Company Quick10K Filing
Cincinnati Bancorp
Price12.45 EPS0
Shares2 P/E49
MCap23 P/FCF-6
Net Debt-15 EBIT3
TEV8 TEV/EBIT3
TTM 2019-09-30, in MM, except price, ratios
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CNNB 10Q Quarterly Report

Part I. - Financial Information
Item 1.Financial Statements
Note 1:Nature of Operations and Summary of Significant Account Policies
Note 2:Securities
Note 3:Loans and Allowance for Loan Losses
Note 4:Earnings per Common Share
Note 5:Regulatory Matters
Note 6:Disclosure About Fair Values of Assets and Liabilities
Note 7:Commitments and Credit Risk
Note 8:Accumulated Other Comprehensive Loss
Note 9:Equity Incentive Plan
Note 10: Recent Accounting Pronouncements
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
EX-31.1 tm2018743d1_ex31-1.htm
EX-31.2 tm2018743d1_ex31-2.htm
EX-32 tm2018743d1_ex32.htm

Cincinnati Bancorp Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 tm2018743d1_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2020

OR

 

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

 

For the transition period from                      to                     

 

Commission File Number: 001-39188

 

CINCINNATI BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

     
Maryland   84-2848636
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
6581 Harrison Avenue, Cincinnati, Ohio   45247
(Address of principal executive offices)   (Zip Code)

 

(513) 574-3025

(Registrant’s telephone number, including area code)

 

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

 

Common stock, $0.01 par value per share   CNNB   The Nasdaq Stock Market, LLC
(Title of Each Class)   (Trading Symbol(s))   (Name of Each Exchange on Which Registered)

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
    Emerging Growth Company x

 

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

 

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

 

The number of outstanding shares of the registrant’s common stock as of May 13, 2020 was 2,975,625.

 

 

 

 

 

 

Cincinnati Bancorp, Inc.

Form 10-Q

 

Index

 

        Page
Part I. Financial Information
         
Item 1.   Condensed Consolidated Financial Statements    
         
    Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019   1
         
    Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (Unaudited)   2
         
    Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2020 and 2019 (Unaudited)     3
         
    Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)   4
         
    Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)   5
         
    Notes to Condensed Consolidated Financial Statements   6
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   32
         
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   43
         
Item 4.   Controls and Procedures   43
         
Part II. Other Information
         
Item 1.   Legal Proceedings   43
         
Item 1A.   Risk Factors   43
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   45
         
Item 3.   Defaults upon Senior Securities   46
         
Item 4.   Mine Safety Disclosures   46
         
Item 5.   Other Information   46
         
Item 6.   Exhibits   46
         
    Signature Page   47

 

 

 

 

Part I. – Financial Information

 

Item 1.Financial Statements

 

Cincinnati Bancorp, Inc.

Condensed Consolidated Balance Sheets

March 31, 2020 (Unaudited) and December 31, 2019

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
Assets          
Cash and due from banks  $2,338,698   $2,348,157 
Interest-bearing demand deposits in banks   10,169,820    31,622,109 
Federal funds sold   3,152,000    3,765,000 
           
Cash and cash equivalents   15,660,518    37,735,266 
           
Interest-bearing time deposits   1,750,000    - 
Available-for-sale securities   6,243,334    6,733,213 
Loans held for sale   9,523,196    3,114,081 
Loans, net of allowance for loan losses of  $1,472,545 and $1,407,545, respectively   179,951,297    179,332,026 
Premises and equipment, net   3,509,366    3,354,447 
Federal Home Loan Bank stock   2,731,500    2,657,400 
Interest receivable   595,804    624,333 
Mortgage servicing rights   1,085,493    1,213,815 
Federal Home Loan Bank lender risk account receivable   1,630,122    1,713,240 
Bank-owned life insurance   4,108,846    4,086,645 
Other assets   810,359    1,237,095 
           
Total assets  $227,599,835   $241,801,561 
           
Liabilities and Stockholders' Equity          
           
Liabilities          
Deposits          
Demand  $29,067,612   $28,658,432 
Savings   39,825,487    37,514,343 
Certificates of deposit   73,954,294    77,237,932 
Total deposits   142,847,393    143,410,707 
           
Federal Home Loan Bank advances   43,673,224    47,172,066 
Stock subscription proceeds in escrow   -    23,407,011 
Advances from borrowers for taxes and insurance   1,302,814    1,806,638 
Interest payable   85,407    91,636 
Directors deferred compensation   580,699    559,295 
Deferred tax liabilities   445,243    478,654 
Other liabilities   754,482    794,389 
           
Total liabilities   189,689,262    217,720,396 
           
Commitments and Contingent Liabilities          
           
Temporary Equity          
ESOP Shares subject to mandatory redemption   -    244,327 
           
