New Bancorp, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - New Bancorp, Inc.	ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - New Bancorp, Inc.	ex31-2.htm
EX-32 - EXHIBIT 32 - New Bancorp, Inc.	ex32.htm

Table Of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

[ ]	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. 333-204842

New Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland	47-4314938
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

45 North Whittaker Street, New Buffalo, Michigan	49117
(Address of Principal Executive Offices)	(Zip Code)

(269) 469-2222

(Registrant’s telephone number)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.

YES [X] NO [ ]

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

YES [X] NO [ ]

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

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if smaller reporting company)

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

YES [ ] NO [X]

As of May 11, 2016, the latest practicable date, 696,600 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

Table Of Contents

New Bancorp, Inc.

Form 10-Q

Index

		Page
Part I. Financial Information

Item 1.	Condensed Financial Statements

	Condensed Balance Sheets	2

	Condensed Statements of Operations	3

	Condensed Statements of Comprehensive Income (Loss)	4

	Condensed Statement of Changes in Shareholders’ Equity	5

	Condensed Statements of Cash Flows	6

	Notes to Condensed Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

Item 4.	Controls and Procedures	35

Part II. Other Information

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	36

	Signature Pages	37

Table Of Contents

Part I. – Financial Information

Item 1.

Financial Statements

New Bancorp, Inc.

Condensed Consolidated Balance Sheets

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

(In thousands, except share data)

	March 31,			December 31,
Assets	2016			2015
Cash and due from banks	$	1,750		$	7,132
Interest-earning demand deposits		11,657			1,678

Cash and cash equivalents		13,407			8,810

Interest-earning time deposits in banks		992			992
Loans, net of allowance for loan losses of $1,155 March 31, 2016 and December 31, 2015		74,646			76,575
Premises and equipment		2,017			2,024
Federal Home Loan Bank stock		468			468
Foreclosed real estate held for sale, net		245			245
Accrued interest receivable		204			217
Bank owned life insurance		5,289			5,247
Mortgage servicing rights		317			317
Prepaid expenses and other assets		97			150

Total assets	$	97,682		$	95,045

Liabilities and Shareholders' Equity

Liabilities
Deposits
Demand	$	20,927		$	20,435
Savings and money market accounts		19,695			18,918
Time		34,351			32,913

Total deposits		74,973			72,266

Federal Home Loan Bank advances		6,927			6,927
Accrued nonqualified benefit plans		135			139
Other liabilities		830			639

Total liabilities		82,865			79,971

Commitments and Contigencies		-			-

Redeemable common stock held by Employee Stock Ownership Plan (ESOP)		44			44

Shareholders' Equity
Preferred stock, $0.01 par value, 5,000,000 shares authorized, none issued		-			-
Common stock, $0.01 par value, 50,000,000 shares authorized, 696,600 shares issued and outstanding		7			7
Additional paid-in capital		5,754			5,754
Unearned ESOP shares		(523	)		(523	)
Retained earnings		9,579			9,836

Total shareholders' equity		14,817			15,074

Less maximum cash obligation related to ESOP shares		(44	)		(44	)
Total shareholders' equity less maximum cash obligation related to ESOP shares		14,773			15,030
Total liabilities and shareholders' equity	$	97,682		$	95,045

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

Table Of Contents

New Bancorp, Inc.

Condensed Consolidated Statements of Operations

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

(In thousands, except per share data)

	Three Months Ended March 31,
	2016			2015
Interest Income
Loans	$	825		$	800
Interest-bearing deposits		12			12

Total interest income		837			812

Interest Expense
Deposits		153			132
Borrowings		33			35

Total interest expense		186			167

Net Interest Income		651			645

Provision for Loan Losses		-			-

Net Interest Income After Provision for Loan Losses		651			645

Noninterest Income
Service charges and fees		62			67
Gain on sale of loans		18			101
Income from bank owned life insurance		42			41
Loan servicing fees, net		18			14
Other operating		8			23

Total noninterest income		148			246

Noninterest Expense
Salaries and employee benefits		566			443
Occupancy and equipment		117			124
Data processing fees		101			96
Franchise taxes		9			9
FDIC insurance premiums		20			18
Insurance premiums		13			12
Professional services		124			52
Impairment losses and expenses of foreclosed real estate		5			9
Other		101			67

Total noninterest expense		1,056			830

Net Income (loss)	$	(257	)	$	61

Loss per share - basic and diluted	$	(0.40	)		N/A

Weighted-average shares outstanding - basic and diluted		644,247			N/A

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

Table Of Contents

New Bancorp, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

For the Three Months Ended March 31, 2016 and 2015

(In thousands)

	Three Months Ended March 31,
	2016			2015

Net income (loss)	$	(257	)	$	61

Other comprehensive income		-			-

Comprehensive income (loss)	$	(257	)	$	61

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

Table Of Contents

New Bancorp, Inc.

Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)

For the Three Months Ended March 31, 2016

(In thousands)

											Maximum Cash
					Shares						Obligation
	Common		Additional		Acquired			Retained			Related to
	Stock		Paid In Capital		by ESOP			Earnings			ESOP Shares			Total


Balance at January 1, 2016	$	7	$	5,754	$	(523	)	$	9,836		$	(44	)	$	15,030

Net loss for the three months ended March 31, 2016		-		-		-			(257	)		-			(257	)

Balance at March 31, 2016	$	7	$	5,754	$	(523	)	$	9,579		$	(44	)	$	14,773

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

Table Of Contents

New Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2016 and 2015

(In thousands)

	Three Months Ended March 31,
	2016			2015
Operating Activities
Net income (loss)	$	(257	)	$	61
Items not requiring (providing) cash:
Depreciation and amortization		50			53
Amortization of deferred loan origination fees and costs, net		1			3
Gain on sale of loans originated for sale		(18	)		(101	)
Proceeds from sales of loans originated for sale		707			3,200
Loans originated for sale		(695	)		(2,836	)
Cash surrender value of life insurance		(42	)		(41	)
Changes in:
Accrued interest receivable		13			(8	)
Prepaid expenses and other assets		53			52
Other liabilities		187			(2,508	)

Net cash used in operating activities		(1	)		(2,125	)

Investing Activities
Proceeds from sales of loans		-			663
Net change in loans		1,928			1,146
Purchase of premises and equipment		(37	)		-

Net cash provided by investing activities		1,891			1,809

Financing Activities
Net increase in deposits		2,707			3,391
Net change in federal funds purchased		-			(2,500	)

Net cash provided by financing activities		2,707			891

Increase (Decrease) in Cash and Cash Equivalents		4,597			575

Cash and Cash Equivalents, Beginning of Period		8,810			7,981

Cash and Cash Equivalents, End of Period	$	13,407		$	8,556

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest on deposits and borrowings	$	189		$	170

Supplemental Disclosure of Noncash Investing Activities
Transfers from loans to real estate acquired through foreclosure	$	-		$	338

Transfers from loans to loans held for sale	$	-		$	2,057

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

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1:

Basis of Presentation

The accompanying condensed consolidated balance sheet of New Bancorp, Inc. (the Company) as of December 31, 2015, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements of the Company as of March 31, 2016 and for the three months ended March 31, 2016 and 2015, were prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Accordingly, these condensed financial statements should be read in conjunction with the financial statements and notes thereto of the Company for the year ended December 31, 2015 included in the Company’s Form 10-K. Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Form 10-K.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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, valuation of deferred tax assets and fair values of financial instruments.

Note 2:

Securities

The Company had no investment securities at March 31, 2016 and December 31, 2015. The Company had no sales of investment securities during the three month periods ended March 31, 2016 and 2015.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Note 3:

Loans and Allowance for Loan Losses

The Company’s loan and allowance for loan losses policies are as follows:

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses and any unamortized deferred fees or costs on originated loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past-due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Bank’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

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

	March 31,			December 31,
	2016			2015
	(In thousands)
Real estate loans
Residential	$	42,690		$	41,972
Commercial		25,172			27,319
Construction and land		6,960			7,196
Commercial business		573			1,354
Consumer and other		888			321

Total loans		76,283			78,162

Less:
Net deferred loan (fees) costs, premiums and discounts		-			(2	)
Undisbursed loans in process		(482	)		(430	)
Allowance for loan losses		(1,155	)		(1,155	)

Net loans	$	74,646		$	76,575

The risk characteristics applicable to each segment of the loan portfolio are described below:

Residential Real Estate: The residential real estate loans are generally secured by owner-occupied 1-4 family residences. The Bank’s portfolio of home equity loans totaled $4.4 million and $4.2 million at March 31, 2016 and December 31, 2015, respectively, the preponderance of which were secured by first liens, or by second liens on properties where the Bank also holds the first lien. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Bank’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

Commercial Real Estate: Commercial real estate loans typically involve larger principal amounts, and repayment of these loans is generally dependent on the successful operations of the property securing the loan or the business conducted on the property securing the loan. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economy in the Bank’s market area.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Construction and Land: Construction and land loans are usually based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Bank until permanent financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long-term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economy in the Bank’s market area.

Commercial Business: The commercial business loan portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Consumer: The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors (such as unemployment and general economic conditions in the Bank’s market area) and the creditworthiness of a borrower.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

The following tables present by portfolio segment, the activity in the allowance for loan losses for the three months ended March 31, 2016 and 2015.

	For the Three Months Ended March 31, 2016
	Real Estate
						Construction			Commercial
	Residential		Commercial			and Land			Business			Consumer		Total
	(In thousands)
Allowance for loan losses:
Balance, January 1, 2016	$	648	$	383		$	102		$	19		$	3	$	1,155
Provision for loan losses		91		(72	)		(11	)		(12	)		4		-
Charge-offs		-		-			-			-			-		-
Recoveries		-		-			-			-			-		-

Balance, March 31, 2016	$	739	$	311		$	91		$	7		$	7	$	1,155

	For the Three Months Ended March 31, 2015
	Real Estate
						Construction			Commercial
	Residential			Commercial		and Land			Business			Consumer		Total
	(In thousands)
Allowance for loan losses:
Balance, January 1, 2015	$	575		$	418	$	126		$	23		$	5	$	1,147
Provision for loan losses		(11	)		14		(3	)		(1	)		1		-
Charge-offs		-			-		-			-			-		-
Recoveries		-			-		-			-			-		-

