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~~ppmunicipals~~municipals

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, ~~2022~~2023

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

For the transition period from to

Commission File Number: 001-40607

Cullman Bancorp, Inc.

(Name of Registrant as Specified in its Charter)



Maryland		61-1990996
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

316 Second Avenue, S.W., Cullman, Alabama		35055
(Address of Principal Executive Office)		(Zip Code)

(256) 734-1740

(Registrant’s Telephone Number including area code)

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	CULL	The Nasdaq Stock Market LLC

Securities Registered Under Section 12(g) of the Exchange Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) 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 reports), and (2) has been subject to such requirements for the past 90 days.

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, a 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 persuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive ~~oﬃcers~~officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ Yes ☒ No

As of March 2722, ~~2023~~2024, there were 7,~~383~~265,~~585~~689 shares outstanding of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the ~~2023~~2024 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.

CULLMAN BANCORP, INC.

FORM 10-K

INDEX

PART I
ITEM 1.	Business	5
ITEM 1A.	Risk Factors	2726
ITEM 1B.	Unresolved Staff Comments	2728
ITEM 2.	Properties	27
ITEM 1C.	Cybersecurity	28
ITEM 3.	Legal Proceedings	27
ITEM 2.	Properties	28
ITEM 4.	Mine Safety Disclosures	27
ITEM 3.	Legal Proceedings	28
ITEM 4.	Mine Safety Disclosures	28
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	2829
ITEM 6.	[Reserved]	2829
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	3940
ITEM 8.	Financial Statements and Supplementary Data	40
ITEM 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	78
ITEM 9A.	Controls and Procedures	78
ITEM 9B.	Other Information	78
ITEM 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	78
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	79
ITEM 11.	Executive Compensation	79
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	79
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	79
ITEM 14.	Principal Accountant Fees and Services	79
PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	80
ITEM 16.	Form 10-K Summary	81

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “will,” “would,” “should,” “could” or “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:

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statements of our goals, intentions and expectations;

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

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

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estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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.

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:

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general economic conditions, either nationally or in our market areas, including recessionary pressures and supply chain disruptions that are worse than expected;

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

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our ability to access cost-effective funding;

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changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;

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

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demand for loans and deposits in our market area;

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our ability to implement and change our business strategies;

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competition among depository and other financial institutions~~, including with respect to our ability to charge overdraft fees~~;

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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;

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adverse changes in the securities or secondary mortgage markets;

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

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monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

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

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

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

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

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

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

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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;

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changes in consumer spending, borrowing and savings habits;

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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;

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~~the~~global ~~effects~~or ~~of any~~ national orwar, ~~global~~ conflict, ~~war~~ or ~~act~~acts or terrorism;

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the ability of t he U.S. Government to remain open, function properly and manage federal debt limits

our ability to retain key employees;

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the effects of natural or man-made disasters and extreme weather events;

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~~the~~changes ~~impact~~in ofour ~~the~~ability ~~COVID-19~~to ~~pandemic~~pay ordividends, ~~any~~either ~~other~~at ~~pandemic~~current onrates ~~our~~or ~~operations~~at ~~and financial results and those of our customers~~all;

•

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

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

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the risk related to recent and potential bank failures.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

PART I

ITEM 1. Business

Cullman Bancorp, Inc.

Cullman Bancorp, Inc. is a Maryland corporation that was organized in 2021 and owns 100% of the outstanding common stock of Cullman Savings Bank. Effective July 15, 2021, Cullman Bancorp, Inc. became the stock holding company for Cullman Savings Bank as part of the mutual-to-stock conversion of Cullman Savings Bank, MHC. Since the completion of the conversion, we have not engaged in any significant business activity other than owning the common stock of and having savings deposits in Cullman Savings Bank. At December 31, ~~2022~~2023, we had consolidated assets of $~~423~~411.26 million, consolidated deposits of $~~292~~269.90 million and consolidated shareholders’ equity of $~~100~~101.27 million.

Cullman Bancorp, Inc. is a savings and loan holding company and subject to comprehensive regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).

Our executive offices are located at 316 Second Avenue, S.W., Cullman, Alabama 35055. Our telephone number at this address is (256) 734-1740.

Cullman Savings Bank

Cullman Savings Bank is a federally chartered stock savings bank headquartered in Cullman, Alabama. Cullman Savings Bank was originally chartered in 1887 under the name Cullman Building & Loan. In 1994, we converted to a federal savings bank charter and changed our name to Cullman Savings Bank. In 2009, we reorganized from the mutual to the stock form of ownership in connection with our initial mutual holding company reorganization.

Cullman Savings Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency. Cullman Savings Bank is a member of the Federal Home Loan Bank system. Our website address is www.cullmansavingsbank.com. Information on our website is not considered a part of this Annual Report on Form 10-K.

Available Information

Cullman Bancorp, Inc. is a public company, and files current, quarterly and annual reports with the Securities and Exchange Commission. These reports and any amendments to these reports are available for free on our website, www.cullmansavingsbank.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Information on our website should not be considered a part of this Annual Report on Form 10-K. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC (http://www.sec.gov).

General

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, commercial real estate loans and commercial and industrial loans and, to a lesser extent, construction loans, multi-family real estate loans and consumer loans. We also invest in limited amounts of securities. We offer a variety of deposit accounts, including checking accounts, savings accounts, individual retirement accounts and certificate of deposit accounts. We also use Federal Home Loan Bank advances to fund our operations.

Market Area

We conduct our operations from our main office and three additional branch offices, two of which are located in Cullman, Alabama, and one in Hanceville, Alabama. All of our branch offices are located in Cullman County, Alabama. Cullman County, which is largely suburban and rural in nature, is located in north-central Alabama between the cities of Birmingham (approximately 50 miles away) and Huntsville (approximately 55 miles away). We consider Cullman County our primary market area for lending and deposits.

Cullman County’s local economy is somewhat diversified, with employment in education/healthcare/social services (23.0%), services (18.5%), manufacturing (15.6%) and wholesale/retail trade (15.4%) comprising the largest employment sectors. Other noted employment sectors include construction (10.9%), transportation/utility (6.7%), finance/insurance/real

~~Cullman~~estate ~~County’s~~(4.4%) ~~local economy is somewhat diversified, with employment in wholesale/retail trade, education/healthcare/social services~~ and ~~services~~Government ~~comprising the largest employment sectors~~(3. ~~Other major employment sectors include finance/insurance/real estate and construction~~2%). In addition, many of our residents commute to Birmingham or Huntsville for employment due to the location of those cities compared to Cullman.

Cullman County’s ~~population,~~2023 ~~which~~median ishousehold ~~estimated~~income toof be$55,021 ~~approximately~~was ~~91,000~~below asthe ofAlabama ~~January~~median ~~2023~~of $59,526 ~~increased~~and atfurther anbelow ~~annual~~the ~~growth~~U.S. ~~rate~~median of 1$73,503.7% ~~from~~Similarly, ~~2018~~per tocapita ~~January~~income ~~2023,~~and ~~versus~~household ~~comparable~~income ~~Alabama~~distribution ~~and~~measures ~~U.S.~~also ~~population~~reflected ~~growth~~lower ~~rates~~levels of ~~0.8%~~income for Cullman County and ~~0.5%,~~Alabama ~~respectively.~~relative ~~The~~to ~~number~~the ofcomparable ~~households~~U.S. inmeasures. Cullman County’s ~~increased~~somewhat atrural acharacteristics ~~1.6%~~and ~~annual~~lower ~~rate~~cost ~~from~~of ~~2018~~living toare ~~January~~considered ~~2023,~~factors ~~which~~that ~~exceeded~~contribute ~~the~~to ~~Alabama~~its ~~and~~comparatively ~~U.S.~~lower ~~household~~income ~~growth~~measures. ~~rates~~Over ofthe ~~1.1%~~next ~~and~~five ~~0.7%~~years, ~~respectively.~~Cullman ~~Projected~~County ~~five-year~~is ~~population~~projected ~~and~~to ~~household~~experience a lower growth ~~rates~~rate ~~for~~in ~~Cullman~~per ~~County~~capita ~~are~~income ~~above~~relative to the projected Alabama and U.S. growth rates ~~for~~(2.3% ~~Alabama~~versus 2.9% and ~~the~~2.6%, Urespectively).S.

Cullman County’s January 2023 median household income of $55,021 was below the Alabama median of $59,526 and even further below the U.S. median of $73,503. Similarly, per capita income and household income distribution measures also reflected lower levels of income for Cullman County and Alabama relative to the comparable U.S. measures. Cullman County’s somewhat rural characteristics and lower cost of living are considered factors that contribute to its comparatively lower income measures. Over the next five years, Cullman County is projected to experience lower growth rates in per capita income relative to the projected Alabama and U.S. growth rates (2.3% versus 2.9% and 2.6%, respectively).

The median sales price for a home in Cullman County decreased to $232,500 in December 2022 compared to $239,900 in December 2021.

Competition

We face competition within our local market area both in making loans and attracting deposits. Our market area has a concentration of financial institutions that include large money center and regional banks, community banks and credit unions. We also face competition from savings institutions, mortgage banking firms, consumer finance companies, financial technology or “fintech” companies and credit unions and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, ~~2022~~2023 (the most recent date for which data is available), our market share of deposits represented 1312.09% of Federal Deposit Insurance Corporation-insured deposits in Cullman County, ranking us fifth in market share of deposits out of 1213 institutions operating in Cullman County.

Lending Activities

General. Our principal lending activity is the origination of one- to four-family residential mortgage loans and commercial real estate loans, and, to a lesser extent, multi-family mortgage loans, construction loans, land loans, home equity loans, commercial loans and consumer loans.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated, excluding loans held for sale. In addition to the loans included in the table below, at December 31, ~~2022~~2023, we had $8.01 million of loans in process. At December 31, ~~2022~~2023 we had no loans held for sale.


	At December 31,
	2023						2022
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	178,861			52.19	%	$	172,157			51.73	%
Multi-family		3,458			1.01			3,668			1.10
Commercial		101,268			29.55			95,989			28.85
Construction		19,705			5.75			18,466			5.55
Commercial loans		29,354			8.57			32,156			9.66
Consumer loans:
Home equity loans and lines of credit		6,291			1.84			6,656			2.00
Other consumer		3,744			1.09			3,702			1.11
		342,681			100.00	%		332,794			100.00	%
Less:
Net deferred loan fees		(8	)					(10	)
Allowance for losses		(3,271	)					(2,841	)
Total loans	$	339,402					$	329,943

Contractual Maturities. The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2023. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The tables present contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.

	At December 31,
	One- to Four-Family Residential Real Estate			Multi-Family Real Estate			Commercial Real Estate			Construction
	2022						2021
	(In thousands)
	Amount			Percent			Amount			Percent
Amounts due in:
	(Dollars in thousands)
One year or less	$	1,781		$	—		$	10,705		$	19,668
Real estate loans:
More than one to five years		14,473			2,177			55,547			37
One- to four-family residential	$	172,157			51.73	%	$	127,755			50.18	%
More than five to 15 years		21,688			1,281			33,651			—
Multi-family		3,668			1.10			3,729			1.46
More than 15 years		140,919			—			1,365			—
Commercial		95,989			28.85			76,967			30.23
Total	$	178,861		$	3,458		$	101,268		$	19,705
Construction		18,466			5.55			15,518			6.09
Commercial loans		32,156			9.66			23,433			9.20
Consumer loans:
Home equity loans and lines of credit		6,656			2.00			3,717			1.46
Other consumer		3,702			1.11			2,714			1.07
Paycheck protection program loans		—			—			779			0.31
		332,794			100.00	%		254,612			100.00	%
Less:
Net deferred loan fees		(10	)					(46	)
Allowance for losses		(2,841	)					(2,406	)
Total loans	$	329,943					$	252,160

Contractual Maturities. The following table sets forth the contractual maturities of our total loan portfolio at December 31, 2022. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The tables present contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.


	Commercial		Consumer		Home equity loans and lines of credit		Total
	(In thousands)

Amounts due in:
One year or less		12,091		693	$	—	$	44,938
More than one to five years		14,588		2,774		1,131		90,727
More than five to 15 years		2,675		277		5,160		64,732
More than 15 years		—		—		—		142,284
Total	$	29,354	$	3,744	$	6,291	$	342,681

	One- to Four-Family Residential Real Estate		Multi-Family Real Estate		Commercial Real Estate		Construction
	(In thousands)
Amounts due in:
One year or less	$	2,338	$	—	$	4,494	$	18,414
More than one to five years		10,044		900		43,106		52
More than five to 15 years		25,649		2,768		46,453		—
More than 15 years		134,126		—		1,936		—
Total	$	172,157	$	3,668	$	95,989	$	18,466

The following table sets forth our fixed and adjustable-rate loans at December 31, 2023 that are contractually due after December 31, 2024.

	Commercial		Consumer		Home equity loans and lines of credit		Total
	Due After December 31, 2024
	(In thousands)
	Fixed		Adjustable		Total
Amounts due in:
	(In thousands)
One year or less		15,091		827		—	$	41,164
Real estate loans:
More than one to five years		13,647		2,597		805		71,151
One- to four-family residential	$	174,398	$	2,682	$	177,080
More than five to 15 years		3,418		278		5,851		84,417
Multi-family		3,458		—		3,458
More than 15 years		—		—		—		136,062
Commercial		90,470		93		90,563
Total	$	32,156	$	3,702	$	6,656	$	332,794
Construction		37		—		37
Commercial loans		17,263		—		17,263
Consumer loans:
Home equity loans and lines of credit		619		5,672		6,291
Other consumer		3,051		—		3,051
Total loans	$	289,296	$	8,447	$	297,743

7 One- to-Four Family Residential Real Estate Lending. We originate long-term permanent loans secured by mortgages on owner-occupied one- to four-family residences. At December 31, 2023, $178.9 million, or 52.2% of our total loan portfolio, consisted of permanent loans on one- to four-family residences. At that date, our average outstanding one- to four-family residential real estate loan balance was $186,000 and our largest outstanding residential loan had a principal balance of $2.2 million. Virtually all of the residential loans we originate are secured by properties located in our market area.

The following table sets forth our fixed and adjustable-rate loans at December 31, 2022 that are contractually due after December 31, 2023.

	Due After December 31, 2023
	Fixed		Adjustable		Total
	(In thousands)
Real estate loans:
One- to four-family residential	$	167,243	$	2,576	$	169,819
Multi-family		3,668		—		3,668
Commercial		91,429		66		91,495
Construction		52		—		52
Commercial loans		17,065		—		17,065
Consumer loans:
Home equity loans and lines of credit		339		6,317		6,656
Other consumer		2,875		—		2,875
Total loans	$	282,671	$	8,959	$	291,630

One- to-Four Family Residential Real Estate Lending. We originate long-term permanent loans secured by mortgages on owner-occupied one- to four-family residences. At December 31, 2022, $172.2 million, or 51.7% of our total loan portfolio, consisted of permanent loans on one- to four-family residences. At that date, our average outstanding one- to four-family residential real estate loan balance was $179,000 and our largest outstanding residential loan had a principal balance of $2.2 million. Virtually all of the residential loans we originate are secured by properties located in our market area.

Many of our recent originations are 15- to 30-year fixed-rate loans secured by one- to four-family residential real estate. We generally originate our fixed-rate one- to four-family residential loans in accordance with secondary market standards to permit their sale on a servicing-released basis. However, to accommodate customers, we will originate loans that do not conform with secondary market standards, and we will usually hold such loans in our portfolio.

In order to reduce the term to repricing of our loan portfolio, we also originate adjustable-rate one- to four-family residential mortgage loans. Our current adjustable-rate mortgage loans carry interest rates that adjust annually based on the Enterprise 11th District Cost of Funds Index Replacement Index published by Freddie Mac. Many of our adjustable-rate one- to four-family residential mortgage loans have fixed rates for initial terms of five or ten years. Such loans carry terms to maturity of up to 30 years. At December 31, ~~2022~~2023, $2.67 million, or 1.5% of our one- to four-family residential real estate loans, had adjustable rates of interest.

We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one- to-four family residential mortgage loans do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one- to-four family residential mortgage loans customarily include due-on-sale clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. We currently originate residential mortgage loans for our portfolio with loan-to-value ratios of up to 89.99% for owner-occupied one- to-four family homes and up to 80% for non-owner occupied homes.

Commercial Real Estate Lending. In recent years, we have sought to increase our commercial real estate loans. Our commercial real estate loans are secured primarily by office buildings, retail and mixed-use properties and restaurants located in our primary market area. At December 31, 2022, we had $96.0 million in commercial real estate loans, representing 28.8% of our total loan portfolio.7

~~Most~~among ofother ~~our~~things, ~~commercial~~the ~~real~~borrower ~~estate~~sells ~~loans~~the ~~have~~property asubject ~~five-year~~to ~~balloon~~the ~~term~~mortgage. ~~with~~We ~~amortization~~currently ~~periods~~originate ofresidential upmortgage toloans 20for ~~years.~~our ~~The~~portfolio ~~maximum~~with loan-to-value ~~ratio~~ratios of ~~our~~up ~~commercial~~to ~~real estate loans is generally 85%~~89.99% Atfor ~~December~~owner-occupied ~~31,~~one- ~~2022,~~to-four ~~our~~family ~~largest~~homes ~~commercial real estate loan totaled $7.4 million~~ and ~~was~~up ~~secured~~to by80% ~~storage~~for ~~units.~~non-owner Atoccupied ~~December 31, 2022, this loan was performing in accordance with its contractual terms~~homes.

