Cullman Bancorp, Inc. /MD/ - Quarter Report: 2022 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 September 30, 2022

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

For transition period from to

Commission File Number 001-40607

CULLMAN BANCORP, INC.

(Exact Name of Registrant as Specified in Charter)


Maryland		61-1990996
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)


316 Second Avenue, SW, Cullman, Alabama		35055
(Address of Principal Executive Offices)		(Zip Code)

(256) 734-1740

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and formal fiscal year, if changed since last report)

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, per value $0.01 per share	CULL	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant 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), 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 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 Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 7,405,893 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of November 10, 2022.

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CULLMAN BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents


PART I

ITEM 1.	FINANCIAL STATEMENTS	2
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	49
ITEM 4.	CONTROLS AND PROCEDURES	50

PART II

ITEM 1.	LEGAL PROCEEDINGS	51
ITEM 1A.	RISK FACTORS	51
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4.	MINE SAFETY DISCLOSURES	51
ITEM 5.	OTHER INFORMATION	51
ITEM 6.	EXHIBITS	52

SIGNATURES		53

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PART I

ITEM 1. FINANCIAL STATEMENTS

CULLMAN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2022 and December 31, 2021

(All amounts in thousands, except share and per share data)


	September 30, 2022 (Unaudited)			December 31, 2021
ASSETS
Interest bearing cash and cash equivalents	$	834		$	746
Non-interest bearing cash and cash equivalents		4,215			1,467
Federal funds sold		23,700			59,725
Total cash and cash equivalents		28,749			61,938
Securities available for sale		26,815			21,313
Equity securities		1,003			—
Loans, net of allowance of $2,682 and $2,406 respectively		325,596			252,160
Premises and equipment, net		10,131			9,484
Foreclosed real estate		89			400
Accrued interest receivable		1,054			775
Restricted equity securities		739			859
Bank owned life insurance		8,897			5,737
Deferred Tax asset, net		2,303			1,323
Other assets		705			720

Total assets	$	406,081		$	354,709

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits
Non-interest bearing	$	16,149		$	13,349
Interest bearing		270,602			218,672

Total deposits		286,751			232,021

Federal Home Loan Bank advances		15,000			18,500
Accrued interest payable		35			60
Other liabilities		5,774			4,394
Total liabilities		307,560			254,975

Shareholders' equity
Common stock, $0.01 par value; 50,000,000; 7,405,893 shares outstanding at September 30, 2022 and December 31, 2021		74			74
Additional paid-in capital		50,091			49,674
Retained earnings		55,626			53,267
Accumulated other comprehensive income (loss)		(3,823	)		277
Unearned ESOP shares, at cost		(3,447	)		(3,558	)

Total shareholders' equity		98,521			99,734

Total liabilities and shareholders' equity	$	406,081		$	354,709

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CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF NET INCOME (Loss) (Unaudited)

Three and nine months ended September 30, 2022 and 2021

(All amounts in thousands, except share and per share data)


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2022		2021			2022		2021
Interest and dividend income:
Loans, including fees	$	3,892	$	3,145		$	11,110	$	9,572
Non taxable securities		8		9			24		36
Securities		246		110			564		299
FHLB dividends		2		15			17		61
Federal funds sold and other		95		27			187		50
Total interest income		4,243		3,306			11,902		10,018
Interest expense:
Deposits		254		270			688		859
Federal Home Loan Bank advances and other borrowings		27		149			48		543
Total interest expense		281		419			736		1,402
Net interest income		3,962		2,887			11,166		8,616
Provision for loan losses		120		—			275		25
Net interest income after provision for loan losses		3,842		2,887			10,891		8,591
Noninterest income:
Service charges on deposit accounts		272		224			753		613
Income on bank owned life insurance		67		38			160		113
Gain on sales of mortgage loans		24		87			86		209
Net gain on sale of foreclosed real estate		—		—			46		8
Gain on prepayment of Federal Home Loan Bank advances		—		—			91		104
Other		39		40			120		154
Total noninterest income		402		389			1,256		1,201
Noninterest expense:
Salaries and employee benefits		2,007		1,596			5,377		4,659
Occupancy and equipment		242		215			668		630
Data processing		221		182			632		530
Professional and supervisory fees		206		103			558		317
Office expense		52		67			150		178
Advertising		79		82			143		144
FDIC deposit insurance		21		22			55		63
Contribution to Foundation		—		1,581			—		1,581
Loss on prepayment of Federal Home Loan Bank advances		—		—			4		20
Other		132		114			339		287
Total noninterest expense		2,960		3,962			7,926		8,409
Income (loss) before income taxes		1,284		(686	)		4,221		1,383
Income tax expense (benefit)		358		(185	)		973		252
Net income (loss)	$	926	$	(501	)	$	3,248	$	1,131
Earnings (loss) per share:

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Basic	$	0.13	$	(0.06	)	$	0.46	$	0.18
Dilutive	$	0.13	$	(0.06	)	$	0.45	$	0.18

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CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Loss) (Unaudited)

Three and nine months ended September 30, 2022 and 2021

(All amounts in thousands, except share and per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Income/(Loss)	$	926		$	(501	)	$	3,248		$	1,131

Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities available for sale		(1,617	)		(78	)		(5,190	)		(249	)
Less income tax effect		340			15			1,090			52
Other comprehensive income (loss)		(1,277	)		(63	)		(4,100	)		(197	)

Comprehensive income (loss)	$	(351	)	$	(564	)	$	(852	)	$	934

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CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three and nine months ended September 30, 2022 and 2021

(All amounts in thousands, except share and per share data)


	Shares		Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned ESOP Shares			Total
Balance at July 1, 2022		7,405,893	$	74	$	49,952	$	54,700		$	(2,546	)	$	(3,484	)	$	98,696
Net income		—		—		—		926			—			—			926
Other comprehensive loss		—		—		—		—			(1,277	)		—			(1,277	)
ESOP shares earned		—		—		—		—			—			37			37
Stock-based compensation expense		—		—		139		—			—			—			139
Balance at September 30, 2022		7,405,893	$	74	$	50,091	$	55,626		$	(3,823	)	$	(3,447	)	$	98,521


Balance at January 1, 2022		7,405,893	$	74	$	49,674	$	53,267		$	277		$	(3,558	)	$	99,734
Net income		—		—		—		3,248			—			—			3,248
Other comprehensive loss		—		—		—		—			(4,100	)		—			(4,100	)
ESOP shares earned		—		—		—		—			—			111			111
Dividend paid		—		—		—		(889	)		—			—			(889	)
Stock-based compensation expense		—		—		417		—			—			—			417
Balance at September 30, 2022		7,405,893	$	74	$	50,091	$	55,626		$	(3,823	)	$	(3,447	)	$	98,521

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CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

Three and nine months ended September 30, 2022 and 2021

(All amounts in thousands, except share and per share data)


	Shares			Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned ESOP Shares			Total
Balance at July 1, 2021		2,450,408		$	24		$	6,949		$	50,454		$	408		$	(32	)	$	57,803
Net loss		—			—			—			(501	)		—			—			(501	)
Other comprehensive loss		—			—			—			—			(63	)		—			(63	)
ESOP shares earned		—			—			—			—			—			82			82
Stock-based compensation expense		—			—			139			—			—			—			139
Cancelling of old shares		(2,450,408	)		(24	)		(291	)		—			—			—			(315	)
Contribution by Mutual Holding Company		—			—			50			2,631			—			—			2,681
Exchange of common stock		2,973,398			30			—			—			—			—			30
Issuance of shares to Foundation		148,120			1			1,480			—			—			—			1,481
Proceeds from issuance of 4,284,375 shares of common stock (which included 354,599 shares to the ESOP), net of the offering costs of $1.7 million and $100,000 contribution to Cullman Foundation		4,284,375			43			41,170			—			—			(3,707	)		37,506
Balance at September 30, 2021		7,405,893		$	74		$	49,497		$	52,584		$	345		$	(3,657	)	$	98,843


