		2,500
Net interest income after provision for loan losses		22,038		16,337
Noninterest Income
Retirement and benefit services		17,255		16,220
Wealth management		4,986		4,046
Mortgage banking		17,132		5,045
Service charges on deposit accounts		338		423
Net gains (losses) on investment securities		114		—
Other		1,056		1,455
Total noninterest income		40,881		27,189
Noninterest Expense
Compensation		23,698		18,731
Employee taxes and benefits		5,813		5,308
Occupancy and equipment expense		2,231		2,492
Business services, software and technology expense		4,976		4,543
Intangible amortization expense		1,151		990
Professional fees and assessments		1,472		1,056
Marketing and business development		676		610
Supplies and postage		531		707
Travel		26		261
Mortgage and lending expenses		1,332		1,141
Other		1,136		887
Total noninterest expense		43,042		36,726
Income before income taxes		19,877		6,800
Income tax expense		4,662		1,437
Net income	$	15,215	$	5,363
Per Common Share Data
Basic earnings per common share	$	0.87	$	0.31
Diluted earnings per common share	$	0.86	$	0.30
Dividends declared per common share	$	0.15	$	0.15
Average common shares outstanding		17,145		17,070
Diluted average common shares outstanding		17,465		17,405

See accompanying notes to consolidated financial statements (unaudited)

2

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Net Income	$	15,215	$	5,363
Other Comprehensive Income (Loss), Net of Tax
Unrealized gains (losses) on available-for-sale securities		(18,036)		6,959
Reclassification adjustment for losses (gains) realized in income		(114)		—
Total other comprehensive income (loss), before tax		(18,150)		6,959
Income tax expense (benefit) related to items of other comprehensive income		(4,556)		1,746
Other comprehensive income (loss), net of tax		(13,594)		5,213
Total comprehensive income	$	1,621	$	10,576

See accompanying notes to consolidated financial statements (unaudited)

3

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

	Three months ended March 31, 2021
							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive
(dollars in thousands)	Stock		Capital		Earnings		Income (Loss)		Total
Balance as of December 31, 2020	$	17,125	$	90,237	$	212,163	$	10,638	$	330,163
Net income		—		—		15,215		—		15,215
Other comprehensive income (loss)		—		—		—		(13,594)		(13,594)
Common stock repurchased		(16)		(134)		(296)		—		(446)
Common stock dividends		—		—		(2,602)		—		(2,602)
Share‑based compensation expense		—		498		—		—		498
Vesting of restricted stock		81		(81)		—		—		—
Balance as of March 31, 2021	$	17,190	$	90,520	$	224,480	$	(2,956)	$	329,234

	Three months ended March 31, 2020
							Accumulated
			Additional				Other
	Common		Paid-in		Retained		Comprehensive
(dollars in thousands)	Stock		Capital		Earnings		Income (Loss)		Total
Balance as of December 31, 2019	$	17,050	$	88,650	$	178,092	$	1,936	$	285,728
Net income		—		—		5,363		—		5,363
Other comprehensive income (loss)		—		—		—		5,213		5,213
Common stock repurchased		(15)		(111)		(210)		—		(336)
Common stock dividends		—		—		(2,595)		—		(2,595)
ESOP repurchase obligation termination		—		—		—		—		—
Share‑based compensation expense		—		235		—		—		235
Vesting of restricted stock		71		(71)		—		—		—
Balance as of March 31, 2020	$	17,106	$	88,703	$	180,650	$	7,149	$	293,608

See accompanying notes to consolidated financial statements (unaudited)

4

Alerus Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Operating Activities
Net income	$	15,215	$	5,363
Adjustments to reconcile net income to net cash provided (used) by operating activities
Deferred income taxes		264		(40)
Provision for loan losses		—		2,500
Depreciation and amortization		2,345		2,167
Amortization and accretion of premiums/discounts on investment securities		794		305
Amortization of operating lease right-of-use assets		(8)		(6)
Stock-based compensation		498		235
Increase in value of bank-owned life insurance		(193)		(197)
Realized loss (gain) on sale of fixed assets		(27)		—
Realized loss (gain) on derivative instruments		(713)		881
Realized loss (gain) on loans sold		(14,201)		(5,654)
Realized loss (gain) on sale of foreclosed assets		(23)		(63)
Realized loss (gain) on sale of investment securities		(114)		—
Realized loss (gain) on servicing rights		(165)		381
Net change in:
Loans held for sale		57,823		(19,846)
Accrued interest receivable		391		126
Other assets		(2,050)		(2,239)
Accrued expenses and other liabilities		(4,995)		(5,079)
Net cash provided (used) by operating activities		54,841		(21,166)
Investing Activities
Proceeds from sales or calls of investment securities available-for-sale		13,189		4,000
Proceeds from maturities of investment securities available-for-sale		27,307		9,003
Purchases of investment securities available-for-sale		(262,081)		(50,148)
Net (increase) decrease in equity securities		—		2,808
Net (increase) decrease in loans		41,391		(36,637)
Purchases of premises and equipment		(277)		(689)
Proceeds from sales of foreclosed assets		101		96
Net cash provided (used) by investing activities		(180,370)		(71,567)
Financing Activities
Net increase (decrease) in deposits		145,580		150,198
Repayments of long-term debt		(49,748)		(51)
Proceeds from the issuance of Subordinated Debt		50,000		—
Cash dividends paid on common stock		(2,602)		(2,595)
Repurchase of common stock		(446)		(336)
Net cash provided (used) by financing activities		142,784		147,216
Net change in cash and cash equivalents		17,255		54,483
Cash and cash equivalents at beginning of period		172,962		144,006
Cash and cash equivalents at end of period	$	190,217	$	198,489

See accompanying notes to consolidated financial statements (unaudited)

5

	Three months ended
	March 31,
Supplemental Cash Flow Disclosures	2021		2020
Cash paid for:
Interest	$	1,405	$	3,546
Income taxes		736		—
Non-cash information
Loan collateral transferred to foreclosed assets		154		234
Unrealized gain (loss) on investment securities available-for-sale		(13,594)		5,213
Right-of-use assets obtained in exchange for new operating leases		—		183

See accompanying notes to consolidated financial statements (unaudited)

6

Alerus Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1 Significant Accounting Policies

Organization

Alerus Financial Corporation, or the Company, is a financial holding company organized under the laws of the state of Delaware. The Company and its subsidiaries operate as a diversified financial services company headquartered in Grand Forks, North Dakota. Through its subsidiary, Alerus Financial, National Association, or the Bank, the Company provides financial solutions to businesses and consumers through four distinct business lines—banking, retirement and benefit services, wealth management, and mortgage.

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and conform to practices within the banking industry and include all of the information and disclosures required by generally accepted accounting principles in the United States of America, or GAAP, for interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results for the full year or any other period. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2021.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s principal operating subsidiary is the Bank.

In the normal course of business, the Company may enter into a transaction with a variable interest entity, or VIE. VIE’s are legal entities whose investors lack the ability to make decisions about the entity’s activities, or whose equity investors do not have the right to receive the residual returns of the entity. The applicable accounting guidance requires the Company to perform ongoing quantitative and qualitative analysis to determine whether it must consolidate any VIE. The Company does not have any ownership interest in, or exert any control, over any VIE, and thus no VIE’s are included in the consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term include the valuation of investment securities, determination of the allowance for loan losses, valuation of reporting units for the purpose of testing goodwill and other intangible assets for impairment, valuation of deferred tax assets, and fair values of financial instruments.

7

Reclassifications

Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

Other Information

As of March 31, 2021, the Coronavirus Disease, or COVID-19, pandemic is ongoing. During 2020, the COVID-19 pandemic created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. In 2021, the U.S. economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Nonetheless, the economic recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus. Management believes the Company is taking appropriate actions to mitigate, to the extent possible, the negative impact. However, the full impact of COVID-19 is currently unknown and cannot be reasonably estimated as the events are continuing to unfold as the year progresses.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on September 12, 2019; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”; or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

NOTE 2 Recent Accounting Pronouncements

The following FASB Accounting Standards Updates, or ASUs, are divided into pronouncements which have been adopted by the Company since January 1, 2021, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of March 31, 2021.

Adopted Pronouncements

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to

8

accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoptions is permitted. The Company adopted ASU 2020-01 as of January 1, 2021 the implementation had no impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) in response to concerns about structural risks in accounting for reference rate reform. The ASU clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting to apply to derivatives that are affected by the discontinuing transition. The Company adopted ASU 2020-04, as of March 2020 and is putting a transition plan together but does not expect adoption to have a material impact on the Company’s consolidated financial statements.

Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a new impairment model known as the current expected credit loss, or CECL, which significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred cost” approach under GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for credit losses related to available-for-sale debt securities rather than a direct write-down of the carrying amount of the investments, as is required by the other-than-temporary impairment model under current GAAP, and (3) a simplified accounting model for purchase credit-impaired debt securities and loans. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326). This update amends the effective date of ASU No. 2016-13 for certain entities, including private companies and smaller reporting companies, until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. As an emerging growth company, the Company can take advantage of this delay and plans to adopt the standard with the amended effective date. The Company does not plan to early adopt this standard but continues to work on its implementation. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics, and quality of our loan portfolio, as well as the general economic conditions and forecasts as of the adoption date.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company will consider these clarifications and improvements in determining the appropriate adoption of ASU 2019-04.

In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief to provide entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible instruments. In November 2019, the FASB Issued ASU 2019-10, which amends the effective date of this ASU for certain entities, including private companies and smaller reporting companies until after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company can take advantage of this delay and plans to

9

adopt the standard with the amended effective date. This update is not expected to have a significant impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for the areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2020, for public business entities. For private companies and smaller reporting companies, this guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2021. As an emerging growth company, the Company can take advantage of this later effective date. Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis. The Company is currently reviewing the provisions of this new pronouncement, but does not expect adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03. Codification Improvements to Financial Instruments. This ASU represents changes to clarify or improve the Accounting Standards Codification, or ASC, related to seven topics. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Issues 1, 2, 3, 4, and 5 are conforming amendments and for public business entities effective upon the issuance of the standard. Issues 6 and 7 are amendments that affect the guidance in ASU 2016-13. The Company will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

NOTE 3 Investment Securities

The following tables present amortized cost, gross unrealized gain and losses, and fair value of the available-for-sale investment securities as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,704	$	—	$	(21)	$	5,683
Obligations of state and political agencies		147,926		2,710		(1,445)		149,191
Mortgage backed securities
Residential agency		529,717		2,146		(10,268)		521,595
Commercial		85,060		2,650		(13)		87,697
Asset backed securities		91		5		—		96
Corporate bonds		30,545		707		(417)		30,835
Total available-for-sale investment securities	$	799,043	$	8,218	$	(12,164)	$	795,097

	December 31, 2020
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,926	$	—	$	(19)	$	5,907
Obligations of state and political agencies		148,491		5,282		—		153,773
Mortgage backed securities
Residential agency		303,760		3,395		(436)		306,719
Commercial		89,300		5,678		—		94,978
Asset backed securities		109		6		—		115
Corporate bonds		30,552		388		(90)		30,850
Total available-for-sale investment securities	$	578,138	$	14,749	$	(545)	$	592,342

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The following tables present unrealized losses and fair values for available-for-sale investment securities as of March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	March 31, 2021
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	—	$	—	$	(21)	$	5,650	$	(21)	$	5,650
Obligations of state and political agencies		(1,445)		51,463		—		—		(1,445)		51,463
Mortgage backed securities
Residential agency		(10,268)		380,454		—		—		(10,268)		380,454
Commercial		(13)		9,026		—		—		(13)		9,026
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(417)		13,583		—		—		(417)		13,583
Total available-for-sale investment securities	$	(12,143)	$	454,526	$	(21)	$	5,652	$	(12,164)	$	460,178

	December 31, 2020
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	(10)	$	4,509	$	(9)	$	1,309	$	(19)	$	5,818
Obligations of state and political agencies		—		—		—		—		—		—
Mortgage backed securities
Residential agency		(432)		68,494		(4)		2,356		(436)		70,850
Commercial		—		—		—		—		—		—
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(90)		16,454		—		—		(90)		16,454
Total available-for-sale investment securities	$	(532)	$	89,457	$	(13)	$	3,667	$	(545)	$	93,124

For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their maturity dates. The Company evaluates securities for other-than-temporary impairment, or OTTI, on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, consideration is given to the severity and duration of the impairment; the financial condition and near-term prospects of the issuer, which for debt securities, considers external credit ratings and recent downgrades; and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value.

For the three months ended March 31, 2021 and 2020, the Company did not recognize OTTI losses on its investment securities.

The following table presents amortized cost and estimated fair value of the available-for-sale investment securities as of March 31, 2021, by contractual maturity:

	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year or less	$	5,480	$	5,506
Due after one year through five years		32,626		33,180
Due after five years through ten years		150,987		153,408
Due after 10 years		609,950		603,003
Total available-for-sale investment securities	$	799,043	$	795,097

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

11

Investment securities with a total carrying value of $177.5 million and $160.8 million were pledged as of March 31, 2021 and December 31, 2020, respectively, to secure public deposits and for other purposes required or permitted by law.

Proceeds from the sale or call of available-for-sale investment securities, for the three months ended March 31, 2021 and 2020, are displayed in the table below:

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Proceeds	$	13,189	$	4,000
Realized gains		114		—
Realized losses		—		—

As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines, or FHLB, stock was as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Federal Reserve	$	2,675	$	2,675
FHLB		3,864		3,090

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of March 31, 2021, the conversion ratio was 1.6228. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,236 Class A equivalents) that the Company owned as of March 31, 2021 and December 31, 2020, are carried at a zero cost basis.

12

NOTE 4 Loans and Allowance for Loan Losses

The following table presents total loans outstanding, by portfolio segment, as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commercial
Commercial and industrial (1)	$	678,029	$	691,858
Real estate construction		40,473		44,451
Commercial real estate		569,451		563,007
Total commercial		1,287,953		1,299,316
Consumer
Residential real estate first mortgage		454,958		463,370
Residential real estate junior lien		130,299		143,416
Other revolving and installment		64,135		73,273
Total consumer		649,392		680,059
Total loans	$	1,937,345	$	1,979,375

(1) Included Paycheck Protection Program, or PPP, loans of $256.8 million at March 31, 2021 and $268.4 million at December 31, 2020.

Total loans included net deferred loan fees and costs of $5.9 million and $4.7 million at March 31, 2021 and December 31, 2020, respectively. Deferred loan fees on PPP loans were $5.7 million at March 31, 2021 and $4.3 million at December 31, 2020.

Management monitors the credit quality of its loan portfolio on an ongoing basis. Measurements of delinquency and past due status are based on the contractual terms of each loan. Past due loans are reviewed regularly to identify loans for nonaccrual status. Loan modifications made in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, are included as accruing current.

The following tables present a past due aging analysis of total loans outstanding, by portfolio segment, as of March 31, 2021 and December 31, 2020:

	March 31, 2021
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	675,755	$	75	$	—	$	2,199	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		564,959		2,602		—		1,890		569,451
Total commercial		1,281,187		2,677		—		4,089		1,287,953
Consumer
Residential real estate first mortgage		453,574		952		—		432		454,958
Residential real estate junior lien		129,917		184		—		198		130,299
Other revolving and installment		63,980		118		—		37		64,135
Total consumer		647,471		1,254		—		667		649,392
Total loans	$	1,928,658	$	3,931	$	—	$	4,756	$	1,937,345

13

	December 31, 2020
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	689,340	$	500	$	30	$	1,988	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		558,127		2,449		—		2,431		563,007
Total commercial		1,291,918		2,949		30		4,419		1,299,316
Consumer
Residential real estate first mortgage		461,179		1,752		—		439		463,370
Residential real estate junior lien		143,060		191		—		165		143,416
Other revolving and installment		73,128		118		—		27		73,273
Total consumer		677,367		2,061		—		631		680,059
Total loans	$	1,969,285	$	5,010	$	30	$	5,050	$	1,979,375

The Company’s consumer loan portfolio is primarily comprised of secured loans that are evaluated at origination on a centralized basis against standardized underwriting criteria. The Company generally does not risk rate consumer loans unless a default event such as bankruptcy or extended nonperformance takes place. Credit quality for the consumer loan portfolio is measured by delinquency rates, nonaccrual amounts and actual losses incurred.

The Company assigns a risk rating to all commercial loans, except pools of homogeneous loans, and periodically performs detailed internal and external reviews of risk rated loans over a certain threshold to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by the Company’s regulators. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the estimated fair values of collateral securing the loans. These credit quality indicators are used to assign a risk rating to each individual loan.

The Company’s ratings are aligned to pass and criticized categories. The criticized category includes special mention, substandard, and doubtful risk ratings. The risk ratings are defined as follows:

Pass: A pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and charged off immediately.

14

The tables below present total loans outstanding, by loan portfolio segment, and risk category as of March 31, 2021 and December 31, 2020:

	March 31, 2021
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	658,607	$	2,725	$	16,516	$	181	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		540,906		3,615		24,930		—		569,451
Total commercial		1,239,986		6,340		41,446		181		1,287,953
Consumer
Residential real estate first mortgage		448,919		3,928		2,111		—		454,958
Residential real estate junior lien		128,788		407		1,104		—		130,299
Other revolving and installment		64,098		—		37		—		64,135
Total consumer		641,805		4,335		3,252		—		649,392
Total loans	$	1,881,791	$	10,675	$	44,698	$	181	$	1,937,345

	December 31, 2020
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	669,602	$	5,415	$	16,841	$	—	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		533,733		6,686		22,588		—		563,007
Total commercial		1,247,786		12,101		39,429		—		1,299,316
Consumer
Residential real estate first mortgage		461,221		1,406		743		—		463,370
Residential real estate junior lien		140,461		1,819		1,136		—		143,416
Other revolving and installment		73,236		—		37		—		73,273
Total consumer		674,918		3,225		1,916		—		680,059
Total loans	$	1,922,704	$	15,326	$	41,345	$	—	$	1,979,375

The adequacy of the allowance for loan losses is assessed at the end of each quarter. The allowance for loan losses includes a specific component related to loans that are individually evaluated for impairment and a general component related to loans that are segregated into homogeneous pools and collectively evaluated for impairment. The factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical net losses from loans with similar characteristics, which are adjusted by management to reflect current events, trends, and conditions. The adjustments include consideration of the following: changes in lending policies and procedures, economic conditions, nature and volume of the portfolio, experience of lending management, volume and severity of past due loans, quality of the loan review system, value of underlying collateral for collateral dependent loans, concentrations, and other external factors.

15

The following tables present, by loan portfolio segment, a summary of the changes in the allowance for loan losses for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	10,205	$	316	$	(204)	$	170	$	10,487
Real estate construction		658		(60)		—		—		598
Commercial real estate		14,105		277		(536)		3		13,849
Total commercial		24,968		533		(740)		173		24,934
Consumer
Residential real estate first mortgage		5,774		273		—		—		6,047
Residential real estate junior lien		1,373		(168)		—		83		1,288
Other revolving and installment		753		(83)		(44)		40		666
Total consumer		7,900		22		(44)		123		8,001
Unallocated		1,378		(555)		—		—		823
Total	$	34,246	$	—	$	(784)	$	296	$	33,758

	Three months ended March 31, 2020
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	12,270	$	70	$	(32)	$	593	$	12,901
Real estate construction		303		31		—		—		334
Commercial real estate		6,688		1,588		—		—		8,276
Total commercial		19,261		1,689		(32)		593		21,511
Consumer
Residential real estate first mortgage		1,448		761		—		—		2,209
Residential real estate junior lien		671		317		—		37		1,025
Other revolving and installment		352		92		(67)		64		441
Total consumer		2,471		1,170		(67)		101		3,675
Unallocated		2,192		(359)		—		—		1,833
Total	$	23,924	$	2,500	$	(99)	$	694	$	27,019

The following tables present the recorded investment in loans and related allowance for loan losses, by loan portfolio segment, disaggregated on the basis of the Company’s impairment methodology, as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,794	$	675,235	$	678,029	$	691	$	9,796	$	10,487
Real estate construction		—		40,473		40,473		—		598		598
Commercial real estate		4,676		564,775		569,451		268		13,581		13,849
Total commercial		7,470		1,280,483		1,287,953		959		23,975		24,934
Consumer
Residential real estate first mortgage		432		454,526		454,958		—		6,047		6,047
Residential real estate junior lien		202		130,097		130,299		27		1,261		1,288
Other revolving and installment		37		64,098		64,135		16		650		666
Total consumer		671		648,721		649,392		43		7,958		8,001
Unallocated		—		—		—		—		—		823
Total loans	$	8,141	$	1,929,204	$	1,937,345	$	1,002	$	31,933	$	33,758

16

	December 31, 2020
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,616	$	689,242	$	691,858	$	336	$	9,869	$	10,205
Real estate construction		—		44,451		44,451		—		658		658
Commercial real estate		5,224		557,783		563,007		837		13,268		14,105
Total commercial		7,840		1,291,476		1,299,316		1,173		23,795		24,968
Consumer
Residential real estate first mortgage		439		462,931		463,370		—		5,774		5,774
Residential real estate junior lien		224		143,192		143,416		19		1,354		1,373
Other revolving and installment		27		73,246		73,273		13		740		753
Total consumer		690		679,369		680,059		32		7,868		7,900
Unallocated		—		—		—		—		—		1,378
Total loans	$	8,530	$	1,970,845	$	1,979,375	$	1,205	$	31,663	$	34,246

The tables below summarize key information on impaired loans. These impaired loans may have estimated losses which are included in the allowance for loan losses.

	March 31, 2021						December 31, 2020
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
(dollars in thousands)	Investment		Principal		Allowance		Investment		Principal		Allowance
Impaired loans with a valuation allowance
Commercial and industrial	$	1,606	$	1,689	$	691	$	723	$	725	$	336
Commercial real estate		2,791		2,816		268		3,948		3,974		837
Residential real estate junior lien		27		29		27		19		20		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans with a valuation allowance		4,461		4,572		1,002		4,717		4,746		1,205
Impaired loans without a valuation allowance
Commercial and industrial		1,188		1,341		—		1,893		2,173		—
Commercial real estate		1,885		2,029		—		1,276		1,415		—
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		175		199		—		205		306		—
Total impaired loans without a valuation allowance		3,680		4,030		—		3,813		4,358		—
Total impaired loans
Commercial and industrial		2,794		3,030		691		2,616		2,898		336
Commercial real estate		4,676		4,845		268		5,224		5,389		837
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		202		228		27		224		326		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans	$	8,141	$	8,602	$	1,002	$	8,530	$	9,104	$	1,205

17

The table below presents the average recorded investment in impaired loans and interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021				2020
	Average				Average
	Recorded		Interest		Recorded		Interest
(dollars in thousands)	Investment		Income		Investment		Income
Impaired loans with a valuation allowance
Commercial and industrial	$	1,816	$	13	$	4,979	$	15
Commercial real estate		2,793		138		1,536		8
Residential real estate junior lien		33		—		20		—
Other revolving and installment		38		—		17		—
Total impaired loans with a valuation allowance		4,680		151		6,552		23
Impaired loans without a valuation allowance
Commercial and industrial		1,258		22		545		27
Commercial real estate		2,158		—		—		—
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		176		—		224		3
Other revolving and installment		—		—		8		—
Total impaired loans without a valuation allowance		4,027		22		1,612		30
Total impaired loans
Commercial and industrial		3,074		35		5,524		42
Real estate construction		—		—		—		—
Commercial real estate		4,951		138		1,536		8
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		209		—		244		3
Other revolving and installment		38		—		25		—
Total impaired loans	$	8,707	$	173	$	8,164	$	53

Loans with a carrying value of $1.2 billion as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, and for other purposes required or permitted by law.

Under certain circumstances, the Company will provide borrowers relief through loan restructurings. A restructuring of debt constitutes a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal or interest due, or acceptance of other assets in full or partial satisfaction of the debt.

During the first quarter of 2021, there were no loans modified as a TDR. Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through March 31, 2021, the Company had entered into modifications on 582 loans representing $154.0 million in principal balances, since the beginning of the COVID-19 pandemic. Of those loans, 16 loans with a total outstanding principal balance of $7.6 million, have been granted additional deferral, 6 loans with a total outstanding principal balance of $767 thousand remain on the first deferral and the remaining loans have been returned to a normal payment status. These deferrals were generally no more than 90 days in duration and were not considered TDRs. During the first quarter of 2020, there were no loans modified as a TDR.

The Company does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in TDRs or whose loans are on nonaccrual.

18

NOTE 5 Goodwill and Other Intangible Assets

The following table summarizes the carrying amount of goodwill, by segment, as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Banking	$	20,131	$	20,131
Retirement and benefit services		10,070		10,070
Total goodwill	$	30,201	$	30,201

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:

	March 31, 2021						December 31, 2020
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Total		Gross Carrying Amount		Accumulated Amortization		Total
Identifiable customer intangibles	$	43,346	$	(18,578)	$	24,768	$	43,346	$	(17,490)	$	25,856
Core deposit intangible assets		—		—		—		3,793		(3,730)		63
Total intangible assets	$	43,346	$	(18,578)	$	24,768	$	47,139	$	(21,220)	$	25,919

Amortization of intangible assets was $1.2 million and $1.0 million for the three months ended March 31, 2021, and 2020, respectively.

Goodwill is evaluated for impairment on an annual basis, at a minimum, and more frequently when the economic environment warrants. The Company determined that there was no goodwill impairment as of March 31, 2021.

NOTE 6 Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled $423.5 million and $445.5 million as of March 31, 2021 and December 31, 2020, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and collection and foreclosure processing. Loan servicing income is recorded on an accrual basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees, and is net of fair value adjustments to capitalized mortgage servicing rights.

The following table summarizes the Company’s activity related to servicing rights for the three months ended March 31, 2021 and 2020:

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Balance, beginning of period	$	1,987	$	3,845
Additions		49		24
Amortization		(200)		(187)
(Impairment)/Recovery		116		(405)
Balance, end of period	$	1,952	$	3,277

19

The following is a summary of key data and assumptions used in the valuation of servicing rights as of March 31, 2021 and December 31, 2020. Increases or decreases in any one of these assumptions would result in lower or higher fair value measurements.

	March 31,			December 31,
(dollars in thousands)	2021			2020
Fair value of servicing rights	$	1,952		$	1,987
Weighted-average remaining term, years		20.4			20.1
Prepayment speeds		16.1	%		17.7	%
Discount rate		9.0	%		9.0	%

NOTE 7 Leases

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for offices and office equipment rentals with terms extending through 2027. Portions of certain properties are subleased for terms extending through 2024. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated financial statements. The Company has one existing finance lease for the Company’s headquarters building with a lease term through 2022.

The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements. The following table presents the classification of the Company’s right-of-use, or ROU, assets and lease liabilities on the consolidated financial statements.

		March 31,		December 31,
(dollars in thousands)		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	6,293	$	6,918
Finance lease right-of-use assets	Land, premises and equipment, net		173		202
Total lease right-of-use assets		$	6,466	$	7,120
Lease Liabilities
Operating lease liabilities	Operating lease liabilities	$	7,140	$	7,861
Finance lease liabilities	Long-term debt		375		430
Total lease liabilities		$	7,515	$	8,291

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.

	March 31,		December 31,
	2021		2020
Weighted-average remaining lease term, years
Operating leases	5.7		5.8
Finance leases	1.6		1.8
Weighted-average discount rate
Operating leases	2.9	%	2.9	%
Finance leases	7.8	%	7.8	%

As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable

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payments such as common area maintenance and utilities. Variable lease cost also includes payments for usage or maintenance of those capitalized equipment operating leases.

The following table presents lease costs and other lease information for the three months ending March 31, 2021 and 2020.

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Lease costs
Operating lease cost	$	496	$	623
Variable lease cost		233		197
Short-term lease cost		37		95
Finance lease cost
Interest on lease liabilities		8		12
Amortization of right-of-use assets		29		29
Sublease income		(60)		(66)
Net lease cost	$	743	$	890
Other information
Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases	$	487	$	618
Right-of-use assets obtained in exchange for new operating lease liabilities		—		183
Right-of-use assets obtained in exchange for new finance lease liabilities		—		—

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:

	Finance		Operating
(dollars in thousands)	Leases		Leases
Twelve months ended
March 31, 2022	$	251	$	1,787
March 31, 2023		146		1,823
March 31, 2024		—		1,317
March 31, 2025		—		596
March 31, 2026		—		552
Thereafter		—		1,494
Total future minimum lease payments	$	397	$	7,569
Amounts representing interest		(22)		(429)
Total operating lease liabilities	$	375	$	7,140

NOTE 8 Deposits

The components of deposits in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 were as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Noninterest-bearing	$	775,434	$	754,716
Interest-bearing
Interest-bearing demand		674,466		618,900
Savings accounts		87,492		79,902
Money market savings		967,273		909,137
Time deposits		212,908		209,338
Total interest-bearing		1,942,139		1,817,277
Total deposits	$	2,717,573	$	2,571,993

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NOTE 9 Long-Term Debt

Long-term debt as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31, 2021
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	50,000	Fixed	3.50	%	3/30/2031	3/31/2026
Junior subordinated debenture (Trust I)		4,124		3,458	Three-month LIBOR + 3.10%	3.30	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,187	Three-month LIBOR + 1.80%	1.98	%	9/15/2036	9/15/2011
Finance lease liability		2,700		375	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	59,020

	December 31, 2020
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	49,688	Three-month LIBOR + 4.12%	4.36	%	12/30/2025	12/30/2020
Junior subordinated debenture (Trust I)		4,124		3,447	Three-month LIBOR + 3.10%	3.35	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,170	Three-month LIBOR + 1.80%	2.02	%	9/15/2036	9/15/2011
Finance lease liability		2,700		430	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	58,735

NOTE 10 Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Bank has outstanding commitment and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the statements of financial condition.