Stockholders' Equity          
Preferred stock - authorized 1,000,000 shares, $0.01 par value, none issued   -    - 
Common stock - authorized 14,000,000 shares, $0.01 par value,2,975,625 and 2,972,391 issued and outstanding March 31, 2020 and December 31, 2019 respectively (1)   29,756    29,607 
Additional paid-in capital   23,187,302    7,529,850 
Unearned ESOP shares   (1,750,797)   (449,313)
Retained earnings - substantially restricted   16,791,634    17,017,683 
Accumulated other comprehensive loss   (347,322)   (290,989)
           
Total stockholders' equity   37,910,573    23,836,838 
           
Total liabilities, temporary equity, and stockholders' equity  $227,599,835   $241,801,561 

 

(1)Share amounts related to the periods prior to the January 22, 2020 closing of the conversion offering have been restated to give retroactive recognition to the 1.6351 exchange ratio applied in the conversion offering. (see Note 1).

 

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

 

1

 

 

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Operations

Three Months Ended March 31, 2020 and 2019 (Unaudited)

 

   Three Months Ended March 31, 
   2020   2019 
Interest and Dividend Income          
Loans, including fees  $2,011,365   $1,949,112 
Securities   26,718    3,730 
Dividends on Federal Home Loan Bank stock and other   85,359    79,716 
Total interest and dividend income   2,123,442    2,032,558 
           
Interest Expense          
Deposits   503,104    447,595 
Federal Home Loan Bank advances   248,382    174,486 
Total interest expense   751,486    622,081 
           
Net Interest Income   1,371,956    1,410,477 
           
Provision for Loan Losses   65,000    - 
           
Net Interest Income After Provision for Loan Losses   1,306,956    1,410,477 
           
Noninterest Income          
Gain on sales of loans   438,354    177,951 
Mortgage servicing fees (costs)   (103,514)   89,711 
Other   192,743    185,359 
Total noninterest income   527,583    453,021 
           
Noninterest Expense          
Salaries and employee benefits   1,300,774    989,831 
Occupancy and equipment   151,066    156,869 
Directors compensation   45,750    54,060 
Data processing   121,258    175,028 
Professional fees   71,729    73,765 
Franchise tax   55,658    48,771 
Deposit insurance premiums   -    14,799 
Advertising   67,639    40,281 
Software licenses   32,971    28,831 
Loan costs   68,153    79,596 
Merger-related expenses   -    18,000 
Other   219,005    211,683 
Total noninterest expense   2,134,003    1,891,514 
           
Loss Before Benefit for Income Taxes   (299,464)   (28,016)
           
Benefit for Income Taxes   (73,415)   (19,915)
           
Net Loss  $(226,049)  $(8,101)
           
Loss per common share - basic and diluted  $(0.08)  $- 
Weighted-average shares outstanding - basic and diluted (1)   2,875,406    2,856,000 

 

(1) Share amounts related to the periods prior to the January 22, 2020 closing of the conversion offering have been restated to give retroactive recognition to the 1.6351 exchange ratio applied in the conversion offering. (see Note 1).

 

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

 

2

 

 

 

 

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Three Ended March 31, 2020 and 2019 (Unaudited)

 

   Three Months Ended March 31, 
   2020   2019 
Net Loss  $(226,049)  $(8,101)
           
Other Comprehensive Income (Loss):          
Net unrealized gains (losses) on available-for-sale securities   (58,952)   759 
Tax benefit (expense)   12,380    (159)
Changes in directors' retirement plan prior service costs   (12,355)   (10,161)
Tax benefit   2,594    2,125 
Other comprehensive loss   (56,333)   (7,436)
           
Comprehensive Loss  $(282,382)  $(15,537)

 

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

 

3

 

 

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, 2020 and 2019 (Unaudited)

 

   Common   Additional
Paid-in
   Unearned   Retained   Accumulated
Other
Comprehensive
   Total
Stockholders'
 
   Stock   Capital   Shares   Earnings   Loss   Equity 
For the Three Months ended March 31, 2019 (unaudited)                        
Balance, January 1, 2019  $29,593   $7,458,745   $(494,245)  $16,219,209   $(252,442)  $22,960,860 
                               
ESOP shares subject to mandatory redemption   -    (13,306)   -    -    -    (13,306)
                               
ESOP shares earned   -    3,111    11,233    -    -    14,344 
                               
Stock based compensation expense   -    25,791    -    -    -    25,791 
                               
Net loss   -    -    -    (8,101)   -    (8,101)
                               
Other comprehensive loss   -    -    -    -    (7,436)   (7,436)
                               
Balance, March 31, 2019  $29,593   $7,474,341   $(483,012)  $16,211,108   $(259,878)  $22,972,152 