Balance at January 1, 2021		2,449,919		$	24		$	6,687		$	49,679		$	542		$	(57	)	$	56,875
Net income		—			—			—			1,131			—			—			1,131
Other comprehensive loss		—			—			—			—			(197	)		—			(197	)
Net settlement of common stock options exercised		489			—			(16	)		—			—			—			(16	)
ESOP shares earned		—			—			—			—			—			107			107
Dividend paid		—			—			—			(857	)		—			—			(857	)
Stock-based compensation expense		—			—			417			—			—			—			417
Cancelling of old shares and options exercised		(2,450,408	)		(24	)		(291	)		—			—			—			(315	)
Contribution by Mutual Holding Company		—			—			50			2,631			—			—			2,681
Exchange of common stock		2,973,398			30			—			—			—			—			30
Issuance of shares to Foundation		148,120			1			1,480			—			—			—			1,481
Proceeds from issuance of 4,284,375 shares of common stock (which included 354,599 shares to the ESOP), net of the offering costs of $1.7 million and $100,000 contribution to Cullman Foundation		4,284,375			43			41,170			—			—			(3,707	)		37,506
Balance at September 30, 2021		7,405,893		$	74		$	49,497		$	52,584		$	345		$	(3,657	)	$	98,843

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CULLMAN BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Nine Months Ended September 30, 2022 and 2021

(All amounts in thousands, except share and per share data)


	2022			2021
Cash flows from operating activities
Net income	$	3,248		$	1,131
Adjustment to reconcile net income to net cash provided from operating activities:
Provision for loan losses		275			25
Contribution of stock to Charitable Foundation		—			1,481
Depreciation, amortization and accretion, net		301			347
Deferred income taxes		111			(451	)
Net gains from sales and impairment of foreclosed real estate		(46	)		(8	)
Net gain on extinguishment of debt		(87	)		(84	)
Gain from change in fair value of equity securities		(3	)		—
Losses on disposals of fixed assets		—			1
Income on bank owned life insurance		(160	)		(113	)
Gains on sale of mortgage loans		(86	)		(209	)
Mortgage loans originated for sale		(3,261	)		(6,540	)
Proceeds from sale of mortgage loans		3,347			6,922
ESOP Compensation expense		111			107
Stock based compensation expense		417			417
Net change in operating assets and liabilities
(Increase)/decrease in Accrued interest receivable		(279	)		272
Decrease in Accrued interest payable		(25	)		(38	)
Decrease in other assets and liabilities		1,393			947
Net cash provided by operating activities		5,256			4,207
Cash flows from investing activities
Net purchases of premises and equipment		(993	)		(985	)
Purchases of securities- available for sale		(13,077	)		(8,868	)
Purchases of securities- equity		(1,000	)		—
Proceeds from maturities, prepayments and calls of securities		2,429			5,823
Proceeds from sales of foreclosed real estate		453			116
Redemption of restricted equity securities		120			1,120
Purchase of bank owned life insurance		(3,000	)		—
Redemption of bank owned life insurance		—			72
Loan originations and payments, net		(73,805	)		(9,893	)
Net cash used in investing activities		(88,873	)		(12,615	)
Cash flows from financing activities
Net increase in deposits		54,730			18,658
Proceeds from Federal Home Loan Bank advances		15,000			—
Repayment of Federal Home Loan Bank advances		(18,413	)		(19,916	)
Cash payment of dividends		(889	)		(857	)
Net cash settlement of stock options exercised		—			(16	)
Merger of MHC		—			2,390
Stock proceeds		—			37,512
Net cash provided by financing activities		50,428			37,771
Net change in cash and cash equivalents		(33,189	)		29,363
Cash and cash equivalents at the beginning of period		61,938			60,361
Cash and cash equivalents at end of the period	$	28,749		$	89,724
Supplemental cash flow information
Interest expense	$	761		$	1,440
Income taxes paid		513			651

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements of Cullman Bancorp, Inc. (“the Bancorp”) include the accounts of its wholly owned subsidiary, Cullman Savings Bank (“the Bank”), together referred to as “the Company”.

The Company provides financial services through its offices in Cullman County, Alabama. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers' ability to repay their loans is dependent on the real estate and general economic conditions in the area.

Effective July 15, 2021, Cullman Bancorp, Inc., a Maryland corporation (“New Cullman”), became the stock holding company for the Bank as part of the mutual-to-stock conversion of Cullman Savings Bank, MHC. As a result of the conversion, Cullman Savings Bank, MHC and the Bancorp ceased to exist and New Cullman has become the successor corporation to the Bancorp. In the conversion, 3,929,776 shares of common stock was sold at a price of $10.00 per share at the subscription offering, which included 354,599 shares sold to the Employee Stock Ownership Plan. The Company additionally issued 148,210 shares to the Cullman Foundation, a charitable foundation that was formed in connection with the stock offering and is dedicated to supporting charitable organizations operating in the Bank's local community. The exchange ratio for previously held shares of Cullman Bancorp was 2.8409 as applied in the conversion offering.

Risk and Uncertainties: The war between the Russia and Ukraine continues to evolve as military activity proceeds and additional sanctions are imposed. In addition to the human toll and impact of the events on entities that have operations in Russia, Ukraine, or neighboring countries or that conduct business with their counterparties, the war is increasingly affecting economic and global financial markets and ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption.

Because of the significant uncertainties related to the ongoing war and its potential effects on customers and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Company. It is unknown how long the adverse conditions associated with the war will last and what the complete financial effect will be to the Company. It is reasonably possible that estimates made in the financial statements could be materially and adversely impacted in the near term as a result of these conditions, including expected credit losses on loans and off-balance sheet credit exposures.

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

RECENT ACCOUNTING PRONOUCEMENTS AND ACCOUNTING CHANGES

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the Bank is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,235,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering (December 31, 2026), (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we file 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 we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.

Financial Accounting Standard Board (FASB) Accounting Standard Update (ASU) 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Company’s effective date for the implementation of the ASU will be January 1, 2023. Key project implementation activities for 2022 and 2021 focused on execution and implementation, processes and control, policies, disclosures, and data resolution. The company has been running parallel models and making adjustments in anticipation of adoption and cannot estimate the impact to the consolidated financial statements at this time.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 2 – SECURITIES AVAILABLE FOR SALE

Debt Securities

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income at September 30, 2022 and December 31, 2021 were as follows:


September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S Government sponsored entities	$	3,000	$	—	$	(738	)	$	2,262
Municipal- taxable		14,430		—		(2,996	)		11,434
Municipal- tax exempt		1,365		—		(91	)		1,274
Residential MBS (1)		9,286		—		(818	)		8,468
Commercial MBS		2,901		—		(130	)		2,771
SBA(2) guaranteed debenture		672		—		(66	)		606
Total	$	31,654	$	—	$	(4,839	)	$	26,815

December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S Government sponsored entities	$	3,000	$	—	$	(43	)	$	2,957
Municipal- taxable		13,839		375		(57	)		14,157
Municipal- tax exempt		1,365		34		—			1,399
Residential MBS		1,638		35		(4	)		1,669
SBA guaranteed debenture		1,120		11		—			1,131
Total	$	20,962	$	455	$	(104	)	$	21,313

(1) Mortgage-backed security

(2) Small Business Administration

The Company’s mortgage-backed securities are primarily issued by agencies such as Fannie Mae and Ginnie Mae.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued)

The proceeds from sales and calls of securities and the associated gains and losses are listed below:


	For the Nine Months Ended September 30,
	2022		2021
Proceeds	$	90	$	4,155
Gross gains		—		—
Gross losses		—		—

There were no sales or tax expense related to sales of securities in the nine months ended September 30, 2022 and 2021.

The amortized cost and fair value of the investment securities portfolio are shown below by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.


