Cincinnati Bancorp - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Cincinnati Bancorp	v466190_ex31-2.htm
EX-32 - EXHIBIT 32 - Cincinnati Bancorp	v466190_ex32.htm
EX-31.1 - EXHIBIT 31.1 - Cincinnati Bancorp	v466190_ex31-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2017

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company x
(Do not check if smaller reporting company)		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 in Rule 12b-2 of the Exchange Act).

YES ¨ NO x

As of May 8, 2017, 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, 2017 (Unaudited) and December 31, 2016	1

	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	38

Part II. Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

	Signature Page	40

Part I. – Financial Information

Item 1.

Financial Statements

Cincinnati Bancorp

Condensed Consolidated Balance Sheets

March 31, 2017 (Unaudited) and December 31, 2016

	March 31,			December 31,
	2017			2016
	(Unaudited)

Assets
Cash and due from banks	$	5,354,160		$	6,298,796
Interest-bearing demand deposits in banks		5,301,585			4,829,359

Cash and cash equivalents		10,655,745			11,128,155


Available-for-sale securities		1,550,654			1,779,199
Loans held for sale		2,155,196			1,314,737
Loans, net of allowance for loan losses of $1,326,264 and $1,326,264, respectively		129,225,415			131,103,482
Premises and equipment, net		2,583,040			2,590,206
Federal Home Loan Bank stock		908,000			908,000
Foreclosed assets held for sale		37,950			-
Interest receivable		395,746			383,238
Mortgage servicing rights		848,754			730,164
Federal Home Loan Bank lender risk account receivable		1,683,345			1,705,613
Bank Owned Life Insurance		3,192,868			3,172,651
Other assets		305,785			158,349

Total assets	$	153,542,498		$	154,973,794

Liabilities and Stockholders' Equity

Liabilities
Deposits
Demand	$	18,969,074		$	18,954,832
Savings		24,560,764			23,697,259
Certificates of Deposits		65,504,833			65,439,535
Total deposits		109,034,671			108,091,626

Federal Home Loan Bank advances		23,120,803			25,559,370
Advances from borrowers for taxes and insurance		969,733			1,421,899
Interest payable		26,116			24,232
Directors deferred compensation		425,100			419,922
Other liabilities		1,322,833			982,030

Total liabilities		134,899,256			136,499,079

Commitments and Contingent Liabilities

Temporary Equity
ESOP Shares subject to mandatory redemption		92,913			82,242

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		17,192			17,192
1,719,250 issued and outstanding at March 31, 2017 and December 31, 2016
Additional paid-in-capital		6,146,839			6,158,071
Unearned ESOP Shares		(572,874	)		(584,107	)
Retained earnings - substantially restricted		13,161,029			13,002,585
Accumulated other comprehensive loss		(201,857	)		(201,268	)

Total equity		18,550,329			18,392,473

Total liabilities and stockholders' equity	$	153,542,498		$	154,973,794

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, 2017 and 2016 (Unaudited)

	Three Months Ended March 31,
	2017		2016
	(Unaudited)

Interest and Dividend Income
Loans, including fees	$	1,348,435	$	1,271,371
Securities		44		4,208
Dividends on Federal Home Loan Bank stock and other		14,202		9,995
Total interest and dividend income		1,362,681		1,285,574

Interest Expense
Deposits		241,642		266,982
Federal Home Loan Bank advances		84,626		65,226
Total interest expense		326,268		332,208

Net Interest Income		1,036,413		953,366

Provision for Loan Losses		-		-

Net Interest Income After Provision for Loan Losses		1,036,413		953,366

Noninterest Income
Gain on sales of loans		295,599		241,413
Mortgage servicing fees		46,567		36,347
Other		199,706		108,580
Total noninterest income		541,872		386,340

Noninterest Expense
Salaries and employee benefits		676,952		635,856
Occupancy and equipment		98,722		90,177
Directors compensation		82,000		72,500
Data processing		138,735		127,268
Professional fees		67,172		53,755
Franchise tax		37,500		33,996
Deposit insurance premiums		2,030		24,767
Advertising		26,301		34,254
Software Licenses		19,690		17,736
Loan costs		52,918		62,127
Net losses on sales of foreclosed assets		-		637
Other		143,370		142,835
Total noninterest expense		1,345,390		1,295,908

Income Before Income Tax		232,895		43,798

Provision for Income Taxes		74,450		7,564

Net Income	$	158,445	$	36,234

Earnings per share - basic and diluted	$	0.10	$	0.02

Weighted-average shares outstanding - basic and diluted		1,660,838		1,656,346

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, 2017 and 2016 (Unaudited)

	Three Months Ended March 31,
	2017			2016
	(Unaudited)

Net Income	$	158,445		$	36,234

Other Comprehensive Income (Loss):
Net unrealized gains (losses) on available-for-sale securities		(4,430	)		2,571
Tax (expense) benefit		1,507			(874	)
Changes in directors' retirement plan prior service costs		3,535			10,971
Tax expense		(1,201	)		(3,730	)
Other comprehensive income (loss)		(589	)		8,938

Comprehensive Income	$	157,856		$	45,172

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, 2017 and 2016 (Unaudited)

	Three Months Ended March 31,
	2017			2016
	(Unaudited)