 

For the Three Months ended March 31, 2020 (unaudited)                        
Balance, January 1, 2020  $29,607   $7,529,850   $(449,313)  $17,017,683   $(290,989)  $23,836,838 
                               
Proceeds from issuance of 1,652,960 shares of common stock (which included 132,237 shares to the ESOP), net of the offering costs of $1.2 million   29,756    15,577,194    (1,322,370)   -    -    14,284,580 
                               
Contribution by CF Mutual Holding Company        50,000    -    -    -    50,000 
                               
Exchange of common stock   (29,607)   -    -    -    -    (29,607)
                               
ESOP shares earned   -    4,467    20,886    -    -    25,353 
                               
Stock-based compensation expense   -    25,791    -    -    -    25,791 
                               
Net loss   -    -    -    (226,049)   -    (226,049)
                               
Other comprehensive loss   -    -    -    -    (56,333)   (56,333)
                               
Balance, March 31, 2020  $29,756   $23,187,302   $(1,750,797)  $16,791,634   $(347,322)  $37,910,573 

 

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

 

4

 

 

Cincinnati Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2020 and 2019 (Unaudited)

 

   Three Months Ended March 31, 
   2020   2019 
Operating Activities          
Net loss  $(226,049)  $(8,101)
Items not requiring (providing) cash:          
Depreciation and amortization   52,371    47,226 
Provision for loan losses   65,000    - 
Amortization of premiums and discounts on securities, net   7,454    2,281 
Amortization of deferred prepayment penalty on Federal Home Loan Bank advances   1,158    1,157 
Change in deferred income taxes   19,586    5,941 
Gain on sale of loans   (438,354)   (177,951)
Proceeds from the sale of loans held for sale   23,373,661    9,924,329 
Origination of loans held for sale   (29,344,422)   (12,382,510)
Earnings on cash surrender value of bank-owned life insurance   (22,201)   (22,913)
Stock-based compensation expense   25,791    25,791 
ESOP shares earned   25,353    14,344 
Changes in:          
Interest receivable   28,529    (12,688)
Mortgage servicing rights   128,322    (53,787)
Federal Home Loan Bank lender risk account receivable   83,118    87,990 
Other assets   426,736    (138,129)
Interest payable   (6,229)   16,221 
Other liabilities   (68,879)   (134,852)
Net cash used in operating activities   (5,869,055)   (2,805,651)
           
Investing Activities          
Net change in interest-bearing deposits   (1,750,000)   - 
Proceeds from maturities of available-for-sale securities   423,471    63,367 
Purchase of Federal Home Loan Bank stock   (74,100)   - 
Net change in loans   (684,271)   (5,116,851)
Purchase of premises and equipment   (207,290)   (61,820)
Net cash used in investing activities   (2,292,190)   (5,115,304)
           
Financing Activities          
Net decrease in deposits   (23,970,325)   (1,009,725)
Proceeds from stock issuance   14,060,646    - 
Proceeds from Federal Home Loan Bank advances   -    24,342,000 
Repayment of Federal Home Loan Bank advances   (3,500,000)   (15,143,000)
Net increase in advances from borrowers for taxes and insurance   (503,824)   (530,977)
Net cash provided by (used in) financing activities   (13,913,503)   7,658,298 
           
Decrease in Cash and Cash Equivalents   (22,074,748)   (262,657)
Cash and Cash Equivalents, Beginning of Period   37,735,266    11,089,189 
Cash and Cash Equivalents, End of Period  $15,660,518   $10,826,532 
           
Supplemental Cash Flows Information          
Interest paid  $757,715   $638,302 
Real estate acquired in settlement of loans   -    48,125 

 

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

 

5

 

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

Nature of Operations

 

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

 

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

 

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

 

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

 

Revenue Recognition

 

On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2014-09 "Revenue from Contracts with Customers" (Accounting Standards Codification (ASC) 606) and all subsequent ASUs that modified ASC 606. ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest income, net securities gains (losses), gains from the sale of mortgage loans and bank-owned life insurance are not included within the scope of ASC 606. For the revenue streams in the scope of ASC 606, service charges on deposits and electronic banking fees, there are no significant judgments related to the amount and timing of revenue recognition. All of the Company’s revenue from contracts with customers is recognized within noninterest income.

 

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

 

6

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

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

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 include the accounts of the Company and the Bank. All significant intercompany items have been eliminated.

 

Interim Financial Statements

 

The interim unaudited condensed financial statements as of March 31, 2020, and for the three months ended March 31, 2020 and 2019 are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. Such adjustments are the only adjustments contained in these unaudited consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted. The results of operations for the three months March 31, 2020, are not necessarily indicative of the results to be achieved for the remainder of the year ending December 31, 2020, or any other period.