Balance, March 31, 2015	$	564		$	432	$	123		$	22		$	6	$	1,147

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of March 31, 2016 and December 31, 2015:

	At March 31, 2016
	Real Estate
					Construction		Commercial
	Residential		Commercial		and Land		Business		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending balance, individually evaluated for impairment	$	91	$	-	$	-	$	-	$	-	$	91

Ending balance, collectively evaluated for impairment	$	648	$	311	$	91	$	7	$	7	$	1,064

Loans:
Ending balance	$	42,690	$	25,172	$	6,960	$	573	$	888	$	76,283

Ending balance; individually evaluated for impairment	$	1,760	$	242	$	1,728	$	-	$	-	$	3,730

Ending balance; collectively evaluated for impairment	$	40,930	$	24,930	$	5,232	$	573	$	888	$	72,553

	At December 31, 2015
	Real Estate
					Construction		Commercial
	Residential		Commercial		and Land		Business		Consumer		Total
	(In thousands)
Allowance for loan losses:
Ending balance, individually evaluated for impairment	$	20	$	-	$	-	$	-	$	-	$	20

Ending balance, collectively evaluated for impairment	$	628	$	383	$	102	$	19	$	3	$	1,135

Loans:
Ending balance	$	41,972	$	27,319	$	7,196	$	1,354	$	321	$	78,162

Ending balance; individually evaluated for impairment	$	1,763	$	229	$	1,751	$	-	$	-	$	3,743

Ending balance; collectively evaluated for impairment	$	40,209	$	27,090	$	5,445	$	1,354	$	321	$	74,419

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Internal Risk Categories

The Bank has adopted a standard loan grading system for all loans. Loans are selected for a grading review based on certain characteristics, including concentrations of credit and upon delinquency of 90 days or more. Definitions are as follows:

Pass: Loans categorized as Pass are higher quality loans that do not fit any of the other categories described below.

Special Mention/Watch: The loans identified as special mention/watch have an obvious flaw or a potential weakness that deserves special management attention, but which has not yet impacted collectability. These flaws or weaknesses, if left uncorrected, may result in the deterioration of the prospects of repayment or the deterioration of the Bank’s credit position.

Substandard: These are loans with a well-defined weakness, where the Bank has a serious concern about the borrower’s ability to make full repayment if the weaknesses are not corrected. The loan may contain a flaw, which could impact the borrower’s ability to repay, or the borrower’s continuance as a “going concern”. When collateral values are not sufficient to secure the loan and other weaknesses are present, the loan may be rated substandard. A loan will also be graded substandard when full repayment is expected, but it must come from the liquidation of collateral. All loans that are past due 90 days or more are classified as substandard.

Doubtful: These are loans with major defined weaknesses, where future charge-off of a part of the credit is highly likely. The primary repayment source is no longer viable and the viability of the secondary source of repayment is in doubt. The amount of loss is uncertain due to circumstances within the credit that are not yet fully developed and the loan is rated “Doubtful” until the loss can be accurately estimated.

Loss: These are loans that represent near term charge-offs. Loans classified as loss are considered uncollectible and of such little value that it is not desirable to continue carrying them as assets on the Bank’s financial statements, even though partial recovery may be possible at some future time.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

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

	March 31, 2016
	Real Estate
					Construction		Commercial
	Residential		Commercial		and Land		Business		Consumer		Total
	(In thousands)
Pass	$	40,963	$	24,027	$	6,794	$	573	$	864	$	73,221
Special mention/Watch		638		542		-		-		24		1,204
Substandard		1,089		603		166		-		-		1,858
Doubtful		-		-		-		-		-		-

Total	$	42,690	$	25,172	$	6,960	$	573	$	888	$	76,283

	December 31, 2015
	Real Estate
					Construction		Commercial
	Residential		Commercial		and Land		Business		Consumer		Total
	(In thousands)
Pass	$	39,842	$	26,178	$	7,022	$	1,354	$	294	$	74,690
Special mention/Watch		686		529		8		-		27		1,250
Substandard		1,444		612		166		-		-		2,222
Doubtful		-		-		-		-		-		-

Total	$	41,972	$	27,319	$	7,196	$	1,354	$	321	$	78,162

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 past year.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

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

	March 31, 2016
													Total Loans >
	30-59 Days		60-89 Days		Greater Than		Total				Total Loans		90 Days &
	Past Due		Past Due		90 Days		Past Due		Current		Receivable		Accruing
	(In thousands)
Real estate
Residential	$	224	$	5	$	672	$	901	$	41,789	$	42,690	$	-
Commercial		-		-		-		-		25,172		25,172		-
Construction and land		-		-		166		166		6,794		6,960		-
Commercial business		-		-		-		-		573		573		-
Consumer		-		-		-		-		888		888		-

Total	$	224	$	5	$	838	$	1,067	$	75,216	$	76,283	$	-

	December 31, 2015
													Total Loans >
	30-59 Days		60-89 Days		Greater Than		Total				Total Loans		90 Days &
	Past Due		Past Due		90 Days		Past Due		Current		Receivable		Accruing
	(In thousands)
Real estate
Residential	$	455	$	100	$	598	$	1,153	$	40,819	$	41,972	$	-
Commercial		-		7		-		7		27,312		27,319		-
Construction and land		-		-		166		166		7,030		7,196		-
Commercial business		-		-		-		-		1,354		1,354		-
Consumer		-		-		-		-		321		321		-

