UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2020

~~For the quarterly period ended September 30, 2019~~

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .

~~For the transition period from~~to.

001-38680

(Commission File No.)

CBM BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland


~~Maryland~~		83-1095537
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2001 East Joppa Road, Baltimore, Maryland		21234
(Address of Principal Executive Offices)		(Zip Code)

~~410-665-7600~~

~~(Registrant’s telephone number, including area code)~~

~~Not Applicable~~

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

~~Securities registered or to be registered pursuant to Section 12(b) of the Act.~~

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 such reports), and (2) has been subject to such filing 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 and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

YES ☐ NO ☒

As of ~~November 14, 2019,~~August 10, 2020, the number of shares of common stock outstanding was ~~4,232,000.~~3,785,858.

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock		CBMB		The Nasdaq Capital Market LLC

CBM Bancorp, Inc.

Table of Contents


			Page No.

Part I. Financial Information


Item 1.	Financial Statements				3

Consolidated Statements of Financial Condition as of ~~September~~June 30, ~~2019~~2020 (unaudited) and December 31, ~~2018 (audited)~~2019				3

Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)				4

Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)				5

Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)				6

Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (unaudited)				7

	Notes to Consolidated Financial Statements			8


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			36


Item 3.	Quantitative and Qualitative Disclosures About Market Risk			46
		48

Item 4.	Controls and Procedures			46
		48

Part II. Other Information


Item 1.	Legal Proceedings			47
		49
~~Item1A.~~
Item 1A.	Risk Factors			47
		49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			47
		49

Item 3.	Defaults Upon Senior Securities			47
		49

Item 4.	Mine Safety Disclosures			47
		49

Item 5.	Other Information			47
		49

Item 6.	Exhibits			47
		49

Signatures				48	50

PART I – ~~FINANCIAL~~FINANCIAL INFORMATION

ITEM 1 – Consolidated Financial Statements

CBM Bancorp, Inc.

Consolidated Statements of Financial Condition

~~September~~June 30, ~~2019~~2020 (Unaudited) and December 31, ~~2018~~2019

							June 30,			December 31,
	September 30, 2019			December 31, 2018				2020			2019
Assets	(Unaudited)			(Audited)			(Unaudited)
Cash and due from banks	$	684,204		$	1,071,335		$	769,170		$	787,050
Interest-bearing deposits in other banks		9,469,132			17,775,425			27,825,870			5,200,071

Cash and cash equivalents		10,153,336			18,846,760			28,595,040			5,987,121

Time deposits in other banks		8,680,000			6,944,000			6,943,811			7,935,811
Securities available for sale, at fair value		41,812,969			37,447,423			23,119,556			37,090,591
Federal Home Loan Bank stock, at cost		279,100			245,200			623,400			300,400
Loans held for sale		1,753,583			211,107			2,433,882			1,730,430
Loans, net of unearned fees		147,027,779			143,508,813			166,076,772			159,624,611
Allowance for loan losses		(1,302,711	)		(1,188,352	)		(1,700,851	)		(1,379,150	)

Net loans		145,725,068			142,320,461			164,375,921			158,245,461
Accrued interest receivable		697,632			695,928			713,269			655,146
Bank-owned life insurance		4,704,918			4,609,357			4,761,471			4,723,825
Premises and equipment, net		1,849,508			1,924,518			1,778,251			1,828,666
Foreclosed real estate		845,000			865,000			775,000			845,000
Deferred income taxes		660,998			900,994			803,529			724,658
Prepaid expenses and other assets		590,136			402,344			357,772			334,470

Total assets	$	217,752,248		$	215,413,092		$	235,280,902		$	220,401,579

Liabilities and Stockholders’ Equity
Liabilities
Noninterest-bearing deposits	$	18,528,466		$	18,111,318		$	30,322,507		$	19,780,866
Interest-bearing deposits		136,719,084			135,638,917			139,050,351			136,660,007

Total deposits		155,247,550			153,750,235			169,372,858			156,440,873
Advances by borrowers for taxes and insurance		695,329			477,781			1,230,050			538,516
Federal Home Loan Bank advances								10,000,000			2,500,000
Accounts payable and other liabilities		1,042,046			838,301			906,441			986,814

Total liabilities		156,984,925			155,066,317			181,509,349			160,466,203

Commitments and contingencies		—			—			—			—

Equity
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued		—			—
Common stock, $.01 par value; authorized 24,000,000 shares; issued and outstanding 4,232,000 shares at September 30, 2019 and December 31, 2018		42,320			42,320
Stockholders’ Equity
Preferred stock, $.01 par value; authorized 1,000,000 shares; none issued								—			—
Common stock, $.01 par value; authorized 24,000,000 shares; issued and outstanding 3,798,758 shares at June 30, 2020 and 4,208,505 shares at December 31, 2019							37,988			42,085
Additional paid in capital		41,333,955			40,987,146			35,650,867			41,210,056
Retained earnings		23,082,219			22,336,134			21,758,976			23,243,847
Unearned common stock held by:
Employee Stock Ownership Plan		(2,793,120	)		(3,047,040	)		(2,539,200	)		(2,708,480	)
2019 Equity Incentive Plan		(1,409,321	)		—			(1,908,570	)		(2,357,994	)
Accumulated other comprehensive income		511,270			28,215			771,492			505,862

Total stockholders’ equity		60,767,323			60,346,775			53,771,553			59,935,376

Total liabilities and stockholders’ equity	$	217,752,248		$	215,413,092		$	235,280,902		$	220,401,579

The notes to consolidated financial statements are an integral part of these consolidated statements.

CBM Bancorp, Inc.

Consolidated Statements of Operations (Unaudited)

Three and Six Months Ended June 30, 2020 and 2019

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
		2020		2019		2020		2019

Interest and dividend income
Interest and fees on loans	$	1,979,917	$	1,824,909	$	3,945,364	$	3,552,192
Interest and dividends on investments		255,423		464,714		573,828		917,935

Total interest income		2,235,340		2,289,623		4,519,192		4,470,127

Interest expense
Interest on deposits		354,744		346,557		724,107		662,593
Interest on borrowings		20,027		—		36,161		—

Total interest expense		374,771		346,557		760,268		662,593

Net interest income		1,860,569		1,943,066		3,758,924		3,807,534

Provision for loan losses		150,000		60,000		325,000		150,000

Net interest income after provision for loan losses		1,710,569		1,883,066		3,433,924		3,657,534

Non-interest income
Service fees on deposit accounts		22,324		29,847		58,205		58,239
Income from bank-owned life insurance		19,072		19,113		37,646		37,628
Gain on sale of loans held for sale		172,168		19,023		286,818		34,272
Gain on sale of investment securities		96,672		—		143,223		—
Other non-interest income		31,125		36,657		60,449		66,777

Total non-interest income		341,361		104,640		586,341		196,916

Non-interest expense
Salaries, director fees and employee benefits		1,207,661		1,046,694		2,346,364		1,932,538
Premises and equipment		106,902		106,352		211,381		223,455
Data processing		143,277		138,687		284,418		278,580
Professional fees		132,336		162,449		247,653		285,137
FDIC premiums and regulatory assessments		16,587		27,711		33,174		57,926
Marketing		12,353		49,173		29,318		72,357
Provision for losses and costs on foreclosed real estate		75,098		26,359		77,990		29,174
Other operating expenses		167,004		202,124		344,561		379,667

Total non-interest expense		1,861,218		1,759,549		3,574,859		3,258,834

Income before income taxes		190,712		228,157		445,406		595,616

Income tax expense		60,096		55,802		141,027		151,238

Net income	$	130,616	$	172,355	$	304,379	$	444,378

Earnings per common share
Basic	$	0.04	$	0.04	$	0.08	$	0.11
Diluted	$	0.04	$	0.04	$	0.08	$	0.11

The notes to consolidated financial statements are an integral part of these consolidated statements.

CBM Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

Three and Six Months Ended June 30, 2020 and 2019

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
		2020			2019		2020		2019
Net income	$	130,616		$	172,355	$	304,379	$	444,378

Other comprehensive (loss) income

Unrealized (loss) gain on investment securities available for sale		(80,675	)		292,223		509,697		691,219
Reclassification adjustment for realized gain on investment securities available for sale included in net income	(96,672)				—	(143,223)			—

Total unrealized (loss) gain on investment securities available for sale	(177,347)			292,223		366,474		691,219
Income tax benefit (expense) relating to investment securities available for sale	48,802			(80,413)		(100,844)		(190,206)

Other comprehensive (loss) income		(128,545	)		211,810		265,630		501,013

Total comprehensive income	$	2,071		$	384,165	$	570,009	$	945,391

The notes to consolidated financial statements are an integral part of these consolidated statements.

CBM Bancorp, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Three and Six Months Ended June 30, 2020 and 2019

	Common Stock			Additional Paid-In Capital			Retained Earnings			Unearned ESOP Shares			Unearned RSA Shares			Accumulated Other Comprehensive Income				Total Stockholders’ Equity
Balance, April 1, 2020	$	38,617		$	36,653,283		$	23,417,610		$	(2,623,840	)	$	(2,357,994	)	$	900,037			$	56,027,713
Net income		—			—			130,616			—			—			—				130,616
Other comprehensive loss		—			—			—			—			—			(128,545	)			(128,545	)
Cash dividends, $0.50 per share		—			—			(1,789,250	)		—			—			—				(1,789,250	)
ESOP shares to be released		—			22,853			—			84,640			—			—				107,493
Vesting of restricted stock awards		—			(449,424	)		—			—			449,424			—				—
Repurchase of common stock		(629	)		(750,606	)		—			—			—			—				(751,235	)
Stock based compensation		—			174,761			—			—			—			—				174,761
Balance, June 30, 2020	$	37,988		$	35,650,867		$	21,758,976		$	(2,539,200	)	$	(1,908,570	)	$	771,492			$	53,771,553
Balance, January 1, 2020	$	42,085		$	41,210,056		$	23,243,847		$	(2,708,480	)	$	(2,357,994	)	$	505,862			$	59,935,376
Net income		—			—			304,379			—			—			—				304,379
Other comprehensive income		—			—			—			—			—			265,630				265,630
Cash dividends, $0.50 per share		—			—			(1,789,250	)		—			—			—				(1,789,250	)
ESOP shares to be released		—			50,784			—			169,280			—			—		��		220,064
Vesting of restricted stock awards		—			(449,424	)		—			—			449,424			—				—
Repurchase of common stock		(4,097	)		(5,504,157	)		—			—			—			—				(5,508,254	)
Stock based compensation		—			343,608			—			—			—			—				343,608
Balance, June 30, 2020	$	37,988		$	35,650,867		$	21,758,976		$	(2,539,200	)	$	(1,908,570	)	$	771,492			$	53,771,553
Balance, April 1, 2019	$	42,320		$	41,011,268		$	22,608,157		$	(2,962,400	)	$	—		$	317,418			$	61,016,763
Net income		—			—			172,355			—			—			—				172,355
Other comprehensive income		—			—			—			—			—			211,810				211,810
ESOP shares to be released		—			30,894			—			84,640			—			—				115,534
Repurchase of common stock for 2019 Equity Incentive Plan		—			—			—			—		(497,439)				—			(497,439)
Stock based compensation		—			89,306			—			—			—			—				89,306
Balance, June 30, 2019	$	42,320		$	41,131,468		$	22,780,512		$	(2,877,760	)	$	(497,439	)	$	529,228			$	61,108,329
Balance, January 1, 2019	$	42,320		$	40,987,146		$	22,336,134		$	(3,047,040	)	$	—		$	28,215			$	60,346,775
Net income		—			—			444,378			—			—			—				444,378
Other comprehensive income		—			—			—			—			—			501,013				501,013
ESOP shares to be released		—			55,016			—			169,280			—			—				224,296
Repurchase of common stock for 2019 Equity Incentive Plan		—			—			—			—		(497,439)				—			(497,439)
Stock based compensation		—			89,306			—			—			—			—				89,306
Balance, June 30, 2019	$	42,320		$	41,131,468		$	22,780,512		$	(2,877,760	)	$	(497,439	)	$	529,228			$	61,108,329

The notes to consolidated financial statements are an integral part of these consolidated statements.

CBM Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30, 2020 and 2019

	For the Six Months
	Ended June 30,
	2020			2019
Cash flows from operating activities:
Net income	$	304,379		$	444,378
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and accretion of securities		22,011			16,209
Gain on sale of loans held for sale		(286,818	)		(34,272	)
Originations of loans held for sale		(12,347,286	)		(1,569,156	)
Proceeds from sales of loans held for sale		11,930,652			1,814,535
Gain on sale of investment securities		(143,223	)		—
Amortization of deferred loan origination costs, net of fees		(152,015	)		(91,152	)
Provision for loan losses		325,000			150,000
Increase in accrued interest receivable		(58,123	)		(55,953	)
Increase in cash surrender value of life insurance		(37,646	)		(37,629	)
Depreciation and amortization		72,498			82,786
ESOP compensation expense		220,064			224,296
Stock based compensation expense		343,608			89,306
Writedown of foreclosed real estate		70,000			20,000
Deferred income tax benefit		(179,715	)		(2,326	)
Increase in prepaid expenses and other assets		(23,302	)		(3,187	)
Decrease in accounts payable and other liabilities		(80,373	)		(27,666	)
Net cash (used in) provided by operating activities		(20,289	)		1,020,169
Cash flows from investing activities:
Net maturities (purchases) of time deposits in other banks		992,000			(2,481,759	)
Purchases of available for sale securities		—			(12,649,423	)
Proceeds from maturities, payments and calls of available for sale securities		7,145,952			8,651,792
Proceeds from sales of investment securities		7,312,769			—
Purchases of Federal Home Loan Bank stock		(323,000	)		(33,900	)
Net increase in loans		(6,303,445	)		(1,003,348	)
Purchases of premises and equipment		(22,083	)		(13,151	)
Net cash provided by (used in) investing activities		8,802,193			(7,529,789	)
Cash flows from financing activities:
Net increase in deposits		12,931,985			4,026,170
Net increase in advances by borrowers		691,534			709,322
Net increase in FHLB advances		7,500,000			—
Repurchase common stock		(5,508,254	)		(497,439	)
Cash dividends on common stock		(1,789,250	)		—
Net cash provided by financing activities		13,826,015			4,238,053
Net increase (decrease) in cash and cash equivalents		22,607,919			(2,271,567	)
Cash and cash equivalents, beginning balance		5,987,121			18,846,760
Cash and cash equivalents, ending balance	$	28,595,040		$	16,575,193
Supplemental disclosure of cash flows information:
Cash paid for interest	$	760,630		$	662,735
Cash paid for income taxes		325,000			190,000

The notes to consolidated financial statements are an integral part of these consolidated statements.

CBM Bancorp, Inc.

~~Consolidated Statements of Operations (Unaudited)~~

~~Three and Nine Months Ended September 30, 2019 and 2018~~

   For the Three Months Ended    For the Nine Months Ended
   September 30,    September 30,
   2019 2018    2019    2018
Interest and dividend income

Interest and fees on loans
   $ 1,848,479 $ 1,703,567    $ 5,400,671    $ 4,996,564
Interest and dividends on investments
   468,301 226,982    1,386,236    521,303






Total interest income
   2,316,780 1,930,549    6,786,907    5,517,867






Interest expense

Interest on deposits
   367,558 253,311    1,030,152    696,724






Total interest expense
   367,558 253,311    1,030,152    696,724






Net interest income
   1,949,222 1,677,238    5,756,755    4,821,143
(Reversal of) provision for loan losses
   (60,000 ) 75,000    90,000    225,000






Net interest income after (reversal of) provision for loan losses
   2,009,222 1,602,238    5,666,755    4,596,143






Non-interest income

Service fees on deposit accounts
   33,828 33,635    92,068    101,171
Income from bank-owned life insurance
   57,933 67,746    95,561    108,681
Gain on sale of loans held for sale
   29,661 44,467    63,933    168,324
Othernon-interest income
   33,462 31,537    100,239    95,730






Totalnon-interest income
   154,884 177,385    351,801    473,906






Non-interest expense

Salaries, director fees and employee benefits
   1,122,656 810,946    3,055,194    2,389,235
Premises and equipment
   105,580 116,583    330,986    336,116
Data processing
   140,979 134,743    419,559    404,873
Professional fees
   140,315 65,943    425,452    224,455
FDIC premiums and regulatory assessments
   18,722 31,529    76,648    94,158
Marketing
   25,524 23,623    97,881    97,779
Provision for losses and costs on foreclosed real estate
   4,040 4,693    33,214    10,988
Other operating expenses
   187,603 161,438    565,319    456,165






Totalnon-interest expense
   1,745,419 1,349,498    5,004,253    4,013,769






Income before income taxes
   418,687 430,125    1,014,303    1,056,280
Income tax expense
   116,980 105,913    268,218    259,452






Net income
   $ 301,707 $ 324,212    $ 746,085    $ 796,828






Earnings per common share

Basic
   $ 0.08 $ 0.08    $ 0.19    $ 0.20
Diluted
   $ 0.08 $ 0.08    $ 0.19    $ 0.20

~~The notes to consolidated financial statements are an integral part of these consolidated statements.~~

~~CBM Bancorp, Inc.~~

~~Consolidated Statements of Comprehensive Income (Unaudited)~~

~~Three and Nine Months Ended September 30, 2019 and 2018~~

   For the Three Months Ended For the Nine Months Ended
   September 30, September 30,
   2019 2018 2019 2018
Net income
   $ 301,707 $ 324,212 $ 746,085 $ 796,828
Other comprehensive income (loss)

Unrealized (loss) gain on investment securities available for sale
   (24,776 ) (19,583 ) 666,443 (99,776 )
Income tax benefit (expense) relating to investment securities available for sale
   6,818 5,389 (183,388 ) 27,456


Other comprehensive (loss) income
   (17,958 ) (14,194 ) 483,055 (72,320 )


Total comprehensive income
   $ 283,749 $ 310,018 $ 1,229,140 $ 724,508

~~The notes to consolidated financial statements are an integral part of these consolidated statements.~~

~~CBM Bancorp, Inc.~~

~~Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)~~

~~Three and Nine Months Ended September 30, 2019 and 2018~~

   Common
Stock    Additional
Paid-In
Capital    Retained
Earnings    Unearned
ESOP
Shares Unearned
RRP Shares Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders’
Equity
Balance, July 1, 2019
   $ 42,320    $ 41,131,468    $ 22,780,512    $ (2,877,760 ) $ (497,439 ) $ 529,228 $ 61,108,329
Net income
   —      —      301,707    —   —   —   301,707
Other comprehensive loss
   —      —      —      —   —   (17,958 ) (17,958 )
ESOP shares committed to be released
   —      31,317    —      84,640 —   —   115,957
Repurchase of common stock for RRP
   —      —      —      —   (911,882 ) —   (911,882 )
Stock based compensation
   —      171,170    —      —   —   —   171,170








Balance, September 30, 2019
   $ 42,320    $ 41,333,955    $ 23,082,219    $ (2,793,120 ) $ (1,409,321 ) $ 511,270 $ 60,767,323








Balance, January 1, 2019
   $ 42,320    $ 40,987,146    $ 22,336,134    $ (3,047,040 ) $ —   $ 28,215 $ 60,346,775
Net income
   —      —      746,085    —   —   —   746,085
Other comprehensive income
   —      —      —      —   —   483,055 483,055
ESOP shares committed to be released
   —      86,333    —      253,920 —   —   340,253
Repurchase of common stock for RRP
   —      —      —      —   (1,409,321 ) —   (1,409,321 )
Stock based compensation
   —      260,476    —      —   —   —   260,476








Balance, September 30, 2019
   $ 42,320    $ 41,333,955    $ 23,082,219    $ (2,793,120 ) $ (1,409,321 ) $ 511,270 $ 60,767,323








Balance, July 1, 2018
   $ —      $ —      $ 22,135,628    $ —   $ —   $ (117,808 ) $ 22,017,820
Net income
   —      —      324,212    —   —   —   324,212
Other comprehensive loss
   —      —      —      —   —   (14,194 ) (14,194 )
Issuance of common stock
   42,320    41,220,201    —      —   —   —   41,262,521
Stock purchased by the ESOP
   —      —      —      (3,385,600 ) —   —   (3,385,600 )
ESOP shares committed to be released
   —      —      —      15,000 —   —   15,000








Balance, September 30, 2018
   $ 42,320    $ 41,220,201    $ 22,459,840    $ (3,370,600 ) $ —   $ (132,002 ) $ 60,219,759








Balance, January 1, 2018
   $ —      $ —      $ 21,653,191    $ —   $ —   $ (49,861 ) $ 21,603,330
Net income
   —      —      796,828    —   —   —   796,828
Other comprehensive loss
   —      —      —      —   —   (72,320 ) (72,320 )
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from accumulated other comprehensive loss
   —      —      9,821    —   —   (9,821 ) —
Issuance of common stock
   42,320    41,220,201    —      —   —   —   41,262,521
Stock purchased by the ESOP
   —      —      —      (3,385,600 ) —   —   (3,385,600 )
ESOP shares committed to be released
   —      —      —      15,000 —   —   15,000