 

The accompanying condensed consolidated financial statements as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 should be read in conjunction with the audited financial statements as of December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018 contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

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, lender reserve account and fair values of financial instruments.

 

7

 

 

Cincinnati Bancorp, Inc.

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, 2020 (unaudited):                    
Mortgage-backed securities of government sponsored entities  $6,309,523   $166   $(66,355)  $6,243,334 
                     
December 31, 2019:                    
Mortgage-backed securities of government sponsored entities  $6,740,450   $7,335   $(14,572)  $6,733,213 

 

The Company had no sales of investment securities during the three-month periods ended March 31, 2020 and 2019. The Company had not pledged any of its investment securities as of March 31, 2020 or December 31, 2019.

 

The amortized cost and fair value of available-for-sale securities at March 31, 2020 and December 31, 2019, by contractual maturity, if applicable, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties, as is the case with mortgage-backed securities included in the following table:

 

   March 31, 2020   December 31, 2019 
   Amortized   Fair   Amortized   Fair 
   Cost   Value   Cost   Value 
Mortgage-backed securities of government sponsored entities  $6,309,523   $6,243,334   $6,740,450   $6,733,213 

 

8

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Certain investments in debt securities have fair values at an amount less than their historical cost. The total fair value of these investments at March 31, 2020 and December 31, 2019 was $6,226,797 and $5,814,388, respectively, which was approximately 99.7% and 86%, respectively, of the Company’s investment portfolio at those respective dates.

 

The following tables show the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment class and length of time that the individual securities have been in continuous unrealized loss position at March 31, 2020 and December 31, 2019:

 

   Less than 12 Months   12 Months or More   Total 
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
March 31, 2020:                              
Mortgage-backed   securities of government sponsored entities  $6,036,218   $(62,225)  $190,579   $(4,130)  $6,226,797   $(66,355)
                               
December 31, 2019:                              
Mortgage-backed   securities of government sponsored entities  $5,582,540   $(14,154)  $231,848   $(418)  $5,814,388   $(14,572)

 

NOTE 3:Loans and Allowance for Loan Losses

 

Categories of loans at March 31, 2020 and December 31, 2019 include:

 

   March 31,   December 31, 
   2020   2019 
   (Unaudited)     
One to four family mortgage loans - owner occupied  $91,359,451   $91,919,064 
One to four family - investment   13,216,691    12,846,342 
Multi-family mortgage loans   37,286,217    36,628,238 
Nonresidential mortgage loans   24,340,792    23,377,598 
Construction and land loans   6,070,190    5,329,188 
Real estate secured lines of credit   10,382,236    10,029,917 
Commercial loans   802,454    557,268 
Other consumer loans   592,974    863,546 
Total loans   184,051,005    181,551,161 
           
Less:          
Net deferred loan costs   (454,319)   (482,681)
Undisbursed portion of loans   3,081,482    1,294,271 
Allowance for loan losses   1,472,545    1,407,545 
           
Net loans  $179,951,297   $179,332,026 

 

9

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present the activity in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three months ended March 31, 2020 and 2019 and the year ended December 31, 2019:

 

   At or For the Three Months Ended March 31, 2020 (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  $324,647   $82,219   $524,183   $277,026   $69,457   $105,187   $11,408   $13,418   $1,407,545 
Provision (credit) charged to expense   (105,971)   72,679    (43,642)   139,167    11,994    (6,125)   4,993    (8,095)   65,000 
Losses charged off   -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    - 
Balance, end of period  $218,676   $154,898   $480,541   $416,193   $81,451   $99,062   $16,401   $5,323   $1,472,545 
                                              
Ending balance: Individually evaluated for impairment  $20,722   $8,013   $-   $-   $-   $-   $-   $-   $28,735 
                                              
Ending balance: Collectively evaluated for impairment  $197,954   $146,885   $480,541   $416,193   $81,451   $99,062   $16,401   $5,323   $1,443,810 
Loans:                                             
Ending balance  $91,359,451   $13,216,691   $37,286,217   $24,340,792   $6,070,190   $10,382,236   $802,454   $592,974   $184,051,005 
                                              
Ending balance:  Individually evaluated for impairment  $1,109,116   $752,219   $504,648   $52,048   $-   $72,565   $-   $-   $2,490,596 
                                              
Ending balance: Collectively evaluated for impairment  $90,250,335   $12,464,472   $36,781,569   $24,288,744   $6,070,190   $10,309,671   $802,454   $592,974   $181,560,409 

 

