CULLMAN BANCORP, INC. /MD/ MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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 increase 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;

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 June 30, 2022 and December 31, 2021

Total assets increased $29.3 million, or 8.3%, to $384.0 million at June 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.

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Cash and cash equivalents decreased $37.1 million, or 60.0%, to $24.8 million at
June 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 $55.7 million, or 21.9%, to $310.3
million at June 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
$25.0 million, or 19.6%, to $152.8 million at June 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 $14.4 million, or 18.8%, to $91.4 million at
June 30, 2022 from $77.0 million at December 31, 2021.

Securities available for sale increased $6.3 million, or 29.5%, to $27.6 million
at June 30, 2022 from $21.3 million at December 31, 2021. We used a portion of
the excess cash we received from deposits during the six months ended June 30,
2022 to invest in securities.

Total deposits increased $48.2 million, or 20.8%, to $280.2 million at June 30,
2022 from $232.0 million at December 31, 2021. We experienced increases in
regular savings and other deposits of $28.4 million, or 51.4%, to $83.7 million
at June 30, 2022 from $55.3 million at December 31, 2021, and in
interest-bearing demand deposits of $23.3 million, or 29.8%, to $101.5 million
at June 30, 2022 from $78.2 million at December 31, 2021. Noninterest bearing
demand deposits increased $2.6 million or 19.5% to $15.9 million at June 30,
2022 from $13.3 million at December 31, 2021. The increases are a result of an
increase in new accounts.

Borrowings decreased $18.5 million, or 100.0%, to no borrowings at June 30, 2022
from $18.5 million at December 31, 2021. We used a portion of the excess cash we
received from deposits during the six months ended June 30, 2022 to decrease our
borrowings, and recognized a net gain of $87,000 for repaying $18.5 million of
borrowings.

Stockholders' equity decreased $1.0 million, or 1.0%, to $98.7 million at June
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 $2.8 million for the six months ended June 30, 2022,
partially offset by a increase in retained earnings of $1.4 million for the six
months ended June 30, 2022. Stockholders' equity (book value) per share at June
30, 2022 was $13.33.

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
$216,000 as of June 30, 2022 and June 30, 2021, respectively. Loan balances
exclude loans held for sale.


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                                                            Three Months Ended June 30,
                                              2022                                              2021
                             Average                         Average           Average                          Average
                           Outstanding                      Yield/Rate       Outstanding                      Yield/Rate
                             Balance         Interest          (1)             Balance         Interest           (1)
                                                              (Dollars in thousands)
Interest-earning
assets:
Loans (excluding PPP
loans)                    $     288,646     $    3,809             5.28 %   $     239,408     $     3,203            5.35 %
PPP loans                           157              2             5.10 %           3,565              37            4.15 %
Securities                       28,965            202             2.79 %          19,868             110            2.21 %
Federal Home Loan Bank
stock                               176              3             6.82 %           1,623              22            5.42 %

Federal funds sold               40,228             74             0.74 %          56,941              12            0.08 %
Total interest-earning
assets                          358,172          4,090             4.57 %         321,405           3,384            4.21 %
Noninterest-earning
assets                           21,731                                            20,239
Total assets              $     379,903                                     $     341,644

Interest-bearing
liabilities:
Interest-bearing demand
deposits                  $      98,007             27             0.11 %   $      83,699              24            0.11 %
Regular savings and
other deposits                   79,984             34             0.17 %          50,445              24            0.19 %
Money market deposits             4,296              2             0.19 %           4,360               2            0.18 %
Certificates of deposit          77,134            153             0.79 %          85,147             234            1.10 %
Total interest-bearing
deposits                        259,421            216             0.33 %         223,651             284            0.51 %
Federal Home Loan Bank
advances
  and other borrowings                -              -             0.00 %          38,876             170            1.75 %
Total interest-bearing
liabilities                     259,421            216             0.33 %         262,527             454            0.69 %
Noninterest-bearing
demand deposits                  15,313                                            16,546
Other
noninterest-bearing
liabilities                       6,242                                             5,542
Total liabilities               280,976                                           284,615
Total shareholders'
equity                           98,927                                            57,029
Total liabilities and
shareholders'
  equity                  $     379,903                                     $     341,644
Net interest income                         $    3,874                                        $     2,930
Net interest rate
spread (2)                                                         4.23 %                                            3.52 %
Net interest-earning
assets (3)                $      98,751                                     $      58,878
Net interest margin (4)                                            4.33 %                                            3.65 %
Average
interest-earning assets
to
  interest-bearing
liabilities                       1.38x                                             1.22x