Balance, September 30, 2018
   $ 42,320    $ 41,220,201    $ 22,459,840    $ (3,370,600 ) $ —   $ (132,002 ) $ 60,219,759

~~The notes to consolidated financial statements are an integral part of these consolidated statements.~~

~~CBM Bancorp, Inc.~~

~~Consolidated Statements of Cash Flows (Unaudited)~~

~~Nine Months Ended September 30, 2019 and 2018~~

   For the Nine Months
   Ended September 30,
   2019 2018
Cash flows from operating activities:

Net income
   $ 746,085 $ 796,828
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization and accretion of securities
   39,773 (5,634 )
Gain on sale of loans held for sale
   (63,933 ) (168,324 )
Originations of loans held for sale
   (4,957,118 ) (6,543,907 )
Proceeds from sales of loans held for sale
   3,478,575 7,507,438
Amortization of net deferred loan origination fees
   (196,565 ) (54,423 )
Provision for loan losses
   90,000 225,000
Increase in accrued interest receivable
   (1,704 ) (57,112 )
Increase in cash surrender value of life insurance
   (95,561 ) (105,187 )
Depreciation and amortization
   121,459 122,031
ESOP compensation expense
   340,253 15,000
Stock based compensation expense
   260,476 —
Writedown of foreclosed real estate
   20,000 —
Decrease in deferred income taxes
   17,681 224,050
Increase in prepaid expenses and other assets
   (187,792 ) (27,182 )
Increase (decrease) in accounts payable and other liabilities
   203,745 (10,918 )


Net cash (used in) provided by operating activities
   (184,626 ) 1,917,660


Cash flows from investing activities:

Net (purchases) maturities of time deposits in other banks
   (1,736,000 ) 992,000
Proceeds from maturities, payments and calls of available for sale securities
   13,921,440 1,000,000
Proceeds from maturities, payments and calls of held to maturity securities
   —   480,094
Purchases of available for sale securities
   (17,621,389 ) (958,044 )
Purchases of Federal Home Loan Bank stock
   (33,900 ) (3,100 )
Net increase in loans
   (3,298,042 ) (4,390,968 )
Proceeds from redemption of bank owned life insurance
   —   882,278
Purchases of premises and equipment
   (46,449 ) (112,111 )


Net cash used in investing activities
   (8,814,340 ) (2,109,851 )


Cash flows from financing activities:

Net increase in deposits
   1,497,315 890,521
Net increase in advances by borrowers
   217,548 88,661
Proceeds from issuance of common stock
   —   41,262,521
Purchase of ESOP shares
   —   (3,385,600 )
Repurchase of common stock for 2019 Equity Incentive Plan
   (1,409,321 ) —


Net cash provided by financing activities
   305,542 38,856,103


Net (decrease) increase in cash and cash equivalents
   (8,693,424 ) 38,663,912
Cash and cash equivalents, beginning balance
   18,846,760 12,030,272


Cash and cash equivalents, ending balance
   $ 10,153,336 $ 50,694,184


Supplemental disclosure of cash flows information:

Cash paid for interest
   $ 1,030,031 $ 696,976
Cash paid for income taxes
   190,000 —

~~The notes to consolidated financial statements are an integral part of these consolidated statements.~~

~~CBM Bancorp, Inc.~~

Notes to Consolidated Financial Statements

~~Note 1.~~

Note 1. Significant Accounting Policies

Basis of Presentation

Pursuant to the terms and conditions of a plan of conversion and reorganization, adopted by its Board of Directors and approved by its members, Banks of the Chesapeake, M.H.C. converted from the mutual holding company corporate structure to the public stock holding company structure as follows: CBM Bancorp, Inc. (“CBM Bancorp” or “Company”) was incorporated on May 22, 2018 to serve as the successor holding company for Chesapeake Bank of Maryland (“Bank”),which was at that time the wholly owned subsidiary of Banks of the Chesapeake, M.H.C. On September 27, 2018, in accordance with the plan of conversion and reorganization, CBM Bancorp became the parent holding company for the Bank and Banks of the Chesapeake, M.H.C. merged with and into CBM Bancorp, with the Company as the surviving corporation. Upon consummation of the merger, Banks of the Chesapeake, M.H.C. ceased to exist.

The conversion and reorganization was accomplished through the sale and issuance of 4,232,000 shares of common stock at a price of $10.00 per share, through which the Company received proceeds of approximately $40.9 million, net of offering expenses of approximately $1.4 million. Approximately 50% of the net proceeds of the offering, or $20.5 million was contributed by the Company to the Bank in return for 100% of the issued and outstanding shares of common stock of the Bank. In connection with the conversion and reorganization, the Bank’s Board of Directors adopted an employee stock ownership plan (the “ESOP”) which subscribed for 8% of the sum of the number of shares, or 338,560 shares of common stock sold in the offering.

The plan of conversion and reorganization provided for the establishment of a liquidation account by CBM Bancorp for the benefit of eligible account holders in an amount equal to the value of the net assets of Banks of the Chesapeake, M.H.C. as of the date of the latest statement of financial condition of Banks of the Chesapeake, M.H.C. prior to the consummation of the conversion and reorganization. The plan of conversion and reorganization also provided for the establishment of a parallel liquidation account in the Bank to support the CBM Bancorp liquidation account in the event CBM Bancorp does not have sufficient assets to fund its obligations under the CBM Bancorp liquidation account.

In the unlikely event that the Bank were to liquidate after the conversion and reorganization, all claims of creditors, including those of depositors, would be paid first. However, except with respect to the liquidation account to be established in CBM Bancorp, depositors’ claims would be solely for the principal amount of their deposit accounts plus accrued interest. Depositors generally would not have an interest in the value of the assets of the Bank or CBM Bancorp above that amount.

Pursuant to the plan of conversion and reorganization, after two years from the date of conversion and reorganization, and upon the written request of the Federal Reserve Board, CBM Bancorp will transfer, or upon the prior written approval of the Federal Reserve Board, CBM Bancorp may transfer, the liquidation account and the depositors’ interests in such account to the Bank, and the liquidation account shall thereupon be subsumed into the liquidation account of the Bank.

The Company may not pay a dividend on, or repurchase any of, its capital stock, if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements. In addition, the Company is subject to certain other regulations restricting the payment of dividends on, and the repurchase of, its capital stock.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form10-Q and Article 8 of RegulationS-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019,~~2020, or any other period. For further information, refer to the Bank’s annual audited consolidated financial statements and related notes for the year ended December 31, ~~2018~~2019 included in the Company’s Annual Report on Form10-K dated March 27, ~~2019.~~

2020.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 1.~~

~~Significant Accounting Policies (Continued)~~

Note 1. Significant Accounting Policies (Continued)

Nature of Operations

CBM Bancorp, Inc.’s primary business is the ownership and operation of the Bank, a community-oriented federal stock savings bank regulated by the Office of the Comptroller of the Currency. The Bank’s primary business activity is the acceptance of deposits from the general public and using the proceeds for loan originations and investments. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulations of certain federal agencies and undergoes periodic examinations by the regulatory authorities.

The accounting and reporting policies of CBM Bancorp, Inc. and Chesapeake Bank of Maryland conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to general practices in the banking industry. The more significant policies follow:

Principles of Consolidation

The consolidated financial statements include the accounts of CBM Bancorp, Inc. and the Bank, its wholly owned subsidiary. Material intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of deferred tax assets. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks and interest-bearing deposits in other ~~banks and federal funds sold. Generally federal funds are sold as overnight investments.~~banks.

Time Deposits in Other Banks

The Bank uses financial instruments to supplement the investment securities portfolio. Interest income is recognized as earned. Purchase premiums and discounts are recognized as part of interest income using the interest method over the terms of the investments. Realized gains and losses on the sale of time deposits in other banks are included in earnings based on the trade date and are determined using the specific identification method. Time deposits in other banks are not marked to market.

Investment Securities

Management determines the appropriate classification of debt securities at the time of purchase andre-evaluates such designation as of each balance sheet date. Securities that the Bank has the positive intent and ability to hold to maturity are classified as held to maturity and are reported at amortized cost (including amortization of premium or accretion of discount).

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies (Continued)

Securities classified as available for sale are carried at fair value and are those securities that the Bank intends to hold for an indefinite period of time but not necessarily to maturity. Unrealized gains and losses are reported as increases or decreases in other comprehensive income. Realized gains and losses, determined on the basis of the cost of the specific securities sold, are included in earnings on a trade date basis. Premiums and discounts are recognized in interest income using a method which approximates the interest method over the terms of the securities. Declines in the fair value of available for sale securities below their cost that are deemed to be other than

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 1.~~

~~Significant Accounting Policies (Continued)~~

temporary, if any, are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value

Federal Home Loan Bank Stock

Federal Home Loan Bank of Atlanta (“FHLB”) stock is an equity interest in the FHLB, which does not have a readily determinable fair value for purposes of Generally Accepted Accounting Standards related toAccounting for Certain Investments in Debt and Equity Securities,because its ownership is restricted and it lacks a market. FHLB stock represents the required investment in the common stock of the Federal Home Loan Bank of Atlanta according to a predetermined formula. FHLB stock can be sold back only at par value of $100 per share and only to the FHLB or another member institution. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank owned shares totaling ~~$279,100~~$623,400 and ~~$245,200,~~$300,400, respectively.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on loan sales are recorded innon-interest income, and loan origination fees, net of certain direct origination costs are deferred at origination of the loan and are recognized innon-interest income upon sale of the loan. The Bank’s current practice is to sell residential mortgage loans on a servicing released basis, and, therefore, it has no intangible asset recorded for the value of such servicing. Interest on loans held for sale is credited to income based on the principal amounts outstanding.

The Bank enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitment). Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. The period of time between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 90 days. The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that ~~the~~they buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best ~~efforts.~~efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates.

Loans held for sale that are not ultimately sold, but instead are placed into the Bank’s portfolio, are reclassified as loans held for investment and recorded at fair value.

Loans

Loans are generally carried at the amount of unpaid principal, less the allowance for loan losses and adjusted for deferred loan origination fees and costs, which are recognized over the term of the loan as an adjustment to yield using a method that approximates the interest method. Interest on loans is accrued based on the principal amounts outstanding. It is the Bank’s policy to discontinue the accrual of interest when the principal or interest is delinquent for 90 days or more, or if collection of principal and interest in full is in doubt.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies (Continued)

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The carrying value of impaired loans is based on the present value of the loan’s expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 1.~~

~~Significant Accounting Policies (Continued)~~

Impaired loans also include certain loans that have been modified in a troubled debt restructuring (“TDR”) to make concessions to help a borrower remain current on the loan and/or to avoid foreclosure. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Generally, nonaccrual loans that are modified and are considered TDRs are classified as nonperforming at the time of the restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely. The Bank maintains the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. The evaluation process by portfolio segment includes, among other things, an analysis of delinquency trends,non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of the loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, local economic conditions and industry experience.

The establishment of the allowance for loan losses is significantly affected by management’s judgment and uncertainties, and there is likelihood that different amounts would be reported under different conditions or assumptions. The Office of the Comptroller of the Currency as an integral part of its examination process periodically reviews the allowance for loan losses and may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.

The Bank’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. 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 assets characterized by the distinct possibility that we 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 (or portions of assets) classified as loss, are those considered uncollectible and of such little value that their recognition as assets is not justified. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are required to be designated as special mention.

The establishment of the allowance for loan losses is significantly affected by management’s judgment and uncertainties, and there is likelihood that different amounts would be reported under different conditions or assumptions. While the Bank utilizes available information to recognize losses on loans, future additions to the allowances for loan losses may be necessary based on changes in economic conditions, particularly in its’ market area primarily in the state of Maryland. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination. Actual loan losses may be significantly more than the allowance for loan and lease losses the Bank has established, which could have a material negative effect on our consolidated financial statements.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies (Continued)

Bank-Owned Life Insurance (“BOLI”)

The Bank maintains life insurance policies on certain present and former directors. These policies are split-dollar or director insurance policies. Under the split-dollar insurance policies, the Bank pays the premiums and upon the death of the insured, the Bank will receive an amount equal to the premiums paid on the policy from the policy date to the date of death. Any remaining proceeds will be paid to the beneficiary. If the policy is surrendered before the date of death, the Bank will receive the lesser of the cash surrender value or the sum of the premiums paid on the policy from the policy date to the date of surrender. Under the director insurance policies, the Bank receives the cash surrender value if the policy is surrendered or receives all benefits payable upon the death of the insured. As of ~~September~~June 30, ~~2019,~~2020 and December 31, ~~2018, $122,373~~2019, $121,753 and ~~$129,775,~~$122,118, respectively, was included in other liabilities related to the split-dollar insurance policies.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note1.~~

~~Significant Accounting Policies (Continued)~~

Premises and Equipment

Land is carried at cost. Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over estimated useful lives of assets. Amortization of leasehold improvements is recognized on a straight-line basis over the term of the lease or the life of the improvement, whichever is shorter. The cost of maintenance and repairs is charged to expense as incurred whereas improvements are capitalized. The range of estimated useful lives for premises and equipment are as follows:


Buildings and land improvements			5 –- 50 years
Leasehold improvements			10 –- 15 years
Furniture, fixtures and equipment			3 – 10 years
Automobile			5 years

Foreclosed Real Estate

Real estate acquired through foreclosure or other means is recorded at the fair value of the related real estate collateral at the transfer date less estimated selling costs. Losses incurred at the time of the acquisition of the property are charged to the allowance for loan losses. Subsequent reductions in the estimated fair value of the property are included in noninterest expense. Costs to maintain foreclosed real estate are expensed as incurred.

Employee Stock Ownership Plan (“ESOP”)

Compensation expense is recognized based on the current market price of shares committed to be released to employees. All shares released and committed to be released are deemed outstanding for purposes of earnings per share calculations. Dividends declared and paid on allocated shares held by the ESOP are charged to retained earnings. The value of unearned shares to be allocated to ESOP participants for future services not yet performed is reflected as a reduction of stockholders’ equity. Dividends declared on unallocated shares held by the ESOP are recorded as a reduction of the ESOP’s loan payment to the Company.

Stock-Based Compensation

Compensation cost is recognized for stock options and restricted stock awards (“~~RRP”~~RSA”) issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for ~~RRPs.~~RSAs. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies (Continued)

Income Taxes

The provision for income taxes includes taxes payable for the current year and deferred income taxes. Deferred income taxes are provided for the temporary differences between financial and taxable income. Deferred income taxes and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted through earnings for the effects of changes in tax laws and rates on the date of enactment.

Earnings per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Weighted average shares include allocated ESOP shares and ESOP shares committed to be released but exclude unallocated ESOP shares. Diluted earnings per share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 1.~~

~~Significant Accounting Policies (Continued)~~

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Bank has entered intooff-balance sheet financial instruments consisting of commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized on the balance sheet. Such financial instruments are recorded when they are funded.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments is represented by the contractual amount of these instruments. The Bank uses the same credit policies for these instruments as it does for theon-balance sheet instruments.

Concentrations of Credit Risk

The Bank ~~had $0 and approximately $128,000 in~~did not have deposits in other financial institutions in excess of amounts insured by the FDIC, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019. The Bank’s management considers ~~this~~deposits in excess of amounts insured by the FDIC to be a normal business risk. The Bank also maintains accounts with brokerage firms containing securities. These balances are insured up to $500,000 by the Securities Investor Protection Corporation.

Emerging Growth Company

The Company, as an emerging growth company (“EGC”), has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law. The CARES ACT creates a forbearance program for federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the National Emergency, and provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. The CARES Act also provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1. Significant Accounting Policies (Continued)

Recent Accounting Pronouncements

ASU2016-02, Leases (Topic 842). This ASU provides certain targeted improvements to align lessor accounting with the lessee accounting model. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, including interim reporting periods within that reporting period, for public business entities. As the Company will take advantage of the extended transition period for complying with new or revised accounting standards assuming we remain ~~an emerging growth~~a smaller reporting company, ~~(“EGC”),~~ we will adopt the amendments in this update beginning after December 15, ~~2019,~~2021, and interim periods ~~with~~within fiscal years beginning after December 15, ~~2019.~~2022. A modified retrospective approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The adoption of this ASU is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

ASU2016-13, Financial Instruments – Credit Losses. The ASU sets forth a “current expected credit loss” (CECL) model which requires the Bank to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to someoff-balance sheet credit exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities. As the Company will take advantage of the extended transition period for complying with new or revised accounting standards assuming we remain an EGC, we will adopt the amendments in this update beginning after December 15, 2020, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect (i.e., modified retrospective approach). The Company has begun to gather loan information and consider acceptable methodologies to comply with this ASU. The Company’s initial evaluation indicates that the provisions of this ASU are expected to impact its consolidated financial statements, in particular the level of reserve for loan ~~losses. The Company~~losses and is continuing to evaluate and assess the impact of the adoption of this ASU on its consolidated financial statements. ~~In July 2019, the FASB proposed changes to the effective date for smaller reporting companies, as defined by the SEC, and othernon-SEC~~ reporting entities. The proposal would delay the effective date to fiscal years beginning after December 31, 2022, including interim periods within those fiscal periods. As the Company is a smaller reporting company for fiscal year 2020, the proposed delay would be applicable. On October 16, 2019, the FASB approved its proposal to delay the effective date for smaller reporting companies, as defined by the SEC, and othernon-SEC reporting ~~entities and plans to release~~entities. As the Company will take advantage of the extended transition period for complying with new or revised accounting standards assuming we remain a ~~final ASU~~smaller reporting company, we will adopt the amendments in~~mid-November.~~ this update beginning after December 15, 2022, including interim periods within those fiscal years.

Note 2. Securities

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 2.~~

~~Securities~~

The amortized cost and estimated fair value of securities classified as available for sale at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, are as follows:


	September 30, 2019								June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale
U.S. Government and Federal Agency obligations	$	12,469,206	$	90,381	$	11,048	$	12,548,539	$	5,498,134	$	101,520	$	—	$	5,599,654
Residential mortgage-backed securities		27,133,387		643,311		54,517		27,722,181		16,557,039		962,863		—		17,519,902
Municipal securities		1,505,006		37,243		—		1,542,249

	$41,107,599		$770,935		$65,565		$41,812,969		$	22,055,173	$	1,064,383	$	—	$	23,119,556


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale
U.S. Government and Federal Agency obligations	$	18,264,805	$	45,850	$	90,583	$	18,220,072
Residential mortgage-backed securities		17,637,729		111,837		4,580		17,744,986
Municipal securities		1,505,962		—		23,597		1,482,365

	$37,408,496		$157,687		$118,760		$37,447,423

	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities Available for Sale
U.S. Government and Federal Agency obligations	$	9,472,370	$	76,651	$	4,679	$	9,544,342
Residential mortgage-backed securities		25,415,647		638,856		43,964		26,010,539
Municipal securities		1,504,664		31,046		—		1,535,710

	$	36,392,681	$	746,553	$	48,643	$	37,090,591

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 2. Securities (Continued)

Proceeds from the sale of available for sale securities totaled $5,747,032 and $7,312,769 realizing gross gains of $96,672 and $143,223 for the three and six months ended June 30, 2020, respectively. There were no sales of investment securities for the three and six months ended June 30, 2019.

The amortized cost and estimated fair value of securities as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

					June 30, 2020
	September 30, 2019				Securities Available for Sale
	Securities Available for Sale				Amortized		Fair
	Amortized Cost		Fair Value		Cost		Value
Due in one year or less	$	6,998,531	$	7,021,652	$	—	$	—
Due after one year through five years		6,472,992		6,543,821		5,498,134		5,599,654
Due five years to ten years		502,689		525,315		—		—
Due after ten years		—		—		—		—
Mortgage-backed, in monthly installments		27,133,387		27,722,181		16,557,039		17,519,902
					$	22,055,173	$	23,119,556
	$ 41,107,599		$ 41,812,969

	December 31, 2019
	Securities Available for Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,000,000	$	998,407
Due after one year through five years		9,474,467		9,560,135
Due five years to ten years		502,567		521,510
Due after ten years		—		—
Mortgage-backed, in monthly installments		25,415,647		26,010,539
	$	36,392,681	$	37,090,591

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 2.~~

~~Securities (Continued)~~

   December 31, 2018
   Securities Available for Sale
   Amortized
Cost    Fair
Value
Due in one year or less
   $ 1,000,000    $ 989,119
Due after one year through five years
   14,453,375    14,391,553
Due five years to ten years
   4,317,392    4,321,765
Due after ten years
   —      —
Mortgage-backed, in monthly installments
   17,637,729    17,744,986




   $ 37,408,496    $ 37,447,423

The Bank did not have any securities with gross unrealized losses at June 30, 2020. Securities with gross unrealized losses at ~~September 30, 2019 and~~ December 31, ~~2018~~2019 aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:


	September 30, 2019												December 31, 2019
	Less than 12 Months				12 Months or Greater				Total				Less than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Securities Available for Sale
U.S. Government and Federal Agency obligations	$	—	$	—	$	1,988,952	$	11,048	$	1,988,952	$	11,048	$	—	$	—	$	1,995,321	$	4,679	$	1,995,321	$	4,679
Residential mortgage-backed securities		5,049,621		54,517		—		—		5,049,621		54,517		4,862,213		43,964		—		—		4,862,213		43,964
													$	4,862,213	$	43,964	$	1,995,321	$	4,679	$	6,857,534	$	48,643
	$5,049,621		$54,517		$1,988,952		$11,048		$7,038,573		$65,565


	December 31, 2018
	Less than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Securities Available for Sale
U.S. Government and Federal Agency obligations	$	963,945	$	63	$	4,408,553	$	90,520	$	5,372,498	$	90,583
Residential mortgage-backed securities		2,838,108		4,580		—		—		2,838,108		4,580
Municipal obligations		—		—		1,482,365		23,597		1,482,365		23,597

	$ 3,802,053		$ 4,643		$ 5,890,918		$ 114,117		$ 9,692,971		$ 118,760

At June 30, 2020, the Bank held no investments with gross unrealized losses. At December 31, 2019, the Bank held seven investments with gross unrealized losses totaling $48,643. The unrealized losses that existed were a result of market changes in interest rates since the original purchase. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include (1) duration and magnitude of the decline in value, (2) the financial condition of the issuer or issuers and (3) structure of the security.