Operating Activities
Net income	$	158,445		$	36,234
Items not requiring (providing) cash:
Depreciation and amortization		34,237			35,435
Amortization of premiums and discounts on securities		8,064			7,504
Amortization of deferred prepayment penalty on Federal
Home Loan Bank advances		11,433			11,433
Change in deferred income taxes		41,205			(9,169	)
Gain on sale of loans		(295,599	)		(241,413	)
Proceeds from the sale of loans held for sale		9,617,083			9,201,077
Origination of loans held for sale		(10,161,943	)		(8,898,818	)
Net loss on sale of foreclosed assets		-			637
Income from Bank Owned Life insurance		(20,217	)		(21,549	)
ESOP shares earned		10,671			10,042
Changes in:
Interest receivable		(12,508	)		(19,557	)
Mortgage servicing rights		(118,590	)		1,001
Federal Home Loan Bank lender risk account receivable		22,268			14,851
Other assets		(147,436	)		(113,104	)
Interest payable		1,884			1,701
Other liabilities		308,617			(397,137	)
Net cash used in operating activities		(542,386	)		(380,832	)

Investing Activities
Proceeds from maturities of available-for-sale securities		216,051			279,469
Net change in loans		1,840,117			(3,467,471	)
Purchase of premises and equipment		(27,071	)		-
Proceeds from sales of foreclosed assets		-			29,029
Net cash provided by (used in) in investing activities		2,029,097			(3,158,973	)

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, 2017 and 2016 (Unaudited)

	Three Months Ended March 31,
	2017			2016
	(Unaudited)

Financing Activities
Net increase in deposits		943,045			4,918,981
Proceeds from Federal Home Loan Bank advances		18,520,000			21,620,000
Repayment of Federal Home Loan Bank advances		(20,970,000	)		(20,170,000	)
Net decrease in advances from borrowers for taxes and insurance		(452,166	)		(397,009	)
Net cash (used in) provided by financing activities		(1,959,121	)		5,971,972

(Decrease) Increase in Cash and Cash Equivalents		(472,410	)		2,432,167
Cash and Cash Equivalents, Beginning of Period		11,128,155			8,304,539
Cash and Cash Equivalents, End of Period	$	10,655,745		$	10,736,706

Supplemental Cash Flows Information
Interest paid	$	324,384		$	330,506
Income taxes paid		-			210,000
Real estate acquired in settlement of loans		37,950			-

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 Operations and Summary of Significant Account Policies

Nature of Operations

Cincinnati Bancorp (“Company”) is 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 in Hamilton County, Ohio and surrounding areas. On October 14, 2015, the Bank reorganized into the mutual holding company structure. As part of the reorganization, the Company 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 Company’s parent mutual holding company. 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.

Principles of Consolidation

The accompanying condensed consolidated financial statements as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 include the accounts of Cincinnati Bancorp and the Bank. 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, lender reserve account and fair values of financial instruments.

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.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-Sale Securities:

March 31, 2017:
Mortgage-backed securities of government sponsored entities	$	1,535,764	$	14,890	$	-	$	1,550,654

December 31, 2016:
Mortgage-backed securities of government sponsored entities	$	1,759,879	$	19,320	$	-	$	1,779,199

The Company had no sales of investment securities during the three month periods ended March 31, 2017 and 2016. The Company had not pledged any of its investment securities as of March 31, 2017 or December 31, 2016.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

The amortized cost and fair value of available-for-sale securities at March 31, 2017 and December 31, 2016, by contractual maturity, 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.

	March 31, 2017				December 31, 2016
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Mortgage-backed securities of government sponsored entities	$	1,535,764	$	1,550,654	$	1,759,879	$	1,779,199

There were no investments in debt securities reported in the financial statements at an amount less than their historical cost as of March 31, 2017 or December 31, 2016.

NOTE 3:

Loans and Allowance for Loan Losses

Categories of loans at March 31, 2017 and December 31, 2016 include:

	March 31,			December 31,
	2017			2016


One to four family mortgage loans -owner occupied	$	70,000,308		$	69,651,176
One to four family - investment		11,062,965			11,818,901
Multi-family mortgage loans		19,695,863			21,350,885
Nonresidential mortgage loans		14,700,805			13,654,705
Construction and land loans		5,023,881			3,886,915
Real estate secured lines of credit		11,902,550			12,595,769
Commercial loans		516,794			512,559
Other consumer loans		14,451			16,875
Total loans		132,917,617			133,487,785

Less:
Net deferred loan costs		(432,766	)		(427,936	)
Undisbursed portion of loans		2,798,704			1,485,975
Allowance for loan losses		1,326,264			1,326,264

Net loans	$	129,225,415		$	131,103,482

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, 2017 and 2016 and year ended December 31, 2016:

	Three Months Ended March 31, 2017 (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	$	413,194		$	129,628	$	175,295	$	167,431		$	64,297		$	364,191		$	11,916		$	312		$	1,326,264
Provision (credit) charged to expense		45,798			13,278		23,747		(28,215	)		(3,988	)		(49,303	)		(1,241	)		(76	)		-
Losses charged off		-			-		-		-			-			-			-			-			-
Recoveries		-			-		-		-			-			-			-			-			-
Balance, end of period	$	458,992		$	142,906	$	199,042	$	139,216		$	60,309		$	314,888		$	10,675		$	236		$	1,326,264

Ending balance: Individually evaluated for impairment	$	-		$	47,101	$	9,055	$	-		$	-		$	-		$	-		$	-		$	56,156

Ending balance: Collectively evaluated for impairment	$	458,992		$	95,805	$	189,987	$	139,216		$	60,309		$	314,888		$	10,675		$	236		$	1,270,108
Loans:
Ending balance	$	70,000,308		$	11,062,965	$	19,695,863	$	14,700,805		$	5,023,881		$	11,902,550		$	516,794		$	14,451		$	132,917,617

Ending balance: Individually evaluated for impairment	$	657,564		$	1,244,481	$	649,819	$	190,306		$	-		$	33,792		$	-		$	-		$	2,775,962

