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Cincinnati Bancorp, Inc. - Quarter Report: 2022 June (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 June 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 August 10, 2022 was 2,964,571.

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

1

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

2

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

3

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

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 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

29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

39

Item 4.

Controls and Procedures

40

Part II. Other Information

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

Signature Page

44

Table of Contents

Part I. – Financial Information

Item 1.     Financial Statements

Cincinnati Bancorp, Inc.

Condensed Consolidated Balance Sheets

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

    

June 30,

    

December 31, 

2022

2021

(Unaudited)

Assets

 

  

 

  

Cash and due from banks

$

2,324,450

$

2,505,136

Interest-bearing demand deposits in banks

 

12,065,186

 

12,831,650

Federal funds sold

 

2,075,000

 

6,515,000

Cash and cash equivalents

 

16,464,636

 

21,851,786

Available-for-sale debt securities

 

7,013,946

 

7,891,232

Loans held for sale

 

3,300,184

 

8,121,375

Loans, net of allowance for loan losses of $1,806,545 and $1,672,545, respectively

 

236,888,203

 

195,541,821

Premises and equipment, net

 

2,692,700

 

3,488,822

Assets held for sale

691,451

Federal Home Loan Bank stock

 

4,230,900

 

4,149,300

Interest receivable

 

683,673

 

577,002

Mortgage servicing rights

 

2,579,250

 

2,230,751

Federal Home Loan Bank lender risk account receivable

 

2,239,151

 

2,286,690

Bank-owned life insurance

 

4,297,839

 

4,256,570

Other assets

 

968,479

 

1,068,690

Total assets

$

282,050,412

$

251,464,039

Liabilities and Stockholders’ Equity

 

 

Liabilities

 

 

Deposits

 

 

Demand

$

48,759,497

$

45,787,848

Savings

 

77,962,984

 

75,527,958

Certificates of deposit

 

96,206,201

 

83,137,755

Total deposits

 

222,928,682

 

204,453,561

Federal Home Loan Bank advances

 

16,000,000

 

Advances from borrowers for taxes and insurance

 

1,079,704

 

1,808,971

Interest payable

 

10,583

 

24

Directors deferred compensation

704,523

696,295

Deferred tax liabilities

 

1,094,378

 

1,090,765

Other liabilities

 

347,100

 

514,705

Total liabilities

 

242,164,970

 

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 2,964,571 at June 30, 2022 and 2,930,550 at December 31, 2021

 

29,616

 

29,275

Additional paid-in capital

 

22,717,222

 

22,953,608

Unearned ESOP shares

 

(1,519,385)

 

(1,570,810)

Retained earnings - substantially restricted

 

19,266,250

 

21,821,948

Accumulated other comprehensive loss

 

(608,261)

 

(334,303)

Total stockholders’ equity

 

39,885,442

 

42,899,718

Total liabilities and stockholders’ equity

$

282,050,412

$

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 Income

Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

(Unaudited)

(Unaudited)

Interest and Dividend Income

 

  

 

  

 

  

 

  

Loans, including fees

$

2,201,068

$

1,875,716

$

4,191,795

$

3,756,623

Securities

 

22,264

 

20,596

 

37,227

 

33,076

Dividends on Federal Home Loan Bank stock and other

 

52,916

 

14,493

 

77,074

 

37,484

Total interest and dividend income

 

2,276,248

 

1,910,805

 

4,306,096

 

3,827,183

Interest Expense

 

 

 

 

Deposits

 

252,631

 

255,061

 

444,886

 

547,338

Federal Home Loan Bank advances

 

10,569

 

247,850

 

11,907

 

455,510

Total interest expense

 

263,200

 

502,911

 

456,793

 

1,002,848

Net Interest Income

 

2,013,048

 

1,407,894

 

3,849,303

 

2,824,335

Provision for Loan Losses

 

113,000

 

 

134,000

 

Net Interest Income After Provision for Loan Losses

 

1,900,048

 

1,407,894

 

3,715,303

 

2,824,335

Noninterest Income

 

 

 

 

Gain on sales of loans

 

604,159

 

1,927,553

 

1,551,443

 

4,784,820

Mortgage servicing fees

 

325,540

 

247,650

 

597,105

 

333,793

Mortgage derivative income (expense)

(160,258)

(433,875)

(67,685)

(129,180)

Other

 

298,457

 

269,292

 

596,789

 

575,295

Total noninterest income

 

1,067,898

 

2,010,620

 

2,677,652

 

5,564,728

Noninterest Expense

 

 

 

 

Salaries and employee benefits

 

1,762,129

 

2,207,502

 

3,636,090

 

4,402,563

Occupancy and equipment

 

164,214

 

182,222

 

345,619

 

378,586

Directors compensation

 

42,250

 

42,250

 

84,500

 

84,500

Data processing

 

187,871

 

180,619

 

399,357

 

395,527

Professional fees

 

97,561

 

91,376

 

194,904

 

183,178

Franchise tax

 

76,968

 

72,510

 

151,018

 

142,312

Deposit insurance premiums

 

16,103

 

15,020

 

32,187

 

29,859

Advertising

 

129,923

 

97,563

 

217,621

 

134,677

Software licenses

 

45,049

 

33,626

 

87,868

 

60,389

Loan costs

 

146,481

 

186,268

 

267,193

 

399,691

Net loss on sale of foreclosed assets

48,343

48,343

Other

 

160,765

 

219,070

 

390,958

 

414,461

Total noninterest expense

 

2,877,657

 

3,328,026

 

5,855,658

 

6,625,743

Income Before Income Taxes

 

90,289

 

90,488

 

537,297

 

1,763,320

Provision for Income Taxes

 

24,034

 

9,964

 

122,223

 

360,284

Net Income

$

66,255

$

80,524

$

415,074

$

1,403,036

Earnings per common share - basic

$

0.02

$

0.03

$

0.15

$

0.51

Earnings per common share - diluted

$

0.02

$

0.03

$

0.14

$

0.49

Weighted-average shares outstanding - basic

 

2,710,990

 

2,747,331

 

2,719,267

 

2,750,057

Weighted-average shares outstanding - diluted

 

2,794,693

 

2,819,644

 

2,793,441

 

2,819,131

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

2

Table of Contents

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30,

    

2022

    

2021

    

2022

    

2021

(Unaudited)

(Unaudited)

Net Income

$

66,255

$

80,524

$

415,074

$

1,403,036

Other Comprehensive Loss:

 

  

 

  

 

  

 

  

Net unrealized losses on available-for-sale securities

 

(235,777)

 

(42,270)

 

(401,922)

 

(14,748)

Tax (expense) benefit

 

49,511

 

8,877

 

84,404

 

3,097

Changes in directors’ retirement plan prior service costs

 

10,291

 

10,962

 

17,586

 

(41,183)

Tax (expense) benefit

 

(2,160)

 

(2,302)

 

25,974

 

(21,380)

Other comprehensive loss

 

(178,135)

 

(24,733)

 

(273,958)

