SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2016

 

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 No. 000-55529

 

Cincinnati Bancorp

(Exact name of registrant as specified in its charter)

 

Federal		47-4931771
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
6581 Harrison Avenue, Cincinnati, Ohio		45247
(Address of Principal Executive Offices)		(Zip Code)

 

(513) 574-3025

(Registrant’s telephone number)

 

N/A

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

 

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 requirements for the past 90 days.

YES x     NO ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x     NO ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨     NO x

 

As of May 9, 2016, 1,719,250 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding, of which 945,587 shares were owned by CF Mutual Holding Company.

 

 

Cincinnati Bancorp

Form 10-Q

 

Index

 

			Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2016 (Unaudited) and December 31, 2015		1
	Condensed Consolidated Statements of Income for the Three Months and Three Months Ended March 31, 2016 and 2015 (Unaudited)		2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2016 and 2015 (Unaudited)		3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (Unaudited)		4
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36
Item 4.	Controls and Procedures		36
Part II. Other Information
Item 1.	Legal Proceedings		36
Item 1A.	Risk Factors		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults upon Senior Securities		36
Item 4.	Mine Safety Disclosures		36
Item 5.	Other Information		36
Item 6.	Exhibits		37
	Signature Page		38

 

 

Part I. – Financial Information

 

Item 1.

Financial Statements

 

Cincinnati Bancorp

Condensed Consolidated Balance Sheets

March 31, 2016 (Unaudited) and December 31, 2015

 

		March 31,				December 31,
		2016				2015
		(Unaudited)
Assets
Cash and due from banks		$	4,049,432			$	3,401,351
Interest-bearing demand deposits in banks			6,687,274				4,903,188
Cash and cash equivalents			10,736,706				8,304,539
Available-for-sale securities			2,208,898				2,493,300
Loans held for sale			2,383,333				2,444,179
Loans, net of allowance for loan losses of  $1,347,264 and $1,366,968, respectively			123,247,402				119,779,931
Premises and equipment, net			2,655,569				2,691,004
Federal Home Loan Bank stock			888,100				888,100
Foreclosed assets held for sale			-				29,666
Interest receivable			378,660				359,103
Mortgage servicing rights			629,315				630,316
Federal Home Loan Bank lender risk account receivable			1,372,560				1,387,411
Bank Owned Life Insurance			3,106,534				3,084,985
Other assets			262,466				149,362
Total assets		$	147,869,543			$	142,241,896
Liabilities and Stockholders' Equity
Liabilities
Deposits
Demand		$	16,222,560			$	14,259,500
Savings			23,003,894				21,747,556
Certificates of Deposits			68,707,247				67,007,664
Total deposits			107,933,701				103,014,720
Federal Home Loan Bank advances			20,275,072				18,813,639
Advances from borrowers for taxes and insurance			884,027				1,281,036
Interest payable			18,833				17,131
Directors deferred compensation			420,800				421,093
Other liabilities			624,497				1,036,877
Total liabilities			130,156,930				124,584,496
Commitments and Contingent Liabilities
Temporary Equity
ESOP Shares subject to mandatory redemption			51,648				41,606
Stockholders' Equity
Preferred stock - authorized 1,000,000 shares, $0.01 par value, none issued			-				-
Common stock - authorized 9,000,000 shares, $0.01 par value 1,719,250 issued and outstanding at March 31, 2016 and December 31, 2015			17,192				17,192
Additional paid-in-capital			6,191,769				6,203,002
Unearned ESOP Shares			(617,806	)			(629,039	)
Retained earnings - substantially restricted			12,305,238				12,269,005
Accumulated other comprehensive loss			(235,428	)			(244,366	)
Total equity			17,660,965				17,615,794
Total liabilities and stockholders' equity		$	147,869,543			$	142,241,896

 

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

 

 

Cincinnati Bancorp

Condensed Consolidated Statements of Income

Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

		Three Months Ended March 31,
		2016				2015
		(Unaudited)
Interest and Dividend Income
Loans, including fees		$	1,271,371			$	1,157,339
Securities			4,208				8,758
Dividends on Federal Home Loan Bank stock and other			9,995				8,965
Total interest and dividend income			1,285,574				1,175,062
Interest Expense
Deposits			266,982				217,496
Federal Home Loan Bank advances			65,226				71,479
Total interest expense			332,208				288,975
Net Interest Income			953,366				886,087
Provision for Loan Losses			-				32,052
Net Interest Income After Provision for Loan Losses			953,366				854,035
Noninterest Income
Gain on sales of loans			241,413				346,832
Mortgage servicing fees			36,347				33,746
Other			108,580				120,082
Total noninterest income			386,340				500,660
Noninterest Expense
Salaries and employee benefits			635,856				613,927
Occupancy and equipment			90,177				92,070
Directors compensation			72,500				62,500
Data processing			127,268				118,901
Professional fees			53,755				50,341
Franchise tax			33,996				23,250
Deposit insurance premiums			24,767				24,497
Advertising			34,254				26,724
Software Licenses			17,736				17,589
Loan costs			62,127				31,313
Net losses on sales of foreclosed asset			637				750
Other			142,835				120,884
Total noninterest expense			1,295,908				1,182,746
Income Before Income Tax			43,798				171,949
Provision for Income Taxes			7,564				52,760
Net Income		$	36,234			$	119,189
Earnings per share - basic and diluted		$	0.02				N/A
Weighted-average shares outstanding - basic and diluted			1,656,346				N/A

 

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

 

 

Cincinnati Bancorp

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

		Three Months Ended March 31,
		2016				2015
		(Unaudited)
Net Income		$	36,234			$	119,189
Other Comprehensive Income:
Net unrealized gains on available-for-sale securities			2,571				12,376
Tax  expense			(874	)			(4,208	)
Changes in directors' retirement plan prior service costs			10,971				1,376
Tax expense			(3,730	)			(468	)
Other comprehensive income			8,938				9,076
Comprehensive Income		$	45,172			$	128,265

 

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

 

 

Cincinnati Bancorp

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

		Three Months Ended March 31,
		2016				2015
Operating Activities
Net income		$	36,234			$	119,189
Items not requiring (providing) cash:
Depreciation and amortization			35,435				34,234
Provision for loan losses			-				32,052
Amortization of premiums and discounts on securities			7,504				7,447
Amortization of deferred prepayment penalty on Federal Home Loan Bank advances			11,433				24,634
Change in deferred income taxes			(9,169	)			31,900
Gain on sale of loans			(241,413	)			(346,832	)
Proceeds from the sale of loans held for sale			9,201,077				12,884,478
Origination of loans held for sale			(8,898,818	)			(13,338,500	)
Net loss on sale of foreclosed assets			637				750
Income from Bank Owned Life insurance			(21,549	)			(22,844	)
ESOP shares earned			10,042				-
Changes in:
Interest receivable			(19,557	)			(29,438	)
Mortgage servicing rights			1,001				(56,135	)
Federal Home Loan Bank lender risk account receivable			14,851				(29,192	)
Other assets			(113,104	)			(460,661	)
Interest payable			1,701				723
Other liabilities			(397,137	)			(40,848	)
Net cash used in operating activities			(380,832	)			(1,189,043	)
Investing Activities
Proceeds from maturities of available-for-sale securities			279,469				197,103
Net change in loans			(3,467,471	)			(5,211,114	)
Purchase of premises and equipment			-				(30,876	)
Proceeds from sales of foreclosed assets			29,029				134,536
Net cash used in investing activities			(3,158,973	)			(4,910,351	)