Ending balance: Collectively evaluated for impairment	$	69,342,744		$	9,818,484	$	19,046,044	$	14,510,499		$	5,023,881		$	11,868,758		$	516,794		$	14,451		$	130,141,655

	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

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

	Year Ended December 31, 2016
	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	$	382,596		$	333,627		$	111,876	$	195,810		$	43,540	$	290,813	$	8,390	$	316		$	1,366,968
Provision (credit) charged to expense		50,302			(203,999	)		63,419		(128,379	)		20,757		73,378		3,526		(4	)		(121,000	)
Losses charged off		(19,704	)		-			-		-			-		-		-		-			(19,704	)
Recoveries		-			-			-		100,000			-		-		-		-			100,000
Balance, end of year	$	413,194		$	129,628		$	175,295	$	167,431		$	64,297	$	364,191	$	11,916	$	312		$	1,326,264

Ending balance: Individually evaluated for impairment	$	-		$	47,101		$	9,055	$	-		$	-	$	-	$	-	$	-		$	56,156

Ending balance: Collectively evaluated for impairment	$	413,194		$	82,527		$	166,240	$	167,431		$	64,297	$	364,191	$	11,916	$	312		$	1,270,108
Loans:
Ending balance	$	69,651,176		$	11,818,901		$	21,350,885	$	13,654,705		$	3,886,915	$	12,595,769	$	512,559	$	16,875		$	133,487,785

Ending balance: Individually evaluated for impairment	$	661,329		$	1,254,994		$	651,629	$	193,553		$	-	$	35,000	$	-	$	-		$	2,796,505

Ending balance: Collectively evaluated for impairment	$	68,989,847		$	10,563,907		$	20,699,256	$	13,461,152		$	3,886,915	$	12,560,769	$	512,559	$	16,875		$	130,691,280

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, 2017 and December 31, 2016:

	March 31, 2017
	(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	$	69,834,200	$	8,933,744	$	19,046,044	$	13,843,517	$	5,023,881	$	11,166,186	$	516,794	$	14,451	$	128,378,817
Special mention		-		732,213		-		666,982		-		527,249		-		-		1,926,444
Substandard		166,108		1,397,008		649,819		190,306		-		209,115		-		-		2,612,356
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-

Total	$	70,000,308	$	11,062,965	$	19,695,863	$	14,700,805	$	5,023,881	$	11,902,550	$	516,794	$	14,451	$	132,917,617

	December 31, 2016
	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	$	69,445,763	$	9,432,892	$	20,820,522	$	12,661,827	$	3,886,915	$	11,836,642	$	512,559	$	16,875	$	128,613,995
Special mention		-		740,564		-		678,059		-		548,343		-		-		1,966,966
Substandard		205,413		1,645,445		530,363		314,819		-		210,784		-		-		2,906,824
Doubtful		-		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-		-

Total	$	69,651,176	$	11,818,901	$	21,350,885	$	13,654,705	$	3,886,915	$	12,595,769	$	512,559	$	16,875	$	133,487,785

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, 2017.

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, 2017 and December 31, 2016:

	March 31, 2017
	30-59 Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
One to Four-family mortgage loans	$	-	$	10,326	$	-	$	10,326	$	69,989,982	$	70,000,308	$	-
One to Four Family - Investment		-		8,755		-		8,755		11,054,210		11,062,965		-
Multi-family mortgage loans		-		-		-		-		19,695,863		19,695,863		-
Nonresidential mortgage loans		-		-		-		-		14,700,805		14,700,805		-
Construction & Land Loans		-		-		-		-		5,023,881		5,023,881		-
Real estate secured lines of credit		-		-		9,787		9,787		11,892,763		11,902,550		-
Commercial Loans		-		-		-		-		516,794		516,794		-
Other consumer loans		-		-		-		-		14,451		14,451		-

Total	$	-	$	19,081	$	9,787	$	28,868	$	132,888,749	$	132,917,617	$	-

	December 31, 2016
	30-59 Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days & Accruing
One to Four-family mortgage loans	$	85,844	$	10,416	$	37,950	$	134,210	$	69,516,966	$	69,651,176	$	-
One to Four Family - Investment		-		-		10,425		10,425		11,808,476		11,818,901		-
Multi-family mortgage loans		-		-		-		-		21,350,885		21,350,885		-
Nonresidential mortgage loans		-		-		-		-		13,654,705		13,654,705		-
Construction & Land Loans		-		-		-		-		3,886,915		3,886,915		-
Real estate secured lines of credit		80,000		-		9,861		89,861		12,505,908		12,595,769		-
Commercial Loans		-		-		-		-		512,559		512,559		-
Other consumer loans		4,072		-		-		4,072		12,803		16,875		-

Total	$	169,916	$	10,416	$	58,236	$	238,568	$	133,249,217	$	133,487,785	$	-

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 but also include loans modified in troubled debt restructurings (“TDRs”).

The following tables present impaired loans at March 31, 2017, March 31, 2016 and December 31, 2016:

	March 31, 2017
	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	$	657,564	$	657,564	$	-	$	690,904	$	8,309
One to Four family - Investment		584,569		584,569		-		587,715		8,219
Multi-family mortgage loans		528,972		528,972		-		529,578		7,334
Nonresidential mortgage loans		190,306		190,306		-		191,933		3,055
Construction & Land loans		-		-		-		-		-
Real estate secured lines of credit		33,792		33,792		-		34,430		430
Commercial Loans		-		-		-		-		-
Other consumer loans		-		-		-		-		-
Loans with a specific valuation allowance
One- to four-family mortgage loans		-		-		-		-		-
One to Four family - Investment		659,912		612,811		47,101		662,184		7,647
Multi-family mortgage loans		120,847		111,792		9,055		121,052		1,616
Nonresidential mortgage loans		-		-		-		-		-
Construction & Land loans		-		-		-		-		-
Real estate secured lines of credit		-		-		-		-		-
Commercial Loans		-		-		-		-		-
Other consumer loans		-		-		-		-		-

