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Loans Receivable

3 Months Ended

Mar. 31, 2021

Note 3 - Loans Receivable

Loans receivable at March 31, 2021 and December 31, 2020 are summarized as follows:

	March 31, 2021		December 31, 2020
	(In Thousands)
Mortgage loans:
Residential real estate:
One- to four-family	$	401,170	$	426,792
Multi-family		572,165		571,948
Home equity		14,673		14,820
Construction and land		57,123		77,080
Commercial real estate		241,790		238,375
Consumer		698		736
Commercial loans		47,804		45,386
	$	1,335,423	$	1,375,137

The Company provides several types of loans to its customers, including residential, construction, commercial and consumer loans. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to one borrower or to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. While the Company's credit risks are geographically concentrated in the Milwaukee metropolitan area, there are no concentrations with individual or groups of related borrowers. While the real estate collateralizing these loans is primarily residential in nature, it ranges from owner-occupied single family homes to large apartment complexes.

Qualifying loans receivable totaling $1.01 billion and $1.07 billion at March 31, 2021 and December 31, 2020, respectively, were pledged as collateral against $474.0 million and $499.0 million in outstanding Federal Home Loan Bank of Chicago ("FHLB") advances under a blanket security agreement at March 31, 2021 and December 31, 2020.

Certain of the Company's executive officers, directors, employees, and their related interests have loans with the Bank. Loans outstanding to such parties were approximately $7.0 million as of March 31, 2021 and $7.2 million as of December 31, 2020. None of these loans were past due or considered impaired as of March 31, 2021 or December 31, 2020.

As of March 31, 2021, there were no loans 90 or more days past due and still accruing interest. As of December 31, 2020, there was a $586,000 loan that was 90 or more days past due and still accruing interest. The Bank received full payoff of the loan subsequent to December 31, 2020.

An analysis of past due loans receivable as of March 31, 2021 and December 31, 2020 follows:

	As of March 31, 2021
	1-59 Days Past Due⁽¹⁾			60-89 Days Past Due⁽²⁾		90 Days or Greater		Total Past Due		Current⁽³⁾		Total Loans
	(In Thousands)
Mortgage loans:
Residential real estate:
One- to four-family		$	4,170	$	-	$	2,159	$	6,329	$	394,841	$	401,170
Multi-family			-		-		314		314		571,851		572,165
Home equity			36		-		30		66		14,607		14,673
Construction and land			-		-		43		43		57,080		57,123
Commercial real estate			-		-		30		30		241,760		241,790
Consumer			-		-		-		-		698		698
Commercial loans			140		-		-		140		47,664		47,804
Total		$	4,346	$	-	$	2,576	$	6,922	$	1,328,501	$	1,335,423

	As of December 31, 2020
	1-59 Days Past Due⁽¹⁾			60-89 Days Past Due⁽²⁾		90 Days or Greater		Total Past Due		Current⁽³⁾		Total Loans
	(In Thousands)
Mortgage loans:
Residential real estate:
One- to four-family		$	3,796	$	142	$	3,530	$	7,468	$	419,324	$	426,792
Multi-family			-		-		314		314		571,634		571,948
Home equity			-		-		30		30		14,790		14,820
Construction and land			-		-		43		43		77,037		77,080
Commercial real estate			-		-		41		41		238,334		238,375
Consumer			-		-		-		-		736		736
Commercial loans			-		-		-		-		45,386		45,386
Total		$	3,796	$	142	$	3,958	$	7,896	$	1,367,241	$	1,375,137

⁽¹⁾Includes $394,000 and $611,000 at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

⁽²⁾Includes $- and $- at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

⁽³⁾Includes $1.2 million and $1.6 million at March 31, 2021 and December 31, 2020, respectively, which are on non-accrual status.

