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Cincinnati Bancorp, Inc. - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from                             to                            

Commission File Number: 001-39188

CINCINNATI BANCORP, INC.

(Exact name of registrant as specified in its charter)

Maryland

84-2848636

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

6581 Harrison Avenue, Cincinnati, Ohio

45247

(Address of principal executive offices)

(Zip Code)

(513) 574-3025

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common stock, $0.01 par value per share

CNNB

The Nasdaq Stock Market, LLC

(Title of Each Class)

(Trading Symbol(s))

 

(Name of Each Exchange on Which Registered)

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 pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule #12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

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

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

The number of outstanding shares of the registrant’s common stock as of November 10, 2022 was 2,886,275.

Table of Contents

Cincinnati Bancorp, Inc.

Form 10-Q

Index

Page

Part I. Financial Information

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021

1

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

2

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

3

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

Item 2.

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

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

39

Part II. Other Information

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

42

Signature Page

43

Table of Contents

Part I. – Financial Information

Item 1.     Financial Statements

Cincinnati Bancorp, Inc.

Condensed Consolidated Balance Sheets

September 30, 2022 (Unaudited) and December 31, 2021

    

September 30,

    

December 31, 

2022

2021

(Unaudited)

Assets

 

  

 

  

Cash and due from banks

$

2,162,391

$

2,505,136

Interest-bearing demand deposits in banks

 

13,353,991

 

12,831,650

Federal funds sold

 

1,786,000

 

6,515,000

Cash and cash equivalents

 

17,302,382

 

21,851,786

Available-for-sale debt securities

 

6,792,195

 

7,891,232

Loans held for sale

 

4,936,933

 

8,121,375

Loans, net of allowance for loan losses of $1,833,835 and $1,672,545, respectively

 

243,301,785

 

195,541,821

Premises and equipment, net

 

2,674,003

 

3,488,822

Assets held for sale

691,451

Federal Home Loan Bank stock

 

4,731,400

 

4,149,300

Interest receivable

 

762,587

 

577,002

Mortgage servicing rights

 

3,129,822

 

2,230,751

Federal Home Loan Bank lender risk account receivable

 

2,232,323

 

2,286,690

Bank-owned life insurance

 

4,319,089

 

4,256,570

Other assets

 

1,409,897

 

1,068,690

Total assets

$

292,283,867

$

251,464,039

Liabilities and Stockholders’ Equity

 

 

Liabilities

 

 

Deposits

 

 

Demand

$

46,153,481

$

45,787,848

Savings

 

75,701,860

 

75,527,958

Certificates of deposit

 

106,440,011

 

83,137,755

Total deposits

 

228,295,352

 

204,453,561

Federal Home Loan Bank advances

 

20,000,000

 

Advances from borrowers for taxes and insurance

 

1,625,515

 

1,808,971

Interest payable

 

41,863

 

24

Directors deferred compensation

708,637

696,295

Deferred tax liabilities

 

1,263,743

 

1,090,765

Other liabilities

 

694,212

 

514,705

Total liabilities

 

252,629,322

 

208,564,321

Commitments and Contingent Liabilities

 

 

Stockholders’ Equity

 

  

 

Preferred stock - authorized 1,000,000 shares, $0.01 par value, none issued

 

 

Common stock - authorized 14,000,000 shares, $0.01 par value; issued 3,044,839; outstanding 2,886,275 at September 30, 2022 and 2,930,550 at December 31, 2021

 

28,812

 

29,275

Additional paid-in capital

 

21,670,294

 

22,953,608

Unearned ESOP shares

 

(1,493,672)

 

(1,570,810)

Retained earnings - substantially restricted

 

20,133,807

 

21,821,948

Accumulated other comprehensive loss

 

(684,696)

 

(334,303)

Total stockholders’ equity

 

39,654,545

 

42,899,718

Total liabilities and stockholders’ equity

$

292,283,867

$

251,464,039

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

1

Table of Contents

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

(Unaudited)

(Unaudited)

Interest and Dividend Income

 

  

 

  

 

  

 

  

Loans, including fees

$

2,558,768

$

2,226,780

$

6,750,563

$

5,983,403

Securities

 

45,462

 

14,675

 

82,689

 

56,655

Dividends on Federal Home Loan Bank stock and other

 

113,229

 

15,789

 

190,303

 

44,368

Total interest and dividend income

 

2,717,459

 

2,257,244

 

7,023,555

 

6,084,426

Interest Expense

 

 

 

 

Deposits

 

448,895

 

243,973

 

893,781

 

791,311

Federal Home Loan Bank advances

 

102,301

 

74,234

 

114,208

 

529,744

Total interest expense

 

551,196

 

318,207

 

1,007,989

 

1,321,055

Net Interest Income

 

2,166,263

 

1,939,037

 

6,015,566

 

4,763,371

Provision for Loan Losses

21,000

155,000

Net Interest Income After Provision for Loan Losses

 

2,145,263

 

1,939,037

 

5,860,566

 

4,763,371

Noninterest Income

 

 

 

 

Gain on sales of loans

 

641,442

 

2,108,495

 

2,192,885

 

6,893,315

Mortgage servicing fees (costs)

 

703,014

 

(228,722)

 

1,300,119

 

105,071

Mortgage derivative income (expense)

315,072

(31,142)

247,387

(160,322)

Other

 

302,059

 

265,991

 

889,848

 

832,286

Total noninterest income

 

1,961,587

 

2,114,622

 

4,630,239

 

7,670,350

Noninterest Expense

 

 

 

 

Salaries and employee benefits

 

1,882,498

 

2,176,393

 

5,518,588

 

6,578,956

Occupancy and equipment

 

175,813

 

214,327

 

521,432

 

592,913

Directors compensation

 

42,250

 

42,250

 

126,750

 

126,750

Data processing

 

211,787

 

189,038

 

611,144

 

584,565

Professional fees

 

140,925

 

106,103

 

335,830

 

289,281

Franchise tax

 

63,695

 

67,500

 

214,713

 

209,812

Deposit insurance premiums

 

16,321

 

15,187

 

48,508

 

45,046

Advertising

 

52,932

 

101,958

 

270,553

 

236,635

Software licenses

 

42,076

 

36,748

 

129,944

 

97,137

Loan costs

 

151,089

 

194,981

 

418,282

 

594,672

FHLB advance prepayment penalties

763,319

763,319

Net loss on sale of foreclosed assets

48,343

Other

 

220,769

 

248,407

 

602,726

 

653,867

Total noninterest expense

 

3,000,155

 

4,156,211

 

8,846,813

 

10,772,953

Income (Loss) Before Income Taxes

 

1,106,695

 

(102,552)

 

1,643,992

 

1,660,768

Provision for Income Taxes (Benefit)

 

239,138

 

(7,731)

 

361,361

 

352,553

Net Income (Loss)

$

867,557

$

(94,821)

$

1,282,631

$

1,308,215

Earnings (loss) per common share - basic

$

0.31

$

(0.03)

$

0.46

$

0.47

Earnings (loss) per common share - diluted

$

0.30

$

(0.03)

$

0.45

$

0.46

Weighted-average shares outstanding - basic

 

2,716,057

 

2,740,335

 

2,718,185

 

2,746,781

Weighted-average shares outstanding - diluted

 

2,800,894

 

2,740,335

 

2,792,022

 

2,819,729

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

2

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Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

Three Months Ended September 30, 

Nine Months Ended September 30,

    

2022

    

2021

    

2022

    

2021

(Unaudited)

(Unaudited)

Net Income (Loss)

$

867,557

$

(94,821)

$

1,282,631

$

1,308,215

Other Comprehensive Loss:

 

 

 

 

Net unrealized losses on available-for-sale securities

 

(107,045)

 

(5,631)

 

(508,967)

 

(20,379)

Tax benefit

 

22,479

 

1,183

 

106,885

 

4,280

Changes in directors’ retirement plan prior service costs

10,291

10,962

27,876

(30,222)

Tax (expense) benefit

 

(2,160)

 

(2,303)

 

23,813

 

(23,682)

Other comprehensive loss

 

(76,435)

 

4,211

 

(350,393)

 

(70,003)

Comprehensive Income (Loss)

$

791,122

$

(90,610)

$

932,238

$

1,238,212

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

3

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Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Three Months Ended September 30, 2022:

Balance, July 1, 2022

$

29,616

$

22,717,222

$

(1,519,385)

$

19,266,250

$

(608,261)

$

39,885,442

ESOP shares earned

12,624

25,713

38,337

Stock based compensation expense

85,344

85,344

Net income

867,557

867,557

Repurchase of common stock

(804)

(1,144,896)

(1,145,700)

Other comprehensive loss

(76,435)

(76,435)

Balance, September 30, 2022

$

28,812

$

21,670,294

$

(1,493,672)

$

20,133,807

$

(684,696)

$

39,654,545

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Three Months Ended September 30, 2021:

Balance, July 1, 2021

$

29,756

$

23,179,224

$

(1,622,235)

$

21,576,440

$

(366,228)

$

42,796,957

ESOP shares earned

 

 

11,391

 

25,713

 

 

 

37,104

 

  

 

 

 

 

 

Stock based compensation expense

 

 

111,133

 

 

 

 

111,133

 

  

 

 

 

 

 

Net loss

 

 

 

 

(94,821)

 

 

(94,821)

 

  

 

 

 

 

 

Repurchase of common stock

(449)

(419,521)

(419,970)

Other comprehensive income

 

 

 

 

 

4,211

 

4,211

Balance, September 30, 2021

$

29,307

$

22,882,227

$

(1,596,522)

$

21,481,619

$

(362,017)

$

42,434,614

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

4

Table of Contents

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Nine Months Ended September 30, 2022:

Balance, January 1, 2022

$

29,275

$

22,953,608

$

(1,570,810)

$

21,821,948

$

(334,303)

$

42,899,718

Dividends paid

(2,970,772)

(2,970,772)

ESOP shares earned

 

 

37,214

 

77,138

 

 

 

114,352

 

  

 

  

 

  

 

  

 

  

 

  

Stock-based compensation expense

 

 

307,609

 

 

 

 

307,609

 

  

 

 

  

 

  

 

  

 

  

Net income

 

 

 

 

1,282,631

 

 

1,282,631

 

  

 

  

 

  

 

  

 

  

 

Repurchase of common stock

(463)

(1,628,137)

(1,628,600)

Other comprehensive loss

 

 

 

 

 

(350,393)

 

(350,393)

Balance, September 30, 2022

$

28,812

$

21,670,294

$

(1,493,672)

$

20,133,807

$

(684,696)

$

39,654,545

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Nine Months Ended September 30, 2021:

Balance, January 1, 2021

$

29,756

$

23,266,485

$

(1,673,660)

$

20,173,404

$

(292,014)

$

41,503,971

ESOP shares earned

29,551

77,138

106,689

Stock-based compensation expense

195,583

195,583

Net income

1,308,215

1,308,215

Repurchase of common stock

(449)

(609,392)

(609,841)

Other comprehensive loss

(70,003)

(70,003)

Balance, September 30, 2021

$

29,307

$

22,882,227

$

(1,596,522)

$

21,481,619

$

(362,017)

$

42,434,614

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

5

Table of Contents

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022 and 2021 (Unaudited)

    

2022

    

2021

(Unaudited)

Operating Activities

  

  

Net income

$

1,282,631

$

1,308,215

Items not requiring (providing) cash:

Depreciation and amortization

 

163,426

 

173,860

Provision for loan losses

 

155,000

 

Amortization of premiums and discounts on securities, net

 

3,694

 

12,764

Change in deferred income taxes

 

517,586

 

164,155

Gain on sale of loans

 

(2,192,885)

 

(6,893,315)

Impairment of foreclosed assets held for sale

60,000

Proceeds from the sale of loans held for sale

 

106,973,817

 

219,434,532

Origination of loans held for sale

 

(101,596,490)

 

(210,394,235)

Net loss on sale of foreclosed assets

48,343

Mortgage servicing rights

(899,071)

(491,961)

Earnings on cash surrender value of bank-owned life insurance

 

(62,519)

 

(62,831)