	September 30, 2022
	Amortized Cost		Estimated Fair Value
Due from one to five years	$	1,400	$	1,360
Due from five to ten years		3,350		2,944
Due after ten years		14,045		10,666
Residential mortgage-backed		9,286		8,468
Commercial mortgage-backed		2,901		2,771
SBA guaranteed debenture		672		606
Total	$	31,654	$	26,815

Carrying amounts of securities pledged to secure public deposits as of September 30, 2022 and December 31, 2021 were $23,700 and $9,261, respectively. At September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued)

Debt securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:


	Less than 12 months					12 months or more					Total
September 30, 2022	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S Government sponsored entities	$	1,512	$	(489	)	$	750	$	(249	)	$	2,262	$	(738	)
Municipal- taxable		9,435		(2,377	)		1,998		(619	)		11,433		(2,996	)
Municipal- tax exempt		1,274		(91	)		—		—			1,274		(91	)
Residential MBS		8,119		(738	)		350		(80	)		8,469		(818	)
Commercial MBS		2,771		(130	)		—		—			2,771		(130	)
SBA guaranteed denture		606		(66	)		—		—			606		(66	)
Total temporarily impaired	$	23,717	$	(3,891	)	$	3,098	$	(948	)	$	26,815	$	(4,839	)


	Less than 12 months					12 months or more					Total
December 31, 2021	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S Government sponsored entities	$	2,957	$	(43	)	$	—	$	—		$	2,957	$	(43	)
Municipal- taxable		805		(16	)		1,771		(41	)		2,576		(57	)
Residential MBS		503		(4	)		—		—			503		(4	)
Total temporarily impaired	$	4,265	$	(63	)	$	1,771	$	(41	)	$	6,036	$	(104	)

The Company evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. The Company considers the length of time and the extent to which the fair value has been less than cost and the financial condition and near-term prospects of the issuer. Additionally, the Company considers its intent to sell or whether it will be more likely than not it will be required to sell the security prior to the security’s anticipated recovery in fair value. In analyzing an issuer’s financial condition, the Company may consider whether the securities are issued by the federal Government sponsored agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 2 – SECURITIES AVAILABLE FOR SALE (Continued)

Each of the securities had unrealized losses at September 30, 2022. None of the unrealized losses for these securities have been recognized into net income for the nine months ended September 30, 2022 because the issuer’s bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates. The fair value is expected to recover as the bonds approach their maturity date or reset date.

Equity Securities

There was one equity security with a readily determinable fair value amount of $1.0 million held

as of September 30, 2022. Net gains (losses) of $(2) thousand and $3 thousand were recognized for the three and nine months ended September 30, 2022 respectively.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS

Loans at September 30, 2022 and December 31, 2021 were as follows:


	2022			2021

Real Estate Loans:
One-to-four family	$	160,564		$	127,755
Multi-family		3,720			3,729
Commercial		94,974			76,967
Construction		25,098			15,518
Total real estate loans		284,356			223,969

Commercial loans		35,003			24,212

Consumer loans:
Home equity loans and lines of credit		5,513			3,717
Other consumer		3,417			2,714
Total consumer loans		8,930			6,431

Total loans		328,289			254,612

Net deferred loans fees		(11	)		(46	)

Allowance for loan losses		(2,682	)		(2,406	)

Loans, net	$	325,596		$	252,160

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

The following tables present the activity in the allowance for loan losses for the periods ending September 30, 2022 and September 30, 2021. The recorded investment in loans in any of the following tables does not include accrued and unpaid interest or any deferred loan fees or costs, as amounts are not significant.


	Real Estate
Three Months Ended September 30, 2022	One-to-Four Family			Multi-Family			Commercial			Construction			Commercial			Consumer			Total
Beginning balance July 1, 2022	$	1,504		$	14		$	592		$	142		$	211		$	99		$	2,562
Charge offs		—			—			—			—			—			—			—
Recoveries		—			—			—			—			—			—			—
Provisions		43			3			20			52			3			(1	)		120
Total ending balance September 30, 2022	$	1,547		$	17		$	612		$	194		$	214		$	98		$	2,682
Nine Months Ended September 30, 2022
Beginning balance January 1, 2022	$	1,355		$	19		$	712		$	109		$	145		$	66		$	2,406
Charge offs		—			—			—			(5	)		—			—			(5	)
Recoveries		6			—			—			—			—			—			6
Provisions		186			(2	)		(100	)		90			69			32			275
Total ending balance September 30, 2022	$	1,547		$	17		$	612		$	194		$	214		$	98		$	2,682

	Real Estate
Three Months Ended September 30, 2021	One-to-Four Family			Multi-Family			Commercial			Construction			Commercial			Consumer			Total
Beginning balance July 1, 2021	$	1,314		$	20		$	727		$	84		$	168		$	74		$	2,387
Charge offs		—			—			—			—			—			(8	)		(8	)
Recoveries		—			—			—			—			—			2			2
Provisions		(13	)		(1	)		1			13			(4	)		4			—
Total ending balance September 30, 2021	$	1,301		$	19		$	728		$	97		$	164		$	72		$	2,381
Nine Months Ended September 30, 2021
Beginning balance January 1, 2021	$	1,300		$	27		$	746		$	37		$	187		$	64		$	2,361
Charge offs		—			—			—			—			—			(10	)		(10	)
Recoveries		—			—			—			—			—			5			5
Provisions		1			(8	)		(18	)		60			(23	)		13			25
Total ending balance September 30, 2021	$	1,301		$	19		$	728		$	97		$	164		$	72		$	2,381

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method as of September 30, 2022 and December 31, 2021.


	Real Estate
	One-to-Four Family		Multi-Family		Commercial		Construction		Commercial		Consumer		Total
Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,547		17		612		194		214		98		2,682
Total ending allowance balance September 30, 2022:	$	1,547	$	17	$	612	$	194	$	214	$	98	$	2,682

Ending allowance balance attributed to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,355		19		712		109		145		66		2,406
Total ending allowance balance December 31, 2021:	$	1,355	$	19	$	712	$	109	$	145	$	66	$	2,406

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

The following table provides the amount of loans by class of financing receivable for loans individually evaluated for impairment, loans collectively evaluated for impairment at September 30, 2022 and December 31, 2021.


	Real Estate
	One-to-Four Family		Multi-Family		Commercial		Construction		Commercial		Consumer		Total
Loans:
Loans individually evaluated for impairment	$	242	$	—	$	2,864	$	—	$	-	$	—	$	3,106
Loans collectively evaluated for impairment		160,322		3,720		92,110		25,098		35,003		8,930		325,183
Total ending loans balance September 30, 2022	$	160,564	$	3,720	$	94,974	$	25,098	$	35,003	$	8,930	$	328,289

Loans:
Loans individually evaluated for impairment	$	14	$	—	$	3,189	$	—	$	237	$	—	$	3,440
Loans collectively evaluated for impairment		127,741		3,729		73,778		15,518		23,975		6,431		251,172
Total ending loans balance December 31, 2021	$	127,755	$	3,729	$	76,967	$	15,518	$	24,212	$	6,431	$	254,612

The following tables present loans individually evaluated for impairment by portfolio class at September 30, 2022 and December 31, 2021 and the respective average balances of impaired loans and interest income recognized for the three and nine months ended September 30, 2022 and 2021:


	September 30, 2022						December 31, 2021
	Unpaid principal balance		Recorded Investment		Related Allowance		Unpaid principal balance		Recorded Investment		Related Allowance
With no recorded allowance:
Real estate loans:
One-to-four family	$	227	$	242	$	—	$	46	$	14	$	—
Multi-family		—		—		—		—		—		—
Commercial		2,864		2,864		—		3,189		3,189		—
Construction		—		—		—		—		—		—
Commercial		—		—		—		243		237		—
Consumer		—		—		—		—		—		—
Total	$	3,091	$	3,106	$	—	$	3,478	$	3,440	$	—

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)


	Three Months ended September 30, 2022				Nine Months ended September 30, 2022
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One-to-four family	$	297	$	4	$	298	$	6
Multi-family		—		—		—		—
Commercial		3,011		38		3,096		77
Commercial loans		52		2		94		4
Consumer loans		—		—		—		—
Total	$	3,360	$	44	$	3,488	$	87

	Three Months ended September 30, 2021				Nine Months ended September 30, 2021
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no recorded allowance:
Real estate loans:
One-to-four family	$	310	$	4	$	416	$	15
Multi-family		—		—		—		—
Commercial		4,345		55		5,104		219
Commercial loans		368		8		393		43
Consumer loans		—		—		—		—
Total	$	5,023	$	67	$	5,913	$	277

