Attached files

file filename
EX-32 - EXHIBIT 32 - New Bancorp, Inc.ex_120867.htm
EX-31.2 - EXHIBIT 31.2 - New Bancorp, Inc.ex_120866.htm
EX-31.1 - EXHIBIT 31.1 - New Bancorp, Inc.ex_120865.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 June 30, 2018

 

OR

 

[   ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _______________ to _______________

 

Commission File No. 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, 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. (Check one)

 

Large accelerated filer [   ]

 

Accelerated filer [   ]

Non-accelerated filer [   ]

(Do not check if smaller reporting company)

Emerging growth company [X]

 

Smaller reporting 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 August 12, 2018, the latest practicable date, 719,531 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

New Bancorp, Inc.

Form 10-Q

Index

 

   

Page

Part I. Financial Information

     

Item 1.

Condensed Consolidated Financial Statements

 
     
 

Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

2

     
 

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)

3

     
 

Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2018 (unaudited)

4

     
 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017 (unaudited)

5

     
 

Notes to Condensed Consolidated Financial Statements (unaudited)

6

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

     

Item 4.

Controls and Procedures

36

     

Part II. Other Information

     

Item 1.

Legal Proceedings

37

     

Item 1A.

Risk Factors

37

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

     

Item 3.

Defaults upon Senior Securities

37

     

Item 4.

Mine Safety Disclosures

37

     

Item 5.

Other Information

37

     

Item 6.

Exhibits

37

     
 

Signature Pages

38

 

 

 

Part I – Financial Information

Item 1  Financial Statements

New Bancorp, Inc.

Condensed Consolidated Balance Sheets

June 30, 2018 (Unaudited) and December 31, 2017

(In thousands, except share data)

 

   

June 30,

   

December 31,

 

 

 

2018

   

2017

 
Assets                 
                 

Cash and due from banks

  $ 1,757     $ 1,085  

Interest-earning demand deposits

    3,439       2,997  

Federal funds sold

    12,269       11,711  

Cash and cash equivalents

    17,465       15,793  
                 

Interest-earning time deposits in banks

    -       744  

Loans held for sale

    -       3,234  

Loans, net of allowance for loan losses of $1,076, and $1,123 at June 30, 2018 and December 31, 2017, respectively

    92,415       97,512  

Premises and equipment

    1,906       1,894  

Federal Home Loan Bank stock

    468       468  

Accrued interest receivable

    259       267  

Bank owned life insurance

    5,674       5,589  

Servicing rights

    1,144       937  

Prepaid expenses and other assets

    200       441  
                 

Total assets

  $ 119,531     $ 126,879  
                 
                 

Liabilities and Shareholders' Equity

               
                 

Liabilities

               

Deposits

               

Demand

  $ 33,322     $ 37,025  

Savings and money market accounts

    24,663       24,742  

Time

    35,254       39,921  
                 

Total deposits

    93,239       101,688  
                 

Borrowings

    9,027       9,027  

Other liabilities

    1,475       812  
                 

Total liabilities

    103,741       111,527  
                 

Commitments and Contingencies

    -       -  
                 

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

    171       160  
                 

Shareholders' Equity

               

Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued

    -       -  

Common stock, $0.01 par value, 4,000,000 shares authorized, 719,531 shares issued and oustanding

    7       7  

Additional paid-in capital

    5,878       5,827  

Unearned ESOP shares

    (472 )     (472 )

Retained earnings

    10,377       9,990  
                 

Total shareholders' equity

    15,790       15,352  
                 

Less maximum cash obligation related to ESOP shares

    (171 )     (160 )

Total shareholders' equity less maximum cash obligation related to ESOP shares

    15,619       15,192  
                 

Total liabilities and shareholders' equity

  $ 119,531     $ 126,879  

 

See notes to condensed consolidated financial statements

 

 

 

New Bancorp, Inc.