Commercial Real Estate Lending. In recent years, we have sought to increase our commercial real estate loans. Our commercial real estate loans are secured primarily by office buildings, retail and mixed-use properties and restaurants located in our primary market area. At December 31, 2023, we had $101.3 million in commercial real estate loans, representing 29.6% of our total loan portfolio.

Most of our commercial real estate loans have a five-year balloon term with amortization periods of up to 20 years. The maximum loan-to-value ratio of our commercial real estate loans is generally 85%. At December 31, 2023, our largest commercial real estate loan totaled $7.2 million and was secured by storage units. At December 31, 2023, this loan was performing in accordance with its contractual terms.

Classified within our commercial real estate loans are land loans. We make a limited amount of land loans to complement our construction lending activities, and such loans are generally secured by lots that will be used for commercial real estate development. Land loans also include loans secured by farm land and land purchased for investment purposes. Land loans are generally offered for terms of up to 15 years. The maximum loan-to-value ratio of land loans is 75%.

8Set forth below is information regarding our commercial real estate loans at December 31, 2023:

Set forth below is information regarding our commercial real estate loans at December 31, 2022:


Type of Loan	Number of Loans	Balance
		(In thousands)
Residential one- to four-family non-owner occupied	4	$	1,141
Office/mixed use	27		14,440
Poultry house/car wash/skating rink	1		5,177
Retail/wholesale automobile-tire center	38		22,840
Restaurant/fast food/gas station/grocery	7		11,570
Hotel/motel/inn	12		7,369
Self-storage facility	36		15,971
Other commercial real estate	95		22,760
Total	220	$	101,268

Type of Loan	Number of Loans	Balance
		(In thousands)
Residential one- to four-family non-owner occupied	6	$	2,157
Office/mixed use	30		15,791
Poultry house/car wash/skating rink	30		18,474
Retail/wholesale automobile-tire center	35		16,814
Restaurant/fast food/gas station/grocery	13		8,410
Hotel/motel/inn	2		5,534
Self-storage facility	4		8,803
Other commercial real estate	90		20,006
Total	210	$	95,989

We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including credit history, profitability and expertise, as well as the value and condition of the property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). All commercial real estate loans are appraised by outside independent appraisers approved by the board of directors or by internal evaluations, where permitted by regulation. Personal guarantees are generally obtained from the principals of commercial real estate borrowers and, in the case of church loans, guarantees from the applicable denomination are generally obtained.

Commercial Business Lending. We originate commercial business loans and lines of credit to small- and medium-sized companies in our primary market area. Our commercial business loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. The commercial business loans that we offer are fixed-rate loans, generally for a one-year term. Our commercial business loan portfolio consists primarily of secured loans, along with a small amount of unsecured loans. At December 31, ~~2022~~2023, we had $3229.24 million of commercial business loans outstanding, representing 98.76% of the total loan portfolio, and we may increase this type of lending in the future.

When making commercial business loans, we consider the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. Commercial business loans are generally secured by accounts receivable, inventory and equipment.

At December 31, ~~2022~~2023, our largest commercial business loan relationship totaled $3.10 million and was secured by sales tax receipts. At December 31, ~~2022~~2023, this loan was performing in accordance with its contractual terms.

Multi-Family Real Estate Lending. At December 31, 2022, we had $3.7 million in multi-family real estate loans, representing 1.1% of our total loan portfolio. The multi-family real estate loans we originate generally have a maximum amortization term of 20 years and are secured by apartment buildings located within our primary market area. Our multi-family real estate loans are structured as balloon loans, with interest rates on these loans generally fixed for an initial period of three to five years and then adjusted based on current market rates and competition. These loans are generally made in amounts of up to 80% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio.8

Multi-Family Real Estate Lending. At December 31, 2023, we had $3.5 million in multi-family real estate loans, representing 1.0% of our total loan portfolio. The multi-family real estate loans we originate generally have a maximum amortization term of 20 years and are secured by apartment buildings located within our primary market area. Our multi-family real estate loans are structured as balloon loans, with interest rates on these loans generally fixed for an initial period of three to five years and then adjusted based on current market rates and competition. These loans are generally made in amounts of up to 80% of the lesser of the appraised value or the purchase price of the property with an appropriate projected debt service coverage ratio.

Our underwriting procedures include considering the borrower’s expertise and require verification of the borrower’s credit history, income and financial statements, banking relationships, references and income projections for the property. We generally obtain personal guarantees on these loans.

At December 31, ~~2022~~2023, our largest multi-family loan had a balance of $~~999~~961,000 and was secured by an apartment complex. At December 31, ~~2022~~2023, this loan was performing in accordance with its contractual terms.

Construction Lending. We make construction loans to individuals for the construction of their primary residences and, to a limited extent, loans to builders and commercial borrowers for owner-occupied projects. At December 31, ~~2022~~2023, our construction loans totaled $1819.57 million, representing 5.68% of our total loan portfolio.

Loans to individuals for the construction of their residences typically have initial terms for up to 12 months and then convert to permanent loans. These construction loans have rates and terms comparable to one-to-four family residential loans offered by us. During the construction phase, the borrower pays interest only. The maximum loan-to-value ratio of owner-occupied single-family construction loans is 85%. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans.

At December 31, ~~2022~~2023, our largest consumer construction loan was for $14.36 million, all of which was outstanding. This loan was performing according to its contractual terms at December 31, ~~2022~~2023.

Home Equity Lending. We originate variable-rate and fixed-rate home equity lines of credit secured by a lien on the borrower’s primary residence. Our home equity products are limited to 89.99% of the property value less any other mortgages when we hold the first mortgage, and 80% when we do not hold the first mortgage. We use the same underwriting standards for home equity lines of credit as we use for one- to four-family residential mortgage loans. At December 31, ~~2022~~2023, we had $6.73 million or 21.08% of our total loans in home equity loans and outstanding advances under home equity lines of credit and an additional $911.76 million of funds committed, but not advanced, under home equity lines of credit.

Consumer Lending. We originate limited amounts of consumer loans apart from home equity lines of credit. At December 31, ~~2022~~2023, we had $3.7 million of consumer loans outstanding, representing 1.1% of the total loan portfolio. Consumer loans consist of loans secured by deposits, automobile loans and miscellaneous other types of installment loans.

Loan Underwriting Risks

Commercial Real Estate Loans. Loans secured by commercial real estate generally have larger balances and involve a greater degree of risk than one- to four-family residential real estate loans. The primary concern in commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject, to a greater extent than residential real estate loans, to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors to provide monthly, quarterly, semi-annual or annual financial statements, depending on the size of the loan, on commercial real estate loans. In reaching a decision on whether to make a commercial real estate loan, we consider and review a global cash flow analysis of the borrower and consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. We have generally required that the properties securing these real estate loans have an aggregate debt service ratio, including the guarantor’s cash flows and the borrower’s other projects, of at least 1.15x.

If we foreclose on a commercial real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be lengthy with substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.

it takes them to return the property to profitability. Depending on the individual circumstances, initial charge-offs and subsequent losses on commercial real estate loans can be unpredictable and substantial.

Commercial and Industrial Loans. Our commercial and industrial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, collateral for commercial and industrial loans consists of accounts receivable, inventory or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself.

Construction Loans. Our construction loans are based upon estimates of costs and values associated with the completed project. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage their operations.

Construction lending involves additional risks when compared with permanent lending because funds are advanced upon the security of the project, which is of uncertain value prior to its completion. Because of the uncertainties inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.

of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate security for the repayment of the loan upon completion of construction of the project and may incur a loss.

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying collateral also may be adversely affected in a high interest rate environment.

Consumer Loans. Consumer loans may entail greater risk than residential real estate loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Originations, Purchases and Sales of Loans

Lending activities are conducted primarily by our salaried loan personnel operating at our main office. All loans we originate are underwritten pursuant to our policies and procedures. We originate fixed-rate loans and adjustable-rate loans. Our ability to originate fixed-rate loans or adjustable-rate loans depends on relative customer demand for such loans, which is affected by current and expected future levels of market interest rates. We originate real estate and other loans through our loan officers, marketing efforts, our customer base, walk-in customers and referrals from real estate brokers, builders and attorneys.

We sell certain loans we originate into the secondary market. We consider the pricing for loans as well as the current interest rate environment in making decisions as to whether to hold the mortgage loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint. At December 31, ~~2022~~2023, we had no loans held for sale. We sell loans on a “best efforts” basis, and we generally have not retained the servicing rights on the mortgage loans sold in the secondary mortgage market.

From time to time, to diversify our risk, we will purchase or sell participation interests in loans. We underwrite our participation portion of the loan according to our own underwriting criteria and procedures. At December 31, ~~2022~~2023, we had $1.5 million in loan participation interests. We generally do not purchase whole loans from third parties to supplement our loan production.

Loan Approval Procedures and Authority

Pursuant to federal law, the aggregate amount of loans that Cullman Savings Bank is permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Cullman Savings Bank’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). At December 31, ~~2022~~2023, based on the 15% limitation, Cullman Savings Bank’s loans-to-one-borrower limit was approximately $1011.74 million. At December 31, ~~2022~~2023, our largest loan relationship with one borrower was $87.25 million, which consists of 11two loans, the largest being $57.02 million secured by a ~~warehouse~~self-storage facility. All of the underlying loans were performing in accordance with ~~its~~their contractual terms on that date.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower, credit histories that we obtain, and property valuations (consistent with our appraisal policy) prepared by outside independent licensed appraisers approved by our board of directors as well as internal evaluations, where permitted by regulations. The loan applications are designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, bank statements and tax returns.

11All loan approval amounts are based on the aggregate loans (total credit exposure), including total balances of outstanding loans and the proposed loan to the individual borrower and any related entity. Our Chief Executive Officer has individual authorization to approve loans up to $500,000. Our Director of Lending and our EVP/Chief Operations Officer has individual authorization to approve loans up to $250,000. Certain loan officers have authorization to approve loans with an aggregate debt of $100,000 or less. An individual loan or aggregate credit commitment in excess of $3.0 million requires approval by the Chief Executive Officer, Director of Lending and EVP/Chief Operations Officer, along with the Loan Committee, and must be reported to the board of directors prior to the loan transaction occurring.

primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, bank statements and tax returns.

All loan approval amounts are based on the aggregate loans (total credit exposure), including total balances of outstanding loans and the proposed loan to the individual borrower and any related entity. Our Chief Executive Officer has individual authorization to approve loans up to $500,000. Our Director of Lending and our EVP/Chief Operations Officer has individual authorization to approve loans up to $250,000. An individual loan or aggregate credit commitment in excess of $3.0 million requires approval by the Chief Executive Officer, Director of Lending and EVP/Chief Operations Officer, along with the Loan Committee, and must be reported to the board of directors prior to the loan transaction occurring.

Generally, we require title insurance or abstracts on our mortgage loans as well as extended coverage in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan.

Delinquencies and Asset Quality

Delinquency Procedures. When a borrower fails to make a required monthly loan payment by the last day of the month, a late notice is generated stating the payment and late charges due. Our policies provide borrowers that become 60 days or more delinquent are contacted by phone or mail to determine the reason for nonpayment and to discuss future payments, although in practice we generally contact such borrowers within 30 days. If repayment is not possible or doubtful, the loan will be brought to the board of directors for possible foreclosure. Once the board of directors declares a loan due and payable, a certified letter is sent to the borrower explaining the entire balance of the loan is due and payable. The borrower is permitted ten additional days to submit payment. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will be permitted to continue to make payments. If the borrower does not respond, we will initiate foreclosure proceedings.

Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis. Management determines that a loan is impaired (i.e. individually evaluated) or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be ~~impaired~~individually evaluated, the measurement of the loan in the allowance for ~~loan~~credit losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal or evaluation to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for ~~loan~~credit losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. 11

12Prior to the Company's adoption of Accounting Standards Update ("ASU") 2022-02, the Company accounted for a modification to the contractual terms of loans that resulted in granting a concession to borrowers experiencing financial difficulties as a trouble debt restructuring ("TDR"). ASU 2022-02 eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. Loans that were restructured in a TDR prior to the adoption of ASU 2022-002 will continue to be accounted for under the historical TDR accounting until the loan is paid off, liquidated or subsequently modified. See Note 1 for more information on the Company's adoption of ASU 2022-02.

Delinquent Loans. The following tables set forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.

	At December 31,
	2022						2021
	2023						2022
	30 to 59DaysPast Due		60 to 89DaysPast Due		90 Daysor More Past Due		30 to 59DaysPast Due		60 to 89DaysPast Due		90 Daysor More Past Due
	(In thousands)
Real estate loans:
One- to four-family residential	$	21,~~315~~410	$	~~1,251~~960	$	~~211~~145	$	12,~~553~~315	$	~~734~~1,251	$	~~193~~211
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		~~292~~—		—		—
Construction		—		—		—		—		—		—
Commercial loans		4810		40—		41—		9048		—40		—41
Consumer loans:
Home equity loans and lines of credit		—70		—10		—		32—		—		—
Other consumer	1018			—		—	10	27		—		—
Total	$	21,~~373~~508	$	~~1,291~~970	$	~~252~~145	$	12,~~994~~373	$	~~734~~1,291	$	~~193~~252

Non-Performing Assets. The following table sets forth information regarding our non-performing assets. Non-accrual loans include non-accruing troubled debt restructurings of $9,000 ~~and $14,000~~ as of December 31, 2022 ~~and December 31, 2021~~.

	At December 31,
	2022			2021
	2023			2022
	(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One- to four-family residential	$	9—		$	149
Multi-family		—			—
Commercial		—			—
Construction		—			—
Commercial and industrial loans		73—			9073
Consumer loans:
Home equity loans and lines of credit		—			—
Other consumer		—			—
Total non-accrual loans	$	82—		$	~~104~~82
Accruing loans past due 90 days or more		~~252~~145			—252
Real estate owned:
One- to four-family residential		—			74—
Multi-family		—			—
Commercial		—			~~326~~—
Construction		50—			—50
Total real estate owned	$	50—		$	~~400~~50
Total non-performing assets	$	~~384~~145		$	~~504~~384
Total accruing troubled debt restructured loans	$	2,~~472~~470		$	2,~~878~~472
Total non-performing loans to total loans		0.1004	%		0.1210	%
Total non-accruing loans to total loans		~~0.02~~—	%		0.0402	%
Total non-performing assets to total assets		0.0904	%		0.1409	%

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the Office of the Comptroller of the Currency to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which

1312

“doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required ~~either~~ to ~~establish~~recognize athe ~~specific~~expected ~~allowance~~credit ~~for~~loss ~~losses~~associated ~~equal~~with tothe ~~100%~~asset ofthrough ~~that~~a ~~portion~~provision offor the ~~asset~~expected socredit ~~classified~~loss or toa ~~charge~~write-off ~~such amount~~. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, such that additional general or specific loss allowances may be required.

In connection with the filing of our periodic reports with the Office of the Comptroller of the Currency and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

On the basis of this review of our assets, our classified and special mention assets at the dates indicated were as follows:

	At December 31,
	2022		2021
	2023		2022
	(In thousands)
Substandard assets	$	24,~~838~~706	$	32,~~750~~838
Doubtful assets		—		—
Loss assets		—		—
Total classified assets	$	24,~~838~~706	$	32,~~750~~838
Special mention assets	$	32,~~203~~677	$	23,~~073~~203
Foreclosed real estate	$	50—	$	~~400~~50

Allowance for ~~Loan~~Credit Losses

The allowance for ~~loan~~credit losses is maintained at a level which, in management’s judgment, is adequate to absorb probable credit losses ~~inherent in the loan portfolio~~. The amount of the allowance is based on management’s evaluation of the ~~collectability~~expected ofcredit losses over the ~~loan~~life ~~portfolio~~of the assets, including the nature of the ~~portfolio~~loan and security portfolios, credit concentrations, trends in historical loss experience, ~~specific~~loans ~~impaired~~individually ~~loans~~evaluated, and economic conditions. Allowances for ~~impaired~~ loans individually evaluated are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable credit losses ~~inherent in the loan portfolio~~ and the related allowance may change materially in the near-term. The allowance is increased by a provision for ~~loan~~credit losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to ~~impaired~~ loans individually evaluated are charged or credited to the provision for ~~loan~~credit losses. Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical ~~loan~~credit loss and delinquency experience, trends in past due and non-accrual 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.

As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our allowance for ~~loan~~credit losses, and as a result of such reviews, we may have to adjust our allowance for ~~loan~~credit losses.

The following table sets forth activity in our allowance for credit losses for the years indicated.