   For the Three Months Ended March 31, 2019 (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  $456,630   $123,017   $224,384   $182,338   $100,187   $296,873   $9,001   $12,642   $1,405,072 
Provision (credit) charged to expense   -    -    -    -    -    -    -    -    - 
Losses charged off   -    -    -    -    -    -    -    -    - 
Recoveries   -    -    -    -    -    -    -    -    - 
Balance, end of period  $456,630   $123,017   $224,384   $182,338   $100,187   $296,873   $9,001   $12,642   $1,405,072 

 

10

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

   At or For the Year Ended December 31, 2019 
   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  $456,630   $123,017   $224,384   $182,338   $100,187   $296,873   $9,001   $12,642   $1,405,072 
Provision (credit) charged to expense   (117,552)   (32,786)   299,799    94,688    (30,730)   (191,686)   2,407    860    25,000 
Losses charged off   (14,431)   (8,012)   -    -    -    -    -    (84)   (22,527)
Recoveries   -    -    -    -    -    -    -    -    - 
Balance, end of year  $324,647   $82,219   $524,183   $277,026   $69,457   $105,187   $11,408   $13,418   $1,407,545 
                                              
Ending balance: Individually evaluated for impairment  $20,722   $8,013   $-   $-   $-   $-   $-   $-   $28,735 
                                              
Ending balance: Collectively evaluated for impairment  $303,925   $74,206   $524,183   $277,026   $69,457   $105,187   $11,408   $13,418   $1,378,810 
Loans:                                             
Ending balance  $91,919,064   $12,846,342   $36,628,238   $23,377,598   $5,329,188   $10,029,917   $557,268   $863,546   $181,551,161 
                                              
Ending balance: Individually evaluated for impairment  $1,115,573   $760,733   $507,066   $56,190   $-   $81,505   $-   $-   $2,521,067 
                                              
Ending balance: Collectively evaluated for impairment  $90,803,491   $12,085,609   $36,121,172   $23,321,408   $5,329,188   $9,948,412   $557,268   $863,546   $179,030,094 

 

11

 

 

 

Cincinnati Bancorp, Inc.

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 realized in the future.

 

12

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of March 31, 2020 and December 31, 2019:

   March 31, 2020 (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  $90,726,663   $12,495,941   $36,915,820   $23,790,753   $6,070,190   $10,224,400   $802,454   $592,974   $181,619,195 
Special mention   -    541,418    -    550,039    -    -    -    -    1,091,457 
Substandard   632,788    179,332    370,397    -    -    157,836    -    -    1,340,353 
Doubtful   -    -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    -    - 
                                              
Total  $91,359,451   $13,216,691   $37,286,217   $24,340,792   $6,070,190   $10,382,236   $802,454   $592,974   $184,051,005 

 

   December 31, 2019 
   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  $91,281,765   $12,115,427   $36,256,469   $22,813,758   $5,329,188   $9,870,477   $557,268   $863,546   $179,087,898 
Special mention   -    548,876    -    563,840    -    -    -    -    1,112,716 
Substandard   637,299    182,039    371,769    -    -    159,440    -    -    1,350,547 
Doubtful   -    -    -    -    -    -    -    -    - 
Loss   -    -    -    -    -    -    -    -    - 
                                              
Total  $91,919,064   $12,846,342   $36,628,238   $23,377,598   $5,329,188   $10,029,917   $557,268   $863,546   $181,551,161 

 

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

 

The Company evaluates the loan risk grading system definitions and allowance for loan losses methodology on an ongoing basis. No significant changes were made to either during the three months ended March 31, 2020.

 

13

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present the loan portfolio aging analysis of the recorded investment in loans as of March 31, 2020 and December 31, 2019:

 

   March 31, 2020 (Unaudited) 
   30-59 Days
Past Due
   60-89 Days
Past Due
   90 Days and
Greater Past
Due
   Total Past
Due
   Current   Total Loans
Receivable
   Total Loans >
90 Days Past
Due & Accruing
 
One to four-family mortgage loans  $349,896   $        -   $110,474   $460,370   $90,899,081   $91,359,451   $          - 
One to four family - investment   -    -    -    -    13,216,691    13,216,691    - 
Multi-family mortgage loans   297,625    -    -    297,625    36,988,592    37,286,217    - 
Nonresidential mortgage loans   -    -    -    -    24,340,792    24,340,792    - 
Construction & land loans   -    -    -    -    6,070,190    6,070,190    - 
Real estate secured lines of credit   27,759    -    -    27,759    10,354,477    10,382,236    - 
Commercial loans   -    -    -    -    802,454    802,454    - 
Other consumer loans   210,486    -    -    210,486    382,488    592,974    - 
                                    
Total  $885,766   $-   $110,474   $996,240   $183,054,765   $184,051,005   $- 

 

   December 31, 2019 
   30-59 Days
Past Due
   60-89 Days
Past Due
   90 Days and
Greater Past
Due
   Total Past
Due
   Current   Total Loans
Receivable
   Total Loans >
90 Days Past
Due & Accruing
 