Total	$	455	$	107	$	764	$	1,326	$	76,836	$	78,162	$	-

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable the Bank will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming multi-family and commercial loans but also include loans modified in troubled debt restructurings.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents impaired loans as of March 31, 2016 and for the three month periods ended March 31, 2016 and 2015:

											For the Three Months Ended
	As of and for the three months ended March 31, 2016										March 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance		Average Balance of Impaired Loans		Interest Income Recognized		Average Balance of Impaired Loans		Interest Income Recognized
	(In thousands)
Loans without a specific valuation allowance:
Real estate
Residential	$	1,285	$	1,315	$	-	$	1,451	$	15	$	1,613	$	17
Commercial		242		242		-		236		4		213		5
Construction and land		1,728		1,728		-		1,739		21		1,848		22
Commercial business		-		-		-				-		-		-
Consumer		-		-		-		-		-		-		-

Loans with a specific valuation allowance:
Real estate
Residential		475		485		91		270		1		208		2
Commercial		-		-		-		-		-		-		-
Construction and land		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Consumer		-		-		-		-		-		-		-

Totals	$	3,730	$	3,770	$	91	$	3,696	$	41	$	3,882	$	46

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

The following table presents impaired loans as of December 31, 2015:

	As of December 31, 2015
	Recorded Balance		Unpaid Principal Balance		Specific Allowance
	(In thousands)
Loans without a specific valuation allowance:
Real estate
Residential	$	1,607	$	1,647	$	-
Commercial		229		229		-
Construction and land		1,751		1,751		-
Commercial business		-		-		-
Consumer		-		-		-

Loans with a specific valuation allowance:
Real estate
Residential		156		166		20
Commercial		-		-		-
Construction and land		-		-		-
Commercial business		-		-		-
Consumer		-		-		-

Totals	$	3,743	$	3,793	$	20

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

	March 31,		December 31,
	2016		2015
	(In thousands)
Real estate loans
Residential	$	1,089	$	987
Commercial		5		7
Construction and land		166		166
Commercial business		-		-
Consumer and other		-		-

Total nonaccrual	$	1,260	$	1,160

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

At March 31, 2016 and December 31, 2015, the Company had certain loans that were modified in troubled debt restructurings and impaired. The modification of terms of such loans generally included one or a combination of the following: an extension of the maturity date or a reduction of the stated interest rate.

During the three months ended March 31, 2016 there were no new restructurings classified as TDRs.

The following table presents information regarding troubled debt restructurings by class for the three months ended March 31, 2015. Newly classified troubled debt restructurings are as follows:

	March 31, 2015
	Number of Contracts		Pre- Modification Balance		Post- Modification Balance
			(In thousands)
Real estate
Residential
Commercial		1	$	42	$	42
Construction and land		-		-		-
Commercial business		-		-		-
Consumer		-		-		-

		1	$	42	$	42

Newly restructured loans by type of modification are as follows for the three months ended March 31, 2015:

	Interest Only		Term		Combination		Total Modification
	(In thousands)
March 31, 2015

Real estate
Residential
Commercial	$	-	$	42	$	-	$	42
Construction and land		-		-		-		-
Commercial business		-		-		-		-
Consumer		-		-		-		-

	$	-	$	42	$	-	$	42

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

The troubled debt restructurings described above did not increase the allowance for loan losses or result in a charge-off during the three months ended March 31, 2015.

The Company had no troubled debt restructurings modified in the twelve months ended March 31, 2016 and 2015 that subsequently defaulted. A loan is considered to be in payment default once it is 30 days contractually past due under the loan’s modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Foreclosed real estate held for sale consisted of residential real estate at March 31, 2016 and December 31, 2015. There were $567,000 and $423,000 of residential real estate loans in the process of foreclosure at March 31, 2016 and December 31, 2015, respectively.

Note 4:

Regulatory Matters

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

At March 31, 2016 and December 31, 2015, quantitative measures established by regulation to ensure capital adequacy requires the Bank to maintain minimum amounts and ratios (set forth in the table below), of total capital, Tier 1 capital and common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 leverage capital to average total assets.

Basel III was effective for the Company on January 1, 2015. Basel III requires the Company and the Bank to maintain minimum amounts and ratios of common equity tier 1 capital to risk weighted assets, as defined in the regulation. Under the new Basel III rules, in order to avoid limitations on capital distributions, including dividends, the Company must hold a capital conservation buffer above the adequately capitalized common equity tier 1 capital to risk-weighted assets ratio. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019. Under Basel III, the Company and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital.

Table Of Contents

Management believes, as of March 31, 2016 and December 31, 2015, that the Bank meets all capital adequacy requirements, including the current phased-in capital conservation buffer to which it is subject.