Condensed Consolidated Statements of Income

For the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)

(In thousands, except share data)

                                                                                               

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2018

   

2017

   

2018

   

2017

 

Interest Income

                               

Loans

  $ 1,174     $ 1,051     $ 2,335     $ 1,982  

Interest-bearing deposits

    59       38       114       56  
                                 

Total interest income

    1,233       1,089       2,449       2,038  
                                 

Interest Expense

                               

Deposits

    216       211       432       377  

Borrowings

    40       39       80       78  
                                 

Total interest expense

    256       250       512       455  
                                 

Net Interest Income

    977       839       1,937       1,583  
                                 

Provision (Credit) for Loan Losses

    -       31       (50 )     31  
                                 

Net Interest Income After Provision (Credit) for Loan Losses

    977       808       1,987       1,552  
                                 

Noninterest Income

                               

Service charges and fees

    93       107       175       173  

Gain on sale of loans

    284       725       666       939  

Gain on sale of foreclosed real estate, net

    -       1       -       30  

Income from bank owned life insurance

    43       43       85       85  

Loan servicing fees (costs), net

    (5 )     13       (4 )     27  

Other operating

    8       8       17       19  
                                 

Total noninterest income

    423       897       939       1,273  
                                 

Noninterest Expense

                               

Salaries and employee benefits

    666       678       1,358       1,308  

Occupancy and equipment

    94       104       190       199  

Data processing fees

    123       130       246       244  

Franchise taxes

    18       30       18       30  

FDIC insurance premiums

    10       10       29       18  

Insurance premiums

    10       10       20       20  

Professional services

    135       130       300       251  

Impairment losses and expenses of foreclosed real estate

    -       4       -       13  

Other

    197       110       378       262  
                                 

Total noninterest expense

    1,253       1,206       2,539       2,345  
                                 
                                 

Net Income

  $ 147     $ 499     $ 387     $ 480  
                                 

Earnings per share - basic

  $ 0.23     $ 0.77     $ 0.60     $ 0.74  

Earnings per share - diluted

  $ 0.22     $ 0.77     $ 0.58     $ 0.74  

Weighted-average shares basic

    649,914       546,387       649,640       546,262  

Weighted-average shares diluted

    668,230       546,387       668,744       546,262  

 

See notes to condensed consolidated financial statements

 

 

 

New Bancorp, Inc.

Condensed Consolidated Statement of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2018 (Unaudited)

(In thousands)

 

                                   

Maximum Cash

         
           

Additional

   

Unearned

           

Obligation

         
   

Common

   

Paid-in

   

ESOP

   

Retained

   

Related to

         
   

Stock

   

Capital

   

Shares

   

Earnings

   

ESOP Shares

   

Total

 
                                                 

Balance at January 1, 2018

  $ 7     $ 5,827     $ (472 )   $ 9,990     $ (160 )   $ 15,192  
                                                 

Compensation expense related to restricted shares

    -       33       -       -       -       33  
                                                 

Compensation expense related to stock options

    -       18       -       -       -       18  
                                                 

Change related to ESOP shares

    -       -       -       -       (11 )     (11 )
                                                 

Net income for the period

    -       -       -       387       -       387  
                                                 

Balance at June 30, 2018

  $ 7     $ 5,878     $ (472 )   $ 10,377     $ (171 )   $ 15,619  

 

See notes to condensed consolidated financial statements

 

 

 

New Bancorp, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2018 and 2017 (Unaudited)

(In thousands)

 

   

Six Months Ended June 30,

 
   

2018

   

2017

 

Operating Activities

               

Net income (loss)

  $ 387     $ 480  

Items not requiring (providing) cash

               

Depreciation and amortization

    140       74  

Provision (credit) for loan losses

    (50 )     31  

Deferred loan origination fees, costs, premiums, discounts, net

    (15 )     (5 )

Gain on sale of loans

    (666 )     (939 )

Proceeds from sales of loans originated for sale

    12,514       13,129  

Loans originated for sale

    (8,874 )     (12,539 )

Loss on sale of foreclosed real estate

    -       (30 )

Compensation expense related to stock benefit and other plans

    51       22  

Increase in cash surrender value of life insurance

    (85 )     (85 )

Changes in

               