A summary of the activity for the three months ended March 31, 2021 and 2020 in the allowance for loan losses follows:

	One- to Four- Family			Multi-Family		Home Equity			Construction and Land			Commercial Real Estate			Consumer			Commercial		Total
	(In Thousands)
Three months ended March 31, 2021
Balance at beginning of period	$	5,459		$	5,600	$	194		$	1,755		$	5,138		$	35		$	642	$	18,823
Provision (credit) for loan losses		(862	)		421		(15	)		(505	)		(123	)		(2	)		16		(1,070	)
Charge-offs		(14	)		-		-			-			-			-			-		(14	)
Recoveries		11			23		4			1			2			-			-		41
Balance at end of period	$	4,594		$	6,044	$	183		$	1,251		$	5,017		$	33		$	658	$	17,780

Three months ended March 31, 2020
Balance at beginning of period	$	4,907		$	4,138	$	201	$	610	$	2,145	$	14		$	372	$	12,387
Provision (credit) for loan losses		(234	)		160		32		76		654		10			87		785
Charge-offs		(6	)		-		-		-		-		(1	)		-		(7	)
Recoveries		47			3		6		1		4		-			-		61
Balance at end of period	$	4,714		$	4,301	$	239	$	687	$	2,803	$	23		$	459	$	13,226

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of March 31, 2021 follows:

	One- to Four- Family		Multi- Family		Home Equity		Construction and Land		Commercial Real Estate		Consumer		Commercial		Total
	(In Thousands)
Allowance related to loans individually evaluated for impairment	$	21	$	-	$	-	$	-	$	-	$	-	$	-	$	21
Allowance related to loans collectively evaluated for impairment		4,573		6,044		183		1,251		5,017		33		658		17,759
Balance at end of period	$	4,594	$	6,044	$	183	$	1,251	$	5,017	$	33	$	658	$	17,780

Loans individually evaluated for impairment	$	6,462	$	314	$	59	$	43	$	6,964	$	-	$	1,097	$	14,939
Loans collectively evaluated for impairment		394,708		571,851		14,614		57,080		234,826		698		46,707		1,320,484
Total gross loans	$	401,170	$	572,165	$	14,673	$	57,123	$	241,790	$	698	$	47,804	$	1,335,423

A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 2020 follows:

	One- to Four-Family		Multi- Family		Home Equity		Construction and Land		Commercial Real Estate		Consumer		Commercial		Total
	(In Thousands)
Allowance related to loans individually evaluated for impairment	$	23	$	-	$	-	$	-	$	-	$	-	$	-	$	23
Allowance related to loans collectively evaluated for impairment		5,436		5,600		194		1,755		5,138		35		642		18,800
Balance at end of period	$	5,459	$	5,600	$	194	$	1,755	$	5,138	$	35	$	642	$	18,823

Loans individually evaluated for impairment	$	7,805	$	341	$	63	$	43	$	7,248	$	-	$	1,097	$	16,597
Loans collectively evaluated for impairment		418,987		571,607		14,757		77,037		231,127		736		44,289		1,358,540
Total gross loans	$	426,792	$	571,948	$	14,820	$	77,080	$	238,375	$	736	$	45,386	$	1,375,137

The following table presents information relating to the Company’s internal risk ratings of its loans receivable as of March 31, 2021 and December 31, 2020:

	One to Four- Family		Multi-Family		Home Equity		Construction and Land		Commercial Real Estate		Consumer		Commercial		Total
	(In Thousands)
At March 31, 2021
Substandard	$	6,462	$	314	$	242	$	43	$	6,964	$	-	$	1,796	$	15,821
Watch		6,164		272		83		4,269		5,585		-		3,127		19,500
Pass		388,544		571,579		14,348		52,811		229,241		698		42,881		1,300,102
	$	401,170	$	572,165	$	14,673	$	57,123	$	241,790	$	698	$	47,804	$	1,335,423

At December 31, 2020
Substandard	$	7,804	$	341	$	248	$	43	$	6,026	$	-	$	710	$	15,172
Watch		7,667		275		15		4,282		6,714		-		4,101		23,054
Pass		411,321		571,332		14,557		72,755		225,635		736		40,575		1,336,911
	$	426,792	$	571,948	$	14,820	$	77,080	$	238,375	$	736	$	45,386	$	1,375,137