 

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

 

 

Cincinnati Bancorp

Condensed Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

		Three Months Ended March 31,
		2016				2015
Financing Activities
Net increase in deposits			4,918,981				3,143,865
Proceeds from Federal Home Loan Bank advances			21,620,000				6,500,000
Repayment of Federal Home Loan Bank advances			(20,170,000	)			(3,500,000	)
Net decrease in advances from borrowers for taxes and insurance			(397,009	)			(329,655	)
Net cash provided by financing activities			5,971,972				5,814,210
Increase (decrease) in Cash and Cash Equivalents			2,432,167				(285,184	)
Cash and Cash Equivalents, Beginning of Year			8,304,539				7,340,881
Cash and Cash Equivalents, End of Year		$	10,736,706			$	7,055,697
Supplemental Cash Flows Information
Interest paid		$	330,506			$	288,252
Income taxes paid			210,000				-
Real estate acquired in settlement of loans			-				62,598

 

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

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1:

Nature of Operation and Conversion

 

Cincinnati Bancorp (“Cincinnati Bancorp” and, together with Cincinnati Federal, the “Company”) is the parent holding company of Cincinnati Federal (the “Bank”) and the majority-owned subsidiary of CF Mutual Holding Company (“CF Mutual”), a Federally-chartered mutual holding company.

 

The Bank is a federally chartered thrift institution and is primarily engaged in providing a full range of banking and financial services to individual and corporate customers in Hamilton County, Ohio and surrounding areas. The Bank is subject to competition from other financial institutions. The Bank is subject to the regulation of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

 

On October 14, 2015, the Bank completed a mutual-to-stock conversion pursuant to which it became the wholly-owned subsidiary of Cincinnati Bancorp and CF Mutual was established as the mutual holding company of Cincinnati Bancorp. As part of the conversion transaction, Cincinnati Bancorp sold, in a subscription offering and at a price of $10.00 per share, 45% of its common stock to the Bank’s eligible members, to the Bank’s employee stock ownership plan (“ESOP”) and to certain other persons. The total offering value and the number of shares was based on an independent appraiser’s valuation. The remaining 55% of the common stock was issued to CF Mutual. Cincinnati Bancorp’s common stock is currently quoted on the OTCPink Market, operated by OTC Markets Group, Inc., under the symbol “CNNB.”

 

The accompanying unaudited condensed consolidated financial statements of the Company were prepared in accordance with the instructions for Form 10-Q and Article 8 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company as of December 31, 2015 included in Cincinnati Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included to present fairly the financial position as of March 31, 2016 and the results of operation for the three months ended March 31, 2016 and 2015. All interim amounts have not been audited and results of operations for the three months ended March 31, 2016, included herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year.

 

The Company evaluates subsequent events through the date of filing with the Securities and Exchange Commission.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2016 and 2015 include the accounts of Cincinnati Bancorp, the Bank and the Bank’s wholly-owned subsidiary, Cincinnati Federal Investment Services, LLC. All significant intercompany items have been eliminated.

 

Use of Estimates

 

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

 

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, loan servicing rights and fair values of financial instruments.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 2:

Securities

 

Available for sale 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, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

 

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

 

		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-Sale Securities:
March 31, 2016:
Mortgage-backed securities of government sponsored entities		$	2,208,423			$	14,908			$	(14,433	)		$	2,208,898
December 31, 2015:
Mortgage-backed securities of government sponsored entities		$	2,495,396			$	18,602			$	(20,698	)		$	2,493,300

 

The Company had no sales of investment securities during the three months ended March 31, 2016 and March 31, 2015. The Company had not pledged any of its investment securities as of March 31, 2016 or December 31, 2015.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The amortized cost and fair value of available-for-sale securities at March 31, 2016 and December 31, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

		March 31, 2016								December 31, 2015
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
Mortgage-backed securities of government sponsored entities		$	2,208,423			$	2,208,898			$	2,495,396			$	2,493,300

 

Certain investments in debt securities have fair values at an amount less than their historical cost. The total fair value of these investments at March 31, 2016 and December 31, 2015 was $1,632,746 and $1,723,706, respectively, which is approximately 74% and 69%, respectively of the Company’s investment portfolio.

 

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-temporary impaired, aggregated by investment class and length of time that individual securities have been in continuous unrealized loss position at March 31, 2016 and December 31, 2015:

 

		Less than 12 Months								12 Months or More								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
March 31, 2016
Mortgage-backed   securities of government sponsored entities		$	-			$	-			$	1,632,746			$	(14,433	)		$	1,632,746			$	(14,433	)
December 31, 2015
Mortgage-backed   securities of government sponsored entities		$	-			$	-			$	1,723,706			$	(20,698	)		$	1,723,706			$	(20,698	)

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 3:

Loans and Allowance for Loan Losses

 

Categories of loans at March 31, 2016 and December 31, 2015 include:

 

		March 31,				December 31,
		2016				2015
One to four family mortgage loans -owner occupied		$	69,549,406			$	66,748,890
One to four family - investment			11,525,599				11,954,413
Multi-family mortgage loans			17,464,660				16,525,348
Nonresidential mortgage loans			11,786,409				12,217,500
Construction and land loans			3,461,534				3,111,478
Real estate secured lines of credit			10,740,642				10,439,284
Commercial loans			388,015				402,687
Other consumer loans			19,822				21,551
Total loans			124,936,087				121,421,151
Less:
Net deferred loan costs			(395,390	)			(392,061	)
Undisbursed portion of loans			736,811				666,313
Allowance for loan losses			1,347,264				1,366,968
Net loans		$	123,247,402			$	119,779,931

 

 

Cincinnati Bancorp

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 months ended March 31, 2016 and 2015 and year ended December 31, 2015:

 