There were no loans individually evaluated for impairment with recorded allowance for the periods ending September 30, 2022 and December 31, 2021.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

The following tables present the aging of the recorded investment in past due loans at September 30, 2022 and December 31, 2021 by portfolio class of loans:


September 30, 2022	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans
Real estate loans:
One-to-four family	$	—	$	751	$	276	$	1,027	$	159,537	$	160,564
Multi-family		—		—		—		—		3,720		3,720
Commercial		—		—		—		—		94,974		94,974
Construction		—		—		—		—		25,098		25,098
Total real estate loans		—		751		276		1,027		283,329		284,356

Commercial		26		35		18		79		34,924		35,003

Consumer loans:										—
Home equity loans and lines of credit		—		—		32		32		5,481		5,513
Other consumer loans		—		—		—		—		3,417		3,417

Total	$	26	$	786	$	326	$	1,138	$	327,151	$	328,289


December 31, 2021	30-59 Days Past due		60-89 Days Past due		90 Days or More Past Due		Total Past Due		Current		Total Loans
Real estate loans:
One-to-four family	$	1,553	$	698	$	193	$	2,444	$	125,311	$	127,755
Multi-family		—		—		—		—		3,729		3,729
Commercial		292		36		—		328		76,639		76,967
Construction		—		—		—		—		15,518		15,518
Total real estate loans		1,845		734		193		2,772		221,197		223,969

Commercial		90		—		—		90		24,122		24,212

Consumer loans:
Home equity loans and lines of credit		32		—		—		32		3,685		3,717
Other consumer loans		27		—		—		27		2,687		2,714

Total	$	1,994	$	734	$	193	$	2,921	$	251,691	$	254,612

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

A loan past due 90 days or more need not be placed in nonaccrual status if the loan is a consumer loan (loans to individuals for household, family and other personal expenditures) or the loan is secured by a one-to-four family residential property. Such loans should be subject to other alternative methods of evaluation to assure that the Bank's interest income is not materially overstated. The loans that were past due 90 days or more and were accruing interest as of September 30, 2022 and December 31, 2021 were due to the fact that they were well secured and in the process of collection.

The following tables present the recorded investment in nonaccrual loans by class of loans as of September 30, 2022 and December 31, 2021:


	2022		2021
Real estate loans:
One-to-four family	$	11	$	14
Commercial real estate		—		—
Construction		—		—
Total real estate loans		11		14

Commercial loans:		52		90

Consumer loans:
Other consumer loans		—		—
Total consumer loans		—		—

Total	$	63	$	104

Troubled Debt Restructurings:

Troubled debt restructurings at September 30, 2022 and December 31, 2021 were $2,875 and $2,878, respectively. The amount of impairment allocated to loans whose loan terms have been modified in troubled debt restructurings was $0 at September 30, 2022 and December 31, 2021. The Company has committed no additional amounts at September 30, 2022 and December 31, 2021 to customers with outstanding loans that are classified as troubled debt restructurings.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

There were no troubled debt restructurings for which there was a payment default within 12 months of the modification during the nine months ended September 30, 2022 or the year ended December 31, 2021. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

During the year ended December 31, 2021, we originated $3,446 of small business loans under the Paycheck Protection Program (PPP), created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law in March 2020. The CARES Act established the PPP through the Small Business Administration (SBA), which allowed us to lend money to small businesses to maintain employee payrolls through the COVID-19 crisis with guarantees from the SBA. Under this program, loan amounts may be forgiven if the borrower maintains employee payrolls and meet certain other requirements. PPP loans have a fixed interest rate of 1.00% and a maturity date of either two or five years. Such loans totaled $0 and $5,100 at September 30, 2022 and December 31, 2021, respectively. These loans are included in the commercial loans.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

Credit Quality Indicators:

The Company utilizes a grading system whereby all loans are assigned a grade based on the risk profile of each loan. Loan grades are determined based on an evaluation of 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. All loans, regardless of size, are analyzed and are given a grade based upon the management’s assessment of the ability of borrowers to service their debts. The analysis is performed on a quarterly basis.

The Company uses the following definitions for loan grades:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution 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 liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 3 – LOANS (Continued)

Loans not meeting the criteria above are graded Pass. These loans are included within groups of homogenous pools of loans based upon portfolio segment and class for estimation of the allowance for loan losses on a collective basis.

At September 30, 2022 and December 31, 2021, based on the most recent analysis performed, the loan grade for each loan by portfolio class is as follows:


September 30, 2022	Pass		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	158,689	$	1,458	$	417	$	—	$	160,564
Multi-family		3,720		—		—		—		3,720
Commercial		90,336		1,774		2,864		—		94,974
Construction		25,098		—		—		—		25,098
Total real estate loans		277,843		3,232		3,281		—		284,356

Commercial		34,859		97		47		—		35,003

Consumer loans:
Home equity loans and lines of credit		5,481		—		32		—		5,513
Other consumer loans		3,417		—		—		—		3,417

Total	$	321,600	$	3,329	$	3,360	$	—	$	328,289


December 31, 2021	Pass		Special Mention		Substandard		Doubtful		Total

Real estate loans:
One-to-four family	$	127,513	$	—	$	242	$	—	$	127,755
Multi-family		3,729		—		—		—		3,729
Commercial		71,774		1,969		3,224		—		76,967
Construction		15,518		—		—		—		15,518
Total real estate loans		218,534		1,969		3,466		—		223,969

Commercial		23,824		104		284		—		24,212

Consumer loans:
Home equity loans and lines of credit		3,717		—		—		—		3,717
Other consumer loans		2,714		—		—		—		2,714

Total	$	248,789	$	2,073	$	3,750	$	—	$	254,612

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 4- PREMISES AND EQUIPMENT

Premises and equipment at September 30, 2022 and December 31, 2021 were as follows:


	2022			2021
Land	$	1,924		$	1,924
Buildings and improvements		15,033			14,208
Furniture, fixtures and equipment		2,489			2,321
		19,446			18,453
Less: Accumulated depreciation		(9,315	)		(8,969	)
	$	10,131		$	9,484

Depreciation expense for the three and nine months ended September 30, 2022 was $132 and $358, respectively. Depreciation expense for the three and nine months ended September 30, 2021 was $119 and $335 respectively.

NOTE 5 – DEPOSITS

Time deposits that meet or exceed the FDIC insurance limit of $250 at September 30, 2022 and December 31, 2021 were $20,002 and $34,155, respectively. Scheduled maturities of time deposits at September 30, 2022 for the next five years were as follows:


2023	$	43,694
2024		17,218
2025		11,665
2026		3,266
2027		1,176

At September 30, 2022 and December 31, 2021, overdraft demand and savings deposits reclassified to loans totaled $69 and $162, respectively.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER DEBT

At period-end, advances from the Federal Home Loan Bank were as follows:


	September 30, 2022		December 31, 2021
Maturity of September 2024 fixed rate of 4.23%	$	15,000	$	—
Maturities March 2024 through March 2030, fixed rate at rates from 1.39% to 2.20%, averaging 1.81%		—		18,500
Total	$	15,000	$	18,500

During the nine months ended September 30, 2022, the Company paid $18,500 of outstanding advances, recognizing a net gain of $87.

Each advance, in the table above, is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $83,712 and $73,916 of eligible first mortgage one-to-four family, multi-family, and commercial loans under a blanket lien arrangement at September 30, 2022 and December 31, 2021, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow additional funds of $68,712 at September 30, 2022.

Payments over the next five years are as follows:


2022	$	—
2023		—
2024		15,000
2025		—
2026		—

The Company had approximately $10,000 available in a line of credit for federal funds (or the equivalent thereof) with correspondent banks at September 30, 2022 and December 31, 2021. There were no amounts outstanding as of September 30, 2022 or December 31, 2021.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 7 - EMPLOYEE STOCK OWNERSHIP PLAN

With the conversion to the stock holding company, 354,599 shares were sold to the Employee Stock Ownership Plan (ESOP). The ESOP borrowed from the Company to purchase the shares of the Company’s common stock at $10. The Company combined the preexisting loan with the current loan.