Stock-based compensation expense

 

307,609

 

195,583

ESOP shares earned

 

114,352

 

106,689

Changes in:

 

 

Interest receivable

 

(185,585)

 

(58,132)

Federal Home Loan Bank lender risk account receivable

 

54,367

 

13,608

Derivative assets

(247,551)

226,475

Other assets

 

(93,656)

 

108,354

Interest payable

 

41,839

 

(62,547)

Derivative liabilities

165

(66,153)

Other liabilities

 

5,651

 

(445,527)

Net cash provided by operating activities

 

4,450,723

 

3,269,534

Investing Activities

 

 

Net change in interest-bearing deposits

2,000,000

Proceeds from maturities of available-for-sale debt securities

 

586,375

 

1,889,231

Purchase of available for sale debt securities

(5,034,375)

Purchase of Federal Home Loan Bank stock

 

(582,100)

 

(1,347,500)

Net change in loans

 

(47,982,282)

 

(27,981,127)

Purchase of premises and equipment

 

(40,058)

 

(219,788)

Proceeds from sale of foreclosed assets

 

(41,025)

 

Net cash used in investing activities

 

(48,059,090)

 

(30,693,559)

Financing Activities

Net increase in deposits

23,841,791

33,485,742

Repurchase of common stock

(1,628,600)

(609,841)

Proceeds from Federal Home Loan Bank advances

206,750,000

196,500,000

Repayment of Federal Home Loan Bank advances

(186,750,000)

(218,712,000)

Dividends paid

(2,970,772)

Net change in advances from borrowers for taxes and insurance

(183,456)

(513,200)

Net cash provided by financing activities

39,058,963

10,150,701

Decrease in Cash and Cash Equivalents

(4,549,404)

(17,273,324)

Cash and Cash Equivalents, Beginning of Period

21,851,786

32,347,806

Cash and Cash Equivalents, End of Period

$

17,302,382

$

15,074,482

Supplemental Cash Flows Information

Interest paid

$

966,150

$

1,383,602

Income taxes paid

255,000

455,000

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

6

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1:       Nature of Operations and Summary of Significant Account Policies

Nature of Operations

Cincinnati Bancorp, Inc. (“Company”), is the savings and loan holding company for Cincinnati Federal (the “Bank”), a federally chartered stock savings and loan association that is primarily engaged in providing a full range of banking and financial services to individual and corporate customers. Our business operations are conducted in the larger Greater Cincinnati/Northern Kentucky metropolitan area which includes Hamilton, Warren, Butler and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County, Indiana.

The Company is subject to competition from other financial institutions. The Company is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Revenue Recognition

The Company accounts for revenues in accordance with accounting guidance that provides that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest income, net securities gains (losses), gains from the sale of mortgage loans and earnings on bank-owned life insurance are not covered under ASC 606 and are recognized as contractually earned. For other revenue streams including service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Company’s revenue from contracts with customers is recognized within other noninterest income.

Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as stop payment charges, statement rendering and other fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.

Service charges on deposits are withdrawn from the customer’s account balance. Service charges are recorded in other noninterest income.

Interchange income: The Company earns interchange income from cardholder transactions conducted through the various payment networks. Interchange income from cardholder transactions represent a percentage of the underlying transaction value and is recognized daily, concurrently with the transaction processing services provided to the cardholder. The gross amount of these fees is processed through noninterest income. Interchange fees are recorded in other noninterest income.

Principles of Consolidation

The accompanying condensed consolidated financial statements as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021 include the accounts of the Company and the Bank. All significant intercompany items have been eliminated in consolidation.

Interim Financial Statements

The interim condensed consolidated financial statements as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021, are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in these unaudited consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

accounting principles in the United States of America (“GAAP”) have been omitted. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2022, or any other period.

The accompanying condensed consolidated financial statements as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021, should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, loan servicing rights, lender reserve account and fair values of financial instruments.

NOTE 2:        Debt Securities

Available-for-sale debt securities are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below amortized cost, when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, the Company recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:

    

    

Gross

    

Gross

    

Amortized

Unrealized

Unrealized

Cost

Gains

Losses

Fair Value

Available-for-Sale Debt Securities:

September 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

7,254,110

$

$

(461,915)

$

6,792,195

December 31, 2021:

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

7,844,180

$

49,809

$

(2,757)

$

7,891,232

The Company had no sales of investment securities during the nine-month periods ended September 30, 2022 or 2021. The Company had not pledged any of its investment securities as of September 30, 2022 or December 31, 2021.

The amortized cost and fair value of available-for-sale securities at September 30, 2022 and December 31, 2021, by contractual maturity is not disclosed for mortgage-backed securities, as expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Certain investments in debt securities have fair values at an amount less than their historical cost. The total fair value of these investments at September 30, 2022 and December 31, 2021 was $6,792,195 and $126,007, respectively, which represented 100.0% and approximately 1.6%, respectively, of the Company’s investment portfolio at those respective dates.

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that the individual securities have been in continuous unrealized loss position at September 30, 2022 and December 31, 2021:

Less than 12 Months

12 Months or More

Total

    

    

Unrealized

    

    

Unrealized

    

    

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

September 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

3,015,745

$

(40,251)

$

3,776,450

$

(421,664)

$

6,792,195

$

(461,915)

December 31, 2021:

 

  

 

  

 

 

 

 

Mortgage-backed securities of government sponsored entities

$

12,977

$

(48)

$

113,030

$

(2,709)

$

126,007

$

(2,757)

Unrealized losses on securities have not been recognized into income because the issuers’ bonds are of high credit quality, values have only been impacted by changes in interest rates since the securities were purchased, and the Company has the intent and ability to hold the securities for the foreseeable future. The fair value is expected to recover as the bonds approach the maturity date.

NOTE 3:       Loans and Allowance for Loan Losses

Categories of loans at September 30, 2022 and December 31, 2021 include:

    

September 30, 

    

December 31, 

2022

2021

(Unaudited)

One to four family mortgage loans - owner occupied

$

105,120,879

$

70,336,846

One to four family - investment

 

13,262,342

 

10,361,388

Multifamily mortgage loans

 

59,577,790

 

55,029,111

Nonresidential mortgage loans

 

50,091,750

 

41,761,964

Construction and land loans

 

18,400,697

 

19,425,025

Real estate secured lines of credit

 

14,094,774

 

11,403,262

Commercial loans

 

236,712

 

299,851

Other consumer loans

 

313,240

 

348,386

Total loans

 

261,098,184

 

208,965,833

Less:

 

 

Net deferred loan costs

 

(642,350)

 

(404,884)

Undisbursed portion of loans

 

16,604,914

 

12,156,351

Allowance for loan losses

 

1,833,835

 

1,672,545

Net loans

$

243,301,785

$

195,541,821

9

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three and nine months ended September 30, 2022 and 2021 and the year ended December 31, 2021:

At or for the Nine Months Ended September 30, 2022 (Unaudited)

One- to Four-Family

One- to Four-Family

Construction &

Real Estate

Mortgage Loans Owner

Mortgage Loans

Multi-Family

Nonresidential

 Land

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Loans

    

Credit

    

Loans

    

Loans

    

Total

Allowance for loan losses:

Balance, beginning of period

$

285,080

$

51,763

$

691,619

$

336,100

$

278,828

$

28,750

$

187

$

218

$

1,672,545

Provision (credit) charged to expense

(13,398)

2,240

80,561

89,078

(9,297)

5,924

(59)

(49)

155,000

Losses charged off

 

 

 

 

 

 

 

 

Recoveries

 

6,290

 

 

 

 

 

 

 

 

6,290

Balance, end of period

$

277,972

$

54,003

$

772,180

$

425,178

$

269,531

$

34,674

$

128

$

169

$

1,833,835

Ending balance: Individually evaluated for impairment

$

12,633

$

8,012

$

$

$

$

$

$

$

20,645

Ending balance: Collectively evaluated for impairment

$

265,339

$

45,991

$

772,180

$

425,178

$

269,531

$

34,674

$

128

$

169

$

1,813,190

Loans:

 

 

 

 

 

 

 

 

 

Ending balance

$

105,120,879

$

13,262,342

$

59,577,790

$

50,091,750

$

18,400,697

$

14,094,774

$

236,712

$

313,240

$

261,098,184

Ending balance: Individually evaluated for impairment

$

1,064,318

$

418,261

$

122,102

$

$

$

48,346

$

$

$

1,653,027

Ending balance: Collectively evaluated for impairment

$

104,056,561

$

12,844,081

$

59,455,688

$

50,091,750

$

18,400,697

$

14,046,428

$

236,712

$

313,240

$

259,445,157

At or for the Three Months Ended September 30, 2022 (Unaudited)

One- to Four-Family

One- to Four-Family

Construction &

Real Estate

Mortgage Loans Owner

Mortgage Loans

Multi-Family

Nonresidential

 Land

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Loans

    

Credit

    

Loans

    

Loans

    

Total

Allowance for loan losses:

  

  

    

  

    

  

    

  

    

  

    

  

    

  

Balance, beginning of period

$

268,297

$

52,610

$

751,164

$

403,018

$

299,974

$

31,184

$

132

$

166

$

1,806,545

Provision (credit) charged to expense

3,385

1,393

21,016

22,160

(30,443)

3,490

(4)

3

21,000

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

6,290

 

 

 

 

 

 

 

 

6,290

Balance, end of period

$

277,972

$

54,003

$

772,180

$

425,178

$

269,531

$

34,674

$

128

$

169

$

1,833,835

At or for the Nine Months Ended September 30, 2021 (Unaudited)

One- to Four-Family

One- to Four-Family

Construction &

Real Estate

Mortgage Loans Owner

Mortgage Loans

Multi-Family

Nonresidential

 Land

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Loans

    

Credit

    

Loans

    

Loans

    

Total

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Balance, beginning of period

$

416,404

$

99,978

$

670,822

$

316,332

$

96,435

$

49,336

$

17,111

$

6,127

$

1,672,545

Provision (credit) charged to expense

 

(107,622)

 

(45,381)

 

2,065

 

33,960

 

158,920

 

(19,368)

 

(16,802)

 

(5,772)

 

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

308,782

$

54,597

$

672,887

$

350,292

$

255,355

$

29,968

$

309

$

355

$

1,672,545

At or for the Three Months Ended September 30, 2021 (Unaudited)

One- to Four-Family

One- to Four-Family

Construction &

Real Estate

Mortgage Loans Owner

Mortgage Loans

Multi-Family

Nonresidential

 Land

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Loans

    

Credit

    

Loans

    

Loans

    

Total

Allowance for loan losses:

 

  

Balance, beginning of period

$

360,808

$

62,664

$

672,333

$

316,198

$

230,665

$

29,108

$

406

$

363

$

1,672,545

Provision (credit) charged to expense

 

(52,026)

 

(8,067)

 

554

 

34,094

 

24,690

 

860

 

(97)

 

(8)

 

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

308,782

$

54,597

$

672,887

$

350,292

$

255,355

$

29,968

$

309

$

355

$

1,672,545

10

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

At or For the Year Ended December 31, 2021

One- to Four-Family

One- to Four-Family

Construction &

Real Estate

Mortgage Loans Owner

Mortgage Loans

Multi-Family

Nonresidential

 Land

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Loans

    

Credit

    

Loans

    

Loans

    

Total

Allowance for loan loans:

    

  

Balance, beginning of year

$

416,404

$

99,978

$

670,822

$

316,332

$

96,435

$

49,336

$

17,111

$

6,127

$

1,672,545

Provision (credit) charged to expense

(131,324)

(48,215)

20,797

19,768

182,393

(20,586)

(16,924)

(5,909)

(Charge-offs) recoveries

 

 

 

 

 

 

 

 

 

Balance, end of year

$

285,080

$

51,763

$

691,619

$

336,100

$

278,828

$

28,750

$

187

$

218

$

1,672,545

Ending balance: Individually evaluated for impairment

$

18,924

$

40,075

$

$

$

$

$

$

$

58,999

Ending balance: Collectively evaluated for impairment

$

266,156

$

11,688

$

691,619

$

336,100

$

278,828

$

28,750

$

187

$

218

$

1,613,546

Loans:

 

 

 

 

 

 

 

 

 

Ending balance

$

70,336,846

$

10,361,388

$

55,029,111

$

41,761,964

$

19,425,025

$

11,403,262

$

299,851

$

348,386

$

208,965,833

Ending balance: Individually evaluated for impairment

$

1,154,343

$

433,153

$

126,451

$

$

$

54,881

$

$

$

1,768,828

Ending balance: Collectively evaluated for impairment

$

69,182,503

$

9,928,235

$

54,902,660

$

41,761,964

$

19,425,025

$

11,348,381

$

299,851

$

348,386

$

207,197,005

The Company has adopted a standard grading system for all loans.