		Three Months Ended March 31, 2016 (Unaudited)
		One- to Four- Family Mortgage Loans Owner Occupied				One- to Four- Family Mortgage Loans Investment				Multi-Family Mortgage Loans				Nonresidential Mortgage Loans				Construction & Land Loans				Real Estate Secured Lines of Credit				Commercial Loans				Other Consumer Loans				Total
Allowance for loan losses:
Balance, beginning of period		$	382,596			$	333,627			$	111,876			$	195,810			$	43,540			$	290,813			$	8,390			$	316			$	1,366,968
Provision charged to expense			-				-				-				-				-				-				-				-				-
Losses charged off			(19,704	)			-				-				-				-				-				-				-				(19,704	)
Recoveries			-				-				-				-				-				-				-				-				-
Balance, end of period		$	362,892			$	333,627			$	111,876			$	195,810			$	43,540			$	290,813			$	8,390			$	316			$	1,347,264
Ending balance:  Individually evaluated for impairment		$	-			$	47,101			$	15,733			$	-			$	-			$	-			$	-			$	-			$	62,834
Ending balance:  Collectively evaluated for impairment		$	362,892			$	286,526			$	96,143			$	195,810			$	43,540			$	290,813			$	8,390			$	316			$	1,284,430
Loans:
Ending balance		$	69,549,406			$	11,525,599			$	17,464,660			$	11,786,409			$	3,461,534			$	10,740,642			$	388,015			$	19,822			$	124,936,087
Ending balance:  Individually evaluated for impairment		$	186,645			$	1,486,500			$	772,268			$	2,206,788			$	295,665			$	245,940			$	-			$	-			$	5,193,806
Ending balance:  Collectively evaluated for impairment		$	69,362,761			$	10,039,099			$	16,692,392			$	9,579,621			$	3,165,869			$	10,494,702			$	388,015			$	19,822			$	119,742,281

 

		Three Months Ended March 31, 2015 (Unaudited)
		One- to Four- Family Mortgage Loans Owner Occupied				One- to Four- Family Mortgage Loans Investment				Multi-Family Mortgage Loans				Nonresidential Mortgage Loans				Construction & Land Loans				Real Estate Secured Lines of Credit				Commercial Loans				Other Consumer Loans				Total
Allowance for loan losses:
Balance, beginning of period		$	281,369			$	415,496			$	143,919			$	214,671			$	23,855			$	263,535			$	6,905			$	250			$	1,350,000
Provision charged to expense			6,810				(52,388	)			5,641				23,441				57,792				(9,154	)			(209	)			119				32,052
Losses charged off			(19,974	)			(7,307	)			-				-				-				-				-				-				(27,281	)
Recoveries			-				12,000				-				-				-				-				-				-				12,000
Balance, end of period		$	268,205			$	367,801			$	149,560			$	238,112			$	81,647			$	254,381			$	6,696			$	369			$	1,366,771

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

		Year Ended December 31, 2015
		One- to Four- Family Mortgage Loans Owner Occupied				One- to Four- Family Mortgage Loans Investment				Multi-Family Mortgage Loans				Nonresidential Mortgage Loans				Construction & Land Loans				Real Estate Secured Lines of Credit				Commercial Loans				Other Consumer Loans				Total
Allowance for loan losses:
Balance, beginning of year		$	281,369			$	415,496			$	143,919			$	214,671			$	23,855			$	263,535			$	6,905			$	250			$	1,350,000
Provision charged to expense			122,463				(94,021	)			(32,043	)			(18,861	)			19,685				27,278				1,485				66				26,052
Losses charged off			(21,236	)			(7,307	)			-				-				-				-				-				-				(28,543	)
Recoveries			-				19,459				-				-				-				-				-				-				19,459
Balance, end of year		$	382,596			$	333,627			$	111,876			$	195,810			$	43,540			$	290,813			$	8,390			$	316			$	1,366,968
Ending balance:  Individually evaluated for impairment		$	-			$	47,101			$	15,733			$	-			$	-			$	-			$	-			$	-			$	62,834
Ending balance:  Collectively evaluated for impairment		$	382,596			$	286,526			$	96,143			$	195,810			$	43,540			$	290,813			$	8,390			$	316			$	1,304,134
Loans:
Ending balance		$	66,748,890			$	11,954,413			$	16,525,348			$	12,217,500			$	3,111,478			$	10,439,284			$	402,687			$	21,551			$	121,421,151
Ending balance:  Individually evaluated for impairment		$	191,308			$	1,509,223			$	939,852			$	2,348,732			$	298,562			$	246,939			$	-			$	-			$	5,534,616
Ending balance:  Collectively evaluated for impairment		$	66,557,582			$	10,445,190			$	15,585,496			$	9,868,768			$	2,812,916			$	10,192,345			$	402,687			$	21,551			$	115,886,535

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

Definitions are as follows:

 

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

 

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

 

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

 

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

 

Special Mention (5) loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Ordinarily, special mention credits have characteristics which corrective management action would remedy.

 

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

 

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

 

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

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of March 31, 2016 and December 31, 2015:

 

		March 31, 2016
		(Unaudited)
		One- to Four- Family Mortgage Loans - Owner Occupied				One- to Four- Family Mortgage Loans - Investment				Multi-Family Mortgage Loans				Nonresidential Mortgage Loans				Construction & Land Loans				Real Estate Secured Lines of Credit				Commercial Loans				Other Consumer Loans				Total
Pass		$	69,235,090			$	9,133,119			$	16,815,685			$	10,744,549			$	3,461,534			$	9,932,398			$	388,015			$	19,822			$	119,730,212
Special mention			-				663,689				-				716,109				-				517,903				-				-				1,897,701
Substandard			314,316				1,728,791				648,975				325,751				-				290,341				-				-				3,308,174
Doubtful			-				-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-				-
Total		$	69,549,406			$	11,525,599			$	17,464,660			$	11,786,409			$	3,461,534			$	10,740,642			$	388,015			$	19,822			$	124,936,087

 

		December 31, 2015
		One- to Four- Family Mortgage Loans - Owner Occupied				One- to Four- Family Mortgage Loans - Investment				Multi-Family Mortgage Loans				Nonresidential Mortgage Loans				Construction & Land Loans				Real Estate Secured Lines of Credit				Commercial Loans				Other Consumer Loans				Total
Pass		$	66,468,612			$	9,538,767			$	15,874,527			$	11,161,771			$	3,111,478			$	9,633,212			$	402,687			$	21,551			$	116,212,605
Special mention			-				670,292				-				726,526				-				513,462				-				-				1,910,280
Substandard			280,278				1,745,354				650,821				329,203				-				292,610				-				-				3,298,266
Doubtful			-				-				-				-				-				-				-				-				-
Loss			-				-				-				-				-				-				-				-				-
Total		$	66,748,890			$	11,954,413			$	16,525,348			$	12,217,500			$	3,111,478			$	10,439,284			$	402,687			$	21,551			$	121,421,151

 

Pass portfolio within table 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 ended March 31, 2016.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present the loan portfolio aging analysis of the recorded investment in loans as of March 31, 2016 and December 31, 2015:

 

		March 31, 2016
		(Unaudited)
		30-59 Past Due				60-89 Days Past Due				90 Days and Greater				Total Past Due				Current				Total Loans Receivable				Total Loans > 90 Days & Accruing
One to Four-family mortgage loans		$	170,404			$	-			$	48,675			$	219,079			$	69,330,327			$	69,549,406			$	-
One to Four Family - Investment			109,755				-				-				109,755				11,415,844				11,525,599				-
Multi-family mortgage loans			-				-				-				-				17,464,660				17,464,660				-
Nonresidential mortgage loans			-				-				-				-				11,786,409				11,786,409				-
Construction & Land Loans			-				-				-				-				3,461,534				3,461,534				-
Real estate secured lines of credit			10,124				-				-				10,124				10,730,518				10,740,642				-
Commercial Loans			-				-				-				-				388,015				388,015				-
Other consumer loans			6,064				-				-				6,064				13,758				19,822				-
Total		$	296,347			$	-			$	48,675			$	345,022			$	124,591,065			$	124,936,087			$	-