 

(74,214)

Comprehensive Income (Loss)

$

(111,880)

$

55,791

$

141,116

$

1,328,822

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

3

Table of Contents

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 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 Ended June 30, 2022:

Balance, April 1, 2022

$

29,250

$

23,040,454

$

(1,545,097)

$

22,170,767

$

(430,126)

$

43,265,248

Dividends paid

(2,970,772)

(2,970,772)

ESOP shares earned

12,368

25,712

38,080

Stock based compensation expense

111,132

111,132

Net income

66,255

66,255

Repurchase of common stock

(294)

(446,072)

(446,366)

Issuance of common stock

660

(660)

Other comprehensive loss

(178,135)

(178,135)

Balance, June 30, 2022

$

29,616

$

22,717,222

$

(1,519,385)

$

19,266,250

$

(608,261)

$

39,885,442

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Three Ended June 30, 2021:

Balance, April 1, 2021

$

29,756

$

23,265,450

$

(1,647,947)

$

21,495,916

$

(341,495)

$

42,801,680

ESOP shares earned

 

 

12,170

 

25,712

 

 

 

37,882

 

  

 

 

 

 

  

 

Stock based compensation expense

 

 

55,915

 

 

 

 

55,915

 

  

 

 

 

 

  

 

Net income

 

 

 

 

80,524

 

 

80,524

 

  

 

 

 

 

  

 

Repurchase of common stock

(154,311)

(154,311)

Other comprehensive loss

 

 

 

 

 

(24,733)

 

(24,733)

Balance, June 30, 2021

$

29,756

$

23,179,224

$

(1,622,235)

$

21,576,440

$

(366,228)

$

42,796,957

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 Six Months Ended June 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 Six Months Ended June 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

 

 

25,250

 

51,425

 

 

 

76,675

 

  

 

  

 

  

 

  

 

  

 

  

Stock-based compensation expense

 

 

222,265

 

 

 

 

222,265

 

  

 

 

  

 

  

 

  

 

  

Net income

 

 

 

 

415,074

 

 

415,074

 

  

 

  

 

  

 

  

 

  

 

Repurchase of common stock

(319)

(483,241)

(483,560)

Issuance of common stock

660

(660)

Other comprehensive loss

 

 

 

 

 

(273,958)

 

(273,958)

Balance, June 30, 2022

$

29,616

$

22,717,222

$

(1,519,385)

$

19,266,250

$

(608,261)

$

39,885,442

Accumulated

Additional

Unearned

Other

Total

Common

Paid-in

ESOP

Retained

Comprehensive

Stockholders’

    

Stock

    

Capital

    

Shares

    

Earnings

    

Loss

    

Equity

For the Six Months Ended June 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

18,162

51,425

69,587

Stock-based compensation expense

84,449

84,449

Net income

1,403,036

1,403,036

Repurchase of common stock

(189,872)

(189,872)

Other comprehensive loss

(74,214)

(74,214)

Balance, June 30, 2021

$

29,756

$

23,179,224

$

(1,622,235)

$

21,576,440

$

(366,228)

$

42,796,957

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

Six Months Ended June 30, 2022 and 2021 (Unaudited)

    

2022

    

2021

(Unaudited)

Operating Activities

  

  

Net income

$

415,074

$

1,403,036

Items not requiring (providing) cash:

Depreciation and amortization

 

113,272

 

114,087

Provision for loan losses

 

134,000

 

Amortization of premiums and discounts on securities, net

 

3,062

 

5,836

Change in deferred income taxes

 

348,221

 

148,184

Gain on sale of loans

 

(1,551,443)

 

(4,784,820)

Impairment of foreclosed assets held for sale

60,000

Proceeds from the sale of loans held for sale

 

73,280,593

 

158,036,785

Origination of loans held for sale

 

(66,907,959)

 

(152,728,895)

Net loss on sale of foreclosed assets

48,343

Mortgage servicing rights

(348,499)

(690,978)

Earnings on cash surrender value of bank-owned life insurance

 

(41,269)

 

(41,499)

Stock-based compensation expense

 

222,265

 

84,449

ESOP shares earned

 

76,675

 

69,587

Changes in:

 

 

Interest receivable

 

(106,671)

 

(46,021)

Federal Home Loan Bank lender risk account receivable

 

47,539

 

20,147

Derivative assets

71,587

201,121

Other assets

 

28,624

 

(128,999)

Interest payable

 

10,559

 

(13,729)

Derivative liabilities

(3,902)

(71,941)

Other liabilities

 

(372,119)

 

(838,464)

Net cash provided by operating activities

 

5,527,952

 

737,886

Investing Activities

 

 

Net change in interest-bearing deposits

1,500,000

Proceeds from maturities of available-for-sale debt securities

 

472,302

 

1,056,845

Purchase of available for sale debt securities

(5,034,375)

Purchase of Federal Home Loan Bank stock

 

(81,600)

 

(964,300)

Net change in loans

 

(41,547,700)

 

(25,675,447)

Purchase of premises and equipment

 

(8,601)

 

(100,930)

Proceeds from sale of foreclosed assets

 

(41,025)

 

Net cash used in investing activities

 

(41,206,624)

 

(29,218,207)

Financing Activities

Net increase in deposits

18,475,121

5,087,438

Repurchase of common stock

(483,560)

(189,872)

Proceeds from Federal Home Loan Bank advances

52,750,000

17,500,000

Repayment of Federal Home Loan Bank advances

(36,750,000)

(9,600,000)

Dividends paid

(2,970,772)

Net change in advances from borrowers for taxes and insurance

(729,267)

(927,557)

Net cash provided by financing activities

30,291,522

11,870,009

Decrease in Cash and Cash Equivalents

(5,387,150)

(16,610,312)

Cash and Cash Equivalents, Beginning of Period

21,851,786

32,347,806

Cash and Cash Equivalents, End of Period

$

16,464,636

$

15,737,494

Supplemental Cash Flows Information

Interest paid

$

434,327

$

1,016,577

Income taxes paid

255,000

455,000

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

6

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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 (“Bancorp”), the predecessor to Cincinnati Bancorp, Inc. (“Company”), was the mid-tier 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.

On October 14, 2015, the Bank had reorganized into the mutual holding company structure. As part of the reorganization, the Bancorp sold 773,663 shares of common stock at a price of $10.00 per share in a public offering and issued 945,587 shares of common stock to CF Mutual Holding Company, the Bancorp’s parent mutual holding company.

On December 20, 2019, the Bancorp’s shareholders approved a plan of conversion and reorganization, whereby CF Mutual Holding Company and Cincinnati Bancorp would convert and reorganize from the mutual holding company structure to the stock holding company structure. The conversion and reorganization were completed effective January 22, 2020, whereby the Company, a Maryland corporation and successor to the Bancorp, sold a total of 1,652,960 shares of common stock at a price of $10.00 per share in the subscription offering, which included 132,237 shares sold to Cincinnati Federal’s Employee Stock Ownership Plan, and issued 1,322,665 shares of common stock in exchange for the outstanding shares of common stock of the Bancorp owned by stockholders other than CF Mutual Holding Company. The exchange ratio for previously held shares of Cincinnati Bancorp was 1.6351 as applied in the conversion offering. References herein to the “Company” include Cincinnati Bancorp, Inc. and Cincinnati Bancorp before completion of the conversion.