	$	2,775,962	$	2,719,806	$	56,156	$	2,817,796	$	36,610

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

	As of December 31, 2016										Three months ended March 31, 2016
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Investment in Impaired Loans		Interest Income Recognized		Average Investment in Impaired Loans		Interest Income Recognized
Loans without a specific valuation allowance
One- to four-family mortgage loans	$	661,329	$	661,329	$	-	$	490,944	$	20,265	$	220,964	$	4,345
One to Four family - Investment		590,649		590,649		-		601,128		31,977		818,841		13,431
Multi-family mortgage loans		530,364		530,363		-		533,691		40,083		536,970		7,722
Nonresidential mortgage loans		193,553		193,553		-		199,035		12,570		2,112,106		33,792
Construction & Land loans		-		-		-		-		-		297,116		4,464
Real estate secured lines of credit		35,000		35,000		-		38,647		1,972		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		664,345		617,244		47,101		673,934		36,525		682,323		9,274
Multi-family mortgage loans		121,265		112,210		9,055		122,577		9,183		237,075		4,543
Nonresidential mortgage loans		-		-		-		-		-		-		-
Construction & Land loans		-		-		-		-		-		-		-
Real estate secured lines of credit		-		-		-		-		-		-		-
Commercial Loans		-		-		-		-		-		-		-
Other consumer loans		-		-		-		-		-		-		-

	$	2,796,505	$	2,740,348	$	56,156	$	2,659,956	$	152,575	$	5,152,145	$	81,173

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, 2017 and December 31, 2016. This table excludes performing TDRs.

	March 31,		December 31,
	2017		2016

One- to four-family mortgage loans	$	-	$	37,950
One to four family - Investment		-		10,425
Multi-family mortgage loans		-		-
Nonresidential mortgage loans		-		-
Land loans		-		-
Real estate secured lines of credit		9,787		9,861
Commercial Loans		-		-
Other consumer loans		-		-

Total	$	9,787	$	58,236

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

At March 31, 2017, the Company had no loans that were modified in TDRs and impaired.

At December 31, 2016, the Company had loans that were modified in TDRs 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 TDRs by class for the year ended December 31, 2016.

Newly classified TDRs:

	December 31, 2016
	Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance
Mortgage loans on real estate:
Residential 1-4 family - Owner Occupied		1	$	499,562	$	538,000
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	$	499,562	$	538,000

There were no newly classified TDRs during the three months ended March 31, 2017 or March 31, 2016. The TDRs described above did not increase the allowance for loan losses or result in any charge-offs during the periods ended March 31, 2017, March 31, 2016 and December 31, 2016.

	December 31, 2016
	Interest Only		Term		Combination		Total Modification
Mortgage loans on real estate:
Residential 1-4 family - Owner Occupied	$	-	$	-	$	538,000	$	538,000
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		-		-		-		-

	$	-	$	-	$	538,000	$	538,000

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

There were no TDRs modified during the three months ended March 31, 2017 and the year ended December 31, 2016 that subsequently defaulted.

As of March 31, 2017, borrowers with loans designated as TDRs totaling $1,639,000 of residential real estate loans and $650,000 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, 2017, the Company had no TDRs that did not meet the criteria for placement back on accrual status.

There was one foreclosed real estate property with a fair market value of $37,950 at March 31, 2017. There were no foreclosed real estate properties at December 31, 2016. There are no consumer mortgage loans in process of foreclosure at March 31, 2017.

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, 2017 or March 31, 2016.

The computations are as follows:

	Three months ended March 31,
	2017		2016

Net Income	$	158,445	$	36,234

Shares Outstanding for basic EPS:

Average shares outstanding:		1,719,250		1,719,250
Less: Average Unearned ESOP shares:		58,412		62,904
		1,660,838		1,656,346

Additional dilutive shares:		-		-

Shares outstanding for basic and diluted EPS:		1,660,838		1,656,346

Basic and diluted earnings per share:	$	0.10	$	0.02


Weighted-average common shares outstanding (basic and diluted)		1,660,838		1,656,346

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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, 2017 and December 31, 2016, 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.

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 is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer was 1.25% at March 31, 2017 and 0.625% at December 31, 2016.

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.

Cincinnati Bancorp

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, 2017

Total risk-based capital (to risk-weighted assets)	$	19,847		17.9	%	$	8,868		8.0	%	$	11,085		10.0	%

Tier I capital (to risk-weighted assets)		18,521		16.1	%		6,651		6.0	%		8,868		8.0	%

Common Equity Tier I capital (to risk-weighted assets)		18,521		16.1	%		4,988		4.5	%		7,205		6.5	%

Tier I capital (to adjusted total assets)		18,521		12.0	%		6,161		4.0	%		7,702		5.0	%

As of December 31, 2016

Total risk-based capital (to risk-weighted assets)	$	19,657		18.1	%	$	8,682		8.0	%	$	10,853		10.0	%

Tier I capital (to risk-weighted assets)		18,331		16.9	%		6,512		6.0	%		8,682		8.0	%

Common Equity Tier I capital (to risk-weighted assets)		18,331		16.9	%		4,884		4.5	%		7,054		6.5	%

Tier I capital (to adjusted total assets)		18,331		11.9	%		6,164		4.0	%		7,705		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.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

Level 3

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

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, 2017 and December 31, 2016:

			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, 2017
Mortgage-backed securities of government sponsored entities	$	1,550,654	$	-	$	1,550,654	$	-
Mortgage servicing rights		848,754		-		-		848,754

December 31, 2016
Mortgage-backed securities of government sponsored entities	$	1,779,199	$	-	$	1,779,199	$	-
Mortgage servicing rights		730,164		-		-		730,164

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.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months		Three Months
	Ended		Ended
	March 31,		March 31,
	2017		2016
	(Unaudited)

Fair value as of the beginning of the period	$	730,164	$	630,316
Recognition of mortgage servicing rights on the sale of loans		39,453		29,829
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model		79,137		(30,830	)

Fair value at the end of the period	$	848,754	$	629,315

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.