The Bank transferred during 2018 its entire held to maturity portfolio of residential mortgage-backed securities to available for sale. The securities were transferred at a fair market value of $2,923,932 with a corresponding adjustment to accumulated other comprehensive income in the amount of $56,276 to account for the unrealized gain in the investment securities at the date of transfer. The Bank is prohibited from classifying any investments as held to maturity for the next two years.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 2.~~

~~Securities (Continued)~~

At September 30, 2019, the Bank held six investments with gross unrealized losses totaling $65,565. At December 31, 2018, the Bank held twelve investments with gross unrealized losses totaling $118,760.Note 2. Securities (Continued)

An impairment loss is recognized in earnings if any of the following are true: (1) the Bank intends to sell the debt security; (2) it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis; or (3) the Bank does not expect to recover the entire amortized cost basis of the security. In

situations where the Bank intends to sell or when it is more likely than not that the Bank will be required to sell the security, the entire impairment loss must be recognized in earnings. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in equity as a component of other comprehensive income, net of deferred tax.

There were no securities pledged as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Note 3.~~

Note 3. Loans

The Bank makes loans to customers primarily in the Baltimore Metropolitan Area and its surrounding counties. The principal loan portfolio segment balances at September 30, 2019 and December 31, 2018 were as follows:

   September 30,
2019    December 31,
2018
Real estate loans

One-to four-family
   $ 70,415,865    $ 70,197,875
Home equity loans and lines of credit
   6,889,663    7,547,195
Construction and land development
   9,089,247    8,232,067
Nonresidential
   53,585,416    51,904,782




Total real estate loans
   139,980,191    137,881,919




Other loans

Commercial
   6,694,040    5,250,815
Consumer
   543,943    529,283




Total other loans
   7,237,983    5,780,098




Total loans
   147,218,174    143,662,017




Net deferred loan origination fees
   (190,395 )    (153,204 )
Allowance for loan losses
   (1,302,711 )    (1,188,352 )




Total loans, net
   $ 145,725,068    $ 142,320,461

Overdraft deposits are reclassified as consumer loans and are included in the total loans on the balance sheet. Overdrafts were $13,008 and $7,824 at September 30, 2019 and December 31, 2018, respectively.

~~Portfolio segments~~

The Bank currently manages its credit products and respective exposure to credit losses by the following specific portfolio segments ~~(classes)~~ which are levels at which the Bank develops and documents its systematic methodology to determine the allowance for loan losses attributable to each respective portfolio segment. The segments are:

One-to four-family real estate loans – This residential real estate category contains permanent mortgage loans and construction permanent mortgage loans to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores,debt-to-income ratios, and collateral values. Loans may either be conforming ornon-conforming.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 3.~~

~~Loans (Continued)~~

Home equity loans and lines of credit – This residential real estate category includes mortgage loans and lines of credit secured byone-to four-family residential real estate. These loans are typically secured with second mortgages on the homes.

Construction and land development – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties and include loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

Nonresidential real estate loans – Nonresidential real estate loans consist of commercial permanent mortgage loans and commercial construction permanent mortgage loans secured by owner occupied andnon-owner occupied properties. Owner occupied commercial property loans involve a variety of property types to conduct the borrower’s operations. The primary source of repayment for this type of loan is the cash flow from the business and is based upon the borrower’s financial health and ability of the borrower and the business to repay.Non-owner occupied commercial property loans involve investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. This real estate category contains commercial mortgage loans to the developers and owners of commercial real estate where the borrower intends to operate or sell the property at a profit and use the income stream or proceeds from the sale to repay the loan.

Commercial loans – - Commercial loans are made to provide funds for equipment and general corporate needs. Repayment of the loan primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or finance a percentage of eligible receivables and inventory. Commercial loans include Paycheck Protection Program loans.

Consumer loans – This category of loans includes primarily installment loans, personal lines of credit. Consumer loans include installment loans used by customers to purchase automobiles, boats and recreational vehicles.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

The Bank makes loans to customers primarily in the Baltimore Metropolitan Area and its surrounding counties. The principal loan portfolio segment balances at June 30, 2020 and December 31, 2019 were as follows:

	June 30,			December 31,
	2020			2019
Real estate loans
One-to four-family	$	73,149,556		$	74,655,376
Home equity loans and lines of credit		7,412,377			7,488,348
Construction and land development		8,965,295			9,260,520
Nonresidential		61,143,526			61,012,514
Total real estate loans		150,670,754			152,416,758
Other loans
Commercial		15,510,905			6,946,372
Consumer		407,304			522,566
Total other loans		15,918,209			7,468,938
Total loans		166,588,963			159,885,696
Net deferred loan origination fees and costs		(512,191	)		(261,085	)
Allowance for loan losses		(1,700,851	)		(1,379,150	)
Total loans, net	$	164,375,921		$	158,245,461

Overdraft deposits are reclassified as consumer loans and are included in the total loans on the balance sheet. Overdrafts were $11,100 and $25,714 at June 30, 2020 and December 31, 2019, respectively.

Nonresidential real estate loans entail greater risks compared to residential real estate loans because they typically involved larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the company, as repayment of the loan generally is dependent, in large part, on the sufficient income for the property to cover operating expenses and debt service. Changes in economic conditions, such as the COVID-19 pandemic, that are not in the control of the borrower or lender could negatively impact the value of the collateral for the loan or the future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for nonresidential real estate than residential properties.

The following table provides information regarding our nonresidential real estate loans by type at June 30, 2020.

Type of Loan	Number of Loans		Balance
Office		31	$	15,513,263
Retail		16		12,379,896
Warehouse/Industrial		16		10,925,774
Apartment/Multifamily		17		8,759,416
Hotel		5		7,465,906
Other		12		3,290,150
Restaurant		5		1,904,810
Religious/Church Related		5		904,311
		107	$	61,143,526

Paycheck Protection Program

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”).

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 3. Loans (Continued)

As a qualified SBA lender, we were automatically authorized to originate PPP loans. An eligible business was able apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly “payroll costs,” or (2) $10.0 million dollars. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year or five-year loan term to maturity depending on the date of loan origination; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business entity are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

We limited our investment in PPP loans to 20% of the Bank’s capital or approximately $8.6 million in loans. As of June 30, 2020, we had received and processed 101 PPP loan applications for qualified borrowers for $8,563,898, with deferred fees relating to PPP loans in the amount of $243,651.

~~Note 4.~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses

The allowance for loan losses is maintained at a level to provide for losses that are probable and can be reasonably estimated. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss experience, known and inherent losses in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change, including the amounts and timing of future cash flows expected to be received on impaired loans.

The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as impaired. The general component coversnon-impaired loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. Determinations as to the classification of assets and the amount of loss allowances are subject to review by our principal federal regulator, the Office of the Comptroller of the Currency, which can require that we establish additional loss allowances. The Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

A loan is considered past due or delinquent when a contractual payment is not paid on the day it is due. A loan in considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on acase-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for all loans secured by real estate by the fair value of the collateral if the loan is collateral dependent. If the loan repayment is not deemed collateral dependent, impairment is measured on the net present value of the expected discounted future cash flows.

Loans are automatically placed onnon-accrual status when payment of principal or interest is more than 90 days delinquent. Loans are also placed onnon-accrual status if collection of principal or interest in full is in doubt or if the loan has been restructured. When loans are placed onnon-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if unpaid principal and interest are repaid so that the loan is less than 90 days delinquent. The Bank’scharge-off policy states after all collection efforts have been exhausted, the loan is deemed to be a loss and the amount has been determined, the loss amount will be charged to the allowance for loan losses.

The following tables summarize the activity in the allowance for losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and for the year ended December 31, ~~2018~~2019 and the distribution of the allowance for loan losses and loans receivable by loan portfolio class and impairment method as of ~~September~~June 30, ~~2019, September~~2020, June 30, ~~2018~~2019 and December 31, ~~2018.~~2019.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

   As of September 30, 2019
   One –to
Four-Family Home Equity
Loans and Lines
of Credit Construction
and Land
Development Nonresidential Commercial Consumer    Unallocated    Total
Allowance for loans losses:

Beginning Balance – July 1, 2019
   $ 340,637 $ 60,589 $ 165,934 $ 583,285 $ 55,079 $ 6,404    $ 76,588    $ 1,288,516
Charge-offs
   (40,275 ) —   —   —   —   —      —      (40,275 )
Recoveries
   —   —   —   114,470 —   —      —      114,470
Reversal of provision
   21,542 (5,436 ) 17,464 (94,637 ) (1,527 ) 504    2,090    (60,000 )






Ending Balance – September 30, 2019
   $ 321,904 $ 55,153 $ 183,398 $ 603,118 $ 53,552 $ 6,908    $ 78,678    $ 1,302,711






Beginning Balance – January 1, 2019
   $ 244,781 $ 68,837 $ 185,170 $ 626,031 $ 28,879 $ 6,669    $ 27,985    $ 1,188,352
Charge-offs
   (90,111 ) —   —   —   —   —      —      (90,111 )
Recoveries
   —   —   —   114,470 —   —      —      114,470
Provision
   167,234 (13,684 ) (1,772 ) (137,383 ) 24,673 239    50,693    90,000






Ending Balance – September 30, 2019
   $ 321,904 $ 55,153 $ 183,398 $ 603,118 $ 53,552 $ 6,908    $ 78,678    $ 1,302,711






Ending balance: individually evaluated for impairment
   $ —   $ 737 $ 13,184 $ —   $ —   $ —      $ —      $ 13,921






Ending balance: collectively evaluated for impairment
   $ 321,904 $ 54,416 $ 170,214 $ 603,118 $ 53,552 $ 6,908    $ 78,678    $ 1,288,790






Loans:

Ending balance
   $ 70,415,865 $ 6,889,663 $ 9,089,247 $ 53,585,416 $ 6,694,040 $ 543,943       $ 147,218,174




Ending balance: individually evaluated for impairment
   $ 310,585 $ 87,601 $ 826,438 $ 1,592,485 $ —   $ —         $ 2,817,109




Ending balance: collectively evaluated for impairment
   $ 70,105,280 $ 6,802,062 $ 8,262,809 $ 51,992,931 $ 6,694,040 $ 543,943       $ 144,401,065

	As of June 30, 2020
	One –to Four- Family		Home Equity Loans and Lines of Credit		Construction and Land Development			Nonresidential		Commercial		Consumer			Unallocated		Total
Allowance for loans losses:
Beginning Balance – April 1, 2020	$	380,229	$	64,843	$	206,782		$	809,018	$	67,499	$	5,527		$	16,953	$	1,550,851
Charge-offs		—		—		—			—		—		—			—		—
Recoveries		—		—		—			—		—		—			—		—
Provision		12,235		4,556		(3,270	)		56,742		23,381		(354	)		56,710		150,000
Ending Balance – June 30, 2020	$	392,464	$	69,399	$	203,512		$	865,760	$	90,880	$	5,173		$	73,663	$	1,700,851
Beginning Balance – January 1, 2020	$	331,605	$	62,603	$	179,541		$	683,453	$	55,571	$	6,950		$	59,427	$	1,379,150
Charge-offs		—		—		(263	)		—		—		(3,633	)		—		(3,896	)
Recoveries		—		597		—			—		—		—			—		597
Provision		60,859		6,199		24,234			182,307		35,309		1,856			14,236		325,000
Ending Balance – June 30, 2020	$	392,464	$	69,399	$	203,512		$	865,760	$	90,880	$	5,173		$	73,663	$	1,700,851
Ending balance: individually evaluated for impairment	$	—	$	284	$	—		$	—	$	—	$	—		$	—	$	284
Ending balance: collectively evaluated for impairment	$	392,464	$	69,115	$	203,512		$	865,760	$	90,880	$	5,173		$	73,663	$	1,700,567
Loans:
Ending balance	$	73,149,556	$	7,412,377	$	8,965,295		$	61,143,526	$	15,510,905	$	407,304				$	166,588,963
Ending balance: individually evaluated for impairment	$	470,949	$	59,769	$	—		$	1,544,238	$	—	$	—				$	2,074,956
Ending balance: collectively evaluated for impairment	$	72,678,607	$	7,352,608	$	8,965,295		$	59,599,288	$	15,510,905	$	407,304				$	164,514,007

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)


	As of September 30, 2018																					As of June 30, 2019
	One –to Four-Family			Home Equity Loans and Lines of Credit			Construction and Land Development		Nonresidential		Commercial			Consumer			Unallocated		Total			One –to Four- Family			Home Equity Loans and Lines of Credit			Construction and Land Development			Nonresidential			Commercial		Consumer			Unallocated		Total
Allowance for loans losses:
Beginning Balance – July 1, 2018	$	202,457		$	70,328		$	171,304	$	591,189	$	30,137		$	16,801		$	34,051	$	1,116,267
Beginning Balance – April 1, 2019																						$	306,044		$	61,722		$	218,995		$	631,099		$	29,649	$	6,300		$	24,543	$	1,278,352
Charge-offs		—			—			—		—		—			—			—		—			(49,836	)		—			—			—			—		—			—		(49,836	)
Recoveries		—			—			—		—		—			—			—		—			—			—			—			—			—		—			—		—
Provision		37,553			(22,155	)		37,955		4,724		(1,006	)		(79	)		18,008		75,000			84,429			(1,133	)		(53,061	)		(47,814	)		25,430		104			52,045		60,000

Ending Balance – September 30, 2018	$	240,010		$	48,173		$	209,259	$	595,913	$	29,131		$	16,722		$	52,059	$	1,191,267

Beginning Balance – January 1, 2018	$	238,148		$	83,129		$	173,167	$	446,576	$	44,199		$	15,933		$	37,253	$	1,038,405
Ending Balance – June 30, 2019																						$	340,637		$	60,589		$	165,934		$	583,285		$	55,079	$	6,404		$	76,588	$	1,288,516
Beginning Balance – January 1, 2019																						$	244,781		$	68,837		$	185,170		$	626,031		$	28,879	$	6,669		$	27,985	$	1,188,352
Charge-offs		(88,000	)		—			—		—		—			—			—		(88,000	)		(49,836	)		—			—			—			—		—			—		(49,836	)
Recoveries		7,563			—			8,299		—		—			—			—		15,862			—			—			—			—			—		—			—		—
Provision		82,299			(34,956	)		27,793		149,337		(15,068	)		789			14,806		225,000			145,692			(8,248	)		(19,236	)		(42,746	)		26,200		(265	)		48,603		150,000

Ending Balance – September 30, 2018	$	240,010		$	48,173		$	209,259	$	595,913	$	29,131		$	16,722		$	52,059	$	1,191,267

Ending Balance – June 30, 2019																						$	340,637		$	60,589		$	165,934		$	583,285		$	55,079	$	6,404		$	76,588	$	1,288,516
Ending balance: individually evaluated for impairment	$	—		$	1,178		$	7,267	$	—	$	—		$	5,901		$	—	$	14,346		$	45,744		$	1,415		$	6,074		$	—		$	—	$	—		$	—	$	53,233

Ending balance: collectively evaluated for impairment	$	242,010		$	46,995		$	201,992	$	595,913	$	29,131		$	10,821		$	52,059	$	1,176,921		$	294,893		$	59,174		$	159,860		$	583,285		$	55,079	$	6,404		$	76,588	$	1,235,283

Loans:
Ending balance	$	69,301,180		$	8,072,429		$	9,990,514	$	51,438,876	$	5,296,630		$	526,669				$	144,628,298		$	69,923,494		$	7,133,802		$	8,762,381		$	51,522,997		$	6,884,895	$	504,247				$	144,731,816

Ending balance: individually evaluated for impairment	$	726,891		$	142,847		$	210,815	$	—	$	—		$	5,901				$	1,086,454		$	393,864		$	89,283		$	848,499		$	2,092,072		$	—	$	—				$	3,423,718

Ending balance: collectively evaluated for impairment	$	68,574,289		$	7,929,582		$	9,779,699	$	51,438,876	$	5,296,630		$	522,768				$	143,541,844		$	69,529,630		$	7,044,519		$	7,913,882		$	49,430,925		$	6,884,895	$	504,247				$	141,308,098

	As of December 31, 2019
	One –to Four- Family			Home Equity Loans and Lines of Credit			Construction and Land Development			Nonresidential			Commercial		Consumer		Unallocated		Total
Beginning Balance	$	244,781		$	68,837		$	185,170		$	626,031		$	28,879	$	6,669	$	27,985	$	1,188,352
Charge-offs		(90,111	)		—			(11,000	)		—			—		—		—		(101,111	)
Recoveries		—			2,439			—			114,470			—		—		—		116,909
Provision		176,935			(8,673	)		5,371			(57,048	)		26,692		281		31,442		175,000
Ending Balance	$	331,605		$	62,603		$	179,541		$	683,453		$	55,571	$	6,950	$	59,427	$	1,379,150
Ending balance: individually evaluated for impairment	$	—		$	681		$	—		$	—		$	—	$	—	$	—	$	681
Ending balance: collectively evaluated for impairment	$	331,605		$	61,922		$	179,541		$	683,453		$	55,571	$	6,950	$	59,427	$	1,378,469
Loans:
Ending balance	$	74,655,376		$	7,488,348		$	9,260,520		$	61,012,514		$	6,946,372	$	522,566			$	159,885,696
Ending balance: individually evaluated for impairment	$	337,984		$	116,721		$	791,625		$	1,581,818		$	—	$	—			$	2,828,148
Ending balance: collectively evaluated for impairment	$	74,317,392		$	7,371,627		$	8,468,895		$	59,430,696		$	6,946,372	$	522,566			$	157,057,548

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

   As of December 31, 2018
   One –to
Four-Family Home Equity
Loans and
Lines
of Credit Construction
and Land
Development    Nonresidential Commercial Consumer Unallocated Total
Beginning Balance
   $ 238,148 $ 83,129 $ 173,167    $ 446,576 $ 44,199 $ 15,933 $ 37,253 $ 1,038,405
Charge-offs
   (88,000 ) (12,013 ) —      (335,000 ) —   (5,901 ) —   (440,914 )
Recoveries
   7,562 —   8,299    —   —   —   —   15,861
Provision
   87,071 (2,279 ) 3,704    514,455 (15,320 ) (3,363 ) (9,268 ) 575,000




Ending Balance
   $ 244,781 $ 68,837 $ 185,170    $ 626,031 $ 28,879 $ 6,669 $ 27,985 $ 1,188,352




Ending balance: individually evaluated for impairment
   $ —   $ 2,089 $ 6,074    $ —   $ —   $ —   $ —   $ 8,163




Ending balance: collectively evaluated for impairment
   $ 244,781 $ 66,748 $ 179,096    $ 626,031 $ 28,879 $ 6,669 $ 27,985 $ 1,180,189




Loans:

Ending balance
   $ 70,197,875 $ 7,547,195 $ 8,232,067    $ 51,904,782 $ 5,250,815 $ 529,283 $ 143,662,017




Ending balance: individually evaluated for impairment
   $ 585,047 $ 130,795 $ 86,728    $ 484,223 $ —   $ —   $ 1,286,793




Ending balance: collectively evaluated for impairment
   $ 69,612,828 $ 7,416,400 $ 8,145,339    $ 51,420,559 $ 5,250,815 $ 529,283 $ 142,375,224

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

As part of the ongoing monitoring of the credit quality of the Bank’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grade of classified loans, net chargeoffs, nonperforming loans, credit scores, and the general economic conditions in the Bank’s market area.

The Bank utilizes an internal rating system to monitor the credit quality of the overall loan portfolio. A description of the general characteristics is as follows:

Pass – A pass loan is considered of sufficient quality to preclude a special mention or an adverse rating. Pass assets are generally well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. The pass classification also includes watch credits which have all of the characteristics of a pass loan but warrant more than the normal level of supervision.