	For the Years Ended December 31,
	2023			2022
	(Dollars in thousands)
Beginning balance January 1, 2023, prior to adoption of ASC 326	$	2,841		$	2,406
Impact of adopting ASU 326	246				—
Provision for credit losses on loans	166			438
Charge-offs:
Real estate loans:
One- to four-family residential		—			—
Multi-family		—			—
Commercial		—			—
Construction		—			(44	)
Commercial and industrial loans		(11	)		—
Consumer loans:
Home equity loans and lines of credit		—			—
Other consumer		—			—
Total charge-offs		(11	)		(44	)

Recoveries:
Real estate loans:
One- to four-family residential		16			41
Multi-family		—			—
Commercial		—			—
Construction		13			—
Commercial and industrial loans		—			—
Consumer loans:
Home equity loans and lines of credit		—			—
Other consumer		—			—
Paycheck protection program loans		—			—
Total recoveries	29			41

Net (charge-offs) recoveries		18			(3	)

Allowance at end of year	$	3,271		$	2,841

Allowance to non-performing loans		2,255.86	%		850.60	%
Allowance to total loans outstanding at the end of the year		0.95	%		0.85	%
Net (charge-offs) recoveries to average loans outstanding for the year:
One- to four-family residential		0.01	%		0.04	%
Multi-family		—	%		—	%
Commercial real estate		—	%		—	%
Construction		0.06	%		(0.22	)%
Commercial and industrial loans		0.04	%		—	%
Home equity loans and lines of credit		—	%		—	%
Other consumer		—	%		—	%
Paycheck protection program loans		—	%		—	%
Net total (charge-offs) recoveries to average loans outstanding for the year		0.01	%		(0.00	)%

Allocation of Allowance for Credit Losses. The following ~~table~~tables ~~sets~~set forth ~~activity~~the allowance for credit losses allocated by loan category and the percent of the allowance in ~~our~~each category to the total allocated allowance at the dates indicated. The allowance for ~~loan~~credit losses ~~for~~allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the ~~years~~use ~~indicated.~~of the allowance to absorb losses in other categories.

	For the Years Ended December 31,
	At December 31,
	2022			2021
	2023									2022
	(Dollars in thousands)
	Allowance for Credit Losses			Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans
Allowance for loan losses at beginning of year	$	2,406		$	2,361
	(Dollars in thousands)
Provision for loan losses	438				60
Real estate loans:
Charge-offs:
One- to four-family residential	$	1,602			48.98	%		52.19	%	$	1,710		60.19	%		51.73	%
Real estate loans:
Multi-family	25				0.76			1.01		17			0.60			1.10
One- to four-family residential		—			(6	)
Commercial	855				26.14		29.55			654			23.02		28.84
Multi-family		—			—
Construction	138				4.22		5.75			145			5.10		5.55
Commercial		—			—
Commercial and industrial loans	456				13.94		8.57			204			7.19		9.66
Construction		(44	)		—
Consumer loans:
Commercial and industrial loans		—			—
Home equity loans and lines of credit	77				2.35			1.84		64			2.25			2.00
Consumer loans:
Other consumer	118				3.61		1.09			47			1.65		1.11
Home equity loans and lines of credit		—			—
Total	$	3,271			100.00	%		100.00	%	$	2,841		100.00	%		100.00	%
Other consumer		—			(14	)
Paycheck protection program loans		—			—
Total charge-offs		(44	)		(20	)
Recoveries:
Real estate loans:
One- to four-family residential		41			—
Multi-family		—			—
Commercial		—			—
Construction		—			—
Commercial and industrial loans		—			—
Consumer loans:
Home equity loans and lines of credit		—			—
Other consumer		—		5
Paycheck protection program loans		—			—
Total recoveries	41			5
Net (charge-offs) recoveries		(3	)		(15	)
Allowance at end of year	$	2,841		$	2,406
Allowance to non-performing loans		850.60	%		810.10	%
Allowance to total loans outstanding at the end of the year		0.85	%		0.94	%
Net (charge-offs) recoveries to average loans outstanding for the year:
One- to four-family residential		0.04	%		—	%
Multi-family		—	%		—	%
Commercial real estate		—	%		—	%
Construction		(0.22	)%		—	%
Commercial and industrial loans		—	%		—	%
Home equity loans and lines of credit		—	%		—	%
Other consumer		—	%		(0.42	)%
Paycheck protection program loans		—	%		—	%
Net total (charge-offs) recoveries to average loans outstanding for the year		(0.00	)%		(0.01	)%

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	At December 31,
	2022								2021
	Allowance for Loan Losses		Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans			Allowance for Loan Losses		Percent of Allowance in Each Category to Total Allocated Allowance			Percent of Loans in Each Category to Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family residential	$	1,710		60.19	%		51.73	%	$	1,355		56.32	%		50.18	%
Multi-family	17			0.60			1.10		19			0.79		1.46
Commercial	654			23.02		28.84			712			29.59		30.23
Construction	145			5.10		5.55			109			4.53		6.09
Commercial and industrial loans	204			7.19		9.66			145			6.03		9.2
Consumer loans:
Home equity loans and lines of credit	64			2.25			2.00		35			1.45		1.46
Other consumer	47			1.65		1.11			31			1.29		1.38
Total	$	2,841		100.00	%		100.00	%	$	2,406		100.00	%		100.00	%

Investment Activities

General. The goals of our investment policy are to provide and maintain liquidity, meet pledging requirements, generate a reasonable rate of return, and minimize credit and interest rate risk. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity.

Our investment policy is reviewed annually by management and any changes to the policy are recommended to and subject to the approval of the board of directors. Authority to make investments under the approved investment policy guidelines is delegated to our President and Chief Executive Officer and our Chief Financial Officer (all investment decisions require the approval of both investment officers). All investment transactions are reviewed at regularly scheduled quarterly meetings of the board of directors.

Our current investment policy permits investments in securities issued by the U.S. Government and its agencies or government sponsored enterprises. We also invest in mortgage-backed securities and, to a lesser extent, mutual funds that invest in mortgage-backed securities. Our investment policy also permits, with certain limitations, investments in bank-owned life insurance, collateralized mortgage obligations, asset-backed securities, real estate mortgage investment conduits, Alabama revenue bonds and municipal securities.

At December 31, ~~2022~~2023, our investment securities portfolio totaled $2928.84 million, and consisted primarily of securities and obligations issued by municipalities and mortgage-backed securities. In addition, at December 31, ~~2022~~2023, we owned $1.2.0 million of Federal Home Loan Bank of Atlanta stock and $~~794~~819,000 of Federal Reserve Bank of Atlanta stock. As a member of the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank of Atlanta, we are required to purchase stock, which stock is carried at cost and classified as restricted equity securities.

Portfolio Maturities and Yields. The composition and maturities of the available-for-sale investment securities portfolio at December 31, 2023 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. Yields on tax-exempt obligations have not been computed on a tax-equivalent basis, as the effect would not be material.


	One Year or Less			More than One Year to Five Years			More than Five Years to Ten Years			More than Ten Years			Total
	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
U.S. Government Agencies	$	—	—%	$	—	—%	$	2,990	4.87%	$	3,000	2.11%	$	5,990	$	5,286	3.49%
Municipal securities - taxable		426	2.90%		302	3.32%		2,579	3.10%		10,998	2.43%		14,305		11,792	2.61%
Municipal securities - tax-exempt		250	3.00%		200	2.00%		495	2.28%					945		917	2.41%
Residential mortgage-backed, government-sponsored enterprise		—	—%		2,165	2.98%		6,156	2.25%		1,222	3.19%		9,543		8,943	2.54%
Commercial mortgage-backed securities		992	3.57%		—	—%		—	—%		—	—%		992		976	3.57%
SBA-guaranteed debenture		—	—%		472	1.98%		—	—%		—	—%		472		442	1.98%
Total	$	1,668		$	3,139		$	12,220		$	15,220		$	32,247	$	28,356

Portfolio Maturities and Yields. The composition and maturities of the available-for-sale investment securities portfolio at December 31, 2022 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. Yields on tax-exempt obligations have not been computed on a tax-equivalent basis, as the effect would not be material.

	One Year or Less			More thanOne Year to Five Years			More thanFive Years to Ten Years			More than Ten Years			Total
	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Weighted Average Yield	Amortized Cost		Fair Value		Weighted Average Yield
	(Dollars in thousands)
Securities available-for-sale:
U.S. Government Agencies	$	—	—%	$	2,987	4.88%	$	—	—%	$	3,000	2.11%	$	5,987	$	5,253	3.49%
Municipal securities - taxable		—	—%		730	3.06%		2,655	3.30%		11,035	2.43%		14,420		11,511	2.62%
Municipal securities - tax-exempt		420	2.15%		450	2.15%		495	2.28%		—	—%		1,365		1,315	2.33%
Residential mortgage-backed, government-sponsored enterprise		—	—%		2,028	2.35%		7,462	2.38%		1,381	3.04%		10,871		10,142	2.63%
Commercial mortgage-backed securities		984	3.61%											984		960	3.61%
SBA-guaranteed debenture		—	—%		672	1.97%		—	—%		—	—%		672		615	1.97%
Total	$	1,404		$	6,867		$	10,612		$	15,416		$	34,299	$	29,796

Sources of Funds

General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from our primary market area. We offer a selection of deposit accounts, including savings accounts, checking accounts, certificates of deposit and individual retirement accounts. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. We have the authority to accept brokered deposits, ~~and~~but had ~~$5.5~~no ~~million of~~ such deposits as of December 31, ~~2022~~2023. In addition, we had $3821.25 million of municipal deposits at December 31, ~~2022~~2023.

On a periodic basis, we establish interest rates paid, maturity terms, service fees and withdrawal penalties. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. We rely upon personalized customer service, long-standing relationships with customers, and the favorable image of Cullman Savings Bank in the community to attract and retain local deposits. We also seek to obtain deposits from our commercial loan customers.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

The following table sets forth the distribution of total deposits by account type at the dates indicated.

	At December 31,
	2022								2021
	2023								2022
	Amount		Percent			Average Rate			Amount		Percent			Average Rate
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	1612,~~281~~297		54.5657	%		—	%	$	2316,~~011~~281		95.9256	%		—	%
Interest-bearing demand deposits		~~114~~106,~~948~~281		39.2451			0.1646			68114,~~556~~948		2939.5524			0.1216
Regular savings and other deposits		7957,~~579~~299		2721.1630		0.4546				5579,~~280~~579		2327.8316		0.1945
Money market deposits		2,~~691~~362		0.9288		0.1741				42,~~893~~691		20.1092		0.17
Certificates of deposit		7990,~~450~~762		2733.1274		12.2742				8079,~~281~~450		3427.6012		1.0927
Total	$	~~292~~269,~~949~~001		100.00	%		01.5609	%	$	~~232~~292,~~021~~949		100.00	%		0.5156	%

As of December 31, ~~2022~~2023 and ~~2021~~2022, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $~~140~~135.76 million and $93140.47 million, respectively. In addition, as of December 31, ~~2022~~2023 and ~~2021~~2022, the aggregate amount of all our uninsured certificates of deposit was $3236.64 million and $3432.26 million, respectively. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of December 31, ~~2022~~2023.

	At December 31, 2022
	At December 31, 2023
	(In thousands)
Maturity Period:
Three months or less	$	76,~~771~~636
Over three through six months		59,~~387~~334
Over six through twelve months		8,~~328~~580
Over twelve months		11,~~128~~845
Total	$	3236,~~614~~395

1817

Borrowings. As of December 31, ~~2022~~2023, we had a $~~121~~124.38 million line of credit with the Federal Home Loan Bank of Atlanta, of which $2535.0 million was outstanding at that date with a weighted average cost of 4.3%. In addition to the Federal Home Loan Bank of Atlanta line of credit, we have an unsecured federal funds lines of credit, in the amount of $10.0 million. No amount was outstanding on this line of credit at December 31, ~~2022~~2023.

Subsidiary Activities

Cullman Bancorp, Inc. has no subsidiaries other than Cullman Savings Bank.

Personnel

As of December 31, ~~2022~~2023, we had 5957 full-time employees ~~and one part-time employee~~. Our employees are not represented by any collective bargaining group. Management believes that we have good working relations with our employees.

TAXATION

Cullman Bancorp, Inc. and Cullman Savings Bank are subject to federal and state income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state taxation is intended only to summarize certain pertinent tax matters and is not a comprehensive description of the tax rules applicable to Cullman Bancorp, Inc. or Cullman Savings Bank. Our federal and state tax returns have not been audited for the past five years.

Federal Taxation

Conversion. Effective July 15, 2021, Cullman Bancorp, Inc. a federal corporation (Cullman Federal) acquired the assets, liabilities and equity of Cullman Savings Bank, MHC, under the tax-free merger rules and within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code, wherein Cullman Savings Bank, MHC ceased to exist upon merging with and into Cullman Federal as the surviving entity. Upon this merger and on this same date, Cullman Federal ceased to exist upon merging with and into Cullman Bancorp, Inc (a Maryland corporation) as the surviving entity, constituting a mere change in identity form or place of organization within the meaning and under the tax-free reorganization rules of Section 368(a)(1)(F) of the Internal Revenue Code.

Method of Accounting. Cullman Bancorp, Inc. and Cullman Savings Bank currently report income and expenses on the accrual method of accounting and use a tax year ending December 31 for filing their federal income tax returns. Cullman Bancorp, Inc. and Cullman Savings Bank file a consolidated federal income tax return. The Small Business Protection Act of 1996 eliminated the use of the reserve method of accounting for income taxes on bad debt reserves by savings institutions. For taxable years beginning after 1995, Cullman Savings Bank has been subject to the same bad debt reserve rules as commercial banks. It currently utilizes the experience method under Section 585 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

Corporate Alternative Minimum Tax. For income generated for tax years ending after January 1, 2023, the Internal Revenue Code imposes an alternative minimum tax at a rate of 15% on a base of regular taxable income plus certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income", for corporations having average annual financial statement income exceeding $1 billion. The Tax Cuts and Jobs Act repealed the alternative minimum tax for income generated for tax years beginning after January 1, 2018 and ending before December 31, 2022, wherein the 2022 Inflation Reduction Act reinstated the alternative minimum tax for tax years beginning January 1, 2023 or later. The alternative minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. At For ~~December~~tax ~~31,~~year ~~2022~~2023, Cullman Bancorp, Inc. and Cullman Savings Bank were not subject to alternative minimum tax and had no minimum tax credit carryovers as of December 31, 2023.

Net Operating Loss Carryovers. As a result of the Tax Cuts and Jobs Act generally, a financial institution may carry net operating losses forward indefinitely, if incurred after December 31, 2017. At December 31, ~~2022~~2023, Cullman Bancorp, Inc. had no federal net operating loss carryforwards

Corporate Dividends. Cullman Bancorp, Inc. may generally exclude from its income 100% of dividends received from Cullman Savings Bank as a member of the same affiliated group of corporations.

State Taxation

Alabama State Taxation. Alabama reorganization and conversion rules follow the federal rules of reorganization and conversion rules. Cullman Bancorp, Inc. and Cullman Savings Bank are required to file Alabama income tax returns and pay tax at a stated tax rate of 6.5% of Alabama taxable income. For these purposes, Alabama taxable income generally means federal taxable income subject to certain modifications, primarily the exclusion of interest income on United States obligations and the deduction of federal income taxes paid.

Maryland State Taxation. As a Maryland business corporation, Cullman Bancorp, Inc. is required to file an annual report with and pay franchise taxes to the State of Maryland.

SUPERVISION AND REGULATION

General

As a federal savings bank, Cullman Savings Bank is subject to examination and regulation by the Office of the Comptroller of the Currency, and is also subject to examination by the Federal Deposit Insurance Corporation as deposit insurer. The federal system of regulation and supervision establishes a comprehensive framework of activities in which Cullman Savings Bank may engage and is intended primarily for the protection of depositors and the Federal Deposit Insurance Corporation’s Deposit Insurance Fund, and not for the protection of security holders. Cullman Savings Bank also is a member of and owns stock in the Federal Home Loan Bank of Atlanta, which is one of the 11 regional banks in the Federal Home Loan Bank System.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of ~~loan~~credit loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings, interest rate sensitivity and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Cullman Savings Bank, or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Many financial “consumer protection” statutes are implemented by regulations issued by the Consumer Financial Protection Bureau. For federal savings banks of Cullman Savings Bank’s asset size, compliance with such statutes and regulations is determined by the Office of the Comptroller of the Currency through its examinations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

As a savings and loan holding company, Cullman Bancorp, Inc. is required to comply with the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Cullman Bancorp, Inc. is also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in applicable laws or regulations, whether by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of Cullman Bancorp, Inc. and Cullman Savings Bank.

Set forth below is a brief description of material regulatory requirements that are or will be applicable to Cullman Savings Bank and Cullman Bancorp, Inc. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Cullman Savings Bank and Cullman Bancorp, Inc.

Federal Banking Regulation

Business Activities. Federal savings banks with less than $20 billion of assets as of December 31, 2017 may elect to exercise national bank powers without converting to a national bank charter. As of December 31, ~~2022~~2023, Cullman Savings Bank has exercised the covered savings association (CSA) election. A CSA has the same rights and privileges as a national bank, but retains its federal savings association charter.

20Capital Requirements. Cullman Savings Bank has opted into the community bank leverage ratio framework, which 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 9.0% for calendar year 2022 and beyond. Eligible institutions may opt into and out of the community bank ratio framework on their quarterly call report.