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.

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Principles of Consolidation

The accompanying condensed consolidated financial statements as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 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 June 30, 2022, and for the three and six months ended June 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 accounting principles in the United States of America (“GAAP”) have been omitted. The results of operations for the three and six months ended June 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 June 30, 2022 and December 31, 2021 and for the three and six months ended June 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.

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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:

June 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

7,368,816

$

1,101

$

(355,971)

$

7,013,946

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 six-month periods ended June 30, 2022 or 2021. The Company had not pledged any of its investment securities as of June 30, 2022 or December 31, 2021.

The amortized cost and fair value of available-for-sale securities at June 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.

Certain investments in debt securities have fair values at an amount less than their historical cost. The total fair value of these investments at June 30, 2022 and December 31, 2021 was $5,795,189 and $126,007, respectively, which was approximately 82.6% and 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 June 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

June 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

 

  

 

  

Mortgage-backed securities of government sponsored entities

$

1,939,178

$

(24,719)

$

3,856,011

$

(331,252)

$

5,795,189

$

(355,971)

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.

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Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3:       Loans and Allowance for Loan Losses

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

    

June 30,

    

December 31, 

2022

2021

(Unaudited)

One to four family mortgage loans - owner occupied

$

99,620,694

$

70,336,846

One to four family - investment

 

12,541,083

 

10,361,388

Multifamily mortgage loans

 

60,456,411

 

55,029,111

Nonresidential mortgage loans

 

50,791,764

 

41,761,964

Construction and land loans

 

20,430,708

 

19,425,025

Real estate secured lines of credit

 

12,910,392

 

11,403,262

Commercial loans

 

262,669

 

299,851

Other consumer loans

 

331,261

 

348,386

Total loans

 

257,344,982

 

208,965,833

Less:

 

 

Net deferred loan costs

 

(619,181)

 

(404,884)

Undisbursed portion of loans

 

19,269,415

 

12,156,351

Allowance for loan losses

 

1,806,545

 

1,672,545

Net loans

$

236,888,203

$

195,541,821

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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 six months ended June 30, 2022 and 2021 and the year ended December 31, 2021:

At or For the Six Months Ended June 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

(16,783)

847

59,545

66,918

21,146

2,434

(55)

(52)

134,000

Losses charged off

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

268,297

$

52,610

$

751,164

$

403,018

$

299,974

$

31,184

$

132

$

166

$

1,806,545

Ending balance: Individually evaluated for impairment

$

18,924

$

40,075

$

$

$

$

$

$

$

58,999

Ending balance: Collectively evaluated for impairment

$

249,373

$

12,535

$

751,164

$

403,018

$

299,974

$

31,184

$

132

$

166

$

1,747,546

Loans:

 

 

 

 

 

 

 

 

 

Ending balance

$

99,620,694

$

12,541,083

$

60,456,411

$

50,791,764

$

20,430,708

$

12,910,392

$

262,669

$

331,261

$

257,344,982

Ending balance: Individually evaluated for impairment

$

1,074,213

$

422,556

$

123,600

$

$

$

48,831

$

$

$

1,669,200

Ending balance: Collectively evaluated for impairment

$

98,546,481

$

12,118,527

$

60,332,811

$

50,791,764

$

20,430,708

$

12,861,561

$

262,669

$

331,261

$

255,675,782

At or For Three Months Ended June 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

$

217,579

$

52,183

$

716,343

$

387,407

$

290,494

$

29,214

$

149

$

176

$

1,693,545

Provision (credit) charged to expense

50,718

427

34,821

15,611

9,480

1,970

(17)

(10)

113,000

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

268,297

$

52,610

$

751,164

$

403,018

$

299,974

$

31,184

$

132

$

166

$

1,806,545

At or For the Six Months Ended June 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

 

(55,596)

 

(37,314)

 

1,511

 

(134)

 

134,230

 

(20,228)

 

(16,705)

 

(5,764)

 

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

360,808

$

62,664

$

672,333

$

316,198

$

230,665

$

29,108

$

406

$

363

$

1,672,545

Ending balance: Individually evaluated for impairment

$

61,431

$

54,071

$

$

$

$

$

$

$

115,502

Ending balance: Collectively evaluated for impairment

$

299,377

$

8,593

$

672,333

$

316,198

$

230,665

$

29,108

$

406

$

363

$

1,557,043

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

At or For Three Months Ended June 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

$

362,568

$

121,520

$

680,132

$

293,812

$

160,203

$

36,936

$

11,677

$

5,697

$

1,672,545

Provision (credit) charged to expense

 

(1,760)

 

(58,856)

 

(7,799)

 

22,386

 

70,462

 

(7,828)

 

(11,271)

 

(5,334)

 

Losses charged off

 

 

 

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

 

Balance, end of period

$

360,808

$

62,664

$

672,333

$

316,198

$

230,665

$

29,108

$

406

$

363

$

1,672,545

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.

12

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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

June 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

$

99,003,607

$

12,472,614

$

60,456,411

$

50,791,764

$

20,430,708

$

12,861,561

$

262,669

$

331,261

$

256,610,595

Special mention

186,618

68,469

255,087

Substandard

430,469

48,831

479,300

Doubtful

Loss

Total

$

99,620,694

$

12,541,083

$

60,456,411

$

50,791,764

$

20,430,708

$

12,910,392

$

262,669

$

331,261

$

257,344,982

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 six months ended June 30, 2022.

13

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 June 30, 2022 and December 31,2021:

June 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

$

18,491

$

56,210

$

54,408

$

129,109

$

99,491,585

$

99,620,694

$

One to four family - investment

 

 

 

 

 

$

12,541,083

 

12,541,083

 

Multi-family mortgage loans

 

 

 

 

 

$

60,456,411

 

60,456,411

 

Nonresidential mortgage loans

 

 

 

 

 

$

50,791,764

 

50,791,764

 

Construction & land loans

 

 

 

 

 

$

20,430,708

 

20,430,708

 

Real estate secured lines of credit

 

80,000

 

 

 

80,000

 

$

12,830,392

 

12,910,392

 

Commercial loans

 

 

 

 

 

$

262,669

 

262,669

 

Other consumer loans

 

 

 

 

 

331,261

 

331,261

 

Total

$

98,491

$

56,210

$

54,408

$

209,109

$

257,135,873

$

257,344,982

$

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”).