Special mention – A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

Substandard – A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a ~~well defined~~well-defined weakness, or weaknesses, that jeopardize the collection or liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This will be the measurement for determining if a loan is impaired.

Doubtful – A doubtful loan has all of the weaknesses inherent in a substandard credit with the added factor that the weaknesses make the collection or liquidation in full, on the basis of current information, conditions and values, highly questionable and improbable. Loans in this category must be placed onnon-accrual status and all payments applied to principal recapture. Doubtful classification should be used only when a distinct possibility of loss exists. When identified, adequate loss should be recorded for the specific assets. It is not necessary to classify an entire credit doubtful when collection of a specific portion appears highly probable.

Loss – A loan classified as loss is considered uncollectable and of such little value that continuance as a loan in unjustified. A loss classification does not mean that the credit has absolutely no value; partial recoveries may be received in the future. Amounts classified as loss must becharged-off in the period in which they are deemed uncollectible.

When assets are classified as impaired, the Bank allocates a portion of the related general loss allowances to such assets as the Bank deems prudent. Determinations as to the classification of assets and the amount of loss allowances are subject to review by our principal federal regulator, the Office of the Comptroller of the Currency, which can require that we establish additional loss allowances. The Bank regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

The following table is a summary of the loan portfolio quality indicators by loan class recorded investment as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2019								June 30, 2020
	One-to Four-Family		Home Equity Loans and Lines of Credit		Construction and Land Development		Nonresidential		One-to Four-Family		Home Equity Loans and Lines of Credit		Construction and Land Development		Nonresidential
Grade:
Pass	$	69,462,293	$	6,843,583	$	8,262,809	$	51,992,931	$	72,678,607	$	7,389,465	$	8,965,295	$	59,599,288
Special Mention		642,987		—		—		—		—		—		—		—
Substandard		310,585		46,080		826,438		1,592,485		470,949		22,912		—		1,544,238
Doubtful		—		—		—		—		—		—		—		—
									$	73,149,556	$	7,412,377	$	8,965,295	$	61,143,526
	$	70,415,865	$	6,889,663	$	9,089,247	$	53,585,416
									Commercial		Consumer		Totals
Grade:
Pass									$	15,510,905	$	407,304	$	164,550,864
Special Mention										—		—		—
Substandard										—		—		2,038,099
Doubtful										—		—		—
									$	15,510,905	$	407,304	$	166,588,963

   Commercial    Consumer    Totals
Grade:

Pass
   $ 6,694,040    $ 543,943    $ 143,799,599
Special Mention
   —      —      642,987
Substandard
   —      —      2,775,588
Doubtful
   —      —      —






   $ 6,694,040    $ 543,943    $ 147,218,174

   December 31, 2018
   One-to Four-
Family    Home Equity
Loans and
Lines of Credit    Construction
and Land
Development    Nonresidential
Grade:

Pass
   $ 69,499,216    $ 7,462,230    $ 7,351,165    $ 49,781,890
Special Mention
   113,612    —      794,174    1,638,669
Substandard
   585,047    84,965    86,728    484,223
Doubtful
   —      —      —      —








   $ 70,197,875    $ 7,547,195    $ 8,232,067    $ 51,904,782

							December 31, 2019
	Commercial		Consumer		Totals		One-to Four-Family		Home Equity Loans and Lines of Credit		Construction and Land Development		Nonresidential
Grade:
Pass	$	5,250,815	$	529,283	$	139,874,599	$	73,856,550	$	7,412,069	$	8,468,895	$	59,430,696
Special Mention		—		—		2,546,455		460,842		—		—		—
Substandard		—		—		1,240,963		337,984		76,279		791,625		1,581,818
Doubtful		—		—		—		—		—		—		—
							$	74,655,376	$	7,488,348	$	9,260,520	$	61,012,514
	$	5,250,815	$	529,283	$	143,662,017
							Commercial		Consumer		Totals
Grade:
Pass							$	6,946,372	$	522,566	$	156,637,148
Special Mention								—		—		460,842
Substandard								—		—		2,787,706
Doubtful								—		—		—
							$	6,946,372	$	522,566	$	159,885,696

2322

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

The following table sets forth certain information with respect to our loan portfolio delinquencies by loan class and amount as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2019																June 30, 2020
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Recorded Investment > 90 Days and Accruing		Nonaccrual Loans		Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Recorded Investment > 90 Days and Accruing		Nonaccrual Loans
Real estate loans:
One-to four-family	$	426,739	$	371,129	$	155,704	$	953,572	$	69,462,293	$	70,415,865	$	—	$	310,585	$	—	$	—	$	320,165	$	320,165	$	72,829,391	$	73,149,556	$	—	$	470,949
Home equity loans and lines of credit		—		—		46,080		46,080		6,843,583		6,889,663		—		46,080		—		—	22,912		22,912		7,389,465		7,412,377			—	22,912
Construction and land development		—		—		86,728		86,728		9,002,519		9,089,247		—		86,728		—		—		—		—	8,965,295		8,965,295			—		—
Nonresidential		—		—		—		—		53,585,416		53,585,416		—		—		—		—		—		—		61,143,526		61,143,526		—		—
Other loans:
Commercial		—		—		—		—		6,694,040		6,694,040		—		—		—		—		—		—		15,510,905		15,510,905		—		—
Consumer		—		—		—		—		543,943		543,943		—		—		—		—		—		—		407,304		407,304		—		—

Total loans	$	426,739	$	371,129	$	288,512	$	1,086,380	$	146,131,794	$	147,218,174	$	—	$	443,393	$	—	$	—	$	343,077	$	343,077	$	166,245,886	$	166,588,963	$	—	$	493,861


	December 31, 2018
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Recorded Investment > 90 Days and Accruing		Nonaccrual Loans
Real estate loans:
One-to four-family	$	101,183	$	158,134	$	343,651	$	602,968	$	69,594,907	$	70,197,875	$	—	$	585,047
Home equity loans and lines of credit		35,606		—		48,005		83,611		7,463,584		7,547,195		—		84,965
Construction and land development		86,728		—		—		86,728		8,145,339		8,232,067		—		86,728
Nonresidential		—		—		484,223		484,223		51,420,559		51,904,782		—		484,223
Other loans:
Commercial		—		—		—		—		5,250,815		5,250,815		—		—
Consumer		233		—		—		233		529,050		529,283		—		—

Total loans	$	223,750	$	158,134	$	875,879	$	1,257,763	$	142,404,254	$	143,662,017	$	—	$	1,240,963

	December 31, 2019
	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Recorded Investment > 90 Days and Accruing		Nonaccrual Loans
Real estate loans:
One-to four-family	$	220,316	$	—	$	337,984	$	558,300	$	74,097,076	$	74,655,376	$	—	$	337,984
Home equity loans and lines of credit	169,329			—	76,279		245,608		7,242,740		7,488,348			—	76,279
Construction and land development		—		—	75,728		75,728		9,184,792		9,260,520			—	75,728
Nonresidential		—		—		—		—		61,012,514		61,012,514		—		—
Other loans:
Commercial		31,510		—		—		31,510		6,914,862		6,946,372		—		—
Consumer		24,759		—		—		24,759		497,807		522,566		—		—
Total loans	$	445,914	$	—	$	489,991	$	935,905	$	158,949,791	$	159,885,696	$	—	$	489,991

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 there were no loans 90 days past due and still accruing interest. At ~~September~~June 30, ~~2019,~~2020, the Bank had ~~five~~six loans onnon-accrual status with foregone interest in the amount of ~~$14,386.~~$11,642. At December 31, ~~2018,~~2019, the Bank had ~~ten~~seven loans onnon-accrual status with foregone interest in the amount of ~~$36,054.~~$17,925.

The Bank accounts for impaired loans under generally accepted accounting principles. An impaired loan generally is one for which it is probable, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Loans are individually evaluated for impairment. When the Bank classifies a problem asset as impaired, it provides a specific reserve for that portion of the asset that is deemed uncollectible based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or based on the loan’s observable market price or fair value of the collateral if the loan is collateral dependent.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

~~Credit Quality of Loans and the Allowance for Loan Losses (Continued)~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

The following table is a summary of impaired loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and the year ended ~~and~~ December 31, ~~2018:~~2019:

																					Three Months Ended				Six Months Ended
															Impaired Loans at June 30, 2020						June 30, 2020				June 30, 2020
																	Unpaid				Average		Interest		Average		Interest
	Impaired Loans at September 30, 2019						Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019				Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
One-to four-family	$	310,585	$	314,605	$	—	$	311,238	$	1,882	$	314,072	$	7,997	$	470,949	$	472,220	$	—	$	472,139	$	4,686	$	474,116	$	9,180
Home equity loans and lines of credit		46,080		46,080		—		46,080		—		47,043		1,408		22,912		22,912		—		22,912		170		23,141		170
Construction and land development		739,710		739,710		—		750,741		14,145		766,942		42,085
Nonresidential		1,592,485		1,592,485		—		1,600,167		16,673		1,615,077		49,542		1,544,238		1,544,238		—		1,552,496		16,883		1,563,028		40,349
With an allowance recorded:
Home equity loans and lines of credit	$	41,521	$	41,521	$	737	$	42,362	$	659	$	43,676	$	2,202	$	36,857	$	36,857	$	284	$	37,980	$	500	$	38,650	$	1,147
Construction and land development		86,728		86,728		13,184		86,728		—		86,728		—
Total
One-to four-family	$	310,585	$	314,605	$	—	$	311,238	$	1,882	$	314,072	$	7,997	$	470,949	$	472,220	$	—	$	472,139	$	4,686	$	474,116	$	9,180
Home equity loans and lines of credit		87,601		87,601		737		88,441		659		90,718		3,610		59,769		59,769		284		60,891		670		61,791		1,317
Construction and land development		826,438		826,438		13,184		837,469		14,145		853,670		42,085
Nonresidential		1,592,485		1,592,485		—		1,600,167		16,673		1,615,077		49,542		1,544,238		1,544,238		—		1,552,496		16,883		1,563,028		40,349

	Impaired Loans at September 30, 2018						Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
One-to four-family	$	726,891	$	785,890	$	—	$	758,508	$	4,212	$	794,549	$	24,943
Home equity loans and lines of credit		96,978		96,978		—		97,098		258,		99,646		2,582
Construction and land development		123,338		123,338		—		123,338		—		123,338		—
With an allowance recorded:
Home equity loans and lines of credit	$	45,869	$	45,869	$	1,178	$	46,823	$	493	$	47,479	$	2,182
Construction and land development		87,477		87,477		7,267		87,551		356		87,916		2,145
Consumer		5,901		5,901		5,901		5,952		82		6,089		280
Total
One-to four-family	$	726,891	$	785,890	$	—	$	758,508	$	4,212	$	794,549	$	24,943
Home equity loans and lines of credit		142,847		142,847		1,178		143,921		751		147,125		4,764
Construction and land development		210,815		210,815		7,267		210,889		356		211,254		2,145
Consumer		5,901		5,901		5,901		5,952		82		6,089		280

							Three Months Ended				Six Months Ended
	Impaired Loans at June 30, 2019						June 30, 2019				June 30, 2019
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no related allowance recorded:
One-to four-family	$	225,241	$	227,030	$	—	$	225,605	$	1,059	$	227,511	$	4,441
Home equity loans and lines of credit		46,080		46,080		—		46,080		668		47,043		1,408
Construction and land development		761,771		761,771		—		776,140		18,803		777,973		27,940
Nonresidential		2,092,072		2,478,956		—		2,099,470		16,537		2,106,982		32,869
With an allowance recorded:
One-to four-family	$	168,623	$	168,878	$	45,744	$	169,047	$	1,253	$	169,434	$	3,011
Home equity loans and lines of credit		43,203		43,203		1,415		43,759		—		44,517		1,543
Construction and land development		86,728		86,728		6,074		86,728		—		86,728		—
Total
One-to four-family	$	393,864	$	395,908	$	45,744	$	394,652	$	2,312	$	396,945	$	7,452
Home equity loans and lines of credit		89,283		89,283		1,415		89,839		668		91,560		2,951
Construction and land development		848,499		848,499		6,074		862,868		18,803		864,701		27,940
Nonresidential		2,092,072		2,478,956		—		2,099,470		16,537		2,106,982		32,869

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 4.~~

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

											December 31, 2019
													Unpaid				Average		Interest
	December 31, 2018										Recorded		Principal		Related		Recorded		Income
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
One-to four-family	$	585,047	$	650,982	$	—	$	622,738	$	22,214	$	337,984	$	342,345	$	—	$	342,907	$	11,765
Home equity loans and lines of credit		84,965		84,965		—		86,032		3,197		76,279		76,279		—		82,117		2,727
Construction and land development												791,625		802,625				836,264		54,478
Nonresidential		484,223		872,655		—		847,383		26,452		1,581,818		1,581,818		—		1,609,744		61,141
With an allowance recorded:
Home equity loans and lines of credit	$	45,830	$	45,869	$	2,089	$	47,459	$	2,743	$	40,442	$	40,442	$	681	$	43,136	$	2,964
Construction and land development		86,728		86,728		6,074		87,542		3,916
Total
One-to four-family	$	585,047	$	650,982	$	—	$	622,738	$	22,214	$	337,984	$	342,345	$	—	$	342,907	$	11,765
Home equity loans and lines of credit		130,795		130,834		2,089		133,491		5,940		116,721		116,721		681		125,252		5,691
Construction and land development		86,728		86,728		6,074		87,542		3,916		791,625		802,625		—		836,264		54,478
Nonresidential		484,223		872,655		—		847,383		26,452		1,581,818		1,581,818		—		1,609,744		61,141

Impaired loans also include certain loans that have been modified in a ~~troubled debt restructuring (a “TDR”)~~TDR to make concessions to help a borrower remain current on the loan and/or to avoid foreclosure. These concessions typically result from the Bank’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Generally, nonaccrual loans that are modified and are considered TDRs are classified as nonperforming at the time of the restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. A summary of TDRs at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

September 30, 2019
   Number of Contracts    Performing    Nonperforming    Total
One-to four-family
   —      $ —      $ —      $ —
Home equity loans and lines of credit
   1    41,521    —      41,521
Construction and land development
   —      —      —      —
Nonresidential
   —      —      —      —
Commercial
   —      —      —      —
Consumer
   —      —      —      —








   1    $ 41,521    $ —      $ 41,521








December 31, 2018
   Number of Contracts    Performing    Nonperforming    Total
One-to four-family
   1    $ —      $ 120,380    $ 120,380
Home equity loans and lines of credit
   1    45,830    —      45,830
Construction and land development
   —      —      —      —
Nonresidential
   —      —      —      —
Commercial
   —      —      —      —
Consumer
   —      —      —      —








   2    $ 45,830    $ 120,380    $ 166,210

June 30, 2020

Number of

Contracts

Performing

Nonperforming

Total

Home equity loans and lines of credit

36,857

—

36,857

December 31, 2019

Number of

Contracts

Performing

Nonperforming

Total

Home equity loans and lines of credit

40,442

—

40,442

The Bank had one TDR at ~~September~~June 30, ~~2019~~2020 totaling ~~$41,521~~$36,857 and ~~two TDRs~~one TDR at December 31, ~~2018~~2019 totaling ~~$166,210.~~$40,442. The Bank has no commitments to loan additional funds to borrowers whose loans have been modified. There were no nonperforming TDRs reclassified to nonperforming loans during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~ 2019. A default is considered to have occurred once the TDR is past due 90 days or more, or it has been placed on nonaccrual. If loans modified in a TDR subsequently default, the Bank evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

The CARES Act provided financial institutions the option, which the Bank has elected to apply, to temporarily suspend certain requirements under U.S. GAAP relating to TDRs for a limited period of time to account for the effects of COVID-19. Financial institutions were encouraged to work prudently with borrowers who are or may be unable to meet their contractual obligations because of the effects of COVID-19. Financial institutions generally do not need to categorize a COVID-19 related short-term modification as a TDR as long as the borrower was not experiencing financial difficulty prior to the effects of COVID-19.

2625

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 4. Credit Quality of Loans and the Allowance for Loan Losses (Continued)

As of June 30, 2020, the Bank had received and approved requests to modify 69 loans due to the effects of COVID-19. The Bank’s modifications primarily consist of interest only payments with the deferral of principal for up to six months, dependent on the borrower and their financial situation. The breakdown of loan modifications by loan caterory is as follows:

	Number of loans		Balance
Real estate loans
One-to four-family		24	$	4,808,862
Home equity loans and lines of credit		6		343,781
Construction and land development		3		1,316,076
Nonresidential		26		18,965,605
Total real estate loans		59		25,434,324
Other loans
Commercial		8		1,941,804
Consumer		2		56,072
Total other loans		10		1,997,876
Total loans		69	$	27,432,200

Of the 69 loans modified due to the effects of COVID-19, all but two loans totaling $161,503 were in compliance with their loan modification agreements at June 30, 2020. The two loans not in compliance with their modification agreements were classified as substandard and deemed impaired.

~~Note 5.~~

Note 5. Foreclosed Real Estate

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had ~~$845,000~~$775,000 and ~~$865,000~~$845,000 in foreclosed real ~~estate.~~estate, respectively. The Bank did not dispose of any foreclosed real estate during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~September 30, 2018~~2019 and the twelve months ended December 31, ~~2018.~~2019.

The following table summarizes changes in foreclosed real estate for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 and for the year ended December 31, ~~2018,~~2019, which are measured on a nonrecurring basis using significant unobservable, Level 3, inputs:


	September 30,					December 31,		June 30,					December 31,
	2019			2018		2018		2020			2019		2019
Balance, beginning of period	$	865,000		$	865,000	$	865,000	$	845,000		$	865,000	$	865,000
Transfer to foreclosed real estate		—			—		—
Proceeds from sale of foreclosed real estate		—			—		—
Gain (loss) on sale of foreclosed real estate		—			—		—
Write-down of foreclosed real estate		(20,000	)		—		—		(70,000	)		—		(20,000	)

Balance, end of period	$	845,000		$	865,000	$	865,000	$	775,000		$	865,000	$	845,000

At ~~September~~June 30, ~~2019~~2020 there were no residential real estate loans in the process of foreclosure. At December 31, ~~2018~~2019 there were ~~two~~no residential real estate loans ~~totaling $184,228 and one nonresidential real estate loan totaling $484,223~~ in the process of foreclosure. At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were no residential real estate properties included in foreclosed real estate.

~~Note 6.~~

Note 6. Deposits

Deposits are summarized as follows:


	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Noninterest-bearing demand	$	18,528,466	$	18,111,318	$	30,322,507	$	19,780,866
Interest-bearing demand		24,549,964		23,354,687		24,546,145		23,779,145
Money market		10,177,785		11,775,372		10,158,202		10,242,323
Savings		23,782,600		24,881,515		26,252,075		24,295,700
Certificates of deposit		78,208,735		75,627,343		78,093,929		78,342,839

Total deposits	$	155,247,550	$	153,750,235	$	169,372,858	$	156,440,873

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 6. Deposits (Continued)

Deposit accounts in the Bank are federally insured up to $250,000 per depositor. The aggregate amount of time deposits with balances of $250,000 or more totaled ~~$13,739,076~~$15,832,536 and ~~$11,415,706~~$14,113,578 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

At ~~September~~June 30, ~~2019~~2020 certificates of deposit and their remaining maturities were as follows:


2020	$	28,175,940
June 30,
2021		23,389,328	$	30,740,008
2022		11,996,295		20,899,143
2023		9,154,119		12,508,697
2024		5,493,053		8,357,266
2025				5,588,815
			$	78,093,929
	$	78,208,735

Deposit balances of officers and directors totaled ~~$986,477~~$1,042,520 and ~~$730,168~~$419,857 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Note 7. Borrowings

The Bank has advances outstanding from the Federal Home Loan Bank of Atlanta (“FHLB”). A schedule of borrowings is as follows:

June 30, 2020						December 31, 2019
Advance Amount		Rate			Maturity Date	Advance Amount		Rate			Maturity Date
$	5,000,000		0.55	%	09/14/2020	$	2,500,000		1.78	%	-
5,000,000			0.95	%	03/06/2023
$	10,000,000					$	2,500,000

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~The advance at December 31, 2019 was an overnight advance that was repaid in March 2020. At June 30, 2020 FHLB advances and their remaining maturities were as follows:

~~Note 7.~~

~~Borrowings~~

June 30,
2021	$	5,000,000
2022		—
2023		5,000,000
2024		—
2025		—
	$	10,000,000

The Bank has an agreement with the Federal Home Loan Bank of Atlanta (“FHLB”) that allows it to obtain advances secured by assets owned by the Bank. Total advances are limited to 25% of the Bank’s total assets. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank had availability of ~~$55,200,000~~$57,100,000 and ~~$54,400,000,~~$55,100,000, respectively, and remaining credit availability of approximately $47,100,000 and $52,600,000, respectively, with FHLB. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank pledged a portion of itsone-to four-family residential mortgages as collateral. The amount of loans that were deemed eligible to pledge as collateral totaled approximately ~~$51,400,000~~$53,800,000 and $50,320,000 at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. ~~The Bank had no outstanding advances at September 30, 2019 and December 31, 2018.~~

The Bank also has a $2,000,000 unsecured federal funds line of credit available with another financial institution, for which no amounts were outstanding as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 8.~~

Note 8. Employee Stock Ownership Plan

In connection with the Bank’s mutual to stock conversion in September 2018, the Bank established the Chesapeake Bank of Maryland Employee Stock Ownership Plan (“ESOP”) for all eligible employees. The ESOP purchased 338,560 shares of Company common stock in the Company’s initial public offering at $10.00 per share with the proceeds of a ten (10) year loan from the Company. The Bank intends to make annual contributions to the ESOP that at a minimum will permit the ESOP to repay the principal and interest due on the ESOP debt. However, the Bank may prepay the principal of the note, partially or in full and without penalty or premium at any time and from time to time without prior notice to the holder. ~~Dividends~~Any dividends declared on Company common stock held by the ESOP and not allocated to the account of a participant can be used to repay the loan. As the ESOP loan is repaid, shares of Company common stock pledged as collateral for the loan are released from the loan suspense account for allocation to Plan participants on the basis of each active participant’s proportional share of compensation.