 

		December 31, 2015
		30-59 Past Due				60-89 Days Past Due				90 Days and Greater				Total Past Due				Current				Total Loans Receivable				Total Loans > 90 Days & Accruing
One to Four-family mortgage loans		$	113,731			$	145,413			$	10,806			$	269,950			$	66,478,940			$	66,748,890			$	-
One to Four Family - Investment			50,445				14,679				-				65,124				11,889,289				11,954,413				-
Multi-family mortgage loans			-				-				-				-				16,525,348				16,525,348				-
Nonresidential mortgage loans			-				-				-				-				12,217,500				12,217,500				-
Construction & Land Loans			-				-				-				-				3,111,478				3,111,478				-
Real estate secured lines of credit			592,090				-				-				592,090				9,847,194				10,439,284				-
Commercial Loans			-				-				-				-				402,687				402,687				-
Other consumer loans			-				6,599				-				6,599				14,952				21,551				-
Total		$	756,266			$	166,691			$	10,806			$	933,763			$	120,487,388			$	121,421,151			$	-

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present impaired loans at March 31, 2016, March 31, 2015 and December 31, 2015:

 

		March 31, 2016 (Unaudited)
		Recorded Balance				Unpaid Principal Balance				Specific Allowance				Average Investment in Impaired Loans				Interest Income Recognized
Loans without a specific valuation allowance
One- to four-family mortgage loans		$	186,645			$	186,645			$	-			$	220,964			$	4,345
One to Four family - Investment			806,860				806,860				-				818,841				13,431
Multi-family mortgage loans			536,038				536,038				-				536,970				7,722
Nonresidential mortgage loans			2,206,788				2,206,788				-				2,112,106				33,792
Construction & Land loans			295,665				295,665				-				297,116				4,464
Real estate secured lines of credit			245,940				245,940				-				246,750				3,602
Commercial Loans			-				-				-				-				-
Other consumer loans			-				-				-				-				-
Loans with a specific valuation allowance
One- to four-family mortgage loans			-				-				-				-				-
One to Four family - Investment			679,640				632,539				47,101				682,323				9,274
Multi-family mortgage loans			236,230				220,497				15,733				237,075				4,543
Nonresidential mortgage loans			-				-				-				-				-
Construction & Land loans			-				-				-				-				-
Real estate secured lines of credit			-				-				-				-				-
Commercial Loans			-				-				-				-				-
Other consumer loans			-				-				-				-				-
		$	5,193,806			$	5,130,972			$	62,834			$	5,152,145			$	81,173

 

		As of December 31, 2015												Three months ended March 31, 2015
		Recorded Balance				Unpaid Principal Balance				Specific Allowance				Average Investment in Impaired Loans				Interest Income Recognized
Loans without a specific valuation allowance
One- to four-family mortgage loans		$	191,308			$	191,307			$	-			$	488,316			$	6,114
One to Four family - Investment			825,706				825,706				-				874,898				12,223
Multi-family mortgage loans			702,484				702,484				-				786,776				12,679
Nonresidential mortgage loans			2,348,732				2,348,732				-				2,438,518				35,235
Construction & Land loans			298,562				298,562				-				307,887				4,632
Real estate secured lines of credit			246,939				246,939				-				246,665				4,032
Commercial Loans			-				-				-				-				-
Other consumer loans			-				-				-				-				-
Loans with a specific valuation allowance
One- to four-family mortgage loans			-				-				-				-				-
One to Four family - Investment			683,516				636,415				47,101				699,279				7,731
Multi-family mortgage loans			237,369				221,636				15,733				242,394				3,309
Nonresidential mortgage loans			-				-				-				188,162				3,295
Construction & Land loans			-				-				-				-				-
Real estate secured lines of credit			-				-				-				-				-
Commercial Loans			-				-				-				-				-
Other consumer loans			-				-				-				-				-
		$	5,534,616			$	5,471,781			$	62,834			$	6,272,895			$	89,250

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

The following table presents the nonaccrual loans at March 31, 2016 and December 31, 2015. This table excludes performing troubled debt restructurings.

 

		March 31,				December 31,
		2016				2015
One- to four-family mortgage loans		$	48,675			$	10,806
One to four family - Investment			-				-
Multi-family mortgage loans			-				-
Nonresidential mortgage loans			-				-
Land loans			-				-
Real estate secured lines of credit			-				-
Commercial Loans			-				-
Other consumer loans			-				-
Total		$	48,675			$	10,806

 

At March 31, 2016, the Company had no loans that were modified in troubled debt restructurings and impaired.

 

At December 31, 2015, the Company had loans that were modified in troubled debt restructurings and impaired. The modifications of terms included one or a combination of the following: an extension of maturity, a reduction of the stated interest rate or a permanent reduction of the recorded investment in the loan.

 

The following table presents information regarding troubled debt restructurings by class for the year ended December 31, 2015.

 

Newly classified debt restructurings:

 

		December 31, 2015
		Number of Loans				Pre- Modification Recorded Balance				Post- Modification Recorded Balance
Mortgage loans on real estate:
Residential 1-4 family - Owner Occupied			1			$	41,500			$	16,270
Residential 1-4 family - Investment			-				-				-
Multifamily			-				-				-
Nonresidential mortgage loans			-				-				-
Construction & Land loans			-				-				-
Construction & Land loans			-				-				-
Real estate secured lines of credit			-				-				-
Commercial Loans			-				-				-
Consumer loans			-				-				-
			1			$	41,500			$	16,270

 

The TDRs described above did not increase the allowance for loan losses or result in any charge-offs during the year ended December 31, 2015.

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Newly restructured loans by type of modification at the dates indicated:

 

		March 31, 2016 (Unaudited)
		Interest Only				Term				Combination				Total Modification
Mortgage loans on real estate:
Residential 1-4 family - Owner Occupied		$	-			$	-			$	-			$	-
Residential 1-4 family - Investment			-				-				-				-
Multifamily			-				-				-				-
Nonresidential mortgage loans			-				-				-				-
Construction & Land loans			-				-				-				-
Construction & Land loans			-				-				-				-
Real estate secured lines of credit			-				-				-				-
Commercial Loans			-				-				-				-
Consumer loans			-				-				-				-
		$	-			$	-			$	-			$	-
		December 31, 2015
		Interest Only				Term				Combination				Total Modification
Mortgage loans on real estate:
Residential 1-4 family - Owner Occupied		$	-			$	-			$	16,270			$	16,270
Residential 1-4 family - Investment			-				-				-				-
Multifamily			-				-				-				-
Nonresidential mortgage loans			-				-				-				-
Construction & Land loans			-				-				-				-
Construction & Land loans			-				-				-				-
Real estate secured lines of credit			-				-				-				-
Commercial Loans			-				-				-				-
Consumer loans			-				-				-				-
		$	-			$	-			$	16,270			$	16,270

 

There were no troubled debt restructurings modified during the three months ended March 31, 2016 and the year ended December 31, 2015 that subsequently defaulted.