14

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

For the Three Months Ended

For the Six Months Ended

At June 30, 2022 (Unaudited)

June 30, 2022

June 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

$

1,068,759

$

1,068,759

$

$

1,072,086

11,743

$

1,075,479

$

25,751

One to Four family - Investment

383,349

383,349

385,469

5,559

387,989

8,108

Multi-family mortgage loans

 

123,600

 

123,600

124,080

1,401

124,862

 

2,818

Nonresidential mortgage loans

 

 

 

Construction & Land loans

 

 

 

Real estate secured lines of credit

 

48,831

 

48,831

49,103

784

49,354

 

1,722

Commercial Loans

 

 

 

Other consumer loans

 

 

 

Loans with a specific valuation allowance

 

One- to four-family mortgage loans

 

5,454

 

24,378

18,924

24,540

199

24,759

 

408

One to Four family - Investment

 

39,207

 

79,282

40,075

79,407

725

79,556

 

1,455

Multi-family mortgage loans

 

 

 

Nonresidential mortgage loans

 

 

 

Construction & Land loans

 

 

 

Real estate secured lines of credit

 

 

 

Commercial Loans

 

 

 

Other consumer loans

 

 

 

$

1,669,200

$

1,728,199

$

58,999

$

1,734,685

$

20,411

$

1,741,999

$

40,262

For the Three Months Ended

For the Six Months Ended

At June 30, 2021 (Unaudited)

June 30, 2021

June 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

$

1,290,368

$

1,290,368

$

$

1,293,789

12,439

$

1,297,615

$

25,206

One to Four family - Investment

238,768

238,768

292,069

2,723

297,336

6,513

Multi-family mortgage loans

128,886

128,886

129,303

 

1,458

129,881

 

2,930

Nonresidential mortgage loans

 

 

Construction & Land loans

 

 

Real estate secured lines of credit

56,671

56,671

57,137

 

1,008

57,581

 

2,030

Commercial Loans

 

 

Other consumer loans

 

 

Loans with a specific valuation allowance

 

 

One- to four-family mortgage loans

17,489

78,919

61,431

79,120

 

478

79,364

 

721

One to Four family - Investment

205,396

245,471

54,071

246,329

 

2,873

247,291

 

5,290

Multi-family mortgage loans

 

 

Nonresidential mortgage loans

 

 

Construction & Land loans

 

 

Real estate secured lines of credit

 

 

Commercial Loans

 

 

Other consumer loans

 

 

$

1,937,578

$

2,039,083

$

115,502

$

2,097,747

$

20,979

$

2,109,068

$

42,690

15

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 June 30, 2022 and December 31, 2021. This table excludes accruing TDRs, which totaled $761,420 and $990,000 at June 30, 2022 and December 31, 2021, respectively.

    

June 30, 

    

December 31, 

2022

2021

(unaudited)

One- to four-family mortgage loans

$

54,408

$

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

$

54,408

$

120,170

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

As of June 30, 2022, borrowers with loans designated as TDRs totaling $637,820 of residential real estate loans and $123,600 of multifamily loans, met the criteria 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 June 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 June 30, 2022 and December 31, 2021. There was one consumer mortgage loan in process of foreclosure at June 30, 2022 totaling $54,408.

16

Table of Contents

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 six month periods ended June 30, 2022 and 2021 are as follows:

Three months ended June 30, 

    

2022

    

2021

Net income

$

66,255

$

80,524

Less allocation of net income to participating securities

 

1,721

 

960

Net income allocated to common shareholders

64,534

 

79,564

Shares outstanding for basic earnings per share:

 

 

Weighted-average shares issued

 

2,966,391

 

2,978,408

Less: Average unearned ESOP shares and unvested restricted stock

 

255,401

 

231,077

Weighted-average shares outstanding - basic

2,710,990

2,747,331

Basic earnings per common share

$

0.02

$

0.03

Effect of dilutive securities:

 

 

Weighted-average shares outstanding - basic

2,710,990

2,747,331

Stock options

 

83,703

 

72,313

Weighted-average shares outstanding - diluted

 

2,794,693

 

2,819,644

Diluted earnings per share

$

0.02

$

0.03

17

Table of Contents

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Six months ended June 30, 

    

2022

    

2021

Net income

 

$

415,074

$

1,403,036

Less allocation of net income to participating securities

11,120

13,953

Net income allocated to common shareholders

403,954

1,389,083

Shares outstanding for basic earnings per share:

Weighted-average shares issued

2,978,546

2,974,864

Less: Average unearned ESOP shares and unvested restricted stock

259,279

224,807

Weighted-average shares outstanding - basic

2,719,267

2,750,057

Basic earnings per common share

 

$

0.15

$

0.51

Effect of dilutive securities:

Weighted-average shares outstanding - basic

2,719,267

2,750,057

Stock options

74,174

69,074

Weighted-average shares outstanding - diluted

2,793,441

2,819,131

Diluted earnings per share

 

$

0.14

$

0.49

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 June 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 June 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 table. Management believes that no conditions or events have occurred since the last notification that would change the Bank’s category.

18

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 June 30, 2022 (unaudited):

 

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

$

39,653

 

17.8

%  

$

17,809

 

8.0

%  

$

22,262

 

10.0

%

Tier I capital (to risk-weighted assets)

 

37,846

 

17.0

%  

 

13,357

 

6.0

%  

 

17,809

 

8.0

%

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

 

37,846

 

17.0

%  

 

10,018

 

4.5

%  

 

14,470

 

6.5

%

Tier I capital (to adjusted average total assets)

 

37,846

 

14.2

%  

 

10,672

 

4.0

%  

 

13,340

 

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.

19

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 June 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)

June 30, 2022 (unaudited):

  

  

  

  

Mortgage-backed securities of government sponsored entities

$

7,013,946

$

$

7,013,946

$

Mortgage servicing rights

 

2,579,250

 

 

 

2,579,250

Interest rate lock commitments (included in other assets)

38,524

38,524

Interest rate lock commitments (included in other liabilities)

(993)

(993)

Forward sale commitments (included in other assets)

41,144

41,144

Forward sale commitments (included in other liabilities)

(26,123)

(26,123)

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.

20

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

Six Months

Six Months

Ended

Ended

Ended

Ended

June 30,

June 30,

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

(Unaudited)

Fair value as of the beginning of the period

$

2,399,905

$

2,333,873

$

2,230,751

$

2,025,323

Recognition of mortgage servicing rights on the sale of loans

 

29,057

 

294,210

 

101,700

 

661,374

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

 

150,288

 

88,218

 

246,799

 

29,604

Fair value at the end of the period

$

2,579,250

$

2,716,301

$

2,579,250

$

2,716,301

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.

21

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 June 30, 2022 and December 31, 2021:

Notional

Asset

Liability

    

Amount

    

Derivatives

    

Derivatives

June 30, 2022 (unaudited):

 

  

 

  

 

  

Interest rate lock commitments

$

4,607,500

$

38,524

$

993

Forward sale commitments

 

7,904,874

 

41,144

 

26,123

$

12,512,374

$

79,668

$

27,116

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 six months ended June 30, 2022 and 2021 is as follows:

Three Months

Three Months

Six Months

Six Months

Ended

Ended

Ended

Ended

June 30,

June 30,

June 30,

June 30,

    

2022

    

2021

    

2022

    

2021

(Unaudited)

Interest rate lock commitments

$

(54,410)

$

214,569

$

(225,389)

$

421,832

Forward sale commitments

 

(105,848)

 

(648,444)

 

157,704

 

(551,012)

Unrealized losses recognized in earnings

$

(160,258)

$

(433,875)

$

(67,685)

$

(129,180)

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.