In determining the ~~covered~~amount ~~savings~~of ~~association~~risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (~~CSA~~e.g., recourse obligations, direct credit substitutes, residual interests) ~~election.~~are Amultiplied ~~CSA~~by ~~has~~a risk-weight factor assigned by the ~~same~~regulations ~~rights~~based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and ~~privileges~~retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a ~~national~~maximum ~~bank~~of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Office of the Comptroller of the Currency takes into consideration not only these numeric factors, but ~~retains~~qualitative ~~its~~factors ~~federal~~as ~~savings~~well, ~~association~~and ~~charter.~~has the authority to establish higher capital requirements for individual institutions where deemed necessary.

Capital Requirements. The bank implemented the community bank leverage ratio which 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 9.0% for calendar year 2022 and beyond. Eligible institutions may opt into and out of the community bank ratio framework on their quarterly call report. Cullman Savings Bank has opted in to the community bank leverage framework.

In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the Office of the Comptroller of the Currency takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

At December 31, ~~2022~~2023, Cullman Savings Bank’s capital exceeded all applicable requirements.

Loans-to-One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of ~~unimpaired~~ capital and surplus. An additional amount may be loaned, equal to 10% of ~~unimpaired~~ capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, ~~2022~~2023, Cullman Savings Bank was in compliance with the loans-to-one borrower limitations.

Capital Distributions. Federal regulations govern capital distributions by a federal savings bank, which include cash dividends and other transactions charged to the savings bank’s capital account. A federal savings bank must file an application with the Office of the Comptroller of the Currency for approval of a capital distribution if:

•

the total capital distributions for the applicable calendar year exceed the sum of the savings bank’s net income for that year to date plus the savings bank’s retained net income for the preceding two years;

•

the savings bank would not be at least adequately capitalized following the distribution;

•

the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or

•

the savings bank is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition.

Even if an application is not otherwise required, every savings bank that is a subsidiary of a savings and loan holding company, such as Cullman Savings Bank, must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves a capital distribution.

A notice or application related to a capital distribution may be disapproved if:

•

the federal savings bank would be undercapitalized following the distribution;

•

the proposed capital distribution raises safety and soundness concerns; or

•

the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

In addition, the Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings bank also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.

Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The Office of the Comptroller of the Currency is required to assess the federal savings bank’s record of compliance with the Community Reinvestment Act. A savings bank’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice. In May 2022, the Office of the Comptroller of the Currency, the Federal Reserve Board and Federal Deposit Insurance Corporation released a notice of proposed rulemaking to strengthen and modernize the Community Reinvestment Act regulations and framework.

The Community Reinvestment Act requires all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. Cullman Savings Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Cullman Savings Bank. Cullman Bancorp, Inc. will be an affiliate of Cullman Savings Bank because of its control of Cullman Savings Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

Cullman Savings Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

•

be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and

•

not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Cullman Savings Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Cullman Savings Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings banks and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings bank. Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. The maximum penalties that can be assessed are generally based on the type and severity of the violation, unsafe and unsound practice or other action, and are adjusted annually for inflation. The Federal Deposit Insurance Corporation also has the authority to terminate deposit insurance or recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular federal savings bank. If such action is not taken, the Federal Deposit Insurance Corporation has authority to take the action under specified circumstances.

Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.

Branching. Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. In addition, federal savings banks may establish de novo branches on an interstate basis provided that branching is authorized by the law of the host state for the banks chartered by that state.

Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” ~~institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.~~

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institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.

The previously referenced final rules establishing an elective “community bank leverage ratio” regulatory capital framework provide that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.

At December 31, ~~2022~~2023, Cullman Savings Bank met the criteria for being considered “well capitalized.”

Insurance of Deposit Accounts. The Deposit Insurance Fund of the Federal Deposit Insurance Corporation insures deposits at Federal Deposit Insurance Corporation-insured financial institutions such as Cullman Savings Bank, generally up to a maximum of $250,000 per separately insured depositor. The Federal Deposit Insurance Corporation charges insured depository institutions premiums to maintain the Deposit Insurance Fund.

Under the Federal Deposit Insurance Corporation’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.

The Federal Deposit Insurance Corporation has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Cullman Savings Bank. We cannot predict what assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance.

Privacy Regulations. Federal regulations generally require that Cullman Savings Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship. In addition, Cullman Savings Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. Cullman Savings Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

USA PATRIOT Act. Cullman Savings Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.

Prohibitions Against Tying Arrangements. Federal savings banks are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.

Other Regulations

Interest and other charges collected or contracted for by Cullman Savings Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:

•

Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

•

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

•

Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and

•

Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.

The deposit operations of Cullman Savings Bank also are subject to, among others, the:

•

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

•

Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and

•

Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Federal Home Loan Bank System

Cullman Savings Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Members of the Federal Home Loan Bank are required to acquire and hold shares of capital stock in the Federal Home Loan Bank. Cullman Savings Bank was in compliance with this requirement at December 31, ~~2022~~2023. Based on redemption provisions of the Federal Home Loan Bank of Atlanta, the stock has no quoted market value and is carried at cost. Cullman Savings Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Atlanta stock. At December 31, ~~2022~~2023, no impairment had been recognized.

Holding Company Regulation

Cullman Bancorp, Inc. is a unitary savings and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement authority over Cullman Bancorp, Inc. and its non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Cullman Savings Bank.

The business activities of savings and loan holding companies are generally limited to those activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval of the Federal Reserve Board, and certain additional activities authorized by Federal Reserve Board regulations, unless the holding company has elected "financial holding company" status. A financial holding company may engage in activities that are financial in nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity. Cullman Bancorp Inc. has not elected financial holding company status. Federal law generally prohibits the acquisition of more than 5% of a class of voting stock of a company engaged in impermissible activities.

Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining control of any depository institution not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings institutions, the Federal Reserve Board must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition or the law of the state in which the target is located authorizes such acquisitions by out-of-state savings and loan holding companies.

Savings and loan holding companies with less than $3 billion in consolidated assets are exempt from consolidated regulatory capital requirements, unless the Federal Reserve Board determines otherwise in particular cases.

The Federal Reserve Board has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The Federal Reserve Board has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Federal Reserve Board guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The guidance also provides for prior consultation with supervisory staff for material increases in the amount of a company's common stock dividend. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. Federal Reserve Board guidance also states that a holding company should inform the Federal Reserve Board supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result, at the end of a quarter, in a net reduction in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Cullman Bancorp, Inc. to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

Change in Control Regulations

Under the Change in Bank Control Act, no person may acquire “control” of a savings and loan holding company, such as Cullman Bancorp, Inc., unless the Federal Reserve Board has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. Control, as defined under the Change in Bank Control Act, means ownership, control of or the power to vote 25% or more of any class of voting stock. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock under certain circumstances, such as where the holding company involved has its shares registered under the Securities Exchange Act of 1934.

The Federal Reserve Board has adopted a final rule revising its framework for determining whether a company has a “controlling influence” over a bank or savings and loan holding company for purposes of the Bank and Savings and Loan Holding Company Acts.

Federal Securities Laws

Cullman Bancorp, Inc. common stock is registered with the Securities and Exchange Commission. Cullman Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.

The registration under the Securities Act of 1933 of shares of common stock issued in Cullman Bancorp, Inc.’s public offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Cullman Bancorp, Inc. may be resold without registration. Shares purchased by an affiliate of Cullman Bancorp, Inc. are subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Cullman Bancorp, Inc. meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of Cullman Bancorp, Inc. that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Cullman Bancorp, Inc., or the average weekly volume of trading in the shares during the preceding four calendar weeks.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies, procedures and systems to ensure continued compliance with these regulations.

Emerging Growth Company Status

Cullman Bancorp, Inc. is an emerging growth company. For as long as Cullman Bancorp, Inc. continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, Cullman Bancorp, Inc. also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

Cullman Bancorp, Inc. will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of ~~this~~its 2021 offering; (ii) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year.

ITEM 1A. Risk Factors

Not applicable to a smaller reporting company.

ITEM 1B. Unresolved Staff Comments

Not applicable.

ITEM 1C. Cybersecurity

Cybersecurity is a significant and integrated component of Cullman Savings Bank’s risk management strategy. As a financial services company, cyber threats are present and growing, and the potential exists for a cybersecurity incident to occur, which could disrupt business operations or compromise sensitive data. To date, we have not, to our knowledge, experienced an incident materially effecting or reasonably likely to materially affect Cullman Savings Bank.

To prepare and respond to incidents, we have implemented a multi-layered cybersecurity strategy, integrating people, technology, and processes. This includes employee training, the use of innovative technologies, and the implementation of policies and procedures in the areas of Information Security, Data Governance, Business Continuity and Disaster Recovery, Privacy, Third-Party Risk Management, and Incident Response. We engage third-party consultants and independent auditors to, among other things, conduct penetration tests and perform cybersecurity risk assessments and audits.

The Information Technology (IT) Department of Cullman Savings Bank is primarily responsible for identifying, assessing and managing material risks from cybersecurity threats. The IT Department is managed by the Vice President IT ("VP IT"). She has more than 13 years of experience with Cullman Savings Bank and a degree in Management Technology. The VP IT also oversees our Information Security Program, which is governed by various information security and cybersecurity, systems development, change control, disaster recovery/business continuity and physical asset classification and control policies. The Information Security Program identifies data sources, threats and vulnerabilities and brings awareness, accountability, and oversight for data protection throughout Cullman Savings Bank. Our program and with trusted third parties help ensure that data is protected and able to be recovered in the event of a breach or failure (technical or other disaster). The IT Department conducts on-going threat assessments, addresses the latest threats and conducts penetration, business continuity/ disaster recovery testing, and incident response plan testing. The VP IT presents information security and cybersecurity updates on a weekly basis to the Operations Committee, which consists of members of management, including the Chairman, President and Chief Executive Officer and the Information Security Officer (ISO).

The Operations Committee provides oversight, from a risk perspective, of information systems security. As referenced above, the VP IT provides information security updates to the Operations Committee at each scheduled meeting. In addition, as discussed below, we have implemented an Incident Response Plan (IRP) to provide a structured and systematic incident response process for

information security incidents that affect any of our information technology systems, network, or data. The IRP is implemented and maintained by the VP IT and is subject to annual review and approval by the Compliance Committee and Board.

The Board of Directors recognizes the importance of the Interagency Guidelines Establishing Standards for Safeguarding Customer Information and has incorporated those elements in its ongoing oversight of the Information Security Program.

Risk Assessment. On a quarterly basis, the VP IT identifies and documents system internal and external vulnerabilities that could result in unauthorized disclosure, misuse, alteration, or destruction of customer information or customer records. Based on the results of the risk assessment, our Information Security Program may be revised to protect against any anticipated threats or hazards to the security or integrity of such information. The Compliance Committee reviews changes to the program designed to monitor, measure, and respond to vulnerabilities identified.

Response to Security Vulnerabilities. In response to identified risks, management may take certain steps to correct and respond to security vulnerabilities, which may include:

•

Reducing unwarranted risks by applying vendor-provided software fixes, commonly called patches.

•

Documenting, approving, and testing changes to security configurations.

•

Assessing and removing or disabling exploitable files and services based upon known vulnerabilities and business needs.

•

Updating vulnerability scanning and intrusion detection tools to identify known vulnerabilities and related unauthorized activities.

•

Conducting subsequent penetration testing and vulnerability assessments, as warranted.

•

Reviewing performance with service providers with respect to security maintenance and reporting responsibilities in accordance with contract provisions and that service providers provide notification of system security breaches that may affect us.

Internal Controls, Audit, and Testing. Regular internal monitoring is integral to our risk assessment process, which includes regular testing of internal key controls, systems, and procedures. In addition, independent third-party penetration testing to test the effectiveness of security controls and preparedness measures is conducted at least annually or more often, if warranted by the risk assessment or other external factors. Management determines the scope and objectives of the penetration analysis.

Service Providers. Like many companies, we rely on third-party vendor solutions to support our operations. Many of these vendors, especially in the financial services industry, have access to sensitive and proprietary information. In order to mitigate the operational, informational and other risks associated with the use of vendors, we maintain a Third-Party Risk Management Program, which is implemented through a Vendor Management Policy and includes a detailed onboarding process and periodic reviews of vendors with access to sensitive data. The Vendor Management Policy applies to any business arrangement between Cullman Savings Bank and another individual or entity, by contract or otherwise. The Vendor Management Program is audited as part of our annual Internal Audit Risk Assessment.

Employees and Training. Employees are the first line of defense against cybersecurity measures. Each employee is responsible for protecting Cullman Savings Bank and client information. Employees are provided training at initial onboarding and thereafter regarding information security and cybersecurity-related policies and procedures applicable to their respective roles within the organization. In addition, employees are subjected to regular simulated phishing assessments, designed to sharpen threat detection and reporting capabilities. In addition to training, employees are supported with solutions designed to identify, prevent, detect, respond to, and recover from incidents. Notable technologies include firewalls, intrusion detection/prevention systems, endpoint protection, network monitoring, multi-factor authentication, and data backups. Notable services include 24/7 security monitoring and response, vulnerability scanning, third-party monitoring, and threat intelligence.

Board Reporting. At least annually, the Board reviews the overall status of the Information Security Program and The Corporation’s compliance with the Interagency Guidelines for Safeguarding Customer Information. Any material findings related to the risk assessment, risk management and control decisions, service provider arrangements, results of testing, security breaches or violations are discussed as are management’s responses and any recommendations for program changes. violations.

Program Adjustments. The VP IT monitors, evaluates, and adjusts the Information Security Program, considering any relevant changes in technology, the sensitivity of its customer information, internal or external threats to information, and changing business arrangements, such as mergers and acquisitions, alliances and joint ventures, outsourcing arrangements, and changes to customer information systems.

Incident Response Plan (IRP). In our effort to ensure that information security incidents can be recovered from quickly and with the least impact to The Corporation and its customers, The Corporation maintains a structured and systematic IRP for all information security incidents that affect any of the IT systems, network, or data of The Corporation, including The Corporation’s data held, or IT services provided by third-party vendors or other service providers. The VP IT and the ISO are responsible for implementing and maintaining the IRP, which includes:

•

Identifying the incident response team (“IRT”) and any appropriate sub-teams to address specific information security incidents, or categories of information security incidents.

•

Coordinating IRT activities, including developing, maintaining, and following appropriate procedures to respond to and document identified information security incidents.

•

Conducting post-incident reviews to gather feedback on information security incident response procedures and address any identified gaps in security measures.

•

Providing training to employees and board of directors.

•

Reviewing the IRP at least annually, or whenever there is a material change in The Corporation’s business practices that may reasonably affect its cyber incident response procedures.

ITEM 2. Properties

We conduct our operations from our main office and two additional branch offices, all of which are located in Cullman, Alabama, and one branch office in Hanceville, Alabama. All of our branch offices are located in Cullman County, Alabama. At December 31, ~~2022~~2023, the net book value of our premises and equipment was $1014.90 million.

ITEM 3. Legal Proceedings

At December 31, ~~2022~~2023, 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 4. Mine Safety Disclosures

Not applicable.

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PART II

ITEM 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

(a)

Market, Holder and Dividend Information. Our common stock is traded on the NASDAQ Capital Market under the symbol “CULL.” The approximate number of holders of record of Cullman Bancorp, Inc.’s common stock as of March 27, 2023 was 715. Certain shares of Cullman Bancorp, Inc. are held in “nominee” or “street” name and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

(b)

Sales of Unregistered Securities. Not applicable.

(c)

Use of Proceeds. Not applicable.

(d)

Securities Authorized for Issuance Under Equity Compensation Plans. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”

(e)

Stock Repurchases. The following table sets forth information in connection with repurchases of our shares of common stock during the three months ended December 31, ~~2022~~2023.

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs (1)
October 1, 2022 through October 31, 2022		—	$	—		—		555,000
October 1, 2023 through October 31, 2023		29,990	$	10.47		149,232		400,768
November 1, 2022 through November 30, 2022		1,034		11.23		1,034		553,966
November 1, 2023 through November 30, 2023		117,076		10.39		266,308		283,692
December 1, 2022 through December 31, 2022		10,244		11.25		11,278		542,688
December 1, 2023 through December 31, 2023		15,602		10.54		281,910		268,090
Total		11162,~~278~~668	$	1110.42		11281,~~278~~910		~~542~~268,~~688~~090

(1)On October 18, 2022, the Board of Directors announced a repurchase program under which the Company may repurchase up to 555,000 shares of the Company's common stock. The repurchase program has no expiration date.

(1)

ITEM 6. [Reserved]

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The objective of this section is to help readers understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements that appear elsewhere in this Annual Report on Form 10-K.

Overview

Total assets ~~increased~~decreased $6811.56 million, or 192.37%, to $~~423~~411.26 million at December 31, ~~2022~~2023 from $~~354~~423.72 million at December 31, ~~2021~~2022. The ~~increase~~decrease was due to ana ~~increase~~decrease in ~~loans~~cash ~~funded~~caused by ~~cash~~a ~~and~~decrease ~~an increase~~ in deposits ~~and borrowings~~. Total deposits ~~increased~~decreased $6023.9 million, or 268.32%, to $~~292~~269.90 million at December 31, ~~2022~~2023 from $~~232~~292.09 million at December 31, ~~2021~~2022. The ~~increase~~decrease in deposits was due to ~~increases~~decreases in regular savings and other deposits categories, asslightly weoffset ~~have~~by ~~grown~~an ~~accounts~~increase ~~throughout~~in ~~the~~time ~~year~~deposits.