As of March 31, 2016 and December 31, 2015, the most recent notification categorized the Bank 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, common equity Tier I and Tier I leverage capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank’s category.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

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

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of March 31, 2016
Total Capital (to Risk-Weighted Assets)	$	13,900		20.8	%	$	5,341		8.0	%	$	6,677		10.0	%

Tier 1 Capital (to Risk-Weighted Assets)	$	13,061		19.6	%	$	4,006		6.0	%	$	5,341		8.0	%

Common Equity Tier I Capital (to Risk-Weighted Assets)	$	13,061		19.6	%	$	3,005		4.5	%	$	4,340		6.5	%

Tier I Leverage Capital (to Average Total Assets)	$	13,061		13.6	%	$	3,849		4.0	%	$	4,812		5.0	%

As of December 31, 2015
Total Capital (to Risk-Weighted Assets)	$	14,072		21.3	%	$	5,295		8.0	%	$	6,618		10.0	%

Tier 1 Capital (to Risk-Weighted Assets)	$	13,241		20.0	%	$	3,971		6.0	%	$	5,295		8.0	%

Common Equity Tier I Capital (to Risk-Weighted Assets)	$	13,241		20.0	%	$	2,978		4.5	%	$	4,302		6.5	%

Tier I Leverage Capital (to Average Total Assets)	$	13,241		13.9	%	$	3,801		4.0	%	$	4,752		5.0	%

Note 5:

Disclosures about Fair Value of Assets and Liabilities

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or 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 (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2

Significant other 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.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Level 3

Significant unobservable inputs that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Nonrecurring Measurements

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

			Fair Value Measurement Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
March 31, 2016
Impaired loans	$	384	$	-	$	-	$	384

December 31, 2015
Impaired loans	$	136	$	-	$	-	$	136
Foreclosed assets held for sale		245		-		-		245

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-dependent Impaired Loans, Net of ALLL

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Bank 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.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Foreclosed Real Estate Held for Sale

Foreclosed real estate held for sale is 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 foreclosed real estate is based on appraisals or evaluations. Foreclosed real estate is classified within Level 3 of the fair value hierarchy.

Appraisals of foreclosed real estate are obtained when the real estate is acquired and subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by the management. Appraisers are selected from the list of approved appraisers maintained by management.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements:

	Fair Value		Valuation Technique	Unobservable Inputs	Range
	(In thousands)
March 31, 2016
Impaired loans (collateral dependent)	$	384	Marketable comparable properties	Marketability discount	10%	-	15	%

December 31, 2015
Impaired loans (collateral dependent)	$	136	Marketable comparable properties	Marketability discount	10%	-	15	%
Foreclosed real estate		245	Marketable comparable properties	Comparability adjustments		9	%

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Fair Value of Financial Instruments

The following table presents the estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2016 and December 31, 2015.

					Fair Value Measurement Using
	Carrying Value		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
			(In thousands)
March 31, 2016
Financial assets
Cash and due from banks	$	1,750	$	1,750	$	1,750	$	-	$	-
Interest-earning demand deposits		11,657		11,657		11,657		-		-
Interest-earning time deposits in banks		992		992		-		992		-
Loans, net		74,646		75,155		-		-		75,155
Federal Home Loan Bank stock		468		468		-		468		-
Accrued interest receivable		204		204		-		204		-
Mortgage servicing rights		317		317		-		-		317
Financial liabilities
Deposits		74,973		75,625		40,622		35,003		-
Advances from the Federal Home Loan Bank		6,927		7,158		-		7,158		-
Accrued interest payable		8		8		-		8		-

December 31, 2015
Financial assets
Cash and due from banks	$	7,132	$	7,132	$	7,132	$	-	$	-
Interest-earning demand deposits		1,678		1,678		1,678		-		-
Interest-earning time deposits in banks		992		992		-		992		-
Loans, net		76,575		77,086		-		-		77,086
Federal Home Loan Bank stock		468		468		-		468		-
Accrued interest receivable		217		217		-		217		-
Mortgage servicing rights		317		317		-		-		317
Financial liabilities
Deposits		72,266		72,708		39,353		33,355		-
Advances from the Federal Home Loan Bank		6,927		7,023		-		7,023		-
Accrued interest payable		11		11		-		11		-

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

Cash and Due from Banks and Interest-earning Demand Deposits

The carrying amount approximates fair value.

Interest-earning Time Deposits in Banks

The carrying amount approximates fair value.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Loans

Fair value is estimated by discounting the future cash flows using the market rates at which similar notes would be made to borrowers with similar credit ratings and for the same remaining maturities. The market rates used are based on current rates the Bank would impose for similar loans and reflect a market participant assumption about risks associated with nonperformance, illiquidity, and the structure and term of the loans along with local economic and market conditions.

Federal Home Loan Bank Stock

Fair value is estimated at book value due to restrictions that limit the sale or transfer of such securities.

Accrued Interest Receivable and Payable

The carrying amount approximates fair value. The carrying amount is determined using the interest rate, balance and last payment date.

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 discount rate, prepayment speed and default rate.

Deposits

Fair value of term deposits is estimated by discounting the future cash flows using rates of similar deposits with similar maturities. The market rates used were obtained from a knowledgeable independent third party and reviewed by the Bank. The rates were the average of current rates offered by local competitors of the Bank.

The estimated fair value of demand, NOW, savings and money market deposits is the book value since rates are regularly adjusted to market rates and amounts are payable on demand at the reporting date.