22

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 June 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)

June 30, 2022 (unaudited):

Collateral-dependent impaired loans

$

54,408

$

$

$

54,408

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 June 30, 2022 and December 31, 2021:

    

    

    

    

Valuation

Range

Fair Value

Technique

Unobservable Inputs

(Weighted Average)

June 30, 2022 (unaudited):

Mortgage servicing rights

$

2,579,250

Discounted cash flow

Discount rate PSA prepayment speeds

10% (202%-327%) 220%

Interest rate lock and mandatory commitments (assets)

$

79,668

Secondary market prices

Pull-through rate

(70%-100%) 87%

Interest rate lock and mandatory commitments (liabilities)

$

(27,116)

Secondary market prices

Pull-through rate

(70%-100%) 87%

Impaired loans (collateral dependent)

$

54,408

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%

23

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 June 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)

June 30, 2022 (unaudited):

 

  

 

  

 

  

 

  

Financial Assets:

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

16,464,636

$

16,464,636

$

$

Loans held for sale

 

3,300,184

 

 

3,337,366

 

Loans, net of allowance for loan losses

 

236,888,203

 

 

 

230,184,267

Federal Home Loan Bank stock

 

4,230,900

 

 

4,230,900

 

Interest receivable

 

683,673

 

 

683,673

 

Federal Home Loan Bank lender risk account receivable

 

2,239,151

 

 

 

2,141,383

Financial Liabilities:

 

 

 

 

Deposits

 

222,928,682

 

126,722,481

 

93,930,996

 

Federal Home Loan Bank advances

 

16,000,000

 

 

16,000,000

 

Advances from borrowers for taxes and insurance

 

1,079,704

 

 

1,079,704

 

Interest payable

 

10,583

 

 

10,583

 

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.

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Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

    

June 30, 2022

    

December 31, 2021

(Unaudited)

Interest Rate

Interest Rate

    

Amount

    

Range

    

Amount

    

Range

Commitments to fund fixed-rate loans

$

7,804,632

4.124% - 6.25%

$

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

    

June 30, 

    

December 31, 

2022

2021

(Unaudited)

Commitments to originate loans for portfolio

$

5,859,954

$

3,405,020

Forward sale commitments

 

11,104,816

 

23,415,006

Lines of credit

 

25,319,763

 

20,881,558

NOTE 8:       Accumulated Other Comprehensive Loss

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

    

June 30, 

    

December 31, 

2022

2021

(Unaudited)

Net unrealized gains (losses) on available for sale securities

$

(354,870)

$

37,171

Directors' retirement plan

 

(415,081)

 

(432,667)

(769,951)

(395,496)

Tax benefit

 

(161,690)

 

(61,193)

Net of tax amount

$

(608,261)

$

(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 six months ended June 30, 2022:

Weighted-Average

Remaining

Aggregate

Weighted-Average

Contractual Term

Intrinsic

    

Shares

    

Exercise Price

    

(Years)

    

Value

June 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

 

7.40

$

1,173,514

Exercisable, end of period

 

158,407

$

8.15

 

6.37

$

1,022,446

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 June 30, 2022, and changes during the six-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 $111,132 for the three months ended June 30, 2022 and $55,915 for the three months ended June 30, 2021. Total compensation cost recognized in the income statement for share-based payment arrangements was $222,265 for the six months ended June 30, 2022 and $84,449 for the six months ended June 30, 2021.

As of June 30, 2022, there was approximately $1,325,000 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 3.9 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. The Company is in the process of identifying data gaps. Certain CECL models are currently being evaluated. 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.

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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 six months ended June 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 face competitive loss of customers;
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, allows 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 June 30, 2022 and December 31, 2021

Total Assets. Total assets were $282.1 million at June 30, 2022, an increase of $30.6 million, or 12.2% from December 31, 2021. The increase was primarily due to an increase in loans, net of allowances, of $41.3 million, partially offset by a decrease in fed funds sold of $4.4 million, or 68.2% and a decrease in loans held for sale of $4.8 million, or 59.4%. The increase in loans, net of allowances was primarily due to the decreased demand for secondary market 30-year and 15-year fixed rate loans. As a result of the lower demand in the secondary market, adjustable rate mortgages (ARM loans), particularly 5/1, 7/1 and 10/1 ARMs were more attractive to borrowers during the six months ended June 30, 2022. The Company, generally, does not sell ARM loans but rather 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 six months ended June 30, 2022. 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 $5.4 million, or 24.7%, to $16.5 million at June 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 $877,000 or 11.1%, to $7.0 million at June 30, 2022 from $7.9 million at December 31, 2021, due primarily to the principal repayments on the securities.

Net Loans. Net loans increased $41.3 million, or 21.1%, to $236.9 million at June 30, 2022 from $195.5 million December 31, 2021. The increase in loans was primarily attributable to a $29.3 million increase in one to four family owner-occupied mortgage

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loans. Nonresidential loans increased $9.0 million, or 21.6%. Multifamily loans increased $5.4 million, or 9.9%. One to four family nonowner-occupied loans increased $2.2 million, or 21.0%. 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 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. The undisbursed portion of construction loans increased $7.1 million, or 58.5%, to $19.3 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 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 $4.8 million, or 59.4%, to $3.3 million at June 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 to hamper our ability to generate gains on sales of loans.

During the six months ended June 30, 2022, we had proceeds of $73.3 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 $84.8 million, or 53.6%, from $158.0 million for the six months ended June 30, 2021.

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 be closed on August 12, 2022. All deposit accounts will be transferred to the Florence, Kentucky location. Subsequent to the notice to the OCC, the Company accepted a purchase offer for the property.

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 appraisal, increased $349,000, or 15.6%, to $2.6 million at June 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 $274.4 million at June 30, 2022 compared to $282.0 at December 31, 2021. New mortgage servicing rights recorded for the six months ended June 30, 2022 were $101,700. The change in fair value of mortgage servicing rights was an increase of $246,800 for the six months ended June 30, 2022. The appraised value of the mortgage servicing rights increased eight basis points to 0.94% at June 30, 2022.

Deposits. Deposits increased $18.5 million, or 9.0%, to $222.9 million at June 30, 2022 from $204.5 million at December 31, 2021. The increase in deposits was primarily due to an increase of $13.1 million, or 15.7%, in certificates of deposits, 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 six months ended June 30, 2022. Demand deposits increased $3.0 million, or 6.5% and savings deposits increased $2.4 million or 3.2%. The increase in savings deposits was primarily from the addition of a new local municipality relationship during the quarter ended June 30, 2022.