 

As of March 31, 2016, borrowers with loans designated as TDRs totaling $625,000 of residential real estate loans and $649,000 of multifamily loans, met the criteria for placement back on accrual status. This criteria is a minimum of six consecutive months of payment performance under existing or modified terms. The Bank had no loans that did not meet the criteria for placement back on accrual status.

 

There were no foreclosed real estate properties or consumer mortgage loans in process of foreclosure at March 31, 2016 and December 31, 2015.

 

NOTE 4:

Earnings Per Share

 

Basic Earnings per common share is computed based upon the weighted-average number of common shares outstanding during the period, less shares in the Company’s Employee Stock Ownership Plan (“ESOP”) that are unallocated and not committed to be released. There were no dilutive shares at March 31, 2016 or March 31, 2015.

 

The computations are as follows:

 

		Three months ended March 31,
		2016				2015
Weighted-average common shares outstanding (basic and diluted)			1,656,346				N/A

 

NOTE 5:

Regulatory Matters

 

The Company 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 financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’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 Company 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 March 31, 2016 and December 31, 2015, the Company met all capital adequacy requirements to which it was subject at such dates.

 

Effective January 1, 2015, new regulatory capital requirements commonly referred to as ‘Basel III” were implemented and are reflected below. Management opted out of the accumulated comprehensive income treatment under the new requirements, and as such unrealized gains and losses from available-for-sale securities will continue to be excluded from regulatory capital.

 

A new rule requiring a Capital Conservation Buffer began phase-in on January 1, 2016. Under the fully-implemented rule, a financial institution will need to maintain a Capital Conservation Buffer composed of Common Equity Tier 1 Capital of at least 2.5% above its minimum risk-weighted capital requirements to avoid limitations on its ability to make capital distributions, including dividend payments to shareholders and certain discretionary bonus payments to executive officers. A financial institution with a buffer below 2.5% will be subject to increasingly stringent limitations on capital distributions as the buffer approaches zero.

 

As of the most recent notification from their regulators, the Company and Bank were categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  Management believes that no conditions or events have occurred since the last notification that would change the Bank's category.

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

As of  March 31, 2016
Total risk-based capital (to risk-weighted assets)		$	18,826				18.7	%		$	8,065				8.0	%		$	10,081				10.0	%
Tier I capital (to risk-weighted assets)			17,565				17.4	%			6,049				6.0	%			8,065				8.0	%
Common Equity Tier I capital (to risk-weighted assets)			17,565				17.4	%			4,537				4.5	%			6,553				6.5	%
Tier I capital (to adjusted total assets)			17,565				12.2	%			5,782				4.0	%			7,228				5.0	%
As of  December 31, 2015
Total risk-based capital (to risk-weighted assets)		$	18,772				18.6	%		$	8,067				8.0	%		$	10,083				10.0	%
Tier I capital (to risk-weighted assets)			17,511				17.4	%			6,050				6.0	%			8,067				8.0	%
Common Equity Tier I capital (to risk-weighted assets)			17,511				17.4	%			4,537				4.5	%			6,554				6.5	%
Tier I capital (to adjusted total assets)			17,511				12.2	%			5,745				4.0	%			7,181				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. 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.

  

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Recurring Measurements

 

The following tables present the fair value measurements of assets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015:

 

						Fair Value Measurements Using
		Fair Value				Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
						(Level 1)				(Level 2)				(Level 3)
March 31, 2016
Mortgage-backed securities of government sponsored entities		$	2,208,898			$	-			$	2,208,898			$	-
Mortgage servicing rights			629,315				-				-				629,315
December 31, 2015
Mortgage-backed securities of government sponsored entities		$	2,493,300			$	-			$	2,493,300			$	-
Mortgage servicing rights			630,316				-				-				630,316

 

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 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.

 

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 balance sheets using significant unobservable (Level 3) inputs:

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

		Three Months				Three Months
		Ended				Ended
		March 31,				March 31,
		2016				2015
		(Unaudited)
Fair value as of the beginning of the period		$	630,316			$	513,853
Recognition of mortgage servicing rights on the sale of loans			29,829				10,268
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model			(30,830	)			45,867
Fair value at the end of the period		$	629,315			$	569,988

 

Mortgage servicing rights are carried in 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.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.

 

Unobservable (Level 3) Inputs

 

The following tables present quantitative information about unobservable inputs used in recurring Level 3 fair value measurements at March 31, 2016 and December 31, 2015:

 

		Fair Value at 3/31/2016				Valuation Technique		Unobservable Inputs		Range (Weighted Average)
Mortgage servicing rights		$	629,315			Discounted cash flow		Discount rate PSA prepayment speeds		10% 97%-299%
		Fair Value at 12/31/2015				Valuation Technique		Unobservable Inputs		Range (Weighted Average)
Mortgage servicing rights		$	630,316			Discounted cash flow		Discount rate PSA prepayment speeds		10% 114%-321%

 

Fair Value of Financial Instruments

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheets at amounts other than fair value.

 

Cash and due from banks, interest- bearing demand deposits in banks, Federal Home Loan Bank Stock and Interest Receivable

 

The carrying amount approximates fair value.

 

Loans Held for Sale

 

Fair value of loans held for sale is based on quoted market prices, where available, or is determined by discounting estimated cash flows using interest rates approximating the Bank’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Loans

 

The fair value of loans is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

 

Federal Home Loan Bank Lender Risk Account Receivable

 

The fair value of the Federal Home Loan Bank lender risk account receivable is estimated by discounting the estimated remaining cash flows of each strata of the receivable at current rates applicable to each strata for the same remaining maturities.

 

Deposits

 

Deposits include demand deposits and savings accounts. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

 

Federal Home Loan Bank Advances

 

Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. Fair value of long-term debt is based on quoted market prices or dealer quotes for the identical liability when traded as an asset in an active market. If a quoted market price is not available, an expected present value technique is used to estimate fair value.

 

Advances from Borrowers for Taxes and Insurance and Interest Payable

 

The carrying amount approximates fair value.