Accrued interest receivable

    8       (17 )

Prepaid expenses and other assets

    241       (14 )

Other liabilities

    663       625  
                 

Net cash provided by operating activities

    4,314       732  
                 

Investing Activities

               

Net change in loans

    5,162       (7,849 )

Net change in interest-earning time accounts

    744       248  

Purchase of premises and equipment

    (99 )     (2 )

Proceeds from sale of foreclosed assets

    -       313  
                 

Net cash provided by (used in) investing activities

    5,807       (7,290 )
                 

Financing Activities

               

Net increase (decrease) in deposits

    (8,449 )     18,671  

Net change in federal funds purchased

    -       (1,000 )
                 

Net cash provided by (used in) financing activities

    (8,449 )     17,671  
                 

Increase in Cash and Cash Equivalents

    1,672       11,113  
                 

Cash and Cash Equivalents, Beginning of Period

    15,793       9,857  
                 

Cash and Cash Equivalents, End of Period

  $ 17,465     $ 20,970  
                 

Supplemental Disclosure of Cash Flow Information

               

Cash paid during the period for:

               

Interest on deposits and borrowings

  $ 509     $ 447  

 

See notes to condensed consolidated financial statements 

 

 

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, 2017, which has been derived from audited financial statements, and the unaudited condensed consolidated financial statements of the Company as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017, 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 consolidated financial statements should be read in conjunction with the financial statements and notes thereto of the Company for the year ended December 31, 2017 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 financial statements have been included to present fairly the financial position as of June 30, 2018, cash flows for the six months ended June 30, 2018 and 2017, and the results of operations for the three and six months ended June 30, 2018 and 2017. All interim amounts have not been audited and the results of operations for the three and six months ended June 30, 2018 herein, are not necessarily indicative of the results of operations to be expected for the entire year.

 

Principles of Consolidation

 

The consolidated financial statements as of and for the periods ended June 30, 2018 and December 31, 2017, include New Bancorp, Inc. and its wholly-owned subsidiary the New Buffalo Savings Bank “the Bank”, together referred to as the “Company.” Intercompany transactions and balances have been eliminated in consolidation. The conversion to stock form, including the formation of New Bancorp, Inc., was completed on October 19, 2015.

 

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.

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

 

Note 2:        Securities

 

The Company had no investment securities at June 30, 2018 and December 31, 2017. The Company had no sales of investment securities during the six month periods ended June 30, 2018 and 2017.

 

 

 

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 uncollectability 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 collectability 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.

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

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.

 

 

Classes of loans at June 30, 2018 and December 31, 2017 include:

 

   

June 30,

   

December 31,

 
   

2018

   

2017

 
   

(Unaudited)

         
   

(In thousands)

 

Real estate loans

               

Residential

  $ 36,384     $ 41,474  

Commercial

    47,922       45,623  

Construction and land

    9,036       10,746  

Commercial business

    952       909  

Consumer and other

    473       557  
                 

Total loans

    94,767       99,309  
                 

Less:

               

Net deferred loan fees, premiums and discounts

    (336 )     (176 )

Undisbursed loans in process

    (940 )     (498 )

Allowance for loan losses

    (1,076 )     (1,123 )
                 

Net loans

  $ 92,415     $ 97,512  

 

 

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 $4.1 million and $4.8 million at June 30, 2018 and December 31, 2017, 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.

 

 

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.

 

 

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 and six months ended June 30, 2018 and 2017 and the recorded investment in loans and impairment method as of June 30, 2018 and December 31, 2017:

 

   

For the Three Months Ended June 30, 2018

 
   

Real Estate

                         
                   

Construction

   

Commercial

                 
   

Residential

   

Commercial

   

and Land

   

Business

   

Consumer

   

Total

 
   

(In thousands)

 
                                                 

Allowance for loan losses:

                                               

Balance, April 1, 2018

  $ 487     $ 541     $ 28     $ 17     $ 1     $ 1,074  

Provision (credit) for loan losses

    (47)       4       41       2       -       -  

Charge-offs

    -       -       -       -       -       -  

Recoveries

    -       -       -       2       -       2  
                                                 

Balance, June 30, 2018

  $ 440     $ 545     $ 69     $ 21     $ 1     $ 1,076  

 

