New Bancorp, Inc.

Certain reclassifications have been made to the condensed consolidated statements of income for the three and nine months ended September 30, 2017 to conform with the September 30, 2018 financial statement presentation. These reclassifications had no effect on our results of operations.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which changes the fair value measurement disclosure requirements of ASC 820. The ASU amends ASC 820 to add, remove, and modify certain fair value measurement disclosure requirements, primarily related to Level 3 fair value measurements. The ASU is effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. Management is evaluating the new ASU but does not expect the ASU to have a material effect on the Company's financial position or results of operations.

Interest Expense. Total interest expense increased $60,000, or 8.3%, to $787,000 for the nine months ended September 30, 2018 from $727,000 for the nine months ended September 30, 2017. Interest expense on deposits increased $57,000, or 9.3%, to $667,000 for the nine months ended September 30, 2018 from $610,000 for the nine months ended September 30, 2017. The increase was primarily due to a $9.2 million increase in the average balance of deposits outstanding, which was partially offset by a decrease of three basis points in the average cost of interest-bearing deposits to 1.03% for the nine months ended September 30, 2018 from 1.06% for the nine months ended September 30, 2017. Interest expense on borrowings decreased $3,000, or 2.6%, to $120,000 for the nine months ended September 30, 2018 from $117,000 for the nine months ended September 30, 2017, due primarily to a $1.0 million decrease in the average outstanding balance of borrowings period-to-period.

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses,” we recorded a $50,000 credit provision for loan losses for the nine months ended September 30, 2018, a decrease of $120,000 from the $70,000 provision recorded in the nine months ended September 30, 2017. The allowance for loan losses was $1.1 million, or 1.12% of total loans, at September 30, 2018 and 1.17% of total loans at September 30, 2017. Total nonperforming loans were $2.1 million at September 30, 2018, which included a loan relationship totaling $1.9 million that was moved to nonaccrual in the fourth quarter ended December 31, 2017, compared to $445,000 at September 30, 2017. The loans making up the $1.9 million relationship are current as to payments and management believes these loans to be adequately collateralized with no loss expected. Classified (substandard, doubtful and loss) loans were $3.0 million at September 30, 2018 and $3.4 million at September 30, 2017, and total loans past due greater than 30 days were $363,000 and $228,000 at those respective dates. We had net recoveries of $3,000 and $2,000 during the nine months ended September 30, 2018 and 2017, respectively. As a percentage of nonperforming loans, the allowance for loan losses was 52.0% at September 30, 2018 compared to 253.8% at September 30, 2017.

Noninterest Expense. Noninterest expense increased $291,000, or 8.3%, to $3.8 million for the nine months ended September 30, 2018 compared to $3.5 million for the nine months ended September 30, 2017. The increase was due primarily to a $102,000, or 5.2%, increase in salaries and employee benefits, an increase of $107,000, or 30.4%, in professional services and an $86,000, or 20.5% increase in other expenses. The increase in salaries and employee benefits was due primarily to the expense of the new equity incentive plan as well as normal merit increases. The increase in professional services was due primarily to an engagement of a process efficiency professional to streamline processes and legal expenses associated with a nonqualified retirement program. The increase in other expenses included a charge for reimbursement of funds to a Bank depositor due to an external debit card fraud loss, which was partially offset by an insurance claim, and an increase in underwriting expenses related to the SBA lending business and costs incurred in evaluation of new SBA industry lending opportunities.