Definitions are as follows:

Prime (1) loans are of superior quality with excellent credit strength and repayment ability proving a nominal credit risk.

Good (2) loans are of above average credit strength and repayment ability proving only a minimal credit risk.

Satisfactory (3) loans are of reasonable credit strength and repayment ability proving an average credit risk due to one or more underlying weaknesses.

Acceptable (4) loans are of the lowest acceptable credit strength and weakened repayment ability providing a cautionary credit risk due to one or more underlying weaknesses. New borrowers are typically not underwritten within this classification.

Special Mention (5) loans have 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 Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

Substandard (6) loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful (7) loans have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current known facts, conditions and values, highly questionable and improbable.

Loss (8) loans are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off even though partial recovery may be realized in the future.

11

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of September 30, 2022 and December 31, 2021:

September 30, 2022 (Unaudited)

    

One- to Four-

    

One- to Four-

    

    

    

    

    

    

    

Family Mortgage

Family Mortgage

Real Estate

Loans - Owner

Loans -

Multi-Family

Nonresidential

Construction &

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Land Loans

    

Credit

    

Loans

    

Loans

    

Total

Pass

$

104,518,350

$

13,198,872

$

59,577,790

$

50,091,750

$

18,400,697

$

14,046,428

$

236,712

$

313,240

$

260,383,839

Special mention

181,517

63,470

244,987

Substandard

421,012

48,346

469,358

Doubtful

Loss

Total

$

105,120,879

$

13,262,342

$

59,577,790

$

50,091,750

$

18,400,697

$

14,094,774

$

236,712

$

313,240

$

261,098,184

December 31, 2021

One- to Four-

One- to Four-

Family Mortgage

Family Mortgage

Real Estate

Loans - Owner

Loans -

Multi-Family

Nonresidential

Construction &

Secured Lines of

Commercial

Other Consumer

    

Occupied

    

Investment

    

Mortgage Loans

    

Mortgage Loans

    

Land Loans

    

Credit

    

Loans

    

Loans

    

Total

Pass

$

69,644,317

$

10,283,060

$

55,029,111

$

41,761,964

$

19,425,025

$

11,348,381

$

299,851

$

348,386

$

208,140,095

Special mention

106,561

78,328

184,889

Substandard

585,968

54,881

640,849

Doubtful

Loss

Total

$

70,336,846

$

10,361,388

$

55,029,111

$

41,761,964

$

19,425,025

$

11,403,262

$

299,851

$

348,386

$

208,965,833

Pass portfolio within the tables above consists of loans graded Prime (1) through Acceptable (4).

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the three months or nine months ended September 30, 2022.

12

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present the loan portfolio aging analysis of the recorded investment in loans as of September 30, 2022 and December 31,2021:

September 30, 2022 (Unaudited)

    

    

    

90 Days and

    

    

    

    

3059 Days Past

6089 Days Past

Greater Past

Total Loans

Total Loans > 90 Days

Due

Due

 Due

Total Past Due

Current

Receivable

Past Due & Accruing

One to four-family mortgage loans

$

$

$

53,679

$

53,679

$

105,067,200

$

105,120,879

$

One to four family - investment

 

 

 

 

 

13,262,342

 

13,262,342

 

Multi-family mortgage loans

 

 

 

 

 

59,577,790

 

59,577,790

 

Nonresidential mortgage loans

 

 

 

 

 

50,091,750

 

50,091,750

 

Construction & land loans

 

 

 

 

 

18,400,697

 

18,400,697

 

Real estate secured lines of credit

 

 

 

 

 

14,094,774

 

14,094,774

 

Commercial loans

 

 

 

 

 

236,712

 

236,712

 

Other consumer loans

 

 

 

 

 

313,240

 

313,240

 

Total

$

$

$

53,679

$

53,679

$

261,044,505

$

261,098,184

$

December 31, 2021

    

    

    

90 Days and

    

    

    

    

3059 Days Past

6089 Days Past

Greater Past 

Total Loans

Total Loans > 90 Days

Due

Due

Due

Total Past Due

Current

Receivable

Past Due & Accruing

One to four-family mortgage loans

$

61,602

$

34,645

$

120,170

$

216,417

$

70,120,429

$

70,336,846

$

One to four family - investment

 

 

 

 

 

10,361,388

 

10,361,388

 

Multi-family mortgage loans

 

 

 

 

 

55,029,111

 

55,029,111

 

Nonresidential mortgage loans

 

 

 

 

 

41,761,964

 

41,761,964

 

Construction & land loans

 

 

 

 

 

19,425,025

 

19,425,025

 

Real estate secured lines of credit

 

 

 

 

 

11,403,262

 

11,403,262

 

Commercial loans

 

 

 

 

 

299,851

 

299,851

 

Other consumer loans

 

 

 

 

 

348,386

 

348,386

 

Total

$

61,602

$

34,645

$

120,170

$

216,417

$

208,749,416

$

208,965,833

$

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310, Receivables), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans and loans modified in troubled debt restructurings (“TDRs”).

13

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present impaired loans for September 30, 2022, September 30, 2021 and December 31, 2021:

For the Three Months Ended

For the Nine Months Ended

At September 30, 2022 (Unaudited)

September 30, 2022

September 30, 2022

Unpaid

Average

Average

Recorded

Principal

Specific

Investment in

Interest Income 

Investment in

Interest Income

    

Balance

    

Balance

    

Allowance

    

Impaired Loans

    

Recognized

    

Impaired Loans

    

Recognized

(Unaudited)

Loans without a specific valuation allowance

One- to four-family mortgage loans

$

1,061,951

$

1,061,951

$

$

1,064,843

$

12,117

$

1,071,934

$

37,868

One to Four family - Investment

378,412

378,412

380,466

6,435

385,481

12,367

Multi-family mortgage loans

 

122,102

 

122,102

122,583

1,384

124,102

 

4,203

Nonresidential mortgage loans

 

 

 

Construction & Land loans

 

 

 

Real estate secured lines of credit

 

48,346

 

48,346

48,613

861

49,107

 

2,583

Commercial Loans

 

 

 

Other consumer loans

 

 

 

Loans with a specific valuation allowance

 

One- to four-family mortgage loans

 

2,367

 

15,000

12,633

15,000

15,000

 

One to Four family - Investment

 

39,849

 

47,861

8,012

47,984

2,175

48,289

 

2,176

Multi-family mortgage loans

 

 

 

Nonresidential mortgage loans

 

 

 

Construction & Land loans

 

 

 

Real estate secured lines of credit

 

 

 

Commercial Loans

 

 

 

Other consumer loans

 

 

 

$

1,653,027

$

1,673,672

$

20,645

$

1,679,489

$

22,972

$

1,693,913

$

59,197

For the Three Months Ended

For the Nine Months Ended

At September 30, 2021 (Unaudited)

September 30, 2021

September 30, 2021

Unpaid

Average

Average

Recorded

Principal

Specific

Investment in

Interest Income 

Investment in 

Interest Income 

    

Balance

    

Balance

    

Allowance

    

Impaired Loans

    

Recognized

    

Impaired Loans

    

Recognized

(Unaudited)

Loans without a specific valuation allowance

One- to four-family mortgage loans

$

1,155,240

$

1,155,240

$

$

1,158,522

$

12,171

$

1,166,174

$

37,376

One to Four family - Investment

235,005

235,005

236,588

2,556

277,087

9,068

Multi-family mortgage loans

127,591

127,591

128,031

 

1,445

129,265

 

4,375

Nonresidential mortgage loans

 

 

Construction & Land loans

 

 

Real estate secured lines of credit

55,788

55,788

56,271

 

982

57,145

 

3,012

Commercial Loans

 

 

Other consumer loans

 

 

Loans with a specific valuation allowance

 

 

One- to four-family mortgage loans

17,073

78,503

61,430

78,655

 

226

79,127

 

947

One to Four family - Investment

203,390

243,465

40,075

244,313

 

2,679

246,298

 

8,059

Multi-family mortgage loans

 

 

Nonresidential mortgage loans

 

 

Construction & Land loans

 

 

Real estate secured lines of credit

 

 

Commercial Loans

 

 

Other consumer loans

 

 

$

1,794,087

$

1,895,592

$

101,505

$

1,902,380

$

20,059

$

1,955,096

$

62,837

14

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

    

December 31, 2021

Unpaid

Average

Recorded

Principal

Specific

Investment in

Interest Income

    

Balance

    

Balance

    

Allowance

    

Impaired Loans

    

Recognized

Loans without a specific valuation allowance

 

  

 

  

 

  

 

  

 

  

One- to four-family mortgage loans

$

1,148,015

$

1,148,015

$

$

1,162,455

$

49,247

One- to four-family - investment

 

231,387

 

231,387

 

 

266,054

 

11,559

Multi-family mortgage loans

 

126,451

 

126,451

 

 

128,666

 

5,806

Nonresidential mortgage loans

 

 

 

 

 

Construction & land loans

 

 

 

 

 

Real estate secured lines of credit

 

54,881

 

54,881

 

 

56,694

 

3,967

Commercial loans

 

 

 

 

 

Other consumer loans

 

 

 

 

 

Loans with a specific valuation allowance

 

 

 

 

 

One- to four-family mortgage loans

 

6,328

 

25,252

 

18,924

 

26,031

 

920

One- to four-family - investment

 

201,766

 

241,841

 

40,075

 

245,350

 

10,422

Multi-family mortgage loans

 

 

 

 

Nonresidential mortgage loans

 

 

 

 

 

Construction & land loans

 

 

 

 

 

Real estate secured lines of credit

 

 

 

 

 

Commercial loans

 

 

 

 

 

Other consumer loans

 

 

 

 

 

$

1,768,828

$

1,827,827

$

58,999

$

1,885,250

$

81,921

Income recognized on a cash basis was not materially different than interest income recognized on an accrual basis.

The following table presents the nonaccrual loans at September 30, 2022 and December 31, 2021. This table excludes accruing TDRs, which totaled $756,300 and $990,000 at September 30, 2022 and December 31, 2021, respectively.

    

September 30, 

    

December 31, 

2022

2021

(unaudited)

One- to four-family mortgage loans

$

53,679

$

120,170

One to four family - investment

 

 

Multi-family mortgage loans

 

 

Nonresidential mortgage loans

 

 

Construction and land loans

 

 

Real estate secured lines of credit

 

 

Commercial loans

 

 

Other consumer loans

 

 

Total

$

53,679

$

120,170

There were no newly classified TDRs at September 30, 2022 or December 31, 2021.

As of September 30, 2022, borrowers with loans designated as TDRs totaling $634,200 of residential real estate loans and $122,100 of multifamily loans, met the criterion for placement back on accrual status. This criterion is a minimum of six consecutive months of payment performance under existing or modified terms. As of September 30, 2022, the Company had no residential real estate loans classified as TDRs that were not performing according to its modified terms at that date.

There was no foreclosed real estate property at September 30, 2022 and December 31, 2021. There was one consumer mortgage loan in process of foreclosure at September 30, 2022 totaling $53,679.