Borrowings. Federal Home Loan Bank advances increased $16.0 million at June 30, 2022. There were no borrowings at December 31, 2021. The increase in FHLB advance borrowing was attributable to a need to fund the increase in loans.

Stockholders’ Equity. Stockholders’ equity decreased $3.0 million, or 7.0%, to $39.9 million at June 30, 2022 from $42.9 million at December 31, 2021. The decrease was primarily due to a $3.0 million one-time, special dividend paid to shareholders during the six months ended June 30, 2022. Accumulated other comprehensive loss increased $274,000 due to increased unrealized losses in the fair value of the investment 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 $415,000 for the six months ended June 30, 2022.

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Comparison of Operating Results for the Three months ended June 30, 2022 and June 30, 2021

General. The Company recorded net income of $66,000 for the quarter ended June 30, 2022, a decrease of $15,000, or 17.7%, compared to net income of $81,000 for the quarter ended June 30, 2021. The decrease in net income was due primarily to a $943,000 decrease in noninterest income and a $113,000 increase in the provision for loan losses, which were partially offset by a $605,000 increase in net interest income and a $450,000 decrease in noninterest expense.

Interest and Dividend Income. Interest income increased $365,000, or 19.1%, to $2.3 million for the quarter ended June 30, 2022 compared to the comparable quarter in 2021. Interest income on portfolio loans increased $359,000, or 20.1%, to $2.2 million for the three months ended June 30, 2022. The average balance of portfolio loans during the three months ended June 30, 2022 increased $35.8 million to $222.0 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 increased 3 basis points to 3.87% for the three months ended June 30, 2022 from 3.84% for the three months ended June 30, 2021. The average balance of loans held for sale decreased $6.7 million, or 66.1%, during the quarter ended June 30, 2022 compared to the same quarter in 2021.

Interest income on other interest-earning assets increased $38,000, or 265.1%, to $52,900 for the three months ended June 30, 2022 compared to the same period in 2021. The yield on other interest-bearing assets increased 106 basis points to 1.24% for the three months ended June 30, 2022. The average balance on other interest-earning assets decreased $190,000 to $15.2 million. The balance on Federal Home Loan Bank Stock increased to $4.2 million. The dividend rate paid on FHLB stock was 3.00% at June 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 decreased $240,000, or 47.7%, to $263,000 for the quarter ended June 30, 2022 from $503,000 for the quarter ended June 30, 2021. Interest expense on borrowings declined by $237,000 period to period, reflecting the cost-saving effects of management’s strategy to prepay higher cost borrowings in 2021. Interest expense on deposits decreased $2,000, or 1.0%, to $253,000 for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021. The decrease in deposit interest expense between the comparable quarters in 2022 from 2021 was primarily due to a 23 basis point decrease in the average cost of deposits, offset by an increase of $62.5 million in the average balance of deposits during the second quarter of 2022 compared to the same quarter in 2021.

Interest expense on savings accounts increased $35,000 during the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021, due to an increase of $24.7 million in average savings balances. The average cost of savings accounts increased 12 basis points to 0.30% during the quarter ended June 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 14 basis points for the quarter ended June 30, 2022 compared to 15 basis points for the quarter ended June 30, 2021. The average balances in interest-bearing demand accounts increased $6.2 million during the three months ended June 30, 2022 compared to June 30, 2021. Interest expense on certificates of deposit decreased $39,000, or 17.8%. The average cost of certificates decreased 70 basis points to 0.80%. The average balance of certificates of deposit increased $31.6 million to $90.0 million for the three months ended June 30, 2022 compared to the same period ended June 30, 2021.

Interest expense on FHLB advances decreased $238,000, or 96.0%, to $11,000 for the quarter ended June 30, 2022 from the quarter ended June 30, 2021. The average balance of advances decreased $33.5 million, or 86.6%, for the quarter ended June 30, 2022. The average cost of FHLB borrowings decreased 179 basis points to 0.77% for the quarter ended June 30, 2022. The decrease in the average FHLB Advance rate was due to the prepayment of advances undertaken in 2021 and replacement of the borrowings with National CD Rateline funds. The National CD Rateline portfolio totaled $52.1 million with an average remaining term of 13 months and an average rate of 0.73% as of June 30, 2022.

Net Interest Income. Net interest income increased $605,000, or 43.0%, for the quarter ended June 30, 2022 compared to the same quarter in 2021. The interest rate spread increased to 3.14% for the quarter ended June 30, 2022 compared to 2.27% for the quarter ended June 30, 2021. The net interest margin increased 73 basis points to 3.22% for the quarter ended June 30, 2022, compared to 2.49% for the quarter ended June 30, 2021.

Provision for Loan Losses. Based on our analysis, we recorded a provision of $113,000 for loan losses for the three months ended June 30, 2022. The allowance for loan losses was $1.8 million, or 0.70% of total loans, at June 30, 2022, compared to $1.7

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million, or 0.82% of total loans, at June 30, 2021. Given the growth in the loan portfolio during the six months ended June 30, 2022, an increase in the allowance was warranted. Total past due loans were $209,000, or 0.08% of loans at June 30, 2022. The Company had no net charge-offs during the three-month period ended June 30, 2022. As a percentage of nonperforming loans, the allowance for loan losses was 3,320.4% at June 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 June 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 economic uncertainties resulting from COVID-19.

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 June 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 $943,000, or 46.9%, to $1.1 million for the quarter ended June 30, 2022 from $2.0 million for the comparable quarter in 2021. The gain on sale of loans decreased $1.3 million, or 68.7%, to $604,000 for the quarter ended June 30, 2022 from $1.9 million for the comparable quarter in 2021. The volume of loans sold during the three months ended June 30, 2022 totaled $27.5 million, a decrease of $36.6 million, or 57.1%, from the $64.1 million loan sales volume during the three months ended June 30, 2021. Net mortgage derivative expense was $160,000 for the quarter ended June 30, 2022, compared to net mortgage derivative expense of $434,000 for the quarter ended June 30, 2021. The increase in market interest rates negatively impacted gain on sale of loans in the quarter ended June 30, 2022 and is likely to have a continuing negative impact on noninterest income for the remainder of 2022.

Net mortgage servicing fees increased $78,000, or 31.5%, for the three months ended June 30, 2022 compared to the same period in 2021. The fair value of mortgage servicing rights increased $150,000 for the quarter ended June 30, 2022 compared to an increase in the fair value of $88,000 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 $29,000 in new mortgage servicing rights for the quarter ended June 30, 2022 compared to $294,000 in new mortgage servicing rights for the quarter ended June 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 $450,000, or 13.5%, to $2.9 million for the quarter ended June 30, 2022, from the comparable quarter in 2021. Salaries and employee benefits decreased $445,000, or 20.2%, to $1.8 million for the quarter ended June 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 $40,000, or 21.4% due to lower mortgage origination volumes. Advertising expense increased $32,000, or 33.2%, due primarily to the checking account marketing program and direct-mail marketing campaigns.