Collateral-dependent Impaired Loans, Net of Allowance for Loan Losses

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.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell, when the real estate is acquired. Estimated fair value of real estate is based on appraisals or evaluations. Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

Appraisals of real estate are obtained when the real estate is acquired and an appraisal is subsequently deemed necessary by events in the environment by the Chief Financial Officer. Appraisals are reviewed internally for accuracy and consistency in accordance with regulatory requirements. Appraisers are selected from the list of approved appraisers maintained by management.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fell at March 31, 2017 and December 31, 2016.

			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, 2017

Foreclosed assets	$	37,950	$	-	$	-	$	37,950

December 31, 2016

Collateral-dependent impaired loans	$	37,950	$	-	$	-	$	37,950

Unobservable (Level 3) Inputs

The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements at March 31, 2017 and December 31, 2016:

	Fair Value at March 31, 2017		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	848,754	Discounted cash flow	Discount rate PSA prepayment speeds	10% 105%-333%

Foreclosed assets	$	37,950	Market comparable properties	Marketability discount	10%-15% (12%)

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

	Fair Value at December 31, 2016		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans (collateral dependent)	$	37,950	Market comparable properties	Marketability discount	10%-15% (12%)
Mortgage servicing rights	$	730,164	Discounted cash flow	Discount rate PSA prepayment speeds	10% 167%-407%

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 Bank’s current origination rates for similar loans and adjusted to reflect the inherent credit risk.

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 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.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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, 2017 and December 31, 2016, the fair value of commitments was not material.

The following table presents estimated fair values of the Company’s financial instruments not previously presented at March 31, 2017 and December 31, 2016:

			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, 2017
Financial Assets:
Cash and cash equivalents	$	10,655,745	$	10,655,745	$	-	$	-
Loans held for sale		2,155,196		-		2,209,585		-
Loans, net of allowance for loan losses		129,225,415		-		-		132,115,229
Federal Home Loan Bank stock		908,000		908,000		-		-
Interest receivable		395,746		-		395,746		-
Federal Home Loan Bank lender risk account receivable		1,683,345		-		-		1,671,248

Financial Liabilities:
Deposits		109,034,671		37,600,671		65,689,924		-
Federal Home Loan Bank advances		23,120,803		-		23,169,949		-
Advances from borrowers for taxes and insurance		969,733		-		969,733		-
Interest payable		26,116		-		26,116		-

December 31, 2016
Financial Assets:
Cash and cash equivalents	$	11,128,155	$	11,128,155	$	-	$	-
Loans held for sale		1,314,737		-		1,387,954		-
Loans, net of allowance for loan losses		131,103,482		-		-		133,341,700
Federal Home Loan Bank stock		908,000		908,000		-		-
Interest receivable		383,238		-		383,238		-
Federal Home Loan Bank lender risk account receivable		1,705,613		-		-		1,729,430

Financial Liabilities:
Deposits		108,091,626		37,090,482		65,707,476		-
Federal Home Loan Bank advances		25,559,370		-		25,648,512		-
Advances from borrowers for taxes and insurance		1,421,899		-		1,421,899		-
Interest payable		24,232		-		24,232		-

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, 2017 and December 31, 2016 follows:

	March 31,			December 31,
	2017			2016
			Interest Rate			Interest Rate
	Amount		Range	Amount		Range

Commitments to fund fixed-rate loans	$	10,230,913	3.50% - 5.00%	$	1,718,522	3.75% - 4.875%

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, 2017 and December 31, 2016 were composed of the following:

	March 31,		December 31,
	2017		2016
	(Unaudited)

Commitments to originate loans	$	4,438,810	$	5,743,092
Forward sale commitments		12,386,109		3,275,626
Lines of credit		11,033,952		9,876,931

NOTE 8:

Accumulated Other Comprehensive Loss

The components of other comprehensive loss by component, net of tax, included in stockholders’ equity at March 31, 2017 and December 31, 2016 are as follows:

	March 31,			December 31,
	2017			2016
	(Unaudited)

Net unrealized gain on available for sale securities	$	9,828		$	12,751

Directors' Retirement Plan		(320,869	)		(324,404	)

Tax benefit		109,184			110,385

Net of tax amount	$	(201,857	)	$	(201,268	)

NOTE 9:

Recent Accounting Pronouncements

FASB ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

In March 2017 the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 applies to all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The ASU requires the premium to be amortized to the earliest call date, not the maturity date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. ASU No. 2017-08 is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted and management elected to adopt the update as of January 1, 2017. Adoption did not have a material impact on the Company’s results of operations or financial position.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

FASB ASU 2017-07, Compensation – Retirement Benefits (Topic 715)

ASU No. 2017-07 was issued in March 2017 and applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715. The amendments in this update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost, as defined, are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The amendments in ASU No. 2017-07 are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The amendments in this update are to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The Company is currently evaluating this ASU to determine the impact on its consolidated financial position, results of operations and cash flows.

FASB ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments

On August 26, 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), ("ASU 2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under FASB Accounting Standards Codification (FASB ASC) 230, Statement of Cash Flows. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company has assessed ASU 2016-15 and does not expect a significant impact on its accounting and disclosures.