Participants vest 100% in their ESOP allocations after three years of service. In connection with the implementation of the ESOP, participants were given credit for past service with the Bank for vesting purposes. Participants will become fully vested upon age 65, death or disability, a change in control, or termination of the ESOP. Generally, participants will receive distributions from the ESOP upon separation from service. The plan reallocates any unvested shares of common stock forfeited upon termination of employment among the remaining participants in the plan.

The ESOP compensation expense was $107,493 and $220,064 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 was $115,957~~2020 and ~~$340,253, respectively. The ESOP compensation expense~~$115,534 and $224,296 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 was $15,000.~~2019. This amount represents the average fair market value of the shares of Company common stock allocated or committed to be released as of that date. The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additionalpaid-in capital. Dividends, if any, on allocated shares are recorded as a reduction of retained earnings and dividends, if any, on unallocated shares are recorded as a reduction of the debt service. At ~~September~~June 30, ~~2019,~~2020, there were ~~304,704~~270,848 shares not yet released having an aggregate market value of approximately ~~$4,265,856.~~$3,331,430.

~~Note 9.~~

Note 9. Stock Based Compensation

On May 14, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (“2019 Plan”), which was approved at the Annual Meeting of Stockholders. The 2019 Plan allows for up to 169,280 shares to be issued to employees, executive officers or Directors in the form of restricted stock, and up to 423,200 shares to be issued to employees, executive officers or Directors in the form of stock options. At ~~September~~June 30, ~~2019,~~2020, there were ~~161,320~~169,280 restricted stock awards granted and ~~368,300~~423,200 stock option awards granted under the 2019 Plan.

Restricted Stock

The specific terms of each restricted stock award are determined by the Compensation Committee at the date of the grant. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at the date of the grant. Participants will vest in their share awards at a rate of 20% per year over a five year

period, beginning one year after the date of the plan share award. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested share awards will be forfeited.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 9.~~

~~Stock Based Compensation (Continued)~~

The 2019 Equity Incentive Plan Trust (“Trust”) has been established to acquire, hold, administer, invest and make distributions from the Trust in accordance with provisions of the Plan and Trust. The Company ~~will contribute~~contributed sufficient funds to the Trust ~~so that~~for the Trust ~~can~~to acquire 169,280 shares of common stock which ~~will be~~is held in the Trust subject to the restricted stock award vesting requirements. ~~At September 30, 2019, there were 67,323 shares remaining to be acquired by the Trust.~~ The 2019 Plan provides that grants to each employee andnon-employee director shall not exceed 25% and 5% of the shares available under the 2019 Plan, respectively. Shares awarded tonon-employee directors in the aggregate shall not exceed 30% of the shares available under the 2019 Plan.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 9. Stock Based Compensation(Continued)

The following table presents a summary of the activity in the Company’s restricted stock for the ~~nine months ended September 30, 2019:~~periods ended:


	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2019		—	$	—
June 30, 2020					Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2020						161,320		$	13.40
Granted		161,320		13.40		7,960			11.90
Vested		—		—		(32,265	)		13.40
Forfeited		—		—		—			—

Nonvested at September 30, 2019		161,320	$	13.40

Nonvested at June 30, 2020						137,015		$	13.31
Fair value of vested shares	$	—			$	396,860

December 31, 2019	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2019		—	$	—
Granted		161,320		13.40
Vested		—		—
Forfeited		—		—
Nonvested at December 31, 2019		161,320	$	13.40
Fair value of vested shares	$	—

The following table outlines the vesting schedule of the nonvested restricted stock awards as of ~~September~~June 30, ~~2019:~~2020:


Year Ending December 31,	Number of Restricted Shares		Number of Restricted Shares
2019		—
2020		32,264		—
2021		32,264		32,265
2022		32,264		32,265
2023		32,264		37,041
2024		32,264		33,852
2025				1,592
				137,015
		161,320

The Company recorded compensation expense related to restricted stock awards of ~~$108,973~~$109,622 and ~~$165,828~~$217,116 during the three months and six months ended June 30, 2020 and $56,855 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively. No compensation expense was recorded for the three and nine months ended September 30, 2018.~~2019. As of ~~September~~June 30, ~~2019,~~2020, there was ~~$1,995,860~~$1,764,496 of total unrecognized compensation expense related to nonvested shares granted under the 2019 Plan. The cost is expected to be recognized over a weighted average period of ~~4.6~~4.1 years.

Stock Options

Under the above 2019 Plan, stock options are granted to provide the Company’s directors and key employees with a proprietary interest in the Company as an as incentive to contribute to its success. The Board of Directors of the Company may grant options to eligible employees andnon-employee directors based on these factors. The 2019 Plan participants will vest in their options at a rate no more rapid than 20% per year over a ~~five year~~five-year period, beginning one year after the grant date of the option. Vested options will have an exercise period of ten years commencing on the date of grant. If service to the Company is terminated for any reason other than death, disability or change in control, the unvested options shall be forfeited. The Company recognizes compensation expense during the vesting period based on the fair value of the option on the date of the grant. The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 9.~~

~~Stock Based Compensation (Continued)~~

below. Expected volatilities are based on historical data. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of the options granted represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury rate equal to the expected term of the option at the time of the grant.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 9. Stock Based Compensation(Continued)

The fair value of options granted to date was determined using the following assumptions as of the grant date.

Expected Stock Price Volatility
   17.08 %
Expected Dividend Yield
   0.00 %
Expected Term (In Years)
   7.0
Risk-Free Rate
   2.30 %
Fair Value of Options Granted
   $ 3.35

Grant Date		May 14, 2019
Expected Stock Price Volatility		17.08%
Expected Dividend Yield		0.00%
Expected Term (In Years)		7.0
Risk-Free Rate		2.30%
Fair Value of Options Granted		$3.35

Grant Date		May 21, 2020
Expected Stock Price Volatility		23.07%
Expected Dividend Yield		0.00%
Expected Term (In Years)		7.0
Risk-Free Rate		0.68%
Fair Value of Options Granted		$3.07

The following table summarizes the Company’s stock option activity and related information for the ~~nine months ended September 30, 2019:~~periods ended:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2019		—	$	—
June 30, 2020							Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2020								368,300	$	13.40		9.40
Granted		368,300		13.40		9.40		54,900		11.90		10.00
Vested		—				—
Exercised								—		—		—
Forfeited		—				—		—		—		—

Outstanding at September 30, 2019		368,300	$	13.40		9.40
Outstanding at June 30, 2020								423,200	$	13.21		9.00

Fair value of vested shares	$	—					$	906,018

December 31, 2019	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at January 1, 2019		—	$	—
Granted		368,300		13.40		9.40
Exercised		—		—		—
Forfeited		—		—		—
Outstanding at December 31, 2019		368,300	$	13.40		9.40

Fair value of vested shares	$	—

The Company recorded compensation expense related to stock options of ~~$62,197~~$65,139 and ~~$94,648~~$126,492 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, respectively. No compensation expense was recorded for~~2020 and $32,451 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2018 relating to stock options.~~2019. As of ~~September~~June 30, ~~2019,~~2020, there was ~~$1,139,157~~$1,119,010 of total unrecognized compensation expense related to nonvested stock options granted under the plan. The cost is expected to be recognized over a weighted average period of ~~4.6 years.~~4.1years. The intrinsic value of a stock option is the amount that the market value of the underlying stock exceeds the exercise price of the option. Based upon a fair market value of ~~$14.00~~$12.30 at ~~September~~June 30, ~~2019,~~2020, the ~~options outstanding had an~~ intrinsic value of ~~$220,980.~~the stock is currently less than the weighted average exercise price of the option.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

~~Note 10.~~

Note 10. Common Stock ~~Repurchases~~

On May 14, 2019, the Board of Directors authorized the repurchase of up to 169,280 shares of the Company’s outstanding common stock for the Trust. The repurchase program iswas equal to the number of restricted stock shares eligible to be granted in the 2019 ~~Plan.~~ Plan and 169,280 shares were repurchased during the year ending December 31, 2019.

On December 2, 2019, the Board of Directors authorized a plan to repurchase up to $6,000,000 of the Company’s outstanding common stock. The repurchases will be made during a one-year period on the open market, in privately negotiated transactions, or in such other manner as will comply with applicable policy, laws and regulations.

The following table sets forth information in connection with repurchases of the Company’s shares of common stock during the ~~period listed.~~periods listed, including the six months ended June 30, 2020.

Period
   Total Number
of Shares
Purchased    Average Price
Paid per Share    Total��Number of
Shares Purchased as
Part of Publicly
Announced Plans    Maximum Number
of Shares That May
Yet Be Purchased
Under the Plan
May 14 – 31, 2019
   2,822    $ 13.69    2,822    166,458
June 1 – 30, 2019
   33,135    $ 13.85    35,957    133,323
August 1 – 31, 2019
   30,000    $ 13.69    65,957    103,323
September 1 – 30, 2019
   36,000    $ 13.92    101,957    67,323

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Value of Shares Purchased as Part of Publicly Announced Plans		Maximum Value of Shares That May Yet Be Purchased Under the Plan
December 2 – 31, 2019		23,495	$	13.69	$	332,545	$	5,667,455
January 1 – 31, 2020		76,675		14.23		1,423,565		4,576,435
February 1 – 29, 2020		7,500		14.34		1,531,121		4,468,879
March 1 – 31, 2020		262,588		13.55		5,089,565		910,435
April 1 – 30, 2020		8,084		11.38		5,181,581		818,419
May 1 – 31, 2020		21,700		11.94		5,440,665		559,335
June 1 – 30, 2020		33,200		12.05		5,840,800		159,200

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 11.~~

Note 11. Earnings Per Common Share

Basic earnings per share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Net income available to common stockholders is net income to the Company. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating earnings per share until they are committed to be released. Basic earnings per share excludes dilution and is computed by dividing net income by weighted average number of common shares outstanding during the period. Dilutive earnings per share reflects the potential dilution that could occur if stock options were exercised and is computed by dividing net income by the dilutive weighted average number of common shares outstanding during the period.

   Three Months Ended    Nine Months Ended
   September 30,
2019    September 30,
2018    September 30,
2019    September 30,
2018
Net income
   $ 301,707    $ 324,212    $ 746,085    $ 796,828
Weighted average common shares outstanding - basic
   3,927,296    3,893,440    3,927,296    3,893,440
Weighted average common shares outstanding - dilutive
   3,943,080    3,893,440    3,943,080    3,893,440
Earnings per common share, basic and diluted
   $ 0.08    $ 0.08    $ 0.19    $ 0.20

	Three Months Ended				Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Net income	$	130,616	$	172,355	$	304,379	$	444,378
Weighted average common shares outstanding - basic		3,535,188		3,927,296		3,696,636		3,927,296
Weighted average common shares outstanding - dilutive		3,535,188		3,937,971		3,696,636		3,937,971
Earnings per common share, basic and diluted	$	0.04	$	0.04	$	0.08	$	0.11

~~Note 12.~~

Note 12. Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements. These capital requirements were modified in 2013 with the Basel III capital rules, which establish a new comprehensive capital framework for U.S. banking organizations. The Bank became subject to the new rules on January 1, 2015, with aphase-in period for many of the new provisions which was fully phased in on January 1, 2019. As of ~~September~~June 30, ~~2019,~~2020, the Company’s capital levels remained characterized as “well-capitalized” under the new rules. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital adequacy guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certainoff-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 12. Regulatory Capital Requirements (Continued)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Common Equity Tier 1 Capital, Tier 1 Capital, and Total Capital to Risk Weighted Assets and of Tier 1 Capital to Average Assets. Management believes, as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, all applicable capital adequacy requirements have been met.

The most recent notification from the OCC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based capital, Tier 1 capital to risk-weighted assets, and Tier 1 capital to adjusted total assets, ratios. There have been no conditions or events since that notification that management believes have changed the Bank’s category.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 12.~~

~~Regulatory Capital Requirements (Continued)~~

The actual and required capital amounts and ratios of the Bank as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows (dollars in thousands):

   Actual Minimum
Regulatory Capital
Ratios under Basel
III To Be Well
Capitalized under
Basel III
   Amount    Ratio Amount    Ratio Amount    Ratio
      (dollars in thousands)
As of September 30, 2019:

Common equity tier 1 capital (to risk-weighted assets)
   $ 41,205    30.24 % $ 8,857    ³6.50 % $ 8,857    ³6.50 %
Total risk-based capital (to risk-weighted assets)
   42,543    31.22 % 13,627    ³10.0 % 13,627    ³10.0 %
Tier 1 capital (to risk-weighted assets)
   41,205    30.24 % 10,901    ³8.0 % 10,901    ³8.0 %
Tier 1 capital (to average assets)
   41,205    18.87 % 8,733    ³4.0 % 10,916    ³5.0 %
As of December 31, 2018:

Common equity tier 1 capital (to risk-weighted assets)
   $ 39,871    29.67 % $ 8,566    ³6.375 % $ 8,734    ³6.50 %
Total risk-based capital (to risk-weighted assets)
   41,094    30.58 % 13,269    ³9.875 % 13,437    ³10.0 %
Tier 1 capital (to risk-weighted assets)
   39,871    29.67 % 10,581    ³7.875 % 10,749    ³8.0 %
Tier 1 capital (to average assets)
   39,871    18.45 % 8,643    ³4.000 % 10,804    ³5.0 %

	Actual					Minimum Regulatory Capital Ratios under Basel III			To Be Well Capitalized under Basel III
	Amount		Ratio			Amount		Ratio	Amount		Ratio
	(dollars in thousands)
As of June 30, 2020:
Common equity tier 1 capital (to risk-weighted assets)	$ 42,479		26.85		%	$ 10,282		>6.50%	$ 10,282		>6.50%
Total risk-based capital (to risk-weighted assets)	44,220		27.95		%	15,819		>10.0%	15,819		>10.0%
Tier 1 capital (to risk-weighted assets)		42,479		26.85	%		12,655	> 8.0 %		12,655	>8.0 %
Tier 1 capital (to average assets)		42,479		18.18	%		9,347	>4.0 %		11,684	>5.0 %

As of December 31, 2019:
Common equity tier 1 capital (to risk-weighted assets)	$	41,635		27.74	%	$ 9,569		>6.375%	$	9,757	>6.50%
Total risk-based capital (to risk-weighted assets)		43,054		28.68	%		14,823	>9.875%		15,010	>10.0%
Tier 1 capital (to risk-weighted assets)		41,635		27.74	%		11,821	>7.875%		12,008	>8.0 %
Tier 1 capital (to average assets)		41,635		19.08	%		8,731	>4.000%		10,913	>5.0 %

~~Note 13.~~

Note 13. Fair Value Measurements

ASC Topic 820 provides a framework for measuring and disclosing fair value under GAAP. ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example,available-for-sale investment securities) or a nonrecurring basis (for example, impaired loans).

ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Bank utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Securitiesavailable-for-sale is recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value all other assets on a nonrecurring basis, such as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 13. Fair Value Measurements (Continued)

ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

Level 1– Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active or by model-based

techniques in which all significant inputs are observable in the market for the asset or liability, for substantially the full term of the financial instrument.

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 13.~~

~~Fair Value Measurements (Continued)~~

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement and based on the Bank’s own assumptions about market participants’ assumptions.

The following is a description of the valuation methods used for instruments measured at fair value as the general classification of such instruments pursuant to the applicable valuation method.

Fair value measurements on a recurring basis

Securities available for sale – If quoted prices are available in an active market for identical assets, securities are classified within Level 1 of the hierarchy. If quoted market prices are not available, then fair values are estimated using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and securities dare included within Level 2 of the hierarchy.

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 the Bank has categorized its investment securities available for sale as follows:

   Level 1    Level 2    Level 3    Total
September 30, 2019

Securities available for sale:

U.S. Government Agency and Federal Obligations
   $ —      $ 12,548,539    $ —      $ 12,548,539
Residential mortgage-backed securities
      27,722,181    —      27,722,181
Municipal Securities
   —      1,542,249    —      1,542,249
December 31, 2018

Securities available for sale:

U.S. Government Agency and Federal Obligations
   $ —      $ 18,220,072    $ —      $ 18,220,072
Residential mortgage-backed securities
      17,744,986    —      17,744,986
Municipal Securities
   —      1,482,365    —      1,482,365

	Level 1		Level 2		Level 3		Total
June 30, 2020
Securities available for sale: U.S. Government Agency and Federal Obligations	$	—	$	5,599,654	$	—	$	5,599,654
Residential mortgage-backed securities				17,519,902		—		17,519,902
December 31, 2019
Securities available for sale: U.S. Government Agency and Federal Obligations	$	—	$	9,544,342	$	—	$	9,544,342
Residential mortgage-backed securities				26,010,539		—		26,010,539
Municipal securities		—		1,535,710		—		1,535,710

Fair value measurements on a nonrecurring basis

~~Loans held for sale~~ – The Bank’s loans held for sale are carried at the lower of cost or market. Fair value of loans held for sale is based upon outstanding investor commitments or, in the absence of such commitments, based on current investor yield requirements or third party pricing models and are considered Level 2.

Impaired loans – The Bank measures impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 the fair values consisted of loan balances of ~~$2,817,109~~$2,074,956 and ~~$1,286,793~~$2,828,148 that have been written down by ~~$13,921~~$284 and ~~$8,163,~~$681, respectively, as a result of specific loan loss allowances.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 13. Fair Value Measurements (Continued)

Foreclosed real estate – The Bank’s foreclosed real estate is measured at fair value less estimated cost to sell. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of foreclosed real estate was estimated to be ~~$845,000~~$775,000 and ~~$865,000,~~$845,000, respectively. Fair value was determined based on offers and/or appraisals. Cost to sell the real estate was based on standard market factors. The Bank has categorized its foreclosed real estate as Level 3.

	Level 1		Level 2		Level 3		Total
June 30, 2020
Impaired loans	$	—	$	—	$	2,074,672	$	2,074,672
Foreclosed real estate		—		—		775,000		775,000
December 31, 2019
Impaired loans	$	—	$	—	$	2,827,467	$	2,827,467
Foreclosed real estate		—		—		845,000		845,000

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 13.~~

~~Fair Value Measurements (Continued)~~

   Level 1    Level 2    Level 3    Total
September 30, 2019

Loans held for sale
   $ —      $ 1,753,853    $ —      $ 1,753,583
Impaired loans
   —      —      2,803,188    2,803,188
Foreclosed real estate
   —      —      845,000    845,000
December 31, 2018

Loans held for sale
   $ —      $ 211,107    $ —      $ 211,107
Impaired loans
   —      —      1,278,630    1,278,630
Foreclosed real estate
   —      —      865,000    865,000

The following table presents quantitative information about Level 3 fair value measurements for selected financial instruments measured at fair value on anon-recurring basis at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

							Fair Value		Value Technique(s)	Unobservable Inputs	Range or Rate Used
	Fair Value		Value Technique(s)	Unobservable Inputs	Range or Rate Used
September 30, 2019
June 30, 2020
Impaired loans	$	2,803,188	Appraised value	Discount to reflect current market conditions		0.00%-15.20%	$	2,074,672	Appraised value	Discount to reflect current market conditions		0.00	%
			Discounted cash flows	Discount rates		1.78%			Discounted cash flows	Discount rates		0.77	%
Foreclosed real estate	$	845,000	Appraised value	Discount to reflect current market conditions		10.11%	$	775,000	Appraised value	Discount to reflect current market conditions		10.92	%
December 31, 2018
December 31, 2019
Impaired loans	$	1,278,630	Appraised value	Discount to reflect current market conditions		0.00%-7.00%	$	2,827,467	Appraised value	Discount to reflect current market conditions		0.00	%
			Discounted cash flows	Discount rates		4.55%			Discounted cash flows	Discount rates		1.68	%
Foreclosed real estate	$	865,000	Appraised value	Discount to reflect current market conditions		27.92%	$	845,000	Appraised value	Discount to reflect current market conditions		10.11	%

The remaining financial assets and liabilities are not reported on the balance sheet at fair value on a recurring basis. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

CBM Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 13. Fair Value Measurements (Continued)

The estimated fair values of the Bank’s financial instruments, whether carried at cost or fair value are as follows:


			Fair Value Measurements at September 30, 2019 Using										Fair Value Measurements at June 30, 2020 Using
	Carrying Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Carrying Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(dollars in thousands)												(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	10,153	$	10,153	$	—	$	—	$	10,153	$	28,595	$	28,595	$	—	$	—	$	28,595
Time deposits in other banks		8,680		—		8,881		—		8,881		6,944		—		7,298		—		7,298
Securities available for sale		41,813		—		41,813		—		41,813		23,120		—		32,679		—		32,679
Federal Home Loan Bank stock		279		—		279		—		279		623		—		623		—		623
Loans held for sale		—		—		—		—		—		2,434		—		2,722		—		2,722
Loans, net (1)		145,725		—		—		152,679		152,679		164,375		—		—		169,786		169,786
Foreclosed real estate		845		—		—		845		845
Accrued interest receivable		698		—		698		—		698		713		—		713		—		713
Financial liabilities:
Deposits		155,248		—		140,633		—		140,633		169,373		—		164,726		—		164,726
Borrowings												10,000		—		10,262		—		10,262

(1)

Carrying amount is net of unearned income and the allowance for loan losses. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans was measured using an exit price notion.