(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 Six Months Ended June 30,
                                               2022                                               2021
                              Average                         Average           Average                           Average
                            Outstanding                      Yield/Rate       Outstanding                        Yield/Rate
                              Balance         Interest          (1)             Balance          Interest           (1)
                                                                (Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP
loans)                     $     274,985     $    7,182             5.22 %   $     234,583     $      6,210             5.29 %
PPP loans                            157             36            45.86 %           3,730              216            11.58 %
Securities                        25,494            334             2.62 %          19,374              217             2.24 %
Federal Home Loan Bank
stock                                249             15             4.02 %           2,022               46             4.55 %

Federal funds sold                42,270             92             0.44 %          57,994               23             0.08 %
Total interest-earning
assets                           343,155          7,659             4.46 %         317,703            6,712             4.23 %
Noninterest-earning
assets                            20,369                                            19,149
Total assets               $     363,524                                     $     336,852

Interest-bearing
liabilities:
Interest-bearing demand
deposits                   $      91,730             52             0.11 %   $      76,348               46             0.12 %
Regular savings and
other deposits                    68,302             60             0.18 %          47,098               44             0.19 %
Money market deposits              4,510              4             0.18 %           4,725                4             0.17 %
Certificates of deposit           77,130            318             0.82 %          85,596              494             1.15 %
Total interest-bearing
deposits                         241,672            434             0.36 %         213,767              588             0.55 %
Federal Home Loan Bank
advances
  and other borrowings             2,066             21             2.03 %          45,213              394             1.74 %
Total interest-bearing
liabilities                      243,738            455             0.37 %         258,980              982             0.76 %
Noninterest-bearing
demand deposits                   14,575                                            15,741
Other
noninterest-bearing
liabilities                        6,015                                             5,570
Total liabilities                264,328                                           280,291
Total shareholders'
equity                            99,196                                            56,561
Total liabilities and
shareholders'
  equity                   $     363,524                                     $     336,852
Net interest income                          $    7,204                                        $      5,730
Net interest rate spread
(2)                                                                 4.09 %                                              3.47 %
Net interest-earning
assets (3)                 $      99,417                                     $      58,723
Net interest margin (4)                                             4.20 %                                              3.61 %
Average interest-earning
assets to
  interest-bearing
liabilities                        1.41x                                             1.23x



(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 six months ended June 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

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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.
                                              For the Three Months ended June 30, 2022 vs. 2021
                                           Increase (Decrease) Due to                    Total Increase
                                        Volume                     Rate                    (Decrease)
                                                              (In thousands)
Interest-earning assets:
Loans (excluding PPP loans)        $          2,634         $           (2,028 )       $               606
PPP Loans                                      (140 )                      105                         (35 )
Securities                                      202                       (110 )                        92
Federal Home Loan Bank stock                    (82 )                       63                         (19 )
Federal funds sold                              (15 )                       77                          62
Total interest-earning assets                 2,599                     (1,893 )                       706

Interest-bearing liabilities:
Interest-bearing demand Deposits                149                       (146 )                         3
Regular savings and other deposits               56                        (46 )                        10
Money market deposits                             -                          -                           -
Certificates of deposit                         (88 )                        7                         (81 )
Total interest-bearing deposits                 117                       (185 )                       (68 )
Federal Home Loan Bank advances                (680 )                      510                        (170 )
Total interest bearing liabilities             (563 )                      325                        (238 )

Change in net interest income      $          3,162         $           (2,218 )       $               944