A summary of the contractual amounts of the Company’s exposure to off-balance sheet risk was as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commitments to extend credit	$	593,818	$	611,140
Standby letters of credit		6,224		6,510
Total	$	600,042	$	617,650

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income producing commercial properties.

The Company was not required to perform on any financial guarantees and did not incur any losses on its commitments during the past two years.

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The Company utilizes standby letters of credit issued by either the Federal Home Loan Bank or the Bank of North Dakota to secure public unit deposits. The Company had a $150 thousand letter of credit with the Federal Home Loan Bank as of March 31, 2021 and December 31, 2020. With the Bank of North Dakota, the Company had no letters of credit outstanding as of March 31, 2021 and December 31, 2020. Bank of North Dakota letters of credit were collateralized by loans pledged to the Bank of North Dakota in the amount of $237.6 million and $245.7 million as of March 31, 2021 and December 31, 2020, respectively.

NOTE 11 Share-Based Compensation

The Company has granted equity awards pursuant to the Alerus Financial Corporation 2009 Stock Plan. The awards were in the form of restricted stock or restricted stock units and are considered to represent an element of employee compensation. Compensation expense for the awards is based on the fair value of Alerus Financial Corporation common stock at the time of grant. The value of awards that are expected to vest are amortized into expense over the vesting periods. The ability to grant awards under this plan has expired.

On May 6, 2019, the Company’s stockholders approved the Alerus Financial Corporation 2019 Equity Incentive Plan. This plan allows the compensation committee the ability to grant a wide variety of equity awards, including stock options, stock appreciation rights, restricted stock, restricted stock units and cash incentive awards in such forms and amounts as it deems appropriate to accomplish the goals of the plan. Any shares subject to an award that is cancelled, forfeited, or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the plan. However, shares subject to an award shall not again be made available for issuance or delivery under the plan if such shares are (a) tendered in payment of the exercise price of a stock option, (b) delivered to, or withheld by, the Company to satisfy any tax withholding obligation, or (c) covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the award. Shares vest, become exercisable and contain such other terms and conditions as determined by the compensation committee and set forth in individual agreements with the participant receiving the award. The plan authorizes the issuance of up to 1,100,000 shares of common stock. As of March 31, 2021, 30,499 stock awards and 91,302 restricted stock units had been issued under the plan.

Compensation expense relating to awards under these plans was $498 thousand and $235 thousand for the three months ended March 31, 2021 and 2020, respectively.

The following table presents the activity in the stock plans for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021			Three months ended March 31, 2020
		Weighted-			Weighted-
		Average Grant			Average Grant
	Awards	Date Fair Value		Awards	Date Fair Value
Restricted Stock and Restricted Stock Unit Awards
Outstanding at beginning of period	325,030	$	19.48	347,211	$	18.64
Granted	59,374		26.36	63,048		20.23
Vested	(81,092)		20.72	(71,339)		16.06
Forfeited or cancelled	—		—	(5,068)		19.37
Outstanding at end of period	303,312	$	20.49	333,852	$	19.47

As of March 31, 2021, there was $4.1 million of unrecognized compensation expense related to non-vested awards granted under the plans. The expense is expected to be recognized over a weighted-average period of 2.93 years.

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NOTE 12 Income Taxes

The components of income tax expense (benefit) for the three months ended March 31, 2021 and 2020 are as follows:

	Three months ended March 31,
	2021				2020
			Percent of				Percent of
(dollars in thousands)	Amount		Pretax Income		Amount		Pretax Income
Taxes at statutory federal income tax rate	$	4,174	21.0	%	$	1,428	21.0	%
Tax effect of:
Tax exempt income		(153)	(0.8)	%		(121)	(1.8)	%
Other		641	3.2	%		130	1.9	%
Applicable income taxes	$	4,662	23.4	%	$	1,437	21.1	%

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

NOTE 13 Segment Reporting

The Company determines reportable segments 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 four operating segments: Banking, Retirement and Benefit Services, Wealth Management, and Mortgage.

The financial information presented for each segment includes net interest income, provision for loan losses, direct noninterest income, and direct noninterest expense, before indirect allocations. Corporate Administration includes the indirect overhead and is set forth in the table below. The segment net income before taxes represents direct revenue and expense before indirect allocations and income taxes.

The following table presents key metrics related to the Company’s segments for the periods presented:

	Three months ended March 31, 2021
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	21,880	$	—	$	—	$	446	$	(288)	$	22,038
Provision for loan losses		—		—		—		—		—		—
Noninterest income		1,522		17,255		4,986		17,132		(14)		40,881
Noninterest expense		11,084		10,112		2,335		10,853		8,658		43,042
Net income before taxes	$	12,318	$	7,143	$	2,651	$	6,725	$	(8,960)	$	19,877

	Three months ended March 31, 2020
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	19,446	$	—	$	—	$	268	$	(877)	$	18,837
Provision for loan losses		2,500		—		—		—		—		2,500
Noninterest income		1,874		16,220		4,046		5,045		4		27,189
Noninterest expense		12,653		7,931		1,515		5,439		9,188		36,726
Net income before taxes	$	6,167	$	8,289	$	2,531	$	(126)	$	(10,061)	$	6,800

Banking

The Banking division offers a complete line of loan, deposit, cash management, and treasury services through fourteen offices in North Dakota, Minnesota, and Arizona. 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 segment’s balance sheet.

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Retirement and Benefit Services

Retirement and Benefit Services provides the following services nationally: recordkeeping and administration services to qualified retirement plans; ESOP trustee, recordkeeping, and administration; investment fiduciary services to retirement plans; health savings accounts, flex spending accounts, COBRA recordkeeping and administration services, and payroll to employers; and payroll and HRIS services for employers. In addition, the division operates within each of the banking markets as well as in, Lansing, Michigan and Littleton Colorado.

Wealth Management

The Wealth Management division provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

Mortgage

The Mortgage division offers first and second mortgage loans through a centralized mortgage unit in Minneapolis, Minnesota as well as through the Banking office locations.

NOTE 14 Earnings Per Share

The calculation of basic and diluted earnings per share using the two-class method for the three months ending March 31, 2021 and 2020 are presented below:

	Three months ended
	March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Net income	$	15,215	$	5,363
Dividends and undistributed earnings allocated to participating securities		254		82
Net income available to common shareholders	$	14,961	$	5,281
Weighted-average common shares outstanding for basic earnings per share		17,145		17,070
Dilutive effect of stock-based awards		320		335
Weighted-average common shares outstanding for diluted earnings per share		17,465		17,405
Earnings per common share:
Basic earnings per common share	$	0.87	$	0.31
Diluted earnings per common share	$	0.86	$	0.30

NOTE 15 Derivative Instruments

The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with U.S. financial institutions in order to minimize risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.

The Company did not have any derivatives designated as hedging instruments, as of March 31, 2021 and December 31, 2020. The following table presents the amounts recorded in the Company’s consolidated balance sheets, for derivatives not designated as hedging instruments, as of March 31, 2021 and December 31, 2020:

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		March 31, 2021				December 31, 2020
		Fair		Notional		Fair		Notional
(dollars in thousands)		Value		Amount		Value		Amount
Asset Derivatives	Consolidated Balance Sheet Location
Interest rate swaps	Other assets	$	1,616	$	45,845	$	569	$	44,597
Interest rate lock commitments	Other assets		4,033		260,318		10,124		270,103
Forward loan sales commitments	Other assets		1,028		34,280		2,664		86,990
TBA mortgage backed securities	Other assets		6,251		309,000		—		—
Total asset derivatives		$	12,928	$	649,443	$	13,357	$	401,690
Liability Derivatives
Interest rate swaps	Accrued expenses and other liabilities	$	1,616	$	45,845	$	572	$	44,597
TBA mortgage backed securities	Accrued expenses and other liabilities		—		—		2,339		307,000
Total liability derivatives		$	1,616	$	45,845	$	2,911	$	351,597

The gain (loss) recognized on derivative instruments for the three months ended March 31, 2021 and 2020 was as follows:

		Three months ended
	Consolidated Statements of	March 31,		March 31,
(dollars in thousands)	of Income Location	2021		2020
Interest rate swaps	Other noninterest income	$	2	$	—
Interest rate lock commitments	Mortgage banking		(6,245)		1,227
Forward loan sales commitments	Mortgage banking		(1,635)		666
TBA mortgage backed securities	Mortgage banking		8,961		(3,423)
Total gain/(loss) from derivative instruments		$	1,083	$	(1,530)

The Company has third party agreements that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at March 31, 2021 and December 31, 2020, respectively was $2.3 million and $2.7 million. The amount of collateral posted with third parties was deemed to be sufficient as of those dates to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures.

NOTE 16 Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of common equity tier 1, tier 1, and total capital (as defined in the regulations) to risk weighted assets (as defined) and of tier 1 capital (as defined) to average assets (as defined). Management believes at March 31, 2021 and December 31, 2020, each of the Company and the Bank had met all of the capital adequacy requirements to which it was subject.

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The following table presents the Company’s and the Bank’s actual capital amounts and ratios as of March 31, 2021 and December 31, 2020:

	March 31, 2021
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	279,434	13.48	%	$	93,307	4.50	%	$	N/A	N/A
Bank		265,300	12.80	%		93,244	4.50	%		134,685	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		287,770	13.88	%		124,410	6.00	%		N/A	N/A
Bank		265,300	12.80	%		124,325	6.00	%		165,766	8.00	%
Total capital to risk weighted assets
Consolidated		363,785	17.54	%		165,880	8.00	%		N/A	N/A
Bank		291,298	14.06	%		165,766	8.00	%		207,208	10.00	%
Tier 1 capital to average assets
Consolidated		287,770	9.59	%		120,012	4.00	%		N/A	N/A
Bank		265,300	8.85	%		119,947	4.00	%		149,934	5.00	%

	December 31, 2020
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	265,490	12.75	%	$	93,723	4.50	%	$	N/A	N/A
Bank		251,806	12.10	%		93,632	4.50	%		135,246	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		273,797	13.15	%		124,964	6.00	%		N/A	N/A
Bank		251,806	12.10	%		124,843	6.00	%		166,457	8.00	%
Total capital to risk weighted assets
Consolidated		349,620	16.79	%		166,618	8.00	%		N/A	N/A
Bank		277,916	13.36	%		166,457	8.00	%		208,071	10.00	%
Tier 1 capital to average assets
Consolidated		273,797	9.24	%		118,587	4.00	%		N/A	N/A
Bank		251,806	8.50	%		118,511	4.00	%		148,139	5.00	%

The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior regulatory approval. The Company and the Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act rules. The rules included the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to the limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At March 31, 2021, the ratios for the Company and the Bank were sufficient to meet the conservation buffer. In addition, the Company must adhere to various U.S. Department of Housing and Urban Development, or HUD, regulatory guidelines including required minimum capital and liquidity to maintain their Federal Housing Administration approval status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of March 31, 2021, and December 31, 2020, the Company was in compliance with HUD guidelines.

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NOTE 17 Stock Repurchase Program

On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Program, which authorizes the Company to repurchase up to 770,000 shares of its common stock subject to certain limitations and conditions. The Program was effective immediately and will continue for a period of 36 months. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so. As of March 31, 2021, there were no shares repurchased under the Program. The Company also repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units.

NOTE 18 Fair Value of Assets and Liabilities

The Company categorizes its assets and liabilities measured at estimated fair value into a three level hierarchy based on the priority of the inputs to the valuation technique used to determine estimated fair value. The estimated fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the estimated fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the estimated fair value measurement. Assets and liabilities valued at estimated fair value are categorized based on the following inputs to the valuation techniques as follows:

Level 1—Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2—Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Estimated fair values for these instruments are estimated using pricing models, quoted prices of investment securities with similar characteristics, or discounted cash flows.

Level 3—Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to estimated fair value. Adjustments to estimated fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their estimated fair value.

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at estimated fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at estimated fair value. The Company has not elected to measure any existing financial instruments at estimated fair value; however, it may elect to measure newly acquired financial instruments at estimated fair value in the future.

Recurring Basis

The Company uses estimated fair value measurements to record estimated fair value adjustments to certain assets and liabilities and to determine estimated fair value disclosures.

The following tables present the balances of the assets and liabilities measured at estimated fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

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	March 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and securities
U.S. treasury and government agencies	$	—	$	5,683	$	—	$	5,683
Obligations of state and political agencies		—		149,191		—		149,191
Mortgage backed securities
Residential agency		—		521,595		—		521,595
Commercial		—		87,697		—		87,697
Asset backed securities		—		96		—		96
Corporate bonds		—		30,835		—		30,835
Total available-for-sale securities	$	—	$	795,097	$	—	$	795,097
Other assets
Derivatives	$	—	$	12,928	$	—	$	12,928
Other liabilities
Derivatives	$	—	$	1,616	$	—	$	1,616

	December 31, 2020
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and equity securities
U.S. treasury and government agencies	$	—	$	5,907	$	—	$	5,907
Obligations of state and political agencies		—		153,773		—		153,773
Mortgage backed securities
Residential agency		—		306,719		—		306,719
Commercial		—		94,978		—		94,978
Asset backed securities		—		115		—		115
Corporate bonds		—		30,850		—		30,850
Equity securities		—		—		—		—
Total available-for-sale and equity securities	$	—	$	592,342	$	—	$	592,342
Other assets
Derivatives	$	—	$	13,357	$	—	$	13,357
Other liabilities
Derivatives	$	—	$	2,911	$	—	$	2,911

The following is a description of the valuation methodologies used for instruments measured at estimated fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

When available, the Company uses quoted market prices to determine the estimated fair value of investment securities; such items are classified in Level 1 of the estimated fair value hierarchy. For the Company’s investment securities for which quoted prices are not available for identical investment securities in an active market, the Company determines estimated fair value utilizing vendors who apply matrix pricing for similar bonds for which no prices are observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Estimated fair values from these models are verified, where possible, against quoted prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, cannot be obtained, or cannot be corroborated, a security is generally classified as Level 3.

Derivatives

All of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For these derivatives, estimated fair value is measured using internally developed models that use

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primarily market observable inputs, such as yield curves and option volatilities, and accordingly, classify as Level 2. Examples of Level 2 derivatives are basic interest rate swaps and forward contracts.

Nonrecurring Basis

Certain assets are measured at estimated fair value on a nonrecurring basis. These assets are not measured at estimated fair value on an ongoing basis; however, they are subject to estimated fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

Net impairment related to nonrecurring estimated fair value measurements of certain assets as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31, 2021
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	78,665	$	—	$	78,665	$	—
Impaired loans		—		7,139		7,139		1,002
Foreclosed assets		—		139		139		—
Servicing rights		—		1,952		1,952		—

	December 31, 2020
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	122,440	$	—	$	122,440	$	—
Impaired loans		—		7,325		7,325		1,205
Foreclosed assets		—		63		63		—
Servicing rights		—		1,987		1,987		—

Loans Held for Sale

Loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically these quotes include a premium on the sale and thus these quotes indicate estimated fair value of the held for sale loans is greater than cost.

Impairment losses for loans held for sale that are carried at the lower of cost or estimated fair value, represent additional net write-downs during the period to record these loans at the lower of cost or estimated fair value, subsequent to their initial classification as loans held for sale.

The valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair values as of March 31, 2021, and December 31, 2020, were as follows:

			March 31, 2021
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,139	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		139	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,952	175-298		269
		Discount rate			9.0	%	9.0	%

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			December 31, 2020
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,325	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		63	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,987	191-403		285
		Discount rate			9.0	%	9.0	%

Disclosure of estimated fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases in which quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived estimated fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments, with an estimated fair value that is not practicable to estimate and all non-financial instruments, are excluded from the disclosure requirements. Accordingly, the aggregate estimated fair value amounts presented do not necessarily represent the underlying value of the Company.

The following disclosures represent financial instruments in which the ending balances, as of March 31, 2021 and December 31, 2020, were not carried at estimated fair value in their entirety on the consolidated balance sheets.

Cash and Cash Equivalents and Accrued Interest

The carrying amounts reported in the consolidated balance sheets approximate those assets and liabilities estimated fair values.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, estimated fair values are based on carrying values. The estimated fair values of other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Bank-Owned Life Insurance

Bank-owned life insurance is carried at the amount due upon surrender of the policy, which is also the estimated fair value. This amount was provided by the insurance companies based on the terms of the underlying insurance contract.

Deposits

The estimated fair values of demand deposits are, by definition, equal to the amount payable on demand at the consolidated balance sheet date. The estimated fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

Short-Term Borrowings and Long-Term Debt

For variable-rate borrowings that reprice frequently, estimated fair values are based on carrying values. The estimated fair value of fixed-rate borrowings are estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

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Off-Balance Sheet Credit-Related Commitments

Off-balance sheet credit related commitments are generally of short-term nature. The contract amount of such commitments approximates their estimated fair value since the commitments are comprised primarily of unfunded loan commitments which are generally priced at market at the time of funding.

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows:

	March 31, 2021
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	190,217	$	190,217	$	—	$	—	$	190,217
Loans		1,903,587		—		—		1,952,366		1,952,366
Accrued interest receivable		9,271		9,271		—		—		9,271
Bank-owned life insurance		32,556		—		32,556		—		32,556
Financial Liabilities
Noninterest-bearing deposits	$	775,434	$	—	$	775,434	$	—	$	775,434
Interest-bearing deposits		1,729,231		—		1,729,231		—		1,729,231
Time deposits		212,908		—		—		213,673		213,673
Long-term debt		59,020		—		56,634		—		56,634
Accrued interest payable		533		533		—		—		533

	December 31, 2020
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	172,962	$	172,962	$	—	$	—	$	172,962
Loans		1,945,129		—		—		1,992,394		1,992,394
Accrued interest receivable		9,662		9,662		—		—		9,662
Bank-owned life insurance		32,363		—		32,363		—		32,363
Financial Liabilities
Noninterest-bearing deposits	$	754,716	$	—	$	754,716	$	—	$	754,716
Interest-bearing deposits		1,607,939		—		1,607,939		—		1,607,939
Time deposits		209,338		—		—		210,637		210,637
Long-term debt		58,735		—		56,131		—		56,131
Accrued interest payable		654		654		—		—		654

NOTE 19 COVID-19 Pandemic Response

As discussed in “Note 1 Significant Accounting Policies,” the full extent of the impact of COVID-19 on the U.S. economy generally and the Company, is uncertain. In the second quarter of 2020, the Company became a lender under the Paycheck Protection Program, or PPP, which was administered through the U.S. Small Business Administration, or SBA, an agency of the U.S Department of the Treasury, which works with financial institutions in providing loans to small businesses. The PPP, which is meant to aid small businesses during the COVID-19 pandemic, was created under the Coronavirus Aid Relief, and Economic Security, or CARES, Act, which was signed into law on March 27, 2020. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. See “Note 4 Loans and Allowance for Loan Losses” for additional discussion regarding TDRs.

As of March 31, 2021, the Company assisted 2,289 new and existing clients secure a total of approximately $447.2 million of PPP financing. Net processing fees in the amount of $14.9 million are being deferred and recognized as interest income on a level yield method over the life of the respective loans. See “Note 4 Loans and Allowance for Loan Losses” for additional discussion on the remaining deferred costs associated with PPP financing.

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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion explains our financial condition and results of operations as of and for the three months ended March 31, 2021 and 2020. 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, 2020, filed with the Securities and Exchange Commission on March 12, 2021.

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 we make regarding our projected growth, anticipated future financial performance, financial condition, credit quality and management’s long-term performance goals and the future plans and prospects of Alerus Financial Corporation.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

● our ability to successfully manage credit risk and maintain an adequate level of allowance for loan losses;

● new or revised accounting standards, including as a result of the future implementation of the new Current Expected Credit Loss standard;

● business and economic conditions generally and in the financial services industry, nationally and within our market areas;

● the overall health of the local and national real estate market;

● concentrations within our loan portfolio;

● the level of nonperforming assets on our balance sheet;

● the impact of economic or market conditions on our fee-based services;

● our ability to implement our organic and acquisition growth strategies;

● potential impairment to the goodwill we recorded in connections with our past acquisitions;

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● our ability to continue to grow our retirement and benefit services business;

● our ability to continue to originate a sufficient volume of residential mortgages;

● the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents;

● interruptions involving our information technology and telecommunications systems or third-party servicers;

● developments and uncertainty related to the future use and availability of some reference rates, such as the London Interbank Offered Rate, as well as other alternative reference rates;

● potential losses incurred in connection with mortgage loan repurchases;

● the composition of our executive management team and our ability to attract and retain key personnel;

● severe weather, natural disasters, widespread disease or pandemics, such as the COVID-19 pandemic, acts of war or terrorism, or other adverse external events;

● any material weaknesses in our internal control over financial reporting;

● our ability to successfully manage liquidity risk;

● concentrations of large depositors;

● our dependence on dividends from the Bank;

● the effectiveness of our risk management framework;

● the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject;

● the extensive regulatory framework that applies to us;

● the impact of recent and future legislative and regulatory changes;

● the effects of the COVID-19 pandemic, including its effects on the economic environment, our clients and our operations, as well as any changes to federal, state, or local government laws, regulations, or orders in connection with the pandemic;

● interest rate risks associated with our business;

● fluctuations in the values of the securities held in our securities portfolio;

● governmental monetary, trade and fiscal policies;

● rapid technological change in the financial services industry;

● increased competition in the financial services industry;

● our ability to manage mortgage pipeline risk;

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● changes to U.S. tax laws, regulations and guidance;

● our success at managing the risks involved in 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 Securities and Exchange Commission.

Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake 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

We are a diversified financial services company headquartered in Grand Forks, North Dakota. Through our subsidiary, Alerus Financial, National Association, or the Bank, we provide financial solutions to businesses and consumers through four distinct business lines—banking, retirement and benefit services, wealth management and mortgage. These solutions are delivered through a relationship-oriented primary point of contact along with responsive and client-friendly technology.

Our business model produces strong financial performance and a diversified revenue stream, which has helped us establish a brand and culture yielding both a loyal client base and passionate and dedicated employees. We generate a majority of our overall revenue from noninterest income, which is driven primarily by our retirement and benefit services, wealth management and mortgage business lines. The remainder of our revenue consists of net interest income, which we derive from offering our traditional banking products and services.

Critical Accounting Policies

Our consolidated financial statements are prepared based on the application of accounting policies generally accepted in the United States, or GAAP. The preparation of our consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on the Company’s reported financial position and results of operations are set forth in Note 1 – Significant Accounting Policies of the Notes to the Consolidated Statements, included in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2020.

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

Impact of COVID-19

As of March 31, 2021, the COVID-19 pandemic is ongoing. During 2020, the COVID-19 pandemic created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. In 2021, the U.S. economy has, with certain setbacks,

35

begun reopening and wider distribution of vaccines will likely encourage activity. The progression of the COVID-19 pandemic in the United States has not had an adverse impact on our financial condition and results of operations as of and for the three months ended March 31, 2021. Nonetheless, the economic recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to the new variants of the virus.

Effects on Our Market Areas. Our primary banking market areas are the states of North Dakota, Minnesota and Arizona. Our retirement and benefit services business serves clients in all 50 states. We offer retirement and benefit services at all of our banking offices located in our three primary market areas. In addition, we operate one retirement and benefit services office in Minnesota, one in Michigan and one in Colorado.

Each of our market areas continues to have different responses to the COVID-19 pandemic due to the availability of the COVID-19 vaccines and varying infection rates. Based on the current environment, it is unclear how the states in our market areas will continue to change policies in response to the COVID-19 pandemic and whether any such changes will negatively impact our customers and regional economies.

Each state has experienced a dramatic and sudden increase in unemployment levels as a result of the curtailment of business activities. According to data released by the U.S. Department of Labor, initial claims for unemployment insurance have spiked in recent months in each of the states in our banking markets, a trend we expect to continue for the foreseeable future until restrictions are lifted.

Policy and Regulatory Developments. Federal, state and local governments and regulatory authorities have enacted and issued a range of policy responses to the COVID-19 pandemic. Most recently, these have included the following:

● On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021, or the Plan, a new $1.9 trillion COVID-19 relief bill. The Plan includes a variety of economic assistance programs for Americans, such as the payment of an additional stimulus, extension of job benefits, additional funding for COVID-19 testing and vaccine distribution, an infusion of cash in state and local governments, and an array of tax benefits among other economic incentives.

● On March 30, 2021, President Biden signed into law the PPP Extension Act of 2021, which provided an extension to May 31, 2021, for qualifying businesses to apply for a PPP loan and provided an additional 30 days for the SBA to process pending PPP loan applications.

We currently expect that the COVID-19 pandemic and the specific developments referred to above will continue to have a significant impact on our business. In particular, we anticipate that a significant portion of the Bank’s borrowers in the retail, restaurant, and hospitality industries will continue to endure significant economic distress, which could cause them to draw on their existing lines of credit and could adversely affect their ability and willingness to repay existing indebtedness, and is expected to adversely impact the value of collateral. These developments, together with economic conditions generally, are also expected to impact our commercial real estate portfolio, particularly with respect to real estate with exposure to the retail, restaurant and hospitality industries, our consumer loan business and loan portfolio, and the value of certain collateral securing our loans. In addition, we expect to see decreases in our total assets under administration and assets under management and a decrease in mortgage loan originations. Although a recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions, and could be hindered by persistent or resurgent infection rates. As a result, we anticipate that our financial condition, capital levels and results of operations will be significantly and adversely affected, as described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations. During this time, we have remained focused on the health and well-being of our workforce and meeting our clients’ needs.

Our Response. We have taken numerous steps in response to the COVID-19 pandemic, including the following:

● Workforce. We continue to prioritize the safety, health and well-being of our employees, clients and communities. We have implemented a work from home policy and certain of our offices remain closed. We

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continue to effectively serve our clients in all markets; virtually, digitally, via drive-thru and in-person as conditions allow. Our work place strategy includes various phases of expanding service to clients, reopening offices, and determining long-term work arrangements for employees. This approach allows us to incrementally expand in-person services to clients and provides flexibility between markets based on local conditions, guidelines, and restrictions.

● Client Service. We offered payment deferrals and interest only payment options for consumer, small business, and commercial customers for initial terms of up to 90 days. We offered payment extensions for mortgage customers for initial terms of up to 90 days. As of March 31, 2021, we had executed 582 loan deferrals representing $154.0 million. Of those loans, 16 loans with a total outstanding principal balance of $7.6 million have been granted second deferrals, 6 loans with a total outstanding principal balance of $767 thousand remain on the first deferral and the remaining loans have been returned to a normal payment status.

● We participated in the SBA’s PPP. As of March 31, 2021, we had assisted 2,289 borrowers receive approval for funding of $447.2 million in PPP loans. As of March 31, 2021, we had received approval for forgiveness on 1,101 loans totaling $194.2 million from the SBA. We have submitted, to the SBA an additional 75 forgiveness applications totaling $61.9 million.

Shareholder Dividend and Stock Repurchases

On February 22, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.15 per common share. This dividend was paid out on April 9, 2021, to stockholders of record at the close of business on March 19, 2021.

Although the Board of Directors is closely monitoring the impacts of the COVID-19 pandemic, it is the current expectation and intent of the Board of Directors to continue with a quarterly cash dividend.

On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Program, which authorizes the Company to repurchase up to 770,000 shares of its common stock, subject to certain limitations and conditions. The Program was effective immediately and will continue for a period of 36 months. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so. As of March 31, 2021, there were no shares repurchased under the Program. The Company also repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units.