Net income ~~increased~~decreased $~~2.4 million~~230,000, or ~~139~~5.05%, to $4.20 million for the year ended December 31, ~~2022~~2023, compared to $14.82 million for the year ended December 31, ~~2021~~2022. The ~~increase~~decrease was due primarily to ~~the~~an ~~one-time pre-tax $1.6 million expense for the contribution of common stock and cash to our new charitable foundation in the third quarter of 2021. The additional~~ increase ~~was due to increases~~ in ~~interest income and a decrease in interest expense, partially offset by increases in~~ non-interest expense ~~and income tax expense~~. Interest income increased $3.2.9 million, or 2317.67%, to $1619.54 million for the year ended December 31, ~~2022~~2023 from $1316.45 million for the year ended December 31, ~~2021~~2022. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest

2829

~~primary source of interest~~ income. Interest expense ~~decreased~~increased $~~421~~2.9 million,~~000,~~ or 23213.63%, to $1.4.3 million for the year ended December 31, ~~2022~~2023 compared to $1.84 million for the year ended December 31, ~~2021~~2022, due to aan ~~decrease~~increase of $~~55,000~~1.8 million in interest expense on deposits and aan ~~decrease~~increase of $~~366,000~~1.1 million in interest expense on borrowings.

We recorded provisions for ~~loan~~credit losses of $~~438~~294,000 (which includes a $128,000 provision for unfunded commitments) and $60438,000 for the years ended December 31, ~~2022~~2023 and ~~2021~~2022, respectively. Our allowance for ~~loan~~credit losses was $23.83 million at December 31, ~~2022~~2023 and $2.48 million at December 31, ~~2021~~2022. The allowance for ~~loan~~credit losses to total loans was 0.8595% at December 31, ~~2022~~2023 compared to 0.9485% at December 31, ~~2021~~2022, while the allowance for ~~loan~~credit losses to non-performing loans was ~~850~~2,255.6086% at December 31, ~~2022~~2023 compared to ~~810~~850.1060% at December 31, ~~2021~~2022. We had charge-offs of $4411,000 and recoveries of $4129,000 during the year ended December 31, ~~2022~~2023.

Summary of Significant Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have determined to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies:

Allowance for ~~Loan~~Credit Losses. ~~The~~On ~~allowance~~January ~~for~~1, ~~loan~~2023, ~~losses~~the isCompany aadopted ~~reserve~~Accounting ~~for~~Standards ~~estimated~~Update ~~credit~~(ASU) ~~losses~~2016-13 onFinancial ~~individually~~Instruments- ~~evaluated~~Credit ~~loans~~Losses ~~determined~~(Topic to326): beMeasurement ~~impaired~~of asCredit ~~well~~Losses ason ~~estimated~~Financial ~~credit losses inherent in the loan portfolio. Actual credit losses~~Instruments, ~~net~~as ~~of recoveries~~amended, ~~are~~which ~~deducted~~replaces ~~from~~ the ~~allowance~~incurred ~~for~~loss ~~loan~~methodology ~~losses.~~with ~~Loans~~an ~~are~~expected ~~charged~~loss ~~off~~methodology ~~when management believes~~ that ~~the collectability of the principal~~ is ~~unlikely.~~referred ~~Subsequent~~to ~~recoveries,~~as ifthe ~~any,~~current ~~are~~expected ~~credited~~credit toloss ~~the~~(CECL) ~~allowance for loan losses~~methodology. AThe ~~provision~~measurement ~~for~~of ~~loan~~expected credit losses, ~~which~~under isCECL amethodology ~~charge against earnings,~~ is ~~recorded~~applicable to ~~bring~~financial ~~the~~assets ~~allowance~~measured ~~for~~at ~~loan~~amortized ~~losses to a level that~~cost, inincluding ~~management’s~~loan ~~judgment,~~receivables isand ~~adequate~~ held-to-maturity ~~absorb~~debt ~~probable losses in the loan portfolio~~securities. ~~Management’s~~It ~~evaluation~~also ~~process~~applies ~~used~~ to ~~determine~~off-balance ~~the~~sheet ~~appropriateness~~credit ofexposures ~~the~~not ~~allowance~~accounted for ~~loan~~as ~~losses~~insurance is(loan ~~subject~~commitments, tostandby ~~the~~letters ~~use~~ of ~~estimates~~credit, ~~assumptions~~financial guarantees, and ~~judgment.~~other ~~The~~similar ~~evaluation~~instruments). ~~process~~In ~~involves~~addition, ~~gathering~~ASC ~~and~~326 ~~interpreting~~made ~~many~~changes ~~qualitative~~to ~~and~~the ~~quantitative~~accounting ~~factors~~for ~~which~~available-for-sale ~~could~~debt ~~affect~~securities. ~~probable~~One ~~credit~~such ~~losses.~~change ~~Because~~is ~~interpretation~~to ~~and~~require ~~analysis~~credit ~~involves~~losses ~~judgment,~~to ~~current~~be ~~economic~~presented oras ~~business~~an ~~conditions~~allowance ~~can~~rather ~~change,~~than ~~and~~as ~~future~~a ~~events~~writedown ~~are~~on ~~inherently~~available-for-sale ~~difficult~~debt tosecurities. ~~predict,~~Management ~~the~~does ~~anticipated~~not ~~amount~~intend ofto ~~estimated~~sell ~~loan~~or ~~losses~~believes ~~and~~that ~~therefore~~it ~~the~~is ~~appropriateness~~more oflikely ~~the~~than ~~allowance~~not ~~for~~they ~~loan~~will ~~losses~~be ~~could~~required ~~change~~to ~~significantly~~sell.

~~The~~Changes ~~allocation~~in ~~methodology applied by Cullman Savings Bank is designed to assess~~ the ~~appropriateness of the~~ allowance for ~~loan~~credit losses ~~and~~are ~~includes~~recorded allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. The methodology includes evaluation and consideration of several factors, such as, ~~but~~credit ~~not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan~~ loss ~~and~~expense ~~delinquency experience, trends in past due and non-accrual 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~~reversal). ~~While~~Losses ~~management~~are ~~uses~~charged ~~the~~against ~~best information available to make its evaluation, future adjustments to~~ the allowance ~~may~~when bemanagement ~~necessary~~believes ~~if there are significant changes in economic conditions or circumstances underlying~~ the ~~collectability~~uncollectability of ~~loans.~~an ~~Because each of the criteria used is subject to change, the allocation of the allowance~~ available-for-sale ~~loan~~security ~~losses~~ is ~~made~~confirmed ~~for~~or ~~analytical~~when ~~purposes~~either ~~and is not necessarily indicative~~ of the ~~trend~~criteria ofregarding ~~future~~intent ~~loan~~or ~~losses~~requirement ~~in any particular loan category. The total allowance is available~~ to ~~absorb~~sell ~~losses from any segment of the loan portfolio. Management believes the allowance for loan losses was appropriate at December 31, 2022 and December 31, 2021. The allowance analysis~~ is ~~reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements~~met. ~~In addition, various regulatory~~

29The allowance for credit losses (ACL) is a valuation account that is deducted from (or added to) the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

~~agencies~~The ~~periodically review the~~ allowance for ~~loan~~credit losses ~~and,~~is asmeasured on a ~~result~~collective ofpool ~~such~~basis ~~reviews,~~when wesimilar ~~may~~risk ~~have~~characteristics toexist. ~~adjust~~The ~~our~~Company ~~allowance~~has ~~for~~identified ~~loan~~the ~~losses.~~ following portfolio segments:

We will be adopting the current expected credit losses (“CECL") methodology for calculating our allowance for loan losses, effective January 1, 2023. For additional information about the adoption of CECL see “Note 1– Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.30

• One-to-four family

• Multi-family

• Commercial real estate

• Construction

• Commercial

• Home equity loans and line of credit

• Consumer loans

The Company uses call code and loan level information in a probability of default/loss given default model. The model incorporates life-of-loan requirements and considers assumptions that effect the contractual life. There is one set of financial models for all interest rate risk, liquidity risk and credit risk modeling, in addition to loan origination and pricing process.

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the unfunded commitments provision. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Management believes the allowance for credit losses was appropriate at December 31, 2023 and December 31, 2022. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance and, as a result of such reviews, we may have to adjust our allowance for credit losses.

For additional information about the adoption of CECL see “Note 1– Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.

Income Taxes. The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings.

Cullman Bancorp, Inc. files consolidated federal and state income tax returns with Cullman Savings Bank. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. We may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense.

Selected Consolidated Financial and Other Data

The summary information presented below at each date or for each of the years presented is derived in part from our consolidated financial statements.

	At December 31,
	2022		2021		2020
	2023		2022		2021
	(In thousands)
Selected Financial Condition Data:
Total assets	$	~~423~~411,~~229~~641	$	~~354~~423,~~709~~229	$	~~331~~354,~~396~~709
Securities available for sale		2928,~~796~~356		2129,~~313~~796		1821,~~875~~313
Loans held for sale		—		—		173
Loans receivable, net		339,402		329,943		252,160
Loans receivable, net		329,943		252,160		231,799
Premises and equipment, net		13,957		10,851		9,484
Premises and equipment, net		10,851		9,484		8,576
Foreclosed real estate		—		50		400
Foreclosed real estate		50		400		434
Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost		2,782		2,033		859
Federal Home Loan Bank stock and Federal Reserve Bank stock, at cost		2,033		859		2,541
Bank owned life insurance		9,239		8,964		5,737
Bank owned life insurance		8,964		5,737		5,657
Deposits		269,001		292,949		232,021
Deposits		292,949		232,021		216,963
Borrowings		35,000		25,000		18,500
Borrowings		25,000		18,500		53,500
Shareholders’ equity		101,735		100,182		99,734
Shareholders’ equity		100,182		99,734		56,875


	For the Years Ended December 31,
	2023		2022		2021
	(In thousands)
Selected Operating Data:
Interest income	$	19,459	$	16,529	$	13,370
Interest expense		4,277		1,365		1,786
Net interest income		15,182		15,164		11,584
Provision for credit losses		294		438		60
Net interest income after provision for credit losses		14,888		14,726		11,524
Noninterest income		1,710		1,686		1,509
Noninterest expense		11,548		11,128		10,939
Income before income tax expense		5,050		5,284		2,094
Income tax expense		1,097		1,101		344
Net income	$	3,953	$	4,183	$	1,750
Earnings per share - basic	$	0.56	$	0.59	$	0.25
Earnings per share - diluted	$	0.54	$	0.59	$	0.25

	For the Years Ended December 31,
	2022		2021		2020
	(In thousands)
Selected Operating Data:
Interest income	$	16,529	$	13,370	$	14,172
Interest expense		1,365		1,786		2,867
Net interest income		15,164		11,584		11,305
Provision for loan losses		438		60		152
Net interest income after provision for loan losses		14,726		11,524		11,153
Noninterest income		1,686		1,509		1,449
Noninterest expense		11,128		10,939		8,099
Income before income tax expense		5,284		2,094		4,503
Income tax expense		1,101		344		957
Net income	$	4,183	$	1,750	$	3,546
Earnings per share - basic (1)	$	0.59	$	0.25	$	0.52
Earnings per share - diluted (1)	$	0.59	$	0.25	$	0.52

	At or For the Years Ended December 31,
	2022			2021			2020 (1)
	2023			2022			2021
Performance Ratios:
Return on average assets		10.0995	%		01.5009	%		10.1350	%
Return on average equity		43.2194	%		24.2621	%		62.4326	%
Interest rate spread (2)		4.04	%		3.30	%		3.54	%
Interest rate spread (1)		3.54	%		4.04	%		3.30	%
Net interest margin (3)		4.19	%		3.46	%		3.75	%
Net interest margin (2)		3.89	%		4.19	%		3.46	%
Noninterest expense to average assets		2.9078	%		32.1190	%		23.5711	%
Efficiency ratio (4)		6769.8057	%		8467.0080	%		6484.2700	%
Average interest-earning assets to average interest-bearing liabilities	1.~~37x~~33x			1.~~31x~~37x			1.~~22x~~31x
Capital Ratios:
Average equity to average assets		2524.8513	%		2125.9385	%		1721.5293	%
Tier 1 capital to average assets (5)		19.58	%		18.83	%		15.49	%
Tier 1 capital to average assets		19.04	%		19.58	%		18.83	%
Asset Quality Ratios:
Allowance for loan losses as a percentage of total loans		0.8595	%		0.9485	%		10.0194	%
Allowance for loan losses as a percentage of non-performing loans	2,255.86%	~~850.60~~	%		~~810~~850.1060	%		~~1935~~810.2510	%
Net (charge-offs) recoveries to average outstanding loans during the year		—(0.01	)%	~~(0.01)%~~	—			—(0.01	)%
Non-performing loans as a percentage of total loans		0.1004	%		0.1210	%		0.0512	%
Non-performing loans as a percentage of total assets		0.0904	%		0.0809	%		0.0408	%
Total non-performing assets as a percentage of total assets		0.1004	%		0.1410	%		0.1714	%
Other:
Number of offices		4			4			4
Number of full-time equivalent employees	5957				5059			50

(1)

Amounts related to the periods prior to the July 15, 2021 closing of the conversion offering have been restated to give retroactive recognition to the 2.8409 exchange ratio applied in the conversion offering.

Represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)

Represents net interest income as a percentage of average interest-earning assets.

(3)

Represents noninterest expenses divided by the sum of net interest income after provision and noninterest income.

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

~~Comparison~~ Total ofassets ~~Financial~~decreased ~~Condition~~$11.6 million, or 2.7%, to $411.6 million at December 31, ~~2022~~2023 ~~and~~from $423.2 at December 31, ~~2021~~2022. The decrease was due to a decrease in cash caused by a decrease in deposits.

~~Total~~Cash ~~assets~~and ~~increased~~cash equivalents decreased $6823.56 million, ~~or 19.3%,~~ to $~~423~~13.20 million at December 31, ~~2022~~2023 from $~~354~~36.76 million at December 31, ~~2021~~2022. The ~~increase~~decrease was due to an ~~increase~~decrease in ~~loans funded from cash and an increase in~~ deposits ~~and borrowings~~.

~~Cash~~Gross ~~and~~loans ~~cash~~held ~~equivalents~~for ~~decreased~~investment increased $259.39 million, or 3.0%, to $36342.67 million at December 31, ~~2022~~2023 from $61332.98 million at December 31, ~~2021~~2022. The ~~decrease~~increase was primarily due to an increase in one-to-four family residential real estate loans, ~~funded~~which increased $6. 7 million, or 3.9%, to $178.9 million at December 31, 2023 from $172.2 million at December 31, 2022. Commercial real estate loans increased $5.3 million, or 5.5% to $101.3 million at December 31, 2023 from $96.0 million at December 31, 2022.

~~Gross~~ Securities ~~loans held~~ available-for ~~investment increased $78.2 million, or 30.7%, to $332.8 million at December 31, 2022 from $254.6 million at December 31, 2021. The increase was primarily due to an increase in one~~-~~to-four~~sale ~~family~~decreased ~~residential real estate loans, which increased~~ $441.4 million, or 344.8%, to $~~172~~28.24 million at December 31, ~~2022~~2023 from $~~127~~29.8 million at December 31, ~~2021~~2022. ~~Commercial~~We ~~real~~had ~~estate~~no ~~loans~~purchases ~~have increased $19.0 million,~~ or ~~24.7%~~sales toduring ~~$96~~2023.0 ~~million~~We atelected ~~December~~to ~~31,~~not ~~2022~~reinvest ~~from~~the ~~$77.0~~redemptions ~~million~~received atduring ~~December~~the ~~31, 2021~~year.

~~Securities~~Total ~~available-for-sale~~deposits ~~increased~~decreased $823.59 million, or ~~39.~~8.2%, to $29269.80 million at December 31, ~~2022~~2023 from $21292.39 ~~million~~ at December 31, ~~2021~~2022. WeThe ~~purchased~~decrease ~~$3.0~~in ~~million~~deposits was due to decreases in ~~U.S.~~regular ~~Government~~savings ~~agency~~and ~~securities~~other ~~during~~deposits ~~2022~~categories, asslightly ~~well~~offset by an increase in time deposits, as customers sought higher yielding products during a period of rising market interest rates. Interest bearing demand accounts decreased $118.07 million inor ~~mortgage~~7.5% ~~backed~~to ~~securities~~$106.3 million at December 31, 2023 from $1114.09 million inat ~~commercial~~December ~~mortgage~~31, ~~backed~~2022. ~~securities~~Regular savings and ~~$715,000~~other indeposits ~~municipal~~decreased ~~securities~~$22.3 inmillion, ~~order~~or 28.0%, to ~~pledge~~$57.3 ~~the~~million ~~increase~~at inDecember ~~our~~31, ~~deposits~~2023 ~~under~~from ~~the~~$79.6 ~~Security~~million ~~for~~at ~~Alabama~~December ~~Funds~~31, ~~Enhancement program~~2022.

