CULLMAN BANCORP, INC. Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may," "continue" and words of similar meaning. These forward-looking statements include, but are not limited to:
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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 asset 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 our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. You should not place undue reliance on such statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
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conditions relating to the COVID-19 or any other pandemic, including the severity and duration of the associated economic slowdown either nationally or in our market areas, that are worse than expected;
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general economic conditions, either nationally or in our market areas, 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 losses;
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our ability to access cost-effective funding;
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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;
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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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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
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our ability to retain key employees;
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global or national war, conflict or acts or terrorism;
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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.
Comparison of Financial Condition at
Total assets increased
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Cash and cash equivalents decreased$23.3 million , or 37.5%, to$38.7 million atMarch 31, 2022 from$61.9 million atDecember 31, 2021 . The decrease was due to loan growth, payoff of advances and investment purchases. Gross loans held for investment increased$15.3 million , or 6.1%, to$267.5 million atMarch 31, 2022 from$252.2 million atDecember 31, 2021 . The increase was primarily due to an increase in commercial real estate loans, which increased$6.7 million , or 8.7%, to$83.7 million atMarch 31, 2022 from$77.0 million atDecember 31, 2021 . The increase was also due to an increase in one-to-four family loans, which increased$5.9 million , or 4.7%, to$133.7 million atMarch 31, 2022 from$127.8 million atDecember 31, 2021 . Securities available for sale increased$5.8 million or 27.1%, to$27.1 million atMarch 31, 2022 from$21.3 million atDecember 31, 2021 . We invested a portion of deposits gathered during the three months endedMarch 31, 2022 in securities. Total deposits increased$18.4 million , or 7.9%, to$250.4 million atMarch 31, 2022 from$232.0 million atDecember 31, 2021 . We experienced increases in interest-bearing demand deposits of$7.1 million , or 12.8%, to$62.3 million atMarch 31, 2022 from$55.2 million atDecember 31, 2021 , and in regular savings and other deposits of$22.1 million , or 32.3%, to$90.7 million atMarch 31, 2022 from$68.6 million atDecember 31, 2021 . The increases reflected an increase in new accounts. Borrowings decreased$18.5 million , or 100.0%, to no borrowings atMarch 31, 2022 , from$18.5 million atDecember 31, 2021 . We used excess cash we received from deposits during the three months endedMarch 31, 2022 to decrease our borrowings, and recognized a net gain of$86,000 for repaying$18.5 million of borrowings. Stockholders' equity decreased$1.1 million , or 1.2%, to$98.6 million atMarch 31, 2022 from$99.7 million atDecember 31, 2021 . The decrease was mainly due to the decrease in accumulated other income (unrealized losses on securities available for sale) of$1.2 million for the three months endedMarch 31, 2022 . Stockholders' equity (book value) per share atMarch 31, 2022 was$13.31 .
Average Balance Sheets
The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Loan balances exclude loans held for sale. We had no intangible assets atMarch 31, 2022 . Three Months Ended March 31, 2022 2021 Average Average Average Average Outstanding Yield/Rate Outstanding Yield/Rate Balance Interest (1)
Balance Interest (1)
(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans) $ 261,005 $ 3,371 5.17 % $ 229,680 $ 3,009 5.24 %
PPP loans 313 36 46.01 % 3,894 178 18.26 %