 

Commitments to Originate Loans, Forward Sale Commitments, Letters of Credit and Lines of Credit

 

The fair value of commitments to originate loans is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of forward sale commitments is estimated based on current market prices for loans of similar terms and credit quality. The fair values of letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. At March 31, 2016 and December 31, 2015, the fair value of commitments was not material.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following table presents estimated fair values of the Company’s financial instruments at March 31, 2016 and December 31, 2015:

 

						Fair Value Measurements Using
		Carrying				Quoted Prices in Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		Amount				(Level 1)				(Level 2)				(Level 3)
March 31, 2016
Financial Assets:
Cash and cash equivalents		$	10,736,706			$	10,736,706			$	-			$	-
Loans held for sale			2,383,333				-				2,443,833				-
Loans, net of allowance for loan losses			123,247,402				-				-				127,907,152
Federal Home Loan Bank stock			888,100				888,100				-				-
Interest receivable			378,660				-				378,660				-
Federal Home Loan Bank lender risk account receivable			1,372,560				-				-				1,508,400
Financial Liabilities:
Deposits			107,933,701				39,226,454				69,383,750				-
Federal Home Loan Bank advances			20,275,072				-				20,498,777				-
Advances from borrowers for taxes and insurance			884,027				-				884,027				-
Interest payable			18,833				-				18,833				-
December 31, 2015
Financial Assets:
Cash and cash equivalents		$	8,304,539			$	8,304,539			$	-			$	-
Loans held for sale			2,444,179				-				2,495,247				-
Loans, net of allowance for loan losses			119,779,931				-				-				122,321,686
Federal Home Loan Bank stock			888,100				888,100				-				-
Interest receivable			359,103				-				359,103				-
Federal Home Loan Bank lender risk account receivable			1,387,411				-				-				1,433,904
Financial Liabilities:
Deposits			103,014,720				36,007,056				67,881,776				-
Federal Home Loan Bank advances			18,813,639				-				19,215,565				-
Advances from borrowers for taxes and insurance			1,281,036				-				1,281,036				-
Interest payable			17,131				-				17,131				-

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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.

 

Forward sale commitments are commitments to sell groups of residential mortgage loans that the Company originates or purchases as part of its mortgage banking activities. The Company commits to sell the loans at specified prices in a future period. These commitments are acquired to reduce market risk on mortgage loans in the process of origination and mortgage loans held for sale since the Company is exposed to interest rate risk during the period between issuing a loan commitment and the sale of the loan into the secondary market.

 

The dollar amount of commitments to fund fixed rate loans at March 31, 2016 and December 31, 2015 follows:

 

		March 31,								December, 31
		2016								2015
		(Unaudited)
						Interest Rate								Interest Rate
		Amount				Range				Amount				Range
Commitments to fund fixed-rate loans		$	10,247,309				3.00% - 4.625%			$	2,259,178				3.125% - 4.625%

 

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.

 

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Loan commitments outstanding at March 31, 2016 and December 31, 2015 were composed of the following:

 

		March 31,				December 31,
		2016				2015
		(Unaudited)
Commitments to originate loans		$	3,114,596			$	2,628,860
Forward sale commitments			12,657,219				4,888,038
Lines of credit			9,038,589				8,986,553

 

NOTE 8:

Accumulated Other Comprehensive Loss

 

The components of other comprehensive loss by component, net of tax, included in equity for the three months ended March 31, 2016 and the year ended December 31, 2015 are as follows:

 

		March 31,				December 31,
		2016				2015
Net unrealized (loss) gain on available for sale securities		$	474			$	(2,096	)
Directors’ Retirement Plan prior service costs			(357,318	)			(368,290	)
Tax benefit			121,416				126,020
Net of tax amount		$	(235,428	)		$	(244,366	)

 

NOTE 9:

Recent Accounting Pronouncements

 

FASB ASU 2016-02, Leases (Topic 842)

 

ASU No. 2016-02 was issued in February 2016 and requires a lessee to recognize in the statement of financial position a liability to make lease payments (“the lease liability”) and a right to use the underlying asset for the lease term, initially measured at the present value of the lease payments. When measuring assets and liabilities arising from a lease, the lessee should include payments to be made in optional periods only if the lessee is reasonably certain, as defined, to exercise an option to the lease or not to exercise an option to terminate the lease. Optional payments to purchase the underlying asset should be included if the lessee is reasonably certain it will exercise the purchase option. Most variable lease payments should be excluded except for those that depend on an index or a rate or are in substance fixed payments.

  

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

A lessee shall classify a lease as a finance lease if it meets any of the five listed criteria:

 

a.

The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

b.

The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

c.

The lease term is for the major part of the remaining economic life of the underlying asset.

d.

The present value of the sum of the lease payments and any residual value guaranteed by the lessee equals or exceeds substantially all of the fair value of the underlying asset.

e.

The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

 

For finance leases, a lessee shall recognize in the statement of comprehensive income interest on the lease liability separately from the amortization of the right-of-use asset. Amortization of the right-to-use asset shall be on a straight-line basis, unless another basis is more representative of the pattern in which the lessee expects to consume the right-of-use asset’s future economic benefits. If the lease does not meet any of the five criteria, the lessee shall classify it as an operating lease and shall recognize a single lease cost on a straight line basis over the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

 

FASB ASU 2014-11, Transfers and Servicing

 

Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, was issued in June 2014. The amendments in this Update require disclosures for certain transactions comprising a transfer of a financial asset accounted for as a sale and an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. This Update also requires certain disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The accounting changes in this Update were effective for public business entities for the first interim or annual period beginning after December 15, 2014. For public business entities, the disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and for disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

  

 

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

FASB ASU 2014-09, Revenue from Contracts with Customers

 

In May 2014, the FASB issued amended guidance on revenue recognition from contracts with customers. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most contract revenue recognition guidance, including industry-specific guidance. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of promised goods or 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. The amended guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within the reporting period, and should be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the amendments recognized at the date of initial application. Early adoption is prohibited. Management is currently in the process of evaluating the impact of the adoption of the amended guidance on the Company’s condensed consolidated financial statements.

 

FASB ASU 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40), Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure

 

In January 2014, the FASB issued Accounting Standards Update No. 2014-04. The amendments in this update provide clarification on when an in-substance repossession or foreclosure occurs, including when a creditor should be considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan, when to derecognize the loan and recognize the foreclosed property. The amendments in this update are effective for public business entities for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this update using either a modified retrospective transition method or a prospective transition method. The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

 

 

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 months ended March 31, 2016 and 2015 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 financial statements and the notes thereto, appearing in Part I, Item 1 of this quarterly report on Form 10-Q.

 

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.

 

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:

 

·

our ability to manage our operations under the current adverse economic conditions nationally and in our market area;

 

·

adverse changes in the financial industry, securities, credit and national local real estate markets (including real estate values), or in the secondary mortgage markets;

 

·

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;

 

·

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;

 

·

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;

 

·

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;

 

·

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;

 

·

declines in the yield on our assets resulting from the current low interest rate environment;

 

·

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, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, 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 failure or security breaches of computer systems on which we depend;

 

·

the ability of key third-party service providers to perform their obligations to us;

 

·

changes in the financial condition or future prospects of issuers of securities that we own; and

 

 

·

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this prospectus.

 

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 Cincinnati Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

Comparison of Financial Condition at March 31, 2016 and December 31, 2015

 

Total Assets. Total assets were $147.9 million at March 31, 2016, an increase of $5.6 million, or 4.0%, over the $142.2 million at December 31, 2015. The increase resulted primarily from increases in cash and cash equivalents of $2.4 million and net loans of $3.5 million, offset in part by a decrease of $284,000 in available-for-sale securities.