~~Total~~ We ~~deposits~~had ~~increased~~ $6035.90 million, orof ~~26.3%,~~borrowings ~~to $292.9 million~~ at December 31, ~~2022 from $232.0 at December 31~~2023, ~~2021.~~compared ~~The increase in deposits was due~~ to ~~increases in regular savings and other deposits categories, as we have grown accounts. Interest bearing demand accounts increased~~ $4625.30 million orof ~~67.7%~~borrowings ~~to $114.9 million~~ at December 31, 2022 ~~from $68~~.6 ~~million~~During ~~at December 31~~2023, ~~2021.~~we ~~Regular~~increased ~~savings~~our ~~and~~borrowings ~~other~~based ~~deposits~~on increased ~~$24~~loan demand.3 ~~million,~~We orregularly ~~44.0%,~~review toour ~~$79.6~~liquidity ~~million~~position atbased ~~December~~on ~~31,~~alternative ~~2022~~uses ~~from~~of ~~$55.3~~available ~~million~~funds atas ~~December~~well ~~31,~~as ~~2021~~market conditions.

WeShareholders' ~~had~~equity increased by $251.05 million, ofor ~~borrowings~~1.6%, to $101.7 million at December 31, ~~2022,~~2023 compared to $18100.52 million ~~of borrowings~~ at December 31, ~~2021~~2022. ~~During~~The ~~the~~increase ~~year,~~was wedue ~~had~~to ~~excess~~earnings ~~liquidity~~during ~~and paid off~~ the ~~$18.5~~year ~~million~~as ofwell ~~borrowings~~as ~~recognizing~~ a ~~net~~decrease ~~gain~~in ~~of $87.~~other ~~Later~~comprehensive inloss. ~~the~~Shareholders’ ~~year,~~equity we(book ~~increased~~value) ~~our~~per ~~borrowings~~share ~~based~~at onDecember ~~increased~~31, ~~loan~~2023 ~~demand~~was ~~during 2022~~$13.93. We ~~regularly~~had ~~review~~no orintangible ~~liquidity~~assets ~~position~~at ~~based~~December on31, ~~alternative uses of available funds as well as market conditions~~2023.

Shareholders' equity increased by $448,000, or 0.4%, to $100.2 million at December 31, 2022 compared to $99.7 million at December 31, 2021. The increase was due to earnings during the year, partially offset by an increase in other comprehensive loss. Stockholders’ equity (book value) per share at December 31, 2022 was $13.55. We had no intangible assets at December 31, 2022.

Average Balance Sheets

The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual 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 $10,000 and $46,000 for the years ended December 31, 2022 and 2021, respectively. Loan balances exclude loans held for sale.

	For the Years Ended December 31,
	2022							2021
	Average Outstanding Balance		Interest		Average Yield/Rate			Average Outstanding Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	301,161		15,202		5.05	%	$	242,017	$	12,759		5.27	%
Securities		27,745	848			3.06	%		20,356		461		2.26	%
Federal Home Loan Bank/ Federal Reserve stock		494	22			4.45	%		1,691		74		4.37	%
Federal funds sold		32,718	457			1.40	%		70,452		76		0.11	%
Total interest-earning assets		362,118		16,529		4.56	%		334,516		13,370		4.00	%
Noninterest-earning assets		22,039							18,749
Total assets	$	384,157						$	353,265
Interest-bearing liabilities:
Interest-bearing demand deposits	$	99,797	123			0.12	%	$	77,301	95			0.12	%
Regular savings and other deposits		75,398	221			0.29	%		50,278		94		0.19	%
Money market deposits		3,799	6			0.16	%		4,627		8		0.17	%
Certificates of deposit		77,302	705			0.91	%		83,956		913		1.09	%
Total interest-bearing deposits		256,296		1,055		0.41	%		216,162		1,110		0.51	%
Federal Home Loan Bank advances and other
borrowings		7,614	310			4.07	%		38,568		676		1.75	%
Total interest-bearing liabilities		263,910		1,365		0.52	%		254,730		1,786		0.70	%
Noninterest-bearing demand deposits		14,739							13,163
Other noninterest-bearing liabilities		6,209							7,887
Total liabilities		284,858							275,780
Total shareholders’ equity		99,299							77,485
Total liabilities and shareholders’ equity	$	384,157						$	353,265
Net interest income			$	15,164						$	11,584
Net interest rate spread (1)						4.04	%						3.30	%
Net interest-earning assets (2)	$	98,208						$	79,786
Net interest margin (3)						4.19	%						3.46	%
Average interest-earning assets to interest-bearing liabilities	1.37x							1.31x

Average Balance Sheets

The following table sets forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual 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 $8,000 and $10,000 for the years ended December 31, 2023 and 2022, respectively. Loan balances exclude loans held for sale.


	For the Years Ended December 31,
	2023							2022
	Average Outstanding Balance		Interest		Average Yield/Rate			Average Outstanding Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	338,358	$	17,348		5.13	%	$	301,161	$	15,202		5.05	%
Securities		29,017		949		3.27	%		27,745		848		3.06	%
Federal Home Loan Bank and Federal Reserve stock		2,492		149		5.98	%		494		22		4.45	%
Federal funds sold		20,244		1,013		5.00	%		32,718		457		1.40	%
Total interest-earning assets		390,111		19,459		4.99	%		362,118		16,529		4.56	%
Noninterest-earning assets		25,825							22,039
Total assets	$	415,936						$	384,157
Interest-bearing liabilities:
Interest-bearing demand deposits	$	106,731		488		0.46	%	$	99,797	123			0.12	%
Regular savings and other deposits		68,140	314			0.46	%		75,398		221		0.29	%
Money market deposits		2,442	10			0.41	%		3,799		6		0.16	%
Certificates of deposit		84,257		2,043		2.42	%		77,302		705		0.91	%
Total interest-bearing deposits		261,570		2,855		1.09	%		256,296		1,055		0.41	%
Federal Home Loan Bank advances and other borrowings		32,808		1,422		4.33	%		7,614		310		4.07	%
Total interest-bearing liabilities		294,378		4,277		1.45	%		263,910		1,365		0.52	%
Noninterest-bearing demand deposits		13,699							14,739
Other noninterest-bearing liabilities		7,509							6,209
Total liabilities		315,586							284,858
Total shareholders’ equity		100,350							99,299
Total liabilities and shareholders’ equity	$	415,936						$	384,157
Net interest income			$	15,182						$	15,164
Net interest rate spread (1)						3.54	%						4.04	%
Net interest-earning assets (2)	$	95,733						$	98,208
Net interest margin (3)						3.89	%						4.19	%
Average interest-earning assets to interest-bearing liabilities	1.33x							1.37x

————————

(1)

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.

(2)

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

(3)

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

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. 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 this table, 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 table below.

	Years EndedDecember 31, 2022 vs. 2021
	Years EndedDecember 31, 2023 vs. 2022
	Increase (Decrease) Due to						Total Increase
	Volume			Rate			(Decrease)
Interest-earning assets:	(In thousands)
Loans	$	31,~~118~~878		$	~~(675~~268	)	$	2,~~443~~146
Securities		~~167~~39			~~220~~62			~~387~~101
Federal Home Loan Bank and Federal Reserve Bank stock		~~(52~~89	)		—38			~~(52~~127	)
Fed funds sold and other		(42175	)		~~423~~731			~~381~~556
Total interest-earning assets		31,~~191~~831			~~(32~~1,099	)		32,~~159~~930
Interest-bearing liabilities:
Interest-bearing demand deposits		278			1357			28365
Regular savings and other deposits		48(21	)		79114			~~127~~93
Money Market deposits		(12	)		(16	)		(24	)
Certificates of deposits		~~(73~~63	)		~~(135~~1,275	)		~~(208~~1,338	)
Total deposits		148			~~(56~~1,752	)		~~(55~~1,800	)
Federal Home Loan Bank advances and other borrowings		~~(542~~1,025	)		~~176~~87			~~(366~~1,112	)
Total interest-bearing liabilities		~~(541~~1,073	)		~~120~~1,839			~~(421~~2,912	)
Change in net interest income	$	~~3,732~~758		$	(~~152~~740	)	$	~~3,580~~18

Comparison of Operating Results for the Years Ended December 31, ~~2022~~2023 and ~~2021~~2022

General. Net income ~~increased~~decreased $~~2.4 million~~230,000, or ~~139~~5.05%, to $4.20 million at December 31, ~~2022~~2023 compared to $14.82 million at December 31, ~~2021~~2022. The ~~increase~~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. Additionally, there was~~ an increase in ~~interest income, with the changes in interest income and interest expense primarily due to changes in the market interest rates, partially offset by increases in~~ non-interest expense ~~and income tax expense~~.

Interest Income. Interest income increased $3.2.9 million, or 2317.67%, to $1619.54 million at December 31, ~~2022~~2023 from $1316.45 million at December 31, ~~2021~~2022. The increase was due primarily to an increase in interest income on loans, which is our primary source of interest income. Interest income on loans increased $2.41 million, or 1914.1%, to $1517.23 million for the year ended December 31, ~~2022~~2023 from $1215.82 million for the year ended December 31, ~~2021~~2022. Our average balance of loans increased $5937.12 million, or 2412.4% for the year ended December 31, ~~2022~~2023. The increase is due to the increase in our loan demand. Our weighted average yield on loans ~~decreased~~increased 22eight basis points to 5.0513% for the year ended December 31, ~~2022~~2023 compared to 5.2705% for the year ended December 31, ~~2021~~2022. The ~~decrease~~increase was a reflection of the ~~low~~current rate environment ~~when the loans were originated~~. ~~Additionally, we recognized $378,000 of interest income on PPP loans during the year ended December 31, 2021, compared to $32,000 for the year ended December 31, 2022.~~

Interest Expense. Interest expense ~~decreased~~increased $~~421~~2.9 million,~~000,~~ or 23213.63%, to $1.4.3 million for the year ended December 31, ~~2022~~2023 compared to $1.84 million for the year ended December 31, ~~2021~~2022. The ~~decrease~~increase was due to aan ~~decrease~~increase of $~~55,000~~1.8 million in interest expense on deposits and aan ~~decrease~~increase of $~~366,000~~1.1 million in interest expense on borrowings in ~~2022~~2023.

The ~~decrease~~increase in interest expense on deposits was due primarily to aan ~~decrease~~increase in interest expense on certificates of deposit, which ~~decreased~~increased $~~208~~1.3 million,~~000,~~ or 22189.8%, to $~~705,000~~2.0 million for the year ended December 31, ~~2022~~2023 from $~~913~~705,000 for the year ended December 31, 2022. We experienced increases in both the average balances and rates paid on certificates of deposit as customers sought higher yielding products during a period of rising market interest rates. Interest paid on other deposit types increased due to an increase in rates. Regular savings and other deposits interest expense increased $93,000 or 42.1% and interest bearing demand deposits interest expense increased $365,000 or 296.8%.

34 Interest expense on borrowings increased $1.1 million, or 358.7%, and was $1.4 million for the year ended December 31, 2023 compared to $310,000 for the year ended December 31, 2022. The average rate we paid on borrowings increased to 4.33% for the year ended December 31, 2023 compared to 4.07% for the year ended December 31, 2022. The average balances increased $25.2 million,

December 31, 2021. We experienced decreases in both the average balance of and rates paid on certificates of deposit. We have allowed higher-rate certificates of deposit to run off during the current interest rate environment. Interest paid on other deposit types increased due to an increase in rates. Regular savings and other deposits interest expense increased $127,000 or 135.1% and interest bearing demand deposits interest expense increased $28,000 or 29.5%.

Interest expense on borrowings decreased $366,000, or 54.1%, and was $310,000 for the year ended December 31, 2022 compared to $676,000 for the year ended December 31, 2021. The average rate we paid on borrowings increased to 4.07% for the year ended December 31, 2022 compared to 1.75% for the year ended December 31, 2021. The average balances decreased $31.0 million, or 80.3%, to $7.6 million for the year ended December 31, 2022 compared to $38.6 million for the year ended December 31, 2021.

Net Interest Income. Net interest income increased $3.6 million, or 30.9%, to $15.2 million for the year ended December 31, 2022 from $11.6 million for the year ended December 31, 2021, as a result of our interest income increasing faster than our interest expense. Our interest rate spread increased 74 basis points to 4.04% for the year ended December 31, 2022, compared to 3.30% for the year ended December 31, 2021, while our net interest margin increased 73 basis points to 4.19% for the year ended December 31, 2022 compared to 3.46% for the year ended December 31, 2021.

Provision for Loan Losses. Provision 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 specific loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loan or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See "Summary of Significant Accounting Policies" for additional information.

After an evaluation of these factors, we recorded provisions for loan losses of $438,000 and $60,000 for the years ended December 31, 2022 and December 31, 2021, respectively. Our allowance for loan losses was $2.8 million for the year ended December 31, 2022 and $2.4 million for the year ended December 31, 2021. The ratio of our allowance for loan losses to total loans was 0.85% at December 31, 2022 compared to 0.94% at December 31, 2021, while the allowance for loan losses to non-performing loans was 850.6% at December 31, 2022 compared to 810.1% at December 31, 2021. We had charge-offs of $44,000 and recoveries of $41,000 during the year ended December 31, 2022.

To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at December 31, 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 Comptroller of 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 $177,000, or 11.7%, to $1.7 million for the year ended December 31, 2022 from $1.5 million for the year ended December 31, 2021. Service charges on deposit accounts increased $177,000, or 20.9%, as we have increased the number of deposit accounts.

or 330.1%, to $32.8 million for the year ended December 31, 2023 compared to $7.6 million for the year ended December 31, 2022, as we increased borrowings to fund loan demand.

Net Interest Income. Net interest income increased $18,000, or 0.1%, as a result of our interest income increasing at the same rate as our interest expense. Our interest rate spread decreased 50 basis points to 3.54% for the year ended December 31, 2023, compared to 4.04% for the year ended December 31, 2022, while our net interest margin decreased 30 basis points to 3.89% for the year ended December 31, 2023 compared to 4.19% for the year ended December 31, 2022.

Provision for Credit Losses. A provision for credit losses was recorded for $294,000 and $438,000 for the years ended December 31, 2023 and December 31, 2022, respectively. Within the provision, there was an expense of $128,000 related to unfunded commitments. The provision for funded loans was primarily due to a $300,000 loan being rated as substandard. The increase in the provision for unfunded commitments was due to the change in mix of unfunded commitments and increase in expected loss rates on unfunded home equity lines. Our allowance for credit losses was $3.3 million at December 31, 2023 and $2.8 million at December 31, 2022. The ratio of our allowance for loan losses to total loans was 0.95% at December 31, 2023 compared to 0.85% at December 31, 2022, while the allowance for loan losses to non-performing loans was 2,255.9% at December 31, 2023 compared to 850.6% at December 31, 2022. We had charge-offs of $11,000 and recoveries of $29,000 during the year ended December 31, 2023.

Non-interest Income. Non-interest income increased $24,000, or 1.4%, to $1.7 million for the year ended December 31, 2023. Service charges on deposit accounts increased $74,000, or 7.29%, as we have increased the number of deposit accounts.

Non-interest Expense. Non-interest expense information is as follows.

	Years Ended December 31,				Change
	2022		2021		Amount			Percent
	2023		2022		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	7,~~594~~786	$	67,~~366~~594	$	~~1,228~~192			192.35	%
Occupancy and equipment		~~937~~982		~~856~~937		8145			94.58	%
Data processing		~~864~~1,003		~~711~~864		~~153~~139			2116.51	%
Professional and supervisory fees		~~779~~883		~~549~~779		~~230~~104			4113.94	%
Office expense		~~201~~166		~~234~~201		(3335	)		-1417.14	%
Advertising		~~179~~119		~~166~~179		13(60	)		7(33.85	)%
FDIC deposit insurance		76162		7976		(386	)		-3113.82	%
Contribution to Foundation		—		1,581		(1,581	)		(100.0	)%
Other		447		498		(51	)		-10.2	%
Other		498		397		101			25.4	%
Total noninterest expense	$	11,548	$	11,128	$	420			3.8	%
Total noninterest expense	$	11,128	$	10,939	$	189			1.7	%

Salaries and employee benefits expense increased due to in an increase in employees as well as annual salary increases and rising benefits expense. Professional and supervisory expenses increased due to ~~inflation~~inflationary cost increases from our vendors. Data processing expense increased due to the annual increase based on the consumer price index included in our contract with our core data processor.

Income Tax Expense. We recognized income tax expense of $1.1 million ~~and $344,000~~ for ~~the~~both years ended December 31, ~~2022~~2023 and ~~2021~~2022, ~~respectively,~~ resulting in effective rates of 2021.87% and 1620.48%. Income tax expense increased as a result of higher income before income taxes in 2022. The increase in the effective tax rate was due to a net loss related to the contribution to the Foundation in 2021.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Management Committee, which consists of members of senior management, is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

•

growing our volume of core deposit accounts;

•

selling long-term, fixed-rate loans, depending on pricing;

•

holding higher levels of cash and cash equivalents;

•

continuing the diversification of our loan portfolio by adding more commercial-related loans, which typically have shorter maturities; and

•

laddering the maturities of our investment securities and our borrowings.