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

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the impact of these amendments to the Company’s financial position and results of operations and currently does not know or cannot reasonably quantify the impact of the adoption of the amendments as a result of the complexity and extensive changes from these amendments. The Allowance for Loan Losses (ALL) estimate is material to the Company and given the change from an incurred loss model to a methodology that considers the credit loss over the life of the loan, there is the potential for an increase in the ALL at adoption date. The Company is anticipating a significant change in the processes and procedures to calculate the ALL, including changes in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice that utilizes the incurred loss model. In addition, the current accounting policy and procedures for the other-than-temporary impairment on available-for-sale securities will be replaced with an allowance approach. The Company expects to begin developing and implementing processes during the next two years to ensure it is fully compliant with the amendments at adoption date. For additional information on the allowance for loan losses, see Note 3.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

FASB ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718)

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting.” This ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance will also require an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (current guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU No. 2016-09 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company does not anticipate a material change in the Company’s financial position or results of operations as a result of adopting ASU No. 2016-09. The Company is currently implementing the new processes and does not anticipate significant changes.

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.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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

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

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

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

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.

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 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. The impact is not expected to have a material effect on the Company’s financial position or results of operations since the Company does not have a material amount of lease agreements. The Company is currently in the process of fully evaluating the amendments and will subsequently implement new processes to comply with the ASU. In addition, the Company will change its current accounting practice to comply with the amendments and such changes as mentioned above.

FASB ASU 2016-01 Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

Cincinnati Bancorp

Notes to Condensed Consolidated Financial Statements (Unaudited)

For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of the amendments in this update is not permitted, except that early application by public business entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that have not yet been made available for issuance are permitted as of the beginning of the fiscal year of adoption for the following amendment: An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of these amendments, but does not expect them to have a material effect on the Company’s financial position or results of operations since it does not have any equity securities or a valuation allowance. However, the amendments will have an impact on certain items that are disclosed at fair value that are not currently utilizing the exit price notion when measuring fair value. At this time the Company cannot quantify the change in the fair value of such disclosures since the Company is currently evaluating the full impact of the Update and is in the planning stages of developing appropriate procedures and processes to comply with the disclosure requirements of such amendments. The current accounting policies and procedures will be modified after the Company has fully evaluated the standard to comply with the accounting changes mentioned above. For additional information on fair value of assets and liabilities, see Note 14.

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, 2017, 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. The Company is in its preliminary stages of evaluating the impact of these amendments, although it does not expect the amendments to have a significant impact to the Company’s financial position or results of operations. The amendments could potentially impact accounting procedures and processes over the recognition of certain revenue sources, including, but not limited to, non-interest income. The Company is expecting to begin developing processes and procedures during 2017 to ensure it is fully compliant with these amendments at the date of adoption.

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, 2017 and 2016 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 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 which could result in, among other things, increased deposit insurance premiums and assessments, increased capital requirements, and increased regulatory fees and compliance costs, and the resources we have available to address such changes;

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

loan delinquencies and changes in the underlying cash flows of our borrowers;

our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

the 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, 2016.

Comparison of Financial Condition at March 31, 2017 and December 31, 2016

Total Assets. Total assets were $153.5 million at March 31, 2017, a decrease of $1.4 million, or 0.9%, from the $155.0 million at December 31, 2016. The decrease resulted primarily from decrease in cash and cash equivalents of $472,000 and net loans of $1.9 million, offset in part by an increase of $840,000 in loans held for sale.

Cash and Cash Equivalents. Cash and cash equivalents decreased $472,000, or 4.3%, to $10.7 million at March 31, 2017 from $11.1 million at December 31, 2016. This decrease was primarily the result of net repayments of FHLB borrowings of $2.4 million, offset in part, by an increase in total deposits of $943,000.

Net Loans. Net loans decreased $1.9 million, or 1.4%, to $129.2 million at March 31, 2017 from $131.1 million at December 31, 2016. During the three months ended March 31, 2017, we originated $9.1 million of loans for portfolio, $3.5 million of which were one-to-four family residential real estate loans, $987,000 million were multi-family construction loans, $1.7 million were nonresidential loans, $1.8 million were home equity lines of credit, $1.1 million were residential construction and land loans. During the three months ended March 31, 2017, we sold $9.3 million of one to four family residential loans, on both a servicing–retained and servicing–released basis. Subject to market conditions, 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 construction loan portfolio, which grew $1.1 million or 29.3%. The nonresidential portfolio increased $1.0 million or 7.7% during the three months ended March 31, 2017. The one-to-four family owner occupied portfolio grew $349,000, or 0.5%. The one-to-four family – investment loan portfolio decreased $756,000, or 6.4%. The home equity lines of credit portfolio decreased $693,000 or 5.5% to $11.9 million at March 31, 2017. 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 certain private sector third-party buyers.

Loans Held for Sale. Loans held for sale increased $840,000, or 63.9%, to $2.2 million at March 31, 2017 from $1.3 million at December 31, 2016. The increase reflects higher secondary market activity as the Bank received Direct Endorsement authority from the FHA and favorable market conditions.

Available-for-Sale Securities. Available-for-sale securities, which consisted entirely of U.S. government-sponsored mortgage-backed securities, decreased $229,000, or 12.9%, to $1.6 million at March 31, 2017 from $1.8 million at December 31, 2016. There were no securities purchases during the three months ended March 31, 2017. There were $216,000 in maturities, the remaining difference was due to the change in market values within the portfolio during the three months ended March 31, 2017.