 

Cash and Cash Equivalents. Cash and cash equivalents increased $2.4 million, or 29.3%, to $10.7 million at March 31, 2016 from $8.3 million at December 31, 2015. This increase was primarily the result of deposit growth of $4.9 million and additional FHLB borrowings of $1.5 million offset in part by funding an increase in net loans of $3.5 million.

 

Net Loans. Net loans increased $3.5 million, or 2.9%, to $123.2 million at March 31, 2016 from $119.8 million at December 31, 2015. During the period ended March 31, 2016, we originated $8.8 million of loans, $4.9 million of which were one- to four- family residential real estate loans, $1.3 million were multi-family loans, $1.7 million were home equity lines of credit, and $856,000 were construction and land loans. In the period ending March 31, 2016, we sold $8.9 million of one to four family residential loans, on both a servicing–retained and servicing–released basis. Management intends to continue this sales activity in future periods to generate gain on sale revenue and servicing fee income.

 

The largest increase in our loan portfolio was in the one- to four-family owner occupied residential real estate loan portfolio. This growth reflects our strategy to grow the portfolio with adjustable-rate loans and mitigate interest rate risk on the balance sheet. We currently sell certain fixed-rate, 15- and 30-year term 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 other private sector third-party buyers.

 

Loans Held for Sale. Loans held for sale remained relatively the same at March 31, 2016 from December 31, 2015 at $2.4 million.

 

Available-for-Sale Securities. Available-for-sale securities, which consisted entirely of government-sponsored mortgage-backed securities, decreased $284,000, or 11.4%, to $2.2 million at March 31, 2016 from $2.5 million at December 31, 2015. There were no securities purchases during the period and $279,000 in maturities, the remaining difference was due to the change in market values within the portfolio during the three months ended March 31, 2016.

 

Deposits. Deposits increased $4.9 million, or 4.8%, to $107.9 million at March 31, 2016 from $103.0 million at December 31, 2015. Our core deposits increased $3.2 million, or 8.9%, to $39.2 million at March 31, 2016 from $36.0 million at December 31, 2015. The increase was primarily the result of marketing efforts directed at increasing demand deposit accounts. The primary marketing effort involved offering a one-time bonus payment of up to $300 to open a new checking account with direct deposit. Time deposits increased $1.7 million, or 2.5%, to $68.7 million at March 31, 2016 from $67.0 million at December 31, 2015. The increase in time deposits was primarily due to promotional offering rates on certain terms to increase retail certificate deposit balances. Certificates originated through the National CD Rateline service declined $1.2 million to $19.3 million at March 31, 2016. During the period ended March 31, 2016, management continued its strategy of pursuing growth in lower cost core deposits, and intends to continue its efforts to increase core deposits.

 

 

Stockholders’ Equity. Stockholders’ equity increased $45,000, or .3%, to $17.7 million at March 31, 2016 from $17.6 million at December 31, 2015. The increase resulted from net income for the period of $36,000 and an increase in accumulated other comprehensive income of $9,000.

 

Comparison of Operating Results for the Three Months Ended March 31, 2016 and March 31, 2015

 

General. Net income for the quarter ended March 31, 2016 was $36,000, compared to net income of $119,000 for the quarter ended March 31, 2015, a decrease of 83,000, or 69.6%. The decrease was primarily due to an $114,000 decrease in noninterest income and a $114,000 increase in noninterest expense partially offset by an increase in net interest income of $67,000 and a decrease in the provision of loan losses of $32,000.

 

Interest Income. Interest income increased $110,000, or 9.4%, to $1.3 million for the quarter ended March 31, 2016 from the comparable quarter in 2015. Interest income on loans increased $114,000, or 9.9% to $1.3 million as of March 31, 2016 compared to $1.2 million as of March 31, 2015. The average balance of loans during the three months ended March 31, 2016 increased $18.1 million to $124.4 million compared to $106.3 million for the three months ended March 31, 2015. The average yield on loans decreased 26 basis points to 4.09% for the three months ended March 31, 2016 from 4.35% for the three months ended March 31, 2015. Interest income on securities available-for-sale decreased $5,000 primarily due to a 42 basis point decrease in average yield on the securities portfolio and a $905,000 decrease in the balance of the average securities portfolio during the quarter ended March 31, 2016. Interest income on other investments remained little changed increasing $1,000 in the first quarter of 2016 compared to the same quarter in 2015.

 

Interest Expense. Total interest expense increased 43,000, or 15.0%, to $332,000 for the quarter ended March 31, 2016 from $289,000 for the quarter ended March 31, 2015. Interest expense on deposit accounts increased $49,000, or 22.8%, to $267,000 for the quarter ended March 31, 2016 from $217,000 for the quarter ended March 31, 2015. The increase between comparable quarters in 2016 from 2015 was primarily due to a $29,000 increase in interest expense on certificates of deposit resulting from a $9.2 million, or 15.6%, increase in the average balance of these certificates. Checking interest expense increased $21,000 from the comparable quarter in 2015. The increases in interest expense in the checking accounts reflect bonus promotions on deposit accounts. The average balances in interest bearing and non-interest bearing accounts during the three months ended March 31, 2016 increased $3.3 million to $15.1 million compared to $11.8 million for the three months ended March 31, 2015. Savings interest expense decreased during the quarter ended March 31, 2016 by 1,000 from the comparable quarter in 2015.

 

Interest expense on FHLB advances decreased $6,000, or 8.79%, to $65,000 for the quarter ended March 31, 2016 from $71,000 for the quarter ended March 31, 2015. The average balance of advances decreased $1.0 million to $19.5 million for the quarter ended March 31, 2016 from $20.5 million for the same quarter in 2015, while the average cost of these advances decreased 5 basis points to 1.33% from 1.38%. The decrease in the average cost of advances results from the repayment of certain higher rate advances and the use of lower costing, short term cash management advances.

 

Net Interest Income. Net interest income increased $67,000, or 7.6%, to $953,000 for the quarter ended March 31, 2016 compared to $886,000 the quarter ended March 31, 2015. Average interest-earning assets increased $17.7 million primarily due to a $18.1 million increase in average outstanding loans during the quarter. Average interest-bearing liabilities increased $8.1 million from the same quarter in 2015 due to the funding needed for the increase in lending during the first quarter of 2016. The interest rate spread decreased 17 basis points to 2.99% for the quarter ended March 31, 2016 compared to 3.16% at quarter ended March 31, 2015. The net interest margin decreased 23 basis points to 2.97% for the first quarter of 2016 from 3.20% for the quarter ended March 31, 2015. The interest rate spread and net interest margin were impacted by a continuation of a low interest rate environment.