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

We generally do not engage in hedging activities, such as engaging in futures or options, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases instantaneously by up to 400 basis points or decreases instantaneously by up to ~~200~~300 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The tables below sets forth, as of December 31, ~~2022~~2023 and ~~2021~~2022, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

At December 31, 2022
At December 31, 2023
Change in Interest Rates(basis points) (1)		Net Interest IncomeYear 1 Forecast		~~Net Interest IncomeYear 1 Forecast~~		Year 1 Changefrom Level	~~Year 1 Changefrom Level~~
(Dollars in thousands)
+400		$	16,764	$	~~19,348~~	5.95%	~~10.18%~~
+300			16,540		~~18,914~~	4.54%	~~7.71%~~
+200			16,315		~~18,476~~	3.12%	~~5.22%~~
+100			16,087		~~18,034~~	1.68%	~~2.70%~~
Level			15,822		~~17,560~~	—	—
	(100	)			16,860		(3.98)%
-100			15,382			(2.78)%
	(200	)			16,006		(8.85)%
-200			14,776			(6.61)%
-300			13,946			(11.85)%

At December 31, 2021
At December 31, 2022
Change in Interest Rates(basis points) (1)		Net Interest IncomeYear 1 Forecast		~~Net Interest IncomeYear 1 Forecast~~		Year 1 Changefrom Level	~~Year 1 Changefrom Level~~
(Dollars in thousands)
+400		$	19,348	$	~~14,246~~	10.18%	~~22.54%~~
+300			18,914		~~13,642~~	7.71%	~~17.35%~~
+200			18,476		~~13,014~~	5.22%	~~11.94%~~
+100			18,034		~~12,355~~	2.70%	~~6.28%~~
Level			17,560		~~11,626~~	—	—
	(100	)			11,152		(4.08)%
-100			16,860			(3.98)%
	(200	)			10,644		(8.45)%
-200			16,006			(8.85)%
-300			15,002			(14.57)%

(1)

Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at December 31, ~~2022~~2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 53.2212% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 86.8561% decrease in net interest income. At December 31, ~~2021~~2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced an 115.9422% increase in net interest income, ~~and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 8.45% decrease in net interest income.~~

Net Economic Value. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve instantaneously by up to 400 basis points or decreases instantaneously by up to 200 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

~~The~~and ~~tables~~in ~~below~~the ~~sets~~event ~~forth, as~~ of ~~December~~an ~~31,~~instantaneous ~~2022~~200 ~~and~~basis ~~2021,~~point ~~the~~decrease ~~calculation of the estimated changes~~ in ~~our~~interest ~~EVE~~rates, ~~that~~we would ~~result~~have ~~from~~experienced ~~the~~a ~~designated~~8.85% ~~immediate~~decrease ~~changes~~ in ~~the~~net ~~United~~interest ~~States Treasury yield curve~~income.

Net Economic Value. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity, or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model currently estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increase instantaneously up to 400 basis points or decreases instantaneously down to 300 basis points, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The tables below sets forth, as of December 31, 2023 and 2022, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.


At December 31, 2023
			Estimated Increase (Decrease) in EVE						EVE as a Percentage of Present Value of Assets (3)
Change in Interest Rates (basis points) (1)	Estimated EVE (2)		Amount			Percent			EVE Ratio (4)			Increase (Decrease) (basis points)
(Dollars in thousands)
+400	$	64,532	$	(19,383	)		-23.10	%		18.86	%	(307.98)%
+300		69,786		(14,129	)		-16.84	%		19.92	%	(213.09)%
+200		75,135		(8,780	)		-10.46	%		20.59	%	(121.91)%
+100		80,337		(3,578	)		-4.26	%		20.73	%	(39.55)%
+50		82,364		(1,551	)		-1.85	%		20.74	%	(13.88)%
—		83,915	—			—				20.60	%	—
-50		84,844		929			1.11	%		20.34	%	(0.79)%
-100		85,152		1,237			1.47	%		19.52	%	(15.18)%
-200		83,908		7			-0.01	%		18.61	%	(81.72)%
-300		80,610		3,305			-3.94	%		17.66	%	(187.79)%


At December 31, 2022
			Estimated Increase (Decrease) in EVE						EVE as a Percentage of Present Value of Assets (3)
Change in Interest Rates (basis points) (1)	Estimated EVE (2)		Amount			Percent			EVE Ratio (4)			Increase (Decrease) (basis points)
(Dollars in thousands)
+400	$	81,637	$	(18,828	)		-18.74	%		21.68	%	(253.19)%
+300		86,822		(13,643	)		-13.58	%		22.50	%	(171.13)%
+200		92,120		(8,345	)		-8.31	%		23.30	%	(91.72)%
+100		97,325		(3,140	)		-3.13	%		24.02	%	(19.37)%
+50		99,220		(1,245	)		-1.24	%		24.20	%	(1.81)%
—		100,465	—			—				24.22	%	—
-50		101,286		821			82.00	%		24.14	%	(7.66)%
-100		101,691		1,226			1.22	%		23.98	%	(23.92)%
-200		101,068		603			0.60	%		23.37	%	(84.72)%

(1)

At December 31, 2021
			Estimated Increase (Decrease) in EVE						EVE as a Percentage of PresentValue of Assets (3)
Change in InterestRates (basis points) (1)	EstimatedEVE (2)		Amount			Percent			EVE Ratio (4)			Increase(Decrease)(basis points)
(Dollars in thousands)
+400	$	64,374	$	(18,383	)		-22.21	%		19.87	%	(298.66)%
+300		69,108		(13,650	)		-16.49	%		20.74	%	(212.03)%
+200		73,904		(8,854	)		-10.70	%		21.56	%	(130.13)%
+100		78,530		(4,228	)		-5.11	%		22.28	%	(58.08)%
+50		84,530		1,772			2.50	%		22.58	%	(27.51)%
—		82,758	—			—				22.86	%	—
-50		84,530		1,772			2.14	%		23.06	%	20.05%
-100		85,872		3,114			3.76	%		23.15	%	28.84%
-200		85,866		3,108			3.76	%		22.59	%	26.39%

Assumes an immediate uniform change in interest rates at all maturities.

(2)

EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at December 31, ~~2022~~2023, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 810.3146% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.6001% ~~increase~~decrease in EVE. At December 31, ~~2021~~2022, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would have experienced a 108.7031% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would have experienced a 30.7660% ~~decrease~~increase in EVE.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the tables.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ. Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the tables.

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 December 31, ~~2022~~2023 and ~~2021~~2022, we had a $96124.38 million and a $~~111~~96.3 million line of credit with the Federal Home Loan Bank of Atlanta, and had $2535.0 million and $1825.50 million outstanding as of those dates, respectively. In addition, at December 31, ~~2022~~2023 and ~~2021~~2022, we had an unsecured federal funds line of credit of $10.0 million. No amount was outstanding on this line of credit at December 31, ~~2022~~2023 or ~~2021~~2022. At December 31, 2023, we had a $5.0 million letter of credit with Federal Home Loan Bank of Atlanta used to secure public deposits under the Security for Alabama Funds Enhancement (SAFE) program.

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 $5.89 million and $5.18 million for the years ended December 31, ~~2022~~2023 and ~~2021~~2022, 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 $9711.69 million and $2297.76 million for the years ended December 31, ~~2022~~2023 and ~~2021~~2022, respectively. Net cash provided by (used in) 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 ($6617.56) million and $1966.15 million for the years ended December 31, ~~2022~~2023 and ~~2021~~2022, 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 December 31, ~~2022~~2023, Cullman Savings Bank exceeded all of its regulatory capital requirements, and was categorized as well capitalized at December 31, ~~2022~~2023. Management is not aware of any conditions or events since the most recent notification that would change our category.

The net proceeds from the offering significantly increased our liquidity and capital resources. Over time, the initial level of liquidity will be reduced as net proceeds from the stock offering are used for general corporate purposes, including funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the offering, as well as other factors associated with the offering, our return on equity has been adversely affected following the offering.

Recent Accounting Pronouncements

Please refer to Note 1 to the audited financial statements included with this document for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is included in “ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” above.

ITEM 8. Financial Statements and Supplementary Data

The following financial statements are included as a part of this Annual Report

RERPORT OF INDEPENDENT Registered Public Accounting Firm (PCAOB ID: 173)	44
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS	4243
CONSOLIDATED STATEMENTS OF NET INCOME	4344
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	4447
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY	46
CONSOLIDATED STATEMENTS OF CASH FLOWS	47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	48

Crowe LLP

Independent Member Crowe Global

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Cullman Bancorp, Inc.

Cullman, Alabama

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cullman Bancorp, Inc. (the "Company") as of December 31, ~~2022~~2023 and ~~2021~~2022, the related consolidated statements of ~~operations~~net income, comprehensive income, ~~stockholders~~changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, ~~2022~~2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2022~~2023 and ~~2021~~2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, ~~2022~~2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph - Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standard Board Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Crowe LLP

We have served as the Company's auditor since 2005.

Atlanta, Georgia

March 2722, ~~2023~~2024

4142

CULLMAN BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

December 31, ~~2022~~2023 and ~~2021~~2022

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

	2022			2021
	2023			2022
ASSETS
Interest bearing cash and cash equivalents	$	~~434~~229		$	~~746~~434
Non-interest bearing cash and cash equivalents		54,~~986~~157			15,~~467~~986
Federal funds sold		308,~~225~~650			5930,~~725~~225
Total cash and cash equivalents		3613,~~645~~036			6136,~~938~~645
Securities available for sale		2928,~~796~~356			2129,~~313~~796
Equity securities		~~479~~—			—479
Loans, net of allowance of $2,841 and $2,406, as of
Loans, net of allowance of $3,271 and $2,841, as of
December 31, 2022 and 2021		329,943			252,160
December 31, 2023 and 2022		339,402			329,943
Premises and equipment, net		1013,~~851~~957			910,~~484~~851
Foreclosed real estate		50—			~~400~~50
Accrued interest receivable		1,~~162~~260			~~775~~1,162
Restricted equity securities		2,~~033~~782			~~859~~2,033
Bank owned life insurance		89,~~964~~239			58,~~737~~964
Deferred tax asset, net		2,~~194~~440			12,~~323~~194
Other assets		1,~~112~~169			~~720~~1,112
Total assets	$	~~423~~411,~~229~~641		$	~~354~~423,~~709~~229
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	1612,~~281~~297		$	1316,~~349~~281
Interest bearing		~~276~~256,~~668~~704			~~218~~276,~~672~~668
Total deposits		~~292~~269,~~949~~001			~~232~~292,~~021~~949
Federal Home Loan Bank advances		2535,000			1825,~~500~~000
Accrued interest payable		~~155~~239			60155
Other liabilities		45,~~943~~666			4,~~394~~943
Total liabilities		~~323~~309,~~047~~906			~~254~~323,~~975~~047
Shareholders’ equity
Common stock, $0.01 par value; 50,000,000 and 20,000,000 shares authorized;
7,394,615 and 7,405,893 shares outstanding at
7,301,282 and 7,394,615 shares outstanding at
December 31, 2022 and December 31, 2021		74			74
December 31, 2023 and December 31, 2022		71			74
Additional paid-in capital		5048,~~161~~081			4950,~~674~~161
Retained earnings		5659,~~561~~344			5356,~~267~~561
Accumulated other comprehensive income (loss)		(32,~~558~~913	)		~~277~~(3,558	)
Unearned ESOP shares, at cost		(32,~~056~~848	)		(3,~~558~~056	)
Total shareholders’ equity		~~100~~101,~~182~~735			99100,~~734~~182
Total liabilities and shareholders’ equity	$	~~423~~411,~~229~~641		$	~~354~~423,~~709~~229

See accompanying notes to consolidated financial statements.

4243

CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF NET INCOME

Years Ended December 31, ~~2022~~2023 and ~~2021~~2022

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

	2022			2021
	2023			2022
Interest and dividend income:
Loans, including fees	$	1517,~~202~~348		$	1215,~~759~~202
Non taxable securities		3227			4432
Securities		~~816~~922			~~417~~816
Federal funds sold and other		~~479~~1,162			~~150~~479
Total interest income		1619,~~529~~459			1316,~~370~~529
Interest expense:
Deposits		12,~~055~~855			1,~~110~~055
Federal Home Loan Bank advances and other borrowings		~~310~~1,422			~~676~~310
Total interest expense		14,~~365~~277			1,~~786~~365
Net interest income		15,~~164~~182			1115,~~584~~164
Provision for loan losses		438			60
Provision for credit losses on loans		166			438
Net interest income after provision for loan losses		14,726			11,524
Provision for unfunded commitments		128			—
Net interest income after provision for credit losses		14,888			14,726
Noninterest income:
Service charges on deposit accounts		1,~~023~~097			~~846~~1,023
Income on bank owned life insurance		~~227~~275			~~152~~227
Gain on sales of mortgage loans		8622			~~260~~86
Net gain on prepayment of Federal Home Loan Bank advances		87127			4687
Net gain on sale of foreclosed real estate		39			8
Net gain (loss) on sale of foreclosed real estate		(6	)		39
Other		~~224~~195			~~197~~224
Total noninterest income		1,~~686~~710			1,~~509~~686
Noninterest expense:
Salaries and employee benefits		7,~~594~~786			67,~~366~~594
Occupancy and equipment		~~937~~982			~~856~~937
Data processing		~~864~~1,003			~~711~~864
Professional and supervisory fees		~~779~~883			~~549~~779
Office expense		~~201~~166			~~234~~201
Advertising		~~179~~119			~~166~~179
FDIC deposit insurance		76162			7976
Contribution to charitable foundation		—			1,581
Other		447			498
Other		498			397
Total noninterest expense		11,548			11,128
Total noninterest expense		11,128			10,939
Income before income taxes		5,050			5,284
Income before income taxes		5,284			2,094
Income tax expense		1,097			1,101
Income tax expense		1,101			344
Net income	$	3,953		$	4,183
Net income	$	4,183		$	1,750
Earnings per share:
Basic	$	0.5956		$	0.2559
Diluted		0.5954			0.2559

See accompanying notes to consolidated financial statements.

CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, 2022 and 2021

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

	2022			2021
Net income	$	4,183		$	1,750
Other comprehensive income, net of tax
Unrealized gain (loss) on securities available for sale		(4,854	)		(335	)
Less income tax effect		1,019			70
Other comprehensive loss		(3,835	)		(265	)
Comprehensive income	$	348		$	1,485

CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31, ~~2022~~2023 and ~~2021~~2022

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


	2023		2022
Net income	$	3,953	$	4,183
Other comprehensive income, net of tax
Unrealized gain (loss) on securities available for sale		612		(4,854	)
Income tax effect		33		1,019
Other comprehensive income (loss)		645		(3,835	)
Comprehensive income	$	4,598	$	348

CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’' EQUITY

Years Ended December 31, ~~2022~~2023 and ~~2021~~2022

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

													Accumulated
							Additional						Other			Unearned
				Common			Paid-In			Retained			Comprehensive			ESOP
	Shares			Stock			Capital			Earnings			Income (loss)			Shares			Total
Balance at January 1, 2022		7,405,893		$	74		$	49,674		$	53,267		$	277		$	(3,558	)	$	99,734
Net Income		—			—			—			4,183			—			—			4,183
Other comprehensive loss		—			—			—			—			(3,835	)		—			(3,835	)
Share repurchase		(11,278	)		—			(127	)		—			—			—			(127	)
ESOP shares earned		—			—			58			—			—			502			560
Dividend paid		—			—			—			(889	)		—			—			(889	)
Stock-based compensation expense		—			—			556			—			—			—			556
Balance at December 31, 2022		7,394,615		$	74		$	50,161		$	56,561		$	(3,558	)	$	(3,056	)	$	100,182
Balance at January 1, 2021		2,449,919		$	24		$	6,687		$	49,679		$	542		$	(57	)	$	56,875
Balance at January 1, 2023		7,394,615		$	74		$	50,161		$	56,561		$	(3,558	)	$	(3,056	)	$	100,182
Net income		—			—			—			1,750			—			—			1,750
Net Income		—			—			—			3,953			—			—			3,953
Other comprehensive loss		—			—			—			—			(265	)		—			(265	)
CECL implementation		—			—			—			(284	)		—			—			(284	)
Net settlement of common stock options exercised		489			—			(16	)		—			—			—			(16	)
Other comprehensive income		—			—			—			—			645			—			645
ESOP shares earned		—			—			34			—			—			206			240
Share repurchase		(270,632	)		(3	)		(2,867	)		—			—			—			(2,870	)
Dividend paid		—			—			—			(857	)		—			—			(857	)
ESOP shares earned		—			—			14			—			—			208			222
Stock-based compensation expense		—			—			556			—			—			—			556
Dividend paid		—			—			—			(886	)		—			—			(886	)
Cancelling of old shares and options exercised		(2,450,408	)		(24	)		(291	)		—			—			—			(315	)
Restricted shares awarded		177,299			—			—			—			—			—			—
Contribution by Mutual Holding Company		—			—			54			2,631			—			—			2,685
Stock-based compensation expense		—			—			773			—			—			—			773
Exchange of common stock		2,973,398			30			—			—			—			—			30
Balance at December 31, 2023		7,301,282		$	71		$	48,081		$	59,344		$	(2,913	)	$	(2,848	)	$	101,735
Issuance of shares to Foundation		148,120			1			1,480			—			—			—			1,481
Tax carryforward from Mutual Holding Company and prior holding company											64									64
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 December 31, 2021		7,405,893		$	74		$	49,674		$	53,267		$	277		$	(3,558	)	$	99,734