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Operating Results Overview

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

	Three months ended
	March 31,			December 31,			March 31,
(dollars and shares in thousands, except per share data)	2021			2020			2020
Performance Ratios
Return on average total assets		2.02	%		1.34	%		0.89	%
Return on average common equity		18.46	%		12.30	%		7.32	%
Return on average tangible common equity (1)		23.03	%		15.13	%		9.76	%
Noninterest income as a % of revenue		64.97	%		62.57	%		59.07	%
Net interest margin (taxable-equivalent basis) (1)		3.12	%		3.23	%		3.35	%
Efficiency ratio (1)		66.43	%		74.44	%		77.47	%
Average equity to average assets		10.97	%		10.87	%		12.18	%
Net charge-offs/(recoveries) to average loans		(0.12)	%		(0.30)	%		(0.14)	%
Dividend payout ratio		17.44	%		26.32	%		50.00	%
Per Common Share
Earnings per common share - basic	$	0.87		$	0.58		$	0.31
Earnings per common share - diluted	$	0.86		$	0.57		$	0.30
Dividends declared per common share	$	0.15		$	0.15		$	0.15
Tangible book value per common share (1)	$	15.95		$	16.00		$	14.55
Average common shares outstanding - basic		17,145			17,122			17,070
Average common shares outstanding - diluted		17,465			17,450			17,405
Other Data
Retirement and benefit services assets under administration/management	$	34,774,650		$	34,199,954		$	27,718,026
Wealth management assets under administration/management		3,357,530			3,338,594			2,746,052
Mortgage originations		518,014			607,166			228,568

(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:

	Three months ended
	March 31,		December 31,		March 31,
(dollars in thousands)	2021		2020		2020
Selected Average Balance Sheet Data
Loans	$	1,945,437	$	2,027,903	$	1,731,593
Investment securities		662,413		549,198		337,160
Assets		3,047,261		3,028,184		2,419,665
Deposits		2,615,579		2,582,048		2,026,261
Long-term debt		25,677		58,726		58,755
Stockholders’ equity		334,188		329,210		294,727

	March 31,		December 31,		March 31,
(dollars in thousands)	2021		2020		2020
Selected Period End Balance Sheet Data
Loans	$	1,937,345	$	1,979,375	$	1,758,277
Allowance for loan losses		(33,758)		(34,246)		(27,019)
Investment securities		795,097		592,342		354,149
Assets		3,151,756		3,013,771		2,512,078
Deposits		2,717,573		2,571,993		2,121,514
Long-term debt		59,020		58,735		58,762
Total stockholders’ equity		329,234		330,163		293,608

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	Three months ended
	March 31,		December 31,		March 31,
(dollars in thousands)	2021		2020		2020
Selected Income Statement Data
Net interest income	$	22,038	$	23,153	$	18,837
Provision for loan losses		—		1,400		2,500
Noninterest income		40,881		38,696		27,189
Noninterest expense		43,042		47,125		36,726
Income before income taxes		19,877		13,324		6,800
Income tax expense		4,662		3,144		1,437
Net income	$	15,215	$	10,180	$	5,363

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

In addition to the results presented in accordance with GAAP, we routinely supplement our 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, tangible book value per common share, return on average tangible common equity, net interest margin (tax-equivalent), and the efficiency ratio. 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) tangible book value per common share as tangible common equity divided by shares of common stock outstanding; (iii) tangible assets as total assets, less goodwill and other intangible assets; (iv) return on average tangible common equity as net income adjusted for intangible amortization net of tax, divided by average tangible common equity; (v) net interest margin (tax-equivalent) as net interest income plus a tax-equivalent adjustment, divided by average earning assets; and (vi) efficiency ratio as noninterest expense less intangible amortization expense, divided by net interest income plus noninterest income plus a tax-equivalent adjustment.

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

	March 31,			December 31,			March 31,
(dollars and shares in thousands, except per share data)	2021			2020			2020
Tangible common equity to tangible assets
Total common stockholders’ equity	$	329,234		$	330,163		$	293,608
Less: Goodwill		30,201			30,201			27,329
Less: Other intangible assets		24,768			25,919			17,401
Tangible common equity (a)		274,265			274,043			248,878
Total assets		3,151,756			3,013,771			2,512,078
Less: Goodwill		30,201			30,201			27,329
Less: Other intangible assets		24,768			25,919			17,401
Tangible assets (b)		3,096,787			2,957,651			2,467,348
Tangible common equity to tangible assets (a)/(b)		8.86	%		9.27	%		10.09	%
Tangible book value per common share
Total common stockholders’ equity	$	329,234		$	330,163		$	293,608
Less: Goodwill		30,201			30,201			27,329
Less: Other intangible assets		24,768			25,919			17,401
Tangible common equity (c)		274,265			274,043			248,878
Total common shares issued and outstanding (d)		17,190			17,125			17,106
Tangible book value per common share (c)/(d)	$	15.95		$	16.00		$	14.55

	Three months ended
	March 31,			December 31,			March 31,
(dollars and shares in thousands, except per share data)	2021			2020			2020
Return on average tangible common equity
Net income	$	15,215		$	10,180		$	5,363
Add: Intangible amortization expense (net of tax)		909			782			782
Net income, excluding intangible amortization (e)		16,124			10,962			6,145
Average total equity		334,188			329,210			294,727
Less: Average goodwill		30,201			27,766			27,329
Less: Average other intangible assets (net of tax)		19,995			13,206			14,128
Average tangible common equity (f)		283,992			288,238			253,270
Return on average tangible common equity (e)/(f)		23.03	%		15.13	%		9.76	%
Net interest margin (tax-equivalent)
Net interest income	$	22,038		$	23,153		$	18,837
Tax-equivalent adjustment		143			131			100
Tax-equivalent net interest income (g)		22,181			23,284			18,937
Average earning assets (h)		2,880,255			2,869,767			2,271,004
Net interest margin (tax-equivalent) (g)/(h)		3.12	%		3.23	%		3.35	%
Efficiency ratio
Noninterest expense	$	43,042		$	47,125		$	36,726
Less: Intangible amortization expense		1,151			990			990
Adjusted noninterest expense (i)		41,891			46,135			35,736
Net interest income		22,038			23,153			18,837
Noninterest income		40,881			38,696			27,189
Tax-equivalent adjustment		143			131			100
Total tax-equivalent revenue (j)		63,062			61,980			46,126
Efficiency ratio (i)/(j)		66.43	%		74.44	%		77.47	%

40

Discussion and Analysis of Results of Operations

Net Income

Net income for the three months ended March 31, 2021 was $15.2 million, or $0.86 per diluted common share, a $9.9 million increase as compared to $5.4 million, or $0.30 per diluted common share, for the three months ended March 31, 2020. This increase in net income was primarily due to increases of $13.7 million in noninterest income, $3.2 million in net interest income, and a $2.5 million decrease in provision expense, partially offset by increases of $6.3 million in noninterest expense and $3.2 million in income tax expense. The increase in noninterest income was primarily due to a $12.1 million increase in mortgage banking revenue as a result of increased mortgage originations. The increase in noninterest expense was primarily attributable to an increase in compensation expense related to the increase in mortgage originations.

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 months ended March 31, 2021 and 2020.

In response to the COVID-19 pandemic, the Federal Reserve decreased the targeted federal funds rate by a total of 150 basis points in March 2020. We anticipate that our interest income will be significantly and adversely affected in future periods as a result of the COVID-19 pandemic, including as a result of the effects of lower interest rates.

Net interest income for the three months ended March 31, 2021 was $22.0 million, an increase of $3.2 million from $18.8 million for the three months ended March 31, 2020. The three months ended March 31, 2021 included a $3.0 million decrease in interest expense compared to the same period in 2020 and a $215 thousand increase in interest income. The decrease in interest expense was primarily driven by a decrease of $2.4 million in deposit interest expense and a decrease of $589 thousand in interest expense on long-term debt. The decrease in deposit interest expense for the three months ended March 31, 2021, compared to the same period 2020 was driven primarily by a 72 basis point reduction in the average rate paid on interest-bearing deposits, partially offset by a $421.9 million increase in the average balance of interest-bearing deposits. The decrease in interest expense on long-term debt for the three months ended March 31, 2021, was primarily due to a $33.1 million decrease in the average balance in long-term debt. The increase in interest income was primarily driven by a $643 thousand increase in interest income from investment securities as a result of a $325.3 million increase in the average balance of investment securities.

Our net interest margin (on a fully tax-equivalent, or FTE, basis) for the three months ended March 31, 2021 was 3.12%, compared to 3.35% for the same period in 2020. The decrease in net interest margin from the first quarter of 2020 was due to an 81 basis point lower average earning asset yield, partially offset by an 86 basis point decrease in the average rate paid on interest-bearing liabilities. The decrease in the average earning asset yield was primarily due to decreases of 112 basis points on interest-bearing deposits with banks and 80 basis points on the average rate on investment securities. These decreases were largely driven by the low interest rate environment as well as a shift to a more liquid balance sheet mix as the average balance in interest-bearing deposits with banks increased $21.0 million and the average balance in investment securities increased $325.3 million. The decrease in the average rate paid on total interest-bearing liabilities was primarily due to an 86 basis point decrease in the average rate paid on money market and savings deposits.

As a result of the reductions in the target federal funds interest rate, as well as the impact of the COVID-19 pandemic and related future loan charge-offs that we expect to incur, we anticipate that our net interest income and net interest margin FTE will decrease in future periods. These decreases will be partially offset by the processing fees received from PPP financing, which fees are being deferred and recognized as an adjustment to interest income over the life of the loans.

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The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields on assets, and average yields earned and rates paid for the three months ended March 31, 2021 and 2020. We derived these yields and rates by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. Average loan balances include loans that have been placed on nonaccrual, 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 comparable basis.

	Three months ended March 31,
	2021						2020
			Interest		Average				Interest		Average
	Average		Income/		Yield/		Average		Income/		Yield/
(dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Interest Earning Assets
Interest-bearing deposits with banks	$	184,376	$	53	0.12	%	$	163,351	$	502	1.24	%
Investment securities (1)		662,413		2,700	1.65	%		337,160		2,056	2.45	%
Loans held for sale		82,249		432	2.13	%		33,138		254	3.08	%
Loans
Commercial:
Commercial and industrial		674,935		7,863	4.72	%		479,291		6,272	5.26	%
Real estate construction		45,264		471	4.22	%		26,723		334	5.03	%
Commercial real estate		560,986		5,243	3.79	%		508,164		5,823	4.61	%
Total commercial		1,281,185		13,577	4.30	%		1,014,178		12,429	4.93	%
Consumer
Residential real estate first mortgage		457,882		4,247	3.76	%		460,726		4,699	4.10	%
Residential real estate junior lien		137,745		1,650	4.86	%		173,436		2,228	5.17	%
Other revolving and installment		68,625		741	4.38	%		83,253		970	4.69	%
Total consumer		664,252		6,638	4.05	%		717,415		7,897	4.43	%
Total loans (1)		1,945,437		20,215	4.21	%		1,731,593		20,326	4.72	%
Federal Reserve/FHLB Stock		5,780		64	4.49	%		5,762		68	4.75	%
Total interest earning assets		2,880,255		23,464	3.30	%		2,271,004		23,206	4.11	%
Noninterest earning assets		167,006						148,661
Total assets	$	3,047,261					$	2,419,665
Interest-Bearing Liabilities
Interest-bearing demand deposits	$	642,832	$	247	0.16	%	$	459,028	$	528	0.46	%
Money market and savings deposits		1,030,348		403	0.16	%		803,838		2,078	1.04	%
Time deposits		210,719		345	0.66	%		199,088		786	1.59	%
Long-term debt		25,677		288	4.55	%		58,755		877	6.00	%
Total interest-bearing liabilities		1,909,576		1,283	0.27	%		1,520,709		4,269	1.13	%
Noninterest-Bearing Liabilities and Stockholders' Equity
Noninterest-bearing deposits		731,680						564,307
Other noninterest-bearing liabilities		71,817						39,922
Stockholders’ equity		334,188						294,727
Total liabilities and stockholders’ equity	$	3,047,261					$	2,419,665
Net interest income			$	22,181					$	18,937
Net interest rate spread					3.03	%					2.98	%
Net interest margin on FTE basis (1)					3.12	%					3.35	%

(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 our interest earning assets and the interest incurred on our interest-bearing liabilities. The effect of changes in volume is determined by multiplying the

42

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.

	Three months ended March 31, 2021
	Compared with
	Three months ended March 31, 2020
	Change due to:				Interest
(tax-equivalent basis, dollars in thousands)	Volume		Rate		Variance
Interest earning assets
Interest-bearing deposits with banks	$	64	$	(513)	$	(449)
Investment securities		1,965		(1,321)		644
Loans held for sale		373		(195)		178
Loans
Commercial:
Commercial and industrial		2,537		(946)		1,591
Real estate construction		230		(93)		137
Commercial real estate		600		(1,180)		(580)
Total commercial		3,367		(2,219)		1,148
Consumer
Residential real estate first mortgage		(29)		(423)		(452)
Residential real estate junior lien		(455)		(123)		(578)
Other revolving and installment		(169)		(60)		(229)
Total consumer		(653)		(606)		(1,259)
Total loans		2,714		(2,825)		(111)
Federal Reserve/FHLB Stock		—		(4)		(4)
Total interest income		5,116		(4,858)		258
Interest-bearing liabilities
Interest-bearing demand deposits		208		(489)		(281)
Money market and savings deposits		581		(2,256)		(1,675)
Time deposits		46		(487)		(441)
Short-term borrowings		—		—		—
Long-term debt		(489)		(100)		(589)
Total interest expense		346		(3,332)		(2,986)
Change in net interest income	$	4,770	$	(1,526)	$	3,244

Provision for Loan Losses

The provision for loan losses is based upon our allowance methodology and is a charge to income that, in our judgment, is required to maintain an adequate allowance for incurred loan losses at each period-end. In assessing the adequacy of the allowance, management considers the size and quality of the loan portfolio measured against prevailing economic conditions, regulatory guidelines, and historical loan loss experience. However, there is no assurance that loan credit losses will not exceed the allowance, and any growth in the loan portfolio and the uncertainty of the general economy may require additional provisions in future periods.

We recorded no provision for loan losses for the three months ended March 31, 2021, a $2.5 million decrease compared to the provision for the three months ended March 31, 2020. Management believes that no additional provision is necessary at this time due to declining loan balances and strong credit quality indicators.

Noninterest Income

Our noninterest income is generated from four primary sources: (1) retirement and benefit services; (2) wealth management; (3) mortgage banking; and (4) other general banking services.

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The following table presents our noninterest income for the three months ended March 31, 2021 and 2020.

	Three months ended
	March 31,
(dollars in thousands)	2021			2020
Retirement and benefit services	$	17,255		$	16,220
Wealth management		4,986			4,046
Mortgage banking		17,132			5,045
Service charges on deposit accounts		338			423
Net gains (losses) on investment securities		114			—
Other		1,056			1,455
Total noninterest income	$	40,881		$	27,189
Noninterest income as a % of revenue		64.97	%		59.07	%

Total noninterest income for the three months ended March 31, 2021 was $40.9 million, an increase of $13.7 million, or 50.4%, compared to $27.2 million for the three months ended March 31, 2020. The increase in noninterest income was primarily driven by increases of $12.1 million in mortgage banking revenue, $1.0 million in retirement and benefit services revenue and $940 thousand in wealth management revenue, partially offset by a decrease of $399 thousand in other noninterest income. The increase in mortgage banking revenue was primarily driven by an increase of $289.4 million in mortgage originations as well as a $1.6 million increase in the change in the fair value of the secondary market hedge. The increase in retirement and benefit services revenue was primarily attributed to the acquisition of Retirement Planning Services Inc. Wealth management revenue increased primarily due to an increase of $611.5 million of assets under administration/management.

We anticipate that our noninterest income will be significantly adversely affected in future periods as a result of increasing interest rates and inflationary pressure, which will adversely affect mortgage originations and mortgage banking revenue.

Noninterest income as a percentage of total operating revenue, which consists of net interest income plus noninterest income, was 65.0% for the three months ended March 31, 2021, compared to 59.1% for the three months ended March 31, 2020. The increase was due to noninterest income increasing by 50.4% while net interest income increased by only 17.0%.

See “NOTE 14 Segment Reporting” for additional discussion regarding our business lines.

Noninterest Expense

The following table presents noninterest expense for the three months ended March 31, 2021 and 2020.

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Compensation	$	23,698	$	18,731
Employee taxes and benefits		5,813		5,308
Occupancy and equipment expense		2,231		2,492
Business services, software and technology expense		4,976		4,543
Intangible amortization expense		1,151		990
Professional fees and assessments		1,472		1,056
Marketing and business development		676		610
Supplies and postage		531		707
Travel		26		261
Mortgage and lending expenses		1,332		1,141
Other		1,136		887
Total noninterest expense	$	43,042	$	36,726

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Total noninterest expense for the three months ended March 31, 2021 was $43.0 million, an increase of $6.3 million, or 17.2%, compared to $36.7 million for the three months ended March 31, 2020. The increase in noninterest expense was driven by increases of $5.0 million in compensation expense, $505 thousand in employee taxes and benefits, $433 thousand in business services, software and technology expense, $416 thousand in professional fees and assessments and $249 thousand in other noninterest expense, partially offset by decreases $235 thousand in travel and $261 thousand in occupancy and equipment expense. The increases in compensation expense as well as employee taxes and benefits are due to increases in mortgage originations and the related compensation and incentives. The increase in business services, software and technology expense was primarily due to our continued focus on internal core processing technology.

Income Tax Expense

Income tax expense is an estimate based on the amount we expect to owe the respective 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 our tax position. If the final resolution of taxes payable differs from our estimates due to regulatory determination or legislative or judicial actions, adjustments to tax expense may be required.

For the three months ended March 31, 2021, we recognized income tax expense of $4.7 million on $19.9 million of pre-tax income, resulting in an effective tax rate of 23.4%, compared to income tax expense of $1.4 million on $6.8 million of pre-tax income for the three months ended March 31, 2020, resulting in an effective tax rate of 21.1%.

Financial Condition

Overview

Total assets were $3.2 billion as of March 31, 2021, an increase of $138.0 million, or 4.6%, as compared to December 31, 2020. The increase in total assets was primarily due to increases of $202.8 million in available-for-sale investment securities and $17.3 million in cash and cash equivalents, partially offset by decreases of $43.8 million in loans held for sale and $42.0 million in loans held for investment.

Loans

The loan portfolio represents a broad range of borrowers comprised of commercial and industrial, commercial real estate, residential real estate, and consumer financing loans. The goal of the overall portfolio mix is to diversify with approximately one third of the portfolio in each of the commercial and industrial, commercial real estate, and residential real estate categories. As of March 31, 2021, the portfolio mix was 35.0% commercial and industrial, 29.4% commercial real estate, 30.2% residential real estate and 5.4% in other categories. Commercial and industrial loans included $256.8 million of PPP loans as of March 31, 2021.

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The following table presents the composition of total loans outstanding by portfolio segment as of March 31, 2021 and December 31, 2020:

	March 31, 2021				December 31, 2020
			Percent of				Percent of		Change
(dollars in thousands)	Balance		Portfolio		Balance		Portfolio			Amount	Percent
Commercial
Commercial and industrial (1)	$	678,029	35.0	%	$	691,858	35.0	%	$	(13,829)	(2.0)	%
Real estate construction		40,473	2.1	%		44,451	2.2	%		(3,978)	(8.9)	%
Commercial real estate		569,451	29.4	%		563,007	28.5	%		6,444	1.1	%
Total commercial		1,287,953	66.5	%		1,299,316	65.7	%		(11,363)	(0.9)	%
Consumer
Residential real estate first mortgage		454,958	23.5	%		463,370	23.4	%		(8,412)	(1.8)	%
Residential real estate junior lien		130,299	6.7	%		143,416	7.2	%		(13,117)	(9.1)	%
Other revolving and installment		64,135	3.3	%		73,273	3.7	%		(9,138)	(12.5)	%
Total consumer		649,392	33.5	%		680,059	34.3	%		(30,667)	(4.5)	%
Total loans	$	1,937,345	100.0	%	$	1,979,375	100.0	%	$	(42,030)	(2.1)	%

(1) Included PPP loans of $256.8 million at March 31, 2021 and $268.4 million at December 31, 2020.

Total loans outstanding were $1.94 billion as of March 31, 2021, a decrease of $42.0 million, or 2.1%, from December 31, 2020. The decrease was primarily due to decreases of $13.8 million in commercial and industrial loans, $4.0 million in our real estate construction and $30.7 in our consumer loan portfolio, partially offset by a $6.4 million increase in our commercial real estate loan portfolio.

Consistent with regulatory guidance urging banks to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company offered a payment deferral program for its lending clients that were adversely affected by COVID-19. These deferrals were generally no more than 90 days in duration. As of March 31, 2021, the Company had executed 582 of these deferrals representing $154.0 million. Of those loans, 16 loans with a total outstanding principal balance of $7.6 million have been granted second deferrals, 6 loans with a total outstanding principal balance of $767 thousand remain on the first deferral and the remaining loans have been returned to a normal payment status. In accordance with the Interagency Statement on Loan Modifications and Reporting for Financial institutions as issued on April 7, 2020, these short-term deferrals were not considered TDRs. See “NOTE 4 Loans and Allowance for Loan Losses” to the consolidated financial statements for additional information regarding TDRs.

We anticipate that loan growth will slow down in the future for our commercial and industrial, commercial real estate, residential real estate, and consumer loan portfolios as a result of COVID-19 and the related decline in economic conditions in our market areas.

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The following table presents the maturities and types of interest rates for the loan portfolio as of March 31, 2021.

	March 31, 2021
			After one
	One year		but within		After
(dollars in thousands)	or less		five years		five years		Total
Commercial
Commercial and industrial	$	115,225	$	507,779	$	55,025	$	678,029
Real estate construction		11,516		11,057		17,900		40,473
Commercial real estate		51,003		216,172		302,276		569,451
Total commercial		177,744		735,008		375,201		1,287,953
Consumer
Residential real estate first mortgage		19,284		15,994		419,680		454,958
Residential real estate junior lien		12,948		40,825		76,526		130,299
Other revolving and installment		8,106		45,619		10,410		64,135
Total consumer		40,338		102,438		506,616		649,392
Total loans	$	218,082	$	837,446	$	881,817	$	1,937,345
Sensitivity of loans to changes in interest rates
Fixed interest rates			$	718,086	$	432,761
Floating interest rates				119,360		449,056
Total			$	837,446	$	881,817

As of March 31, 2021, 63.5% of the loan portfolio bore interest at fixed rates and 36.5% at floating rates. The expected life of our 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

Our 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. We strive to identify potential problem loans early, take necessary charge-offs promptly, and maintain adequate reserve levels for probable loan losses inherent in the portfolio. Management performs ongoing, internal reviews of any problem credits and continually assesses the adequacy of the allowance. We utilize 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.

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See “NOTE 4 Loans and Allowance for Loan Losses” to 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 March 31, 2021 and December 31, 2020:

	March 31,			December 31,
(dollars in thousands)	2021			2020
Commercial
Commercial and industrial	$	19,422		$	22,256
Real estate construction		—			—
Commercial real estate		28,545			29,274
Total commercial		47,967			51,530
Consumer
Residential real estate first mortgage		6,039			2,149
Residential real estate junior lien		1,511			2,955
Other revolving and installment		37			37
Total consumer		7,587			5,141
Total loans	$	55,554		$	56,671
Criticized loans as a percent of total loans		2.87	%		2.86	%

The following table presents information regarding nonperforming assets as of March 31, 2021 and December 31, 2020:

	March 31,			December 31,
(dollars in thousands)	2021			2020
Nonaccrual loans	$	4,756		$	5,050
Accruing loans 90+ days past due		—			30
Total nonperforming loans		4,756			5,080
OREO and repossessed assets		139			63
Total nonperforming assets		4,895			5,143
Total restructured accruing loans		3,390			3,427
Total nonperforming assets and restructured accruing loans	$	8,285		$	8,570
Nonperforming loans to total loans		0.25	%		0.26	%
Nonperforming assets to total assets		0.16	%		0.17	%
Allowance for loan losses to nonperforming loans		710	%		674	%

The ratio of nonperforming loans to total loans at March 31, 2021 was 0.25%. Nonperforming assets as a percentage of total assets was 0.16% at March 31, 2021.

Interest income lost on nonaccrual loans approximated zero and $155 thousand for the three months ended March 31, 2021 and 2020, respectively. There was no interest income included in net interest income related to nonaccrual loans for the three months ended March 31, 2021 and 2020.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of incurred credit losses inherent in the loan portfolio at the balance sheet date. The allowance for loan losses is maintained at a level management believes is sufficient to absorb incurred losses in the loan portfolio given the conditions at the time. Management determines the adequacy of the allowance based on periodic evaluations of the loan portfolio, after consideration of risk characteristics of the loans and prevailing and anticipated economic and other conditions. A risk system, consisting of multiple grading categories for each portfolio class, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated economic conditions and considers such factors as the financial condition of the borrower, past and expected loss experience, and other factors which management feels deserve recognition in establishing an appropriate reserve. These estimates are reviewed at least quarterly, and, as adjustments become necessary, they are recognized in the periods in

48

which they become known. These evaluations are inherently subjective as they require management to make material estimates, all of which may be susceptible to significant change.

The following table presents, by loan type, the changes in the allowance for loan losses for the periods presented.

	Three months ended
	March 31,
(dollars in thousands)	2021			2020
Balance—beginning of period	$	34,246		$	23,924
Commercial loan charge-offs
Commercial and Industrial		(204)			(32)
Real estate construction		—			—
Commercial real estate		(536)			—
Total commercial loan charge-offs		(740)			(32)
Consumer loan charge-offs
Residential real estate first mortgage		—			—
Residential real estate junior lien		—			—
Other revolving and installment		(44)			(67)
Total consumer loan charge-offs		(44)			(67)
Total loan charge-offs		(784)			(99)
Commercial loan recoveries
Commercial and Industrial		170			593
Real estate construction		—			—
Commercial real estate		3			—
Total commercial recoveries		173			593
Consumer loan recoveries
Residential real estate first mortgage		—			—
Residential real estate junior lien		83			37
Other revolving and installment		40			64
Total consumer loan recoveries		123			101
Total loan recoveries		296			694
Net loan charge-offs (recoveries)		488			(595)
Commercial loan provision
Commercial and Industrial		316			70
Real estate construction		(60)			31
Commercial real estate		277			1,588
Total commercial loan provision		533			1,689
Consumer loan provision
Residential real estate first mortgage		273			761
Residential real estate junior lien		(168)			317
Other revolving and installment		(83)			92
Total consumer loan provision		22			1,170
Unallocated provision expense		(555)			(359)
Total loan loss provision		—			2,500
Balance—end of period	$	33,758		$	27,019
Total loans	$	1,937,345		$	1,758,277
Average total loans		1,945,437			1,731,593
Allowance for loan losses to total loans		1.74	%		1.54	%
Net charge-offs/(recoveries) to average total loans (annualized)		0.10	%		(0.14)	%

The allowance for loan losses was $33.8 million as of March 31, 2021, compared to $34.2 million as of December 31, 2020. The $488 million decrease in the allowance for loan losses was due to net charge-offs in the quarter as there was no additional provision expense taken during the period. As of March 31, 2021, the allowance for loan losses represented 1.74% of total loans. Excluding PPP loans, the ratio of allowance for loan losses to total loans was 2.01% at March 31, 2021, compared to 2.00% as of December 31, 2020.

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Based on current economic indicators, the Company maintained the economic factors within the allowance for loan losses evaluation. We expect that the allowance for loan losses as a percent of total loans may increase in future periods based on our belief that the credit quality of our loan portfolio may decline, and loan defaults may increase, as a result of COVID-19.

The following table presents the allocation of the allowance for loan losses as of the dates presented.

	March 31, 2021				December 31, 2020
			Percentage				Percentage
	Allocated		of loans to		Allocated		of loans to
(dollars in thousands)	Allowance		total loans		Allowance		total loans
Commercial and industrial	$	10,487	35.0	%	$	10,205	35.0	%
Real estate construction		598	2.1	%		658	2.2	%
Commercial real estate		13,849	29.4	%		14,105	28.5	%
Residential real estate first mortgage		6,047	23.5	%		5,774	23.4	%
Residential real estate junior lien		1,288	6.7	%		1,373	7.2	%
Other revolving and installment		666	3.3	%		753	3.7	%
Unallocated		823	—	%		1,378	—	%
Total loans	$	33,758	100.0	%	$	34,246	100.0	%

In the ordinary course of business, we enter 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. A reserve for unfunded commitments is established using historical loss data and utilization assumptions. This reserve is located in accrued expenses and other liabilities on the Consolidated Balance Sheets. The reserve for unfunded commitments was $1.8 million as of March 31, 2021, a decrease of $94 thousand, as compared to December 31, 2020.

Loans Held for Sale

Loans held for sale represent loans to consumers for the purchase or refinance of a residence that we have originated and intend to sell into the secondary market. Loans held for sale were $78.7 million as of March 31, 2021, a decrease of $43.8 million, as compared to December 31, 2020. The decrease in loans held for sale was primarily due to decreased mortgage originations in the first quarter. Mortgage loan originations totaled $518.0 million for the three months ended March 31, 2021 compared to $607.2 million for the three months ended December 31, 2020.

Investment Securities

The composition of our investment securities portfolio reflects our 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.

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The following table presents the fair value composition of our investment securities portfolio as of March 31, 2021 and December 31, 2020:

	March 31, 2021				December 31, 2020
			Percent of				Percent of		Change
(dollars in thousands)	Balance		Portfolio		Balance		Portfolio		Amount		Percent
Available-for-sale
U.S. Treasury and agencies		5,683	0.7	%		5,907	1.0	%	$	(224)	(3.8)	%
Obligations of state and political agencies		149,191	18.8	%		153,773	26.0	%		(4,582)	(3.0)	%
Mortgage backed securities
Residential Agency		521,595	65.6	%		306,719	51.8	%		214,876	70.1	%
Commercial		87,697	11.0	%		94,978	16.0	%		(7,281)	(7.7)	%
Asset backed securities		96	—	%		115	—	%		(19)	(16.5)	%
Corporate bonds		30,835	3.9	%		30,850	5.2	%		(15)	—	%
Total investment securities	$	795,097	100.0	%	$	592,342	100.0	%	$	202,755	34.2	%

The securities available-for-sale presented in the following table are reported at fair value and by contractual maturity as of March 31, 2021. 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.