     

For the Six Months ended June 30, 2018

 

Allowance for loan losses:

                                               

Balance, January 1, 2018

  $ 540     $ 484     $ 76     $ 15     $ 8     $ 1,123  

Provision (credit) for loan losses

    (100 )     61       (7 )     3       (7 )     (50 )

Charge-offs

    -       -       -       -       -       -  

Recoveries

    -       -       -       3       -       3  
                                                 

Balance, June 30 , 2018

  $ 440     $ 545     $ 69     $ 21     $ 1     $ 1,076  

 

   

For the Three Months Ended June 30, 2017

 

Allowance for loan losses:

 

(In thousands)

 

Balance, April 1, 2017

  $ 578     $ 365     $ 78     $ 13     $ 8     $ 1,042  

Provision for loan losses

    (33 )     64       (2 )     2       -       31  

Charge-offs

    -       -       -       -       -       -  

Recoveries

    -       13       -       -       -       13  
                                                 

Balance, June 30, 2017

  $ 545     $ 442     $ 76     $ 15     $ 8     $ 1,086  

 

   

For the Six Months Ended June 30, 2017

 

Allowance for loan losses:

 

(In thousands)

 

Balance, January 1, 2017

  $ 656     $ 326     $ 72     $ 4     $ 5     $ 1,063  

Provision for loan losses

    (99 )     112       4       11       3       31  

Charge-offs

    (12 )     (9 )     -       -       -       (21 )

Recoveries

    -       13       -       -       -       13  
                                                 

Balance, June 30. 2017

  $ 545     $ 442     $ 76     $ 15     $ 8     $ 1,086  

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

   

At June 30, 2018

 
   

Real Estate

                         
                   

Construction

   

Commercial

                 
   

Residential

   

Commercial

   

and Land

   

Business

   

Consumer

   

Total

 
   

(In thousands)

 
                                                 

Allowance for loan losses:

                                               

Ending balance, individually evaluated for impairment

  $ -     $ -     $ -     $ -     $ -     $ -  
                                                 

Ending balance, collectively evaluated for impairment

  $ 440     $ 545     $ 69     $ 21     $ 1     $ 1,076  
                                                 

Loans:

                                               

Ending balance

  $ 36,384     $ 47,922     $ 9,036     $ 952     $ 473     $ 94,767  
                                                 

Ending balance; individually evaluated for impairment

  $ 1,982     $ 38     $ 2,465     $ -     $ -     $ 4,485  
                                                 

Ending balance; collectively evaluated for impairment

  $ 34,402     $ 47,884     $ 6,571     $ 952     $ 473     $ 90,282  

 

 

   

December 31, 2017

 
   

Real Estate

                         
                   

Construction

   

Commercial

                 
   

Residential

   

Commercial

   

and Land

   

Business

   

Consumer

   

Total

 
   

(In thousands)

 
                                                 

Allowance for loan losses:

                                               

Ending balance, individually evaluated for impairment

  $ -     $ -     $ -     $ -     $ -     $ -  
                                                 

Ending balance, collectively evaluated for impairment

  $ 545     $ 480     $ 76     $ 15     $ 7     $ 1,123  
                                                 

Loans:

                                               

Ending balance

  $ 41,474     $ 45,623     $ 10,746     $ 909     $ 557     $ 99,309  
                                                 

Ending balance; individually evaluated for impairment

  $ 2,294     $ 33     $ 2,312     $ -     $ -     $ 4,639  
                                                 

Ending balance; collectively evaluated for impairment

  $ 39,180     $ 45,590     $ 8,434     $ 909     $ 557     $ 94,670  

 

 

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.

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

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.