15

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4:       Earnings Per Common Share

Basic earnings per common share (“EPS”) excludes dilution and is calculated by dividing net income applicable to common stock by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (“ ESOP”) are shown as a reduction in stockholders’ equity and are excluded from weighted-average common shares outstanding for both basic and diluted EPS calculations until they are committed to be released. The computations for the three and nine month periods ended September 30, 2022 and 2021 are as follows:

Three months ended September 30, 

    

2022

    

2021

Net income (loss)

$

867,557

$

(94,821)

Less allocation of net income (loss) to participating securities

 

16,731

 

(2,592)

Net income (loss) allocated to common shareholders

850,826

 

(92,229)

Shares outstanding for basic earnings per share:

 

 

Weighted-average shares issued

 

2,950,021

 

3,007,762

Less: Average unearned ESOP shares and unvested restricted stock

 

233,964

 

267,427

Weighted-average shares outstanding - basic

2,716,057

2,740,335

Basic earnings (loss) per common share

$

0.31

$

(0.03)

Effect of dilutive securities:

 

 

Weighted-average shares outstanding - basic

2,716,057

2,740,335

Stock options

 

84,837

 

Weighted-average shares outstanding - diluted

 

2,800,894

 

2,740,335

Diluted earnings (loss) per share

$

0.30

$

(0.03)

16

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Nine months ended September 30, 

    

2022

    

2021

Net income

 

$

1,282,631

$

1,308,215

Less allocation of net income to participating securities

31,137

20,750

Net income allocated to common shareholders

1,251,494

1,287,465

Shares outstanding for basic earnings per share:

Weighted-average shares issued

2,969,025

2,985,744

Less: Average unearned ESOP shares and unvested restricted stock

250,840

238,963

Weighted-average shares outstanding - basic

2,718,185

2,746,781

Basic earnings per common share

 

$

0.46

$

0.47

Effect of dilutive securities:

Weighted-average shares outstanding - basic

2,718,185

2,746,781

Stock options

73,837

72,948

Weighted-average shares outstanding - diluted

2,792,022

2,819,729

Diluted earnings per share

 

$

0.45

$

0.46

NOTE 5:       Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the 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 Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-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. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). Management believes that, as of September 30, 2022 and December 31, 2021, the Bank met all capital adequacy requirements to which it was subject at such dates.

Management opted out of the accumulated comprehensive income treatment under the Basel III capital requirements, and as such, unrealized gains and losses from available-for-sale securities will continue to be excluded from regulatory capital.

The below minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer was 2.50% at September 30, 2022. As of the most recent notification from the Office of the Comptroller of the Currency, the Bank was categorized 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, Tier I risk-based and Tier I leverage ratios as set forth in the following table. Management believes that no conditions or events have occurred since the last notification that would change the Bank’s category.

17

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Bank’s actual capital amounts and ratios are presented in the following table:

    

Minimum to Be Well

 

Capitalized Under

 

Minimum Capital

 Prompt Corrective

 

Actual

Requirement

 Action Provisions

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

(Dollars in thousands)

 

As of September 30, 2022 (unaudited):

 

Total risk-based capital (to risk-weighted assets)

$

39,958

 

17.1

%  

$

18,662

 

8.0

%  

$

23,328

 

10.0

%

Tier I capital (to risk-weighted assets)

 

38,124

 

16.3

%  

 

13,997

 

6.0

%  

 

18,662

 

8.0

%

Common Equity Tier I capital (to risk-weighted assets)

 

38,124

 

16.3

%  

 

10,497

 

4.5

%  

 

15,163

 

6.5

%

Tier I capital (to adjusted average total assets)

 

38,124

 

13.3

%  

 

11,493

 

4.0

%  

 

14,366

 

5.0

%

As of December 31, 2021:

 

  

 

 

 

  

 

  

 

  

Total risk-based capital (to risk-weighted assets)

$

38,714

 

20.0

%  

$

15,474

 

8.0

%  

$

19,343

 

10.0

%

Tier I capital (to risk-weighted assets)

 

37,041

 

19.2

%  

 

11,606

 

6.0

%  

 

15,474

 

8.0

%

Common Equity Tier I capital (to risk-weighted assets)

 

37,041

 

19.2

%  

 

8,704

 

4.5

%  

 

12,573

 

6.5

%

Tier I capital (to adjusted average total assets)

 

37,041

 

14.7

%  

 

10,106

 

4.0

%  

 

12,633

 

5.0

%

NOTE 6:       Disclosure About Fair Values of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value should be based on the exit price when pricing the asset or liability. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1     Quoted prices in active markets for identical assets or liabilities.

Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full-term of the assets or liabilities.

Level 3     Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities.

18

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Recurring Measurements

The following table presents the fair value measurements of assets and (liabilities) measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2022 and December 31, 2021:

Fair Value Measurements Using

    

    

Quoted Prices in 

    

Significant

    

Active Markets

Other

Significant

for Identical

Observable

Unobservable

Assets

Inputs

Inputs

    

Fair Value

    

(Level 1)

    

(Level 2)

    

(Level 3)

September 30, 2022 (unaudited):

  

  

  

  

Mortgage-backed securities of government sponsored entities

$

6,792,195

$

$

6,792,195

$

Mortgage servicing rights

 

3,129,822

 

 

 

3,129,822

Interest rate lock commitments (included in other assets)

Interest rate lock commitments (included in other liabilities)

(31,182)

(31,182)

Forward sale commitments (included in other assets)

398,806

398,806

Forward sale commitments (included in other liabilities)

December 31, 2021:

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

7,891,232

$

$

7,891,232

$

Mortgage servicing rights

 

2,230,751

 

 

 

2,230,751

Interest rate lock commitments (included in other assets)

60,441

60,441

Interest rate lock commitments (included in other liabilities)

(7,640)

(7,640)

Forward sale commitments (included in other assets)

90,814

90,814

Forward sale commitments (included in other liabilities)

(23,378)

(23,378)

The following is a description of the valuation methodologies and inputs used for assets measured at fair value on recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.

Available-for-sale Debt Securities

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 and Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of loan balance, weighted-average coupon, weighted-average maturity, escrow payments, servicing fees, prepayment speeds, float, cost to service, ancillary income, and discount rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

Mortgage servicing rights are tested for impairment. Management measures mortgage servicing rights through use of a third-party independent valuation. Inputs to the model are reviewed by management.

19

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements related to mortgage servicing rights recognized in the accompanying condensed consolidated balance sheets using significant unobservable (Level 3) inputs:

Three Months

Three Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

September 30, 

September 30, 

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

(Unaudited)

Fair value as of the beginning of the period

$

2,579,250

$

2,716,301

$

2,230,751

$

2,025,323

Recognition of mortgage servicing rights on the sale of loans

 

17,969

 

199,881

 

119,669

 

861,254

Change in fair value due to changes in valuation inputs or assumptions used in the valuation model and loan payments received on loan balances

 

532,603

 

(398,898)

 

779,402

 

(369,293)

Fair value at the end of the period

$

3,129,822

$

2,517,284

$

3,129,822

$

2,517,284

Mortgage servicing rights are carried on the balance sheet at fair value and the changes in fair value are reported in other noninterest income in the period in which the changes occur.

Derivatives

Derivatives are recognized as assets and liabilities on the consolidated balance sheets and measured at fair value. For exchange-traded contracts, fair value is based on quoted market prices. For nonexchange-traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies or similar techniques for which the determination of fair value may require significant management judgment or estimation.

Derivative – Interest Rate Lock Commitments

The fair value of the interest rate lock commitments is based on the investor prices for the underlying loans or current secondary market prices for loans with similar characteristics plus the expected value of expected servicing assets less estimated costs to originate the loans and adjusted for the anticipated funding probability (pull-through rate).

The fair value of interest rate lock commitments is also obtained from an independent third party and is based on investor prices for the underlying loans or current secondary market prices for loans with similar characteristics, less estimated costs to originate the loans and adjusted for the anticipated funding probability (pull-through rate). The fair value of interest rate lock commitments is classified as Level 3 in the fair value hierarchy.

Derivative – Forward Sale Commitments

Mortgage loan commitments that relate to the origination of a mortgage loan that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance (ASC 815, Derivatives and Hedging). Loan commitments that are derivatives are recognized at fair value on the consolidated balance sheet in other assets and other liabilities with changes in their fair values recorded in noninterest income.

The fair value of forward mortgage loan sale commitments is obtained from an independent third party and is based on the gain or loss that would occur if the Company were to pair-off the sales transaction with the investor. The fair value of forward mortgage loan sale commitments is classified as Level 2 in the fair value hierarchy.

20

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The table below provides information on the Company’s derivative financial instruments as of September 30, 2022 and December 31, 2021:

Notional

Asset

Liability

    

Amount

    

Derivatives

    

Derivatives

September 30, 2022 (unaudited):

 

  

 

  

 

  

Interest rate lock commitments

$

803,200

$

$

31,182

Forward sale commitments

 

5,737,368

 

398,806

 

$

6,540,568

$

398,806

$

31,182

December 31, 2021:

 

  

 

  

 

  

Interest rate lock commitments

$

8,725,795

$

60,441

$

7,640

Forward sale commitments

 

16,842,514

 

90,814

 

23,378

$

25,568,309

$

151,255

$

31,018

Income (loss) related to derivative financial instruments included in noninterest income in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 is as follows:

Three Months

Three Months

Nine Months

Nine Months

Ended

Ended

Ended

Ended

September 30,

September 30,

September 30,

September 30,

    

2022

    

2021

    

2022

    

2021

(Unaudited)

Interest rate lock commitments

$

(68,713)

$

(98,014)

$

(83,983)

$

(280,235)

Forward sale commitments

 

383,785

 

66,872

 

331,370

 

119,913

Unrealized gains (losses) recognized in earnings

$

315,072

$

(31,142)

$

247,387

$

(160,322)

Forward Loan Sale Commitments

The Company evaluates all loan sale agreements to determine whether they meet the definition of a derivative under the derivatives and hedging accounting guidance (ASC 815), as facts and circumstances may differ significantly. If agreements qualify, to protect against the price risk inherent in derivative loan commitments, the Company uses both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Mandatory delivery contracts are accounted for as derivative instruments. Accordingly, forward loan sale commitments are recognized at fair value on the consolidated balance sheet in other assets and liabilities with changes in their fair values recorded in other noninterest income.

The Company estimates the fair value of its forward loan sales commitments using a methodology similar to that used for derivative interest rate lock commitments.

21

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Nonrecurring Measurements

The following table presents the collateral-dependent impaired loans measured at fair value on a nonrecurring basis at September 30, 2022 and December 31, 2021.

Fair Value Measurements Using

Quoted

Prices in

    

Active

Significant

    

 

Markets for

Other

Significant

Identical

Observable

Unobservable

Carrying

Assets

Inputs

Inputs

    

Amount

    

(Level 1)

    

(Level 2)

    

(Level 3)

September 30, 2022 (unaudited):

Collateral-dependent impaired loans

$

53,679

$

$

$

53,679

December 31, 2021:

Collateral-dependent impaired loans

$

120,170

$

$

$

120,170

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at September 30, 2022 and December 31, 2021:

    

    

    

Valuation

Range

    

Fair Value

    

Technique

    

Unobservable Inputs

    

(Weighted Average)

September 30, 2022 (unaudited):

Mortgage servicing rights

$

3,192,822

Discounted cash flow

Discount rate PSA prepayment speeds

10% (156%-329%) 167%

Interest rate lock and mandatory commitments (assets)

$

398,806

Secondary market prices

Pull-through rate

(70%-100%) 97%

Interest rate lock and mandatory commitments (liabilities)

$

(31,182)

Secondary market prices

Pull-through rate

(70%-100%) 97%

Impaired loans (collateral dependent)

$

53,679

Market comparable properties

Marketability discount

(10%-15%) 12%

December 31, 2021:

Mortgage servicing rights

$

2,230,751

Discounted cash flow

Discount rate PSA prepayment speeds

10% (274%-473%) 341%

Interest rate lock and mandatory commitments (assets)

$

151,255

Secondary market prices

Pull-through rate

(70%-100%) 80%

Interest rate lock and mandatory commitments (liabilities)

$

(31,018)

Secondary market prices

Pull-through rate

(70%-100%) 80%

Impaired loans (collateral dependent)

$

120,170

Market comparable properties

Marketability discount

(10%-15%) 12%

22

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents estimated fair values of the Company’s financial instruments not previously presented at September 30, 2022 and December 31, 2021:

Fair Value Measurements Using

Quoted 

Prices in 

Active 

Significant 

Markets for 

Other 

Significant 

Identical 

Observable

Unobservable 

Carrying

Instruments

 Inputs

Inputs

    

Amount

    

(Level 1)

    

(Level 2)

    

(Level 3)

September 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

Financial Assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

17,302,382

$

17,302,382

$

$

Loans held for sale

 

4,936,933

 

 

4,663,527

 

Loans, net of allowance for loan losses

 

243,301,785

 

 

 

227,998,103

Federal Home Loan Bank stock

 

4,731,400

 

 

4,731,400

 

Interest receivable

 

762,587

 

 

762,587

 

Federal Home Loan Bank lender risk account receivable

 

2,232,323

 

 

 

2,225,419

Financial Liabilities:

 

 

 

 

Deposits

 

228,295,352

 

121,855,341

 

103,358,113

 

Federal Home Loan Bank advances

 

20,000,000

 

 

20,000,000

 

Advances from borrowers for taxes and insurance

 

1,625,515

 

 

1,625,515

 

Interest payable

 

41,863

 

 

41,863

 

December 31, 2021:

 

 

  

 

  

 

  

Financial Assets:

 

 

  

 

  

 

  

Cash and cash equivalents

$

21,851,786

$

21,851,786

$

$

Loans held for sale

 

8,121,375

 

 

8,316,473

 

Loans, net of allowance for loan losses

 

195,541,821

 

 

 

193,058,440

Federal Home Loan Bank stock

 

4,149,300

 

 

4,149,300

 

Interest receivable

 

577,002

 

 

577,002

 

Federal Home Loan Bank lender risk account receivable

 

2,286,690

 

 

 

2,413,880

Financial Liabilities:

 

  

 

  

 

  

 

  

Deposits

 

204,453,561

 

121,315,806

 

83,215,894

 

Advances from borrowers for taxes and insurance

 

1,808,971

 

 

1,808,971

 

Interest payable

 

24

 

 

24

 

NOTE 7:       Commitments and Credit Risk

Commitments to Originate Loans

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate.

23

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Commitments to fund fixed rate loans at September 30, 2022 and December 31, 2021, were as follows:

    

September 30, 2022

    

December 31, 2021

(Unaudited)

Interest Rate

Interest Rate

    

Amount

    

Range

    

Amount

    

Range

Commitments to fund fixed-rate loans

$

4,455,700

5.25% - 7.625%

$

15,298,287

2.50% - 4.125%

Lines of Credit

Lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Lines of credit generally have fixed expiration dates. Since a portion of the line may expire without being drawn upon, the total unused lines do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, commercial real estate and residential real estate. Management uses the same credit policies in granting lines of credit as it does for on-balance-sheet instruments.

Loan commitments outstanding at September 30, 2022 and December 31, 2021, in addition to commitments for fixed-rate loans shown above, were composed of the following:

    

September 30, 

    

December 31, 

2022

2021

(Unaudited)

Commitments to originate loans for portfolio

$

2,730,785

$

3,405,020

Forward sale commitments

 

9,389,868

 

23,415,006

Lines of credit

 

25,380,595

 

20,881,558

NOTE 8:       Accumulated Other Comprehensive Loss

The components of other comprehensive loss, net of tax, included in stockholders’ equity at September 30, 2022 and December 31, 2021 are as follows:

    

September 30, 

    

December 31, 

2022

2021

(Unaudited)

Net unrealized gains (losses) on available for sale securities

$

(461,915)

$

37,171

Directors' retirement plan

 

(404,790)

 

(432,667)

(866,705)

(395,496)

Tax benefit

 

(182,009)

 

(61,193)

Net of tax amount

$

(684,696)

$

(334,303)

NOTE 9:       Equity Incentive Plans

In May 2017, the Company’s stockholders approved the Cincinnati Bancorp 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan authorized the issuance or delivery to participants of up to 192,844 shares of the Company’s common stock pursuant to the grants of restricted stock awards, restricted stock unit awards, incentive stock options, and non-qualified stock options. Of this number, the maximum number of shares of Company common stock that may be issued under the 2017 Plan pursuant to the

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

exercise of stock options is 137,746 shares and the maximum number of shares of Company common stock that may be issued as restricted stock awards or restricted stock units is 55,098 shares. Stock options awarded to employees may be incentive stock options or non-qualified stock options. Shares subject to award under the 2017 Plan may be authorized but unissued shares or treasury shares. The 2017 Plan contains annual and lifetime limits on certain types of awards to individual participants.

In May 2021, the Company’s stockholders approved the Cincinnati Bancorp, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan authorized the issuance or delivery to participants of up to 231,414 shares of the Company’s common stock pursuant to the grants of restricted stock awards, restricted stock unit awards, incentive stock options, and non-qualified stock options. Of this number, the maximum number of shares of Company common stock that may be issued under the 2021 Plan pursuant to the exercise of stock options is 165,296 shares and the maximum number of shares of Company common stock that may be issued as restricted stock awards or restricted stock units is 66,118 shares. Stock options awarded to employees may be incentive stock options or non-qualified stock options. Shares subject to award under the 2021 Plan may be authorized but unissued shares or treasury shares. The 2021 Plan contains annual and lifetime limits on certain types of awards to individual participants.

Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award. Stock options and restricted stock awards provide for accelerated vesting if there is a change in control (as defined in the 2017 and 2021 Plans).

Activity in the stock option plans was as follows for the nine months ended September 30, 2022:

Weighted-Average

Remaining

Aggregate

Weighted-Average

Contractual Term

Intrinsic

    

Shares

    

Exercise Price

    

(Years)

    

Value

September 30, 2022:

Outstanding, beginning of period

 

296,342

$

10.64

 

7.90

$

1,144,637

Granted

 

$

 

Exercised

 

$

 

Forfeited

 

$

 

Outstanding, end of period

 

296,342

$

10.64

 

7.15

$

1,247,600

Exercisable, end of period

 

158,778

$

8.15

 

6.13

$

1,064,253

In June 2017, the Company awarded 55,098 restricted shares to members of the Board of Directors and certain members of management under the 2017 Plan. In June 2020, the Company awarded 1,324 restricted shares to certain members of management under the 2017 Plan. The restricted stock awards have a five year vesting period.

On May 20, 2021, the Company awarded 17,000 restricted shares to members of the Board of Directors under the 2021 Plan. On June 9, 2021, the Company awarded 49,000 restricted shares to certain members of management under the 2021 Plan. The restricted stock awards have a five year vesting period.

A summary of the status of the Company’s nonvested shares as of September 30, 2022, and changes during the nine-month period then ended, is presented below:

    

Weighted-average 

grant-date

    

Shares

    

fair value

Nonvested, beginning of period

 

77,646

$

12.83

Granted

 

 

Vested

 

(24,050)

 

Forfeited

 

 

Nonvested, end of period

 

53,596

$

12.83

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Shares of restricted stock awarded to employees under the 2017 and 2021 Plans are subject to vesting based on continuous employment for a specified time period following the date of grant.

During the restricted period, the holders are entitled to full voting rights and dividends, and are therefore considered participating securities.

Total compensation cost recognized in the income statement for share-based payment arrangements was $85,344 for the three months ended September 30, 2022 and $111,133 for the three months ended September 30, 2021. Total compensation cost recognized in the income statement for share-based payment arrangements was $307,609 for the nine months ended September 30, 2022 and $195,583 for the nine months ended September 30, 2021.

As of September 30, 2022, there was approximately $1,239,950 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the 2017 and 2021 Plans, which is expected to be recognized over a weighted-average period of 3.6 years.

NOTE 10:     Recent Accounting Pronouncements

FASB ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326)

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income.

In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees.

The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today.

The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination.

On October 16, 2019, FASB approved a final ASU delaying the effective date of ASU No. 2016-13 for certain companies. ASU No. 2016-13 became effective for public business entities that are U.S. Securities and Exchange Commission (“SEC”) filers, that are not small reporting companies, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, such as the Company, the amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of ASU No. 2016-13 on the Company’s consolidated financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the standard as a result of the complexity and extensive changes from these amendments.

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for the other-than-temporary impairment on available-for-sale securities will be replaced with an allowance approach. The Company continues collecting and retaining historical loan and credit data. A CECL model has been selected and is being run parallel to the existing loan loss methodology. The Company’s Audit Committee is informed of ongoing CECL developments. For additional information on the allowance for loan losses, see Note 3.

FASB ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a borrower, results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a borrower experiencing financial difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-02 prospectively. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. The Company will adopt ASU 2022-02 when adopting ASU 2016-13 in January 2023 and will assess its impact on its accounting and disclosures at that time.

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

General

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2022 and 2021 is intended to assist in understanding the financial condition and results of operations of the Company. 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, Item 1 of this quarterly report on Form 10-Q and with the audited consolidated financial statements and notes thereto at and for the year ended December 31, 2021, appearing in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Cautionary Note Regarding Forward –Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

statements of our goals, intentions and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the asset quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Form 10-Q except as may be required by applicable law or regulation.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

risks associated with widespread inflation or deflation;
risks of overall labor pressures and continued global supply-chain disruptions;
changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources, and our ability to originate loans for portfolio and for sale in the secondary market;
adverse changes in the financial industry, securities, credit and national or local real estate markets (including real estate values), or in the secondary mortgage markets;
risks related to the valuation of mortgage servicing rights, particularly changes in prepayment speeds due to changes in interest rates;
the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;
the scope, duration and severity of the COVID-19 pandemic and its effect on our business and operations, our customers, including their ability to make timely loan payments, our service providers, and on the economy and financial markets;
Government action in response to the COVID-19 pandemic and its effect on our business and operations;

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our ability to manage our operations under the current economic conditions nationally and in our market area;
we may incur increased charge-offs in the future;
we may lose customers to our competitors;
significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;
credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;
competition among depository and other financial institutions;
our ability to successfully implement our business plan and to grow our franchise to improve profitability;
our ability to attract and maintain deposits, and to obtain FHLB-Cincinnati advances;
fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;
changes in consumer spending, borrowing and savings habits;
risks related to a high concentration of loans secured by real estate located in our market area;
the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;
changes in the level of government support of housing finance;
our ability to enter new markets successfully and capitalize on growth opportunities;
changes in laws or government regulations or policies affecting financial institutions which could result in, among other things, increased deposit insurance premiums and assessments, increased capital requirements, and increased regulatory fees and compliance costs, and the resources we have available to address such changes;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;
loan delinquencies and changes in the underlying cash flows of our borrowers;
our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
the risk of failure or security breaches of computer systems on which we depend or other cyber security risks;
the ability of key third-party service providers to perform their obligations to us;

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changes in the financial condition or future prospects of issuers of securities that we own;
other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2021.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Coronavirus (COVID-19) Impact

In March 2020, the COVID-19 coronavirus was identified as a global pandemic and began affecting the health of large populations around the world. As a result of the spread of COVID-19, economic uncertainties arose which can ultimately affect the financial position, results of operations and cash flows of the Company as well as the Company’s customers. In response to economic concerns over COVID-19, in March 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed into law by Congress. The CARES Act included relief for individual Americans, health care workers, small businesses and certain industries hit hard by the COVID-19 pandemic. The 2021 Consolidated Appropriations Act, passed by Congress in December 2020, extended certain provisions of the CARES Act affecting the Company into 2021.

The CARES Act included several provisions designed to help financial institutions like the Company in working with their customers. Section 4013 of the CARES Act, as extended until January 1, 2022, allowed a financial institution to elect to suspend generally accepted accounting principles and regulatory determinations with respect to qualifying loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (TDR).