	Maturity as of March 31, 2021
	One year or less				One to five years				Five to ten years				After ten years
	Fair		Average		Fair		Average		Fair		Average		Fair		Average
(dollars in thousands)	Value		Yield		Value		Yield		Value		Yield		Value		Yield
Available-for-sale
U.S. Treasury and agencies	$	—	—	%	$	—	—	%	$	1,476	0.92	%	$	4,207	0.71	%
Obligations of state and political agencies		4,500	1.30	%		30,177	1.35	%		73,310	1.82	%		41,204	2.34	%
Mortgage backed securities
Residential Agency		1	3.82	%		3,003	2.87	%		15,825	2.16	%		502,766	1.22	%
Commercial		—	—	%		—	—	%		32,967	2.81	%		54,730	2.78	%
Asset backed securities		—	—	%		—	—	%		—	—	%		96	5.22	%
Corporate bonds		1,005	2.77	%		—	—	%		29,830	4.51	%		—	—	%
Total available-for-sale	$	5,506	1.57	%	$	33,180	1.48	%	$	153,408	2.58	%	$	603,003	1.43	%

Deposits

Total deposits were $2.72 billion as of March 31, 2021, an increase of $145.6 million, or 5.7%, from December 31, 2020. Interest-bearing deposits increased $124.9 million while noninterest-bearing deposits increased $20.7 million. Key drivers included inflows from government stimulus programs and higher depositor balances due to the uncertain economic environment and volatile financial markets. The increase in interest-bearing deposits included increases of $55.6 million in interest-bearing demand deposits, $58.1 million in money market accounts, $7.6 million in savings accounts and $3.6 million in time deposits, partially offset by a $26.6 million decrease in synergistic deposits, including health savings account deposits from our retirement and benefit services and wealth management segments. As of March 31, 2021, the total sourced deposits outside of our branch footprint was $569.0 million. Excluding synergistic deposits, commercial transaction deposits increased $135.2 million, or 12.2%, while consumer transaction deposits increased $24.3 million, or 3.8%, since December 31, 2020.

We expect that deposit levels will generally decrease in future periods as a result of the distressed economic conditions in our market areas as a result of the COVID-19 pandemic and as clients continue to utilize funds received from PPP loans and government stimulus programs.

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The following table presents the composition of our deposit portfolio as of March 31, 2021 and December 31, 2020:

	March 31, 2021				December 31, 2020
			Percent of				Percent of		Change
(dollars in thousands)	Balance		Portfolio		Balance		Portfolio		Amount		Percent
Noninterest-bearing demand	$	775,434	28.5	%	$	754,716	29.3	%	$	20,718	2.7	%
Interest-bearing demand		674,466	24.8	%		618,900	24.1	%		55,566	9.0	%
Money market and savings		1,054,765	38.9	%		989,039	38.5	%		65,726	6.6	%
Time deposits		212,908	7.8	%		209,338	8.1	%		3,570	1.7	%
Total deposits	$	2,717,573	100.0	%	$	2,571,993	100.0	%	$	145,580	5.7	%

The following table presents the average balances and rates of our deposit portfolio for the three months ended March 31, 2021 and 2020:

	Three months ended				Three months ended
	March 31, 2021				March 31, 2020
	Average		Average		Average		Average
(dollars in thousands)	Balance		Rate		Balance		Rate
Noninterest-bearing demand	$	731,680	—	%	$	564,307	—	%
Interest-bearing demand		642,832	0.16	%		459,028	0.46	%
Money market and savings		1,030,348	0.16	%		803,838	1.04	%
Time deposits		210,719	0.66	%		199,088	1.59	%
Total deposits	$	2,615,579	0.15	%	$	2,026,261	0.67	%

The following table presents the contractual maturity of time deposits, including certificate of deposit account registry services and IRA deposits of $100 thousand and over, that were outstanding, as of the dates presented:

	March 31,
(dollars in thousands)	2021
Maturing in:
3 months or less	$	66,793
3 months to 6 months		51,201
6 months to 1 year		6,374
1 year or greater		8,828
Total	$	133,196

Borrowings

Borrowings as of March 31, 2021 and December 31, 2020 were as follows:

	March 31, 2021				December 31, 2020
			Percent of				Percent of
(dollars in thousands)	Balance		Portfolio		Balance		Portfolio
Subordinated notes		50,000	84.8	%		49,688	84.6	%
Junior subordinated debentures		8,645	14.6	%		8,617	14.7	%
Finance lease liability		375	0.6	%		430	0.7	%
Total borrowed funds	$	59,020	100.0	%	$	58,735	100.0	%

In the first quarter of 2021, we redeemed our previously issued subordinated debt with a rate of 5.75% and issued new subordinated debt to the Bank of North Dakota with an initial fixed rate of 3.50%.

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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 decreased $929 thousand to $329.2 million as of March 31, 2021, compared to $330.2 million as of December 31, 2020. The decrease in stockholders' equity was primarily driven by decreases of $13.6 million in accumulated other comprehensive income and $2.6 million in dividends declared on common stock, partially offset by $15.2 million in net income. Tangible common equity to tangible assets, a non-GAAP financial measure, decreased to 8.86% as of March 31, 2021, from 9.27% as of December 31, 2020. Tangible common equity to tangible assets would have been 9.66% as of March 31, 2021 and 10.19% as of December 31, 2020, if PPP loans were excluded.

We strive to maintain an adequate capital base to support our 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 our balance sheet, recognizing that unexpected loss is the common denominator of risk and that common equity has the greatest capacity to absorb unexpected loss.

We are 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 our 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. We have consistently maintained regulatory capital ratios at or above the well-capitalized standards.

At March 31, 2021 and December 31, 2020, we met all the capital adequacy requirements to which we were subject. The table below presents the Company’s and the Bank’s regulatory capital ratios as of March 31, 2021 and December 31, 2019:

	March 31,		December 31,
Capital Ratios	2021		2020
Alerus Financial Corporation Consolidated
Common equity tier 1 capital to risk weighted assets	13.48	%	12.75	%
Tier 1 capital to risk weighted assets	13.88	%	13.15	%
Total capital to risk weighted assets	17.54	%	16.79	%
Tier 1 capital to average assets	9.59	%	9.24	%
Tangible common equity to tangible assets (1)	8.86	%	9.27	%
Alerus Financial, National Association
Common equity tier 1 capital to risk weighted assets	12.80	%	12.10	%
Tier 1 capital to risk weighted assets	12.80	%	12.10	%
Total capital to risk weighted assets	14.06	%	13.36	%
Tier 1 capital to average assets	8.85	%	8.50	%

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

The capital ratios for the Company and the Bank, as of March 31, 2021, as shown in the above tables, were at levels above the regulatory minimums to be considered “well capitalized”. See “Note 17 Regulatory Matters” to the consolidated financial statements for additional information.

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Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

In the ordinary course of our operations, we enter into certain contractual obligations. The following table presents our contractual obligations by maturity as of March 31, 2021.

	March 31, 2021
	Less than		One to		Three to		Over
(dollars in thousands)	one year		three years		five years		five years		Total
Operating lease obligations	$	1,787	$	3,140	$	1,148	$	1,494	$	7,569
Time deposits		188,169		14,792		6,497		3,450		212,908
Subordinated notes payable		—		—		—		50,000		50,000
Junior subordinated debenture (Trust I)		—		—		—		3,458		3,458
Junior subordinated debenture (Trust II)		—		—		—		5,187		5,187
Finance lease liability		251		146		—		—		397
Total contractual obligations	$	190,207	$	18,078	$	7,645	$	63,589	$	279,519

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our 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 our exposure to off-balance sheet agreements as of March 31, 2021 and December 31, 2020, was as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commitments to extend credit	$	593,818	$	611,140
Standby letters of credit		6,224		6,510
Total	$	600,042	$	617,650

Liquidity

Liquidity management is the process by which we manage the flow of funds necessary to meet our 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 our operations, and capital expenditures. Liquidity is monitored and closely managed by our 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 we have 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 March 31, 2021, we had on balance sheet liquidity of $708.2 million, compared to $511.1 million as of December 31, 2020. On balance sheet liquidity includes total due from banks, federal funds sold, interest-bearing deposits with banks, unencumbered securities available-for-sale, and over collateralized securities pledging positions.

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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. The actual borrowing capacity is contingent on the amount of collateral available to be pledged to the FHLB. As of March 31, 2021, we had no outstanding fed funds purchased from the FHLB and $968.1 million of collateral pledged to the FHLB. Based on this collateral, we were eligible to borrow up to $647.9 million from the FHLB. In addition, we can borrow up to $102.0 million through the unsecured lines of credit we have established with four other banks.

In addition, because the Bank is “well capitalized,” we can accept wholesale deposits up to 20.0% of total assets based on current policy limits. Management believed that we had adequate resources to fund all of our commitments as of March 31, 2021 and December 31, 2020.

Our 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 COVID-19 could place increased demand on our liquidity if we experience significant credit deterioration and as we meet 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 we 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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. We seek 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 our 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

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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 our 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 our loan portfolio, investment portfolio, as well as embedded options and cash flows of other assets and liabilities. Balance sheet growth assumptions are also included in the simulation modeling process. The analysis provides a framework as to what our overall sensitivity position is as of our most recent reported position and the impact that potential changes in interest rates may have on net interest income and the economic value of our equity.

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

The estimated impact on our net interest income as of March 31, 2021 and December 31, 2020, assuming immediate parallel moves in interest rates is presented in the table below.

	March 31, 2021				December 31, 2020
	Following		Following		Following		Following
	12 months		24 months		12 months		24 months
+400 basis points	2.9	%	3.2	%	10.2	%	7.3	%
+300 basis points	2.0	%	0.1	%	7.9	%	3.2	%
+200 basis points	1.0	%	−3.0	%	5.5	%	−1.0	%
+100 basis points	0.3	%	−6.0	%	3.2	%	−5.3	%
−100 basis points	−6.7	%	−20.9	%	−4.9	%	−18.8	%
−200 basis points	N/A	%	N/A	%	N/A	%	N/A	%

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 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.

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The table below presents the change in the economic value of equity as of March 31, 2021 and December 31, 2020, assuming immediate parallel shifts in interest rates.

	March 31,		December 31,
	2021		2020
+400 basis points	−10.8	%	12.1	%
+300 basis points	−6.6	%	12.6	%
+200 basis points	−2.8	%	11.9	%
+100 basis points	0.6	%	9.5	%
−100 basis points	−31.6	%	−51.0	%
−200 basis points	N/A	%	N/A	%

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 our 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 us 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 our 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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “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, our President and Chief Executive Officer and our Chief Financial 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 and its Chief Financial 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.

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PART II—OTHER INFORMATION

Item 1 – Legal Proceedings

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company or its subsidiaries, to which we or any of our subsidiaries is a party or to which our property is the subject. The Company does not know of any proceeding contemplated by a governmental authority against the Company or any of its subsidiaries. ​

Item 1A – Risk Factors

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 12, 2021.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Repurchases of Equity Securities

The following table presents information related to repurchases of shares of our common stock for each calendar month in the first quarter of 2021.

				Total Number of	Maximum Number of
	Total Number	Average		Shares Purchased as	Shares that May
	of Shares	Price Paid		Part of Publicly	Yet be Purchased
(dollars in thousands, except per share data)	Purchased (1)	per Share		Announced Plans	Under the Plan (2)
January	983	$	26.68	—	770,000
February	14,898		28.18	—	770,000
March	—		—	—	770,000
Total	15,881	$	28.09	—	770,000

(1) Shares repurchased by the Company represent shares surrendered by employees to the Company to pay withholding taxes on the vesting of restricted stock awards.

(2) On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Program, which authorizes the Company to repurchase up to 770,000 shares of its common stock, subject to certain limitations and conditions. The Program was effective immediately and will continue for a period of 36 months. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so.

Use of Proceeds from Registered Securities

On September 17, 2019, the Company sold 2,860,000 shares of common stock in its initial public offering. On September 25, 2019, the Company sold 429,000 additional shares of common stock pursuant to the exercise in full by the underwriters of their option to purchase additional shares to cover over-allotments. All of the shares were sold pursuant to the Company’s Registration Statement on Form S-1, as amended (File No. 333-233339), which was declared effective by the SEC on September 12, 2019. The Company’s common stock is currently traded on the Nasdaq Capital Market under the symbol “ALRS”.

There has been no material change in the planned use of proceeds from the initial public offering as described in the Company’s prospectus filed with the SEC on September 13, 2019, pursuant to Rule 424(b)(4) under the Securities Act of 1933. From the effective date of the registration statement through March 31, 2021, the Company has maintained

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the net proceeds of the initial public offering on deposit with the Bank. The Bank has used the deposits of the Company to pay down short-term borrowings.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not Applicable.

Item 5 – Other Information

None.

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Item 6 – Exhibits

Exhibit No.	Description
4.1	Subordinated Note Due March 30, 2021 (incorporated herein by reference to Exhibit 4.1 on Form 8-K filed on March 30, 2021)
10.1	Subordinated Note Purchase Agreement by and between Alerus Financial Corporation and the Bank of North Dakota, dated March 30, 2021 (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on March 30, 2021)
10.2	Alerus Financial Corporation Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 on Form 8-K filed on February 22, 2021)
10.3	Form of Performance-Based Restricted Stock Unit Award Agreement for Senior Executive Officers (incorporated herein by reference to Exhibit 10.2 on Form 8-K filed on February 22, 2021)
10.4	Form of Performance-Based Restricted Stock Unit Award Agreement for Non-Executive Senior Officers (incorporated herein by reference to Exhibit 10.3 on Form 8-K filed on February 22, 2021)
10.5	Form of Time-Based Restricted Stock Unit Award Agreement for Senior Executive Officers (incorporated herein by reference to Exhibit 10.4 on Form 8-K filed on February 22, 2021)
10.6	Form of Time-Based Restricted Stock Unit Award Agreement for Non-Executive Senior Officers (incorporated herein by reference to Exhibit 10.5 on Form 8-K filed on February 22, 2021)
31.1	Chief Executive Officer’s Certifications required by Rule 13(a)-14(a) – filed herewith.
31.2	Chief Financial Officer’s Certifications required by Rule 13(a)-14(a) – filed herewith.
32.1	Chief Executive Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
32.2	Chief Financial Officer Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
101.INS	iXBRL Instance Document
101.SCH	iXBRL Taxonomy Extension Schema
101.CAL	iXBRL Taxonomy Extension Calculation Linkbase
101.DEF	iXBRL Taxonomy Extension Definition Linkbase
101.LAB	iXBRL Taxonomy Extension Label Linkbase
101.PRE	iXBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted Inline XBRL and contained in Exhibits 101)

60

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized

	ALERUS FINANCIAL CORPORATION
Date: May 6, 2021	By:	/s/ Randy L. Newman
		Name:    Randy L. Newman
		Title:      Chairman, Chief Executive Officer and President (Principal Executive Officer)
Date: May 6, 2021	By:	/s/ Katie A. Lorenson
		Name:    Katie A. Lorenson
		Title:      Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

61

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as
Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Randy L. Newman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Alerus Financial Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

	Alerus Financial Corporation
May 6, 2021	/s/ Randy L. Newman
	Randy L. Newman Chairman, Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as
Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

I, Katie A. Lorenson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of Alerus Financial Corporation (the “Registrant”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d) Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

	Alerus Financial Corporation
May 6, 2021	/s/ Katie A. Lorenson
	Katie A. Lorenson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Randy L. Newman, Chairman, President and Chief Executive Officer of Alerus Financial Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2021 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Alerus Financial Corporation
May 6, 2021	/s/ Randy L. Newman
	Randy L. Newman Chairman, Chief Executive Officer and President (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Katie A. Lorenson, Executive Vice President and Chief Financial Officer of Alerus Financial Corporation (the “Company”) hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2021 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Alerus Financial Corporation
May 6, 2021	/s/ Katie A. Lorenson
	Katie A. Lorenson Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	Apr. 30, 2021
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	001-39036
Entity Registrant Name	ALERUS FINANCIAL CORPORATION
Entity Incorporation, State	DE
Entity Tax Identification Number	45-0375407
Entity Address, Address Line One	401 Demers Avenue
Entity Address, City or Town	Grand Forks
Entity Address, State or Province	ND
Entity Address, Postal Zip Code	58201
City Area Code	701
Local Phone Number	795-3200
Title of 12(b) Security	Common Stock, par value $1.00 per share
Trading Symbol	ALRS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		17,190,481
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Entity Central Index Key	0000903419
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Assets
Cash and cash equivalents	$ 190,217	$ 172,962
Investment securities, at fair value Available-for-sale	795,097	592,342
Loans held for sale	78,665	122,440
Loans	1,937,345	1,979,375
Allowance for loan losses	(33,758)	(34,246)
Net loans	1,903,587	1,945,129
Land, premises and equipment, net	19,605	20,289
Operating lease right-of-use assets	6,293	6,918
Accrued interest receivable	9,271	9,662
Bank-owned life insurance	32,556	32,363
Goodwill	30,201	30,201
Other intangible assets	24,768	25,919
Servicing rights	1,952	1,987
Deferred income taxes, net	13,700	9,409
Other assets	45,844	44,150
Total assets	3,151,756	3,013,771
Deposits
Noninterest-bearing	775,434	754,716
Interest-bearing	1,942,139	1,817,277
Total deposits	2,717,573	2,571,993
Long-term debt	59,020	58,735
Operating lease liabilities	7,140	7,861
Accrued expenses and other liabilities	38,789	45,019
Total liabilities	2,822,522	2,683,608
Stockholders' equity
Preferred stock, $1 par value, 2,000,000 shares authorized: 0 issued and outstanding
Common stock, $1 par value, 30,000,000 shares authorized: 17,190,481 and 17,125,270 issued and outstanding	17,190	17,125
Additional paid-in capital	90,520	90,237
Retained earnings	224,480	212,163
Accumulated other comprehensive income (loss)	(2,956)	10,638
Total stockholders' equity	329,234	330,163
Total liabilities and stockholders' equity	$ 3,151,756	$ 3,013,771

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Consolidated Balance Sheets
Preferred stock, par value	$ 1	$ 1
Preferred Stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 1	$ 1
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	17,190,481	17,125,270
Common stock, shares outstanding	17,190,481	17,125,270

XML

Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Interest Income
Loans, including fees	$ 20,567	$ 20,542
Investment securities - Taxable	2,401	1,759
Investment securities -Exempt from federal income taxes	236	235
Other	117	570
Total interest income	23,321	23,106
Interest Expense
Deposits	995	3,392
Long-term debt	288	877
Total interest expense	1,283	4,269
Net interest income	22,038	18,837
Provision for loan losses		2,500
Net interest income after provision for loan losses	22,038	16,337
Noninterest Income
Mortgage banking	17,132	5,045
Net gains (losses) on investment securities	114
Other	1,056	1,455
Total noninterest income	40,881	27,189
Noninterest Expense
Compensation	23,698	18,731
Employee taxes and benefits	5,813	5,308
Occupancy and equipment expense	2,231	2,492
Business services, software and technology expense	4,976	4,543
Intangible amortization expense	1,151	990
Professional fees and assessments	1,472	1,056
Marketing and business development	676	610
Supplies and postage	531	707
Travel	26	261
Mortgage and lending expenses	1,332	1,141
Other	1,136	887
Total noninterest expense	43,042	36,726
Income before income taxes	19,877	6,800
Income tax expense	4,662	1,437
Net income	$ 15,215	$ 5,363
Per Common Share Data
Basic earnings per common share	$ 0.87	$ 0.31
Diluted earnings per common share	0.86	0.30
Dividends declared per common share	$ 0.15	$ 0.15
Average common shares outstanding	17,145	17,070
Diluted average common shares outstanding	17,465	17,405
Retirement and Benefit Services
Noninterest Income
Revenue	$ 17,255	$ 16,220
Wealth Management
Noninterest Income
Revenue	4,986	4,046
Deposit Account
Noninterest Income
Revenue	$ 338	$ 423

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Consolidated Statements of Comprehensive Income
Net Income	$ 15,215	$ 5,363
Other Comprehensive Income (Loss), Net of Tax
Unrealized gains (losses) on available-for-sale securities	(18,036)	6,959
Reclassification adjustment for losses (gains) realized in income	(114)
Total other comprehensive income (loss), before tax	(18,150)	6,959
Income tax expense (benefit) related to items of other comprehensive income	(4,556)	1,746
Other comprehensive income (loss), net of tax	(13,594)	5,213
Total comprehensive income	$ 1,621	$ 10,576

XML

Consolidated Statements of Changes in Stockholders Equity - USD ($) $ in Thousands	Common Stock	Additional Paid in Capital.	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning balance at Dec. 31, 2019	$ 17,050	$ 88,650	$ 178,092	$ 1,936	$ 285,728
Net Income			5,363		5,363
Other comprehensive income (loss)				5,213	5,213
Common stock repurchased	(15)	(111)	(210)		(336)
Common stock dividends			(2,595)		(2,595)
Share-based compensation expense		235			235
Vesting of restricted stock	71	(71)
Ending balance at Mar. 31, 2020	17,106	88,703	180,650	7,149	293,608
Beginning balance at Dec. 31, 2020	17,125	90,237	212,163	10,638	330,163
Net Income			15,215		15,215
Other comprehensive income (loss)				(13,594)	(13,594)
Common stock repurchased	(16)	(134)	(296)		(446)
Common stock dividends			(2,602)		(2,602)
Share-based compensation expense		498			498
Vesting of restricted stock	81	(81)
Ending balance at Mar. 31, 2021	$ 17,190	$ 90,520	$ 224,480	$ (2,956)	$ 329,234

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Operating Activities
Net income	$ 15,215	$ 5,363
Adjustments to reconcile net income to net cash provided (used) by operating activities
Deferred income taxes	264	(40)
Provision for loan losses		2,500
Depreciation and amortization	2,345	2,167
Amortization and accretion of premiums/discounts on investment securities	794	305
Amortization of operating lease right-of-use assets	(8)	(6)
Stock-based compensation	498	235
Increase in value of bank-owned life insurance	(193)	(197)
Realized loss (gain) on sale of fixed assets	(27)
Realized loss (gain) on derivative instruments	(713)	881
Realized loss (gain) on loans sold	(14,201)	(5,654)
Realized loss (gain) on sale of foreclosed assets	(23)	(63)
Realized loss (gain) on sale of investment securities	(114)
Realized loss (gain) on servicing rights	(165)	381
Net change in:
Loans held for sale	57,823	(19,846)
Accrued interest receivable	391	126
Other assets	(2,050)	(2,239)
Accrued expenses and other liabilities	(4,995)	(5,079)
Net cash provided (used) by operating activities	54,841	(21,166)
Investing Activities
Proceeds from sales or calls of investment securities available-for-sale	13,189	4,000
Proceeds from maturities of investment securities available-for-sale	27,307	9,003
Purchases of investment securities available-for-sale	(262,081)	(50,148)
Net (increase) decrease in equity securities		2,808
Net (increase) decrease in loans	41,391	(36,637)
Purchases of premises and equipment	(277)	(689)
Proceeds from sales of foreclosed assets	101	96
Net cash provided (used) by investing activities	(180,370)	(71,567)
Financing Activities
Net increase (decrease) in deposits	145,580	150,198
Repayments of long-term debt	(49,748)	(51)
Proceeds from the issuance of Subordinated Debt	50,000
Cash dividends paid on common stock	(2,602)	(2,595)
Repurchase of common stock	(446)	(336)
Net cash provided (used) by financing activities	142,784	147,216
Net change in cash and cash equivalents	17,255	54,483
Cash and cash equivalents at beginning of period	172,962	144,006
Cash and cash equivalents at end of period	190,217	198,489
Cash paid for:
Interest	1,405	3,546
Income taxes	736
Non-cash information
Loan collateral transferred to foreclosed assets	154	234
Unrealized gain (loss) on investment securities available-for-sale	$ (13,594)	5,213
Right-of-use assets obtained in exchange for new operating leases		$ 183

XML

Significant Accounting Policies

3 Months Ended

Mar. 31, 2021

Significant Accounting Policies

Significant Accounting Policies

NOTE 1 Significant Accounting Policies

Organization

Alerus Financial Corporation, or the Company, is a financial holding company organized under the laws of the state of Delaware. The Company and its subsidiaries operate as a diversified financial services company headquartered in Grand Forks, North Dakota. Through its subsidiary, Alerus Financial, National Association, or the Bank, the Company provides financial solutions to businesses and consumers through four distinct business lines—banking, retirement and benefit services, wealth management, and mortgage.

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and conform to practices within the banking industry and include all of the information and disclosures required by generally accepted accounting principles in the United States of America, or GAAP, for interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results for the full year or any other period. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2021.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s principal operating subsidiary is the Bank.

In the normal course of business, the Company may enter into a transaction with a variable interest entity, or VIE. VIE’s are legal entities whose investors lack the ability to make decisions about the entity’s activities, or whose equity investors do not have the right to receive the residual returns of the entity. The applicable accounting guidance requires the Company to perform ongoing quantitative and qualitative analysis to determine whether it must consolidate any VIE. The Company does not have any ownership interest in, or exert any control, over any VIE, and thus no VIE’s are included in the consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term include the valuation of investment securities, determination of the allowance for loan losses, valuation of reporting units for the purpose of testing goodwill and other intangible assets for impairment, valuation of deferred tax assets, and fair values of financial instruments.

Reclassifications

Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

Other Information

As of March 31, 2021, the Coronavirus Disease, or COVID-19, pandemic is ongoing. During 2020, the COVID-19 pandemic created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. In 2021, the U.S. economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Nonetheless, the economic recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus. Management believes the Company is taking appropriate actions to mitigate, to the extent possible, the negative impact. However, the full impact of COVID-19 is currently unknown and cannot be reasonably estimated as the events are continuing to unfold as the year progresses.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on September 12, 2019; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”; or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2021

New Accounting Pronouncements

Recent Accounting Pronouncements

NOTE 2 Recent Accounting Pronouncements

The following FASB Accounting Standards Updates, or ASUs, are divided into pronouncements which have been adopted by the Company since January 1, 2021, and those which are not yet effective and have been evaluated or are currently being evaluated by management as of March 31, 2021.

Adopted Pronouncements

In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to

accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoptions is permitted. The Company adopted ASU 2020-01 as of January 1, 2021 the implementation had no impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848) in response to concerns about structural risks in accounting for reference rate reform. The ASU clarifies certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting to apply to derivatives that are affected by the discontinuing transition. The Company adopted ASU 2020-04, as of March 2020 and is putting a transition plan together but does not expect adoption to have a material impact on the Company’s consolidated financial statements.

Pronouncements Not Yet Effective

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU requires a new impairment model known as the current expected credit loss, or CECL, which significantly changes the way impairment of financial instruments is recognized by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of financial instruments. The main provisions of ASU 2016-13 include (1) replacing the “incurred cost” approach under GAAP with an “expected loss” model for instruments measured at amortized cost, (2) requiring entities to record an allowance for credit losses related to available-for-sale debt securities rather than a direct write-down of the carrying amount of the investments, as is required by the other-than-temporary impairment model under current GAAP, and (3) a simplified accounting model for purchase credit-impaired debt securities and loans. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326). This update amends the effective date of ASU No. 2016-13 for certain entities, including private companies and smaller reporting companies, until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption is permitted. As an emerging growth company, the Company can take advantage of this delay and plans to adopt the standard with the amended effective date. The Company does not plan to early adopt this standard but continues to work on its implementation. The Company continues collecting and retaining loan and credit data and evaluating various loss estimation models. While we currently cannot reasonably estimate the impact of adopting this standard, we expect the impact will be influenced by the composition, characteristics, and quality of our loan portfolio, as well as the general economic conditions and forecasts as of the adoption date.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company will consider these clarifications and improvements in determining the appropriate adoption of ASU 2019-04.

In May 2019, the FASB issued ASU 2019-05, Targeted Transition Relief to provide entities with an option to irrevocably elect the fair value option applied on an instrument-by-instrument basis for eligible instruments. In November 2019, the FASB Issued ASU 2019-10, which amends the effective date of this ASU for certain entities, including private companies and smaller reporting companies until after December 15, 2022, including interim periods within those fiscal years. As an emerging growth company, the Company can take advantage of this delay and plans to

adopt the standard with the amended effective date. This update is not expected to have a significant impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which simplifies accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for the areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2020, for public business entities. For private companies and smaller reporting companies, this guidance is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2021. As an emerging growth company, the Company can take advantage of this later effective date. Early adoption of the amendments is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective, or prospective basis. The Company is currently reviewing the provisions of this new pronouncement, but does not expect adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03. Codification Improvements to Financial Instruments. This ASU represents changes to clarify or improve the Accounting Standards Codification, or ASC, related to seven topics. The amendments make the ASC easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. Issues 1, 2, 3, 4, and 5 are conforming amendments and for public business entities effective upon the issuance of the standard. Issues 6 and 7 are amendments that affect the guidance in ASU 2016-13. The Company will consider these clarifications and improvements in determining the appropriate adoption of ASU 2016-13.