The Company will make discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation and expense is recorded. Dividends on allocated shares increase participant accounts.

Participants receive the shares at the end of employment. A participant may require stock received to be repurchased unless the stock is traded on an established market.

The ESOP compensation expense for the three months ended September 30, 2022 and 2021 was $105 and $19, respectively. The ESOP compensation expense for the nine months ended September 30, 2022 and 2021 was $225 and $93, respectively. At September 30, 2022, there were 355,829 shares not yet released, having an aggregate market value based of $3,793 based on close price of $10.66.

NOTE 8 – STOCK BASED COMPENSATION

In May of 2020, the stockholders approved the Cullman Bancorp, Inc. 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”) for employees and directors of the Company. The Equity Incentive Plan authorizes the issuance of up to 200,000 shares of the Company’s common stock, with no more than 80,000 of shares as restricted stock awards and 120,000 as stock options, either incentive stock options or non-qualified stock options. The exercise price of options granted under the Equity Incentive Plan may not be less than the fair market value on the date the stock option is granted. The compensation committee of the board of directors has sole discretion to determine the amount and to whom equity incentive awards are granted. During the 2021 conversion, the shares were converted at a 2.8409 exchange ratio, resulting in 227,266 and 340,903 in the restricted stock and stock options respectively.

As of September 30, 2022, there were no shares available for future grants under this plan.

(Continued)

Table of Contents

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 8 – STOCK BASED COMPENSATION (Continued)

The following table summarizes stock option activity for the nine months ended September 30, 2022:


	Options		Weighted- Avg Exercise Price/Share		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value(1)
Outstanding at beginning of period		340,903	$	9.86
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at end of period		340,903	$	9.86		7.88
Vested or expected to vest		340,903	$	9.86		7.88	$	273
Exercisable at period end		136,354	$	9.86		7.88	$	109

(1) Based on close price of $10.66 as of September 30, 2022. Intrinsic value for stock options is defined as the difference between the current market value and the exercise price multiplied by the number of in-the-money options.

There were 68,177 options that vested during the nine months ended September 30, 2022. Stock based compensation expense for stock options for the three and nine months ended September 30, 2022 and 2021 was $27 and $81, respectively in relation to the 340,903 options. Unrecognized compensation cost related to nonvested stock options at September 30, 2022 was $306 and is expected to be recognized over 2.83 years.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 8 – STOCK BASED COMPENSATION (Continued)

A Recognition and Retention Plan ("RRP") provides for the issuance of shares to directors, and officers. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date. The fair value of the stock was determined using the closing price of the day the shares were awarded. RRP shares fully vest of the fifth anniversary of the grant date.

A summary of changes in the Company's nonvested shares for the quarter ended September 30, 2022 follows:


Nonvested Shares	Shares			Weighted Average Grant-Date Fair Value
Nonvested at beginning of period		181,811		$	9.86
Granted		—		$	—
Vested		(45,455	)	$	9.86
Nonvested at end of period		136,356		$	9.86

For the three and nine months ended September 30, 2022, stock-based compensation expense for restricted stock included in non-interest expense was $112 and $336, respectively. Unrecognized compensation expense for nonvested restricted stock awards was $1,269 as of September 30, 2022 and is expected to be recognized over 2.83 years.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 9 - REGULATORY CAPITAL MATTERS

Banks and their holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2022, the Bank meets all capital adequacy requirements to which they are subject. The Bancorp is not subject to regulatory capital requirements due to its size.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of September 30, 2022 and December 31, 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective January 1, 2020 and was elected by the Bank as of December 31, 2020.

The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying banking organizations that elect to use the community bank leverage rate framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. The community bank leverage ratio minimum requirement is currently 9.00%.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 9 - REGULATORY CAPITAL MATTERS (Continued)

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of September 30, 2022 the Bank was a qualifying community banking organization as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework.

Actual and required capital amounts for the Bank and ratios at September 30, 2022 and December 31, 2021 are presented below:


	Actual					To be well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework)
	Amount		Ratio			Amount		Ratio
September 30, 2022
Tier 1 (Core) Capital to average total assets	$	73,671		19.89	%	$	33,328		9.00	%
December 31, 2021
Tier 1 (Core) Capital to average total assets	$	69,739		18.83	%	$	31,476		8.50	%

The Qualified Thrift Lender test requires at least 65% of assets be maintained in housing-related finance and other specified areas. If this test is not met, limits are placed on growth, branching, new investments, FHLB advances and dividends, or the Bank must convert to a commercial bank charter. Management believes this test is met.

Dividend Restrictions - The Company’s principal source of funds for dividend payments is dividends received from the Bank as well as proceeds retained from the mutual-to-stock conversion. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. During 2022, the Bank could, without prior approval from its regulators, declare dividends of approximately $5,702 plus any 2022 net profits retained to the date of the dividend declaration.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability; or generated from model-based techniques that use at least one significant assumption not observable in the market. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The Company used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The Company’s taxable municipal investment securities’ fair values are determined based on a discounted cash flow analysis prepared by an independent third party.

Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Foreclosed Real Estate: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

For appraisals where the value is $100 or above for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Loan Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. In accordance to company policy, if the Company holds the property for over two years, an updated appraisal or validation would be obtained in order to determine if the fair value amount should be adjusted.

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:


	Fair Value Measurement Using
	Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2022
Financial assets:
U.S Government entities	$	—	$	2,262	$	—
Municipal- Taxable		—		11,434		—
Municipal- Tax exempt		—		1,274		—
Residential MBS		—		8,468		—
Commercial MBS		—		2,771		—
SBA guaranteed debenture		—		606		—
Total available for sale securities	$	—	$	26,815	$	—
Equity securities	$	—	$	—	$	1,003


	Fair Value Measurement Using
	Quoted Prices in Active markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
December 31, 2021
Financial assets:
U.S Government entities	$	—	$	2,957	$	—
Municipal- Taxable		—		14,157		—
Municipal- Tax exempt		—		1,399		—
Residential MBS		—		1,669		—
SBA guaranteed debenture		—		1,131		—

Total available for sale securities	$	—	$	21,313	$	—

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of December 31, 2021. The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for as of September 30, 2022:


	Equity Securities
	Three months ended			Nine months ended
	September 30, 2022			September 30, 2022

Beginning balance of recurring Level 3 assets	$	1,005		$	—
Purchase		—			1,000
Unrealized gain (loss)		(2	)		3
Ending balance of recurring Level 3 assets	$	1,003		$	1,003

There were no transfers between levels during 2022 or 2021.

Assets and Liabilities Measured on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2022 and December 31, 2021 (amounts in thousands):


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	September 30, 2022		December 31, 2021
Impaired loans:
RE loans:
One-to four family	$	242	$	14
Commercial		—		90

Foreclosed real estate:
One-to four family	$	—	$	74
Commercial		—		326
Construction		89		—

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The Company has estimated the fair values of these assets using Level 3 inputs, specifically the appraised value of the collateral. Impaired loan balances represent those collateral dependent impaired loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the impaired loan for the amount of the credit loss. The Company had no Level 3 assets measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021. For Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021, appraisals were used for the valuation technique. For the significant unobservable input, the appraisal discounts and the weighted average input of 15-20% were used. This is for the period ended September 30, 2022 and December 31, 2021.

