Alerus Financial Corporation

Item 1A Risk Factors

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

Risks Related to the Proposed Merger

Litigation mMay bBe Filed Against Alerus the Company (directly or as successor by merger to HMN Financial, Inc. F) (or their Respective Companys or HMNFs Boards of Directors) that Could Prevent or Delay the Consummation of the Merger or Result in the Payment of Damages Following Consummation of the Merger.

It is possible that, in connection with the merger of HMN Financial, Inc. (HMNF) F with and into Alerusthe Company, stockholders may file demands or putative class action lawsuits against Alerus or the Company directly or against the Company as successor by merger to HMNF (or their respective Companys or HMNFs boards of directors). Two pOne purported stockholders of the Company, and eight purported stockholders of HMNF have , sent demand letters to HMNFthe companies prior to the closing of the merger, alleging that the joint proxy statement/prospectus filed by Alerus omthe Company omitted certain material information regarding the merger and

82

threatening litigation. Among olthough ther remedies transaction has closed, these stockholders could seek financial damages or to enjoin the merger. The outcome of any such till pursue litigation is uncertain. Additionally, one of the conditions toagainst the closing of the merger is that there must be no order, injunction, decree, statute, rule, regulation or other legal restraint or prohibition preventing or making illegal the consummation of the Company directly against the Company as successor by merger or any of the other transactions contemplated by the merger agreement. If a dismissal is not granted or a settlement is not reached and any plaintiff were to HMNF to seek financial damages. The outcome of any successful in obtaining an injunch litigation prohibiting Alerus or HMNF from completing tis uncertain. The merger or any of thdefense other transactions contemplated by the merger agreemer settlement between Alerus and HMNF (the merger agreement), then such injunction may delay of any lawsuit or prevent the effectiveness of the merger and could claim that result in significant costs to Alerus or HMNFs from these lawsuits, including any cost associated with the indemnification of directors and officers of each company. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger is consummated may ad, may adversely affect the combined companys business, financial condition, results of operations and cash flows and the market price of the combined company.

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

Pursuant to the merger agreement, Alerus expects to issue approximately 5,578,194 shares of Alerus common stock to HMNF stockholders, which estimate does not include outstanding restricted stock awards and stock options of HMNF that will become fully vested and exercisable immediately prior to the effective time as a result of the merger. pany.

The dilution caused by the issuance of a large number of new shares of Alerus common stock may result in fluctuations in the market price of Alerus common stock, including a potential stock price decrease.

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

Alerus andThe merger of HMNF have operated and, untilwith and into the consummation of the merger, will continue to operate, independentlyCompany closed on October 9, 2024. The success of the merger, including anticipated benefits and cost savings, will depend on, among other things, Aleruthe Companys ability to combine the businesses of Alerus anthe Company and HMNF in a manner that permits growth opportunities, including, among other things, enhanced revenues and revenue synergies, an expanded market reach and operating efficiencies, and does not materially disrupt the existing customer relationships of Alerus othe Company or HMNF nor result in decreased revenues due to any loss of customers. If Alerus the Company is not able to successfully achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues and diversion of managements time and energy and could have an adverse effect on the surviving corporationCompanys business, financial condition, operating results, prospects and stock price.

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

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

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

65

83

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

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