Cullman Bancorp, Inc.

What they do

Cullman Bancorp operates as a savings institution, taking deposits and making loans, primarily in its local market areas. Its main lending activity is residential and commercial real estate loans, funded largely by deposits. The company also holds a securities portfolio, including available-for-sale securities and mortgage-backed securities.

Revenue drivers

• Commercial real estate loans — The largest loan category, at $104.7 million at March 31, 2024, up 3.4% from year-end 2023. Interest income on loans is the primary source of interest income.
• Other loan categories — Residential and other loans make up the remainder of the gross loan portfolio, which totaled $346.3 million at March 31, 2024. Total interest income was $19.4 million for 2023.
• Securities portfolio — Securities available for sale were $27.7 million at March 31, 2024, down 2.2% from year-end 2023 due to paydowns and increased unrealized losses. This generates interest income and provides liquidity.

Recent performance

For the full year 2023, net income was $4.0 million, a decrease of 5.5% from $4.2 million in 2022. Interest income rose 17.7% to $19.4 million, but interest expense surged 213.3% to $4.3 million, driven by higher deposit and borrowing costs. The provision for credit losses was $294,000 in 2023, down from $438,000 in 2022. Total assets decreased 2.7% to $411.6 million at December 31, 2023, due to an 8.2% decline in deposits to $269.0 million. In the first quarter of 2024, total assets increased 2.2% to $420.7 million, with cash up 33.1% to $17.3 million and gross loans up 1.1% to $346.3 million.

Strategy

Management has held excess cash to increase liquidity, as noted in the first quarter 2024 MD&A. The company adopted the CECL accounting standard on January 1, 2023, which changed how credit losses are estimated. It is an emerging growth company and has opted to delay adoption of new or revised accounting pronouncements until they apply to private companies. No other specific strategic initiatives are disclosed in the provided excerpts.

Risks

• Interest rate risk — Changes in interest rates could reduce margins and yields, as evidenced by the 213.3% increase in interest expense in 2023.
• Deposit concentration and liquidity — Total deposits decreased 8.2% in 2023 to $269.0 million, which the company attributed to decreases in regular savings and other deposit categories.
• Credit risk — The allowance for credit losses to total loans was 0.95% at December 31, 2023, and the company recorded a $294,000 provision for credit losses in 2023.
• Regulatory and accounting changes — The company is subject to changes in laws and regulations affecting financial institutions, and as an emerging growth company it may delay adoption of new accounting standards.

Outlook

Management does not provide specific guidance in the provided excerpts. The company faces continued uncertainty related to interest rates, deposit levels, and general economic conditions. The recent listing-rule failure disclosed on July 8, 2024 may affect its status as a public company.