Deposits. Deposits increased $943,000, or 0.9%, to $109.0 million at March 31, 2017 from $108.1 million at December 31, 2016. Core deposits, defined as demand, NOW and savings accounts, increased $878,000, or 2.1%, to $43.5 million at March 31, 2017 from $42.7 million at December 31, 2016. The increase was primarily the result of marketing efforts directed at increasing demand deposit accounts and savings accounts. Time deposits increased $65,000, or 0.1%, to $65.5 million at March 31, 2017 from $65.4 million at December 31, 2016. Certificates originated through the National CD Rateline service declined $1.5 million to $17.4 million at March 31, 2017. During the three months ended March 31, 2017, management continued its strategy of pursuing growth in lower cost core deposits, and intends to continue its efforts to increase core deposits.

Federal Home Loan Bank Advances. Federal Home Loan Bank Advances decreased $2.4 million, or 9.5%, to $23.1 million at March 31, 2017. The decrease was primarily due to the decrease in net loan growth.

Stockholders’ Equity. Stockholders’ equity increased $158,000, or 0.9%, to $18.5 million at March 31, 2017 from $18.4 million at December 31, 2016. The increase was primarily due to net income for the period of $158,000.

Comparison of Operating Results for the Three Months Ended March 31, 2017 and March 31, 2016

General. Net income for the quarter ended March 31, 2017 was $158,000, compared to net income of $36,000 for the quarter ended March 31, 2016, an increase of $122,000, or 337.3%. The increase was primarily due to a $156,000 increase in noninterest income and an $83,000 increase in net interest income, partially offset by an increase in noninterest expense of $49,000 and an increase in the provision of for income taxes of $67,000.

Interest Income. Interest income increased $77,000, or 6.0%, to $1.4 million for the quarter ended March 31, 2017 from the comparable quarter in 2016. Interest income on loans increased $77,000, or 6.1%, to $1.3 million as of March 31, 2017. The average balance of loans during the three months ended March 31, 2017 increased $7.8 million to $132.1 million, compared to $124.4 million for the three months ended March 31, 2016. The average yield on loans decreased 1 basis point to 4.08% for the three months ended March 31, 2017 from 4.09% for the three months ended March 31, 2016. Interest income on securities available-for-sale decreased $4,000 due to a 44 basis point decrease in average yield on the securities portfolio and a $713,000 decrease in the balance of the average securities portfolio during the quarter ended March 31, 2017. Interest income on other investments increased $4,000 for the three months ended March 31, 2017 due to an increase in average balances of $3.7 million in other interest earning assets compared to the three months ended March 31, 2016.

Interest Expense. Total interest expense decreased $6,000, or 1.8%, to $326,000 for the quarter ended March 31, 2017 from $332,000 for the quarter ended March 31, 2016. Interest expense on deposit accounts decreased 25,000, or 9.5%, to $242,000 for the quarter ended March 31, 2017 from $267,000 for the quarter ended March 31, 2016. The decrease between comparable quarters in 2017 from 2016 was primarily due to a $13,000 decrease in interest expense on certificates of deposit resulting from a $2.6 million, or 3.8%, decrease in the average balance of these certificates. The average cost of certificates decreased 2 basis points to 1.37%. Checking interest expense decreased $12,000 from the comparable quarter in 2016. The decrease in interest expense in the checking accounts reflects the termination of the bonus incentives offered on new checking accounts during the three months ended March 31, 2016. The bonus promotion program ended at the end of June 2016. The average balances in demand interest bearing and non-interest bearing accounts during the three months ended March 31, 2017 increased $3.2 million to $18.4 million compared to $15.1 million for the three months ended March 31, 2016. Savings interest expense remained unchanged at $5,000 during the quarter ended March 31, 2017 compared to March 31, 2016.

Interest expense on FHLB advances increased $19,000, or 29.2%, to $84,000 for the quarter ended March 31, 2017 from $65,000 for the quarter ended March 31, 2016. The average balance of advances increased $5.2 million, or 26.6%, for the quarter ended March 31, 2017. The average cost of FHLB borrowing increased 3 basis points. The increase in the cost of advances results from increases in short term interest rates.

Net Interest Income. Net interest income increased $83,000, or 8.7%, to $1.0 million for the quarter ended March 31, 2017. Average interest-earning assets increased $10.8 million primarily due to a $7.8 million increase in average outstanding loans for the quarter ended March 31, 2017. In addition, DDA balances held at the Federal Home Loan Bank were reclassified as interest earning as the account was migrated from a compensating balance pricing structure to an explicit pricing structure. Interest on other interest earning assets increased $4,000 primarily due to an increase in average balances of $3.7 million for the quarter ended March 31, 2016. Average interest-bearing liabilities increased $4.9 million from the same quarter in 2016 due to the funding needed for the increase in lending. The interest rate spread decreased 17 basis points to 2.82% for the quarter ended March 31, 2017 compared to 2.99% at quarter ended March 31, 2016. The net interest margin increased 1 basis point to 2.98% for the first of 2017 from 2.97% for the quarter ended March 31, 2016.

Provision for Loan Losses. There was no provision for loan losses recorded for the quarters ended March 31, 2017 and 2016. No provision was recorded based on managements’ evaluation of the improving quality of the loan portfolio, as total delinquencies and other nonperforming loans decreased, and continued favorable economic conditions.

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, 2017. 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 increased $156,000, or 40.3%, to $542,000 for the quarter ended March 31, 2017 from $386,000 for the comparable quarter in 2016. The increase was primarily due to a $110,000 increase in fair market valuation of existing mortgage servicing rights in the three months ended March 31, 2017 for the comparable quarter in 2016. The gain on sale of loans increased $54,000, or 22.4%, to $296,000 for the quarter ended March 31, 2017 from $241,000 for the comparable quarter in 2016. Servicing income on the sold loan portfolio increased $10,000 due to an increase in the total amount of loans serviced, primarily, for the FHLB – Cincinnati and Freddie Mac.