 

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of June 30, 2018 and December 31, 2017:

 

   

June 30, 2018

 
   

Real Estate

                         
                   

Construction

   

Commercial

                 
   

Residential

   

Commercial

   

and Land

   

Business

   

Consumer

   

Total

 
   

(In thousands)

 
                                                 

Pass

  $ 34,466     $ 47,396     $ 7,919     $ 952     $ 473     $ 91,206  

Special mention/Watch

    291       -       -       -       -       291  

Substandard

    1,627       526       1,117       -       -       3,270  

Doubtful

    -       -       -       -       -       -  
                                                 

Total

  $ 36,384     $ 47,922     $ 9,036     $ 952     $ 473     $ 94,767  

 

   

December 31, 2017

 
   

Real Estate

                         
                   

Construction

   

Commercial

                 
   

Residential

   

Commercial

   

and Land

   

Business

   

Consumer

   

Total

 
   

(In thousands)

 

Pass

  $ 39,639     $ 45,136     $ 9,839     $ 876     $ 557     $ 96,047  

Special mention/Watch

    48       -       -       -       -       48  

Substandard

    1,787       487       907       33       -       3,214  

Doubtful

    -       -       -       -       -       -  
                                                 

Total

  $ 41,474     $ 45,623     $ 10,746     $ 909     $ 557     $ 99,309  

 

 

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.

 

 

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 June 30, 2018 and December 31, 2017:

 

   

June 30, 2018 (Unaudited)

 
                    Greater                            

Total Loans >

 
   

30-59 Days

   

60-89 Days

   

Than

   

Total

           

Total Loans

   

90 Days &

 
   

Past Due

   

Past Due

   

90 Days

   

Past Due

   

Current

   

Receivable

   

Accruing

 
   

(In thousands)

 

Real estate

                                                       

Residential

  $ 24     $ 280     $ 306     $ 610     $ 35,774     $ 36,384     $ -  

Commercial

    -       -       -       -       47,922       47,922       -  

Construction and land

    -       -       -       -       9,036       9,036       -  

Commercial business

    -       -       -       -       952       952       -  

Consumer

    -       -       -       -       473       473       -  
                                                         

Total

  $ 24     $ 280     $ 306     $ 610     $ 94,157     $ 94,767     $ -  

 

   

December 31, 2017

 
                    Greater                            

Total Loans >

 
   

30-59 Days

   

60-89 Days

   

Than

   

Total

           

Total Loans

   

90 Days &

 
   

Past Due

   

Past Due

   

90 Days

   

Past Due

   

Current

   

Receivable

   

Accruing

 
   

(In thousands)

 

Real estate

                                                       

Residential

  $ 73     $ 196     $ -     $ 269     $ 41,205     $ 41,474     $ -  

Commercial

    -       -       -       -       45,623       45,623       -  

Construction and land

    -       -       -       -       10,746       10,746       -  

Commercial business

    -       -       -       -       909       909       -  

Consumer

    -       -       -       -       557       557          
                                                         

Total

  $ 73     $ 196     $ -     $ 269     $ 99,040     $ 99,309     $ -  

 

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.

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

The following table presents impaired loans as of June 30, 2018 and for the three and six month periods ended June 30, 2018 and 2017:

 

   

As of

   

As of and for the Three Months Ended

 
   

June 30, 2018

   

June 30, 2018

   

June 30, 2017

 
           

Unpaid

           

Average

Balance of

   

Interest

   

Average

Balance of

   

Interest

 
   

Recorded

Balance

   

Principal

Balance

   

Specific

Allowance

   

Impaired
Loans

   

Income

Recognized

   

Impaired
Loans

   

Income

Recognized

 
   

(Unaudited)

 
   

(In thousands)

 

Loans without a specific valuation allowance:

                                                       

Real estate

                                                       

Residential

  $ 1,982     $ 2,155     $ -     $ 2,077     $ 14     $ 1,002     $ 32  

Commercial

    38       38       -       38       1       34       -  

Construction and land

    2,465       2,538       -       2,475       22       1,682       21  

Commercial business

                    -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  
                                                         

Loans with a specific valuation allowance:

                                                       

Real estate

                                                       