			Fair Value Measurements at December 31, 2019 Using
	Carrying Value		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
			(dollars in thousands)
Financial assets:
Cash and cash equivalents	$	5,987	$	5,987	$	—	$	—	$	5,987
Time deposits in other banks		7,936		—		8,127		—		8,127
Securities available for sale		37,091		—		37,091		—		37,091
Federal Home Loan Bank stock		300		—		300		—		300
Loans held for sale		1,730		—		1,823		—		1,823
Loans, net (1)		158,245		—		—		161,954		161,954
Accrued interest receivable		655		—		655		—		655
Financial liabilities:
Deposits		156,441		—		145,617		—		145,617
Borrowings		2,500				2,550				2,550

~~CBM Bancorp, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~Note 13.~~

~~Fair Value Measurements (Continued)~~(1)

      Fair Value Measurements at December 31, 2018 Using
   Carrying
Value    Quoted
Prices in
Active
Market
for
Identical
Assets
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)    Fair
Value
      (dollars in thousands)
Financial assets:

Cash and cash equivalents
   $ 18,847    $ 18,847    $ —      $ —      $ 18,847
Time deposits in other banks
   6,944    —      6,867    —      6,867
Securities available for sale
   37,447    —      37,447    —      37,447
Federal Home Loan Bank stock
   245    —      245    —      245
Loans held for sale
   211    —      211    —      211
Loans, net (1)
   142,320    —      —      141,563    141,563
Foreclosed real estate
   865    —      —      865    865
Accrued interest receivable
   696    —      696    —      696
Financial liabilities:

Deposits
   153,750    —      136,090    —      136,090

~~(1)~~

35Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Item 2.~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

Statement Regarding Forward-Looking Statements

Overview

Management’s discussion and analysis of financial condition at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 is intended to assist in understanding the financial condition and results of operations of the ~~Company.~~Bank. The information contained in this section should be read in conjunction with the unaudited ~~consolidated~~ financial statements and the notes thereto appearing in Part I, Item1, of this quarterly report on Form10-Q.

This report contains forward looking statements within the meaning of the Securities Exchange Act of 1934, as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward- looking statements can be identified by use of such words as “may,” “will,” “anticipate,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors and other conditions, which by their nature are not susceptible to accurate forecast and are subject to significant uncertainty. For details on factors that could affect these expectations, see the risk factors and other cautionary language included in the Company’s Prospectus dated August 7, 2018 (filed with the Securities and Exchange Commission on August 15, 2018), and in other periodic and current reports filed by the Company with the Securities and Exchange Commission. Because of these uncertainties and the assumptions on which this discussion and the forward-looking statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such forward looking statements.

General

The COVID-19 pandemic has continued to adversely affect our ability to conduct normal business, has adversely affected our customers, and the adverse impacts could be significant. The COVID-19 pandemic also could cause actual results to differ materially from those discussed in our forward-looking statements.

The COVID-19 pandemic has continued to adversely impact our business and financial results, and its ultimate impact on our business will depend on highly uncertain and unpredictable future developments, including the magnitude and duration of the pandemic and actions taken by governmental authorities in response to the pandemic, particularly within our geographic footprint. The pandemic has resulted in temporary closures of many businesses, some of which include our borrowers, and the institution of social distancing and sheltering in place requirements in many states and communities, including our market area. In many cases the business disruptions have been significant, which could adversely affect our business and financial position. Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increases in our allowance for credit losses, particularly if businesses remain closed, or open and subsequently must close again, the impact on the national economy and our market area continues to be adverse or worsens, or more clients draw on their lines or credit or seek additional loans to help finance their businesses. Small and mid-sized businesses make up a large portion of our commercial loan portfolio and are particularly vulnerable to the financial effects of the COVID-19 pandemic due to their increased reliance on continuing cash flow to fund day-to-day operations. Although government programs have provided relief to these types of businesses, and may provide additional future relief, there can be no assurance that these programs will ultimately be successful. Our business operations may also be disrupted if significant portions of our workforce, key personnel or third-party service providers are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. Until the COVID-19 pandemic subsides, it will continue to impact our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios.

In addition to other factors discussed in this report, factors related to the COVID-19 pandemic that could cause actual results to differ materially from those discussed in our forward-looking statements include the following: the length and severity of the COVID-19 pandemic, including its impact on our financial condition and business operations ;the pace of economic recovery following the COVID-19 pandemic; and changes in government legislation, regulations and policies to address the impact of COVID-19 through the CARES Act and other responses to the COVID-19 pandemic.

Our participation in the SBA Paycheck Protection Program (“PPP”) may expose us to credit losses as well as litigation and compliance risks.

The CARES Act, enacted on March 27, 2020, included a $349 billion loan program administered through the SBA, referred to as the PPP. The $349 billion in funds for the PPP were exhausted on April 16, 2020. On April 27, 2020, the program was reopened with an additional $310 billion approved by Congress. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to detailed qualifications and eligibility criteria. See Note 3 of Notes to Consolidated Financial Statements.

Among other regulatory requirements, PPP loans are subject to forbearance of loan payments for a six-month period to the extent that loans are not eligible for forgiveness. If PPP borrowers fail to qualify for loan forgiveness, including by failing to use the funds appropriately in order to qualify for forgiveness under the program, the Bank will have a greater risk of holding these loans at unfavorable interest rates.

In addition, the short time period between the passing of the CARES Act and the implementation of the PPP resulted in ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. There is risk that the SBA or another governmental entity could conclude there was a deficiency in the manner in which the Bank originated, funded, or serviced PPP loans, which may or may not be related to the ambiguity in the CARES Act or the rules and guidance promulgated by the SBA and the U.S. Department of the Treasury regarding the operation of the PPP. In the event of such deficiency, the remedies the SBA may seek against the Bank are unknown, but may include the SBA’s denial of its liability under the guaranty, the reduction of the amount of the guaranty, or, if the SBA has already paid under the guaranty, the recovery of any loss related to the deficiency from the Company.

Since the opening of the PPP, several other banks have been subject to litigation regarding the process and procedures that these banks followed in accepting and processing applications for the PPP. We may be exposed to the risk of similar litigation, from both clients and non-clients that solicited the Bank for PPP loans, regarding processes and procedures we used to process applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability or adversely affect our reputation. In addition, litigation may be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our business, financial condition and results of operations.

Chesapeake Bank of Maryland

Our business operations are conducted through Chesapeake Bank of Maryland, a federally chartered stock savings association headquartered in Baltimore County, Maryland. Prior to 1998 and the creation of a mutual holding company structure, Chesapeake Bank of Maryland or its predecessors had operated as thrift institutions since 1913. Chesapeake Bank of Maryland conducts business out of its main office located in Baltimore County, Maryland, and out of three branch offices located in Arbutus, Maryland, Bel Air, Maryland, and Pasadena, Maryland.

Chesapeake Bank of Maryland operates as a community-oriented institution by offering a variety of loan and deposit products and serving other financial needs of its local community. Chesapeake Bank of Maryland takes its corporate citizenship seriously and is committed to meeting the credit needs of the community, consistent with safe and sound operations.

Chesapeake Bank of Maryland’s business consists principally of attracting retail deposits from the general public in our market area and using those funds, together with funds generated from operations and borrowings, to originate loans secured by residential and nonresidential real estate. Nonresidential real estate loans, construction and land development loans and commercial loans constitute a significant percentage of the loan portfolio and, in that respect, Chesapeake Bank of Maryland’s lending operations are more diversified and have more risk than many traditional thrift institutions.

Chesapeake Bank of Maryland’s primary market area is the Baltimore Metropolitan Area and its surrounding counties. The economy of Chesapeake Bank of Maryland’s market area is diversified, with a mix of services, manufacturing, wholesale/retail trade and federal and local government. See “Business of Chesapeake Bank of ~~Maryland—~~Maryland - Market Area.”

Chesapeake Bank of Maryland is subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency. Chesapeake Bank of Maryland is subject to Maryland banking laws except to the extent they are preempted by Federal law. Chesapeake Bank of Maryland is not regulated by the Maryland Commissioner of Financial Regulation.

CBM Bancorp, Inc.

CBM Bancorp, Inc. is a newly formed Maryland corporation. Following the completion of the conversion, reorganization and offering, CBM Bancorp became the holding company for Chesapeake Bank of Maryland.

Our executive offices are located at 2001 East Joppa Road, Baltimore, Maryland 21234, and our telephone number is (410)665-7600. Our website address iswww.chesapeakebank.com. Information on this website is not and should not be considered a part of this prospectus.

Critical 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 accounting principles generally accepted in the United States of America. The preparation of these 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 critical 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.

On April 5, 2012, the ~~Jumpstart Our Business Startups~~JOBS Act was signed into law. ~~This~~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 intend 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.

On March 27, 2020, the CARES Act was signed into law. The CARES Act contains provisions that, among other things, provides financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. We intend to follow the guidance provided under the CARES Act.

Because of the short timeframe between the passing of the CARES Act and the opening of the PPP on April 3, 2020, there is some ambiguity in the laws, rules and guidance regarding operation of the PPP. The SBA subsequently notified lenders that the funds initially earmarked for the PPP were exhausted. Congress has approved additional funding for the PPP, and President Trump signed the new legislation on April 24, 2020.

Since commencement of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant litigation costs, financial liability or reputational damage.

The Bank also may have credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which loans were originated, funded, or serviced by the Bank. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

The following represents our critical accounting policies:

Allowance for Loan Losses.The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment.

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated. Management performs a quarterly evaluation of the adequacy of the allowance. The allowance is based on Chesapeake Bank of Maryland’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan category that are not considered impaired. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative risk factors.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of the Comptroller of the Currency, as an integral part of their examination process, periodically reviews our allowance for loan losses. This agency may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Deferred Tax Assets. We make estimates and judgments to calculate some of our tax liabilities and determine the recoverability of some of our deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. We also estimate a reserve for deferred tax assets if, based on the available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. These estimates and judgments are inherently subjective. Historically, our estimates and judgments to calculate our deferred tax accounts have not required significant revision.

In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including our past operating results and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies, these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings.

Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. In evaluating the need for a valuation allowance, we must estimate our taxable income in future years and the impact of tax planning strategies. If we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.

Fair Value Measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Comparison of Financial Condition at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019

Total Assets. Total assets increased ~~$2.4~~$14.9 million, or ~~1.11%~~6.76%, to ~~$217.8~~$235.3 million at ~~September~~June 30, ~~2019~~2020 from ~~$215.4~~$220.4 million at December 31, ~~2018.~~2019. The increase in total assets was primarily due to ~~a growth~~an increase in ~~time~~our balances being held in interest bearing deposits in other banks, ~~investment securities and~~an increase in loans ~~funded~~offset by a decrease in ~~interest-bearing~~investment securities due to principal payments, sales and calls, as discussed in more detail below.

Cash and Cash Equivalents. Cash and cash equivalents increased $22.6 million to $28.6 million at June 30, 2020 from $6.0 million at December 31, 2019. The increase cash and cash equivalents was primarily in interest bearing deposits in other banks and ~~growth~~was funded with sales, principal payments and calls of available for sale securities and an increase in ~~deposits,~~borrowings from the FHLB to provide additional liquidity during COVID-19. Additional liquidity is being maintained as ~~discussed in more detail below.~~

~~Cash and Cash Equivalents.~~ ~~Cash and cash equivalents decreased $8.7 million, or 46.03%, to $10.2 million at September 30, 2019 from $18.9 million at December 31, 2018. The decrease was primarily the~~a result of ~~cash and cash equivalents being diverted~~COVID-19 in order to ~~time deposits in other banks, investment securities and loans.~~ensure that we have the necessary funding available to fund loans, as well as meet the demands of our depositors, if necessary.

Time Deposits in Other Banks. Time deposits in other banks ~~increased~~decreased by ~~$1.8~~$1.0 million, or ~~26.09%~~12.66%, to ~~$8.7~~$6.9 million at ~~September~~June 30, ~~2019~~2020 from ~~$6.9~~$7.9 million at December 31, ~~2018.~~2019. This ~~increase~~decrease was due to ~~investing in time deposits in other banks offset by maturities~~calls of time deposits in other banks.

Investment Securities. Investment securities ~~increased $4.4~~decreased $14.0 million, or ~~11.76%~~37.74%, to ~~$41.8~~$23.1 million at ~~September~~June 30, ~~2019~~2020 from ~~$37.4~~$37.1 million at December 31, ~~2018.~~2019. The ~~increase~~decrease was due to ~~purchases~~the sale of ~~$17.6~~municipal securities and residential mortgage backed securities in the amount of $7.3 million ~~offset by maturities, calls,~~ and principal repayments and calls in the amount of ~~$13.9~~$7.2 million. At ~~September~~June 30, ~~2019~~2020 all of our investment securities ~~were~~are classified as available for sale.

Net Loans. Net loans increased ~~$3.4~~$6.1 million, or ~~2.39%~~3.85%, to ~~$145.7~~$164.4 million at ~~September~~June 30, ~~2019~~2020 from ~~$142.3~~$158.3 million at December 31, ~~2018. Ourone-to~~ ~~four-family~~2019. Commercial loans increased ~~$518,000, or 0.74%,~~$8.5 million to ~~$70.8~~$15.5 million at ~~September~~June 30, ~~2019~~2020 from ~~$70.2~~$7.0 million at December 31, ~~2018.~~2019 due to the origination of $8.6 million in PPP loans. One-to four-family residential real estate loans decreased $1.5 million, or 2.01%, to $73.2 million at June 30, 2020 from $74.7 million at December 31, 2019. Our construction and land development loans ~~increased $857,000,~~decreased $295,000, or ~~10.41%~~3.19%, to ~~$9.1~~$9.0 million at ~~September~~June 30, ~~2019~~2020 from ~~$8.2~~$9.3 million at December 31, ~~2018.~~2019. Our ~~nonresidential~~consumer loans ~~increased $1.7 million,~~decreased $115,000, or ~~3.28%~~21.99%, to ~~$53.6 million~~$407,000 at ~~September 31, 2019~~June 30, 2020 from ~~$51.9 million~~$523,000 at December 31, ~~2018.~~2019. Our ~~commercial loans increased $1.4 million, or 26.42%, to $6.7 million at September 30, 2019 from $5.3 million at December 31, 2018. Our~~ home ~~equity~~ loans and lines of credit ~~decreased $658,000, or 8.72%,~~and our nonresidential loans remained relatively the same at June 30, 2020 compared to ~~$6.9 million at September 30, 2019 from $7.5 million at~~ December 31, ~~2018.~~2019.

Bank-owned Life Insurance. We invest in bank-owned life insurance (“BOLI”) to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that isnon-taxable. Federal regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses at the time of investment. This investment is accounted for using the cash surrender value method and is recorded at the amount that ~~could~~can be realized under the insurance policies at the balance sheet date. At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the aggregate cash surrender value of these policies ~~were~~was $4.8 million and $4.7 million, ~~and $4.6 million,~~ respectively.

Deposits.Deposits increased ~~$1.5~~$13.0 million, or ~~0.98%~~8.31%, to ~~$155.2~~$169.4 million at ~~September~~June 30, ~~2019~~2020 from ~~$153.7~~$156.4 million at December 31, ~~2018.~~2019. Ournon-interest-bearing demand deposits increased ~~$417,000,~~$10.5 million, or ~~2.30%~~53.03%, to ~~$18.5~~$30.3 million at ~~September~~June 30, ~~2019~~2020 from ~~$18.1~~$19.8 million at December 31, ~~2018.~~2019. This increase was primarily the result of the PPP loan origination funding being deposited into the non-interesting bearing accounts of our borrowers. Our savings accounts increased $2.0 million, or 8.23%, to $26.3 million at June 30, 2020 from $24.3 million at December 31, 2019. Our interest-bearing demand deposits increased ~~$1.2 million,~~$767,000, or ~~5.15%~~3.23%, to $24.5 million at ~~September~~June 30, ~~2018~~2020 from ~~$23.3~~$23.8 million at December 31, ~~2018.~~2019. Our money market deposit account and certificates of deposit ~~increased $2.6~~remained relatively the same at June 30, 2020 compared to December 31, 2019.

Total Stockholders’ Equity. Total stockholders’ equity decreased by $6.1 million, or ~~3.44%~~10.18%, to ~~$78.2~~$53.8 million at ~~September~~June 30, ~~2019~~2020 from ~~$75.6~~$59.9 million at December 31, 2018. Our money market deposits decreased $1.6 million, or 13.56%, to $10.2 million at September 30, 2019 from $11.8 million at December 31, 2018. Our savings deposits decreased $1.1 million, or 4.42%, to $23.8 million at September 30, 2019 from $24.9 million at December 31, 2018.

~~Total Equity.~~ ~~Total equity increased by $421,000, or 0.70%, to $60.8 million at September 30, 2019 from $60.3 million at December 31, 2018. Factors relating to changes in stockholders’ equity include earnings~~2019. Earnings of ~~$746,000,~~$304,000, an increase of ~~$483,000~~$266,000 in other comprehensive income related to ~~the~~ interest fluctuations on the Company’s available for sale securities ~~portfolio,~~and an increase of ~~$601,000~~$564,000 in additional paid in capital for the recording of stock-based compensation relating to the ESOP and the 2019 Equity Incentive Plan were offset by a cash dividend in the amount of $1.8 million paid to stockholders and the repurchase of ~~$1.4~~$5.5 million in common stock, ~~relating to~~which is part of the ~~2019 Equity Incentive Plan.~~stock repurchase plan that was approved by the Board of Directors on December 2, 2019.

Average Balance Sheets

The following ~~tables~~table set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax equivalent yield adjustments have been made, as the effects would immaterial. All average balances are daily average balances.Non-accrual loans were included in the computation of average balances of loans. 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.

																	For the Three Months Ended June 30,
																	2020								2019
	For the Three Months Ended September 30,																Average					Average			Average					Average
	2019								2018								Outstanding					Yield/			Outstanding					Yield/
	Average Outstanding Balance			Interest		Average Yield/ Rate			Average Outstanding Balance			Interest		Average Yield/ Rate			Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)																(Dollars in thousands)
Interest earning assets:
Loans	$	143,787		$	1,848		5.10	%	$	142,262		$	1,704		4.75	%	$	168,647		$	1,980		4.71	%	$	145,511		$	1,825		5.09	%
Federal funds sold and interest- bearing deposits in other banks		15,077			81		2.13	%		28,959			133		1.82	%
Interest-bearing deposits in other banks																		21,067			5		0.10	%		14,390			80		2.25	%
Time deposits in other banks		9,018			64		2.82	%		4,685			25		2.12	%		7,287			53		2.92	%		8,107			58		2.90	%
Investment securities		40,382			319		3.13	%		10,171			65		2.54	%		23,941			190		3.18	%		41,112			322		3.18	%
Federal Home Loan Bank stock		279			5		7.11	%		245			4		6.48	%		681			7		4.12	%		279			5		7.27	%

Total interest-earning assets		208,543			2,317		4.41	%		186,322			1,931		4.11	%		221,623			2,235		4.09	%		209,399			2,290		4.44	%
Non-interest-earning assets		10,016								9,288								12,260								9,704

Total assets	$	218,559							$	195,610							$	233,883							$	219,103

Interest bearing liabilities:
Interest-bearing demand	$	24,361		$	19		0.31	%	$	24,298		$	13		0.22	%	$	24,155		$	8		0.13	%	$	24,876		$	18		0.29	%
Money market		10,321			5		0.20	%		12,403			7		0.21	%		10,004			5		0.20	%		10,607			6		0.23	%
Savings		23,883			3		0.05	%		25,478			3		0.05	%		25,944			3		0.05	%		24,923			3		0.05	%
Certificates of deposit		78,080			341		1.73	%		76,714			230		1.19	%		78,549			339		1.73	%		76,731			320		1.69	%

Total deposits																		138,652			355		1.03	%		137,137			347		1.03	%
Borrowed funds																		11,346			20		0.71	%		—			—

Total interest-bearing liabilities		136,545			368		1.07	%		138,893			253		0.72	%		149,998			375		1.00	%		137,137			347		1.03	%

Non-interest-bearing liabilities		20,886								32,790								29,844								20,843

Total liabilities		157,531								171,683								179,842								157,980

Equity		61,028								23,927								54,041								61,123

Total liabilities and equity	$	218,559							$	195,610							$	233,883							$	219,103

Net interest income				$	1,949							$	1,678							$	1,860							$	1,943

Interest rate spread⁽¹⁾							3.34	%							3.39	%							3.09	%							3.41	%
Net interest-earning assets⁽²⁾	$	71,898							$	47,429							$	71,625							$	72,262
Net interest margin⁽³⁾							3.71	%							3.57	%							3.37	%							3.76	%
Average interest-earning assets to average-interest bearing liabilities		152.62	%							134.15	%							147.75	%							152.69	%

~~(1)~~

Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average 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 interest-earning assets.