CULLMAN BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, ~~2022~~2023 and ~~2021~~2022

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

	2022			2021
	2023			2022
Cash flows from operating activities
Net income	$	43,~~183~~953		$	14,~~750~~183
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		438			60
Provision for credit losses		294			438
Contribution of stock to Charitable Foundation		—			1,481
Depreciation and amortization, net		469			335
Depreciation and amortization, net		335			473
Deferred income tax benefit (expense)		(119	)		148
Deferred income tax benefit		148			(335	)
Gains from sales and impairment of foreclosed real estate		—			(46	)
Gains from sales and impairment of foreclosed real estate		(46	)		(8	)
Net (gain) loss on disposal of fixed assets		12			(18	)
Net (gain) loss on disposal of fixed assets		(18	)		1
(Earnings)losses on equity security		(18	)		24
Losses on equity security		24			—
Net loss on sale of repossessions		3			3
Net loss on sale of repossessions		3			—
Net gain on extinguishment of debt		(127	)		(87	)
Net gain on extinguishment of debt		(87	)		(46	)
Income on bank owned life insurance		(275	)		(227	)
Income on bank owned life insurance		(227	)		(152	)
Gain on sales of mortgage loans		(22	)		(86	)
Gain on sales of mortgage loans		(86	)		(260	)
Mortgage loans originated for sale		(714	)		(3,261	)
Mortgage loans originated for sale		(3,261	)		(8,627	)
Mortgage loans sold		736			3,347
Mortgage loans sold		3,347			9,061
ESOP compensation expense		222			560
ESOP compensation expense		560			240
Stock based compensation expense		773			556
Stock based compensation expense		556			556
Net change in operating assets and liabilities
(Increase)/Decrease in Accrued interest receivable		(387	)		226
Increase in accrued interest receivable		(98	)		(387	)
(Increase)/Decrease in Accrued interest payable		95			(40	)
Decrease in accrued interest payable		84			95
Decrease Other		191			846
Decrease other		688			191
Net cash provided by operating activities		5,~~768~~861			5,~~226~~768
Cash flows from investing activities
Purchases of premises and equipment, net		(13,~~743~~630	)		(1,~~305~~743	)
Purchases of bank owned life insurance		~~(3,000~~—	)		—(3,000	)
Purchases of securities		~~(16,063~~—	)		(816,~~868~~063	)
Proceeds from death benefits		—			72
Proceeds from maturities, prepayments and calls of securities		2,096			2,785
Proceeds from maturities, prepayments and calls of securities		2,785			6,018
Proceeds from sales of foreclosed real estate		67			453
Proceeds from sales of foreclosed real estate		453			116
Purchases of restricted equity securities		(749	)		(1,868	)
Redemptions of restricted equity securities		(1,868	)		0
Purchases of equity securities		—			694
Purchases of restricted equity securities		694			1,682
Net (purchases)/redemptions of equity securities		497			(503	)
Purchases of equity securities		(1,000	)		—
Loan originations and payments, net		(10,174	)		(78,315	)
Redemptions of equity securities		497			—
Net cash used in investing activities		(11,893	)		(97,560	)
Loan originations and payments, net		(78,315	)		(20,501	)
Net cash used in investing activities		(97,560	)		(22,786	)
Cash flows from financing activities
Net increase in deposits		60,928			15,058
Net (decrease)increase in deposits		(23,948	)		60,928
Proceeds from Federal Home Loan Bank advances		25,000			—25,000
Repayment of Federal Home Loan Bank advances		(1814,~~413~~873	)		(3418,~~954~~413	)
Proceeds from exercise of stock options		—			(16	)
Cash payment of dividends		(886	)		(889	)
Cash payment of dividends		(889	)		(857	)
Repurchase of common stock		(2,870	)		(127	)
Merger of MHC		—			2,394
Net cash provided by (used in) financing activities		(17,577	)		66,499
Repurchase of common stock		(127	)		—
Net change in cash and cash equivalents		(23,609	)		(25,293	)
Stock proceeds		—			37,512
Cash and cash equivalents at beginning of year		36,645			61,938
Net cash provided by financing activities		66,499			19,137
Cash and cash equivalents at end of year	$	13,036		$	36,645
Net change in cash and cash equivalents		(25,293	)		1,577
Cash and cash equivalents at beginning of year		61,938			60,361
Cash and cash equivalents at end of year	$	36,645		$	61,938
Supplemental cash flow information
Interest paid	$	14,~~270~~193		$	1,~~826~~270
Income taxes paid		~~645~~804			~~651~~645
Supplemental noncash disclosures:
Transfers from loans to foreclosed assets		94—			8094
Lease Liabilities arising from obtaining right-of-use assets		—			—
Day 1 impact of adoption of Current Expected Credit Losses methodology		(379	)		—

See accompanying notes to consolidated financial statements.

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2022~~2023 and ~~2021~~2022

(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, the Bancorp 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 Cullman Bancorp, Inc, a federal corporation (Cullman Federal) ceased to exist and the Bancorp became the successor corporation to Cullman Federal. In the conversion, 3,929,776 shares of common stock was sold at a price of $10.00 per share is the subscription offering and 354,599 shares sold to the Employee Stock Ownership Plan. The Bancorp 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 Federal was 2.8409 as applied in the conversion offering. Share amounts related to the periods prior to the conversion have been restated to give retroactive recognition to the exchange ratio.

~~Risk~~In ~~and~~connection ~~Uncertainties:~~with ~~The~~the ~~war~~mutual-to-stock ~~between~~conversion, ~~Russia~~we ~~and~~established ~~Ukraine~~special ~~continues~~“liquidation toaccounts” ~~evolve~~for asthe ~~military~~benefit ~~activity~~of ~~proceeds~~certain ~~and~~depositors ~~additional~~of ~~sanctions~~the ~~are~~Bank ~~imposed.~~in Inan ~~addition~~amount equal to Cullman Savings Bank, MHC’s ownership interest in the ~~human~~equity ~~toll~~of ~~and~~the ~~impact~~Bancorp as of the ~~events~~date onof ~~entities~~the ~~that~~latest ~~have~~balance ~~operations~~sheet contained in ~~Russia,~~the ~~Ukraine,~~prospectus orplus ~~neighboring~~the ~~countries~~value orof ~~that~~the ~~conduct~~net ~~business~~assets ~~with~~of ~~their~~Cullman ~~counterparties~~Savings Bank, ~~the~~MHC ~~war~~as isof ~~increasingly~~the ~~affecting~~date ~~economic~~of ~~and~~the ~~global~~latest statement of financial ~~markets~~condition ~~and~~of ~~ongoing~~Cullman ~~economic~~Savings ~~challenges~~Bank, ~~including~~MHC ~~issues~~prior ~~such~~to asthe ~~rising~~consummation ~~inflation~~of ~~and~~the ~~global~~conversion ~~supply-chain~~(excluding ~~disruption~~its ownership of the Bancorp). The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits.

~~Because~~Risk ofand ~~the~~Uncertainties: ~~significant~~The ~~uncertainties related to the~~ ongoing ~~war~~economic ~~and its potential effects on customers and prospects~~challenges, ~~and~~including onissues ~~the~~such ~~national and local economy~~ as arising ~~whole,~~inflation ~~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~~effects ~~the~~of ~~complete~~related ~~financial~~governmental ~~effect~~responses ~~will~~continue be to ~~the Company~~evolve. ItIn isaddition ~~reasonably~~to ~~possible that estimates made in~~ the ~~financial~~risk ~~statements~~related ~~could~~to berecent ~~materially~~ and ~~adversely~~potential ~~impacted~~bank ~~in the near term as a result of these conditions, including expected credit losses on loans and off-balance sheet credit exposures.~~failures

Because of the significant uncertainties related to the inflation 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 it may ultimately affect the Company. Related to potential bank failures, there can be no assurance on how our customers will react. 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 as well as run off of deposits.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Restrictions on Cash: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Cash Flows: Cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, federal funds purchased, and premises and equipment transactions.

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2022~~2023 and ~~2021~~2022

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Debt Securities: Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization and accretion of purchase premiums and discounts. Premiums and discounts on securities are amortized and accreted using the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

~~Management~~Allowance ~~evaluates~~for ~~securities~~Credit ~~for~~Losses- ~~other~~Available-~~than~~For-~~temporary~~Sale ~~impairment~~Securities: ~~(OTTI)~~For atavailable-for-sale ~~least~~debt ~~on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For~~ securities in an unrealized loss position, ~~management considers~~ the ~~extent~~Company ~~and~~first ~~duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also~~ assesses whether it intends to sell, or it is more likely than not that it will be required to sell, athe security ~~in an unrealized loss position~~ before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the ~~entire~~security's ~~difference between~~ amortized cost ~~and~~basis ~~fair~~is ~~value~~written isdown ~~recognized~~to asfair ~~impairment~~value through ~~earnings~~income. For debt securities available-for-sale that do not meet the aforementioned criteria, the ~~amount~~Company ofevaluates ~~impairment~~whether isthe ~~split~~decline ~~into~~in ~~two~~fair ~~components~~value ashas ~~follows:~~resulted ~~(1)~~from ~~OTTI~~credit ~~related~~losses toor ~~credit~~other ~~loss~~factors. In making this assessment, management considers the extent to which ~~must~~fair bevalue ~~recognized~~is inless than amortized cost, any changes to the ~~income~~rating ~~statement;~~of the security by a rating agency, and ~~(2)~~the ~~OTTI~~adverse conditions specifically related to ~~other~~the ~~factors~~security, ~~which~~among isother ~~recognized~~factors. inIf ~~other~~this ~~comprehensive~~assessment ~~income. The~~indicates that a credit loss isexist, ~~defined~~the aspresent value of cash flows expected to be collected from the ~~difference~~security ~~between~~are compared to the ~~present~~amortized ~~value~~cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectability of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Equity Securities: Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting for observable price changes in orderly transactions for the identical or similar investment.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Management defers any material loan fees net of certain direct costs and amortizes these deferred fees or costs into interest income using the level yield method without anticipating prepayments.

Interest income on mortgage and commercial loans is discontinued and placed on nonaccrual status at the time the loan is 90 days delinquent unless the loan is well- secured and in process of collection. ~~Past~~ ~~due~~Mortgage ~~status~~loans isare ~~based~~charged onoff ~~the~~at ~~contractual~~180 ~~terms~~days ofpast ~~the~~ue, ~~loan. In~~and ~~all~~commercial ~~cases,~~ loans are ~~placed on nonaccrual or~~ charged- off atto anthe ~~earlier~~extent ~~date if collection of~~ principal or interest is ~~considered~~deemed ~~doubtful~~uncollectible. ~~Nonaccrual~~ ~~loans~~Consumer ~~and~~ loans ~~past~~continue ~~due~~to 90accrue ~~days~~interest ~~still~~until onthey ~~accrual include both smaller balance homogeneous loans that~~ are ~~collectively~~changed ~~evaluated~~off ~~for~~no ~~impairment~~later ~~and~~than ~~individually~~120 ~~classified~~days ~~impaired~~past ~~loans.~~due ~~All~~unless ~~interest~~the ~~accrued~~loan ~~but not received for loans placed on nonaccrual~~ is ~~reversed~~in ~~against~~the ~~interest~~process ~~income~~of collection. ~~Interest~~ ~~received~~Past-due onstatus ~~such loans~~ is ~~accounted~~based ~~for~~ on the ~~cash-basis~~contractual orterms ~~cost-recovery~~of ~~method,~~the ~~until qualifying for return to accrual~~loan. ~~Loans~~ ~~are~~In ~~returned to accrual status when~~ all ~~the~~cases, ~~principal~~loans ~~and interest amounts contractually due~~ are ~~brought~~placed ~~current~~on ~~and~~nonaccrual ~~future~~or ~~payments~~changed ~~are~~off ~~reasonably~~at ~~assured~~an orearlier ~~when~~date itif ~~otherwise~~collection ~~becomes~~of ~~well~~principal ~~secured~~or ~~and~~interest inis ~~the~~considered ~~process of collection~~doubtful.

~~Concentration~~All ofinterest ~~Credit~~accrued ~~Risk: Most~~but ofnot ~~the~~received ~~Company's~~for ~~business~~loans ~~activity~~placed on nonaccrual is ~~with~~reversed ~~customers~~against ~~located~~interest ~~within~~income. ~~Cullman~~Interest ~~County~~received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. ~~Therefore~~ Under the cost-recovery method, interest income is not recognized until the ~~Company's~~loan ~~exposure~~balances is reduced to ~~credit~~zero. ~~risk~~Under isthe ~~significantly~~cash-bases ~~affected~~method, byinterest ~~changes~~income inis recorded when the ~~economy~~payment is received in cash. Loans are returned to accrual status when all the ~~Cullman~~principal ~~County~~and ~~area~~interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off.

CULLMAN BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2022~~2023 and ~~2021~~2022

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~The~~Concentration ~~allowance consists~~ of ~~specific~~Credit ~~and general components.~~Risk: ~~The~~Most ~~specific component consists~~ of the ~~amount~~Company's ofbusiness ~~impairment~~activity ~~related~~is towith ~~loans~~customers ~~that~~located ~~have~~within ~~been~~Cullman ~~evaluated on an individual basis, and the general component consists of the amount of impairment related to loans that have been evaluated on a collective basis~~County. ~~Loans are considered impaired when~~Therefore, ~~based on current information and events, it is probable that~~ the Company's ~~will~~exposure ~~be unable~~ to ~~collect~~credit ~~all~~risk ~~amounts~~is ~~due~~significantly ~~according~~affected toby ~~the~~changes ~~contractual~~in ~~terms of~~ the ~~loan~~economy ~~agreement. Loans for which the terms have been modified resulting~~ in ~~a concession, and for which~~ the ~~borrower~~Cullman isCounty ~~experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired~~area.

~~Troubled~~Allowance ~~debt~~for ~~restructurings~~Credit ~~are~~Losses- ~~separately~~Loans: The ~~identified~~allowance for ~~impairment~~credit ~~disclosures~~losses ~~and~~is ~~are~~a ~~measured~~valuation ataccount ~~the~~that ~~present~~is ~~value~~deducted offrom ~~estimated~~(or ~~future~~added ~~cash~~to) ~~flows using~~ the ~~loan~~loans's ~~effective~~amortized ~~rate~~cost atbasis ~~inception. If~~to apresent ~~troubled~~the ~~debt~~net ~~restructuring~~amount isexpected ~~considered~~ to be acollected ~~collateral~~on ~~dependent loan,~~ the ~~loan~~loans. isLoans ~~reported,~~are ~~net,~~charged atoff against the ~~fair~~allowance ~~value~~when ofmanagement believes the ~~collateral. For~~uncollectibility ~~troubled~~of ~~debt~~a ~~restructurings~~loan ~~that~~balance ~~subsequently~~is ~~default,~~confirmed. ~~the~~Expected ~~Company~~recoveries ~~determines~~do net exceed the ~~amount~~aggregate of ~~reserve in accordance with~~ the ~~accounting~~amounts ~~policy~~previously ~~for~~charged-off ~~the~~and ~~allowance~~expected ~~for~~to ~~loan~~be ~~losses~~charged-off.

~~The~~Management ~~general~~estimates ~~component~~the ~~covers~~allowance ~~non-impaired~~balance ~~loans~~using ~~and~~relevant isavailable ~~based~~information, onfrom ~~historical~~internal ~~loss~~and ~~experience~~external ~~adjusted~~sources, ~~for~~relating ~~current~~to ~~factors. The~~past ~~historical~~events, ~~loss~~current ~~experience~~conditions, isand ~~determined~~reasonable ~~by portfolio segment~~ and issupportable ~~based~~forecasts. onHistorical ~~the~~credit ~~actual~~ loss ~~history~~experience ~~experienced~~provides by the ~~Company~~basis ~~over~~for the ~~most~~estimation ~~recent~~of 12expected ~~quarters~~credit losses. ~~This~~ ~~actual~~Adjustments ~~loss~~to ~~experience~~historical isloss ~~supplemented~~information ~~with~~are ~~other~~made ~~economic factors based on the risks present~~ for ~~each portfolio segment. These economic factors include consideration of~~ the ~~following:~~differences ~~levels of and trends~~ in ~~delinquencies~~underwriting ~~and~~standards, ~~impaired~~portfolio ~~loans;~~mix, ~~levels~~delinquency oflevel, ~~and~~or ~~trends~~term inas ~~charge-offs~~well ~~and~~as ~~recoveries;~~for ~~trends in volume and terms of loans; effects of any~~ changes in ~~risk~~environmental ~~selection~~conditions, ~~and~~such ~~underwriting~~as ~~standards; other~~ changes in ~~lending~~unemployment ~~policies~~rates, ~~procedures,~~property ~~and practices; experience~~values, ~~ability,~~or ~~and depth of lending management and~~ other relevant ~~staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations~~factors.

When the discounted cash flow method is used to determine the allowance for credit losses, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has reasonable expectation at the reporting date that a modification will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the

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