Residential

    -       -       -       -       -       -       -  

Commercial

    -       -       -       -       -       -       -  

Construction and land

    -       -       -       -       -       -       -  

Commercial business

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  
                                                         

Totals

  $ 4,485     $ 4,731     $ -     $ 4,590     $ 37     $ 2,718     $ 53  

 

    As of     As of and for the Six Months Ended  
    June 30, 2018     June 30, 2018     June 30, 2017  
   

Recorded

Balance

   

Unpaid

Principal

Balance

   

Specific

Allowance

   

Average

Balance of

Impaired
Loans

   

Interest

Income Recognized

   

Average

Balance of

Impaired
Loans

   

Interest

Income Recognized

 
    (Unaudited)  
   

(In thousands)

 

Loans without a specific valuation allowance:

                                                       

Real estate

                                                       

Residential

  $ 1,982     $ 2,155     $ -     $ 706     $ 28     $ 964     $ 28  

Commercial

    38       38       -       37       1       34       1  

Construction and land

    2,465       2,538       -       2,421       46       1,691       46  

Commercial business

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  
                                                         

Loans with a specific valuation allowance:

                                                       

Real estate

                                                       

Residential

    -       -       -       -       -       -       -  

Commercial

    -       -       -       -       -       -       -  

Construction and land

    -       -       -       -       -       -       -  

Commercial business

    -       -       -       -       -       -       -  

Consumer

    -       -       -       -       -       -       -  
                                                         

Totals

  $ 4,485     $ 4,731     $ -     $ 3,164     $ 75     $ 2,689     $ 75  

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

The following table presents impaired loans as of December 31, 2017:

 

   

As of and for the year ended December 31, 2017

 
           

Unpaid

           

Average

Balance of

   

Interest

 
   

Recorded

Balance

   

Principal

Balance

   

Specific

Allowance

   

Impaired
Loans

   

Income

Recognized

 

 

 

(In thousands)

 
Loans without a specific valuation allowance:                                        

Real estate

                                       

Residential

                                       

Commercial

  $ 2,294     $ 2,439     $ -     $ 2,166     $ 73  

Construction and land

    33       33       -       35       2  

Commercial business

    2,312       2,323       -       1,799       90  

Consumer

    -       -       -       -       -  
      -       -       -       -       -  

Loans with a specific valuation allowance:

                                       

Real estate

                                       

Residential

                                       

Commercial

    -       -       -       -       -  

Construction and land

    -       -       -       -       -  

Commercial business

    -       -       -       -       -  

Consumer

    -       -       -       -       -  
      -       -       -       -       -  

Totals

                                       
    $ 4,639     $ 4,795     $ -     $ 4,000     $ 165  

 

 

The following table presents the Company’s nonaccrual loans at June 30, 2018 and December 31, 2017. The table excludes performing troubled debt restructurings.

 

   

June 30,

   

December 31,

 
   

2018

   

2017

 
                 
   

(In thousands)

 

Real estate loans

               

Residential

  $ 1,692     $ 1,629  

Commercial

    -       -  

Construction and land

    943       728  

Commercial business

    -       -  

Consumer and other

    -       -  
                 

Total nonaccrual

  $ 2,635     $ 2,357  

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

At June 30, 2018 (unaudited) and December 31, 2017, the Company had certain loans that were modified in troubled debt restructurings (TDRs) 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 and six months ended June 30, 2018 and 2017, there were no new loan modifications classified as TDRs.

 

The Company had no TDRs modified in the twelve months ended June 30, 2018 and 2017 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 Bank’s internal underwriting policy.

 

The Company had $194,000 of residential real estate in the process of foreclosure at June 30, 2018 and no loans in the process of foreclosure at December 31, 2017.

 

 

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 June 30, 2018 and December 31, 2017, 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 is being phased in from zero percent to 2.50 percent by 2019. Under Basel III, the Company and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital. 

 

 

 

New Bancorp, Inc.

Notes to Condensed Consolidated Financial Statements

 

 

Management believes, as of June 30, 2018 (unaudited) and December 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject.

 

As of June 30, 2018 (unaudited) and December 31, 2017, 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 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.

 

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