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Investment Securities

3 Months Ended

Mar. 31, 2021

Investment Securities

Investment Securities

NOTE 3 Investment Securities

The following tables present amortized cost, gross unrealized gain and losses, and fair value of the available-for-sale investment securities as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,704	$	—	$	(21)	$	5,683
Obligations of state and political agencies		147,926		2,710		(1,445)		149,191
Mortgage backed securities
Residential agency		529,717		2,146		(10,268)		521,595
Commercial		85,060		2,650		(13)		87,697
Asset backed securities		91		5		—		96
Corporate bonds		30,545		707		(417)		30,835
Total available-for-sale investment securities	$	799,043	$	8,218	$	(12,164)	$	795,097

	December 31, 2020
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,926	$	—	$	(19)	$	5,907
Obligations of state and political agencies		148,491		5,282		—		153,773
Mortgage backed securities
Residential agency		303,760		3,395		(436)		306,719
Commercial		89,300		5,678		—		94,978
Asset backed securities		109		6		—		115
Corporate bonds		30,552		388		(90)		30,850
Total available-for-sale investment securities	$	578,138	$	14,749	$	(545)	$	592,342

The following tables present unrealized losses and fair values for available-for-sale investment securities as of March 31, 2021 and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

	March 31, 2021
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	—	$	—	$	(21)	$	5,650	$	(21)	$	5,650
Obligations of state and political agencies		(1,445)		51,463		—		—		(1,445)		51,463
Mortgage backed securities
Residential agency		(10,268)		380,454		—		—		(10,268)		380,454
Commercial		(13)		9,026		—		—		(13)		9,026
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(417)		13,583		—		—		(417)		13,583
Total available-for-sale investment securities	$	(12,143)	$	454,526	$	(21)	$	5,652	$	(12,164)	$	460,178

	December 31, 2020
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	(10)	$	4,509	$	(9)	$	1,309	$	(19)	$	5,818
Obligations of state and political agencies		—		—		—		—		—		—
Mortgage backed securities
Residential agency		(432)		68,494		(4)		2,356		(436)		70,850
Commercial		—		—		—		—		—		—
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(90)		16,454		—		—		(90)		16,454
Total available-for-sale investment securities	$	(532)	$	89,457	$	(13)	$	3,667	$	(545)	$	93,124

For all of the above investment securities, the unrealized losses were generally due to changes in interest rates and unrealized losses were considered to be temporary as the fair value is expected to recover as the securities approach their maturity dates. The Company evaluates securities for other-than-temporary impairment, or OTTI, on a quarterly basis, at a minimum, and more frequently when economic or market concerns warrant such evaluation. In estimating OTTI losses, consideration is given to the severity and duration of the impairment; the financial condition and near-term prospects of the issuer, which for debt securities, considers external credit ratings and recent downgrades; and the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value.

For the three months ended March 31, 2021 and 2020, the Company did not recognize OTTI losses on its investment securities.

The following table presents amortized cost and estimated fair value of the available-for-sale investment securities as of March 31, 2021, by contractual maturity:

	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year or less	$	5,480	$	5,506
Due after one year through five years		32,626		33,180
Due after five years through ten years		150,987		153,408
Due after 10 years		609,950		603,003
Total available-for-sale investment securities	$	799,043	$	795,097

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities with a total carrying value of $177.5 million and $160.8 million were pledged as of March 31, 2021 and December 31, 2020, respectively, to secure public deposits and for other purposes required or permitted by law.

Proceeds from the sale or call of available-for-sale investment securities, for the three months ended March 31, 2021 and 2020, are displayed in the table below:

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Proceeds	$	13,189	$	4,000
Realized gains		114		—
Realized losses		—		—

As of March 31, 2021 and December 31, 2020, the carrying value of the Company’s Federal Reserve stock and Federal Home Loan Bank of Des Moines, or FHLB, stock was as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Federal Reserve	$	2,675	$	2,675
FHLB		3,864		3,090

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which will be indemnified by Visa members, including the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account be insufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank’s Class B conversion ratio to unrestricted Class A shares. As of March 31, 2021, the conversion ratio was 1.6228. Based on the existing transfer restriction and the uncertainty of the outcome of the Visa litigation mentioned above, the 6,924 Class B shares (11,236 Class A equivalents) that the Company owned as of March 31, 2021 and December 31, 2020, are carried at a zero cost basis.

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Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2021

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

NOTE 4 Loans and Allowance for Loan Losses

The following table presents total loans outstanding, by portfolio segment, as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commercial
Commercial and industrial (1)	$	678,029	$	691,858
Real estate construction		40,473		44,451
Commercial real estate		569,451		563,007
Total commercial		1,287,953		1,299,316
Consumer
Residential real estate first mortgage		454,958		463,370
Residential real estate junior lien		130,299		143,416
Other revolving and installment		64,135		73,273
Total consumer		649,392		680,059
Total loans	$	1,937,345	$	1,979,375

(1) Included Paycheck Protection Program, or PPP, loans of $256.8 million at March 31, 2021 and $268.4 million at December 31, 2020.

Total loans included net deferred loan fees and costs of $5.9 million and $4.7 million at March 31, 2021 and December 31, 2020, respectively. Deferred loan fees on PPP loans were $5.7 million at March 31, 2021 and $4.3 million at December 31, 2020.

Management monitors the credit quality of its loan portfolio on an ongoing basis. Measurements of delinquency and past due status are based on the contractual terms of each loan. Past due loans are reviewed regularly to identify loans for nonaccrual status. Loan modifications made in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, are included as accruing current.

The following tables present a past due aging analysis of total loans outstanding, by portfolio segment, as of March 31, 2021 and December 31, 2020:

	March 31, 2021
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	675,755	$	75	$	—	$	2,199	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		564,959		2,602		—		1,890		569,451
Total commercial		1,281,187		2,677		—		4,089		1,287,953
Consumer
Residential real estate first mortgage		453,574		952		—		432		454,958
Residential real estate junior lien		129,917		184		—		198		130,299
Other revolving and installment		63,980		118		—		37		64,135
Total consumer		647,471		1,254		—		667		649,392
Total loans	$	1,928,658	$	3,931	$	—	$	4,756	$	1,937,345

	December 31, 2020
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	689,340	$	500	$	30	$	1,988	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		558,127		2,449		—		2,431		563,007
Total commercial		1,291,918		2,949		30		4,419		1,299,316
Consumer
Residential real estate first mortgage		461,179		1,752		—		439		463,370
Residential real estate junior lien		143,060		191		—		165		143,416
Other revolving and installment		73,128		118		—		27		73,273
Total consumer		677,367		2,061		—		631		680,059
Total loans	$	1,969,285	$	5,010	$	30	$	5,050	$	1,979,375

The Company’s consumer loan portfolio is primarily comprised of secured loans that are evaluated at origination on a centralized basis against standardized underwriting criteria. The Company generally does not risk rate consumer loans unless a default event such as bankruptcy or extended nonperformance takes place. Credit quality for the consumer loan portfolio is measured by delinquency rates, nonaccrual amounts and actual losses incurred.

The Company assigns a risk rating to all commercial loans, except pools of homogeneous loans, and periodically performs detailed internal and external reviews of risk rated loans over a certain threshold to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to examination by the Company’s regulators. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the estimated fair values of collateral securing the loans. These credit quality indicators are used to assign a risk rating to each individual loan.

The Company’s ratings are aligned to pass and criticized categories. The criticized category includes special mention, substandard, and doubtful risk ratings. The risk ratings are defined as follows:

Pass: A pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, this potential weakness may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard: Loans classified as substandard are not adequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. Well-defined weaknesses include a borrower’s lack of marketability, inadequate cash flow or collateral support, failure to complete construction on time, or the failure to fulfill economic expectations. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and charged off immediately.

The tables below present total loans outstanding, by loan portfolio segment, and risk category as of March 31, 2021 and December 31, 2020:

	March 31, 2021
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	658,607	$	2,725	$	16,516	$	181	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		540,906		3,615		24,930		—		569,451
Total commercial		1,239,986		6,340		41,446		181		1,287,953
Consumer
Residential real estate first mortgage		448,919		3,928		2,111		—		454,958
Residential real estate junior lien		128,788		407		1,104		—		130,299
Other revolving and installment		64,098		—		37		—		64,135
Total consumer		641,805		4,335		3,252		—		649,392
Total loans	$	1,881,791	$	10,675	$	44,698	$	181	$	1,937,345

	December 31, 2020
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	669,602	$	5,415	$	16,841	$	—	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		533,733		6,686		22,588		—		563,007
Total commercial		1,247,786		12,101		39,429		—		1,299,316
Consumer
Residential real estate first mortgage		461,221		1,406		743		—		463,370
Residential real estate junior lien		140,461		1,819		1,136		—		143,416
Other revolving and installment		73,236		—		37		—		73,273
Total consumer		674,918		3,225		1,916		—		680,059
Total loans	$	1,922,704	$	15,326	$	41,345	$	—	$	1,979,375

The adequacy of the allowance for loan losses is assessed at the end of each quarter. The allowance for loan losses includes a specific component related to loans that are individually evaluated for impairment and a general component related to loans that are segregated into homogeneous pools and collectively evaluated for impairment. The factors applied to these pools are an estimate of probable incurred losses based on management’s evaluation of historical net losses from loans with similar characteristics, which are adjusted by management to reflect current events, trends, and conditions. The adjustments include consideration of the following: changes in lending policies and procedures, economic conditions, nature and volume of the portfolio, experience of lending management, volume and severity of past due loans, quality of the loan review system, value of underlying collateral for collateral dependent loans, concentrations, and other external factors.

The following tables present, by loan portfolio segment, a summary of the changes in the allowance for loan losses for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	10,205	$	316	$	(204)	$	170	$	10,487
Real estate construction		658		(60)		—		—		598
Commercial real estate		14,105		277		(536)		3		13,849
Total commercial		24,968		533		(740)		173		24,934
Consumer
Residential real estate first mortgage		5,774		273		—		—		6,047
Residential real estate junior lien		1,373		(168)		—		83		1,288
Other revolving and installment		753		(83)		(44)		40		666
Total consumer		7,900		22		(44)		123		8,001
Unallocated		1,378		(555)		—		—		823
Total	$	34,246	$	—	$	(784)	$	296	$	33,758

	Three months ended March 31, 2020
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	12,270	$	70	$	(32)	$	593	$	12,901
Real estate construction		303		31		—		—		334
Commercial real estate		6,688		1,588		—		—		8,276
Total commercial		19,261		1,689		(32)		593		21,511
Consumer
Residential real estate first mortgage		1,448		761		—		—		2,209
Residential real estate junior lien		671		317		—		37		1,025
Other revolving and installment		352		92		(67)		64		441
Total consumer		2,471		1,170		(67)		101		3,675
Unallocated		2,192		(359)		—		—		1,833
Total	$	23,924	$	2,500	$	(99)	$	694	$	27,019

The following tables present the recorded investment in loans and related allowance for loan losses, by loan portfolio segment, disaggregated on the basis of the Company’s impairment methodology, as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,794	$	675,235	$	678,029	$	691	$	9,796	$	10,487
Real estate construction		—		40,473		40,473		—		598		598
Commercial real estate		4,676		564,775		569,451		268		13,581		13,849
Total commercial		7,470		1,280,483		1,287,953		959		23,975		24,934
Consumer
Residential real estate first mortgage		432		454,526		454,958		—		6,047		6,047
Residential real estate junior lien		202		130,097		130,299		27		1,261		1,288
Other revolving and installment		37		64,098		64,135		16		650		666
Total consumer		671		648,721		649,392		43		7,958		8,001
Unallocated		—		—		—		—		—		823
Total loans	$	8,141	$	1,929,204	$	1,937,345	$	1,002	$	31,933	$	33,758

	December 31, 2020
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,616	$	689,242	$	691,858	$	336	$	9,869	$	10,205
Real estate construction		—		44,451		44,451		—		658		658
Commercial real estate		5,224		557,783		563,007		837		13,268		14,105
Total commercial		7,840		1,291,476		1,299,316		1,173		23,795		24,968
Consumer
Residential real estate first mortgage		439		462,931		463,370		—		5,774		5,774
Residential real estate junior lien		224		143,192		143,416		19		1,354		1,373
Other revolving and installment		27		73,246		73,273		13		740		753
Total consumer		690		679,369		680,059		32		7,868		7,900
Unallocated		—		—		—		—		—		1,378
Total loans	$	8,530	$	1,970,845	$	1,979,375	$	1,205	$	31,663	$	34,246

The tables below summarize key information on impaired loans. These impaired loans may have estimated losses which are included in the allowance for loan losses.

	March 31, 2021						December 31, 2020
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
(dollars in thousands)	Investment		Principal		Allowance		Investment		Principal		Allowance
Impaired loans with a valuation allowance
Commercial and industrial	$	1,606	$	1,689	$	691	$	723	$	725	$	336
Commercial real estate		2,791		2,816		268		3,948		3,974		837
Residential real estate junior lien		27		29		27		19		20		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans with a valuation allowance		4,461		4,572		1,002		4,717		4,746		1,205
Impaired loans without a valuation allowance
Commercial and industrial		1,188		1,341		—		1,893		2,173		—
Commercial real estate		1,885		2,029		—		1,276		1,415		—
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		175		199		—		205		306		—
Total impaired loans without a valuation allowance		3,680		4,030		—		3,813		4,358		—
Total impaired loans
Commercial and industrial		2,794		3,030		691		2,616		2,898		336
Commercial real estate		4,676		4,845		268		5,224		5,389		837
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		202		228		27		224		326		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans	$	8,141	$	8,602	$	1,002	$	8,530	$	9,104	$	1,205

The table below presents the average recorded investment in impaired loans and interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021				2020
	Average				Average
	Recorded		Interest		Recorded		Interest
(dollars in thousands)	Investment		Income		Investment		Income
Impaired loans with a valuation allowance
Commercial and industrial	$	1,816	$	13	$	4,979	$	15
Commercial real estate		2,793		138		1,536		8
Residential real estate junior lien		33		—		20		—
Other revolving and installment		38		—		17		—
Total impaired loans with a valuation allowance		4,680		151		6,552		23
Impaired loans without a valuation allowance
Commercial and industrial		1,258		22		545		27
Commercial real estate		2,158		—		—		—
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		176		—		224		3
Other revolving and installment		—		—		8		—
Total impaired loans without a valuation allowance		4,027		22		1,612		30
Total impaired loans
Commercial and industrial		3,074		35		5,524		42
Real estate construction		—		—		—		—
Commercial real estate		4,951		138		1,536		8
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		209		—		244		3
Other revolving and installment		38		—		25		—
Total impaired loans	$	8,707	$	173	$	8,164	$	53

Loans with a carrying value of $1.2 billion as of March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits, and for other purposes required or permitted by law.

Under certain circumstances, the Company will provide borrowers relief through loan restructurings. A restructuring of debt constitutes a TDR if the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal or interest due, or acceptance of other assets in full or partial satisfaction of the debt.

During the first quarter of 2021, there were no loans modified as a TDR. Beginning in 2020, in accordance with the Interagency Statement on Loan Modifications and Reporting for Financial Institutions as issued on April 7, 2020, through March 31, 2021, the Company had entered into modifications on 582 loans representing $154.0 million in principal balances, since the beginning of the COVID-19 pandemic. Of those loans, 16 loans with a total outstanding principal balance of $7.6 million, have been granted additional deferral, 6 loans with a total outstanding principal balance of $767 thousand remain on the first deferral and the remaining loans have been returned to a normal payment status. These deferrals were generally no more than 90 days in duration and were not considered TDRs. During the first quarter of 2020, there were no loans modified as a TDR.

The Company does not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in TDRs or whose loans are on nonaccrual.

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Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2021

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

NOTE 5 Goodwill and Other Intangible Assets

The following table summarizes the carrying amount of goodwill, by segment, as of March 31, 2021 and December 31, 2020:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Banking	$	20,131	$	20,131
Retirement and benefit services		10,070		10,070
Total goodwill	$	30,201	$	30,201

The gross carrying amount and accumulated amortization for each type of identifiable intangible asset are as follows:

	March 31, 2021						December 31, 2020
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Total		Gross Carrying Amount		Accumulated Amortization		Total
Identifiable customer intangibles	$	43,346	$	(18,578)	$	24,768	$	43,346	$	(17,490)	$	25,856
Core deposit intangible assets		—		—		—		3,793		(3,730)		63
Total intangible assets	$	43,346	$	(18,578)	$	24,768	$	47,139	$	(21,220)	$	25,919

Amortization of intangible assets was $1.2 million and $1.0 million for the three months ended March 31, 2021, and 2020, respectively.

Goodwill is evaluated for impairment on an annual basis, at a minimum, and more frequently when the economic environment warrants. The Company determined that there was no goodwill impairment as of March 31, 2021.

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Loan Servicing

3 Months Ended

Mar. 31, 2021

Loan Servicing

Loan Servicing

NOTE 6 Loan Servicing

Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of loans serviced for others totaled $423.5 million and $445.5 million as of March 31, 2021 and December 31, 2020, respectively. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and collection and foreclosure processing. Loan servicing income is recorded on an accrual basis and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees, and is net of fair value adjustments to capitalized mortgage servicing rights.

The following table summarizes the Company’s activity related to servicing rights for the three months ended March 31, 2021 and 2020:

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Balance, beginning of period	$	1,987	$	3,845
Additions		49		24
Amortization		(200)		(187)
(Impairment)/Recovery		116		(405)
Balance, end of period	$	1,952	$	3,277

The following is a summary of key data and assumptions used in the valuation of servicing rights as of March 31, 2021 and December 31, 2020. Increases or decreases in any one of these assumptions would result in lower or higher fair value measurements.

	March 31,			December 31,
(dollars in thousands)	2021			2020
Fair value of servicing rights	$	1,952		$	1,987
Weighted-average remaining term, years		20.4			20.1
Prepayment speeds		16.1	%		17.7	%
Discount rate		9.0	%		9.0	%

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Leases

3 Months Ended

Mar. 31, 2021

Leases

Leases

NOTE 7 Leases

Substantially all of the leases in which the Company is the lessee are comprised of real estate property for offices and office equipment rentals with terms extending through 2027. Portions of certain properties are subleased for terms extending through 2024. Substantially all of the Company’s leases are classified as operating leases, and therefore, were previously not recognized on the Company’s consolidated financial statements. The Company has one existing finance lease for the Company’s headquarters building with a lease term through 2022.

The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated financial statements. The following table presents the classification of the Company’s right-of-use, or ROU, assets and lease liabilities on the consolidated financial statements.

		March 31,		December 31,
(dollars in thousands)		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	6,293	$	6,918
Finance lease right-of-use assets	Land, premises and equipment, net		173		202
Total lease right-of-use assets		$	6,466	$	7,120
Lease Liabilities
Operating lease liabilities	Operating lease liabilities	$	7,140	$	7,861
Finance lease liabilities	Long-term debt		375		430
Total lease liabilities		$	7,515	$	8,291

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used. For the Company’s only finance lease, the Company utilized its incremental borrowing rate at lease inception.

	March 31,		December 31,
	2021		2020
Weighted-average remaining lease term, years
Operating leases	5.7		5.8
Finance leases	1.6		1.8
Weighted-average discount rate
Operating leases	2.9	%	2.9	%
Finance leases	7.8	%	7.8	%

As the Company elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable

payments such as common area maintenance and utilities. Variable lease cost also includes payments for usage or maintenance of those capitalized equipment operating leases.

The following table presents lease costs and other lease information for the three months ending March 31, 2021 and 2020.

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Lease costs
Operating lease cost	$	496	$	623
Variable lease cost		233		197
Short-term lease cost		37		95
Finance lease cost
Interest on lease liabilities		8		12
Amortization of right-of-use assets		29		29
Sublease income		(60)		(66)
Net lease cost	$	743	$	890
Other information
Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases	$	487	$	618
Right-of-use assets obtained in exchange for new operating lease liabilities		—		183
Right-of-use assets obtained in exchange for new finance lease liabilities		—		—

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:

	Finance		Operating
(dollars in thousands)	Leases		Leases
Twelve months ended
March 31, 2022	$	251	$	1,787
March 31, 2023		146		1,823
March 31, 2024		—		1,317
March 31, 2025		—		596
March 31, 2026		—		552
Thereafter		—		1,494
Total future minimum lease payments	$	397	$	7,569
Amounts representing interest		(22)		(429)
Total operating lease liabilities	$	375	$	7,140

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Deposits

3 Months Ended

Mar. 31, 2021

Deposits.

Deposits

NOTE 8 Deposits

The components of deposits in the consolidated balance sheets as of March 31, 2021 and December 31, 2020 were as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Noninterest-bearing	$	775,434	$	754,716
Interest-bearing
Interest-bearing demand		674,466		618,900
Savings accounts		87,492		79,902
Money market savings		967,273		909,137
Time deposits		212,908		209,338
Total interest-bearing		1,942,139		1,817,277
Total deposits	$	2,717,573	$	2,571,993

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Long-Term Debt

3 Months Ended

Mar. 31, 2021

Long-Term Debt.

Long-Term Debt

NOTE 9 Long-Term Debt

Long-term debt as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31, 2021
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	50,000	Fixed	3.50	%	3/30/2031	3/31/2026
Junior subordinated debenture (Trust I)		4,124		3,458	Three-month LIBOR + 3.10%	3.30	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,187	Three-month LIBOR + 1.80%	1.98	%	9/15/2036	9/15/2011
Finance lease liability		2,700		375	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	59,020

	December 31, 2020
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	49,688	Three-month LIBOR + 4.12%	4.36	%	12/30/2025	12/30/2020
Junior subordinated debenture (Trust I)		4,124		3,447	Three-month LIBOR + 3.10%	3.35	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,170	Three-month LIBOR + 1.80%	2.02	%	9/15/2036	9/15/2011
Finance lease liability		2,700		430	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	58,735

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Financial Instruments with Off-Balance Sheet Risk

3 Months Ended

Mar. 31, 2021

Financial Instruments with Off-Balance Sheet Risk

Financial Instruments with Off-Balance Sheet Risk

NOTE 10 Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Bank has outstanding commitment and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making such commitments as it does for instruments that are included in the statements of financial condition.

A summary of the contractual amounts of the Company’s exposure to off-balance sheet risk was as follows:

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commitments to extend credit	$	593,818	$	611,140
Standby letters of credit		6,224		6,510
Total	$	600,042	$	617,650

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each client’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income producing commercial properties.

The Company was not required to perform on any financial guarantees and did not incur any losses on its commitments during the past two years.

The Company utilizes standby letters of credit issued by either the Federal Home Loan Bank or the Bank of North Dakota to secure public unit deposits. The Company had a $150 thousand letter of credit with the Federal Home Loan Bank as of March 31, 2021 and December 31, 2020. With the Bank of North Dakota, the Company had no letters of credit outstanding as of March 31, 2021 and December 31, 2020. Bank of North Dakota letters of credit were collateralized by loans pledged to the Bank of North Dakota in the amount of $237.6 million and $245.7 million as of March 31, 2021 and December 31, 2020, respectively.

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Share-Based Compensation Plan

3 Months Ended

Mar. 31, 2021

Share-Based Compensation Plan

Share-Based Compensation Plan

NOTE 11 Share-Based Compensation

The Company has granted equity awards pursuant to the Alerus Financial Corporation 2009 Stock Plan. The awards were in the form of restricted stock or restricted stock units and are considered to represent an element of employee compensation. Compensation expense for the awards is based on the fair value of Alerus Financial Corporation common stock at the time of grant. The value of awards that are expected to vest are amortized into expense over the vesting periods. The ability to grant awards under this plan has expired.

On May 6, 2019, the Company’s stockholders approved the Alerus Financial Corporation 2019 Equity Incentive Plan. This plan allows the compensation committee the ability to grant a wide variety of equity awards, including stock options, stock appreciation rights, restricted stock, restricted stock units and cash incentive awards in such forms and amounts as it deems appropriate to accomplish the goals of the plan. Any shares subject to an award that is cancelled, forfeited, or expires prior to exercise or realization, either in full or in part, shall again become available for issuance under the plan. However, shares subject to an award shall not again be made available for issuance or delivery under the plan if such shares are (a) tendered in payment of the exercise price of a stock option, (b) delivered to, or withheld by, the Company to satisfy any tax withholding obligation, or (c) covered by a stock-settled stock appreciation right or other awards that were not issued upon the settlement of the award. Shares vest, become exercisable and contain such other terms and conditions as determined by the compensation committee and set forth in individual agreements with the participant receiving the award. The plan authorizes the issuance of up to 1,100,000 shares of common stock. As of March 31, 2021, 30,499 stock awards and 91,302 restricted stock units had been issued under the plan.

Compensation expense relating to awards under these plans was $498 thousand and $235 thousand for the three months ended March 31, 2021 and 2020, respectively.

The following table presents the activity in the stock plans for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021			Three months ended March 31, 2020
		Weighted-			Weighted-
		Average Grant			Average Grant
	Awards	Date Fair Value		Awards	Date Fair Value
Restricted Stock and Restricted Stock Unit Awards
Outstanding at beginning of period	325,030	$	19.48	347,211	$	18.64
Granted	59,374		26.36	63,048		20.23
Vested	(81,092)		20.72	(71,339)		16.06
Forfeited or cancelled	—		—	(5,068)		19.37
Outstanding at end of period	303,312	$	20.49	333,852	$	19.47

As of March 31, 2021, there was $4.1 million of unrecognized compensation expense related to non-vested awards granted under the plans. The expense is expected to be recognized over a weighted-average period of 2.93 years.

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Income Taxes

3 Months Ended

Mar. 31, 2021

Income Taxes

Income Taxes

NOTE 12 Income Taxes

The components of income tax expense (benefit) for the three months ended March 31, 2021 and 2020 are as follows:

	Three months ended March 31,
	2021				2020
			Percent of				Percent of
(dollars in thousands)	Amount		Pretax Income		Amount		Pretax Income
Taxes at statutory federal income tax rate	$	4,174	21.0	%	$	1,428	21.0	%
Tax effect of:
Tax exempt income		(153)	(0.8)	%		(121)	(1.8)	%
Other		641	3.2	%		130	1.9	%
Applicable income taxes	$	4,662	23.4	%	$	1,437	21.1	%

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

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Segment Reporting

3 Months Ended

Mar. 31, 2021

Segment Reporting

Segment Reporting

NOTE 13 Segment Reporting

The Company determines reportable segments 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 four operating segments: Banking, Retirement and Benefit Services, Wealth Management, and Mortgage.

The financial information presented for each segment includes net interest income, provision for loan losses, direct noninterest income, and direct noninterest expense, before indirect allocations. Corporate Administration includes the indirect overhead and is set forth in the table below. The segment net income before taxes represents direct revenue and expense before indirect allocations and income taxes.

The following table presents key metrics related to the Company’s segments for the periods presented:

	Three months ended March 31, 2021
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	21,880	$	—	$	—	$	446	$	(288)	$	22,038
Provision for loan losses		—		—		—		—		—		—
Noninterest income		1,522		17,255		4,986		17,132		(14)		40,881
Noninterest expense		11,084		10,112		2,335		10,853		8,658		43,042
Net income before taxes	$	12,318	$	7,143	$	2,651	$	6,725	$	(8,960)	$	19,877

	Three months ended March 31, 2020
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	19,446	$	—	$	—	$	268	$	(877)	$	18,837
Provision for loan losses		2,500		—		—		—		—		2,500
Noninterest income		1,874		16,220		4,046		5,045		4		27,189
Noninterest expense		12,653		7,931		1,515		5,439		9,188		36,726
Net income before taxes	$	6,167	$	8,289	$	2,531	$	(126)	$	(10,061)	$	6,800

Banking

The Banking division offers a complete line of loan, deposit, cash management, and treasury services through fourteen offices in North Dakota, Minnesota, and Arizona. 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 segment’s balance sheet.

Retirement and Benefit Services

Retirement and Benefit Services provides the following services nationally: recordkeeping and administration services to qualified retirement plans; ESOP trustee, recordkeeping, and administration; investment fiduciary services to retirement plans; health savings accounts, flex spending accounts, COBRA recordkeeping and administration services, and payroll to employers; and payroll and HRIS services for employers. In addition, the division operates within each of the banking markets as well as in, Lansing, Michigan and Littleton Colorado.

Wealth Management

The Wealth Management division provides advisory and planning services, investment management, and trust and fiduciary services to clients across the Company’s footprint.

Mortgage

The Mortgage division offers first and second mortgage loans through a centralized mortgage unit in Minneapolis, Minnesota as well as through the Banking office locations.

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Earnings Per Share

3 Months Ended

Mar. 31, 2021

Earnings Per Share

Earnings Per Share

NOTE 14 Earnings Per Share

The calculation of basic and diluted earnings per share using the two-class method for the three months ending March 31, 2021 and 2020 are presented below:

	Three months ended
	March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Net income	$	15,215	$	5,363
Dividends and undistributed earnings allocated to participating securities		254		82
Net income available to common shareholders	$	14,961	$	5,281
Weighted-average common shares outstanding for basic earnings per share		17,145		17,070
Dilutive effect of stock-based awards		320		335
Weighted-average common shares outstanding for diluted earnings per share		17,465		17,405
Earnings per common share:
Basic earnings per common share	$	0.87	$	0.31
Diluted earnings per common share	$	0.86	$	0.30

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Derivative Instruments

3 Months Ended

Mar. 31, 2021

Derivative Instruments

Derivative Instruments

NOTE 15 Derivative Instruments

The Company enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Company enters into offsetting positions with U.S. financial institutions in order to minimize risk to the Company. These swaps are derivatives, but are not designated as hedging instruments.