The carrying amounts and estimated fair values of the Company’s on-balance sheet financial instruments at September 30, 2022 and December 31, 2021 are summarized below:


			Fair Value Measurements at September 30, 2022 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	28,749	$	28,749	$	—	$	—	$	28,749
Securities available for sale		26,815		—		26,815		—		26,815
Loan, net		325,596		—		—		314,952		314,952
Accrued interest receivable		1,054		—		154		816		970
Restricted equity securities		739		—		—		—	N/A

Financial liabilities:
Deposits	$	286,751	$	209,732	$	73,851	$	—		283,583
Federal Home Loan Bank advances		15,000		—		15,055		—		15,055
Accrued interest payable		35		4		31		—		35

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 10 – FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)


			Fair Value Measurements at December 31, 2021 Using:
	Carrying Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	61,938	$	61,938	$	—	$	—	$	61,938
Securities available for sale		21,313		—		21,313		—		21,313
Loan, net		252,160		—		—		259,152		259,152
Accrued interest receivable		775		—		162		613		775
Restricted equity securities		859		—		—		—	N/A

Financial liabilities:
Deposits	$	232,021	$	156,921	$	80,281	$	—	$	237,202
Federal Home Loan Bank advances		18,500		—		18,322		—		18,322
Accrued interest payable		60		3		57		—		60

(Continued)

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CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except share and per share data)

NOTE 11 – EARNINGS PER COMMON SHARE

The factors used in the earnings per common share computation follow:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Earnings (loss) per share
Net Income	$	926		$	(501	)	$	3,248		$	1,131
Less: Distributed earning allocated to participating securities		—			—			—			—
Plus (Less): Loss (Earnings) allocated to participating securities		(1	)		91			(50	)		(19	)
Net earnings allocated to common stock		925			(410	)		3,198			1,112
Weighted common shares outstanding including participating securities		7,405,893			7,329,787			7,405,893			7,088,839
Less: Participating securities		(103,629	)		(489,077	)		(155,655	)		(489,077	)
Less: Average unearned ESOP shares		(352,079	)		(376,308	)		(234,206	)		(376,308	)
Weighted average shares		6,950,185			6,464,402			7,016,032			6,223,454
Basic earnings (loss) per share	$	0.13		$	(0.06	)	$	0.46		$	0.18
Dilutive
Net earnings allocated to common stock		925			(410	)		3,198			1,112
Weighted average shares		6,950,185			6,464,402			7,016,032			6,223,454
Add: dilutive effects of assumed exercises of stock options		64,366			(187,395	)		51,804			(181,014	)
Average shares and dilutive potential common shares		7,014,551			6,277,007			7,067,836			6,042,440
Dilutive earnings (loss) per share	$	0.13		$	(0.06	)	$	0.45		$	0.18

Stock options for 136,356 and 120,000 shares of common stock were not considered in computing diluted earnings per share for 2022 and 2021, respectively because they were antidilutive.

(Continued)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “may,” “continue” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the asset quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. You should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

conditions relating to the COVID-19 or any other pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

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•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increases in the level of defaults, losses and prepayments on loans we have made and make;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

•

changes in the quality or composition of our loan or investment portfolios;

•

technological changes that may be more difficult or expensive than expected;

•

the inability of third-party providers to perform as expected;

•

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

•

our ability to manage market risk, credit risk and operational risk;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we have acquired or may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•

changes in consumer spending, borrowing and savings habits;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

•

our ability to retain key employees;

•

the effect of national or international terrorism, conflict or war;

•

our compensation expense associated with equity allocated or awarded to our employees; and

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total assets increased $51.4 million, or 14.5%, to $406.1 million at September 30, 2022 from $354.7 million at December 31, 2021. The increase was due to an increase in loans, which was funded by an increase in deposits and advances.

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Cash and cash equivalents decreased $33.2 million, or 53.6%, to $28.7 million at September 30, 2022 from $61.9 million at December 31, 2021. The decrease was due to loan growth, payoff of advances and investment purchases.

Gross loans held for investment increased $73.7 million, or 29.0%, to $328.3 million at September 30, 2022 from $254.6 million at December 31, 2021. The increase was primarily due to an increase in one-to-four family loans, which increased $32.8 million, or 25.7%, to $160.6 million at September 30, 2022 from $127.8 million at December 31, 2021. The increase was also due to an increase in commercial real estate loans, which increased $18.0 million, or 23.4% from $95.0 million at September 30, 2022 from $77.0 million at December 31, 2021.

Securities available for sale increased $5.5 million or 25.8%, to $26.8 million at September 30, 2022 from $21.3 million at December 31, 2021. We used a portion of deposits brought in during the nine months ended September 30, 2022 to invest in securities.

Total deposits increased $54.7 million, or 23.6%, to $286.7 million at September 30, 2022 from $232.0 million at December 31, 2021. We experienced increases in regular savings and other deposits of $27.4 million, or 49.6%, to $82.7 million at September 30, 2022 from $55.3 million at December 31, 2021, and in interest-bearing demand deposits of $29.4 million, or 37.6%, to $107.6 million at September 30, 2022 from $78.2 million at December 31, 2021. Noninterest bearing demand deposits increased $2.8 million or 21.0% to $16.2 million at September 30, 2022 from $13.4 million at December 31, 2021. The increases are a result of an increase in new accounts.

Borrowings decreased $3.5 million, or 18.9%, to $15.0 million of borrowings at September 30, 2022, from $18.5 million at December 31, 2021. We used a portion of the excess cash received from deposits during the nine months ended September 30, 2022 to pay off a portion of our advances and recognized a net gain of $87,000 for repaying $18.5 million of borrowings. During the month of September, we received a $15.0 million advance to support loan growth.

Stockholders’ equity decreased $1.2 million, or 1.2%, to $98.5 million at September 30, 2022 from $99.7 million at December 31, 2021. The decrease was mainly due to the decrease in accumulated other income (unrealized losses on securities available for sale) of $4.1 million for the nine months ended September 30, 2022, partially offset by an increase in retained earnings of $2.4 million for the nine months ended September 30, 2022. The decrease in unrealized losses on securities available for sale was due to the recent increase in interest rates causing the fair value of our securities to decrease. Stockholders' equity (book value) per share at September 30, 2022 was $13.30.

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Average Balance Sheets

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $11,000 and $113,000 as of September 30, 2022 and September 30, 2021, respectively. Loan balances exclude loans held for sale.


	Three Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest		Average Yield/Rate (1)			Average Outstanding Balance		Interest		Average Yield/Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	319,258	$	3,892		4.88	%	$	240,926	$	3,017		5.01	%
PPP loans		—		—		—			2,802		128		18.27	%
Securities		29,329		254		3.46	%		21,138		119		2.25	%
Federal Home Loan Bank stock		270		2		2.96	%		1,421		15		4.22	%
Federal funds sold		17,288		95		2.20	%		83,140		27		0.13	%
Total interest-earning assets		366,145		4,243		4.64	%		349,427		3,306		3.78	%
Noninterest-earning assets		23,501							19,190
Total assets	$	389,646						$	368,617

Interest-bearing liabilities:
Interest-bearing demand deposits	$	104,077		32		0.12	%	$	76,021		24		0.13	%
Regular savings and other deposits		82,632		66		0.32	%		52,184		25		0.19	%
Money market deposits		3,297		1		0.12	%		4,408		2		0.18	%
Certificates of deposit		75,839		155		0.82	%		83,037		219		1.05	%
Total interest-bearing deposits		265,845		254		0.38	%		215,650		270		0.50	%
Federal Home Loan Bank advances and other borrowings		2,500		27		4.32	%		33,500		149		1.78	%
Total interest-bearing liabilities		268,345		281		0.42	%		249,150		419		0.67	%
Noninterest-bearing demand deposits		15,617							13,724
Other noninterest-bearing liabilities		7,163							7,415
Total liabilities		291,125							270,289
Total shareholders’ equity		98,521							98,328
Total liabilities and shareholders’ equity	$	389,646						$	368,617
Net interest income			$	3,962						$	2,887
Net interest rate spread (2)						4.22	%						3.11	%
Net interest-earning assets (3)	$	97,800						$	100,277
Net interest margin (4)						4.33	%						3.28	%
Average interest-earning assets to interest-bearing liabilities	1.36x							1.40x

(1)

Annualized.

