Loan Delinquency and Asset Quality - As of December 31, 2022, the total loans delinquent for 60-89 days amounted to $268,000, representing 0.03% of the total loan category, while loans delinquent for 90 days and over totaled $569,000, or 0.07%[77] - At December 31, 2022, non-performing assets were $1.9 million, representing 0.17% of total assets, while classified loans totaled $37.9 million, or 4.8% of total loans[159] - Approximately 68% of the total loans receivable as of December 31, 2022, were concentrated in commercial business and commercial real estate loans, which present higher risks[157] Securities and Investments - The Company had $192.7 million in mortgage-backed and related securities classified as available for sale at December 31, 2022, a decrease from $245.4 million at December 31, 2021[86] - The Company purchased $15.0 million in mortgage-backed securities in 2022, compared to $188.8 million purchased in 2021[86] - The composition of the Company's securities portfolio included $54.998 million in U.S. government agency obligations, which accounted for 67.7% of the total securities available for sale as of December 31, 2022[83] - The average remaining life of other marketable securities was 1.39 years as of December 31, 2022, compared to 1.98 years in the previous year[83] - The weighted average yield for U.S. government agency securities was 1.00% as of December 31, 2022[85] - As of December 31, 2022, the Company recorded a $19.8 million other comprehensive loss in equity due to the negative impact of increased market interest rates on its fixed rate available for sale securities portfolio[152] Deposits and Funding - The total deposits at the Bank increased by $31.3 million, or 3.29%, from $950.7 million at the end of 2021 to $981.9 million at the end of 2022[93] - The Bank's certificates of deposit increased by $45.8 million in 2022, contributing to the overall growth in deposits[91] - The total amount of uninsured deposits was approximately $379,626,000, with $322,316,000 in deposits less than $250,000[96] - The Bank's primary funding source is retail and commercial deposits, with reliance on wholesale funding from FHLB and the Federal Reserve Bank[145] Regulatory Compliance and Capital - The Bank is subject to various regulatory capital requirements but meets certain exemption requirements under the FRB's Small Bank Holding Company Policy Statement[113] - Regulatory capital requirements could impose restrictions on the Bank's operations and dividend payments to HMN[128] - The Company is subject to extensive regulation, which may impact its profitability and require changes to business practices[167] - The company faces significant regulatory scrutiny, with potential sanctions for non-compliance with laws such as the USA PATRIOT Act and the Bank Secrecy Act, which could result in large fines[176] Employee and Operational Information - The Bank had 164 full-time employees as of December 31, 2022, with no employees represented by a collective bargaining unit[107] - The Bank's liquidity position is actively managed and monitored using cash flow forecasts[147] - The company's technological infrastructure is vital for operations, and any extended disruption could negatively impact financial results and regulatory standing[177] Dividends and Shareholder Information - In 2022, the Bank paid dividends to HMN totaling $6.0 million, which were utilized for operating expenses, treasury stock purchases, and improving cash position[123] - HMN distributed $1.0 million in dividends to its common shareholders in 2022[123] - The company's ability to pay dividends is dependent on receiving dividends from the Bank, which is subject to legal and regulatory limitations[182] - The company's stock may be diluted by the issuance of additional shares or treasury stock without shareholder consent, which could adversely affect existing stockholders[181] Competition and Market Risks - The Company faces significant competition from various financial institutions, including mortgage bankers and credit unions, which may limit profitability[154] - Changes in interest rates could adversely affect the Company's net interest income, particularly in a falling interest rate environment[150] - The Company continues to monitor acquisition opportunities, which may involve risks such as disruption of business and potential dilution of shareholder value[165] Miscellaneous - The Bank had no FHLB advances or Federal Reserve Bank borrowings outstanding as of December 31, 2022, but had the ability to borrow up to $230.1 million for liquidity purposes[99] - The Bank's lending limit to one borrower was approximately $16.2 million as of December 31, 2022[116] - The Bank's OCC assessments for the year ended December 31, 2022, were approximately $0.2 million[120] - The Bank received an "outstanding" rating in its last CRA exam conducted on January 27, 2020[136] - The effective dividend rates for FHLB stock were 3.00% and 7.25% for different subclasses as of September 30, 2022[134] - The Company may need to raise additional capital to meet future requirements, which could dilute existing shareholders' interests[163]
HMN Financial(HMNF) - 2022 Q4 - Annual Report