The Company did not have any derivatives designated as hedging instruments, as of March 31, 2021 and December 31, 2020. The following table presents the amounts recorded in the Company’s consolidated balance sheets, for derivatives not designated as hedging instruments, as of March 31, 2021 and December 31, 2020:

		March 31, 2021				December 31, 2020
		Fair		Notional		Fair		Notional
(dollars in thousands)		Value		Amount		Value		Amount
Asset Derivatives	Consolidated Balance Sheet Location
Interest rate swaps	Other assets	$	1,616	$	45,845	$	569	$	44,597
Interest rate lock commitments	Other assets		4,033		260,318		10,124		270,103
Forward loan sales commitments	Other assets		1,028		34,280		2,664		86,990
TBA mortgage backed securities	Other assets		6,251		309,000		—		—
Total asset derivatives		$	12,928	$	649,443	$	13,357	$	401,690
Liability Derivatives
Interest rate swaps	Accrued expenses and other liabilities	$	1,616	$	45,845	$	572	$	44,597
TBA mortgage backed securities	Accrued expenses and other liabilities		—		—		2,339		307,000
Total liability derivatives		$	1,616	$	45,845	$	2,911	$	351,597

The gain (loss) recognized on derivative instruments for the three months ended March 31, 2021 and 2020 was as follows:

		Three months ended
	Consolidated Statements of	March 31,		March 31,
(dollars in thousands)	of Income Location	2021		2020
Interest rate swaps	Other noninterest income	$	2	$	—
Interest rate lock commitments	Mortgage banking		(6,245)		1,227
Forward loan sales commitments	Mortgage banking		(1,635)		666
TBA mortgage backed securities	Mortgage banking		8,961		(3,423)
Total gain/(loss) from derivative instruments		$	1,083	$	(1,530)

The Company has third party agreements that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. The amount of collateral posted with third parties at March 31, 2021 and December 31, 2020, respectively was $2.3 million and $2.7 million. The amount of collateral posted with third parties was deemed to be sufficient as of those dates to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures.

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Regulatory Matters

3 Months Ended

Mar. 31, 2021

Regulatory Matters

Regulatory Matters

NOTE 16 Regulatory Matters

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of common equity tier 1, tier 1, and total capital (as defined in the regulations) to risk weighted assets (as defined) and of tier 1 capital (as defined) to average assets (as defined). Management believes at March 31, 2021 and December 31, 2020, each of the Company and the Bank had met all of the capital adequacy requirements to which it was subject.

The following table presents the Company’s and the Bank’s actual capital amounts and ratios as of March 31, 2021 and December 31, 2020:

	March 31, 2021
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	279,434	13.48	%	$	93,307	4.50	%	$	N/A	N/A
Bank		265,300	12.80	%		93,244	4.50	%		134,685	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		287,770	13.88	%		124,410	6.00	%		N/A	N/A
Bank		265,300	12.80	%		124,325	6.00	%		165,766	8.00	%
Total capital to risk weighted assets
Consolidated		363,785	17.54	%		165,880	8.00	%		N/A	N/A
Bank		291,298	14.06	%		165,766	8.00	%		207,208	10.00	%
Tier 1 capital to average assets
Consolidated		287,770	9.59	%		120,012	4.00	%		N/A	N/A
Bank		265,300	8.85	%		119,947	4.00	%		149,934	5.00	%

	December 31, 2020
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	265,490	12.75	%	$	93,723	4.50	%	$	N/A	N/A
Bank		251,806	12.10	%		93,632	4.50	%		135,246	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		273,797	13.15	%		124,964	6.00	%		N/A	N/A
Bank		251,806	12.10	%		124,843	6.00	%		166,457	8.00	%
Total capital to risk weighted assets
Consolidated		349,620	16.79	%		166,618	8.00	%		N/A	N/A
Bank		277,916	13.36	%		166,457	8.00	%		208,071	10.00	%
Tier 1 capital to average assets
Consolidated		273,797	9.24	%		118,587	4.00	%		N/A	N/A
Bank		251,806	8.50	%		118,511	4.00	%		148,139	5.00	%

The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior regulatory approval. The Company and the Bank are subject to the rules of the Basel III regulatory capital framework and related Dodd-Frank Wall Street Reform and Consumer Protection Act rules. The rules included the implementation of a 2.5 percent capital conservation buffer that is added to the minimum requirements for capital adequacy purposes. A banking organization with a conservation buffer of less than the required amount will be subject to the limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At March 31, 2021, the ratios for the Company and the Bank were sufficient to meet the conservation buffer. In addition, the Company must adhere to various U.S. Department of Housing and Urban Development, or HUD, regulatory guidelines including required minimum capital and liquidity to maintain their Federal Housing Administration approval status. Failure to comply with the HUD guidelines could result in withdrawal of this certification. As of March 31, 2021, and December 31, 2020, the Company was in compliance with HUD guidelines.

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Stock Repurchase Program

3 Months Ended

Mar. 31, 2021

Stock Repurchase Program

Stock Repurchase Program

NOTE 17 Stock Repurchase Program

On February 18, 2021, the Board of Directors of the Company approved a stock repurchase program, or the Program, which authorizes the Company to repurchase up to 770,000 shares of its common stock subject to certain limitations and conditions. The Program was effective immediately and will continue for a period of 36 months. The Program does not obligate the Company to repurchase any shares of its common stock and there is no assurance that the Company will do so. As of March 31, 2021, there were no shares repurchased under the Program. The Company also repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units.

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Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2021

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

NOTE 18 Fair Value of Assets and Liabilities

The Company categorizes its assets and liabilities measured at estimated fair value into a three level hierarchy based on the priority of the inputs to the valuation technique used to determine estimated fair value. The estimated fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used in the determination of the estimated fair value measurement fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the estimated fair value measurement. Assets and liabilities valued at estimated fair value are categorized based on the following inputs to the valuation techniques as follows:

Level 1—Inputs that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that an entity has the ability to access.

Level 2—Inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Estimated fair values for these instruments are estimated using pricing models, quoted prices of investment securities with similar characteristics, or discounted cash flows.

Level 3—Inputs that are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities measured on a nonrecurring basis to estimated fair value. Adjustments to estimated fair value usually result when certain assets are impaired. Such assets are written down from their carrying amounts to their estimated fair value.

Professional standards allow entities the irrevocable option to elect to measure certain financial instruments and other items at estimated fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The Company adopted the policy to value certain financial instruments at estimated fair value. The Company has not elected to measure any existing financial instruments at estimated fair value; however, it may elect to measure newly acquired financial instruments at estimated fair value in the future.

Recurring Basis

The Company uses estimated fair value measurements to record estimated fair value adjustments to certain assets and liabilities and to determine estimated fair value disclosures.

The following tables present the balances of the assets and liabilities measured at estimated fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

	March 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and securities
U.S. treasury and government agencies	$	—	$	5,683	$	—	$	5,683
Obligations of state and political agencies		—		149,191		—		149,191
Mortgage backed securities
Residential agency		—		521,595		—		521,595
Commercial		—		87,697		—		87,697
Asset backed securities		—		96		—		96
Corporate bonds		—		30,835		—		30,835
Total available-for-sale securities	$	—	$	795,097	$	—	$	795,097
Other assets
Derivatives	$	—	$	12,928	$	—	$	12,928
Other liabilities
Derivatives	$	—	$	1,616	$	—	$	1,616

	December 31, 2020
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and equity securities
U.S. treasury and government agencies	$	—	$	5,907	$	—	$	5,907
Obligations of state and political agencies		—		153,773		—		153,773
Mortgage backed securities
Residential agency		—		306,719		—		306,719
Commercial		—		94,978		—		94,978
Asset backed securities		—		115		—		115
Corporate bonds		—		30,850		—		30,850
Equity securities		—		—		—		—
Total available-for-sale and equity securities	$	—	$	592,342	$	—	$	592,342
Other assets
Derivatives	$	—	$	13,357	$	—	$	13,357
Other liabilities
Derivatives	$	—	$	2,911	$	—	$	2,911

The following is a description of the valuation methodologies used for instruments measured at estimated fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

When available, the Company uses quoted market prices to determine the estimated fair value of investment securities; such items are classified in Level 1 of the estimated fair value hierarchy. For the Company’s investment securities for which quoted prices are not available for identical investment securities in an active market, the Company determines estimated fair value utilizing vendors who apply matrix pricing for similar bonds for which no prices are observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market, and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. Estimated fair values from these models are verified, where possible, against quoted prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, cannot be obtained, or cannot be corroborated, a security is generally classified as Level 3.

Derivatives

All of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For these derivatives, estimated fair value is measured using internally developed models that use

primarily market observable inputs, such as yield curves and option volatilities, and accordingly, classify as Level 2. Examples of Level 2 derivatives are basic interest rate swaps and forward contracts.

Nonrecurring Basis

Certain assets are measured at estimated fair value on a nonrecurring basis. These assets are not measured at estimated fair value on an ongoing basis; however, they are subject to estimated fair value adjustments in certain circumstances, such as when there is evidence of impairment or a change in the amount of previously recognized impairment.

Net impairment related to nonrecurring estimated fair value measurements of certain assets as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31, 2021
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	78,665	$	—	$	78,665	$	—
Impaired loans		—		7,139		7,139		1,002
Foreclosed assets		—		139		139		—
Servicing rights		—		1,952		1,952		—

	December 31, 2020
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	122,440	$	—	$	122,440	$	—
Impaired loans		—		7,325		7,325		1,205
Foreclosed assets		—		63		63		—
Servicing rights		—		1,987		1,987		—

Loans Held for Sale

Loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically these quotes include a premium on the sale and thus these quotes indicate estimated fair value of the held for sale loans is greater than cost.

Impairment losses for loans held for sale that are carried at the lower of cost or estimated fair value, represent additional net write-downs during the period to record these loans at the lower of cost or estimated fair value, subsequent to their initial classification as loans held for sale.

The valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair values as of March 31, 2021, and December 31, 2020, were as follows:

			March 31, 2021
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,139	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		139	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,952	175-298		269
		Discount rate			9.0	%	9.0	%

			December 31, 2020
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,325	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		63	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,987	191-403		285
		Discount rate			9.0	%	9.0	%

Disclosure of estimated fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases in which quoted market prices are not available, estimated fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived estimated fair value estimates cannot be substantiated by comparison to independent markets and, in many cases could not be realized in immediate settlement of the instruments. Certain financial instruments, with an estimated fair value that is not practicable to estimate and all non-financial instruments, are excluded from the disclosure requirements. Accordingly, the aggregate estimated fair value amounts presented do not necessarily represent the underlying value of the Company.

The following disclosures represent financial instruments in which the ending balances, as of March 31, 2021 and December 31, 2020, were not carried at estimated fair value in their entirety on the consolidated balance sheets.

Cash and Cash Equivalents and Accrued Interest

The carrying amounts reported in the consolidated balance sheets approximate those assets and liabilities estimated fair values.

Loans

For variable-rate loans that reprice frequently and with no significant change in credit risk, estimated fair values are based on carrying values. The estimated fair values of other loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Bank-Owned Life Insurance

Bank-owned life insurance is carried at the amount due upon surrender of the policy, which is also the estimated fair value. This amount was provided by the insurance companies based on the terms of the underlying insurance contract.

Deposits

The estimated fair values of demand deposits are, by definition, equal to the amount payable on demand at the consolidated balance sheet date. The estimated fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

Short-Term Borrowings and Long-Term Debt

For variable-rate borrowings that reprice frequently, estimated fair values are based on carrying values. The estimated fair value of fixed-rate borrowings are estimated using discounted cash flow analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Credit-Related Commitments

Off-balance sheet credit related commitments are generally of short-term nature. The contract amount of such commitments approximates their estimated fair value since the commitments are comprised primarily of unfunded loan commitments which are generally priced at market at the time of funding.

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows:

	March 31, 2021
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	190,217	$	190,217	$	—	$	—	$	190,217
Loans		1,903,587		—		—		1,952,366		1,952,366
Accrued interest receivable		9,271		9,271		—		—		9,271
Bank-owned life insurance		32,556		—		32,556		—		32,556
Financial Liabilities
Noninterest-bearing deposits	$	775,434	$	—	$	775,434	$	—	$	775,434
Interest-bearing deposits		1,729,231		—		1,729,231		—		1,729,231
Time deposits		212,908		—		—		213,673		213,673
Long-term debt		59,020		—		56,634		—		56,634
Accrued interest payable		533		533		—		—		533

	December 31, 2020
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	172,962	$	172,962	$	—	$	—	$	172,962
Loans		1,945,129		—		—		1,992,394		1,992,394
Accrued interest receivable		9,662		9,662		—		—		9,662
Bank-owned life insurance		32,363		—		32,363		—		32,363
Financial Liabilities
Noninterest-bearing deposits	$	754,716	$	—	$	754,716	$	—	$	754,716
Interest-bearing deposits		1,607,939		—		1,607,939		—		1,607,939
Time deposits		209,338		—		—		210,637		210,637
Long-term debt		58,735		—		56,131		—		56,131
Accrued interest payable		654		654		—		—		654

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COVID-19 Pandemic Response

3 Months Ended

Mar. 31, 2021

COVID-19 Pandemic Response

COVID-19 Pandemic Response

NOTE 19 COVID-19 Pandemic Response

As discussed in “Note 1 Significant Accounting Policies,” the full extent of the impact of COVID-19 on the U.S. economy generally and the Company, is uncertain. In the second quarter of 2020, the Company became a lender under the Paycheck Protection Program, or PPP, which was administered through the U.S. Small Business Administration, or SBA, an agency of the U.S Department of the Treasury, which works with financial institutions in providing loans to small businesses. The PPP, which is meant to aid small businesses during the COVID-19 pandemic, was created under the Coronavirus Aid Relief, and Economic Security, or CARES, Act, which was signed into law on March 27, 2020. In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. See “Note 4 Loans and Allowance for Loan Losses” for additional discussion regarding TDRs.

As of March 31, 2021, the Company assisted 2,289 new and existing clients secure a total of approximately $447.2 million of PPP financing. Net processing fees in the amount of $14.9 million are being deferred and recognized as interest income on a level yield method over the life of the respective loans. See “Note 4 Loans and Allowance for Loan Losses” for additional discussion on the remaining deferred costs associated with PPP financing.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Significant Accounting Policies

Organization

Organization

Alerus Financial Corporation, or the Company, is a financial holding company organized under the laws of the state of Delaware. The Company and its subsidiaries operate as a diversified financial services company headquartered in Grand Forks, North Dakota. Through its subsidiary, Alerus Financial, National Association, or the Bank, the Company provides financial solutions to businesses and consumers through four distinct business lines—banking, retirement and benefit services, wealth management, and mortgage.

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC, and conform to practices within the banking industry and include all of the information and disclosures required by generally accepted accounting principles in the United States of America, or GAAP, for interim financial reporting. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results for the full year or any other period. The Company has also evaluated all subsequent events for potential recognition and disclosure through the date of the filing of this Quarterly Report on Form 10-Q. These interim unaudited financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2021.

Principles of Consolidation

Principles of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s principal operating subsidiary is the Bank.

In the normal course of business, the Company may enter into a transaction with a variable interest entity, or VIE. VIE’s are legal entities whose investors lack the ability to make decisions about the entity’s activities, or whose equity investors do not have the right to receive the residual returns of the entity. The applicable accounting guidance requires the Company to perform ongoing quantitative and qualitative analysis to determine whether it must consolidate any VIE. The Company does not have any ownership interest in, or exert any control, over any VIE, and thus no VIE’s are included in the consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term include the valuation of investment securities, determination of the allowance for loan losses, valuation of reporting units for the purpose of testing goodwill and other intangible assets for impairment, valuation of deferred tax assets, and fair values of financial instruments.

Reclassifications

Reclassifications

Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

Other Information

Other Information

As of March 31, 2021, the Coronavirus Disease, or COVID-19, pandemic is ongoing. During 2020, the COVID-19 pandemic created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries, including industries related to the collateral underlying certain of our loans. In 2021, the U.S. economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Nonetheless, the economic recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus. Management believes the Company is taking appropriate actions to mitigate, to the extent possible, the negative impact. However, the full impact of COVID-19 is currently unknown and cannot be reasonably estimated as the events are continuing to unfold as the year progresses.

Emerging Growth Company

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, even if the Company complies with the greater obligations of public companies that are not emerging growth companies, the Company may avail itself of the reduced requirements applicable to emerging growth companies from time to time in the future, so long as the Company is an emerging growth company. The Company will continue to be an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the date of the first sale of common equity securities under the Company’s Registration Statement on Form S-1, which was declared effective by the SEC on September 12, 2019; (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”; or (4) the date on which the Company has, during the previous three-year period, issued publicly or privately, more than $1.0 billion in non-convertible debt securities.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. As an emerging growth company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to take advantage of the benefits of this extended transition period.

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2021

Investment Securities

Schedule of amortized cost of investment securities to estimated fair values

	March 31, 2021
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,704	$	—	$	(21)	$	5,683
Obligations of state and political agencies		147,926		2,710		(1,445)		149,191
Mortgage backed securities
Residential agency		529,717		2,146		(10,268)		521,595
Commercial		85,060		2,650		(13)		87,697
Asset backed securities		91		5		—		96
Corporate bonds		30,545		707		(417)		30,835
Total available-for-sale investment securities	$	799,043	$	8,218	$	(12,164)	$	795,097

	December 31, 2020
	Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value
U.S. Treasury and agencies	$	5,926	$	—	$	(19)	$	5,907
Obligations of state and political agencies		148,491		5,282		—		153,773
Mortgage backed securities
Residential agency		303,760		3,395		(436)		306,719
Commercial		89,300		5,678		—		94,978
Asset backed securities		109		6		—		115
Corporate bonds		30,552		388		(90)		30,850
Total available-for-sale investment securities	$	578,138	$	14,749	$	(545)	$	592,342

Schedule of investment securities with gross unrealized losses

	March 31, 2021
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	—	$	—	$	(21)	$	5,650	$	(21)	$	5,650
Obligations of state and political agencies		(1,445)		51,463		—		—		(1,445)		51,463
Mortgage backed securities
Residential agency		(10,268)		380,454		—		—		(10,268)		380,454
Commercial		(13)		9,026		—		—		(13)		9,026
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(417)		13,583		—		—		(417)		13,583
Total available-for-sale investment securities	$	(12,143)	$	454,526	$	(21)	$	5,652	$	(12,164)	$	460,178

	December 31, 2020
	Less than 12 Months				Over 12 Months				Total
	Unrealized		Fair		Unrealized		Fair		Unrealized		Fair
(dollars in thousands)	Losses		Value		Losses		Value		Losses		Value
U.S. Treasury and agencies	$	(10)	$	4,509	$	(9)	$	1,309	$	(19)	$	5,818
Obligations of state and political agencies		—		—		—		—		—		—
Mortgage backed securities
Residential agency		(432)		68,494		(4)		2,356		(436)		70,850
Commercial		—		—		—		—		—		—
Asset backed securities		—		—		—		2		—		2
Corporate bonds		(90)		16,454		—		—		(90)		16,454
Total available-for-sale investment securities	$	(532)	$	89,457	$	(13)	$	3,667	$	(545)	$	93,124

Schedule of contractual maturity of amortized cost and estimated fair value

	Amortized		Fair
(dollars in thousands)	Cost		Value
Due within one year or less	$	5,480	$	5,506
Due after one year through five years		32,626		33,180
Due after five years through ten years		150,987		153,408
Due after 10 years		609,950		603,003
Total available-for-sale investment securities	$	799,043	$	795,097

Schedule of proceeds from the sale of available for sale securities

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Proceeds	$	13,189	$	4,000
Realized gains		114		—
Realized losses		—		—

Schedule of federal home loan bank

	March 31,		December 31,
(dollars in thousands)	2021		2020
Federal Reserve	$	2,675	$	2,675
FHLB		3,864		3,090

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Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2021

Loans and Allowance for Loan Losses

Schedule of total loans outstanding by portfolio segment

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commercial
Commercial and industrial (1)	$	678,029	$	691,858
Real estate construction		40,473		44,451
Commercial real estate		569,451		563,007
Total commercial		1,287,953		1,299,316
Consumer
Residential real estate first mortgage		454,958		463,370
Residential real estate junior lien		130,299		143,416
Other revolving and installment		64,135		73,273
Total consumer		649,392		680,059
Total loans	$	1,937,345	$	1,979,375

(1) Included Paycheck Protection Program, or PPP, loans of $256.8 million at March 31, 2021 and $268.4 million at December 31, 2020.

Schedule of past due aging analysis of the loan portfolio

	March 31, 2021
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	675,755	$	75	$	—	$	2,199	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		564,959		2,602		—		1,890		569,451
Total commercial		1,281,187		2,677		—		4,089		1,287,953
Consumer
Residential real estate first mortgage		453,574		952		—		432		454,958
Residential real estate junior lien		129,917		184		—		198		130,299
Other revolving and installment		63,980		118		—		37		64,135
Total consumer		647,471		1,254		—		667		649,392
Total loans	$	1,928,658	$	3,931	$	—	$	4,756	$	1,937,345

	December 31, 2020
					90 Days
	Accruing		30 - 89 Days		or More				Total
(dollars in thousands)	Current		Past Due		Past Due		Nonaccrual		Loans
Commercial
Commercial and industrial	$	689,340	$	500	$	30	$	1,988	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		558,127		2,449		—		2,431		563,007
Total commercial		1,291,918		2,949		30		4,419		1,299,316
Consumer
Residential real estate first mortgage		461,179		1,752		—		439		463,370
Residential real estate junior lien		143,060		191		—		165		143,416
Other revolving and installment		73,128		118		—		27		73,273
Total consumer		677,367		2,061		—		631		680,059
Total loans	$	1,969,285	$	5,010	$	30	$	5,050	$	1,979,375

Schedule of loans outstanding, by portfolio segment and risk category

	March 31, 2021
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	658,607	$	2,725	$	16,516	$	181	$	678,029
Real estate construction		40,473		—		—		—		40,473
Commercial real estate		540,906		3,615		24,930		—		569,451
Total commercial		1,239,986		6,340		41,446		181		1,287,953
Consumer
Residential real estate first mortgage		448,919		3,928		2,111		—		454,958
Residential real estate junior lien		128,788		407		1,104		—		130,299
Other revolving and installment		64,098		—		37		—		64,135
Total consumer		641,805		4,335		3,252		—		649,392
Total loans	$	1,881,791	$	10,675	$	44,698	$	181	$	1,937,345

	December 31, 2020
			Criticized
			Special
(dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
Commercial
Commercial and industrial	$	669,602	$	5,415	$	16,841	$	—	$	691,858
Real estate construction		44,451		—		—		—		44,451
Commercial real estate		533,733		6,686		22,588		—		563,007
Total commercial		1,247,786		12,101		39,429		—		1,299,316
Consumer
Residential real estate first mortgage		461,221		1,406		743		—		463,370
Residential real estate junior lien		140,461		1,819		1,136		—		143,416
Other revolving and installment		73,236		—		37		—		73,273
Total consumer		674,918		3,225		1,916		—		680,059
Total loans	$	1,922,704	$	15,326	$	41,345	$	—	$	1,979,375

Summary of changes in allowances

	Three months ended March 31, 2021
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	10,205	$	316	$	(204)	$	170	$	10,487
Real estate construction		658		(60)		—		—		598
Commercial real estate		14,105		277		(536)		3		13,849
Total commercial		24,968		533		(740)		173		24,934
Consumer
Residential real estate first mortgage		5,774		273		—		—		6,047
Residential real estate junior lien		1,373		(168)		—		83		1,288
Other revolving and installment		753		(83)		(44)		40		666
Total consumer		7,900		22		(44)		123		8,001
Unallocated		1,378		(555)		—		—		823
Total	$	34,246	$	—	$	(784)	$	296	$	33,758

	Three months ended March 31, 2020
	Beginning		Provision for		Loan		Loan		Ending
(dollars in thousands)	Balance		Loan Losses		Charge-offs		Recoveries		Balance
Commercial
Commercial and industrial	$	12,270	$	70	$	(32)	$	593	$	12,901
Real estate construction		303		31		—		—		334
Commercial real estate		6,688		1,588		—		—		8,276
Total commercial		19,261		1,689		(32)		593		21,511
Consumer
Residential real estate first mortgage		1,448		761		—		—		2,209
Residential real estate junior lien		671		317		—		37		1,025
Other revolving and installment		352		92		(67)		64		441
Total consumer		2,471		1,170		(67)		101		3,675
Unallocated		2,192		(359)		—		—		1,833
Total	$	23,924	$	2,500	$	(99)	$	694	$	27,019

Schedule of loans distributed by portfolio segment and impairment methodology

	March 31, 2021
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,794	$	675,235	$	678,029	$	691	$	9,796	$	10,487
Real estate construction		—		40,473		40,473		—		598		598
Commercial real estate		4,676		564,775		569,451		268		13,581		13,849
Total commercial		7,470		1,280,483		1,287,953		959		23,975		24,934
Consumer
Residential real estate first mortgage		432		454,526		454,958		—		6,047		6,047
Residential real estate junior lien		202		130,097		130,299		27		1,261		1,288
Other revolving and installment		37		64,098		64,135		16		650		666
Total consumer		671		648,721		649,392		43		7,958		8,001
Unallocated		—		—		—		—		—		823
Total loans	$	8,141	$	1,929,204	$	1,937,345	$	1,002	$	31,933	$	33,758

	December 31, 2020
	Recorded Investment						Allowance for Loan Losses
	Individually		Collectively				Individually		Collectively
(dollars in thousands)	Evaluated		Evaluated		Total		Evaluated		Evaluated		Total
Commercial
Commercial and industrial	$	2,616	$	689,242	$	691,858	$	336	$	9,869	$	10,205
Real estate construction		—		44,451		44,451		—		658		658
Commercial real estate		5,224		557,783		563,007		837		13,268		14,105
Total commercial		7,840		1,291,476		1,299,316		1,173		23,795		24,968
Consumer
Residential real estate first mortgage		439		462,931		463,370		—		5,774		5,774
Residential real estate junior lien		224		143,192		143,416		19		1,354		1,373
Other revolving and installment		27		73,246		73,273		13		740		753
Total consumer		690		679,369		680,059		32		7,868		7,900
Unallocated		—		—		—		—		—		1,378
Total loans	$	8,530	$	1,970,845	$	1,979,375	$	1,205	$	31,663	$	34,246

Schedule of impaired loans

	March 31, 2021						December 31, 2020
	Recorded		Unpaid		Related		Recorded		Unpaid		Related
(dollars in thousands)	Investment		Principal		Allowance		Investment		Principal		Allowance
Impaired loans with a valuation allowance
Commercial and industrial	$	1,606	$	1,689	$	691	$	723	$	725	$	336
Commercial real estate		2,791		2,816		268		3,948		3,974		837
Residential real estate junior lien		27		29		27		19		20		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans with a valuation allowance		4,461		4,572		1,002		4,717		4,746		1,205
Impaired loans without a valuation allowance
Commercial and industrial		1,188		1,341		—		1,893		2,173		—
Commercial real estate		1,885		2,029		—		1,276		1,415		—
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		175		199		—		205		306		—
Total impaired loans without a valuation allowance		3,680		4,030		—		3,813		4,358		—
Total impaired loans
Commercial and industrial		2,794		3,030		691		2,616		2,898		336
Commercial real estate		4,676		4,845		268		5,224		5,389		837
Residential real estate first mortgage		432		461		—		439		464		—
Residential real estate junior lien		202		228		27		224		326		19
Other revolving and installment		37		38		16		27		27		13
Total impaired loans	$	8,141	$	8,602	$	1,002	$	8,530	$	9,104	$	1,205

The table below presents the average recorded investment in impaired loans and interest income for the three months ended March 31, 2021 and 2020:

	Three Months Ended March 31,
	2021				2020
	Average				Average
	Recorded		Interest		Recorded		Interest
(dollars in thousands)	Investment		Income		Investment		Income
Impaired loans with a valuation allowance
Commercial and industrial	$	1,816	$	13	$	4,979	$	15
Commercial real estate		2,793		138		1,536		8
Residential real estate junior lien		33		—		20		—
Other revolving and installment		38		—		17		—
Total impaired loans with a valuation allowance		4,680		151		6,552		23
Impaired loans without a valuation allowance
Commercial and industrial		1,258		22		545		27
Commercial real estate		2,158		—		—		—
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		176		—		224		3
Other revolving and installment		—		—		8		—
Total impaired loans without a valuation allowance		4,027		22		1,612		30
Total impaired loans
Commercial and industrial		3,074		35		5,524		42
Real estate construction		—		—		—		—
Commercial real estate		4,951		138		1,536		8
Residential real estate first mortgage		435		—		835		—
Residential real estate junior lien		209		—		244		3
Other revolving and installment		38		—		25		—
Total impaired loans	$	8,707	$	173	$	8,164	$	53

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Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2021

Goodwill and Other Intangible Assets

Schedule of goodwill by segment

	March 31,		December 31,
(dollars in thousands)	2021		2020
Banking	$	20,131	$	20,131
Retirement and benefit services		10,070		10,070
Total goodwill	$	30,201	$	30,201

Schedule of identifiable intangible assets

	March 31, 2021						December 31, 2020
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Total		Gross Carrying Amount		Accumulated Amortization		Total
Identifiable customer intangibles	$	43,346	$	(18,578)	$	24,768	$	43,346	$	(17,490)	$	25,856
Core deposit intangible assets		—		—		—		3,793		(3,730)		63
Total intangible assets	$	43,346	$	(18,578)	$	24,768	$	47,139	$	(21,220)	$	25,919

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Loan Servicing (Tables)

3 Months Ended

Mar. 31, 2021

Loan Servicing

Summary of activity related to loan servicing

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Balance, beginning of period	$	1,987	$	3,845
Additions		49		24
Amortization		(200)		(187)
(Impairment)/Recovery		116		(405)
Balance, end of period	$	1,952	$	3,277

Summary of key economic assumptions

	March 31,			December 31,
(dollars in thousands)	2021			2020
Fair value of servicing rights	$	1,952		$	1,987
Weighted-average remaining term, years		20.4			20.1
Prepayment speeds		16.1	%		17.7	%
Discount rate		9.0	%		9.0	%

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Leases (Tables)

3 Months Ended

Mar. 31, 2021

Leases

Schedule of right-of-use assets and lease liabilities

		March 31,		December 31,
(dollars in thousands)		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Operating lease right-of-use assets	$	6,293	$	6,918
Finance lease right-of-use assets	Land, premises and equipment, net		173		202
Total lease right-of-use assets		$	6,466	$	7,120
Lease Liabilities
Operating lease liabilities	Operating lease liabilities	$	7,140	$	7,861
Finance lease liabilities	Long-term debt		375		430
Total lease liabilities		$	7,515	$	8,291

Schedule of weighted average remaining lease term and average discount rate

	March 31,		December 31,
	2021		2020
Weighted-average remaining lease term, years
Operating leases	5.7		5.8
Finance leases	1.6		1.8
Weighted-average discount rate
Operating leases	2.9	%	2.9	%
Finance leases	7.8	%	7.8	%

Schedule of lease costs and other lease information

	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Lease costs
Operating lease cost	$	496	$	623
Variable lease cost		233		197
Short-term lease cost		37		95
Finance lease cost
Interest on lease liabilities		8		12
Amortization of right-of-use assets		29		29
Sublease income		(60)		(66)
Net lease cost	$	743	$	890
Other information
Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases	$	487	$	618
Right-of-use assets obtained in exchange for new operating lease liabilities		—		183
Right-of-use assets obtained in exchange for new finance lease liabilities		—		—

Schedule of future minimum payments for finance leases

Future minimum payments for finance and operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:

	Finance		Operating
(dollars in thousands)	Leases		Leases
Twelve months ended
March 31, 2022	$	251	$	1,787
March 31, 2023		146		1,823
March 31, 2024		—		1,317
March 31, 2025		—		596
March 31, 2026		—		552
Thereafter		—		1,494
Total future minimum lease payments	$	397	$	7,569
Amounts representing interest		(22)		(429)
Total operating lease liabilities	$	375	$	7,140

Schedule of future minimum payments for operating leases

	Finance		Operating
(dollars in thousands)	Leases		Leases
Twelve months ended
March 31, 2022	$	251	$	1,787
March 31, 2023		146		1,823
March 31, 2024		—		1,317
March 31, 2025		—		596
March 31, 2026		—		552
Thereafter		—		1,494
Total future minimum lease payments	$	397	$	7,569
Amounts representing interest		(22)		(429)
Total operating lease liabilities	$	375	$	7,140

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Deposits (Tables)

3 Months Ended

Mar. 31, 2021

Deposits.

