Alerus Financial Corporation and HMN Financial Inc. jointly announced Wednesday the signing of a definitive agreement and plan of merger to which Alerus will acquire, in an all-stock merger, HMN Financial Inc., a savings and loan holding company headquartered in Rochester, and the parent company of Home Federal Savings Bank. Under the terms of the agreement, HMNF will merge with and into Alerus and Home Federal will merge with and into Alerus’ wholly-owned bank subsidiary, Alerus Financial, National Association, in a transaction valued at approximately $116.4 million.
The merger represents the 26th acquisition for Alerus since 2000 as part of its long-term plan to continually expand its business segments, including banking, wealth services, and retirement and benefits plans and services. Upon completion of the merger, the combined company will have approximately $5.5 billion in total assets, $3.7 billion in total loans and $4.3 billion in total deposits, assets under administration and management of approximately $43.1 billion, with 29 locations across the Midwest, as well as Arizona.
Founded in 1934, Home Federal operates 12 branches in Minnesota, including in Albert Lea, and one branch in each of Iowa and Wisconsin. As of March 31, HMNF had, on a consolidated basis, $1.2 billion in total assets, which included approximately $872.3 million in loans and $1.0 billion in total deposits.
“We are pleased with this partnership and the strategic expansion into the growing and vibrant Rochester, Minnesota, market and other communities Home Federal serves. Home Federal has built a valuable core deposit franchise based on long-standing client relationships, and we believe their culture, vision, and purpose align remarkably well with ours,” said Katie Lorenson, president and chief executive officer of Alerus. “Alerus has a proven history of successful strategic acquisitions that strengthen our ability to serve the growing needs of our clients and communities. We look forward to welcoming our new team members and supporting their ongoing efforts in providing excellent client service, developing new business and expanding relationships with a larger balance sheet, robust treasury management and diversified financial services.”
Brad Krehbiel, president and chief executive officer of HMNF, added, “We believe we have found an exceptional partner in Alerus. They have a proven track record of diversification, profitable growth and the ability to execute acquisitions. We are confident this merger will serve all our constituents well, including our stockholders, clients, employees and communities.”
According to the terms of the merger agreement, stockholders of HMNF will receive 1.25 shares of Alerus common stock for each share of HMNF common stock they own, and the Merger is expected to qualify as a tax-free reorganization for HMNF stockholders. Based on Alerus’ closing price of $20.69 as of May 14, the aggregate deal value is approximately $116.4 million, or $25.86 per share. The transaction is expected to be immediately accretive to Alerus’ estimated earnings before one-time costs, with a tangible book value earn back of approximately 2.2 years (inclusive of interest rate marks), and an internal rate of return in excess of 25%. Upon completion of the merger, one HMNF director will join the Alerus board of directors.
The transaction has been unanimously approved by the boards of directors of both companies. Completion of the Merger is subject to customary closing conditions, including receipt of required regulatory approvals and approval by the stockholders of both Alerus and HMNF. The transaction is expected to close in the fourth quarter of 2024.
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