One to four-family mortgage loans  $-   $            -   $110,934   $110,934   $91,808,130   $91,919,064   $            - 
One to four family - investment   -    -    -    -    12,846,342    12,846,342    - 
Multi-family mortgage loans   -    -    -    -    36,628,238    36,628,238    - 
Nonresidential mortgage loans   -    -    -    -    23,377,598    23,377,598    - 
Construction & land loans   -    -    -    -    5,329,188    5,329,188    - 
Real estate secured lines of credit   97,679    -    -    97,679    9,932,238    10,029,917    - 
Commercial loans   -    -    -    -    557,268    557,268    - 
Other consumer loans   -    -    -    -    863,546    863,546    - 
                                    
Total  $97,679   $-   $110,934   $208,613   $181,342,548   $181,551,161   $- 

 

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

 

14

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following tables present impaired loans at March 31, 2020, March 31, 2019 and December 31, 2019:

 

   March 31, 2020 (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  $1,048,425   $1,048,425   $-   $1,051,353   $13,131 
One- to four-family - investment   370,006    370,006    -    372,052    6,092 
Multi-family mortgage loans   504,648    504,648    -    505,914    9,231 
Nonresidential mortgage loans   52,048    52,048    -    54,030    773 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   72,565    72,565    -    79,250    1,302 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
Loans with a specific valuation allowance                         
One- to four-family mortgage loans   60,691    81,413    20,722    81,548    274 
One- to four-family - investment   382,213    390,225    8,013    392,357    5,647 
Multi-family mortgage loans   -    -    -    -    - 
Nonresidential mortgage loans   -    -    -    -    - 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   -    -    -    -    - 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
                          
   $2,490,596   $2,519,330   $28,735   $2,536,504   $36,450 

 

   March 31, 2019 (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  $915,699   $915,699   $-   $917,488   $8,043 
One- to four-family - investment   311,555    311,555    -    313,561    4,713 
Multi-family mortgage loans   513,276    513,276    -    513,940    7,027 
Nonresidential mortgage loans   147,414    147,414    -    149,226    1,233 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   47,160    47,160    -    48,036    709 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
Loans with a specific valuation allowance                         
One- to four-family mortgage loans   -    -    -    -    - 
One- to four-family - investment   379,301    412,985    33,684    415,757    5,497 
Multi-family mortgage loans   106,045    115,100    9,055    115,632    1,878 
Nonresidential mortgage loans   -    -    -    -    - 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   -    -    -    -    - 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
                          
   $2,420,450   $2,463,189   $42,739   $2,473,640   $29,100 

 

15

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

   December 31, 2019 
   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  $1,054,515   $1,054,515   $-   $1,077,076   $52,394 
One- to four-family - investment   374,389    374,389    -    383,268    21,191 
Multi-family mortgage loans   507,066    507,066    -    510,866    43,647 
Nonresidential mortgage loans   56,190    56,190    -    75,260    4,583 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   81,505    81,505    -    86,326    5,416 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
Loans with a specific valuation allowance                         
One- to four-family mortgage loans   61,058    81,780    20,722    79,941    1,170 
One- to four-family - investment   386,344    394,357    8,013    401,718    19,965 
Multi-family mortgage loans   -    -    -    -    - 
Nonresidential mortgage loans   -    -    -    -    - 
Construction & land loans   -    -    -    -    - 
Real estate secured lines of credit   -    -    -    -    - 
Commercial loans   -    -    -    -    - 
Other consumer loans   -    -    -    -    - 
                          
   $2,521,067   $2,549,802   $28,735   $2,614,455   $148,366 

 

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

 

The following table presents the nonaccrual loans at March 31, 2020 and December 31, 2019. This table excludes accruing TDRs, which totaled $1,436,000 and $1,445,000 at March 31, 2020 and December 31, 2019, respectively.

 

   March 31,   December 31, 
   2020   2019 
    (Unaudited)      
One- to four-family mortgage loans  $110,474   $110,934 
One to four family - investment   -    - 
Multi-family mortgage loans   -    - 
Nonresidential mortgage loans   -    - 
Construction and land loans   -    - 
Real estate secured lines of credit   -    - 
Commercial loans   -    - 
Other consumer loans   -    - 
           
Total  $110,474   $110,934 

 

At March 31, 2020, the Company had one loan with a balance of $2,400 that was modified in a TDR and that was impaired.