Schedule of components of deposits

	March 31,		December 31,
(dollars in thousands)	2021		2020
Noninterest-bearing	$	775,434	$	754,716
Interest-bearing
Interest-bearing demand		674,466		618,900
Savings accounts		87,492		79,902
Money market savings		967,273		909,137
Time deposits		212,908		209,338
Total interest-bearing		1,942,139		1,817,277
Total deposits	$	2,717,573	$	2,571,993

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2021

Long-Term Debt.

Schedule of long-term debt

	March 31, 2021
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	50,000	Fixed	3.50	%	3/30/2031	3/31/2026
Junior subordinated debenture (Trust I)		4,124		3,458	Three-month LIBOR + 3.10%	3.30	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,187	Three-month LIBOR + 1.80%	1.98	%	9/15/2036	9/15/2011
Finance lease liability		2,700		375	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	59,020

	December 31, 2020
						Period End
	Face		Carrying			Interest		Maturity
(dollars in thousands)	Value		Value		Interest Rate	Rate		Date	Call Date
Subordinated notes payable	$	50,000	$	49,688	Three-month LIBOR + 4.12%	4.36	%	12/30/2025	12/30/2020
Junior subordinated debenture (Trust I)		4,124		3,447	Three-month LIBOR + 3.10%	3.35	%	6/26/2033	6/26/2008
Junior subordinated debenture (Trust II)		6,186		5,170	Three-month LIBOR + 1.80%	2.02	%	9/15/2036	9/15/2011
Finance lease liability		2,700		430	Fixed	7.81	%	10/31/2022	N/A
Total long-term debt	$	63,010	$	58,735

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Financial Instruments with Off-Balance Sheet Risk (Tables)

3 Months Ended

Mar. 31, 2021

Financial Instruments with Off-Balance Sheet Risk

Schedule of financial instruments whose contract amount represents credit risk

	March 31,		December 31,
(dollars in thousands)	2021		2020
Commitments to extend credit	$	593,818	$	611,140
Standby letters of credit		6,224		6,510
Total	$	600,042	$	617,650

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Share-Based Compensation Plan (Tables)

3 Months Ended

Mar. 31, 2021

Share-Based Compensation Plan

Schedule of stock plan activity

	Three months ended March 31, 2021			Three months ended March 31, 2020
		Weighted-			Weighted-
		Average Grant			Average Grant
	Awards	Date Fair Value		Awards	Date Fair Value
Restricted Stock and Restricted Stock Unit Awards
Outstanding at beginning of period	325,030	$	19.48	347,211	$	18.64
Granted	59,374		26.36	63,048		20.23
Vested	(81,092)		20.72	(71,339)		16.06
Forfeited or cancelled	—		—	(5,068)		19.37
Outstanding at end of period	303,312	$	20.49	333,852	$	19.47

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2021

Income Taxes

Schedule of effective income tax rate reconciliation

	Three months ended March 31,
	2021				2020
			Percent of				Percent of
(dollars in thousands)	Amount		Pretax Income		Amount		Pretax Income
Taxes at statutory federal income tax rate	$	4,174	21.0	%	$	1,428	21.0	%
Tax effect of:
Tax exempt income		(153)	(0.8)	%		(121)	(1.8)	%
Other		641	3.2	%		130	1.9	%
Applicable income taxes	$	4,662	23.4	%	$	1,437	21.1	%

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2021

Segment Reporting

Schedule of key metrics related to segments

	Three months ended March 31, 2021
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	21,880	$	—	$	—	$	446	$	(288)	$	22,038
Provision for loan losses		—		—		—		—		—		—
Noninterest income		1,522		17,255		4,986		17,132		(14)		40,881
Noninterest expense		11,084		10,112		2,335		10,853		8,658		43,042
Net income before taxes	$	12,318	$	7,143	$	2,651	$	6,725	$	(8,960)	$	19,877

	Three months ended March 31, 2020
			Retirement and		Wealth				Corporate
(dollars in thousands)	Banking		Benefit Services		Management		Mortgage		Administration		Consolidated
Net interest income	$	19,446	$	—	$	—	$	268	$	(877)	$	18,837
Provision for loan losses		2,500		—		—		—		—		2,500
Noninterest income		1,874		16,220		4,046		5,045		4		27,189
Noninterest expense		12,653		7,931		1,515		5,439		9,188		36,726
Net income before taxes	$	6,167	$	8,289	$	2,531	$	(126)	$	(10,061)	$	6,800

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share

Schedule of basic and diluted earnings per share

	Three months ended
	March 31,
(dollars and shares in thousands, except per share data)	2021		2020
Net income	$	15,215	$	5,363
Dividends and undistributed earnings allocated to participating securities		254		82
Net income available to common shareholders	$	14,961	$	5,281
Weighted-average common shares outstanding for basic earnings per share		17,145		17,070
Dilutive effect of stock-based awards		320		335
Weighted-average common shares outstanding for diluted earnings per share		17,465		17,405
Earnings per common share:
Basic earnings per common share	$	0.87	$	0.31
Diluted earnings per common share	$	0.86	$	0.30

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2021

Derivative Instruments

Schedule of amounts recorded in the Company's consolidated balance sheets for derivatives not designated as hedging instruments

		March 31, 2021				December 31, 2020
		Fair		Notional		Fair		Notional
(dollars in thousands)		Value		Amount		Value		Amount
Asset Derivatives	Consolidated Balance Sheet Location
Interest rate swaps	Other assets	$	1,616	$	45,845	$	569	$	44,597
Interest rate lock commitments	Other assets		4,033		260,318		10,124		270,103
Forward loan sales commitments	Other assets		1,028		34,280		2,664		86,990
TBA mortgage backed securities	Other assets		6,251		309,000		—		—
Total asset derivatives		$	12,928	$	649,443	$	13,357	$	401,690
Liability Derivatives
Interest rate swaps	Accrued expenses and other liabilities	$	1,616	$	45,845	$	572	$	44,597
TBA mortgage backed securities	Accrued expenses and other liabilities		—		—		2,339		307,000
Total liability derivatives		$	1,616	$	45,845	$	2,911	$	351,597

Schedule of gain (loss) recognized on derivatives instruments

		Three months ended
	Consolidated Statements of	March 31,		March 31,
(dollars in thousands)	of Income Location	2021		2020
Interest rate swaps	Other noninterest income	$	2	$	—
Interest rate lock commitments	Mortgage banking		(6,245)		1,227
Forward loan sales commitments	Mortgage banking		(1,635)		666
TBA mortgage backed securities	Mortgage banking		8,961		(3,423)
Total gain/(loss) from derivative instruments		$	1,083	$	(1,530)

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Regulatory Matters (Tables)

3 Months Ended

Mar. 31, 2021

Regulatory Matters

Schedule of Bank's actual capital amounts and ratios

	March 31, 2021
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	279,434	13.48	%	$	93,307	4.50	%	$	N/A	N/A
Bank		265,300	12.80	%		93,244	4.50	%		134,685	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		287,770	13.88	%		124,410	6.00	%		N/A	N/A
Bank		265,300	12.80	%		124,325	6.00	%		165,766	8.00	%
Total capital to risk weighted assets
Consolidated		363,785	17.54	%		165,880	8.00	%		N/A	N/A
Bank		291,298	14.06	%		165,766	8.00	%		207,208	10.00	%
Tier 1 capital to average assets
Consolidated		287,770	9.59	%		120,012	4.00	%		N/A	N/A
Bank		265,300	8.85	%		119,947	4.00	%		149,934	5.00	%

	December 31, 2020
										Minimum to be
						Requirements				Well Capitalized
						for Capital				Under Prompt
	Actual				Adequacy Purposes				Corrective Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity tier 1 capital to risk weighted assets
Consolidated	$	265,490	12.75	%	$	93,723	4.50	%	$	N/A	N/A
Bank		251,806	12.10	%		93,632	4.50	%		135,246	6.50	%
Tier 1 capital to risk weighted assets										.
Consolidated		273,797	13.15	%		124,964	6.00	%		N/A	N/A
Bank		251,806	12.10	%		124,843	6.00	%		166,457	8.00	%
Total capital to risk weighted assets
Consolidated		349,620	16.79	%		166,618	8.00	%		N/A	N/A
Bank		277,916	13.36	%		166,457	8.00	%		208,071	10.00	%
Tier 1 capital to average assets
Consolidated		273,797	9.24	%		118,587	4.00	%		N/A	N/A
Bank		251,806	8.50	%		118,511	4.00	%		148,139	5.00	%

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Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value of Assets and Liabilities

Summary of balances of the assets and liabilities measured at estimated fair value on a recurring basis

	March 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and securities
U.S. treasury and government agencies	$	—	$	5,683	$	—	$	5,683
Obligations of state and political agencies		—		149,191		—		149,191
Mortgage backed securities
Residential agency		—		521,595		—		521,595
Commercial		—		87,697		—		87,697
Asset backed securities		—		96		—		96
Corporate bonds		—		30,835		—		30,835
Total available-for-sale securities	$	—	$	795,097	$	—	$	795,097
Other assets
Derivatives	$	—	$	12,928	$	—	$	12,928
Other liabilities
Derivatives	$	—	$	1,616	$	—	$	1,616

	December 31, 2020
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Available-for-sale and equity securities
U.S. treasury and government agencies	$	—	$	5,907	$	—	$	5,907
Obligations of state and political agencies		—		153,773		—		153,773
Mortgage backed securities
Residential agency		—		306,719		—		306,719
Commercial		—		94,978		—		94,978
Asset backed securities		—		115		—		115
Corporate bonds		—		30,850		—		30,850
Equity securities		—		—		—		—
Total available-for-sale and equity securities	$	—	$	592,342	$	—	$	592,342
Other assets
Derivatives	$	—	$	13,357	$	—	$	13,357
Other liabilities
Derivatives	$	—	$	2,911	$	—	$	2,911

Schedule of net impairment losses related to nonrecurring estimated fair value measurements of certain assets

	March 31, 2021
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	78,665	$	—	$	78,665	$	—
Impaired loans		—		7,139		7,139		1,002
Foreclosed assets		—		139		139		—
Servicing rights		—		1,952		1,952		—

	December 31, 2020
(dollars in thousands)	Level 2		Level 3		Total		Impairment
Loans held for sale	$	122,440	$	—	$	122,440	$	—
Impaired loans		—		7,325		7,325		1,205
Foreclosed assets		—		63		63		—
Servicing rights		—		1,987		1,987		—

Schedule of valuation techniques and significant unobservable inputs used to measure Level 3 estimated fair values

			March 31, 2021
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,139	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		139	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,952	175-298		269
		Discount rate			9.0	%	9.0	%

			December 31, 2020
(dollars in thousands)							Weighted
Asset Type	Valuation Technique	Unobservable Input	Fair Value		Range		Average
Impaired loans	Appraisal value	Property specific adjustment	$	7,325	N/A		N/A
Foreclosed assets	Appraisal value	Property specific adjustment		63	N/A		N/A
Servicing rights	Discounted cash flows	Prepayment speed assumptions		1,987	191-403		285
		Discount rate			9.0	%	9.0	%

Summary of estimated fair values and related carrying or notional amounts, of the Company's financial instruments

	March 31, 2021
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	190,217	$	190,217	$	—	$	—	$	190,217
Loans		1,903,587		—		—		1,952,366		1,952,366
Accrued interest receivable		9,271		9,271		—		—		9,271
Bank-owned life insurance		32,556		—		32,556		—		32,556
Financial Liabilities
Noninterest-bearing deposits	$	775,434	$	—	$	775,434	$	—	$	775,434
Interest-bearing deposits		1,729,231		—		1,729,231		—		1,729,231
Time deposits		212,908		—		—		213,673		213,673
Long-term debt		59,020		—		56,634		—		56,634
Accrued interest payable		533		533		—		—		533

	December 31, 2020
	Carrying		Estimated Fair Value
(dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets
Cash and cash equivalents	$	172,962	$	172,962	$	—	$	—	$	172,962
Loans		1,945,129		—		—		1,992,394		1,992,394
Accrued interest receivable		9,662		9,662		—		—		9,662
Bank-owned life insurance		32,363		—		32,363		—		32,363
Financial Liabilities
Noninterest-bearing deposits	$	754,716	$	—	$	754,716	$	—	$	754,716
Interest-bearing deposits		1,607,939		—		1,607,939		—		1,607,939
Time deposits		209,338		—		—		210,637		210,637
Long-term debt		58,735		—		56,131		—		56,131
Accrued interest payable		654		654		—		—		654

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Significant Accounting Policies (Details)	3 Months Ended
	Mar. 31, 2021 segment
Significant Accounting Policies
Number of operating segments	4

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Investment Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment securities available-for-sale
Amortized Cost	$ 799,043	$ 578,138
Unrealized Gains	8,218	14,749
Unrealized Losses	(12,164)	(545)
Fair Value	795,097	592,342
U. S. Treasury and agencies
Investment securities available-for-sale
Amortized Cost	5,704	5,926
Unrealized Losses	(21)	(19)
Fair Value	5,683	5,907
Obligations of state and political agencies
Investment securities available-for-sale
Amortized Cost	147,926	148,491
Unrealized Gains	2,710	5,282
Unrealized Losses	(1,445)
Fair Value	149,191	153,773
Mortgage backed securities - Residential agency
Investment securities available-for-sale
Amortized Cost	529,717	303,760
Unrealized Gains	2,146	3,395
Unrealized Losses	(10,268)	(436)
Fair Value	521,595	306,719
Mortgage backed securities - Commercial
Investment securities available-for-sale
Amortized Cost	85,060	89,300
Unrealized Gains	2,650	5,678
Unrealized Losses	(13)
Fair Value	87,697	94,978
Asset backed securities
Investment securities available-for-sale
Amortized Cost	91	109
Unrealized Gains	5	6
Fair Value	96	115
Corporate bonds
Investment securities available-for-sale
Amortized Cost	30,545	30,552
Unrealized Gains	707	388
Unrealized Losses	(417)	(90)
Fair Value	$ 30,835	$ 30,850

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Investment Securities - Gross unrealized losses (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment securities available-for-sale
Unrealized losses less than 12 months	$ (12,143)	$ (532)
Fair value less than 12 months	454,526	89,457
Unrealized losses over 12 months	(21)	(13)
Fair value over 12 months	5,652	3,667
Total Unrealized losses	(12,164)	(545)
Total Fair value	460,178	93,124
U. S. Treasury and agencies
Investment securities available-for-sale
Unrealized losses less than 12 months		(10)
Fair value less than 12 months		4,509
Unrealized losses over 12 months	(21)	(9)
Fair value over 12 months	5,650	1,309
Total Unrealized losses	(21)	(19)
Total Fair value	5,650	5,818
Obligations of state and political agencies
Investment securities available-for-sale
Unrealized losses less than 12 months	(1,445)
Fair value less than 12 months	51,463
Total Unrealized losses	(1,445)
Total Fair value	51,463
Mortgage backed securities - Residential agency
Investment securities available-for-sale
Unrealized losses less than 12 months	(10,268)	(432)
Fair value less than 12 months	380,454	68,494
Unrealized losses over 12 months		(4)
Fair value over 12 months		2,356
Total Unrealized losses	(10,268)	(436)
Total Fair value	380,454	70,850
Mortgage backed securities - Commercial
Investment securities available-for-sale
Unrealized losses less than 12 months	(13)
Fair value less than 12 months	9,026
Total Unrealized losses	(13)
Total Fair value	9,026
Asset backed securities
Investment securities available-for-sale
Fair value over 12 months	2	2
Total Fair value	2	2
Corporate bonds
Investment securities available-for-sale
Unrealized losses less than 12 months	(417)	(90)
Fair value less than 12 months	13,583	16,454
Total Unrealized losses	(417)	(90)
Total Fair value	$ 13,583	$ 16,454

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Investment Securities - Amortized cost and estimated fair value (Details) $ in Thousands	Mar. 31, 2021 USD ($)
Amortized Cost
Due within one year or less	$ 5,480
Due after one year through five years	32,626
Due after five years through ten years	150,987
Due after 10 years	609,950
Total investment securities available-for-sale	799,043
Fair Value
Due within one year or less	5,506
Due after one year through five years	33,180
Due after five years through ten years	153,408
Due after 10 years	603,003
Total investment securities available-for-sale	$ 795,097

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Investment Securities - Pledged (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Investment Securities
Investment securities with carrying value	$ 177.5	$ 160.8

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Investment Securities - Proceeds from sale of available for sale securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Investment Securities
Proceeds	$ 13,189	$ 4,000
Realized gains	$ 114

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Investment Securities - Carrying value (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investment Securities
Federal Reserve	$ 2,675	$ 2,675
FHLB	$ 3,864	$ 3,090

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Investment Securities - Visa Class B Restricted Shares (Details) - Visa $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) shares	Dec. 31, 2020 USD ($)
Common Class A
Securities
Investment shares owned, if converted	11,236
Common Class B
Securities
Conversion ratio	1.6228
Investment shares owned	6,924
Cost basis | $	$ 0	$ 0

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Loans and Allowance for Loan Losses - Loans outstanding by portfolio segment (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Loans and Allowance for Loan Losses
Total loans	$ 1,937,345	$ 1,979,375
Deferred loan fees and costs	5,900	4,700
Commercial
Loans and Allowance for Loan Losses
Total loans	1,287,953	1,299,316
Consumer
Loans and Allowance for Loan Losses
Total loans	649,392	680,059
Commercial and industrial | Commercial
Loans and Allowance for Loan Losses
Total loans	678,029	691,858
Commercial and industrial | Commercial | PPP Loans
Loans and Allowance for Loan Losses
Total loans	256,800	268,400
Deferred loan fees and costs	5,700	4,300
Real estate construction | Commercial
Loans and Allowance for Loan Losses
Total loans	40,473	44,451
Residential | Consumer | Real estate first mortgage
Loans and Allowance for Loan Losses
Total loans	454,958	463,370
Residential | Consumer | Real estate junior lien
Loans and Allowance for Loan Losses
Total loans	130,299	143,416
Commercial real estate | Commercial
Loans and Allowance for Loan Losses
Total loans	569,451	563,007
Other revolving and installment | Consumer
Loans and Allowance for Loan Losses
Total loans	$ 64,135	$ 73,273

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Loans and Allowance for Loan Losses - Past due aging analysis (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Past due aging analysis of loans
Accruing Current	$ 1,928,658	$ 1,969,285
Nonaccrual	4,756	5,050
Loans and Leases Receivable, Gross, Total	1,937,345	1,979,375
30 - 89 Days Past Due
Past due aging analysis of loans
Past due	3,931	5,010
90 Days or More Past Due
Past due aging analysis of loans
Past due		30
Commercial
Past due aging analysis of loans
Accruing Current	1,281,187	1,291,918
Nonaccrual	4,089	4,419
Loans and Leases Receivable, Gross, Total	1,287,953	1,299,316
Commercial | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	2,677	2,949
Commercial | 90 Days or More Past Due
Past due aging analysis of loans
Past due		30
Commercial | Commercial and industrial
Past due aging analysis of loans
Accruing Current	675,755	689,340
Nonaccrual	2,199	1,988
Loans and Leases Receivable, Gross, Total	678,029	691,858
Commercial | Commercial and industrial | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	75	500
Commercial | Commercial and industrial | 90 Days or More Past Due
Past due aging analysis of loans
Past due		30
Commercial | Real estate construction
Past due aging analysis of loans
Accruing Current	40,473	44,451
Loans and Leases Receivable, Gross, Total	40,473	44,451
Commercial | Commercial real estate
Past due aging analysis of loans
Accruing Current	564,959	558,127
Nonaccrual	1,890	2,431
Loans and Leases Receivable, Gross, Total	569,451	563,007
Commercial | Commercial real estate | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	2,602	2,449
Consumer
Past due aging analysis of loans
Accruing Current	647,471	677,367
Nonaccrual	667	631
Loans and Leases Receivable, Gross, Total	649,392	680,059
Consumer | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	1,254	2,061
Consumer | Residential | Real estate first mortgage
Past due aging analysis of loans
Accruing Current	453,574	461,179
Nonaccrual	432	439
Loans and Leases Receivable, Gross, Total	454,958	463,370
Consumer | Residential | Real estate first mortgage | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	952	1,752
Consumer | Residential | Real estate junior lien
Past due aging analysis of loans
Accruing Current	129,917	143,060
Nonaccrual	198	165
Loans and Leases Receivable, Gross, Total	130,299	143,416
Consumer | Residential | Real estate junior lien | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	184	191
Consumer | Other revolving and installment
Past due aging analysis of loans
Accruing Current	63,980	73,128
Nonaccrual	37	27
Loans and Leases Receivable, Gross, Total	64,135	73,273
Consumer | Other revolving and installment | 30 - 89 Days Past Due
Past due aging analysis of loans
Past due	$ 118	$ 118

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Loans and Allowance for Loan Losses - Loans by risk category (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Loans outstanding by loan portfolio segment and risk category
Loans	$ 1,937,345	$ 1,979,375
Pass
Loans outstanding by loan portfolio segment and risk category
Loans	1,881,791	1,922,704
Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	10,675	15,326
Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	44,698	41,345
Doubtful
Loans outstanding by loan portfolio segment and risk category
Loans	181
Commercial
Loans outstanding by loan portfolio segment and risk category
Loans	1,287,953	1,299,316
Commercial | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	1,239,986	1,247,786
Commercial | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	6,340	12,101
Commercial | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	41,446	39,429
Commercial | Doubtful
Loans outstanding by loan portfolio segment and risk category
Loans	181
Commercial | Commercial and industrial
Loans outstanding by loan portfolio segment and risk category
Loans	678,029	691,858
Commercial | Commercial and industrial | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	658,607	669,602
Commercial | Commercial and industrial | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	2,725	5,415
Commercial | Commercial and industrial | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	16,516	16,841
Commercial | Commercial and industrial | Doubtful
Loans outstanding by loan portfolio segment and risk category
Loans	181
Commercial | Real estate construction
Loans outstanding by loan portfolio segment and risk category
Loans	40,473	44,451
Commercial | Real estate construction | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	40,473	44,451
Commercial | Commercial real estate
Loans outstanding by loan portfolio segment and risk category
Loans	569,451	563,007
Commercial | Commercial real estate | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	540,906	533,733
Commercial | Commercial real estate | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	3,615	6,686
Commercial | Commercial real estate | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	24,930	22,588
Consumer
Loans outstanding by loan portfolio segment and risk category
Loans	649,392	680,059
Consumer | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	641,805	674,918
Consumer | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	4,335	3,225
Consumer | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	3,252	1,916
Consumer | Residential | Real estate first mortgage
Loans outstanding by loan portfolio segment and risk category
Loans	454,958	463,370
Consumer | Residential | Real estate first mortgage | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	448,919	461,221
Consumer | Residential | Real estate first mortgage | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	3,928	1,406
Consumer | Residential | Real estate first mortgage | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	2,111	743
Consumer | Residential | Real estate junior lien
Loans outstanding by loan portfolio segment and risk category
Loans	130,299	143,416
Consumer | Residential | Real estate junior lien | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	128,788	140,461
Consumer | Residential | Real estate junior lien | Special Mention
Loans outstanding by loan portfolio segment and risk category
Loans	407	1,819
Consumer | Residential | Real estate junior lien | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	1,104	1,136
Consumer | Other revolving and installment
Loans outstanding by loan portfolio segment and risk category
Loans	64,135	73,273
Consumer | Other revolving and installment | Pass
Loans outstanding by loan portfolio segment and risk category
Loans	64,098	73,236
Consumer | Other revolving and installment | Substandard
Loans outstanding by loan portfolio segment and risk category
Loans	$ 37	$ 37

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Loans and Allowance for Loan Losses - Changes in allowance (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Changes in the allowance
Beginning Balance	$ 34,246	$ 23,924
Provision for loan losses		2,500
Loan charge-offs	(784)	(99)
Loan recoveries	296	694
Ending Balance	33,758	27,019
Unallocated
Changes in the allowance
Beginning Balance	1,378	2,192
Provision for loan losses	(555)	(359)
Ending Balance	823	1,833
Commercial
Changes in the allowance
Beginning Balance	24,968	19,261
Provision for loan losses	533	1,689
Loan charge-offs	(740)	(32)
Loan recoveries	173	593
Ending Balance	24,934	21,511
Commercial | Commercial and industrial
Changes in the allowance
Beginning Balance	10,205	12,270
Provision for loan losses	316	70
Loan charge-offs	(204)	(32)
Loan recoveries	170	593
Ending Balance	10,487	12,901
Commercial | Real estate construction
Changes in the allowance
Beginning Balance	658	303
Provision for loan losses	(60)	31
Ending Balance	598	334
Commercial | Commercial real estate
Changes in the allowance
Beginning Balance	14,105	6,688
Provision for loan losses	277	1,588
Loan charge-offs	(536)
Loan recoveries	3
Ending Balance	13,849	8,276
Consumer
Changes in the allowance
Beginning Balance	7,900	2,471
Provision for loan losses	22	1,170
Loan charge-offs	(44)	(67)
Loan recoveries	123	101
Ending Balance	8,001	3,675
Consumer | Residential | Real estate first mortgage
Changes in the allowance
Beginning Balance	5,774	1,448
Provision for loan losses	273	761
Ending Balance	6,047	2,209
Consumer | Residential | Real estate junior lien
Changes in the allowance
Beginning Balance	1,373	671
Provision for loan losses	(168)	317
Loan recoveries	83	37
Ending Balance	1,288	1,025
Consumer | Other revolving and installment
Changes in the allowance
Beginning Balance	753	352
Provision for loan losses	(83)	92
Loan charge-offs	(44)	(67)
Loan recoveries	40	64
Ending Balance	$ 666	$ 441