Federal Income Taxes. The provision for federal income taxes increased $14,000, or 141.2%, for the three months ended June 30, 2022, compared to the same period in 2021. The effective tax rates were 26.6% and 11.0% for the three months ended June 30, 2022 and 2021, respectively.

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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 June 30,

 

2022

2021

 

Average

Average

 

Outstanding

Average

Outstanding

Average

 

    

Balance

    

Interest

    

Yield/Rate

    

Balance

    

Interest

    

Yield/Rate

 

Interest-earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans

$

222,037

$

2,148

 

3.87

%  

$

186,286

$

1,789

 

3.84

%

Loans held for sale

3,426

53

 

6.19

10,112

 

87

 

3.44

Securities

7,234

22

 

1.22

9,426

 

21

 

0.89

Fed Funds

2,561

6

0.94

5,019

1

0.08

Other (1)

15,173

47

 

1.24

15,363

 

13

 

0.34

Total interest-earning assets

250,431

2,276

 

3.64

226,206

 

1,911

 

3.38

Non-interest-earning assets

16,504

 

14,395

 

 

Total assets

$

266,935

 

$

240,601

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Savings

$

78,975

60

0.30

$

54,239

25

 

0.18

Interest-bearing demand

 

36,000

13

0.14

 

29,809

11

 

0.15

Certificates of deposit

 

90,018

180

0.80

 

58,398

219

 

1.50

Total deposits

 

204,993

253

0.49

 

142,446

255

 

0.72

FHLB borrowings

 

5,188

10

0.77

 

38,737

248

 

2.56

Total interest-bearing liabilities

 

210,181

263

0.50

 

181,183

503

 

1.11

Non-interest-bearing demand

 

15,486

 

 

18,982

 

Other non-interest-bearing liabilities

 

3,954

 

 

5,318

 

 

Total non- interest-bearing liabilities

 

19,440

 

 

24,300

 

 

Total equity

 

37,314

 

 

35,118

 

 

Total liabilities and total equity

$

266,935

 

$

240,601

 

 

Net interest income

$

2,013

 

$

1,408

 

Net interest rate spread (2)

 

 

3.14

%  

 

 

  

 

2.27

%

Net interest-earning assets (3)

$

40,250

 

$

45,023

 

  

 

Net interest margin (4)

 

 

3.22

%  

 

  

 

  

 

2.49

%

Average interest-earning assets to interest-bearing liabilities

 

 

119.15

%  

 

  

 

  

 

124.85

%

(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 expense of $2,000 for the three months ended June 30, 2022 and $20,000 of loan fee expense for the three months ended June 30, 2021.

Comparison of Operating Results for the Six Months Ended June 30, 2022 and June 30, 2021

General. The Company recorded net income of $415,000 for the six months ended June 30, 2022, a decrease of $988,000 from the six-month period ended June 30, 2021. The decrease in net income was due to a $2.9 million decrease in noninterest income,

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primarily due to a $3.2 million decrease in gain on sale of loans, partially offset by a $1.0 million increase in net interest income, a $770,000 decrease in noninterest expense, and a $238,000 decrease in the provision for income taxes.

Interest and Dividend Income. Interest income increased $478,000, or 12.5%, to $4.3 million for the six months ended June 30, 2022 compared to June 30, 2021. Interest income on loans increased $485,000, or 13.5%, to $4.2 million as of June 30, 2022. The average balance of portfolio loans during the six months ended June 30, 2022 increased $35.7 million to $213.1 million, compared to the six months ended June 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 23 basis points to 3.83% for the six months ended June 30, 2021 from 4.06% for the six months ended June 30, 2021. The average balance of loans held for sale decreased $6.8 million during the six months ended June 30, 2022 compared to the same six month period in 2021, while the average yield on loans held for sale increased 146 basis points, to 4.06% for the six months ended June 30, 2022 from 2.60% for the same six months in 2021.

Interest income on securities increased $4,000, or 12.6%, for the six months ended June 30, 2022. The average balance of securities decreased $1.5 million to $7.5 million at June 30, 2022. The yield on securities increased 26 basis points due to higher market interest rates. Interest income on other interest-earning assets increased $35,000, or 97.2%. The yield on other interest-bearing assets increased 57 basis points due to a higher dividend rate paid on FHLB stock and the increase in short term 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 decreased $546,000, or 54.5%, to $457,000 for the six months ended June 30, 2022 from $1.0 million for the six months ended June 30, 2021. Interest expense on deposit accounts decreased $102,000, or 18.7%, to $445,000 for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in deposit expense between comparable periods in 2022 from 2021 was primarily due to a 32 basis point decrease in the average cost of deposits primarily due to lower market interest rates.

Interest expense on savings increased $52,000, or 108.3%, during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, due to an increase in the average balance of savings accounts of $25.0 million. The average cost of savings accounts increased 8 basis points compared to the same period ended June 30, 2021. Interest expense on interest-bearing demand accounts increased $3,000. The average cost of interest-bearing demand deposits remained at 14 basis points. The average balances in interest-bearing demand accounts increased $4.1 million during the six months ended June 30, 2022 compared to the same period ended June 30, 2021. Interest expense on certificates of deposit decreased $157,000, or 32.9%. The average cost of certificates decreased 86 basis points to 0.74%. The average balance of certificates of deposit increased $26.3 million to $86.0 million for the six months ended June 30, 2022 compared to the same period ended June 30, 2021.

Interest expense on FHLB advances decreased $444,000, or 97.4%, to $12,000 for the six months ended June 30, 2022 from the six months ended June 30, 2021. The average balance of advances decreased $34.9 million, or 90.5%, for the six months ended June 30, 2022. The average cost of FHLB borrowings decreased 171 basis points to 0.65% for the six months ended June 30, 2022.

Net Interest Income. Net interest income increased $1.0 million, or 36.3%, for the six months ended June 30, 2022 compared to the same period in 2021. The interest rate spread increased to 3.09% for the six months ended June 30, 2022 compared to 2.35% for the six months ended June 30, 2021. The net interest margin increased 62 basis points to 3.17% at June 30, 2021 compared to 2.55% at June 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 $134,000 for the six months ended June 30, 2022. The allowance for loan losses was $1.8 million, or 0.70% of total loans, at June 30, 2022, compared to $1.7 million, or 0.82% of total loans, at June 30, 2021. The Company had no net charge-offs during the six month period ended June 30, 2021. Given the growth in the loan portfolio during the six months ended June 30,2022, an increase in the allowance was warranted. Total past due loans were $209,000, or 0.08% of loans at June 30, 2022. The Company had no net charge-offs during the three-month period ended June 30, 2022. As a percentage of nonperforming loans, the allowance for loan losses was 3,320.4% at June 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 June 30, 2022, we had no loans deferring loan

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payments under a forbearance agreement. Management continues to monitor its loan portfolio closely in recognition of the economic uncertainties resulting from COVID-19.