The Company has taken advantage of this provision to extend certain payment modifications to loan customers in need. As of December 31, 2021, the Company had no loans that were modified under the CARES Act guidance, that remain on modified terms.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total Assets. Total assets were $292.3 million at September 30, 2022, an increase of $40.8 million, or 16.2% from December 31, 2021. The increase was primarily due to an increase in loans, net of allowances, of $47.8 million, partially offset by a decrease in cash and cash equivalents of $4.5 million and a decrease in loans held for sale of $3.2 million. The increase in loans, net of allowances, was primarily due to the shift in demand from 30-year and 15-year fixed rate loans to adjustable-rate loan products. As a result, lower rate adjustable-rate mortgages (ARM loans), particularly 5/1, 7/1 and 10/1 ARMs were more attractive to borrowers during the nine months ended September 30, 2022. The Company, generally, does not sell ARM loans but maintains them in the loan portfolio.

Total asset growth, and loan growth in particular, are not anticipated to continue to increase at the pace experienced during the nine months ended September 30, 2022, given expected continued market interest rates. The Company has adjusted mortgage pricing to increase secondary market sales while slowing loan portfolio growth to match funding capacity.

Cash and Cash Equivalents. Cash and cash equivalents decreased $4.5 million, or 20.8%, to $17.3 million at September 30, 2022, from $21.9 million at December 31, 2021. The decrease in cash and cash equivalents was primarily attributable to funding the net increase in loans, net of allowances.

Available-for-Sale Debt Securities. Available-for-sale debt securities, which consisted entirely of U.S. government-sponsored mortgage-backed securities, decreased $1.1 million or 13.9%, to $6.8 million at September 30, 2022 from $7.9 million at December 31, 2021, due primarily to the principal repayments on the securities and the $509,000 increase in the unrealized loss during the nine months ended September 30, 2022.

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Net Loans. Net loans increased $47.8 million, or 24.4%, to $243.3 million at September 30, 2022 from $195.5 million December 31, 2021. The increase in loans was primarily attributable to a $34.8 million or 49.5%, increase in one to four family owner-occupied mortgage loans. Nonresidential mortgage loans increased $8.3 million, or 19.9%. Multifamily loans increased $4.5 million, or 8.3%. One to four family nonowner-occupied mortgage loans increased $2.9 million, or 28.0%. The increase in one to four family residential loans is due to the shift in loan originations from fixed rate loans sold to the secondary market to 5/1, 7/1 and 10/1 adjustable-rate mortgages. The shift from the origination of fixed rate loans to be sold in the secondary market to adjustable-rate loans to be held in our portfolio is expected to negatively impact our ability to generate gains on the sales of loans. However, the increase in the origination of adjustable-rate mortgages is expected to positively impact our interest income in a rising interest rate environment. The undisbursed portion of construction loans increased $4.4 million, or 36.6%, to $16.6 million. The undisbursed portions of the loans are expected to be disbursed in the next six to eighteen months as construction is completed. However, residential construction loan disbursements have been slower than expected due to supply chain and labor shortage issues.

Loans Held for Sale. We currently sell certain fixed-rate, 15- and 30-year term, one-to-four family mortgage loans. We have sold loans on both a servicing-released and servicing-retained basis to: the FHLB-Cincinnati, through its mortgage purchase program; Freddie Mac; and certain private sector third-party buyers. Loans held for sale decreased $3.2 million, or 39.5%, to $4.9 million at September 30, 2022 from $8.1 million at December 31, 2021. Market interest rates increased during the period which had a negative impact on our ability to originate loans for sale in the secondary market. Continued increases in market interest rates is expected to continue and hamper our ability to generate gains on sales of loans.

During the nine months ended September 30, 2022, we had proceeds of $107.0 million from sales of one-to- four family residential loans, on both a servicing–retained and servicing–released basis. Our volume of loan sales declined by $112.5 million, or 51.2%, from $219.4 million for the nine months ended September 30, 2021 to $107.0 million for the nine months ended September 30, 2022.

Assets held for sale. During the quarter ended June 30, 2022, the Company filed notice with the Office of the Comptroller of the Currency (“OCC”) that the Covington, Kentucky branch location would close on August 12, 2022. On that date, the deposit accounts of the Covington branch were transferred to the Florence, Kentucky location. The Company has accepted a purchase offer for the property and the transaction is expected to be completed in November 2022. The Covington branch location is carried at the lower of cost or market with a value of $691,451.

Mortgage Servicing Rights. We recognize mortgage servicing rights when loans are sold on a servicing-retained basis, which are initially, and subsequently, carried at fair value based upon independent third-party appraisals. The fair value of our mortgage servicing rights, based upon the most recent independent appraisal, increased $899,000, or 40.3%, to $3.1 million at September 30, 2022, from $2.2 million at December 31, 2021, primarily due to slower prepayment speed assumptions. Generally, estimated mortgage prepayment speeds decrease when market interest rates increase, resulting in an increase in the fair value of mortgage servicing rights. A slowdown in mortgage refinance activity would be expected to have a favorable impact on the fair value of our mortgage servicing rights. The balance of residential mortgage loans serviced primarily for Freddie Mac and the FHLB of Cincinnati decreased to $269.6 million at September 30, 2022 compared to $282.0 at December 31, 2021. New mortgage servicing rights recorded for the nine months ended September 30, 2022 were $119,700. The change in fair value of mortgage servicing rights was an increase of $779,400 for the nine months ended September 30, 2022. The appraised value of the mortgage servicing rights increased 37 basis points to 1.16% at September 30, 2022 from 0.79% at December 31, 2021.

Deposits. Deposits increased $23.8 million, or 11.6%, to $228.3 million at September 30, 2022 from $204.5 million at December 31, 2021. The increase in deposits was primarily due to an increase of $23.3 million, or 28.0%, in certificates of deposit, primarily obtained through the National CD Rateline deposit listing service. The increase in National CD Rateline funds was used primarily to fund loan growth during the nine months ended September 30, 2022. Demand deposits increased $366,000, or 0.8% and savings deposits were stable at $75.7 million.

Borrowings. Federal Home Loan Bank advances increased $20.0 million at September 30, 2022. The Company had no outstanding borrowings at December 31, 2021. The increase in FHLB advance borrowing was used to fund the increase in loans.

Stockholders’ Equity. Stockholders’ equity decreased $3.2 million, or 7.5%, to $39.7 million at September 30, 2022 from $42.9 million at December 31, 2021. The decrease was primarily due to a one-time, special dividend of $1.00 per share, totaling $3.0 million, paid to shareholders during the nine months ended September 30, 2022 and share repurchases totaling $1.6 million. Accumulated other comprehensive loss increased $350,000 due to increased unrealized losses in the fair value of the investment

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portfolio due to the increase in market interest rates. Investment losses are primary concentrated in one monthly floating rate security tied to the secured overnight funding rate (SOFR). All other investment securities are monthly adjustable-rate securities tied to the one-month T-Bill, one month LIBOR or the one-year Treasury index. These decreases were partially offset by net income of $1.3 million for the nine months ended September 30, 2022.

Comparison of Operating Results for the Three Months Ended September 30, 2022 and September 30, 2021

General. The Company recorded net income of $868,000 for the quarter ended September 30, 2022, an increase of $962,000 compared to a net loss of $95,000 for the quarter ended September 30, 2021. The increase in net income was due primarily to a $227,000 increase in net interest income and a $1.2 million decrease in noninterest expense, partially offset by a $153,000 decrease in noninterest income, a $21,000 increase in the provision for loan losses and a $247,000 increase in the provision for income taxes.

Interest and Dividend Income. Interest income increased $460,000, or 20.4%, to $2.7 million for the quarter ended September 30, 2022 compared to the comparable quarter in 2021. Interest income on portfolio loans increased $356,000, or 16.6%, to $2.5 million for the three months ended September 30, 2022. The average balance of portfolio loans during the three months ended September 30, 2022 increased $48.4 million to $242.8 million. The increase in average portfolio loans outstanding was concentrated in one to four residential, nonresidential mortgage loans and multifamily loans. The average yield on loans decreased 29 basis points to 4.12% for the three months ended September 30, 2022 from 4.41% for the three months ended September 30, 2021. The average balance of loans held for sale decreased $8.1 million, or 59.7%, during the quarter ended September 30, 2022 compared to the same quarter in 2021.

Interest income on other interest-earning assets increased $80,000, or 533.3%, to $95,000 for the three months ended September 30, 2022 compared to the same period in 2021. The yield on other interest-bearing assets increased 228 basis points to 2.70% for the three months ended September 30, 2022. The average balance on other interest-earning assets decreased $275,000 to $14.1 million. The balance on Federal Home Loan Bank Stock increased to $4.2 million. The dividend rate paid on FHLB stock was 5.00% at September 30, 2022. Interest income on securities, other interest-bearing assets and FHLB stock has been favorably impacted by the increase in short-term market interest rates. The investment securities portfolio is composed of monthly adjustable-rate securities tied to the one-month T-Bill, one month LIBOR or the one-year Treasury index.

Interest Expense. Total interest expense increased $233,000, or 73.2%, to $551,000 for the quarter ended September 30, 2022 from $318,000 for the quarter ended September 30, 2021. Interest expense on borrowings increased $28,000, or 37.8%. Interest expense on deposits increased $205,000, or 84.0%, to $449,000 for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021. The increase in deposit interest expense between the comparable quarters in 2022 from 2021 was primarily due to a 23 basis point increase in the average cost of deposits and a $51.4 million increase in the average balance of deposits during the third quarter of 2022 compared to the same quarter in 2021.

Interest expense on savings accounts increased $125,000 during the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021, due to an increase of $23.6 million in average savings balances. The average cost of savings accounts increased 57 basis points to 0.76% during the quarter ended September 30, 2022. The increase in balances was primarily attributable to deposit relationships established by two local municipalities. The average cost of interest-bearing demand deposits was 15 basis points for the quarter ended September 30, 2022 compared to 16 basis points for the quarter ended September 30, 2021. The average balances in interest-bearing demand accounts increased $4.8 million during the three months ended September 30, 2022 compared to September 30, 2021. Interest expense on certificates of deposit increased $79,000, or 38.3%. The average cost of certificates increased 7 basis points to 1.13%. The average balance of certificates of deposit increased $23.0 million to $100.6 million for the three months ended September 30, 2022 compared to the same period ended September 30, 2021.

Interest expense on FHLB advances increased $28,000, or 37.8%, to $102,000 for the quarter ended September 30, 2022 from the quarter ended September 30, 2021. The average balance of advances decreased $11.4 million, or 38.9%, for the quarter ended September 30, 2022. The average cost of FHLB borrowings increased 176 basis points to 2.77% for the quarter ended September 30, 2022.

Net Interest Income. Net interest income increased $227,000, or 11.7%, for the quarter ended September 30, 2022 compared to the same quarter in 2021. The interest rate spread decreased to 3.04% for the quarter ended September 30, 2022 compared to 3.18% for the quarter ended September 30, 2021. The net interest margin decreased 12 basis points to 3.18% for the quarter ended September 30, 2022, compared to 3.30% for the quarter ended September 30, 2021.

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Provision for Loan Losses. Based on our analysis, we recorded a provision for loan losses of $21,000 for the three months ended September 30, 2022. The allowance for loan losses was $1.8 million, or 0.70% of total loans, at September 30, 2022, compared to $1.7 million, or 0.81% of total loans, at September 30, 2021. Given the growth in the loan portfolio during the nine months ended September 30, 2022, an increase in the allowance was warranted. Total past due loans were $54,000, or 0.02% of loans at September 30, 2022. The Company had no net charge-offs during the three-month period ended September 30, 2022. As a percentage of nonperforming loans, the allowance for loan losses was 3,416.3% at September 30, 2022.

The credit quality of the Bank’s loan portfolio remained consistent, as measured by low levels of nonperforming and delinquent loans, classified loans and impaired loans. As of September 30, 2022, we had no loans deferring loan payments under a forbearance agreement. Management continues to monitor the loan portfolio closely in recognition of the prevailing economic uncertainties.