(2)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

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	For the Nine Months Ended September 30,
	2022							2021
	Average Outstanding Balance		Interest		Average Yield/Rate (1)			Average Outstanding Balance		Interest		Average Yield/Rate (1)
	(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	289,772	$	11,074		5.10	%	$	236,719	$	9,258		5.21	%
PPP loans		104		36		46.15	%		3,420		314		12.24	%
Securities		26,787		588		2.93	%		19,966		335		2.24	%
Federal Home Loan Bank stock		255		17		8.89	%		1,819		61		4.47	%
Federal funds sold		33,858		187		0.74	%		66,517		50		0.10	%
Total interest-earning assets		350,776		11,902		4.52	%		328,441		10,018		4.07	%
Noninterest-earning assets		21,454							19,018
Total assets	$	372,230						$	347,459

Interest-bearing liabilities:
Interest-bearing demand deposits	$	95,882		84		0.12	%	$	76,235		70		0.12	%
Regular savings and other deposits		73,132		126		0.23	%		48,812		69		0.19	%
Money market deposits		4,102		5		0.16	%		4,617		6		0.17	%
Certificates of deposit		76,696		473		0.82	%		84,734		714		1.12	%
Total interest-bearing deposits		249,812		688		0.37	%		214,398		859		0.53	%
Federal Home Loan Bank advances and other borrowings		2,194		48		2.92	%		41,266		543		1.75	%
Total interest-bearing liabilities		252,006		736		0.39	%		255,664		1,402		0.73	%
Noninterest-bearing demand deposits		14,722							12,965
Other noninterest-bearing liabilities		6,418							8,728
Total liabilities		273,146							277,357
Total shareholders’ equity		99,084							70,102
Total liabilities and shareholders’ equity	$	372,230						$	347,459
Net interest income			$	11,166						$	8,616
Net interest rate spread (2)						4.13	%						3.34	%
Net interest-earning assets (3)	$	98,770						$	72,777
Net interest margin (4)						4.24	%						3.50	%
Average interest-earning assets to interest-bearing liabilities	1.39x									1.28x

(1)

Annualized.

(2)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

The following tables present the effects of changing rates and volumes on our net interest income for the three and nine months ended September 30, 2022 and 2021. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of these tables, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the tables below.

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	For the Three Months ended September 30, 2022 vs. 2021

	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
				(In thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	3,823		$	(2,948	)	$	875
PPP Loans		(128	)		—			(128	)
Securities		283			(148	)		135
Federal Home Loan Bank stock		(34	)		21			(13	)
Federal funds sold		(1,449	)		1,517			68
Total interest-earning assets		2,495			(1,558	)		937

Interest-bearing liabilities:
Interest-bearing demand Deposits		154			(146	)		8
Regular savings and other deposits		97			(56	)		41
Money market deposits		(1	)		—			(1	)
Certificates of deposit		(59	)		(5	)		(64	)
Total interest-bearing deposits		191			(207	)		(16	)
Federal Home Loan Bank advances		(1,339	)		1,217			(122	)
Total interest bearing liabilities		(1,148	)		1,010			(138	)

Change in net interest income	$	3,643		$	(2,568	)	$	1,075


	For the Nine Months ended September 30, 2022 vs. 2021

	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
				(In thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	2,765		$	(949	)	$	1,816
PPP Loans		(406	)		128			(278	)
Securities		153			100			253
Federal Home Loan Bank stock		(70	)		26			(44	)
Federal funds sold		(33	)		170			137
Total interest-earning assets		2,409			(525	)		1,884

Interest-bearing liabilities:
Interest-bearing demand Deposits		156			(142	)		14
Regular savings and other deposits		46			11			57
Money market deposits		(1	)		—			(1	)
Certificates of deposit		(90	)		(151	)		(241	)
Total interest-bearing deposits		111			(282	)		(171	)
Federal Home Loan Bank advances		(684	)		189			(495	)
Total interest bearing liabilities		(573	)		(93	)		(666	)

Change in net interest income	$	2,982		$	(432	)	$	2,550

Comparison of Operating Results for the Three months ended September 30, 2022 and 2021

General. Net income was $926,000 for the three months ended September 30, 2022, compared to net loss of $501,000 for the three months ended September 30, 2021. We experienced loss due to the one-time pre-tax $1.6 million expense for the contribution of common stock and cash to the Foundation in the third quarter of 2021. Additionally, there was an

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increase in net income primarily due to an increase in interest income resulting from an increase in loans.

Interest Income. Interest income increased $937,000, or 28.3%, to $4.2 million for three months ended September 30, 2022 from $3.3 million for the three months ended September 30, 2021. The increase was due primarily to an increase in interest income on loans (excluding PPP loans), which is our primary source of interest income. Interest income on loans (excluding PPP loans) increased $875,000, or 29.0%, to $3.9 million for the three months ended September 30, 2022 from $3.0 million for the three months ended September 30, 2021. Our average balance of loans (excluding PPP loans) increased $78.3 million, or 32.5% for the three months ended September 30, 2022, to $319.3 million for three months ended September 30, 2022 from $240.9 million for the three months ended September 30, 2021. The increase is due to our decision to retain longer-term, fixed-rate loans instead of selling them, as well as the continued growth of commercial lending. Our weighted average yield on loans (excluding PPP loans) decreased 13 basis points to 4.88% for the three months ended September 30, 2022 compared to 5.01% for the three months ended September 30, 2021. The decrease was a reflection of the low rate environment and competition when the loans were originated.

Interest Expense. Interest expense decreased $138,000, or $32.9% to $281,000 for the three months ended September 30, 2022 compared to $419,000 for the three months ended September 30, 2021. The decrease is due primarily to a decrease in borrowings balances.

Interest expense on deposits decreased $16,000, or 5.9%, to $245,000 for the three months ended September 30, 2022 compared to $270,000 for the three months ended September 30, 2021. The decrease was due primarily to a decrease in interest expense on certificates of deposit. Interest expense on certificates of deposit decreased $64,000, or 29.2%, to $155,000 for the three months ended September 30, 2022, compared to $219,000 for the three months ended September 30, 2021. We experienced decreases in both the average balance of certificates of deposit ($7.2 million, or 8.7%) for the three months ended September 30, 2022 and 2021, and rates paid on certificates of deposit (23 basis points, to 0.82%) for the three months ended September 30, 2022 and 2021. We have allowed higher-rate certificates of deposit to run off during the current interest rate environment.

Interest expense on borrowings decreased $122,000, or 81.9%, to $27,000 for the three months ended September 30, 2022, compared to $149,000 for the three months ended September 30, 2021. The average balance of borrowings decreased $31.0 million, or 92.5% to $2.5 million for the three months ended September 30, 2022, compared to $33.5 million for the three months ended September 30, 2021. The average rate paid on borrowings increased to 4.32% for the three months ended September 30, 2022 compared to 1.78% for the three months ended September 30, 2021. The increase was due to paying off lower rate advances in 2021.

Net Interest Income. Net interest income increased $1.1 million, or 37.2%, to $4.0 million for the three months ended September 30, 2022 from $2.9 million for the three months ended September 30, 2021. Our interest rate spread increased to 4.22% for the three months ended September 30, 2022, compared to 3.11% for the three months ended September 30, 2021, while our interest margin increased to 4.33% for the three months ended September 30, 2022 compared to 3.28% for the three months ended September 30, 2021.

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Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and nonaccrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

After an evaluation of these factors, $120,000 was recorded in the provision for loan losses for the three months ended September 30, 2022 compared to no provision expense for the three months ended September 30, 2021. Our allowance for loan losses was $2.7 million at September 30, 2022 compared to $2.4 million at December 31, 2021 and $2.4 million at September 30, 2021. The ratio of our allowance for loan losses to total loans was 0.82% at September 30, 2022 compared to 0.95% at December 31, 2021 and 0.98% at September 30, 2021, while the allowance for loan losses to non-performing loans was 823% at September 30, 2022 compared to 1,247% at December 31, 2021. We had no charge-offs or recoveries during the three months ended September 30, 2022 compared to $8,000 of charge-offs and $2,000 of recoveries for the three months ended September 30, 2021.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at September 30, 2022. However, future changes in the factors we use to

calculate the allowance for loan losses, including, but not limited to, actual loss experience with

respect to our loan portfolio, could result in material increases in our provision for loan losses. In

addition, the Office of the Comptroller of the Currency, as an integral part of its examination

process, will periodically review our allowance for loan losses, and as a result of such reviews,

we may have to adjust our allowance for loan losses.

Non-interest Income. Non-interest income increased $13,000, or 3.3%, to $402,000 for the three months ended September 30, 2022 from $389,000 for the three months ended September 30, 2021. The increase was due to an increase in service charges for new deposit accounts as well as income received from additional bank owned life insurance purchased in 2022.