 

16

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

There were no newly classified TDRs at March 31, 2020. The following table presents the new classified TDR’s at December 31, 2019:

 

   December 31, 2019 
   Number of
Loans
   Pre-Modification
Recorded
Balance
   Post-Modification
Recorded
Balance
 
Mortgage loans on real estate:               
Residential 1-4 family - owner occupied   3   $266,418   $240,926 
Residential 1-4 family - investment   -    -    - 
Multifamily   -    -    - 
Nonresidential mortgage loans   -    -    - 
Construction & land loans   -    -    - 
Construction & land loans   -    -    - 
Real estate secured lines of credit   1    -    40,627 
Commercial loans   -    -    - 
Consumer loans   -    -    - 
                
    4   $266,418   $281,553 

 

Newly classified TDRs, by type of modification, are as follows for December 31, 2019:

 

   December 31, 2019 
   Interest Only   Term   Combination   Total
Modification
 
Mortgage loans on real estate:                    
Residential 1-4 family - owner occupied  $-   $-   $240,926   $240,926 
Residential 1-4 family -investment   -    -    -    - 
Multifamily   -    -    -    - 
Nonresidential mortgage loans   -    -    -    - 
Construction & land loans   -    -    -    - 
Real estate secured lines of credit   40,627    -    -    40,627 
Commercial loans   -    -    -    - 
Consumer loans   -    -    -    - 
                     
   $40,627   $-   $240,926   $281,553 

 

There were no TDRs modified during the three months ended March 31, 2020 that subsequently defaulted. As of March 31, 2020, borrowers with loans designated as TDRs totaling $931,000 of residential real estate loans and $505,000 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. As of March 31, 2020, the Company had no performing TDRs that did not meet the criteria for placement back on accrual status.

 

There were no foreclosed real estate properties at March 31, 2020 or December 31, 2019. There was one consumer mortgage loan in process of foreclosure at March 31, 2020 with a total net loan balance of $51,600.

 

17

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 4:Earnings Per Common Share

 

Basic earnings per common share (“EPS”) excludes dilution and is calculated by dividing net income applicable to common stock by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Unallocated common shares held by the Company’s Employee Stock Ownership Plan (“ ESOP”) are shown as a reduction in stockholders’ equity and are excluded from weighted-average common shares outstanding for both basic and diluted EPS calculations until they are committed to be released. The computations for the three month periods ended March 31, 2020 and 2019 are as follows:

 

   Three Months March 31, 
   2020   2019 
   (Unaudited) 
Net loss  $(226,049)  $(8,101)
Less allocation of net loss to participating securities   -    - 
Net loss allocated to common shareholders   (226,049)   (8,101)
           
Shares outstanding for basic loss per share (1):          
Shares issued   2,949,432    2,936,819 
Less: Average unearned ESOP shares   74,026    80,820 
           
Weighted-average shares outstanding - basic   2,875,406    2,855,999 
           
Basic loss per common share  $(0.08)  $- 
           
Effect of dilutive securities:          
Weighted-average shares outstanding - basic   2,875,406    2,855,999 
Stock options   -    - 
Weighted-average shares outstanding - diluted   2,875,406    2,855,999 
           
Diluted loss per share  $(0.08)  $- 

 

(1)Share amounts related to the periods prior to the January 22, 2020 closing of the conversion offering have been restated to give retroactive recognition to the 1.6351 exchange ratio applied in the conversion offering. (see Note 1).

 

18

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 5:Regulatory Matters

 

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

 

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined) to risk-weighted assets (as defined), common equity Tier I capital (as defined) to risk-weighted assets (as defined) and of Tier I capital to average assets (as defined). Management believes that, as of March 31, 2020 and December 31, 2019, the Bank 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.

 

The below minimum capital requirements exclude the capital conservation buffer required to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer was 2.50% at March 31, 2020.

 

As of the most recent notification from the Office of the Comptroller of the Currency, the Bank was categorized as "well-capitalized" under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. Management believes that no conditions or events have occurred since the last notification that would change the Bank's category.

 

19

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

   Actual   Minimum Capital Requirement   Minimum to Be Well
Capitalized Under Prompt
Corrective Action Provisions
 
   Amount   Ratio   Amount   Ratio   Amount   Ratio 
   (Dollars in thousands) 
As of  March 31, 2020 (Unaudited)                              
                               
Total risk-based capital
(to risk-weighted assets)
  $32,599    20.1%  $12,948    8.0%  $16,185    10.0%
                               
Tier I capital
(to risk-weighted assets)
   31,126    19.2%   9,711    6.0%   12,948    8.0%
                               
Common Equity Tier I capital
(to risk-weighted assets)
   31,126    19.2%   7,283    4.5%   10,520    6.5%
                               
Tier I capital
(to adjusted total assets)
   31,126    13.6%   9,180    4.0%   11,475    5.0%
                               
As of  December 31, 2019                              
                               
Total risk-based capital
(to risk-weighted assets)
  $24,898    16.3%  $12,204    8.0%  $15,255    10.0%
                               
Tier I capital
(to risk-weighted assets)
   23,490    15.4%   9,153    6.0%   12,204    8.0%
                               
Common Equity Tier I capital
(to risk-weighted assets)
   23,490    15.4%   6,865    4.5%   9,916    6.5%
                               
Tier I capital
(to adjusted total assets)
   23,490    10.2%   9,183    4.0%   11,478    5.0%

 

20

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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

 

Level 2Observable 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 3Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities.