The allowance for loan losses reflects the estimate we believe to be adequate to cover probable losses which were inherent in the loan portfolio at September 30, 2022. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Non-Interest Income. Non-interest income decreased $153,000, or 7.2%, to $2.0 million for the quarter ended September 30, 2022 from $2.1 million for the comparable quarter in 2021. The gain on sale of loans decreased $1.5 million, or 69.6%, to $641,000 for the quarter ended September 30, 2022 from $2.1 million for the comparable quarter in 2021. The volume of loans sold during the three months ended September 30, 2022 totaled $33.2 million, a decrease of $38.4 million, or 53.6%, from the $71.6 million loan sales volume during the three months ended September 30, 2021. Net mortgage derivative income was $315,000 for the quarter ended September 30, 2022, compared to net mortgage derivative expense of $31,000 for the quarter ended September 30, 2021. The increase in market interest rates negatively impacted gain on sale of loans in the quarter ended September 30, 2022 and is likely to have a continuing negative impact on noninterest income for the remainder of 2022.

Net mortgage servicing fees increased $932,000 for the three months ended September 30, 2022 compared to the same period in 2021. The fair value of mortgage servicing rights increased $533,000 for the quarter ended September 30, 2022 compared to a decrease in the fair value of $399,000 for the comparable quarter in 2021. The change in fair value of mortgage servicing rights is highly dependent on estimated changes in mortgage prepayment speeds. Generally, estimated mortgage prepayment speeds decrease when market interest rates increase, resulting in an increase in the fair value of mortgage servicing rights. The value of the mortgage servicing rights was increased by the recognition of $18,000 in new mortgage servicing rights for the quarter ended September 30, 2022 compared to $200,000 in new mortgage servicing rights for the quarter ended September 30, 2021. The increase in market interest rates is likely to have a positive impact on the value of mortgage servicing rights as loan prepayments slow, however, increasing market interest rates are likely to decrease mortgage origination volumes and negatively impact the level of new mortgage servicing rights.

Non-Interest Expense. Non-interest expense decreased $1.2 million, or 27.8%, to $3.0 million for the quarter ended September 30, 2022, from the comparable quarter in 2021, primarily due to the decrease of $763,000 in FHLB advance prepayment penalties incurred during the comparable period in 2021. Salaries and employee benefits decreased $294,000, or 13.5%, to $1.9 million for the quarter ended September 30, 2022 from $2.2 million for the comparable quarter in 2021, due primarily to decreased loan officer commission expense and mortgage banking staff reductions. Loan costs decreased $44,000, or 22.5% due to lower mortgage origination volumes. Advertising expense decreased $49,000, or 48.1%, due primarily to fewer checking account marketing and direct-mail marketing campaign expenses. Professional fees increased $35,000, primarily due to legal fees expensed for a lawsuit challenging Ohio sales tax on data processing services.

Federal Income Taxes. The provision for federal income taxes increased $247,000 for the three months ended September 30, 2022, compared to the same period in 2021. The increase was due primarily to a $1.2 million increase in pretax earnings period-to-period. The effective tax rates were 21.6% and 7.5% for the three months ended September 30, 2022 and 2021, respectively. The effective tax rate for the three months ended September 30, 2021 was decreased by a tax accrual adjustment.

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Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant. All average balances are monthly average balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented. Non-accrual loans were included in the computation of average balances only. 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.

For the Three Months Ended September 30,

 

2022

2021

 

Average

Average

 

Outstanding

Average

Outstanding

Average

 

    

Balance

    

Interest

    

Yield/Rate

    

Balance

    

Interest

    

Yield/Rate

 

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans

$

242,778

$

2,499

 

4.12

%  

$

194,341

$

2,143

 

4.41

%

Loans held for sale

5,455

60

 

4.40

13,537

 

84

 

2.48

Securities

6,904

45

 

2.61

8,829

 

14

 

0.63

Fed Funds

2,862

18

2.52

4,305

1

0.09

Other (1)

14,062

95

 

2.70

14,337

 

15

 

0.42

Total interest-earning assets

272,061

2,717

 

3.99

235,349

 

2,257

 

3.84

Non-interest-earning assets

15,390

 

15,612

 

 

Total assets

$

287,451

 

$

250,961

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Savings

$

78,956

151

0.76

$

55,336

26

 

0.19

Interest-bearing demand

 

35,525

13

0.15

 

30,699

12

 

0.16

Certificates of deposit

 

100,630

285

1.13

 

77,666

206

 

1.06

Total deposits

 

215,111

449

0.83

 

163,701

244

 

0.60

FHLB borrowings

 

18,000

102

2.27

 

29,441

74

 

1.01

Total interest-bearing liabilities

 

233,111

551

0.95

 

193,142

318

 

0.66

Non-interest-bearing demand

 

12,735

 

 

17,566

 

Other non-interest-bearing liabilities

 

4,100

 

 

5,508

 

 

Total non- interest-bearing liabilities

 

16,835

 

 

23,074

 

 

Total equity

 

37,505

 

 

34,745

 

 

Total liabilities and total equity

$

287,451

 

$

250,961

 

 

Net interest income

$

2,166

 

$

1,939

 

Net interest rate spread (2)

 

 

3.04

%  

 

 

  

 

3.18

%

Net interest-earning assets (3)

$

38,950

 

$

42,207

 

  

 

Net interest margin (4)

 

 

3.18

%  

 

  

 

  

 

3.30

%

Average interest-earning assets to interest-bearing liabilities

 

 

116.71

%  

 

  

 

  

 

121.85

%

(1)

Consists of FHLB-Cincinnati stock, FHLB DDA, certificates of deposit and cash reserves.

(2)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3)

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

(4)

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

Interest on loans includes loan fee income of $39,000 for the three months ended September 30, 2022 and $210,000 of loan fee income for the three months ended September 30, 2021.

Comparison of Operating Results for the Nine Months Ended September 30, 2022 and September 30, 2021

General. The Company recorded net income of $1.3 million for the nine months ended September 30, 2022, a decrease of $26,000, or 2.0%, from the nine-month period ended September 30, 2021. The decrease in net income was due to a $3.0 million

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decrease in noninterest income, primarily due to a $4.7 million decrease in gain on sale of loans, and a $155,000 increase in the provision for loan losses, partially offset by a $1.3 million increase in net interest income and a $1.9 million decrease in noninterest expense.

Interest and Dividend Income. Interest income increased $939,000, or 15.4%, to $7.0 million for the nine months ended September 30, 2022 compared to September 30, 2021. Interest income on portfolio loans increased $841,000, or 14.6%, to $6.6 million as of September 30, 2022. The average balance of portfolio loans during the nine months ended September 30, 2022 increased $40.0 million to $222.6 million, compared to the nine months ended September 30, 2021. The increase in average portfolio loans outstanding was primarily concentrated in one to four family owner-occupied mortgage loans, nonresidential mortgage loans, multifamily loans, and land and construction loans. The average yield on loans decreased 25 basis points to 3.94% for the nine months ended September 30, 2022 from 4.19% for the nine months ended September 30, 2021. The average balance of loans held for sale decreased $7.0 million during the nine months ended September 30, 2022 compared to the same nine month period in 2021, while the average yield on loans held for sale increased 147 basis points, to 4.02% for the nine months ended September 30, 2022 from 2.55% for the same nine months in 2021.

Interest income on securities increased $26,000, or 46.0%, for the nine months ended September 30, 2022. The yield on securities increased 67 basis points due to higher market interest rates. The average balance of securities decreased $1.6 million to $7.3 million at September 30, 2022. The investment securities portfolio is composed of monthly adjustable-rate securities tied to the one month T-Bill, one month LIBOR or the one year Treasury index. Interest income on other interest-earning assets increased $122,000, or 282.4%. The yield on other interest-bearing assets increased 123 basis points due to a higher dividend rate paid on FHLB stock and the increase in short term interest rates.

Interest Expense. Total interest expense decreased $313,000, or 23.7%, to $1.0 million for the nine months ended September 30, 2022 from $1.3 million for the nine months ended September 30, 2021. Interest expense on deposit accounts decreased $102,000, or 12.9%, to $894,000 for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. The decrease in deposit expense between comparable periods in 2022 from 2021 was primarily due to an 11 basis point decrease in the average cost of deposits primarily due to lower market interest rates.

Interest expense on savings increased $177,000, or 236.0%, during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, due to an increase in the average balance of savings accounts of $24.6 million. The average cost of savings accounts increased 24 basis points compared to the same period ended September 30, 2021. Interest expense on interest-bearing demand accounts increased $5,000, or 15.2%. The average cost of interest-bearing demand deposits increased 1 basis point to 15 basis points. The average balances in interest-bearing demand accounts increased $3.9 million during the nine months ended September 30, 2022 compared to the same period ended September 30, 2021. Interest expense on certificates of deposit decreased $79,000, or 11.6%. The average cost of certificates decreased 47 basis points to 0.89%. The average balance of certificates of deposit increased $24.2 million to $90.8 million for the nine months ended September 30, 2022 compared to the same period ended September 30, 2021.

Interest expense on FHLB advances decreased $416,000, or 78.4%, to $114,000 for the nine months ended September 30, 2022 from the nine months ended September 30, 2021. The average balance of advances decreased $26.0 million, or 76.1%, for the nine months ended September 30, 2022. The average cost of FHLB borrowings decreased 21 basis points to 1.86% for the nine months ended September 30, 2022 from 2.07% for the same period in 2021.

Net Interest Income. Net interest income increased $1.3 million, or 26.3%, for the nine months ended September 30, 2022 compared to the same period in 2021. The interest rate spread increased to 3.06% for the nine months ended September 30, 2022 compared to 2.62% for the nine months ended September 30, 2021. The net interest margin increased 38 basis points to 3.17% at September 30, 2021 compared to 2.79% at September 30, 2021.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses” we recorded a provision for loan losses of $155,000 for the nine months ended September 30, 2022. The allowance for loan losses was $1.8 million, or 0.70% of total loans, at September 30, 2022, compared to $1.7 million, or 0.81% of total loans, at September 30, 2021. The Company had no net charge-offs during the nine-month period ended September 30, 2021. Given the growth in the loan portfolio during the nine months ended September 30,2022, an increase in the allowance was warranted. Total past due loans were $54,000, or 0.02% of loans at September 30, 2022. The Company had net recoveries of $6,000 during the nine-month

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period ended September 30, 2022. As a percentage of nonperforming loans, the allowance for loan losses was 3,416.3% at September 30, 2022.

The credit quality of the Bank’s loan portfolio remained consistent with recent periods, as measured by low levels of nonperforming and delinquent loans, classified loans and impaired loans. As of September 30, 2022, we had no loans deferring loan payments under a forbearance agreement. Management continues to monitor its loan portfolio closely in recognition of the prevailing economic uncertainties.

The allowance for loan losses reflects the estimate we believe to be adequate to cover probable losses which were inherent in the loan portfolio at September 30, 2022. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Non-Interest Income. Non-interest income decreased $3.0 million, or 39.6%, to $4.6 million for the nine months ended September 30, 2022 from $7.7 million for the comparable period in 2021. The gain on sale of loans decreased $4.7 million, or 68.2%, to $2.2 million for the nine months ended September 30, 2022 from $6.9 million for the comparable nine months in 2021. The volume of loans sold during the nine months ended September 30, 2022 totaled $107.0 million, a decrease of $112.4 million, or 51.3%, from the $219.4 million loan sales volume during the nine months ended September 30, 2021.

Mortgage derivative income was $247,000 for the nine months ended September 30, 2022, compared to mortgage derivative expense of $160,000 for September 30, 2021.

Mortgage servicing fee income increased $1.2 million, or 1,137.4%, primarily due to an increase in the value of mortgage service rights during the nine months ended September 30, 2022 compared to the same period in 2021. The value of mortgage servicing rights increased $779,000 for the nine months ended September 30, 2022 compared to a decrease in the fair value of $369,000 for the comparable period in 2021. The change in fair value of mortgage servicing rights is highly dependent on estimated changes in mortgage prepayment speeds. Generally, estimated mortgage prepayment speeds decrease when market interest rates increase, resulting in an increase in the fair value of mortgage servicing rights. With the increase in interest rates initiated by the Federal Reserve Board in 2022, a decrease in the mortgage prepayment speed assumption has had a favorable impact on the fair value of our mortgage servicing rights during 2022. The recognition of new mortgage servicing rights was $120,000 for the nine months ended September 30, 2022 compared to $861,000 for the nine months ended September 30, 2021.