                                              For the Six Months ended June 30, 2022 vs. 2021
                                          Increase (Decrease) Due to                   Total Increase
                                       Volume                    Rate                    (Decrease)
                                                            (In thousands)
Interest-earning assets:
Loans (excluding PPP loans)        $         2,139         $          (1,167 )       $               972
PPP Loans                                     (414 )                     234                        (180 )
Securities                                     137                       (20 )                       117
Federal Home Loan Bank stock                   (81 )                      50                         (31 )
Federal funds sold                             (12 )                      81                          69
Total interest-earning assets                1,769                      (822 )                       947

Interest-bearing liabilities:
Interest-bearing demand Deposits               151                      (145 )                         6
Regular savings and other deposits              40                       (24 )                        16
Money market deposits                            -                         -                           -
Certificates of deposit                        (98 )                     (78 )                      (176 )
Total interest-bearing deposits                 93                      (247 )                      (154 )
Federal Home Loan Bank advances               (752 )                     379                        (373 )
Total interest bearing liabilities            (659 )                     132                        (527 )

Change in net interest income      $         2,428         $            (954 )       $             1,474


Comparison of Operating Results for the three months ended June 30, 2022 and
2021


General. Net income was $1.3 million for the three months ended June 30, 2022
compared to $847,000 for the three months ended June 30, 2021. The increase in
net income was primarily due to an increase an interest income resulting from an
increase in loans.

Interest Income. Interest income increased $706,000, or 20.1%, to $4.1 million
for the three months ended June 30, 2022 from $3.4 million for the three months
ended June 30, 2021. The increase was due primarily to an increase in interest
income on loans (excluding PPP loans),

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which is our primary source of interest income. Interest income on loans
increased $571,000, or 17.6%, to $3.8 million for the three months ended June
30, 2022 from $3.2 million for the three months ended June 30, 2021. Our average
balance of loans (excluding PPP loans) increased $49.2 million, or 20.6%, to
$288.6 million for the three months ended June 30, 2022, from $239.4 million for
the three months ended June 30, 2021. The increase is due to our decision to
continue 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 seven basis point to 5.28% for the three
months ended June 30, 2022 compared to 5.35% for the three months ended June 30,
2021. The decrease was a reflection of the low rate environment when the loans
were originated. We recognized $2,000 interest income on PPP loans during the
three months ended June 30, 2022 compared to $37,000 during the three months
ended June 30, 2021. The decrease was due to loans being paid off by the SBA.

Interest Expense. Interest expense decreased $238,000, or 52.4%, to $216,000 for
the three months ended June 30, 2022 compared to $454,000 for the three months
ended June 30, 2021. The decrease was mainly due to a decrease in borrowing
balances.

Interest expense on deposits decreased $68,000, or 23.9%, to $216,000 for the
three months ended June 30, 2022 compared to $284,000 for the three months ended
June 30, 2021. The decrease was due primarily to a decrease in interest expense
on certificates of deposit. Interest expense on certificates of deposit
decreased $81,000, or 34.6%, to $153,000 for the three months ended June 30,
2022 compared to $234,000 for the three months ended June 30, 2021. We
experienced decreases in the average balance of certificates of deposit of $8.0
million, or 9.4%. We also experienced a decrease in average rates paid on
certificates of deposit. Rates decreased 31 basis points, from 1.10% for the
three months ended June 30, 2021 to 0.79% three months ended June 30, 2022. We
have allowed higher-rate certificates of deposit to run off during the current
interest rate environment, and rates decreased due to changes in market interest
rates when the certificates mature.

Due to paying off advances, interest expense on borrowings decreased $170,000,
or 100%, to no expense for the three months ended June 30, 2022 compared to
$170,000 for the three months ended June 30, 2021. The average balance of
borrowings decreased $38.9 million, or 100% to a zero balance for the three
months ended June 30, 2022 compared to $38.9 million for the three months ended
June 30, 2021.