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Loans and Allowance for Loan Losses - Components of loans and associated allowance (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Dec. 31, 2019
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	$ 8,141	$ 8,530
Recorded Investment, Collectively Evaluated	1,929,204	1,970,845
Loans and Leases Receivable, Gross, Total	1,937,345	1,979,375
Allowance for Loan Losses, Individually Evaluated	1,002	1,205
Allowance for Loan Losses, Collectively Evaluated	31,933	31,663
Loans and Leases Receivable, Allowance, Total	33,758	34,246	$ 27,019	$ 23,924
Unallocated
Loans and Allowance for Loan Losses
Loans and Leases Receivable, Allowance, Total	823	1,378	1,833	2,192
Commercial
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	7,470	7,840
Recorded Investment, Collectively Evaluated	1,280,483	1,291,476
Loans and Leases Receivable, Gross, Total	1,287,953	1,299,316
Allowance for Loan Losses, Individually Evaluated	959	1,173
Allowance for Loan Losses, Collectively Evaluated	23,975	23,795
Loans and Leases Receivable, Allowance, Total	24,934	24,968	21,511	19,261
Commercial | Commercial and industrial
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	2,794	2,616
Recorded Investment, Collectively Evaluated	675,235	689,242
Loans and Leases Receivable, Gross, Total	678,029	691,858
Allowance for Loan Losses, Individually Evaluated	691	336
Allowance for Loan Losses, Collectively Evaluated	9,796	9,869
Loans and Leases Receivable, Allowance, Total	10,487	10,205	12,901	12,270
Commercial | Real estate construction
Loans and Allowance for Loan Losses
Recorded Investment, Collectively Evaluated	40,473	44,451
Loans and Leases Receivable, Gross, Total	40,473	44,451
Allowance for Loan Losses, Collectively Evaluated	598	658
Loans and Leases Receivable, Allowance, Total	598	658	334	303
Commercial | Commercial real estate
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	4,676	5,224
Recorded Investment, Collectively Evaluated	564,775	557,783
Loans and Leases Receivable, Gross, Total	569,451	563,007
Allowance for Loan Losses, Individually Evaluated	268	837
Allowance for Loan Losses, Collectively Evaluated	13,581	13,268
Loans and Leases Receivable, Allowance, Total	13,849	14,105	8,276	6,688
Consumer
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	671	690
Recorded Investment, Collectively Evaluated	648,721	679,369
Loans and Leases Receivable, Gross, Total	649,392	680,059
Allowance for Loan Losses, Individually Evaluated	43	32
Allowance for Loan Losses, Collectively Evaluated	7,958	7,868
Loans and Leases Receivable, Allowance, Total	8,001	7,900	3,675	2,471
Consumer | Residential | Real estate first mortgage
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	432	439
Recorded Investment, Collectively Evaluated	454,526	462,931
Loans and Leases Receivable, Gross, Total	454,958	463,370
Allowance for Loan Losses, Collectively Evaluated	6,047	5,774
Loans and Leases Receivable, Allowance, Total	6,047	5,774	2,209	1,448
Consumer | Residential | Real estate junior lien
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	202	224
Recorded Investment, Collectively Evaluated	130,097	143,192
Loans and Leases Receivable, Gross, Total	130,299	143,416
Allowance for Loan Losses, Individually Evaluated	27	19
Allowance for Loan Losses, Collectively Evaluated	1,261	1,354
Loans and Leases Receivable, Allowance, Total	1,288	1,373	1,025	671
Consumer | Other revolving and installment
Loans and Allowance for Loan Losses
Recorded Investment, Individually Evaluated	37	27
Recorded Investment, Collectively Evaluated	64,098	73,246
Loans and Leases Receivable, Gross, Total	64,135	73,273
Allowance for Loan Losses, Individually Evaluated	16	13
Allowance for Loan Losses, Collectively Evaluated	650	740
Loans and Leases Receivable, Allowance, Total	$ 666	$ 753	$ 441	$ 352

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Loans and Allowance for Loan Losses - Impaired loans (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Impaired
Loans with related allowance for loan losses, Recorded investment	$ 4,461	$ 4,717
Loans with related allowance for loan losses, unpaid principal	4,572	4,746
Loans with related allowance for loan losses, Related Allowance	1,002	1,205
Loans with no related allowance for loan losses, Recorded investment	3,680	3,813
Loans with no related allowance for loan losses, unpaid principal	4,030	4,358
Recorded investment	8,141	8,530
Unpaid principal balance	8,602	9,104
Commercial | Commercial and industrial
Impaired
Loans with related allowance for loan losses, Recorded investment	1,606	723
Loans with related allowance for loan losses, unpaid principal	1,689	725
Loans with related allowance for loan losses, Related Allowance	691	336
Loans with no related allowance for loan losses, Recorded investment	1,188	1,893
Loans with no related allowance for loan losses, unpaid principal	1,341	2,173
Recorded investment	2,794	2,616
Unpaid principal balance	3,030	2,898
Commercial | Commercial real estate
Impaired
Loans with related allowance for loan losses, Recorded investment	2,791	3,948
Loans with related allowance for loan losses, unpaid principal	2,816	3,974
Loans with related allowance for loan losses, Related Allowance	268	837
Loans with no related allowance for loan losses, Recorded investment	1,885	1,276
Loans with no related allowance for loan losses, unpaid principal	2,029	1,415
Recorded investment	4,676	5,224
Unpaid principal balance	4,845	5,389
Consumer | Residential | Real estate first mortgage
Impaired
Loans with no related allowance for loan losses, Recorded investment	432	439
Loans with no related allowance for loan losses, unpaid principal	461	464
Recorded investment	432	439
Unpaid principal balance	461	464
Consumer | Residential | Real estate junior lien
Impaired
Loans with related allowance for loan losses, Recorded investment	27	19
Loans with related allowance for loan losses, unpaid principal	29	20
Loans with related allowance for loan losses, Related Allowance	27	19
Loans with no related allowance for loan losses, Recorded investment	175	205
Loans with no related allowance for loan losses, unpaid principal	199	306
Recorded investment	202	224
Unpaid principal balance	228	326
Consumer | Other revolving and installment
Impaired
Loans with related allowance for loan losses, Recorded investment	37	27
Loans with related allowance for loan losses, unpaid principal	38	27
Loans with related allowance for loan losses, Related Allowance	16	13
Recorded investment	37	27
Unpaid principal balance	$ 38	$ 27

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Loans and Allowance for Loan Losses - Interest Income (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Impaired
Loans with related allowance for loan losses, Average recorded investment	$ 4,680	$ 6,552
Loans with no related allowance for loan losses, Average recorded investment	4,027	1,612
Loans, Average recorded investment	8,707	8,164
Loans with related allowance for loan losses, Interest income	151	23
Loans with no related allowance for loan losses, Interest income	22	30
Loans, Interest income	173	53
Commercial | Commercial and industrial
Impaired
Loans with related allowance for loan losses, Average recorded investment	1,816	4,979
Loans with no related allowance for loan losses, Average recorded investment	1,258	545
Loans, Average recorded investment	3,074	5,524
Loans with related allowance for loan losses, Interest income	13	15
Loans with no related allowance for loan losses, Interest income	22	27
Loans, Interest income	35	42
Commercial | Commercial real estate
Impaired
Loans with related allowance for loan losses, Average recorded investment	2,793	1,536
Loans with no related allowance for loan losses, Average recorded investment	2,158
Loans, Average recorded investment	4,951	1,536
Loans with related allowance for loan losses, Interest income	138	8
Loans, Interest income	138	8
Consumer | Residential | Real estate first mortgage
Impaired
Loans with no related allowance for loan losses, Average recorded investment	435	835
Loans, Average recorded investment	435	835
Consumer | Residential | Real estate junior lien
Impaired
Loans with related allowance for loan losses, Average recorded investment	33	20
Loans with no related allowance for loan losses, Average recorded investment	176	224
Loans, Average recorded investment	209	244
Loans with no related allowance for loan losses, Interest income		3
Loans, Interest income		3
Consumer | Other revolving and installment
Impaired
Loans with related allowance for loan losses, Average recorded investment	38	17
Loans with no related allowance for loan losses, Average recorded investment		8
Loans, Average recorded investment	$ 38	$ 25

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Loans and Allowance for Loan Losses - Pledged (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Loans and Allowance for Loan Losses
Total loans	$ 1,937,345	$ 1,979,375
Pledged
Loans and Allowance for Loan Losses
Total loans	$ 1,200,000	$ 1,200,000

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Loans and Allowance for Loan Losses - Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) loan	Mar. 31, 2020 loan
Troubled debt restructuring
Number of loans modified as a troubled debt restructuring	0	0
Number of loan modifications not considered TDRs, in connection with CARES Act	582
Loan modifications not considered TDRS, in connection with CARES Act | $	$ 154,000
Maximum
Troubled debt restructuring
Typical loan deferral period under the CARES Act	90 days
Second Deferral
Troubled debt restructuring
Number of loan modifications not considered TDRs, in connection with CARES Act	16
Loan modifications not considered TDRS, in connection with CARES Act | $	$ 7,600
First Deferral
Troubled debt restructuring
Number of loan modifications not considered TDRs, in connection with CARES Act	6
Loan modifications not considered TDRS, in connection with CARES Act | $	$ 767

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Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Goodwill
Total goodwill	$ 30,201	$ 30,201
Banking
Goodwill
Total goodwill	20,131	20,131
Retirement and Benefit Services
Goodwill
Total goodwill	$ 10,070	$ 10,070

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Goodwill and Other Intangible Assets - Amortization (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Goodwill
Gross Carrying Amount	$ 43,346		$ 47,139
Accumulated Amortization	(18,578)		(21,220)
Total	24,768		25,919
Intangible amortization expense	1,151	$ 990
Goodwill, Impairment Loss	0
Identifiable customer intangibles
Goodwill
Gross Carrying Amount	43,346		43,346
Accumulated Amortization	(18,578)		(17,490)
Total	$ 24,768		25,856
Core deposit intangible assets
Goodwill
Gross Carrying Amount			3,793
Accumulated Amortization			(3,730)
Total			$ 63

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Loan Servicing (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Loan Servicing
Loans serviced for others	$ 423,500		$ 445,500
Servicing Asset at Fair Value, Amount
Balance, beginning of period	1,987	$ 3,845
Additions	49	24
Amortization	(200)	(187)
(Impairment)/Recovery	116	(405)
Balance, end of period	$ 1,952	$ 3,277

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Loan Servicing - Key economic assumptions (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Loan Servicing
Fair value of servicing rights	$ 1,952	$ 1,987
Weighted average remaining term, years	20 years 4 months 24 days	20 years 1 month 6 days
Prepayment speeds	16.10%	17.70%
Discount rate	9.00%	9.00%

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Leases - Lease right-of-use assets and liabilities (Details) $ in Thousands	Mar. 31, 2021 USD ($) lease	Dec. 31, 2020 USD ($)
Leases
Number of finance leases | lease	1
Lease Right-of-Use Assets
Operating lease right-of-use assets	$ 6,293	$ 6,918
Finance lease right-of-use assets	$ 173	$ 202
Finance Lease, Right-of-Use Asset, balance sheet location	Land, premises and equipment, net	Land, premises and equipment, net
Lease right-of-use assets	$ 6,466	$ 7,120
Operating lease liabilities	7,140	7,861
Finance lease liabilities	$ 375	$ 430
Finance lease liabilities, balance sheet location	Long-term debt	Long-term debt
Lease liabilities	$ 7,515	$ 8,291

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Leases - Weighted-average remaining lease term and average discount rate (Details) - item	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Leases
Minimum number of options to renew lease agreements	1
Weighted-average remaining lease term, Operating leases	5 years 8 months 12 days	5 years 9 months 18 days
Weighted-average remaining lease term, Finance leases	1 year 7 months 6 days	1 year 9 months 18 days
Weighted-average discount rate, Operating leases	2.90%	2.90%
Weighted-average discount rate, Finance leases	7.80%	7.80%

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Leases - Lease costs and other lease information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Lease costs
Operating lease cost	$ 496	$ 623
Variable lease cost	233	197
Short-term lease cost	37	95
Finance lease cost
Interest on lease liabilities	8	12
Amortization of right-of-use assets	29	29
Sublease Income	(60)	(66)
Net lease cost	743	890
Cash paid for amounts included in the measurement of lease liabilities operating cash flows from operating leases	$ 487	618
Right-of-use assets obtained in exchange for new operating lease liabilities		$ 183

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Leases - Future minimum payments for finance and operating leases (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Finance leases
2022	$ 251
2023	146
Total future minimum lease payments	397
Amounts representing interest	(22)
Total finance lease liabilities	375	$ 430
Operating leases
2022	1,787
2023	1,823
2024	1,317
2025	596
2026	552
Thereafter	1,494
Total future minimum lease payments	7,569
Amounts representing interest	(429)
Total operating lease liabilities	$ 7,140	$ 7,861

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Deposits (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Deposits.
Noninterest-bearing	$ 775,434	$ 754,716
Interest-bearing demand	674,466	618,900
Savings accounts	87,492	79,902
Money market savings	967,273	909,137
Time deposits	212,908	209,338
Total interest-bearing	1,942,139	1,817,277
Total deposits	$ 2,717,573	$ 2,571,993

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Long-Term Debt (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Long-Term Debt
Face Value	$ 63,010	$ 63,010
Carrying Amount	59,020	58,735
Subordinated notes payable
Long-Term Debt
Face Value	50,000	50,000
Carrying Amount	$ 50,000	$ 49,688
Fixed interest rate	3.50%
Period End Interest Rate		4.36%
Subordinated notes payable | Three - month LIBOR
Long-Term Debt
Interest Rate		4.12%
Junior subordinated debenture (Trust I)
Long-Term Debt
Face Value	$ 4,124	$ 4,124
Carrying Amount	$ 3,458	$ 3,447
Period End Interest Rate	3.30%	3.35%
Junior subordinated debenture (Trust I) | Three - month LIBOR
Long-Term Debt
Interest Rate	3.10%	3.10%
Junior subordinated debenture (Trust II)
Long-Term Debt
Face Value	$ 6,186	$ 6,186
Carrying Amount	$ 5,187	$ 5,170
Period End Interest Rate	1.98%	2.02%
Junior subordinated debenture (Trust II) | Three - month LIBOR
Long-Term Debt
Interest Rate	1.80%	1.80%
Finance lease liability
Long-Term Debt
Face Value	$ 2,700	$ 2,700
Carrying Amount	$ 375	$ 430
Fixed interest rate	7.81%	7.81%

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Financial Instruments with Off-Balance Sheet Risk (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Financial Instruments with Off Balance Sheet Risk
Amount of credit risk	$ 600,042	$ 617,650
Commitments to extend credit
Financial Instruments with Off Balance Sheet Risk
Amount of credit risk	593,818	611,140
Standby letters of credit
Financial Instruments with Off Balance Sheet Risk
Amount of credit risk	$ 6,224	$ 6,510

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Financial Instruments with Off Balance Sheet Risk - Narrative (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Letter of credit with FHLB
Financial Instruments with Off Balance Sheet Risk
Outstanding letters of credit	$ 150	$ 150
Letter of credit with Bank of North Dakota
Financial Instruments with Off Balance Sheet Risk
Outstanding letters of credit	0	0
Collateralized loans	$ 237,600	$ 245,700

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Share-Based Compensation Plan - Plan Information (Details) - 2019 Equity Incentive Plan - shares	3 Months Ended
	Mar. 31, 2021	May 06, 2019
Share-Based Compensation
Awards authorized		1,100,000
Restricted stock awards
Share-Based Compensation
Awards issued	30,499
Restricted stock units
Share-Based Compensation
Awards issued	91,302

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Share-Based Compensation Plan - Activity in stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Additional disclosures
Compensation expense	$ 498	$ 235
Restricted Stock Awards and Units
Restricted Stock Awards and Units
Outstanding at beginning of period	325,030	347,211
Granted	59,374	63,048
Vested	(81,092)	(71,339)
Forfeited or cancelled		(5,068)
Outstanding at end of period	303,312	333,852
Weighted Average Grant Date Fair Value
Outstanding at beginning of period	$ 19.48	$ 18.64
Granted	26.36	20.23
Vested	20.72	16.06
Forfeited or cancelled		19.37
Outstanding at end of period	$ 20.49	$ 19.47
Additional disclosures
Unrecognized compensation cost	$ 4,100
Weighted average period	2 years 11 months 4 days

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Income Taxes - Reconciliation between applicable income taxes and statutory federal tax rate (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Tax amount
Taxes at statutory federal income tax rate	$ 4,174	$ 1,428
Tax effect of tax exempt income	(153)	(121)
Tax effect of other	641	130
Total income tax expense	$ 4,662	$ 1,437
Percentage of pretax income
Taxes at statutory federal income tax rate (as percentage)	21.00%	21.00%
Tax effect of tax exempt income (as percentage)	(0.80%)	(1.80%)
Tax effect of other (as percentage)	3.20%	1.90%
Applicable income taxes (as percentage)	23.40%	21.10%

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Segment Reporting (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2021 USD ($) item segment	Mar. 31, 2020 USD ($)
Segment Reporting
Number of operating segments | segment	4
Number of banking offices | item	14
Key metrics related to segments
Net interest income	$ 22,038	$ 18,837
Provision for loan losses		2,500
Noninterest income	40,881	27,189
Noninterest expense	43,042	36,726
Net income before taxes	19,877	6,800
Corporate Administration
Key metrics related to segments
Net interest income	(288)	(877)
Noninterest income	(14)	4
Noninterest expense	8,658	9,188
Net income before taxes	(8,960)	(10,061)
Banking | Operating Segments
Key metrics related to segments
Net interest income	21,880	19,446
Provision for loan losses		2,500
Noninterest income	1,522	1,874
Noninterest expense	11,084	12,653
Net income before taxes	12,318	6,167
Retirement and Benefit Services | Operating Segments
Key metrics related to segments
Noninterest income	17,255	16,220
Noninterest expense	10,112	7,931
Net income before taxes	7,143	8,289
Wealth Management | Operating Segments
Key metrics related to segments
Noninterest income	4,986	4,046
Noninterest expense	2,335	1,515
Net income before taxes	2,651	2,531
Mortgage | Operating Segments
Key metrics related to segments
Net interest income	446	268
Noninterest income	17,132	5,045
Noninterest expense	10,853	5,439
Net income before taxes	$ 6,725	$ (126)

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Earnings Per Share - Two-class method (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share
Net Income	$ 15,215	$ 5,363
Dividends and undistributed earnings allocated to participating securities	254	82
Net income available to common shareholders	$ 14,961	$ 5,281
Weighted-average common shares outstanding	17,145	17,070
Dilutive effect of stock-based awards	320	335
Weighted-average common shares outstanding for diluted earnings per share	17,465	17,405
Earnings per common share:
Basic earnings per common share	$ 0.87	$ 0.31
Diluted earnings per common share	$ 0.86	$ 0.30

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Derivative Instruments (Details) - Not designated as hedging - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Derivative Instruments
Fair Value, Derivative Assets	$ 12,928	$ 13,357
Fair Value, Derivative Liabilities	1,616	2,911
Notional Amount, Derivative Assets	649,443	401,690
Notional Amount, Derivative Liabilities	45,845	351,597
Interest rate swaps | Other assets
Derivative Instruments
Fair Value, Derivative Assets	1,616	569
Notional Amount, Derivative Assets	45,845	44,597
Interest rate swaps | Accrued expenses and other liabilities
Derivative Instruments
Fair Value, Derivative Liabilities	1,616	572
Notional Amount, Derivative Liabilities	45,845	44,597
Interest rate lock commitments | Other assets
Derivative Instruments
Fair Value, Derivative Assets	4,033	10,124
Notional Amount, Derivative Assets	260,318	270,103
Forward loan sales commitments | Other assets
Derivative Instruments
Fair Value, Derivative Assets	1,028	2,664
Notional Amount, Derivative Assets	34,280	86,990
TBA mortgage backed securities | Other assets
Derivative Instruments
Fair Value, Derivative Assets	6,251
Notional Amount, Derivative Assets	$ 309,000
TBA mortgage backed securities | Accrued expenses and other liabilities
Derivative Instruments
Fair Value, Derivative Liabilities		2,339
Notional Amount, Derivative Liabilities		$ 307,000

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Derivative Instruments - Gain (loss) recognized on derivatives instruments (Details) - Not designated as hedging - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Gain (loss) recognized on derivative instruments
Total gain/(loss) from derivative instruments	$ 1,083	$ (1,530)
Interest rate swaps | Other noninterest income
Gain (loss) recognized on derivative instruments
Total gain/(loss) from derivative instruments	2
Interest rate lock commitments | Mortgage banking
Gain (loss) recognized on derivative instruments
Total gain/(loss) from derivative instruments	(6,245)	1,227
Forward loan sales commitments | Mortgage banking
Gain (loss) recognized on derivative instruments
Total gain/(loss) from derivative instruments	(1,635)	666
TBA mortgage backed securities | Mortgage banking
Gain (loss) recognized on derivative instruments
Total gain/(loss) from derivative instruments	$ 8,961	$ (3,423)

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Derivative Instruments - Collateral (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Derivative Instruments
Collateral held by third parties	$ 2.3	$ 2.7

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Regulatory Matters (Details) $ in Thousands	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Common equity tier 1 capital to risk weighted assets
Actual (Amount)	$ 279,434	$ 265,490
Requirements for Capital Adequacy Purposes (Amount)	$ 93,307	$ 93,723
Actual (Ratio)	13.48	12.75
Requirements for Capital Adequacy Purposes (Ratio)	4.50	4.50
Tier 1 capital to risk weighted assets
Actual (Amount)	$ 287,770	$ 273,797
Requirements for Capital Adequacy Purposes (Amount)	$ 124,410	$ 124,964
Actual (Ratio)	13.88	13.15
Requirements for Capital Adequacy Purposes (Ratio)	6.00	6.00
Total capital to risk weighted assets
Actual (Amount)	$ 363,785	$ 349,620
Requirements for Capital Adequacy Purposes (Amount)	$ 165,880	$ 166,618
Actual (Ratio)	17.54	16.79
Requirements for Capital Adequacy Purposes (Ratio)	8.00	8.00
Tier 1 capital to average assets
Actual (Amount)	$ 287,770	$ 273,797
Requirements for Capital Adequacy Purposes (Amount)	$ 120,012	$ 118,587
Actual (Ratio)	9.59	9.24
Requirements for Capital Adequacy Purposes (Ratio)	4.00	4.00
Bank
Common equity tier 1 capital to risk weighted assets
Actual (Amount)	$ 265,300	$ 251,806
Requirements for Capital Adequacy Purposes (Amount)	93,244	93,632
Minimum to be Well Capitalized Under Prompt Corrective Action (Amount)	$ 134,685	$ 135,246
Actual (Ratio)	12.80	12.10
Requirements for Capital Adequacy Purposes (Ratio)	4.50	4.50
Minimum to be Well Capitalized Under Prompt Corrective Action (Ratio)	6.50	6.50
Tier 1 capital to risk weighted assets
Actual (Amount)	$ 265,300	$ 251,806
Requirements for Capital Adequacy Purposes (Amount)	124,325	124,843
Minimum to be Well Capitalized Under Prompt Corrective Action (Amount)	$ 165,766	$ 166,457
Actual (Ratio)	12.80	12.10
Requirements for Capital Adequacy Purposes (Ratio)	6.00	6.00
Minimum to be Well Capitalized Under Prompt Corrective Action (Ratio)	8.00	8.00
Total capital to risk weighted assets
Actual (Amount)	$ 291,298	$ 277,916
Requirements for Capital Adequacy Purposes (Amount)	165,766	166,457
Minimum to be Well Capitalized Under Prompt Corrective Action (Amount)	$ 207,208	$ 208,071
Actual (Ratio)	14.06	13.36
Requirements for Capital Adequacy Purposes (Ratio)	8.00	8.00
Minimum to be Well Capitalized Under Prompt Corrective Action (Ratio)	10.00	10.00
Tier 1 capital to average assets
Actual (Amount)	$ 265,300	$ 251,806
Requirements for Capital Adequacy Purposes (Amount)	119,947	118,511
Minimum to be Well Capitalized Under Prompt Corrective Action (Amount)	$ 149,934	$ 148,139
Actual (Ratio)	8.85	8.50
Requirements for Capital Adequacy Purposes (Ratio)	4.00	4.00
Minimum to be Well Capitalized Under Prompt Corrective Action (Ratio)	5.00	5.00

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Stock Repurchase Program (Details) - USD ($)		1 Months Ended
	Feb. 18, 2021	Mar. 31, 2021
Stock Repurchase Program
Authorized shares for repurchase	$ 770,000
Repurchase program period	36 months
Shares repurchased		0

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Fair Value of Assets and Liabilities - Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	$ 795,097	$ 592,342
Mortgage backed securities - Residential agency
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	521,595	306,719
Mortgage backed securities - Commercial
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	87,697	94,978
Asset backed securities
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	96	115
Corporate bonds
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	30,835	30,850
Recurring
Fair value, assets and liabilities measured on recurring and non recurring basis
Total available-for-sale and equity securities	795,097	592,342
Derivative instruments	12,928	13,357
Derivative liabilities	1,616	2,911
Recurring | U.S. treasury and government agencies
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	5,683	5,907
Recurring | Obligations of state and political agencies
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	149,191	153,773
Recurring | Mortgage backed securities - Residential agency
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	521,595	306,719
Recurring | Mortgage backed securities - Commercial
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	87,697	94,978
Recurring | Asset backed securities
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	96	115
Recurring | Corporate bonds
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	30,835	30,850
Recurring | Level 2
Fair value, assets and liabilities measured on recurring and non recurring basis
Total available-for-sale and equity securities	795,097	592,342
Derivative instruments	12,928	13,357
Derivative liabilities	1,616	2,911
Recurring | Level 2 | U.S. treasury and government agencies
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	5,683	5,907
Recurring | Level 2 | Obligations of state and political agencies
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	149,191	153,773
Recurring | Level 2 | Mortgage backed securities - Residential agency
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	521,595	306,719
Recurring | Level 2 | Mortgage backed securities - Commercial
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	87,697	94,978
Recurring | Level 2 | Asset backed securities
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	96	115
Recurring | Level 2 | Corporate bonds
Fair value, assets and liabilities measured on recurring and non recurring basis
Investment securities, at fair value Available-for-sale	$ 30,835	$ 30,850

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Fair Value of Assets and Liabilities - Nonrecurring Basis (Details) - Non recurring - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair value, assets and liabilities measured on recurring and non recurring basis
Impaired loans	$ 7,139	$ 7,325
Foreclosed assets	139	63
Servicing rights	1,952	1,987
Loans held for sale
Fair value, assets and liabilities measured on recurring and non recurring basis
Loans held for sale	78,665	122,440
Impaired loans
Fair value, assets and liabilities measured on recurring and non recurring basis
Net impairment	1,002	1,205
Level 2 | Loans held for sale
Fair value, assets and liabilities measured on recurring and non recurring basis
Loans held for sale	78,665	122,440
Level 3
Fair value, assets and liabilities measured on recurring and non recurring basis
Impaired loans	7,139	7,325
Foreclosed assets	139	63
Servicing rights	$ 1,952	$ 1,987

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Fair Value of Assets and Liabilities - Valuation Technique (Details) - Level 3	Mar. 31, 2021 USD ($) item	Dec. 31, 2020 USD ($) item
Impaired loans | Appraisal value | Property specific adjustment
Valuation techniques and significant unobservable inputs
Impaired loans	$ 7,139,000	$ 7,325,000
Foreclosed assets | Appraisal value | Property specific adjustment
Valuation techniques and significant unobservable inputs
Foreclosed assets	$ 139,000	$ 63,000
Servicing rights
Valuation techniques and significant unobservable inputs
Servicing Asset, Valuation Technique [Extensible List]	us-gaap:ValuationTechniqueDiscountedCashFlowMember	us-gaap:ValuationTechniqueDiscountedCashFlowMember
Servicing rights | Prepayment speed assumptions
Valuation techniques and significant unobservable inputs
Servicing rights	$ 1,952,000	$ 1,987,000
Servicing rights | Prepayment speed assumptions | Minimum
Valuation techniques and significant unobservable inputs
Servicing Asset, Measurement Input | item	175	191
Servicing rights | Prepayment speed assumptions | Maximum
Valuation techniques and significant unobservable inputs
Servicing Asset, Measurement Input | item	298	403
Servicing rights | Prepayment speed assumptions | Weighted average
Valuation techniques and significant unobservable inputs
Servicing Asset, Measurement Input	269	285
Servicing rights | Discount rate
Valuation techniques and significant unobservable inputs
Servicing Asset, Measurement Input	0.090	0.090
Servicing rights | Discount rate | Weighted average
Valuation techniques and significant unobservable inputs
Servicing Asset, Measurement Input	0.090	0.090

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Fair Value of Assets and Liabilities - Off-Balance Sheet Credit-Related Commitments (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Carrying Amount
Financial Assets
Cash and cash equivalents	$ 190,217	$ 172,962
Loans	1,903,587	1,945,129
Accrued interest receivable	9,271	9,662
Bank-owned life insurance	32,556	32,363
Financial Liabilities
Noninterest-bearing deposits	775,434	754,716
Interest-bearing deposits	1,729,231	1,607,939
Time deposits	212,908	209,338
Long-term debt	59,020	58,735
Accrued interest payable	533	654
Estimated Fair Value
Financial Assets
Cash and cash equivalents	190,217	172,962
Loans	1,952,366	1,992,394
Accrued interest receivable	9,271	9,662
Bank-owned life insurance	32,556	32,363
Financial Liabilities
Noninterest-bearing deposits	775,434	754,716
Interest-bearing deposits	1,729,231	1,607,939
Time deposits	213,673	210,637
Long-term debt	56,634	56,131
Accrued interest payable	533	654
Level 1 | Estimated Fair Value
Financial Assets
Cash and cash equivalents	190,217	172,962
Accrued interest receivable	9,271	9,662
Financial Liabilities
Accrued interest payable	533	654
Level 2 | Estimated Fair Value
Financial Assets
Bank-owned life insurance	32,556	32,363
Financial Liabilities
Noninterest-bearing deposits	775,434	754,716
Interest-bearing deposits	1,729,231	1,607,939
Long-term debt	56,634	56,131
Level 3 | Estimated Fair Value
Financial Assets
Loans	1,952,366	1,992,394
Financial Liabilities
Time deposits	$ 213,673	$ 210,637

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COVID-19 Pandemic Response (Details) - PPP Loans $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($) client
COVID-19 Pandemic Response
Number of clients assisted under the PPP | client	2,289
Loans financed	$ 447.2
Net processing fees	$ 14.9