Non-Interest Expense. Non-interest expense decreased $1.9 million, or 17.9%, to $8.8 million for the nine months ended September 30, 2022, compared to $10.8 million for the same period in 2021. Salaries and employee benefits decreased $1.1 million, or 16.1%, to $5.5 million for the nine months ended September 30, 2022 from $6.6 million for the comparable period in 2021, due primarily to decreased mortgage lending and servicing support staff, decreased loan officer commission expense, and related decreased payroll tax expense and 401(k) matching contributions. FHLB advance prepayment penalties of $763,000 recognized in the nine-month period ended September 30, 2021 did not recur in 2022. Loan costs decreased $176,000, or 29.7%, due to the decreased loan volume. Occupancy and equipment expense decreased $71,000, or 12.1%, due primarily to branch security upgrades and laptop computer replacement expenses incurred in the nine months ended September 30, 2021. During the nine months ended September 30, 2022, the Company filed notice with the OCC that the Covington, Kentucky branch location would be closed on August 12, 2022. At that date, all deposit accounts were transferred to the Florence, Kentucky location. The Company has accepted a purchase offer for the real estate property. The transaction is expected to close in November 2022. These decreases were partially offset by a $47,000, or 16.1%, increase in professional fees and a $48,000 loss on sales of foreclosed assets. Professional fees increased, primarily due to legal fees expensed for a lawsuit challenging Ohio sales tax on data processing services.

Federal Income Taxes. The provision for federal income taxes was $361,000 for the nine months ended September 30, 2022, compared to tax expense of $353,000 for September 30, 2021, a decrease of $8,800, or 2.5%. The effective tax rates were 22.0% and 21.2% for the nine months ended September 30, 2022 and 2021, respectively.

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made. Any adjustments necessary to

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present yields on a tax-equivalent basis are insignificant. All average balances are monthly average balances. Management does not believe that the use of month-end balances instead of daily average balances has caused any material differences in the information presented. Non-accrual loans were included in the computation of average balances only. 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.

For the Nine Months Ended September 30,

2022

    

2021

    

Average

    

    

    

Average 

    

    

 

 Outstanding

Average 

Outstanding

Average

 

    

 Balance

    

Interest

    

Yield/Rate

    

 Balance

    

Interest

    

Yield/Rate

 

Interest-earning assets:

 

  

 

  

  

 

  

 

  

 

  

Loans

$

222,569

$

6,584

3.94

%

$

182,548

$

5,743

4.19

%

Loans held for sale

 

5,539

 

167

4.02

 

12,573

 

240

2.55

Securities

 

7,288

 

83

1.52

 

8,903

 

57

0.85

Fed Funds

 

3,592

 

25

0.93

 

6,304

 

1

0.02

Other (1)

14,017

 

165

1.57

17,097

 

43

0.34

Total interest-earning assets

 

253,005

 

7,024

3.70

 

227,425

 

6,084

3.57

Non-interest-earning assets

15,395

 

  

 

15,549

 

  

 

  

Total assets

$

268,400

  

$

242,974

 

  

 

  

Interest-bearing liabilities:

 

 

  

 

  

 

  

 

  

Savings

$

77,926

 

252

0.43

$

53,293

 

75

0.19

Interest-bearing demand

 

34,707

 

38

0.15

 

30,840

 

33

0.14

Certificates of deposit

90,805

 

604

0.89

66,556

 

683

1.36

Total deposits

 

203,438

 

894

0.59

 

150,689

 

791

0.70

FHLB borrowings

8,175

 

114

1.86

34,163

 

530

2.07

Total interest-bearing liabilities

 

211,613

 

1,008

0.64

 

184,852

 

1,321

0.95

Non-interest-bearing demand

 

15,282

  

 

17,979

 

  

 

  

Other non-interest-bearing liabilities

4,239

  

5,299

 

  

 

  

Total non-interest-bearing liabilities

 

19,521

  

 

23,278

 

  

 

  

Total equity

37,266

  

34,844

 

  

 

  

Total liabilities and total equity

$

268,400

  

$

242,974

 

  

 

  

Net interest income

$

6,016

  

 

$

4,763

 

  

Net interest rate spread (2)

3.06

%

 

 

2.62

%

Net interest-earning assets (3)

$

41,392

$

42,573

 

  

Net interest margin (4)

  

3.17

%

 

  

 

2.79

%

Average interest-earning assets to interest-bearing liabilities

119.56

%

 

  

 

123.03

%

(5)

Consists of FHLB-Cincinnati stock, FHLB DDA, certificates of deposit and cash reserves.

(6)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(7)

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

(8)

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

Interest on loans includes loan fee income of $17,000 for the nine months ended September 30, 2022 and $199,000 of loan fee income for the nine months ended September 30, 2021.

Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are monetary in nature and sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates.

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Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

originating nonresidential real estate and multi-family loans, and, to a lesser extent, construction, consumer and commercial business loans, all of which tend to have shorter terms and higher interest rates than one- to four-family residential real estate loans, and which generate customer relationships that can result in larger non-interest bearing checking accounts;
selling substantially all of our newly-originated longer-term fixed-rate one- to four-family residential real estate loans and retaining the shorter-term fixed-rate and adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs;
increasing our reliance on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive than certificates of deposit; and
purchasing adjustable and floating rate mortgage-backed securities for the investment portfolio.

Our Board of Directors is responsible for the review and oversight of our Asset/Liability Committee, which is comprised of our executive management team and other essential operational staff. This committee is charged with developing and implementing an asset/liability management plan, and meets at least quarterly to review pricing and liquidity needs and assess our interest rate risk. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

Liquidity and Capital Resources. Liquidity is the ability to meet financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. The Bank’s primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from the sale or maturities of securities. In addition, the Bank may borrow from the FHLB. At September 30, 2022, the Bank had $20.0 million in advances outstanding from the FHLB. At September 30, 2022, the Bank had collateral based capacity to borrow an additional $39.7 million. The Bank had additional lines of credit with three commercial banks totaling $11.5 million. Additionally, the Bank has contingent funding sources with CDARS and the StoneCastle’s Federally Insured Cash Account (FICA) program.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $4.5 million and $3.3 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from maturing securities and pay downs on mortgage-backed securities, was $48.1 million and $30.7 million for the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $39.1 million and $10.2 million for the nine months ended September 30, 2022 and 2021, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. We also anticipate continued participation in the National CD Rateline Program as a wholesale source of certificates of deposit, and continued use of FHLB-Cincinnati advances.

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Cincinnati Bancorp, Inc. is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividend to its stockholders, to fund repurchases of its common stock, and for other corporate purposes. The Company’s primary source of liquidity is dividend payments, if any, received from the Bank. The Bank’s ability to pay dividends is subject to regulatory restrictions. At September 30, 2022, Cincinnati Bancorp, Inc. (on an unconsolidated, stand-alone basis) had liquid assets of $1.5 million.

At September 30, 2022, the Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $38.1 million, or 13.3% of adjusted total assets, which is above the well-capitalized required level of $14.4 million, or 5.0%; total risk-based capital of $40.0 million, or 17.1% of risk-weighted assets, which is above the well-capitalized required level of $23.3 million, or 10.0% of risk-weighted assets; and common equity tier 1 risk based capital of $38.1 million, or 16.3%, of risk-weighted assets, which is above the well-capitalized required level of $15.2 million, or 6.5%. At December 31, 2021, the Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $37.0 million, or 14.7% of adjusted total assets, which is above the well-capitalized required level of $12.6 million, or 5.0%; and total risk-based capital of $38.7 million, or 20.0% of risk-weighted assets, which is above the well-capitalized required level of $19.3 million, or 10.0% of risk-weighted assets. Accordingly, the Bank was categorized as well capitalized at September 30, 2022, and December 31, 2021. Management is not aware of any conditions or events since the most recent notification that would change the Bank’s category.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-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 30, 2022, we had outstanding commitments to originate fixed-rate loans of $4.5 million, unfunded lines of credit of $25.4 million and forward sale commitments of $9.4 million. We had commitments to originate loans for portfolio of $2.7 million and undisbursed portion of loans of $16.6 million at September 30, 2022. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in one year or less from September 30, 2022 totaled $63.6 million. Management expects that a substantial portion of the maturing time deposits will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

Not applicable, as the Company is a smaller reporting company.

Item 4.       Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2022. Based on that evaluation, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2022, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II – Other Information

Item 1.       Legal Proceedings

The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

Item 1A.    Risk Factors

Risks Related to the COVID-19 Pandemic

The economic impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations.

The COVID-19 pandemic has caused significant economic dislocation in the United States. Although the domestic and global economies have begun to recover from the COVID-19 pandemic as many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global supply chains. The growth in economic activity and in the demand for goods and services, coupled with labor shortages and supply chain disruptions, has also contributed to rising inflationary pressures. As the result of the COVID-19 pandemic and the related adverse economic consequences, we could be subject to the following risks, among others, any of which individually or in combination with others could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

demand for our products and services may decline, making it difficult to grow assets and income;
if high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
limitations may be placed on our ability to foreclose on properties we hold as collateral;
our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
our cybersecurity risks are increased if employees work remotely;
we rely on third-party vendors for certain services and the unavailability of a critical service due to the COVID-19 pandemic could have an adverse effect on us; and
Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the pandemic could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

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Item 2.       Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following table provides information regarding the Company’s purchase of its common stock during the quarter ended September 30, 2022:

    

    

    

    

Total Number of

Maximum Number of Shares

Total Number of

Average Price

Shares Purchased

That May Yet Be Purchased

Period

    

Shares Purchased

    

Per Share

    

of Publicly Announced Program (1)

    

Under the Program (1)

July 1 to 31, 2022

 

 

80,268

 

68,513

August 1 to 31, 2022

 

 

80,268

 

68,513

September 1 to 30, 2022

 

80,400

$

14.25

 

160,668

 

60,700

(1)On February 16, 2021, the Company announced the adoption of a stock repurchase program under which the Company could repurchase up to 148,781 shares of its common stock, or approximately 5% of the then current outstanding shares. On September 19, 2022, the Board of Directors of Cincinnati Bancorp, Inc. (the “Company”) authorized a 72,587-share increase to the Company’s previously reported authorization to repurchase up to 148,781 shares of the Company’s outstanding common stock. At September 30, 2022, the Company had purchased a total of 160,668 shares of the Company’s common stock under this program at an average price of $14.36 per share, and there remained 60,700 shares still available for repurchase under the program. The timing of the purchases will depend on certain factors, including but not limited to, market conditions and prices, available funds and alternative uses of capital. The stock repurchase program may be carried out through open-market purchases, block trades, negotiated private transactions and pursuant to a trading plan that will be adopted in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. Any repurchased shares will be held by the Company as authorized but unissued shares. The repurchase program has no expiration date, but may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. The repurchase program does not obligate the Company to purchase any particular number of shares.

Item 3.       Defaults Upon Senior Securities

None.

Item 4.       Mine Safety Disclosures

Not applicable.

Item 5.       Other Information

None.

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Item 6.       Exhibits

3.1

    

Amended and Restated Articles of Incorporation of Cincinnati Bancorp, Inc. (1)

3.2

Bylaws of Cincinnati Bancorp, Inc. (1)

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial information from Cincinnati Bancorp, Inc. Quarterly Report on Form 10-Q, for the quarter ended September 30, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) the consolidated balance sheets; (ii) the consolidated statements of operations; (iii) the consolidated statements of comprehensive income; (iv) the consolidated statements of cash flows; and (v) notes to consolidated financial statements.

104

Cover Page Interactive Data File (embedded within Inline XBRL document contained in Exhibit 101)

(1)Incorporated by reference to the Company’s Registration Statement on Form S-1, as initially filed on September 11, 2019, as subsequently amended.

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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.

 

CINCINNATI BANCORP, INC.

 

 

Date:  November 14, 2022

/s/ Robert A. Bedinghaus

 

Robert A. Bedinghaus

 

Chief Executive Officer

 

(Principal Executive Officer)

 

 

Date:  November 14, 2022

/s/ Herbert C. Brinkman

 

Herbert C. Brinkman

 

Senior Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

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