	For the Six Months Ended June 30,
	2020								2019
	Average					Average			Average					Average
	Outstanding					Yield/			Outstanding					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate
	(Dollars in thousands)
Interest earning assets:
Loans	$	165,657		$	3,945		4.80	%	$	144,513		$	3,552		4.96	%
Interest-bearing deposits in other banks		13,925			20		0.29	%		14,833			167		2.27	%
Time deposits in other banks		7,606			109		2.89	%		7,629			109		2.88	%
Investment securities		29,176			434		3.00	%		40,816			634		3.13	%
Federal Home Loan Bank stock		552			11		4.02	%		264			8		6.11	%

Total interest-earning assets		216,916			4,519		4.20	%		208,055			4,470		4.33	%
Non-interest-earning assets		11,269								9,560

Total assets	$	228,185							$	217,615


Interest bearing liabilities:
Interest-bearing demand	$	23,722		$	25		0.21	%	$	24,105		$	31		0.26	%
Money market		9,988			10		0.20	%		11,103			12		0.22	%
Savings		25,242			6		0.05	%		25,036			6		0.05	%
Certificates of deposit		79,257			683		1.74	%		76,302			614		1.62	%

Total deposits		138,209			724		1.06	%		136,546			663		0.98	%
Borrowed funds		8,349			36		0.87	%		—			—		—

Total interest-bearing liabilities		146,558			760		1.05	%		136,546			663		0.98	%
Non-interest-bearing liabilities		25,530								20,128

Total liabilities		172,088								156,674

Equity		56,097								60,941

Total liabilities and equity	$	228,185							$	217,615

Net interest income				$	3,759							$	3,807
Interest rate spread⁽¹⁾							3.16	%							3.35	%
Net interest-earning assets⁽²⁾	$	70,358							$	71,509
Net interest margin⁽³⁾							3.49	%							3.69	%
Average interest-earning assets to average-interest bearing liabilities		148.01	%							152.37	%

   For the Nine Months Ended September 30,
   2019 2018
   Average
Outstanding
Balance Interest    Average
Yield/
Rate Average
Outstanding
Balance Interest    Average
Yield/
Rate
   (Dollars in thousands)
Interest earning assets:

Loans
   $ 144,433 $ 5,401    5.00 % $ 140,151 $ 4,997    4.77 %
Federal funds sold and interest- bearing deposits in other banks
   14,915 249    2.23 % 20,361 259    1.70 %
Time deposits in other banks
   8,097 173    2.86 % 4,706 60    1.70 %
Investment securities
   40,670 951    3.13 % 10,302 191    2.48 %
Federal Home Loan Bank stock
   270 13    6.44 % 244 11    6.03 %






Total interest-earning assets
   208,385 6,787    4.35 % 175,764 5,518    4.20 %
Non-interest-earning assets
   9,581    9,488





Total assets
   $ 217,966    $ 185,252





Interest bearing liabilities:

Interest-bearing demand
   $ 24,191 $ 50    0.28 % $ 25,215 $ 43    0.23 %
Money market
   10,840 17    0.21 % 12,847 20    0.21 %
Savings
   24,647 9    0.05 % 25,080 9    0.05 %
Certificates of deposit
   76,898 954    1.66 % 76,089 625    1.10 %





Total interest-bearing liabilities
   136,576 1,030    1.01 % 139,231 697    0.67 %





Non-interest-bearing liabilities
   20,420    23,433





Total liabilities
   156,996    162,664
Equity
   60,970    22,588





Total liabilities and equity
   $ 217,966    $ 185,252





Net interest income
   $ 5,757    $ 4,821





Interest rate spread⁽¹⁾
      3.35 %    3.53 %
Net interest-earning assets⁽²⁾
   $ 71,809    $ 36,533
Net interest margin⁽³⁾
      3.69 %    3.67 %
Average interest-earning assets to average-interest bearing liabilities
   152.58 %    126.24 %

(1)	Interest rate spread represents the difference between the average yield on average interest-earning assets and the average cost of average 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 interest-earning assets.

Comparison of Operating Results for the Three Months Ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~2019

General. Net income was ~~$302,000~~$131,000 for the three months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$324,000~~$172,000 for the three months ended ~~September~~June 30, ~~2018.~~2019. The decrease was due to ~~an increasenon-interest~~ ~~expense~~a decrease in net interest income after provision of ~~$396,000,~~$172,000, or ~~29.28%~~9.13%, to $1.7 million for the three months ended ~~September~~June 30, 2019 from $1.3 million for the three months ended September 30, 2018. The decrease was offset by an increase in net interest income after provision of $407,000, or 25.41%, to $2.0 million for the three months ended September 30, 2019 from $1.6 million for the three months ended September 30, 2018.

~~Interest Income~~~~. Interest and dividend income increased $386,000, or 19.99%, to $2.3 million for the three months ended September 30, 2019~~2020 from $1.9 million for the three months ended ~~September~~June 30, ~~2018. The~~2019 as well as an increase in non-interest expense of $102,000, or 5.80%, to $1.9 million for three months ended June 30, 2020 from $1.8 million for the three months ended June 30, 2019 offset by an increase non-interest income of $236,000 to $341,000 for the three months ended June 30, 2020 from $105,000 for the three months ended June 30, 2019.

Interest Income. Interest and dividend income decreased $54,000, or 2.36%, to $2.2 million for the three months ended June 30, 2020 from $2.3 million for the three months ended June 30, 2019. The decrease in interest and dividend income was due ~~primarily~~ to the decrease in the average yield on interest-earning assets for the three months ended June 30, 2020 compared to the average yield on interest-earning assets for the three months ended June 30, 2019 offset by increase in average interest-earning assets for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the average interest-earning assets for the three months ended ~~September~~June 30, ~~2018 as well as an increase in the average yield on earning assets for the three months ended September 30, 2019 compared to the three months ended September 30, 2018.~~2019.

Interest and fees on loans increased ~~$145,000,~~$155,000, or ~~8.51%~~8.49%, to $2.0 million for the three months ended June 30, 2020 from $1.8 million for the three months ended ~~September~~June 30, ~~2019 from $1.7 million for the three months ended September 30, 2018.~~2019. The increase was primarily due to an increase in the average balance of our loans ~~as well as an increase~~offset by a decrease in the average yield on our loans. Our average balance of loans increased ~~$1.5~~$23.1 million, or ~~1.05%~~15.88%, to ~~$143.8~~$168.6 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$142.3~~$145.5 million for the three months ended ~~September~~June 30, ~~2018.~~2019. Our average yield on loans ~~increased 35~~decreased 38 basis points to ~~5.10%~~4.71% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~4.75%~~5.09% for the three months ended ~~September~~June 30, ~~2018,~~2019, as ~~lower-yielding~~higher-yielding loans have been repaid or refinanced and replaced with ~~higher-yielding~~lower-yielding loans due to the current rate environment, as well as our origination of lower yielding PPP loans. As of June 30, 2020 we had originated $8.6 million in PPP loans and the ~~collection~~interest rate on these loans is 1.00%. The rate does not include deferred fees of approximately $245,000 that will be amortized and recorded as an increase in loan income over the life of the loan and depending on the date of loan origination. For the three months ended June 30, 2020, we had recorded an increase in loan income relating to the amortization of PPP deferred fees ~~on loan relationships during the third quarter~~ of ~~2019.~~approximately $21,000.

Interest and dividends on interest-bearing deposits in other banks, time deposits in other banks, and investments ~~increased $241,000~~decreased $210,000, or 45.16%, to ~~$469,\000~~$255,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$227,000~~$465,000 for the three months ended ~~September~~June 30, ~~2018.~~2019. The average balances on interest-bearing deposits in other banks, time deposits in other banks and investments ~~increased $20.7~~decreased $10.9 million to ~~$64.8~~$53.0 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$44.1~~$63.9 million for the three months ended ~~September~~June 30, ~~2018 as~~2019 and this ~~increase~~decrease in the average balances was driven primarily by the ~~net proceeds received~~sale of residential mortgage backed securities in the amount of $5.7 million and calls and principal repayments from our investment portfolio of $3.8 million during the ~~stock offering.~~three months ended June 30, 2020, offset by an increase in interest-bearing deposits in other banks. The average rate we earned on interest-bearing deposits in other banks, time deposits in other banks and investments ~~increased 83~~decreased by 100 basis points to ~~2.87%~~1.95% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~2.04%~~2.95% for the three months ended ~~September~~June 30, ~~2018~~2019 primarily due to our interest-bearing deposits in other banks repricing due to federal funds rate increases as well as increases in interest rates on the purchases of higher yielding time deposits in other banks and increases in interest rates on the purchases of higher yielding investment securities.decreases.

Interest Expense. Interest expense increased ~~$115,000,~~$28,000, or ~~45.45%~~8.07%, to ~~$368,000~~$375,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$253,000~~$347,000 for the three months ended ~~September~~June 30, ~~2018.~~2019. Our average balance of interest-bearing liabilities ~~decreased $2.3~~increased $12.9 million, or ~~1.66%~~9.41%, to ~~$136.7~~$150.0 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$138.9~~$137.1 million for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase was due primarily to ~~a reduction in balances of money market and savings accounts offset by~~ an increase in ~~our~~borrowed funds and an increase in savings accounts and certificates of ~~deposit.~~deposit balances. Our average rate paid on interest-bearing deposits ~~increased 35 basis points to 1.07%~~remained constant at 1.03% for the three months ended ~~September~~June 30, ~~2019 from 0.72% for~~2020 compared to the three months ended ~~September~~June 30, ~~2018 primarily due to an increase in the~~2019. The average rate paid on ~~certificates~~our borrowings was 0.71% as of ~~deposit.~~June 30, 2020.

Net Interest Income. Net interest income ~~increased $272,000,~~decreased $83,000, or ~~16.22%~~4.27%, to remain at approximately $1.9 million for the three months ended ~~September~~June 30, ~~2019 from $1.7~~2020 and June 30, 2019. The decrease was primarily the result of lower net interest spread and net interest margin. Our average net interest-earning assets decreased by $700,000, or 0.97%, to $71.6 million for the three months ended ~~September~~June 30, 2018, primarily as the result of a higher balance of net interest-earning assets which represents total interest–earning assets, less total interest–bearing liabilities, offset by a lower net interest rate spread. Our average net interest-earning assets increased by $31.5 million to $71.92020 from $72.3 million for the three months ended ~~September~~June 30, ~~2019 from $47.4 million for the three months ended September 30, 2018, due primarily to our growth in time deposits in other banks and investments described above.~~2019. Our net interest rate spread decreased by 532 basis points to ~~3.34%~~3.09% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~3.39%~~3.41% for the three months ended ~~September~~June 30, ~~2018~~2019 and our net interest margin ~~increased~~decreased by 1439 basis points to ~~3.71%~~3.37% for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~3.57%~~3.76% for the three months ended ~~September~~June 30, ~~2018.~~2019.

Provisions 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 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 andnon-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. The allowance for loan losses is assessed on a quarterly basis and provisions are made for loan losses as required in order to maintain the allowance.

Provision for loan losses ~~decreased~~increased by ~~$135,000~~$90,000 to ~~a reversal of the provision of $60,000~~$150,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from a provision for loan losses for the three months ended ~~September~~June 30, ~~2018~~2019 of ~~$75,000.~~$60,000. We ~~recorded net recoveries of $74,000~~did not record any charge-offs for ~~the~~ three months ended ~~September~~June 30, ~~2019~~2020 and we recorded net charge-offs of $50,000 for the three months ended ~~September~~June 30, ~~2018.~~2019. Non-performing loans totaled ~~$443,000~~$494,000 at ~~September~~June 30, ~~2019~~2020 compared to ~~$1.0 million~~$929,000 at ~~September~~June 30, ~~2018.~~ 2019. The decrease of ~~$592,000~~$435,000 innon-performing loans was primarily the result of a decrease of ~~$416,000~~$484,000 in~~non-performingone-to~~ ~~four-family residential loans and a decrease of $124,000 in construction and land development~~ nonresidential loans. The decrease ~~of $416,000~~ in~~one-to~~ ~~four-family residential~~ non-performing nonresidential loans was ~~primarily~~due to the ~~result~~settlement of ~~four loans from September 30,~~a loan relationship where the Company reported a charge-off of $335,000 during the year ended December 31, 2018 ~~totaling $288,000 paying off by September 30,~~and a subsequent recovery of $115,000 during the year ended December 31, 2019 ~~and one loan in~~for which the ~~amount of $120,000 selling at foreclosure resulting in a~~Company has no additional exposure. ~~charge-off~~ ~~of approximately $40,000.~~ Ournon-performing loans to total loans decreased to 0.30% at ~~September~~June 30, ~~2019~~2020 from ~~0.72%~~0.64% at ~~September~~June 30, ~~2018.~~2019. The increase in provision for loan losses was necessary due to an increase in our overall loan balances as well as an increase in our qualitative factors, such as current economic conditions, the adequacy of underlying collateral and the financial strength of our borrowers affected by the COVID-19 pandemic. We have provided for losses that are probable and reasonably estimable at ~~September~~June 30, ~~2019.~~2020.

Non-Interest Income.Non-interest ~~Income.~~~~Non-interest~~ income ~~decreased~~increased by ~~$22,000, or 12.43%,~~$236,000 to ~~$155,000~~$341,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$177,000~~$105,000 for the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase was primarily due to ~~the decrease~~an increase of ~~$10,000 on income from bank-owned life insurance to $58,000 for the three months ended September 30, 2019 from $68,000 for the three months ended September 30, 2018 and a decrease of $14,000~~$153,000 in gain on sale of loans to ~~$30,000~~$172,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$44,000~~$19,000 for the three months ended ~~September~~June 30, ~~2018.~~2019 and the gain on sale of investments of $97,000 recorded for the three months ended June 30, 2020.

Non-Interest Expense.Non-interest ~~Expense.~~~~Non-interest~~ expense increased by ~~$396,000,~~$102,000, or ~~29.28%~~5.80%, to ~~$1.7~~$1.9 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$1.3~~$1.8 million for the three months ended ~~September~~June 30, ~~2018.~~2019. Salaries, director fees and employee benefits increased ~~$312,000,~~$161,000, or ~~38.47%~~15.38%, to ~~$1.1~~$1.2 million for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$811,000~~$1.0 million for the three months ended ~~September~~June 30, ~~2018~~2019 primarily due ~~primarily~~ to the recording of ~~$340,000 in~~ stock-based compensation ~~expense relating to the ESOP and 2019 Equity Incentive Plan. Professional fees increased $74,000, or 112.12%, to $140,000~~of $175,000 for the three months ended ~~September~~June 30, ~~2019 from $66,000~~2020 compared to $89,000 for the three months ended ~~September~~June 30, ~~2018~~2019 relating to the 2019 Equity Incentive Plan which was approved in May 2019, as well as the expansion of our employee base, including sales and relationship management personnel to help support our continued growth strategy. Professional fees decreased $30,000, or 18.52%, to $132,000 for the three months ended June 30, 2020 from $162,000 for the three months ended June 30, 2019 primarily due to ~~increased~~higher levels of consulting ~~fees~~expenses during the three months ended June 30, 2019 relating to ~~information technology system enhancements and the increased expenses relating to reporting requirements associated with~~ the Company’s public company status. FDIC premiums and regulatory ~~assessments~~expenses decreased ~~$13,000,~~$11,000, or ~~40.63%~~39.29%, to ~~$19,000~~$17,000 for the three months ended ~~September~~June 30, ~~2019~~2020 from ~~$32,000~~$28,000 for the three months ended ~~September~~June 30, ~~2018 primarily~~2019 due to the FDIC awarding small banks credits for a portion of their assessment during the ~~third~~second quarter of ~~2019. Other operating~~2020. Marketing expenses ~~increased by $27,000, or 16.77%,~~decreased $37,000 to ~~$188,000~~$12,000 for the three months ended ~~September~~June 30, ~~2019 from $161,000~~2020 compared to $49,000 for the three months ended ~~September~~June 30, ~~2018 primarily~~2019 due to ~~an increase~~reductions in ~~insurance costs as well as an increase in software maintenance costs.~~

~~Income Tax Expense.~~ Income tax expense increased by $11,000, or 10.38%, to $117,000 for the three months ended September 30, 2019 from $106,000 for the three months ended September 30, 2018. The effective tax rate was 27.94% and 24.62% for the three months ended September 30, 2019 and 2018, respectively. The increase in tax expense was the result of a decrease in nontaxable income for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 as well as the increase in nondeductible compensation expenses relating to the 2019 Equity Incentive Plan.

~~Comparison of Operating Results for the Nine Months Ended September 30, 2019 and September 30, 2018~~

~~General.~~ ~~Net income was $746,000 for the nine months ended September 30, 2019 compared to $797,000 for the nine months ended September 30, 2018. The decrease was due primarily to an increase innon-interest~~ ~~expense and a decrease innon-interest~~ ~~income. The decrease was offset by an increase in net interest income and a decrease in provision for loan losses.Non-interest~~ ~~expenses increased by $1.0 million or 25.00%, to $5.0 million for the nine months ended September 30, 2019 compared to $4.0 million for the nine months ended September 30, 2018.Non-interest~~ income decreased $122,000, or 25.74%, to $352,000 for the nine months ended September 30, 2019 compared to $474,000 for the nine months ended September 30, 2018. Net interest income increased $1.0 million, or 20.83%, to $5.8 million for the nine months ended September 30, 2019 from $4.8 million for the nine months ended September 30, 2018. The provision for loan losses decreased by $135,000 to $90,000 for the three months ended September 30, 2019 from $225,000 for the three months ended September 30, 2018.

~~Interest Income~~. Interest and dividend income increased $1.3 million, or 23.64%, to $6.8 million for the nine months ended September 30, 2019 from $5.5 million for the nine months ended September 30, 2018. The increase in interest income was due primarily to the increase in average interest-earning assets for the nine months ended September 30, 2019 compared to the average interest earnings assets for the nine months ended September 30, 2018 offset by a decrease in the net interest spread for the nine months September 30, 2019 compared to the nine months ended September 30, 2018.

Interest and fees on loans increased $404,000, or 8.08%, to $5.4 million for the nine months ended September 30, 2019 from $5.0 million for the nine months ended September 30, 2018. The increase was primarily due to an increase in the average balance of our loans as well as an increase in the average yield on our loans. Our average balance of loans increased $4.2 million, or 3.00%, to $144.4 million for the nine months ended September 30, 2019 from $140.2 million for the nine months ended September 30, 2018. Our average yield on loans increased 23 basis points to 5.00% for the nine months ended September 30, 2019 from 4.77% for the nine months ended September 30, 2018, as lower-yielding loans have been repaid or refinanced and replaced with higher-yielding loans as well as the collection of nonaccrual interest and fees on past due loan relationships that were resolved in the nine months ended September 30, 2019.

Interest and dividends on interest-bearing deposits in other banks, time deposits in other banks, and investments increased $865,000 to $1.4 million for the nine months ended September 30, 2019 from $521,000 for the nine months ended September 30, 2018. The average balances on interest-bearing deposits in other banks, time deposits in other banks and investments increased $28.4 million to $64.0 million for the nine months ended September 30, 2019 from $35.6 million for the nine months ended September 30, 2018. The average rate we earned on interest-bearing deposits in other banks, time deposits in other banks and investments increased 94 basis points to 2.90% for the nine months ended September 30, 2019 from 1.96% for the nine months ended September 30, 2018 primarily due to our interest-bearing deposits in other banks repricing due to federal funds rate increases as well as increases in interest rates on the purchases of higher yielding time deposits in other banks and increases in interest rates on the purchases of higher yielding investment securities.