Factors that are important to managing overall credit quality include sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an allowance for loan losses, and sound non-accrual and charge-off policies. Our underwriting policies require an officers' loan committee review and approval of all loans in excess of $500,000. A member of the credit department, independent of the loan originator, performs a loan review for all loans. Our ability to manage credit risk depends in large part on our ability to properly identify and manage problem loans. To do so, we maintain a loan review system under which our credit management personnel review non-owner occupied one- to four-family, multi-family, construction and land, and commercial real estate loans that individually, or as part of an overall borrower relationship exceed $1.0 million in potential exposure and review commercial loans that individually, or as part of an overall borrower relationship exceed $200,000 in potential exposure. Loans meeting these criteria are reviewed on an annual basis, or more frequently, if the loan renewal is less than one year. With respect to this review process, management has determined that pass loans include loans that exhibit acceptable financial statements, cash flow and leverage. Watch loans have potential weaknesses that deserve management's attention, and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Substandard loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These loans generally have a well-defined weakness that may jeopardize liquidation of the debt and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Finally, a loan is considered to be impaired when it is probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management has determined that all non-accrual loans and loans modified under troubled debt restructurings meet the definition of an impaired loan.

The Company's procedures dictate that an updated valuation must be obtained with respect to underlying collateral at the time a loan is deemed impaired. Updated valuations may also be obtained upon transfer from loans receivable to real estate owned based upon the age of the prior appraisal, changes in market conditions or known changes to the physical condition of the property.

Estimated fair values are reduced to account for sales commissions, broker fees, unpaid property taxes and additional selling expenses to arrive at an estimated net realizable value. The adjustment factor is based upon the Company's actual experience with respect to sales of real estate owned over the prior two years. In situations in which we are placing reliance on an appraisal that is more than one year old, an additional adjustment factor is applied to account for downward market pressure since the date of appraisal. The additional adjustment factor is based upon relevant sales data available for our general operating market as well as company-specific historical net realizable values as compared to the most recent appraisal prior to disposition.

With respect to multi-family income-producing real estate, appraisals are reviewed and estimated collateral values are adjusted by updating significant appraisal assumptions to reflect current real estate market conditions. Significant assumptions reviewed and updated include the capitalization rate, rental income and operating expenses. These adjusted assumptions are based upon recent appraisals received on similar properties as well as on actual experience related to real estate owned and currently under Company management.

The following tables present data on impaired loans at March 31, 2021 and December 31, 2020.

	As of March 31, 2021
	Recorded Investment		Unpaid Principal		Reserve		Cumulative Charge-Offs
	(In Thousands)
Total Impaired with Reserve
One- to four-family	$	206	$	206	$	21	$	-
Multi-family		-		-		-		-
Home equity		-		-		-		-
Construction and land		-		-		-		-
Commercial real estate		-		-		-		-
Consumer		-		-		-		-
Commercial		-		-		-		-
		206		206		21		-
Total Impaired with no Reserve
One- to four-family		6,256		7,019		-		763
Multi-family		314		314		-		-
Home equity		59		59		-		-
Construction and land		43		51		-		8
Commercial real estate		6,964		6,964		-		-
Consumer		-		-		-		-
Commercial		1,097		1,097		-		-
		14,733		15,504		-		771
Total Impaired
One- to four-family		6,462		7,225		21		763
Multi-family		314		314		-		-
Home equity		59		59		-		-
Construction and land		43		51		-		8
Commercial real estate		6,964		6,964		-		-
Consumer		-		-		-		-
Commercial		1,097		1,097		-		-
	$	14,939	$	15,710	$	21	$	771