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Table of Contents Securities 21,988 131 2.38 % 18,874 107 2.27 %Federal Home Loan Bank stock 322 12 14.91 % 2,425 24 3.92 % Federal funds sold 44,314 18 0.16 % 59,134 11 0.07 % Total interest-earning assets 327,942 3,568 4.35 % 314,007 3,329 4.24 % Noninterest-earning assets 15,265 12,954 Total assets$ 343,207 $ 326,961 Interest-bearing liabilities: Interest-bearing demand deposits$ 85,362 25 0.12 %$ 68,994 22 0.13 % Regular savings and other deposits 56,478 26 0.18 % 43,713 20 0.19 % Money market deposits 4,727 2 0.17 % 5,095 2 0.16 % Certificates of deposit 77,122 165 0.86 % 86,052 260 1.21 % Total interest-bearing deposits 223,689 218 0.39 % 203,854 304 0.60 %Federal Home Loan Bank advances and other borrowings 4,156 21 2.02 % 51,611 224 1.74 % Total interest-bearing liabilities 227,845 239 0.42 % 255,465 528 0.83 % Noninterest-bearing demand deposits 13,254 12,495 Other noninterest-bearing liabilities 2,951 3,683 Total liabilities 244,050 271,643 Total shareholders' equity 99,157 55,318 Total liabilities and shareholders' equity$ 343,207 $ 326,961 Net interest income$ 3,329 $ 2,801 Net interest rate spread (2) 3.93 % 3.41 % Net interest-earning assets (3)$ 100,097 $ 58,542 Net interest margin (4) 4.06 % 3.57 % Average interest-earning assets to interest-bearing liabilities 1.44x 1.23x (1) Annualized. (2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities. (3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (4) Net interest margin represents net interest income divided by average total interest-earning assets. 38
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The following table presents the effects of changing rates and volumes on our net interest income for the three months endedMarch 31, 2022 and 2021. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of 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. For the Three Months ended
Increase (Decrease) Due to Total Increase
Volume Rate (Decrease)
(In thousands)
Interest-earning assets:
Loans (excluding PPP loans) $ 1,641 $ (1,279 ) $ 362
PPP Loans (654 ) 512 (142 )
Securities 71 (47 ) 24
Federal Home Loan Bank stock (82 ) 70 (12 )
Federal funds sold (10 ) 17 7
Total interest-earning assets 966 (727 ) 239
Interest-bearing liabilities:
Interest-bearing demand Deposits 153 (150 ) 3
Regular savings and other deposits 24 (18 ) 6
Money market deposits (1 ) 1 -
Certificates of deposit (108 ) 13 (95 )
Total interest-bearing deposits 68 (154 ) (86 )
Federal Home Loan Bank advances (826 ) 623 (203 )
Total interest bearing liabilities (758 ) 469 (289 )
Change in net interest income $ 1,724 $ (1,196 ) $ 528
Comparison of Operating Results for the Three months ended
General. Net income was$1.0 million for the three months endedMarch 31, 2022 , compared to net income of$785,000 for the three months endedMarch 31, 2021 . The increase in net income was primarily due to the increase in interest income from the increase in loans. Interest Income. Interest income increased$239,000 , or 7.2%, to$3.6 million for three months endedMarch 31, 2022 from$3.3 million for the three months endedMarch 31, 2021 . The increase was due primarily to a increase in interest income on loans (excluding PPP loans), which is our primary source of interest income. Interest income on loans (excluding PPP loans) increased$362,000 , or 12.0%, to$3.4 million for the three months endedMarch 31, 2022 from$3.0 million for the three months endedMarch 31, 2021 . Our average balance of loans (excluding PPP loans) increased$31.3 million , or 13.6% for the three months endedMarch 31, 2022 , to$261.0 million for three months endedMarch 31, 2022 from$229.7 million for the three months endedMarch 31, 2021 . The increase is due to our decision to retain longer-term, fixed-rate loans instead of selling them, and also due to commercial lending increasing. Our weighted average yield on loans (excluding PPP loans) decreased seven basis points to 5.17% for the three months endedMarch 31, 2022 compared to 5.24% for the three months endedMarch 31, 2021 . We recognized$36,000 of interest income on PPP loans during the three months ended 39
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March 31, 2022 , compared to$178,000 during the three months endedMarch 31, 2021 . This was due to the majority of loans had already been paid off by SBA in 2021. Interest Expense. Interest expense decreased$289,000 or 54.7% to$239,000 for the three months endedMarch 31, 2022 compared to$528,000 for the three months endedMarch 31, 2021 . The decrease was due to decreases in rates for deposits as well a paying off the borrowings balances. Interest expense on deposits decreased$86,000 , or 28.3%, to$218,000 for the three months endedMarch 31, 2022 compared to$304,000 for the three months endedMarch 31, 2021 . The decrease was due primarily to a decrease in certificates of deposit. Interest expense on certificates of deposit decreased$95,000 , or 36.5%, to$165,000 for the three months endedMarch 31, 2022 , compared to$260.000 for the three months endedMarch 31, 2021 . We experienced decreases in both the average balance of certificates of deposit ($8.9 million , or 10.4%) for the three months endedMarch 31, 2022 and 2021, and rates paid on certificates of deposit (35 basis points, to 0.86%) for the three months endedMarch 31, 2022 . We have allowed higher-rate certificates of deposit to run off during the current interest rate environment, and rates have decreased due to changes in market interest rates. Interest expense on borrowings decreased$203,000 , or 90.6%, to$21,000 for the three months endedMarch 31, 2022 , compared to$224,000 for the three months endedMarch 31, 2021 . The average balance of borrowings decreased$47.5 million , or 91.9% to$4.2 million for the three months endedMarch 31, 2022 , compared to$51.6 million for the three months endedMarch 31, 2021 . The average rate paid on borrowings increased 28 basis points to 2.02% for the three months endedMarch 31, 2022 compared to 1.74% for the three months endedMarch 31, 2021 . The increase was due to paying off lower rate advances in 2022 and 2021, recognizing a gain within non interest income. Net Interest Income. Net interest income increased$528,000 , or 18.9%, to$3.3 million for the three months endedMarch 31, 2022 from$2.8 million for the three months endedMarch 31, 2021 . Our interest rate spread increased 52 basis points to 3.93% for the three months endedMarch 31, 2022 , compared to 3.41% for the three months endedMarch 31, 2021 . Our interest margin increased 49 basis points to 4.06% for the three months endedMarch 31, 2022 compared to 3.57% for the three months endedMarch 31, 2021 . Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management's ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and nonaccrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. After an evaluation of these factors,$40,000 and$0 was recorded in the provision for loan losses for the three months endedMarch 31, 2022 and 2021. Our allowance for loan losses was$2.44 million atMarch 31, 2022 compared to$2.41 million atDecember 31, 2021 and$2.36 million atMarch 31, 2021 . The ratio of our allowance for loan losses to total loans was 0.91% atMarch 31 , 40
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2022 compared to 0.94% atDecember 31, 2021 and 0.99% atMarch 31, 2021 , while the allowance for loan losses to non-performing loans was 18,815.4% atMarch 31, 2022 compared to 810.1% atDecember 31, 2021 . We had no charge-offs or recoveries for the three months endedMarch 31, 2022 compared to$2,000 of charge-offs and no recoveries during the three months endedMarch 31, 2021 . To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate atMarch 31, 2022 . Non-interest Income. Non-interest income decreased$46,000 to$420,000 for the three months endedMarch 31, 2022 from$466,000 for the three months endedMarch 31, 2021 . The decrease was due to a decrease in gain on sale of mortgage loans, offset by gains recognized due to prepayment ofFederal Home Loan Bank advances. Non-interest Expense. Non-interest expense increased$134,000 , or 5.9%, to$2.4 million for the three months endedMarch 31, 2022 compared to$2.3 million for the three months endedMarch 31, 2021 . The increase was primarily due to an increase in professional advisory and supervisory fees of$72,000 or 64.9% due to increased cost of our vendors and additional services required for 2022 for new regulatory requirements.
Income Tax Expense. We recognized income tax expense of
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 theFederal Home Loan Bank of Atlanta . AtMarch 31, 2022 andDecember 31, 2021 , we had a$105.8 million and$111.3 million line of credit with theFederal Home Loan Bank of Atlanta , and had$0 and$18.5 million outstanding as of those dates, respectively. In addition, atMarch 31, 2022 , we had an unsecured federal funds line of credit of$10.0 million . No amount was outstanding on this line of credit atMarch 31, 2022 . While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was$963,000 and$684,000 for the three months endedMarch 31, 2022 and 2021, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of investment securities and bank owned life insurance, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was$23.3 million and$5.9 million for the three months 41
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endedMarch 31, 2022 and 2021, respectively. Net cash provided by (used in) financing activities, consisting primarily of activity in deposit accounts and proceeds fromFederal Home Loan Bank borrowings, offset by repayment ofFederal Home Loan Bank borrowings, was$(954,000) and$2.1 million for the three months endedMarch 31, 2022 and 2021, respectively. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. AtMarch 31, 2022 ,Cullman Savings Bank exceeded all of its regulatory capital requirements, and was categorized as well capitalized. Management is not aware of any conditions or events since the most recent notification that would change our category.
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