HCB Financial : 2022 Annual Report

2022

ANNUAL

REPORT

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TABLE OF CONTENTS

To Our Shareholders	4
Financial Highlights	6
Key Graphs	7
Auditor's Report	8
Financial Report	11
Community Involvement	36
Kalamazoo Opening	37
Directors & Officers	38
Locations	39

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We made significant investments to benefit the bank in the future and produced what has turned out to be the best financial outcome that we have seen in our 136-year history.

To our shareholders

From the desk of Mark A. Kolanowski

On behalf of our directors and officers, it is my pleasure to present to you the HCB Financial Corp. 2022 Annual Report. To summarize the year for you, I would say we executed extremely well in terms of our strategic objectives. We made significant investments to benefit the bank in the future and produced what has turned out to be the best financial outcome that we have seen in our 136-year history. For the twelve months ended December 31, 2022, net income was $3,062,536 or $2.95 per common share. This equates to a 30 percent improvement over our 2021 earnings of $2,360,364 or $2.24 per share.

As you will see in reviewing our financial highlights, we achieved record balance sheet levels in assets, deposits and loans in 2022. During the year, total assets increased 2% to $472,144,492. Total deposits rose 4% to $418,738,791 and net loans increased by 31% to $311,223,552. Shareholders' equity had a year-end balance of $32,917,878, which is a 7% decrease from the prior year-end. This was due to an unrealized loss reflected in the mark-to-market adjustment on our available for sale securities portfolio.

The main reason for our record performance this past year can be attributed to a 16% or $1,790,946 improvement in our net interest income after provision for loan losses. Rapidly rising interest rates on our excess liquidity from deposit growth produced significant income from our federal funds account. This was a welcomed, but short term boost to our bottom line. Helping significantly in the long term will be the loan growth that occurred throughout the year. This growth was driven primarily from the establishment of a loan production office in Kalamazoo and expanding our commercial loan presence in Kent County. While the growth is clearly reflected on our balance sheet for year-end 2022, we expect to see the full effect of our success from these markets on the income statement in years to come.

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Along with the aforementioned expansion into new markets, we further invested in our future by adding and promoting talented leaders to our team. While we have heard about the difficulty most businesses have faced attracting and retaining talented workers throughout the year, we have experienced great success in building our team. I'm excited to share with you some of the recent leadership developments that have taken place at HCB.

In September we announced the addition of Nathan E. Tagg and Chad R. Paalman to the board of directors for both Highpoint Community Bank and HCB Financial Corp. Nathan and Chad are filling vacancies created by the retirements of Archie A. Warner in December 2021 and James H. Fisher this past December. Nathan is an attorney with Tripp, Tagg, and Storrs Attorneys at Law. He has practiced in numerous counties throughout the State of Michigan in areas including estate planning, estate administration, business law, contracts, and succession planning. Chad is the CEO and co-founder of NuWave Technology Partners with offices in Grand Rapids and Kalamazoo. Additionally, he is the co-founder of Prescott, a governance, compliance, and risk management firm where he also serves on the board of directors.

We had several talented bankers join our officer team during the course of the year. In January, Eric D. Drogosch joined us as Assistant Vice President, Business Development Officer. Eric has a Bachelor of Arts in Economics & Management from Albion College and has worked in the West Michigan banking industry since 2011. In April, Lanny L. Scoby joined us as Senior Vice President, Market President-Kalamazoo Region, along with Scott J. McAllister as Vice President, Credit Manager. Lanny has a Bachelor of Science in Business Administration from Central Michigan University. He has over 30 years of banking experience in a variety of roles, giving him a broad scope of knowledge. Scott has both a Bachelor of Business Administration and a Master of Business Administration from Grand Valley State University. Scott has over 20 years of experience in credit administration in both the banking and retail sectors. In May Jeffrey R. Steeby joined us as Senior Vice President, Wealth Management. Jeff has a Bachelor of Business Administration from Western Michigan University and a Master of Business Administration from Wayne State University. Jeff is a CERTIFIED FINANCIAL PLANNER professional and brings over 30 years of trust and investment/wealth management experience to our team.

Finally, we had the pleasure of announcing several promotions from within our already talented team. In February, Khaja (Jay) Ahmed was promoted to Senior Vice President and Market President-Kent County. Jay started his HCB career as a Credit Department Manager in March 2013 after several years of prior management and financial services experience. He was promoted to Assistant Vice President in January 2014, Vice President in January 2015, and Senior Vice President in 2021. Timothy S. Tierney was elevated to Executive Vice President, Retail Banking. Tim joined the HCB Team in June 2021 as our Senior Vice President, Retail Banking. Tim supports all aspects of the bank's strategic initiatives for retail banking including branch administration, branch/retail operations, product development, consumer lending and marketing. Rebecca L. Mead was named Assistant Vice President, Cash Management. Becky started with HCB as a part-time Teller in September 2012. She was promoted to a full-time Customer Service Specialist in 2014, Management Trainee in 2015, Hastings Branch Manager in 2018 and Cash Management Officer in 2019. Becky was recently honored as the 2022 recipient of the Community Bankers of Michigan Rising Star Award. Emily L. Lambert was promoted to Commercial Processing/Loss Mitigation Officer. Emily started with HCB as a part- time Teller in Hastings in July 2001. She has worked both on the retail and operations side of the bank in various roles before taking on her new responsibilities. These latter three promotions were announced in December and effective January 1st of this year.

Our Annual Meeting will be held on Wednesday, April 19, 2023 at 1:00 p.m. in the Main Office of Highpoint Community Bank. Whether you are able to attend or not, please complete and return the enclosed proxy in advance of the meeting. This will allow us to tally the votes prior to the meeting and proceed without undue delay. Our directors, officers and I look forward to seeing as many of you there as possible.

Yours truly,

Mark A. Kolanowski

President and Chief Executive Officer

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