Net Interest Income. Net interest income increased $944,000, or 32.2%, to $3.9
million for the three months ended June 30, 2022 from $2.9 million for the three
months ended June 30, 2021. Our interest rate spread increased 71 basis points
to 4.23% for the three months ended June 30, 2022 compared to 3.52% for the
three months ended June 30, 2021, while our net interest margin increased 68
basis points to 4.33% for the three months ended June 30, 2022 compared to 3.65%
for the three months ended June 30, 2021.

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,

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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, $115,000 was recorded in the provision for
loan losses for the three months ended June 30, 2022 compared to $25,000 for the
three months ended June 30, 2021. Our allowance for loan losses was $2.56
million at June 30, 2022 compared to $2.41 million at December 31, 2021 and
$2.39 million at June 30, 2021. The ratio of our allowance for loan losses to
total loans was 0.83% at June 30, 2022 compared to 0.95% at December 31, 2021
and 0.97% at June 30, 2021, while the allowance for loan losses to
non-performing loans was 21,350.0% at June 30, 2022 compared to 810.1% at
December 31, 2021. We had $1,000 of net recoveries for the three months ended
June 30, 2022 compared to $2,000 of charge-offs for the three months ended June
30, 2021.

To the best of our knowledge, we have recorded all loan losses that are both
probable and reasonable to estimate at June 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 $88,000 to $434,000 for the
three months ended June 30, 2022 from $346,000 for the three months ended June
30, 2021. Our service charges on deposit accounts increased $56,000 to $256,000
for the three months ended June 30, 2022 from $200,000 for the three months
ended June 30, 2021 due to our increase in new accounts. We also recognized a
gain on the sale of a foreclosure of $44,000 during the three months ended June
30, 2022. These increases were offset by the gain on sale of mortgage loans
decreasing by $17,000, or 30.4%, as we sold $1.3 million of mortgage loans
during the three months ended June 30, 2022 compared to $1.8 million of such
sales during the three months ended June 30, 2021.

Non-interest Expense. Non-interest expense increased $383,000, or 17.5%, to $2.6
million for the three months ended June 30, 2022 compared to $2.2 million for
the three months ended June 30, 2021. The increase was primarily due to an
increase in salaries and employee benefits expense of $288,000, or 19.6%, to
$1.8 million for the three months ended June 30, 2022 compared to $1.5 million
for the three months ended June 30, 2021, mainly due to additional employees.

Income Tax Expense. We recognized income tax expense of $315,000 and $221,000
for the three months ended June 30, 2022 and 2021, respectively, resulting in
effective rates of 19.4% and 20.69%, respectively.

Comparison of Operating Results for the six months ended June 30, 2022 and 2021


General. Net income was $2.3 million for the six months ended June 30, 2022
compared to $1.6 million for the six months ended June 30, 2021. The increase in
net income was primarily due to an increase in interest income resulting from an
increase in loans.

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Interest Income. Interest income increased $947,000, or 14.1%, to $7.7 million
for the six months ended June 30, 2022 from $6.7 million for the three months
ended June 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 increased $792,000, or 12.3%, to $7.2 million
for the six months ended June 30, 2022 from $6.4 million for the six months
ended June 30, 2021. Our average balance of loans (excluding PPP loans)
increased $40.4 million, or 17.2%, to $275.0 million for the six months ended
June 30, 2022, from $239.6 million for the six months ended June 30, 2021. The
increase is due to our decision to continue 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
seven basis point to 5.22% for the six months ended June 30, 2022 compared to
5.29% for the six months ended June 30, 2021. The decrease was a reflection of
the low rate environment when loan were originated. We recognized $36,000 income
on PPP loans during the six months ended June 30, 2022 compared to $216,000
during the six months ended June 30, 2021. The decrease was due to loans being
paid off by the SBA.

Interest Expense. Interest expense decreased $527,000, or 53.7%, to $455,000 for
the six months ended June 30, 2022 compared to $982,000 for the six months ended
June 30, 2021. These decreases are mainly due to a decrease in borrowing
balances.