 

Recurring Measurements

 

The following table presents 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, 2020 and December 31, 2019:

 

       Fair Value Measurements Using 
      Quoted Prices
in Active
Markets for
Identical Assets
   Significant
Other
Observable
Inputs
   Significant
Unobservable
Inputs
 
   Fair Value   (Level 1)   (Level 2)   (Level 3) 
March 31, 2020 (Unaudited)                    
Mortgage-backed securities of government sponsored entities  $6,243,334   $-   $6,243,334   $- 
Mortgage servicing rights   1,085,493    -    -    1,085,493 
December 31, 2019                    
Mortgage-backed securities of government sponsored entities  $6,733,213   $-   $6,733,213   $- 
Mortgage servicing rights   1,213,815    -    -    1,213,815 

 

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.

 

21

 

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

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 condensed consolidated balance sheets using significant unobservable (Level 3) inputs:

 

   Three Months Ended March 31, 
   2020   2019 
   (Unaudited) 
Fair value as of the beginning of the period  $1,213,815   $1,252,740 
Recognition of mortgage servicing rights on the sale of loans   41,532    19,154 
Change in fair value due to changes in valuation inputs or assumptions used in the valuation model   (169,854)   34,633 
           
Fair value at the end of the period  $1,085,493   $1,306,527 

 

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

 

Nonrecurring Measurements

 

The Company had one collateral-dependent loan measured at fair value on a nonrecurring basis with a balance of $51,568 at both March 31, 2020 and December 31, 2019.

 

22

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Unobservable (Level 3) Inputs

 

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2020 and December 31, 2019:

 

    Fair Value     Valuation
Technique
  Unobservable
Inputs
  Range
(Weighted
Average)
 
March 31, 2020 (Unaudited)                        
Mortgage servicing rights   $ 1,085,493     Discounted
cash flow
  Discount rate PSA
prepayment speeds
    10%
110-230%
 
                         
Impaired loans (collateral dependent)   $ 51,568     Market comparable
properties
  Marketability
discount
    10%-15%
12%
 
                         
December 31, 2019                        
Mortgage servicing rights   $ 1,213,815     Discounted
cash flow
  Discount rate PSA
prepayment speeds
    10%
89%-173%
 
                         
Impaired loans (collateral dependent)   $ 51,568     Market comparable
properties
  Marketability
discount
    10%-15% 
12%
 

 

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 cash equivalents, 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 Company’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

 

23

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Loans

 

The estimated fair value of loans as of March 31, 2020 follows the guidance in ASU 2016-01, which prescribes an “exit price” in estimating and disclosing the fair value of financial instruments. The fair value calculation at that date discounted estimated cash flows using rates that incorporated discounts for credit, liquidity and marketability factors.

 

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 fair value is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of a similar structure. 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, 2020 and December 31, 2019, the fair value of commitments was not material.

 

24

 

 

Cincinnati Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following table presents estimated fair values of the Company’s financial instruments not previously presented at March 31, 2020 and December 31, 2019:

       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, 2020 (Unaudited)                    
Financial Assets:                    
Cash and cash equivalents  $15,660,518   $15,660,518   $-   $- 
Interest-bearing time deposits   1,750,000    -    1,750,000    - 
Loans held for sale   9,523,196    -    9,768,660    - 
Loans, net of allowance for loan losses   179,951,297    -    -    178,421,711 
Federal Home Loan Bank stock   2,731,500    -    2,731,500    - 
Interest receivable   595,804    -    595,804    - 
Federal Home Loan Bank lender risk account receivable   1,630,122    -    -    1,866,762 
                     
Financial Liabilities:                    
Deposits   142,847,393    68,893,099    76,149,428    - 
Federal Home Loan Bank advances   43,673,224    -    45,521,783    - 
Advances from borrowers for taxes and insurance   1,302,814    -    1,302,814    - 
Interest payable   85,407    -    85,407    - 
                     
December 31, 2019                    
Financial Assets:                    
Cash and cash equivalents  $37,735,266   $37,735,266   $-   $- 
Loans held for sale   3,114,081    -    3,178,068    - 
Loans, net of allowance for loan losses   179,332,026    -    -    175,117,724 
Federal Home Loan Bank stock   2,657,400    -    2,657,400    - 
Interest receivable   624,333    -    624,333