Federal Home Loan Bank Advances

Fair value is estimated by discounting the future cash flows using rates of similar advances with similar maturities. These rates were obtained from current rates offered by the Federal Home Loan Bank.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Commitments to Originate Loans, 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 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.

Note 6:

Recent Accounting Pronouncements

The Company is an emerging growth company and as such will be subject to the effective dates noted for the private companies if they differ from the effective dates noted for public companies.

FASB ASU 2014-09, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09,”Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March, 2016 the FASB issued ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10, “Identifying Performance Obligations and Licensing,” which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-02-12, “Narrow-Scope Improvements and Practical Expedients” which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also provides a practical expedient for contract modifications.

The amendments are effective for annual reporting periods beginning after December 15, 2017 and for interim reporting periods within such annual periods. The Company is currently evaluating the impact of adopting the guidance.

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.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

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. Management is currently evaluating the impact of adopting this guidance on the Company’s financial statements.

FASB ASU 2016-02, Leases

In February 2016 the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

●

A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

●

A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. Management is currently evaluating the impact of adopting this guidance on the Company’s financial statements.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

Note 7:

Loss Per Share

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

Loss per share for the three months ended March 31, 2016 was $0.40, calculated using 696,600 average shares issued, less 52,353 average unallocated shares held by the ESOP. The Company had no dilutive or potentially dilutive securities at March 31, 2016.

Earnings per share disclosures are not applicable to the three-month period ended March 31, 2015, because the Company did not complete the conversion to stock form until October 19, 2015.

Note 8:

Employee Stock Ownership Plan

As part of the Company’s stock conversion, shares were purchased by the ESOP with a loan from New Bancorp. All employees of the Bank meeting certain tenure requirements are entitled to participate in the ESOP. Compensation expense related to the ESOP was $5,000 for the three month period ended March 31, 2016.

The stock price at the formation date was $10.00. The aggregate fair value of the 52,353 unallocated shares was $681,000 based on the $13.00 closing price of our common stock on March 31, 2016.

Note 9:

Change in Corporate Form

On October 19, 2015, the Bank converted into a federal stock savings bank structure with the establishment of a stock holding company, New Bancorp, Inc., as parent of the Bank.

The Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to New Bancorp, Inc. The Bank became the wholly owned subsidiary of the Company, and the Company issued and sold shares of its capital stock pursuant to an independent

valuation appraisal of the Bank and the Company. The stock was priced at $10.00 per share. In addition, the Bank’s board of directors adopted an employee stock ownership plan (ESOP) which subscribed for 8% of the common stock sold in the offering. The Conversion was completed on October 19, 2015 and resulted in the issuance of 696,600 common shares by the Company.

The cost of the Conversion and issuing the capital stock totaled $1.2 million and was deducted from the proceeds of the offering.

Table Of Contents

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

In accordance with OCC regulations, at the time of the Conversion, the Bank substantially restricted retained earnings by establishing a liquidation account. The liquidation account will be maintained for the benefit of eligible holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible

account holders have reduced their qualifying deposits. Subsequent increases will not restore an

eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

The conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

Table Of Contents

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

General

Management’s discussion and analysis of the financial condition at March 31, 2016 and results of operations for the three months ended March 31, 2016 and 2015 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on 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,” “plan,” “seek,” “expect” 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 quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management 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.

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:

●

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

●

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 success in increasing our residential real estate and commercial real estate lending, and selling certain of our residential real estate loans;

●

our ability to attract and maintain deposits and our success in introducing new financial products;

Table Of Contents

●

our ability to improve our asset quality even as we increase our commercial real estate lending;

●

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;

●

fluctuations in the demand for loans, which may be affected by the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

●

changes in consumer spending, borrowing and savings habits;

●

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

●

risks related to a high concentration of loans secured by real estate located in our market area;

●

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

●

changes in the level of government support of housing finance;

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address such changes;

●

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

●

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.

Table Of Contents

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 New Bancorp, Inc.’s Annual Report Form 10-K, as filed with the Securities and Exchange Commission on March 20, 2016.

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

Total Assets. Total assets were $97.7 million at March 31, 2016, an increase of $2.6 million, or 2.8%, compared to December 31, 2015. The increase was due primarily to an increase of $4.6 million in cash and cash equivalents, which was partially offset by a $1.9 million decrease in net loans.

Cash and cash equivalents. Cash and cash equivalents totaled $13.4 million at March 31, 2016, an increase of $4.6 million, or 52.2%, over the balance at December 31, 2015. The Company held cash in anticipation of loan funding needs for loan originations expected to close in the second quarter.

Loans, net. Loans, net decreased $1.9 million, or 2.5%, to $74.6 million at March 31, 2016, from $76.6 million at December 31, 2015. During the three months ended March 31, 2016, we originated $3.7 million of loans, consisting primarily of $2.0 million of one- to four-family residential real estate loans, $944,000 of commercial real estate loans, $628,000 of construction and land loans and $69,000 of consumer loans, and sold $695,000 of loans. During the three months ended March 31, 2016, one- to four-family residential real estate loans increased $718,000, or 1.7%, to $42.7 million at March 31, 2016, from $42.0 million at December 31, 2015, while commercial real estate loans decreased $2.1 million, or 7.9%, to $25.2 million at March 31, 2016 and construction and land loans decreased $236,000, or 3.3% to $7.0 million at March 31, 2016. During the three months ended March 31, 2016, sales of loans originated during the period amounted to $695,000. The Company had no loans held for sale at March 31, 2016 or December 31, 2015.