Interest expense on deposits decreased $154,000, or 26.2%, to $434,000 for the
six months ended June 30, 2022 compared to $588,000 for the six months ended
June 30, 2021. The decrease was due primarily to a decrease in interest expense
on certificates of deposit. Interest expense on certificates of deposit
decreased $176,000, or 35.6%, to $318,000 for the six months ended June 30, 2022
compared to $494,000 for the six months ended June 30, 2021. We experienced
decreases in the average balance of certificates of deposit of $8.5 million, or
9.9%. We also experienced a decrease in average rates paid on certificates of
deposit. Average rates decreased 33 basis points, from 1.15% for the six months
ended June 30, 2021 to 0.82% six months ended June 30, 2022. The decline in
balances, which were at higher rates, caused our decrease in average rates.

Interest expense on borrowings decreased $373,000, or 94.7%, to $21,000 for the
six months ended June 30, 2022 compared to $394,000 for the six months ended
June 30, 2021. The average balance of borrowings decreased $43.2 million, or
95.4%, to $2.0 million for the six months ended June 30, 2022 compared to $45.2
million for the six months ended June 30, 2021.

Net Interest Income. Net interest income increased $1.5 million, or 25.7%, to
$7.2 million for the six months ended June 30, 2022 from $5.7 million for the
six months ended June 30, 2021. Our interest rate spread increased 62 basis
points to 4.09% for the six months ended June 30, 2022 compared to 3.47% for the
six months ended June 30, 2021, while our net interest margin increased 59 basis
points to 4.20% for the six months ended June 30, 2022 compared to 3.61% for the
six months ended June 30, 2021.

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,

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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, $155,000 was recorded in the provision for
loan losses for the six months ended June 30, 2022 compared to $25,000 for the
six months ended June 30, 2021. Our allowance for loan losses was $2.56 million
at June 30, 2022 compared to $2.41 million at December 31, 2021 and $2.39
million at June 30, 2021. The ratio of our allowance for loan losses to total
loans was 0.83% at June 30, 2022 compared to 0.95% at December 31, 2021 and
0.97% at June 30, 2021, while the allowance for loan losses to non-performing
loans was 21,350.0% at June 30, 2022 compared to 810.1% at December 31, 2021. We
had $1,000 of net recoveries for both the six months ended June 30, 2022 and the
six months ended June 30, 2021.

To the best of our knowledge, we have recorded all loan losses that are both
probable and reasonable to estimate at June 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 $42,000 to $854,000 for the
six months ended June 30, 2022 from $812,000 for the six months ended June 30,
2021. Our service charges on deposit accounts increased $92,000 to $481,000 for
the six months ended June 30, 2022 from $389,000 for the six months ended June
30, 2021 due to our increase in new accounts. We also recognized a gain on the
sale of foreclosures of $46,000 during the six months ended June 30, 2022. These
increases were offset by the gain on sale of mortgage loans decreasing by
$60,000, or 49.2%, as we sold $2.3 million of mortgage loans during the six
months ended June 30, 2022 compared to $4.3 million of such sales during the six
months ended June 30, 2021.

Non-interest Expense. Non-interest expense increased $517,000, or 11.6%, to $5.0
million for the six months ended June 30, 2022 compared to $4.5 million for the
six months ended June 30, 2021. The increase was primarily due to an increase in
salaries and employee benefits expense of $306,000, or 10.0%, to $3.4 million
for the six months ended June 30, 2022 compared to $3.1 million for the six
months ended June 30, 2021, mainly due to additional employees.

Income Tax Expense. We recognized income tax expense of $615,000 and $436,000
for the six months ended June 30, 2022 and 2021, respectively, resulting in
effective rates of 20.9% and 21.1%, respectively.

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

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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 June 30,
2022 and December 31, 2021, we had a $105.4 million and $111.3 million line of
credit with the Federal Home Loan Bank of Atlanta, and had $0 and $18.5 million
outstanding as of those dates, respectively. In addition, at June 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 June 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 $3.1 million and $1.3 million for the six
months ended June 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 $69.1 million
and $11.2 million for the six months ended June 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 $28.9 million and $42.7
million for the six months ended June 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 June 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.

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