Non-Interest Expense. Non-interest expense increased $49,000, or 3.8%, to $1.3 million for the quarter ended March 31, 2017. The increase was due primarily to a $41,000, or 6.5%, increase in salary and employee benefits to $677,000 in the first quarter of 2017 from $636,000 for the comparable quarter in 2016 caused by increased staffing demands, increased salaries, and increased payroll expense. Director compensation increased $10,000 to $82,000 for the quarter ended March 31, 2017. The increase was primarily due to additional committee meetings related to being a public company. Data processing expense increased $11,000, or 9.0%, to $139,000 during the quarter ended March 31, 2017 from $128,000 for the quarter ended March 31, 2016. The increase was due to bank growth and additional products. Advertising expense decreased $8,000, or 23.2%. Loan cost expense decreased $9,000 or 14.8% primarily due to a reduction in lender credits given to borrowers due to market conditions. Deposit insurance premiums decreased $23,000 during the quarter ended March 31, 2017 due to a reduction in the FDIC insurance assessment rates.

Federal Income Taxes. Federal income taxes increased $67,000 due to an increase in pre-tax income of $189,000 for the quarter ended March 31, 2017 compared to pre-tax income for the quarter ended March 31, 2016.

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,
	2017							2016
	Average Outstanding Balance		Interest		Average Yield/Rate (5)			Average Outstanding Balance		Interest		Average Yield/Rate (5)
	(Dollars in thousands)
Interest-earning assets:
Loans	$	132,149	$	1,348		4.08	%	$	124,358	$	1,271		4.09	%
Securities		1,643		1		0.24			2,356		4		0.68
Other (1)		5,506		14		1.02			1,766		10		2.27
Total interest-earning assets		139,298		1,363		3.91			128,480		1,285		4.14
Non-interest-earning assets		14,361							16,078
Total assets	$	153,659						$	144,558

Interest-bearing liabilities:
Savings	$	24,116	$	5		0.08		$	22,100	$	5		0.09
Interest-bearing demand		5,793		13		0.90			5,550		25		1.80
Certificates of deposit		65,474		224		1.37			68,067		237		1.39
Total deposits		95,383		242		1.01			95,717		267		1.12
Borrowings		24,716		85		1.36			19,516		65		1.33
Total interest-bearing liabilities		120,099		327		1.09			115,233		332		1.15
Non-interest-bearing Demand		12,595							9,593
Other non-interest-bearing liabilities		2,763							2,434
Total non- interest-bearing liabilities		15,358							12,027
Total equity		18,202							17,298
Total liabilities and total equity	$	153,659						$	144,558
Net interest income			$	1,036						$	953
Net interest rate spread (2)						2.82	%						2.99	%
Net interest-earning assets (3)	$	19,199						$	13,247
Net interest margin (4)						2.98	%						2.97	%
Average interest-earning assets to interest-bearing liabilities						115.99	%						111.50	%

(1)

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

(2)

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

(3)

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

(4)

Net interest margin represents 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, 2017, we had $23.1 million outstanding in advances from the FHLB. At March 31, 2017, we had collateral based capacity to borrow $52.1 million. The Bank had additional lines of credit with two commercial banks totaling $6.5 million. Additionally the Bank has contingent funding sources with CDARS and the StoneCastle’s Federally Insured Cash Account (FICA) program.

While maturities and scheduled amortization of loans and securities are 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 $542,000 for the three months ended March 31, 2017, and $381,000 for the three months ended March 31, 2016. Net cash provided (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 $2.0 million for the three months ended March 31, 2017, and ($3.2) million for three months ended March 31, 2016. Net cash provided (used) by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was ($2.0) million for the three months ended March 31, 2017, and $6.0 million for the three months ended March 31, 2016.

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, 2017, Cincinnati Bancorp (on an unconsolidated, stand-alone basis) had liquid assets of $291,000.

At March 31, 2017, the Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $18.5 million, or 12.0% of adjusted total assets, which is above the well-capitalized required level of $7.7 million, or 5.0%; total risk-based capital of $19.8 million, or 17.9% of risk-weighted assets, which is above the well-capitalized required level of $11.1 million, or 10.0%; and common equity tier 1 risk based capital of $18.5 million, or 16.1%, of risk weighted assets, which is above the well-capitalized required level of $7.2 million, or 6.5%. At December 31, 2016, the Bank exceeded all of its regulatory capital requirements with a Tier 1 leverage capital level of $18.3 million, or 11.9% of adjusted total assets, which is above the well-capitalized required level of $7.7 million, or 5.0%; and total risk-based capital of $19.7 million, or 18.1% of risk-weighted assets, which is above the well-capitalized required level of $10.9 million, or 10.0%. Accordingly, Cincinnati Federal was categorized as well capitalized at March 31, 2017, and December 31, 2016. Management is not aware of any conditions or events since the most recent notification that would change its category.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2017. 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, 2017, 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 consolidated financial condition or results of operations.

Item 1A.

Risk Factors

Not applicable, as the Company 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

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

101

The following financial information from Cincinnati Bancorp Quarterly Report on Form 10-Q, for the quarter ended March 31, 2017, 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.

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

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 12, 2017	/s/ Joseph V. Bunke
	Joseph V. Bunke
	President
	(Principal Executive Officer)

Date: May 12, 2017	/s/ Herbert C. Brinkman
	Herbert C. Brinkman
	Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

Cincinnati Bancorp - FORM 10-Q - May 12, 2017

Attached files

Cincinnati Bancorp Reports