Non-interest Expense. Non-interest expense decreased $1.0 million, or 25.3%, to $3.0 million for the three months ended September 30, 2022 compared to $4.0 million for the three months ended September 30, 2021. The decrease was primarily due to the one-time pre-tax $1.6 million expense for the contribution of common stock and cash to the Foundation in the third quarter of 2021. The decrease was partially offset by an increase in salaries and employee benefits expense, due to an increase in employees.

Income Tax Expense. We recognized income tax (benefit) expense of $358,000 and ($185,000) for the three months ended September 30, 2022 and 2021, respectively, resulting in effective rates of 27.9 and 27.0%, respectively.

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Comparison of Operating Results for the Nine months ended September 30, 2022 and 2021

General. Net income was $3.2 million for the nine months ended September 30, 2022, compared to $1.1 million for the nine months ended September 30, 2021. We experienced a decrease in non-interest expense due to the one-time pre-tax $1.6 million expense for the contribution of common stock and cash to the Foundation in the third quarter of 2021 and an increase in interest income, due to loan growth, as well as a decrease in interest expense, related to changes in market interest rates.

Interest Income. Interest income increased $1.9 million, or 18.8%, to $11.9 for the nine months ended September 30, 2022 from $10.0 million for the nine months ended September 30, 2021. The increase was due primarily to an increase in interest income on loans (excluding PPP loans), which is our primary source of interest income. Interest income on loans (excluding PPP loans) increased $1.8 million, or 19.6%, to $11.1 million for the nine months ended September 30, 2022 from $9.3 million for the nine months ended September 30, 2021. Our average balance of loans (excluding PPP loans) increased $53.1 million, or 22.4%, to $289.8 million for the nine months ended September 30, 2022 from $236.7 million for the nine months ended September 30, 2021. The increase was primarily due to the growth in our one-to four family and commercial real estate loans. Our weighted average yield on loans (excluding PPP loans) decreased 11 basis points to 5.10% for the nine months ended September 30, 2022 compared to 5.21% for the nine months ended September 30, 2021. The decreases are a reflection of the low rate environment when the loans were originated.

Interest Expense. Interest expense decreased $666,000, or 47.5%, to $736,000 for the nine months ended September 30, 2022 compared to $1.4 million for the nine months ended September 30, 2021. These decreases are due to a decrease in borrowings balances.

Interest expense on deposits decreased $171,000, or 19.9%, to $688,000 for the nine months ended September 30, 2022 compared to $859,000 for the nine months ended September 30, 2021. The decrease was due primarily to a decrease in interest expense on certificates of deposit. Interest expense on certificates of deposit decreased $241,000, or 33.8%, to $473,000 for the nine months ended September 30, 2022 from $714,000 for the nine months ended September 30, 2021. We experienced decreases in both the average balance of certificates of deposit ($8.0 million, or 9.5%) for the nine months ended September 30, 2022 and 2021, and rates paid on certificates of deposit (30 basis points, to 0.82%) for the nine months ended September 30, 2022 and 2021. The decline in balances, which were at higher rates, caused our decrease in average rates.

Interest expense on borrowings decreased $495,000, or 91.2%, to $48,000 for the nine months ended September 30, 2022 compared to $543,000 for the nine months ended September 30, 2021. The average balance of borrowings decreased $39.1 million, or 94.7%, to $2.2 million for the nine months ended September 30, 2022 compared to $41.3 million for the nine months ended September 30, 2021. The decrease is due to paying down the advances.

Net Interest Income. Net interest income increased $2.6 million, or 29.6%, to $11.2 million for the nine months ended September 30, 2022 from $8.6 million for the nine months ended September 30, 2021. Our interest rate spread increased 79 basis points to 4.13% for the nine

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months ended September 30, 2022, compared to 3.34% for the nine months ended September 30, 2021, while our net interest margin increased 74 basis points to 4.24% for the nine months ended September 30, 2022 compared to 3.50% for the nine months ended September 30, 2021.

After an evaluation of these factors, $275,000 was recorded in the provision for loan losses for the nine months ended September 30, 2022, compared to $25,000 for the nine months ended September 30, 2021. Our provision increase was mainly due to our loan growth. We had $1,000 of net recoveries for the nine months ended September 30, 2022 compared to $10,000 of charge-offs and $5,000 of recoveries for the nine months ended September 30, 2021.

To the best of our knowledge, we have recorded all loan losses that are both probable and

reasonable to estimate at September 30, 2022. However, future changes in the factors we use to

calculate the allowance for loan losses, including, but not limited to, actual loss experience with

respect to our loan portfolio, could result in material increases in our provision for loan losses. In

addition, the Office of the Comptroller of the Currency, as an integral part of its examination

process, will periodically review our allowance for loan losses, and as a result of such reviews,

we may have to adjust our allowance for loan losses.

Non-interest Income. Non-interest income increased $55,000 to $1.3 million for the nine months ended September 30, 2022 from $1.2 million for the nine months ended September 30, 2021. Service charges on deposit accounts increased $140,000 to $753,000 for the nine months ended September 30, 2022 from $613,000 for the nine months ended September 30, 2021 due to an increase in new accounts. We also recognized a gain on the sale of foreclosed real estate of $46,000 during the nine months ended September 30, 2022. These increases were offset by the gain on sale of mortgage loans decreasing by $123,000, or 58.9%, as we sold $3.3 million of mortgage loans during the nine months ended September 30, 2022 compared to $6.7 million of such sales during the nine months ended September 30, 2021.

Non-interest Expense. Non-interest expense decreased $483,000, or 5.7%, to $7.9 million for the nine months ended September 30, 2022 compared to $8.4 million for the nine months ended September 30, 2021. The decrease was primarily due to the one-time pre-tax $1.6 million expense for the contribution of common stock and cash to the Foundation in the third quarter of 2021, which was partially offset by an increase in salaries and employee benefits expense of $718,000, or 15.4%, to $5.4 million for the nine months ended September 30, 2022 compared to $4.7 million for the nine months ended September 30, 2021, due to annual salary increases and rising benefits expense as well as an increase in employees.

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Income Tax Expense. We recognized income tax expense of $973,000 and $252,000 for the nine months ended September 30, 2022 and 2021, respectively, resulting in effective rates of 23.1% and 18.2%, respectively. The change is due to the tax benefit of the contribution to the Foundation.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At September 30, 2022 and December 31, 2021, we had a $114.6 million and 111.3 million line of credit with the Federal Home Loan Bank of Atlanta, and had $15.0 million and $18.5 million outstanding as of those dates, respectively. In addition, at September 30, 2022, we had an unsecured federal funds line of credit of $10.0 million. No amount was outstanding on this line of credit at September 30, 2022.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $5.3 million and $4.2 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities and bank owned life insurance, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $88.9 million and $12.6 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by financing activities, consisting primarily of activity in deposit accounts and proceeds from Federal Home Loan Bank borrowings, offset by repayment of Federal Home Loan Bank borrowings, was $50.4 million and $37.8 million for the nine months ended September 30, 2022 and 2021, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At September 30, 2022, Cullman Savings Bank exceeded all of its regulatory capital requirements, and was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable to smaller reporting companies.

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Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by the quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

As of September 30, 2022, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors.

Not applicable as Cullman Bancorp, Inc. is a smaller company.

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

Not applicable

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 Number		Description

31.1		Certification of John A. Riley, III, Chairman of the Board, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Katrina I. Stephens, Senior Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32		Certification of John A. Riley, III, Chairman of the Board, President and Chief Executive Officer, and Katrina I. Stephens, Senior Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Cullman Bancorp Inc.’s Form 10-Q report for the quarter ended September 30, 2022, formatted in Inline XBRL pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Net Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Shareholders’ Equity (v) Condensed Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL document and contained in Exhibit 101)

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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.


	CULLMAN BANCORP INC.
	(Registrant)


Date: November 10, 2022	/s/ John A. Riley, III
	John A. Riley, III
	Chairman of the Board, President and Chief Executive Officer


Date: November 10, 2022	/s/ Katrina I. Stephens
	Katrina I. Stephens
	Senior Vice President and Chief Financial Officer