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 June 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 $2.9 million, or 51.9%, to $2.7 million for the six months ended June 30, 2022 from $5.6 million for the comparable period in 2021. The gain on sale of loans decreased $3.2 million, or 67.6%, to $1.6 million for the six months ended June 30, 2022 from $4.8 million for the comparable six months in 2021. The volume of loans sold during the six months ended June 30, 2022 totaled $73.3 million, a decrease of $84.8 million, or 53.6%, from the $158.0 million loan sales volume during the six months ended June 30, 2021.

Mortgage derivative expense was $68,000 for the six months ended June 30, 2022, compared to mortgage derivative expense of $129,000 for June 30, 2021.

Mortgage servicing fee income increased $263,000, or 78.9%, primarily due to an increase in the value of mortgage service rights during the six months ended June 30, 2022 compared to the same period in 2021. The value of mortgage servicing rights increased $247,000 for the six months ended June 30, 2022 compared to an increase in the fair value of $30,000 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 $102,000 for the six months ended June 30, 2022 compared to $661,000 for the six months ended June 30, 2021.

Non-Interest Expense. Non-interest expense decreased $770,000, or 11.6%, to $5.9 million for the six months ended June 30, 2022, compared to $6.6 million for the same period in 2021. Salaries and employee benefits decreased $766,000, or 17.4%, to $3.6 million for the six months ended June 30, 2022 from $4.4 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. Loan costs decreased $132,000, or 33.2%, due to the decreased loan volume. Advertising expense increased $83,000, or 61.6% due to increased direct mail and promotional campaigns to increase core deposits. Net losses on sales of foreclosed assets increased $48,000, primarily due to a $56,000 loss on other real estate owned during the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company filed notice with the OCC that the Covington, Kentucky branch location would be closed on August 12, 2022. All deposit accounts will be transferred to the Florence, Kentucky location. Subsequent to the notice to the OCC, the Company accepted a purchase offer for the real estate property.

Federal Income Taxes. The provision for federal income taxes was $122,000 for the six months ended June 30, 2022, compared to tax expense of $360,000 for June 30, 2021, a decrease of $238,000, or 66.1%. The decrease was due primarily to the $1.2 million, or 69.5%, decrease in income before income tax for the six months ended June 30, 2021. The effective tax rates were 22.7% and 20.4% for the six months ended June 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 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

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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 Six Months Ended June 30,

2022

    

2021

    

Average

    

    

    

Average 

    

    

 

 Outstanding

Average 

Outstanding

Average

 

    

 Balance

    

Interest

    

Yield/Rate

    

 Balance

    

Interest

    

Yield/Rate

 

Interest-earning assets:

 

  

 

  

  

 

  

 

  

 

  

Loans

$

213,083

$

4,085

3.83

%  

$

177,376

$

3,600

 

4.06

%

Loans held for sale

 

5,267

 

107

4.06

 

12,058

 

157

 

2.60

Securities

 

7,469

 

37

1.09

 

8,983

 

33

 

0.73

Fed Funds

 

3,073

 

6

0.39

 

6,096

 

1

 

0.03

Other (1)

14,173

 

71

1.00

16,926

 

36

 

0.43

Total interest-earning assets

 

243,065

 

4,306

3.54

 

221,439

 

3,827

 

3.46

Non-interest-earning assets

16,240

 

  

 

17,931

 

  

 

  

Total assets

$

259,305

  

$

239,370

 

  

 

  

Interest-bearing liabilities:

 

  

 

  

  

 

  

 

  

 

  

Savings

$

77,343

 

100

0.26

$

52,302

 

48

 

0.18

Interest-bearing demand

 

34,681

 

25

0.14

 

30,622

 

22

 

0.14

Certificates of deposit

85,962

 

320

0.74

59,624

 

477

 

1.60

Total deposits

 

197,986

 

445

0.45

 

142,548

 

547

 

0.77

FHLB borrowings

3,679

 

12

0.65

38,598

 

456

 

2.36

Total interest-bearing liabilities

 

201,665

 

457

0.45

 

181,146

 

1,003

 

1.11

Non-interest-bearing demand

 

16,403

  

 

18,167

 

  

 

  

Other non-interest-bearing liabilities

4,091

  

4,914

 

  

 

  

Total non-interest-bearing liabilities

 

20,494

  

 

23,081

 

  

 

  

Total equity

37,146

  

35,143

 

  

 

  

Total liabilities and total equity

$

259,305

  

$

239,370

 

  

 

  

Net interest income

$

3,849

  

 

  

$

2,824

 

  

Net interest rate spread (2)

3.09

 

  

 

2.35

%

Net interest-earning assets (3)

$

41,400

  

$

40,293

 

  

Net interest margin (4)

  

3.17

%

 

  

 

2.55

%

Average interest-earning assets to interest-bearing liabilities

120.53

 

  

 

122.24

%

(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 expense of $23,000 for the six months ended June 30, 2022 and $11,000 of loan fee income for the six months ended June 30, 2021.

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 June 30, 2022, the Bank had $16.0 million in advances outstanding from the FHLB. At June 30, 2022, the Bank had collateral based capacity to borrow an additional $24.1 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.

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

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $5.5 million and $738,000 for the six months ended June 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 $41.2 million and $29.2 million for the six months ended June 30, 2022 and 2021, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $30.3 million and $11.9 million for the six months ended June 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.

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 June 30, 2022, Cincinnati Bancorp, Inc. (on an unconsolidated, stand-alone basis) had liquid assets of $2.0 million.

At June 30, 2022, the Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $37.8 million, or 14.2% of adjusted total assets, which is above the well-capitalized required level of $13.3 million, or 5.0%; total risk-based capital of $39.7 million, or 17.8% of risk-weighted assets, which is above the well-capitalized required level of $22.3 million, or 10.0% of risk-weighted assets; and common equity tier 1 risk based capital of $37.8 million, or 17.0%, of risk-weighted assets, which is above the well-capitalized required level of $14.5 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 June 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 June 30, 2022, we had outstanding commitments to originate fixed-rate loans of $7.8 million, unfunded lines of credit of $25.3 million and forward sale commitments of $11.2 million. We had commitments to originate loans for portfolio of $5.9 million and undisbursed portion of loans of $19.3 million at June 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 June 30, 2022 totaled $48.4 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.

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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 June 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 June 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 June 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)

April 1 to 30, 2022

 

23,545

$

15.41

 

74,412

 

74,369

May 1 to 31, 2022

 

5,856

$

14.27

 

80,268

 

68,513

June 1 to 30, 2022

 

 

80,268

 

68,513

(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. At June 30, 2022, the Company had purchased a total of 80,268 shares of the Company’s common stock under this program at an average price of $14.47 per share, and there remained 68,513 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

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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 June 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:  August 12, 2022

/s/ Robert A. Bedinghaus

 

Robert A. Bedinghaus

 

Chief Executive Officer

 

(Principal Executive Officer)

 

 

Date:  August 12, 2022

/s/ Herbert C. Brinkman

 

Herbert C. Brinkman

 

Senior Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer)

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