We continue to pursue a strategy to maximize our income by growing and diversifying our loan portfolio, with an emphasis on increasing our commercial real estate, commercial business and home equity loans, and continually reviewing our existing portfolio for income, liquidity and interest rate risk mitigation opportunities consistent with our strategic objectives. Recent loan originations have been achieved amid strong competition for commercial real estate and residential real estate loans in our market area in the current low interest rate environment, however the decrease in commercial real estate loans resulted primarily from the paydown of an $850,000 line of credit and the sale of two businesses. We also sell certain fixed-rate, 30-year one- to four-family residential real estate loans, primarily on a servicing-retained basis, in transactions with the Federal Home Loan Bank of Indianapolis (“FHLB-Indianapolis”), through its mortgage purchase program, and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Subject to our ongoing interest rate risk analysis, we generally intend to continue to sell the fixed-rate, 30-year residential real estate loans that we originate.

Bank Owned Life Insurance. At March 31, 2016, our investment in bank owned life insurance was $5.3 million, an increase of $42,000, from December 31, 2015. We invested in bank owned life insurance to provide us with a funding offset for certain benefit plan obligations. While these benefit plans have been terminated and the obligations have been paid, bank owned life insurance also generally provides us noninterest income that is non-taxable. Federal bank regulatory guidance cautions against an investment in bank owned life insurance that exceeds 25% of an institution’s Tier 1 capital. The guidance states that an institution which has an investment in bank owned life insurance exceeding this amount make a determination that the amount of investment does not constitute an imprudent capital concentration. We have not made additional contributions to bank owned life insurance since 2002.

Table Of Contents

Foreclosed Real Estate. Foreclosed real estate amounted to $245,000 at both March 31, 2016 and December 31, 2015. At March 31, 2016, our foreclosed real estate consisted of one parcel of residential real estate.

Deposits. Deposits increased $2.7 million, or 3.8%, to $75.0 million at March 31, 2016 from $72.3 million at December 31, 2015. Our core deposits decreased $1.3 million, or 3.2%, to $40.6 million at March 31, 2016 from $39.3 million at December 31, 2015. Certificates of deposit increased $1.4 million, or 4.4%, to $34.4 million at March 31, 2016 from $32.9 million at December 31, 2015. Management intends to focus its efforts to increase core deposits, with a special emphasis on growth in consumer and business demand deposits.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances totaled $6.9 million at both March 31, 2016 and December 31, 2015. The aggregate cost of outstanding advances from the Federal Home Loan Bank was 1.88% at March 31, 2016.

Shareholders’ Equity. Shareholders’ equity decreased $257,000, or 1.7%, to $14.8 million at March 31, 2016 compared to December 31, 2015. The decrease resulted from the net loss of $257,000 during the three months ended March 31, 2016.

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

General. Net loss for the three months ended March 31, 2016 was $257,000, compared to net income of $61,000 for the three months ended March 31, 2015. This $318,000 decrease was primarily due to a $98,000 decrease in noninterest income and a $226,000 increase in noninterest expenses, which were partially offset by a $6,000 increase in net interest income.

Interest Income. Interest income increased $25,000, or 3.1%, to $837,000 for the three months ended March 31, 2016 from $812,000 for the three months ended March 31, 2015. This increase was solely attributable to a $25,000 increase in interest on loans receivable. The average balance of loans during the three months ended March 31, 2016 increased $3.5 million, or 4.7%, to $76.9 million from $73.4 million for the three months ended March 31, 2015, while the average yield on loans decreased seven basis points to 4.29% for the three months ended March 31, 2016 from 4.36% for the three months ended March 31, 2015. The decrease in average yield on loans was due to lower market interest rates period to period, as well as an increase in payoffs of higher interest rate loans as customers refinanced loans at lower interest rates. The average balance of other interest-earning deposits, including certificates of deposit in other banks, decreased $635,000 to $3.0 million for the three months ended March 31, 2016 while the average yield increased by 27 basis points to 1.58% for the three months ended March 31, 2016.

Interest Expense. Total interest expense increased $19,000, or 11.4%, to $186,000 for the three months ended March 31, 2016 from $167,000 for the three months ended March 31, 2015. Interest expense on deposit accounts increased $21,000, or 15.9%, to $153,000 for the three months ended March 31, 2016 from $132,000 for the three months ended March 31, 2015. The increase was primarily due to an increase of $6.2 million, or 9.8%, in the average balance of deposits to $69.2 million for the three months ended March 31, 2016 from $63.0 million for the three months ended March 31, 2015, and an increase of four basis points in the average cost of interest-bearing deposits to 0.88% for the three months ended March 31, 2016 from 0.84% for the three months ended March 31, 2015. Interest expense on borrowings decreased $2,000 to $33,000 for the three months ended March 31, 2016 from $35,000 for the three months ended March 31, 2015. The average balance of borrowings decreased $1.3 million to $6.9 million for the three months ended March 31, 2016 compared to $8.2 million for the three months ended March 31, 2015, while the average cost of these borrowings increased to 1.91% for the three months ended March 31, 2016 from 1.70% for the three months ended March 31, 2015.