~~Interest Expense.~~ Interest expense increased $333,000, or 47.78%, to $1.0 million for the nine months ended September 30, 2019 from $697,000 for the nine months ended September 30, 2018. Our average balance of interest-bearing liabilities decreased $2.6 million, or 1.87%, to $136.6 million for the nine months ended September 30, 2019 from $139.2 million for the nine months ended September 30, 2018. Our average rate paid on interest-bearing deposits increased 34 basis points to 1.01% for the nine months ended September 30, 2019 from 0.67% for the nine months ended September 30, 2018 primarily due to an increase in the average rate paid on certificates of deposit.

~~Net Interest Income~~. Net interest income increased $1.0 million, or 20.83%, to $5.8 million for the nine months ended September 30, 2019 from $4.8 million for the nine months ended September 30, 2018, primarily as the result of a higher balance of net interest-earning assets, which represents total interest–earning assets, less total interest–bearing liabilities offset by a lower net interest rate spread. Our average net interest-earning assets increased by $35.3 million to $71.8 million for the nine months ended September 30, 2019 from $36.5 million for the nine months ended September 30, 2018. Our net interest rate spread decreased by 18 basis points to 3.35% for the nine months ended September 30, 2019 from 3.53% for the nine months ended September 30, 2018 and our net interest margin increased by two basis points to 3.69% for the nine months ended September 30, 2019 from 3.67% for the nine months ended September 30, 2018.

~~Provisions for Loan Losses~~. Provision for loan losses decreased by $135,000 to $90,000 for the nine months ended September 30, 2019 from $225,000 for the nine months ended September 30, 2018. We recorded net recoveries of $25,000 for the nine months ended September 30, 2019 and recorded net charge-offs of $72,000 for the nine months ended September 30, 2018.~~Non-performing~~ ~~loans totaled $443,000 at September 30, 2019 compared to $1.0 million at September 30, 2018. The decrease of $592,000 innon-performing~~ ~~loans was primarily the result of a decrease of $416,000 innon-performingone-to~~ ~~four-family residential loans and a decrease of $124,000 in construction and land development loans. The decrease of $416,000 inone-to~~ four-family residential loans was primarily the result of four loans from September 30, 2018 totaling $288,000 paying off by September 30, 2019 and one loan in the amount of $120,000 selling at foreclosure resulting in a~~charge-off~~ ~~of approximately $40,000. Ournon-performing~~ ~~loans to total loans decreased to 0.30% at September 30, 2019 from 0.72% at September 30, 2018. We have provided for losses that are probable and reasonably estimable at September 30, 2019.~~

~~Non-interest~~ ~~Income.~~~~Non-interest~~ income decreased by $122,000, or 25.74%, to $352,000 for the nine months ended September 30, 2019 from $474,000 for the nine months ended September 30, 2018. The decrease was primarily due to a decrease of $9,000 on service fees on deposit accounts to $92,000 for the nine months ended September 30, 2019 from $101,000 for the nine months ended September 30, 2018, a decrease of $13,000 in income from bank-owned life insurance to $96,000 for the nine months ended September 30, 2019 from $109,000 for the nine months ended September 30, 2018 and a decrease of $104,000 in gain on sale of loans to $64,000 for the nine months September 30, 2019 from $168,000 for the nine months ended September 30, 2018.

~~Non-interest~~ ~~Expense.~~~~Non-interest~~ expense increased by $1 million, or 25.00%, to $5.0 million for the nine months ended September 30, 2019 from $4.0 million for the nine months ended September 30, 2018. Salaries, director fees and employee benefits increased $666,000, or 27.75%, to $3.1 million for the nine months ended September 30, 2019 from $2.4 million for the nine months ended September 30, 2018 due primarily to the recording of $601,000 in stock-based compensation expense relating to the ESOP and 2019 Equity Incentive Plan. Professional fees increased $201,000, or 89.73%, to $425,000 for the nine months ended September 30, 2019 from $224,000 for the nine months ended September 30, 2018 primarily due to increased consulting fees relating to information technology system enhancements, the increased expenses relating to reporting requirements associated with the Company’s public company status offset by a recovery of legal fee expenses relating to past due loan relationships that were resolved in the nine months ended September 2019. FDIC premiums and regulatory assessments decreased $17,000, or 18.09% to $77,000 for the nine months ended September 30, 2019 from $94,000 for the nine months ended September 30, 2018 primarily due to the FDIC awarding small banks assessment credits for a portion of their assessmentsmarketing outlays during the ~~third~~second quarter of ~~2019.~~2020. Provision for losses and costs on foreclosed real estate increased by ~~$22,000~~$49,000 to ~~$33,000~~$75,000 for the ~~nine~~three months ended ~~September~~June 30, ~~2019~~2020 from ~~$11,000~~$26,000 for the ~~nine~~three months ended ~~September~~June 30, ~~2018 primarily~~2019 due to a writedown in the valuation of the foreclosed real estate to its current fair market value. Other operating expenses decreased by $35,000, or 17.33%, to $167,000 for the three months ended June 30, 2020 from $202,000 for the three months ended June 30, 2019 primarily due to a decrease in insurance costs offset by an increase in software maintenance costs.

Income Tax Expense. Income tax expense increased by ~~$109,000,~~$4,000, or ~~23.90%~~7.14%, to ~~$565,000~~$60,000 for the ~~nine~~three months ended ~~September~~June 30, 2020 from $56,000 for the three months ended June 30, 2019. The effective tax rate was 31.51% and 24.46% for the three months ended June 30, 2020 and 2019, respectively. Income before taxes decreased by $37,000, or 16.23%, to $191,000 for the three months ended June 30, 2020 compared to $228,000 for the three months ended June 30, 2019. Although income before taxes decreased for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, ~~from $456,000~~income tax expense increased as a result of the increase in non-deductible compensation expense relating to the 2019 Equity Incentive Plan during the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Comparison of Operating Results for the ~~nine~~Six Months Ended June 30, 2020 and June 30, 2019

General. Net income was $304,000 for the six months ended ~~September~~June 30, ~~2018~~2020 compared to $444,000 for the six months ended June 30, 2019. The decrease of $140,000, or 31.53%, was due primarily to a decrease net interest income after provision, an increase in non-interest expense offset by an increase in non-interest income. Net interest income after provision decreased by $224,000, or 6.12%, to $3.4 million for the six months ended June 30, 2020 compared to $3.7 million for the six months ended June 30, 2019. Non-interest expenses increased by 316,000, or 9.70%, to $3.6 million for the six months ended June 30, 2020 compared to $3.3 million for the six months ended June 30, 2019. Non-interest income increased $389,000 to $586,000 for the six months ended June 30, 2020 compared to $197,000 for the six months ended June 30, 2019.

Interest Income. Interest and dividend income remained constant at $4.5 million for the six months ended June 30, 2020 and 2019. The average interest-earning assets for the six months ended June 30, 2020 increased compared to the average interest-earning assets for the six months ended June 30, 2019 however the average yield on interest-earning assets decreased for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Interest and fees on loans increased $393,000, or 11.06%, to $3.9 million for the six months ended June 30, 2020 from $3.5 million for the six months ended June 30, 2019. The increase was primarily due to an increase in ~~insurance costs~~the average balance of our loans offset by a decrease in the average yield on our loans. Our average balance of loans increased $21.2 million, or 14.67%, to $165.7 million for the six months ended June 30, 2020 from $144.5 million for the six months ended June 30, 2019. Our average yield on loans decreased 16 basis points to 4.80% for the six months ended June 30, 2020 from 4.96% for the six months ended June 30, 2019, as higher-yielding loans have been repaid or refinanced and replaced with lower-yielding loans due to the current rate environment, as well as our origination of lower yielding PPP loans. As of June 30, 2020 we had originated $8.6 million in PPP loans at an interest rate of 1.00%. The rate does not include deferred fees of approximately $245,000 that will be amortized and recorded as an increase in loan income over the life of the loan and depending on the date of loan origination. For the six months ended June 30, 2020, we had recorded an increase in loan income relating to the amortization of PPP deferred fees of approximately $21,000.

Interest and dividends on interest-bearing deposits in other banks, time deposits in other banks, and investments decreased $344,000, or 37.51%, to $574,000 for the six months ended June 30, 2020 from $918,000 for the six months ended June 30, 2019. The average balances on interest-bearing deposits in other banks, time deposits in other banks and investments decreased $12.2 million, or 19.21%, to $51.3 million for the six months ended June 30, 2020 from $63.5 million for the six months ended June 30, 2019 and this decrease in the average balances was driven primarily by the sale of municipal securities and residential mortgage backed securities in the amount of $7.3 million and calls and principal repayments from our investment portfolio of $7.2 million during the six months ended June 30, 2020. The average rate we earned on interest-bearing deposits in other banks, time deposits in other banks and investments decreased 65 basis points to 2.26% for the six months ended June 30, 2020 from 2.91% for the six months ended June 30, 2019 primarily due to our interest-bearing deposits in other banks repricing due to federal funds rate decreases as well as decreases in the average yield on our investment portfolio after the sales of higher yielding investment securities.

Interest Expense. Interest expense increased $98,000, or 14.78%, to $760,000 for the six months ended June 30, 2020 from $662,000 for the six months ended June 30, 2019. Our average balance of interest-bearing liabilities increased $10.1 million, or 7.40%, to $146.6 million for the six months ended June 30, 2020 from $136.5 million for the six months ended June 30, 2019. The increase was due primarily to an increase in borrowed funds and an increase in certificates of deposit balances offset by a decrease in money market deposit accounts. Our average rate paid on interest-bearing deposits increased eight basis points to 1.06% for the six months ended June 30, 2020 from 0.98% for the six months ended June 30, 2019 primarily due to an increase in the average rate paid on certificates of deposit. The average rate paid on our borrowings was 0.87% as of June 30, 2020.

Net Interest Income. Net interest income decreased $49,000, or 1.29%, to remain at $3.8 million for the six months ended June 30, 2020 and June 30, 2019. The slight decrease was primarily the result of lower net interest spread and net interest margin. Our average net interest-earning assets, which represents total interest–earning assets, less total interest–bearing liabilities, decreased by $1.1 million, or 1.54%, to $70.4 million for the six months ended June 30, 2020 from $71.5 million for the six months ended June 30, 2019. Our net interest rate spread decreased by 19 basis points to 3.16% for the six months ended June 30, 2020 from 3.35% for the six months ended June 30, 2019 and our net interest margin decreased by 20 basis points to 3.49% for the six months ended June 30, 2020 from 3.69% for the six months ended June 30, 2019.

Provisions for Loan Losses. Provision for loan losses increased $175,000 to $325,000 for the six months June 30, 2020 from $150,000 for the six months ended June 30, 2019. We recorded net charge-offs of $3,000 and $50,000 for the six months ended June 30, 2020 and 2019, respectively. Non-performing loans totaled $494,000 at June 30, 2020 compared to $929,000 million at June 30, 2019. The decrease of $435,000 in non-performing loans was primarily the result of a decrease of $484,000 in nonresidential loans. The decrease in non-performing nonresidential loans was due to the settlement of a loan relationship where the Company reported a charge-off of $335,000 during the year ended December 31, 2018 and a subsequent recovery of $115,000 during the year ended December 31, 2019 for which the Company has no additional exposure. Our non-performing loans to total loans decreased to 0.30% at June 30, 2020 from 0.64% at June 30, 2019. The increase in provision for loan losses was necessary due to an increase in our overall loan balances as well as an increase in our qualitative factors, such as current economic conditions, the adequacy of underlying collateral and the financial strength of our borrowers affected by the COVID-19 pandemic. We have provided for losses that are probable and reasonably estimable at June 30, 2020.

Non-Interest Income. Non-interest income increased by $389,000 to $586,000 for the six months ended June 30, 2020 from $197,000 for the six months ended June 30, 2019. The increase was primarily due to an increase of $253,000 in gain on sale of loans to $287,000 for the six months ended June 30, 2020 from $34,000 for the six months ended June 30, 2019 and the gain on sale of investments of $143,000 recorded for the six months ended June 30, 2020.

Non-Interest Expense. Non-interest expense increased by $316,000, or 9.70%, to $3.6 million for the six months ended June 30, 2020 from $3.3 million for the six months ended June 30, 2019. Salaries, director fees and employee benefits increased $414,000, or 21.42%, to $2.3 million for the six months ended June 30, 2020 from $1.9 million for the six months ended June 30, primarily due to the recording of stock-based compensation of $344,000 for the six months ended June 30, 2020 compared to $89,000 for the six months ended June 30, 2019 relating to the 2019 Equity Incentive Plan which was approved in May 2019, as well as the expansion of our employee base, including sales and relationship management personnel to help support our continued growth strategy. Professional fees decreased $37,000, or 12.98%, to $248,000 for the six months ended June 30, 2020 from $285,000 for the six months ended June 30, 2019 primarily due to higher levels of consulting expenses during the six months ended June 30, 2019 relating to the Company’s public company status. FDIC premiums and regulatory expenses decreased $25,000, or 43.10%, to $33,000 for the six months ended June 30, 2020 from $58,000 for the six months ended June 30, 2019 due to the FDIC awarding small banks credits for a portion of their assessment during the first and second quarters of 2020. Marketing expenses decreased $43,000 to $29,000 for the six months ended June 30, 2020 compared to $72,000 for the six months ended June 30, 2019 due to reductions in marketing outlays during the first and second quarters of 2020. Provision for losses and costs on foreclosed real estate increased by $49,000 to $78,000 for the six months ended June 30, 2020 from $29,000 for the six months ended June 30, 2019 due to a writedown in the valuation of the foreclosed real estate to its current fair market value. Other operating expenses decreased by $35,000, or 9.21%, to $345,000 for the six months ended June 30, 2020 from $380,000 for the six months ended June 30, 2019 primarily due to a decrease in insurance costs offset by an increase in software maintenance costs.

Income Tax Expense. Income tax expense decreased by ~~$9,000,~~$10,000, or ~~3.47%~~6.62%, to ~~$268,000~~$141,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from ~~$259,000~~$151,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The effective tax rate was ~~26.44%~~31.66% and ~~24.56%~~25.39% for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~increase~~decrease in tax expense was the result of a decrease in ~~nontaxable~~ income before income taxes of $150,000, or 25.17%, to $445,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019 compared to~~2020 from $596,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2018, as well as~~2019. The increase in the effective tax rate was due to the increase in ~~nondeductible~~non-deductible compensation ~~expenses~~expense relating to the 2019 Equity Incentive ~~Plan.~~Plan during the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to ~~funds~~fund current and planned expenditures. The board of directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. Our primary sources of funds are deposits and, principal and interest payments on loans and securities. We also have the ability to borrow funds from the Federal Home Loan Bank of Atlanta, and we have credit availability with a correspondent bank. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The ~~Board of Directors is responsible for establishing and monitoring~~COVID-19 pandemic could have a negative effect on our liquidity ~~targets~~ and ~~strategies~~capital resources due to reductions in principal and interest payments on our loans, an increase in deposit withdrawals and the potential tightening of the capital markets. While we have not yet experienced a significant decrease in our loan principal and interest payments, we do however anticipate there could be a decline in the third quarter ending September 30, 2020 based on our current level of loan modification requests for those customers affected by COVID-19. The loan type, number of loans and balances of these loan modifications are discussed in Note 4 of Notes to Consolidated Financial Statements. As a qualified SBA lender, we were authorized to originate PPP loans as discussed in Note 3 of Notes to Consolidated Financial Statements. We limited our investment in these loans to 20% of the Bank’s capital, or $8.6 million in loans, and funded approximately this amount in PPP loans as of June 30, 2020. Deposit balances increased during the six months ended June 30, 2020, and although a reduction in our deposits did not occur as anticipated, we continue to prepare for deposit outflow from consumers and businesses relating to the potential disruption in their income and the adverse business consequences due to COVID-19.

In order to ~~ensure that sufficient~~meet the our potential current short-term and long-term liquidity ~~exists for meeting~~needs, to include the ~~borrowing needs and deposit withdrawals~~funding of our ~~customers~~investment in PPP loans, as ~~well~~discussed above, we increased our borrowings with the Federal Home Loan Bank to $10.0 million as ~~unanticipated contingencies.~~of June 30, 2020 and as of June 30, 2020, we had sold $7.3 million in municipal and residential mortgage-backed securities, recognizing a gain of approximately $143,000. We believe that we have enough sources of liquidity to satisfy our short and long-term liquidity needs as of ~~September~~June 30, ~~2019.~~2020.

We monitor and adjust our investments in liquid assets based upon our assessments of: (1) expected loan demand; (2) expected deposit flows; (3) yields available on interest-earning deposits and securities; and (4) the objectives of our asset liability management program. Excess liquid assets are invested generally in interest-earning deposits and short and intermediate securities.

Our most liquid assets are cash and cash equivalents, which include ~~federal funds sold and~~ interest-bearing deposits in other banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At ~~September~~June 30, ~~2019,~~2020, cash and cash equivalents totaled ~~$10.2~~$28.6 million, which included, ~~$684,000~~$769,000 in cash and due from banks and interest-bearing deposits in other banks of ~~$9.5~~$27.8 million. Time deposits in other banks and securities classified asavailable-for-sale, which provide additional sources of liquidity, totaled ~~$8.7~~$6.9 million and ~~$41.8~~$23.1 million, respectively at ~~September~~June 30, ~~2019.~~2020.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash (used in) provided by operating activities was ~~($184,000)~~$(20,000) and ~~$1.9~~$1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net cash ~~used in~~provided by (used in) investing activities, which consists primarily of disbursements for loan originations and the purchases of securities, offset by principal collections on loans, proceeds from sales and maturing securities andpay-downs on mortgage-backed securities was $8.8 million and ~~$2.1~~$(7.5) million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Net cash provided by financing activities, consisting of activities in deposit accounts ~~issuance~~and borrowings, as well as the repurchase of common stock and ~~repurchases~~payment of ~~common stock~~dividends was ~~$306,000~~$13.8 million and ~~$38.9~~$4.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, 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. Certificates of deposit due within one year of ~~September~~June 30, ~~2019~~2020 totaled ~~$28.2~~$30.7 million, or ~~18.17%,~~18.12% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and ~~Federal Home Loan Bank~~FHLB advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

We are subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets andoff-balance sheet items to broad risk categories. At ~~September~~June 30, ~~2019,~~2020, Chesapeake Bank of Maryland exceeded all regulatory capital requirements and was considered “well capitalized” under regulatory guidelines. See “Historical and Pro Forma Regulatory Capital Compliance.”

Off-Balance Sheet Arrangements

As a financial services provider, we routinely are a party to various financial instruments withoff-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At ~~September~~June 30, ~~2019,~~2020, we had outstanding commitments to originate loans of ~~$23.0~~$25.0 million. We anticipate that we will have sufficient funds available to meet our current lending commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Item 3.~~

~~Quantitative and Qualitative Disclosures About Market Risk~~

A smaller reporting company is not required to provide the information relating to this item.

~~Item 4.~~

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule~~12a-15(e)~~ 13a-15(e) and15d-15(e) under the Exchange Act) as of the end of the period covered by the quarterly report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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

~~Part~~Part II – ~~OTHER~~OTHER INFORMATION

Item 1 –

Legal Proceedings

The Company was not involved in any pending legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. The Company’s management believes that such routine legal proceedings, in the aggregate, are immaterial to the Company’s consolidated financial condition and results of operations.

Item 1A –

Risk Factors

Not ~~required for~~applicable as CBM Bancorp, Inc. is a smaller reporting ~~companies.~~company.

~~Item 2 –~~

Item 2 - Unregistered Sales of Equity Securities and Use or Proceeds

For information regarding stock repurchases during the quarter and six months ended ~~September~~June 30, ~~2019,~~2020, see Note 10 of Notes to Consolidated Financial Statements which is incorporated by reference.

Item 3 –

Defaults Upon Senior Securities

None

Item 4 –

Mine Safety Disclosures

Not applicable

Item 5 –

Other Information

None

Item 6 – Exhibits

~~Item 6 –~~

31.1

~~Exhibits~~



	~~31.1~~	Rule13a-14(a)/15d-14(a) Certification of principal executive officer

31.2	~~31.2~~	Rule13a-14(a)/15d-14(a) Certification of principal financial officer

32.0	~~32.0~~	Section 1350 Certifications

101.0	~~101.0~~	The following materials from the Company’s Quarterly Report on Form10-Q for the quarter ended ~~September~~June 30, ~~2019,~~2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


					CBM BANCORP, INC.

Dated: ~~November 14, 2019~~	August 13, 2020	By:	~~By:~~	/s/ Joseph M. Solomon
					Joseph M. Solomon
					President
					(principal executive officer)

Dated: ~~November 14, 2019~~	August 13, 2020	By:	~~By:~~	/s/ Jodi L. Beal
					Jodi L. Beal
					Executive Vice President and Chief Financial Officer
					(principal financial and accounting officer)

4850

~~Title of each class~~

~~Trading~~
~~Symbol(s)~~

~~Name of each exchange~~
~~on which registered~~410-665-7600

~~Common stock~~
(Registrant’s telephone number, including area code)

Not Applicable

~~The Nasdaq Stock Market LLC~~
(Former name, former address and former fiscal year, if changed since last report)