 

  

Provision for Loan Losses. The provision for loan losses decreased $32,000, or 100.0%, as there was no provision for loan losses recorded for the quarter ended March 31, 2016. $32,000 was provided for the same quarter in 2015. The decrease in the provision for loan losses was based on managements’ evaluation and was primarily due to the improving quality of the loan portfolio as total delinquencies and other nonperforming loans decreased.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover probable losses which were inherent in the loan portfolio at March 31, 2016. 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 $114,000, or 22.8%, to $386,000 for the quarter ended March 31, 2016 from $501,000 for the comparable quarter in 2015. The decrease was primarily due to a $105,000 decrease in gain on the sale of loans to $242,000 during the quarter ended March 31, 2016 compared to $347,000 for the quarter ended March 31, 2015. The decrease was due to a decrease in loan volume during the first quarter of 2016 compared to the same quarter in 2015. Other income decreased $12,000, or 9.6%, to 109,000. The decrease in other non-interest income was primarily due to a $31,000 decrease in the fair value of mortgage servicing rights in the quarter ended March 31, 2016 compared to an increase of $46,000 in the fair value of mortgage servicing rights for the quarter ended March 31, 2015. The decrease was offset by increases in fee income on loan originations of $51,000 and increased checking fee income of $4,000.

 

Non-Interest Expense. Non-interest expense increased $113,000, or 9.6%, to $1.3 million for the quarter ended March 31, 2016 compared to $1.2 million for the quarter ended March 31, 2015. The increase was due primarily to a $22,000, or 3.6%, increase in salary and employee benefits to $636,000 in the first quarter of 2016 from $614,000 for the comparable quarter in 2015 caused by increased staffing demands, normal salary increases, ESOP expense and employee education assistance expense. Data processing expense increased $8,000, or 7.0%, to $127,000 during the quarter ended March 31, 2016 from $119,000 for the quarter ended March 31, 2015. The increase was due to bank growth. Other non-interest expense increased $22,000, or 18.2%, to $143,000 during the first quarter of 2015 from $121,000 for the comparable quarter in 2015 due primarily to increased costs related to the consulting services and printing and filing fees related to being a public company. Loan costs increased $31,000, or 98.4%, to $62,000 compared to $31,000 for the comparable period in 2015.

 

Federal Income Taxes. Federal income taxes decreased $45,000 due to decreased pre-tax income for the quarter ending March 31, 2016 compared to pre-tax income for the quarter ended March 31, 2015.

 

 

Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information at the dates and for the periods indicated. No tax-equivalent yield adjustments have been made. 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 March 31,
		2016												2015
		Average Outstanding Balance				Interest				Average Yield/Rate (5)				Average Outstanding Balance				Interest				Average Yield/Rate (5)
		(Dollars in thousands)
Interest-earning assets:
Loans		$	124,358			$	1,271				4.09	%		$	106,306			$	1,157				4.35	%
Securities			2,356				4				0.68				3,261				9				1.10
Other (1)			1,766				10				2.27				1,245				9				2.89
Total interest-earning assets			128,480				1,285				4.14				110,812				1,175				4.24
Non-interest-earning assets			16,078												17,970
Total assets		$	144,558											$	128,782
Interest-bearing liabilities:
Savings		$	22,100			$	5				0.09			$	24,361			$	6				0.10
Interest-bearing demand			5,550				25				1.80				3,368				4				0.48
Certificates of deposit			68,067				237				1.39				58,861				208				1.41
Total deposits			95,717				267				1.12				86,590				218				1.00
Borrowings			19,516				65				1.33				20,545				71				1.38
Total interest-bearing liabilities			115,233				332				1.15				107,135				289				1.08
Non-interest-bearing Demand			9,593												8,436
Other non-interest-bearing liabilities			2,434												1,695
Total non- interest-bearing liabilities			12,027												10,131
Total equity			17,298												11,516
Total liabilities and total equity		$	144,558											$	128,782
Net interest income						$	953											$	886
Net interest rate spread (2)											2.99	%											3.16	%
Net interest-earning assets (3)		$	13,247											$	3,677
Net interest margin (4)											2.97	%											3.20	%
Average interest-earning assets to interest-bearing liabilities											111.50	%											103.43	%

 

(1)

Consists of FHLB-Cincinnati stock, 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 annualized net interest income divided by average total interest-earning assets.

(5)

Annualized

 

 

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. Our primary source 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 March 31, 2016 we had $20.3 million outstanding in advances from the FHLB. At March 31, 2016 we had the capacity to borrow an additional $16.5 million at March 31, 2016. The Bank had additional lines of credit with two commercial banks totaling $6.5 million.

 

While maturities and scheduled amortization of loans and securities are probable 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 used by operating activities was $381,000 for the three months ended March 31, 2016, and $1.2 million for the period ended March 31, 2015. 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 the sale of securities and proceeds from maturing securities and pay downs on mortgage-backed securities, was $3.2 million for the three months ended March 31, 2016, and $4.9 million for the period ended March 31, 2015. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $6.0 million for the three months ended March 31, 2016, and $5.8 million for the period ended March 31, 2015 resulting from our strategy of increasing retail checking and certificate accounts to fund loan originations.

 

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 is a separate legal entity from the Bank and must provide for its own liquidity to pay any dividend to its stockholders and for other corporate purposes. Cincinnati Bancorp’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 March 31, 2016, Cincinnati Bancorp (on an unconsolidated, stand-alone basis) had liquid assets of $380,000.

 

At March 31, 2016, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $17.6 million, or 12.2% of adjusted total assets, which is above the well-capitalized required level of $7.2 million, or 5.0%; total risk-based capital of $18.8 million, or 18.7% of risk-weighted assets, which is above the well-capitalized required level of $10.1 million, or 10.0%; and common equity tier 1 risk based capital of $17.6 million, or 17.4%, of risk weighted assets, which is above the well-capitalized required level of $6.6 million, or 6.5%. At December 31, 2015, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $17.5 million, or 12.2% of adjusted total assets, which is above the well-capitalized required level of $7.2 million, or 5.0%; and total risk-based capital of $18.8 million, or 18.6% of risk-weighted assets, which is above the well-capitalized required level of $10.1 million, or 10.0%. Accordingly, Cincinnati Federal was categorized as well capitalized at March 31, 2016, and December 31, 2015. Management is not aware of any conditions or events since the most recent notification that would change our category.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

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

 

Item 4.

Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2016. Based on that evaluation, the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.

 

During the quarter ended March 31, 2016, 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.

 

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 financial condition or results of operations.

 

Item 1A.

Risk Factors

 

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

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

(a)

There were no sales of unregistered securities during the period covered by this Report.

 

(b)

Not applicable.

 

(c)

There were no issuer repurchases of securities during the period covered by this Report.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

 

Item 6.

Exhibits

 

3.1

Cincinnati Bancorp Stock Holding Company Charter (1)

 

3.2

Cincinnati Bancorp Bylaws (1)

 

31.1

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

 

31.2

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

 

32

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

 

⁽¹⁾ Incorporated by reference to the Company’s Registration Statement on Form S-1, as initially filed on March 11, 2015, as subsequently amended.

 

101

The following financial information from Cincinnati Bancorp Quarterly Report on Form 10-Q, for the quarter ended March 31, 2016, 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.

 

 

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
Date:  May  13, 2016		/s/ Joseph V. Bunke
		Joseph V. Bunke
		President
		(Principal Executive Officer)
Date:  May 13, 2016		/s/ Herbert C. Brinkman
		Herbert C. Brinkman
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)