Table Of Contents

Net Interest Income. Net interest income increased $6,000, or 0.9%, to $651,000 for the three months ended March 31, 2016 compared to $645,000 for the three months ended March 31, 2015. The interest rate spread was 3.21% for the three months ended March 31, 2016 compared to 3.27% for the three months ended March 31, 2015.

Our net interest margin was 3.26% for the three months ended March 31, 2016 compared to 3.35% for the three months ended March 31, 2015.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses,” we did not record a provision for loan losses for either of the three months ended March 31, 2016 and 2015. The allowance for loan losses was $1.2 million, or 1.52% of total loans, at March 31, 2016, compared to $1.1 million, or 1.64% of total loans, at March 31, 2015. Total nonperforming loans were $1.3 million at March 31, 2016, compared to $966,000 at March 31, 2015. Classified (substandard, doubtful and loss) loans were $3.1 million at March 31, 2016 and $3.9 million at March 31, 2015, and total loans past due greater than 30 days were $1.1 million and $997,000 at those respective dates. We had no charge-offs or recoveries during either of the three months ended March 31, 2016 and 2015. As a percentage of nonperforming loans, the allowance for loan losses was 91.7% at March 31, 2016 compared to 118.7% at March 31, 2015.

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at March 31, 2016 and 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, 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.

Non-Interest Income. Non-interest income decreased $98,000, or 39.8%, to $148,000 for the three months ended March 31, 2016 from $246,000 for the three months ended March 31, 2015. The decrease was primarily due to a decrease of $83,000 in gains on sales of loans. The gain on sales of loans amounted to $18,000 during the three months ended March 31, 2016, compared to $101,000 in the year earlier period, due primarily to a $3.1 million decrease in the volume of loan sales period-to-period.

Non-Interest Expense. Non-interest expense increased $226,000, or 27.2%, to $1.1 million for the three months ended March 31, 2016 compared to $830,000 for the three months ended March 31, 2015. The increase was due primarily to a $123,000, or 27.8%, increase in salaries and employee benefits and a $72,000, or 138.5%, increase in professional services. Two new commercial loan officers, one of whom is focused on SBA lending, were hired and additional professional fees were incurred in connection with these new positions. The increase in professional services was due primarily to the additional expenses related to the reporting requirements as a public stock company.

Non-interest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

Federal Income Taxes. The Company did not record a federal income tax provision during either of the three month periods ended March 31, 2016 and 2015. The federal income tax provision was affected by the full impairment valuation allowance recorded on the Company’s net deferred tax assets in both 2016 and 2015. Management evaluated the deferred tax asset based upon a projection of future operating results and determined that a full impairment valuation allowance was required at both March 31, 2016 and 2015. The Company has a total valuation allowance on its net deferred tax assets of $4.4 million at March 31, 2016. The deferred tax asset will only be recognized in future periods upon the Company’s ability to realize and maintain profitable results of operations.

Table Of Contents

Liquidity and Capital Resources

Our primary sources of funds are deposits, principal and interest payments on loans, proceeds from the sale of loans and advances from the FHLB-Indianapolis. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market 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 in operating activities was $1,000 and $2.1 million for the three months ended March 31, 2016 and 2015, respectively. Net cash provided by investing activities, which consists primarily of net change in loans receivable was $1.9 million and $1.8 million for the three months ended March 31, 2016 and 2015, respectively. Net cash provided by financing activities, which is comprised of net change in deposits, was $2.7 million and $891,000 for the three months ended March 31, 2016 and 2015, respectively.

At March 31, 2016, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $13.1 million, or 13.6% of adjusted average assets, which is above the required level of $3.8 million or 4.0%; total risk-based capital of $13.9 million, or 20.8% of risk-weighted assets, which is above the required level of $5.3 million, or 8.0%; and common equity Tier 1 capital of $13.1 million, or 19.6% of risk-weighted assets, which is above the required level of $3.0 million, or 4.5% of risk-weighted assets. Accordingly New Buffalo Savings Bank was categorized as well capitalized at March 31, 2016. Management is not aware of any conditions or events since the most recent notification that would change our category.

At March 31, 2016, we had outstanding commitments to originate loans of $226,000 and lines of credit of $3.3 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2016 totaled $14.4 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB-Indianapolis advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.

Controls and Procedures

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

During the quarter ended March 31, 2016, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table Of Contents

Part II – Other Information

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)

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

(b)

Not applicable.

(c)

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

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

31.1

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

31.2

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

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Table Of Contents

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.

		NEW BANCORP, INC.


Date: May 13, 2016		/s/ Richard C. Sauerman
		Richard C. Sauerman
		President and Chief Executive Officer


Date: May 13, 2016		/s/ Russell N. Dahl
		Russell N. Dahl
		Chief Financial Officer

New Bancorp, Inc. - FORM 10-Q - May 13, 2016

Attached files

New Bancorp, Inc. Reports