	As of December 31, 2020
	Recorded Investment		Unpaid Principal		Reserve		Cumulative Charge-Offs
	(In Thousands)
Total Impaired with Reserve
One- to four-family	$	208	$	208	$	23	$	-
Multi-family		-		-		-		-
Home equity		-		-		-		-
Construction and land		-		-		-		-
Commercial real estate		-		-		-		-
Consumer		-		-		-		-
Commercial		-		-		-		-
		208		208		23		-
Total Impaired with no Reserve
One- to four-family		7,597		8,444		-		847
Multi-family		341		352		-		11
Home equity		63		63		-		-
Construction and land		43		51		-		8
Commercial real estate		7,248		7,248		-		-
Consumer		-		-		-		-
Commercial		1,097		1,097		-		-
		16,389		17,255		-		866
Total Impaired
One- to four-family		7,805		8,652		23		847
Multi-family		341		352		-		11
Home equity		63		63		-		-
Construction and land		43		51		-		8
Commercial real estate		7,248		7,248		-		-
Consumer		-		-		-		-
Commercial		1,097		1,097		-		-
	$	16,597	$	17,463	$	23	$	866

The difference between a loan’s recorded investment and the unpaid principal balance represents a partial charge-off resulting from a confirmed loss when the value of the collateral securing the loan is below the loan balance and management’s assessment that the full collection of the loan balance is not likely.

The following tables present data on impaired loans for the three months ended March 31, 2021 and 2020.

	Three months ended March 31,
	2021				2020
	Average Recorded Investment		Interest Paid		Average Recorded Investment		Interest Paid
	(In Thousands)
Total Impaired with Reserve
One- to four-family	$	207	$	4	$	216	$	4
Multi-family		-		-		-		-
Home equity		-		-		-		-
Construction and land		-		-		-		-
Commercial real estate		-		-		5		10
Consumer		-		-		-		-
Commercial		-		-		-		-
		207		4		221		14
Total Impaired with no Reserve
One- to four-family		6,294		79		8,265		98
Multi-family		314		-		656		17
Home equity		60		1		388		4
Construction and land		43		-		-		-
Commercial real estate		6,967		78		349		4
Consumer		-		-		-		-
Commercial		1,097		12		-		-
		14,775		170		9,658		123
Total Impaired
One- to four-family		6,501		83		8,481		102
Multi-family		314		-		656		17
Home equity		60		1		388		4
Construction and land		43		-		-		-
Commercial real estate		6,967		78		354		14
Consumer		-		-		-		-
Commercial		1,097		12		-		-
	$	14,982	$	174	$	9,879	$	137

When a loan is considered impaired, interest payments received are treated as interest income on a cash basis as long as the remaining book value of the loan (i.e., after charge-off of all identified losses) is deemed to be fully collectible. If the remaining book value is not deemed to be fully collectible, all payments received are applied to unpaid principal. Determination as to the ultimate collectability of the remaining book value is supported by an updated credit department evaluation of the borrower’s financial condition and prospects for repayment, including consideration of the borrower’s sustained historical repayment performance and other relevant factors.

The determination as to whether an allowance is required with respect to impaired loans is based upon an analysis of the value of the underlying collateral and/or the borrower’s intent and ability to make all principal and interest payments in accordance with contractual terms. The evaluation process is subject to the use of significant estimates and actual results could differ from estimates. This analysis is primarily based upon third party appraisals and/or a discounted cash flow analysis. In those cases in which no allowance has been provided for an impaired loan, the Company has determined that the estimated value of the underlying collateral exceeds the remaining outstanding balance of the loan. Of the total $14.7 million of impaired loans as of March 31, 2021 for which no allowance has been provided, $771,000 in net charge-offs have been recorded to reduce the unpaid principal balance to an amount that is commensurate with the loans’ net realizable value, using the estimated fair value of the underlying collateral. To the extent that further deterioration in property values continues, the Company may have to reevaluate the sufficiency of the collateral servicing these impaired loans which may result in additional provisions to the allowance for loans losses or charge-offs.

At March 31, 2021, total impaired loans included $11.8 million of troubled debt restructurings. Troubled debt restructurings involve granting concessions to a borrower experiencing financial difficulty by modifying the terms of the loan in an effort to avoid foreclosure. The vast majority of debt restructurings include a modification of terms to allow for an interest only payment and/or reduction in interest rate. The restructured terms are typically in place for six to twelve months. At December 31, 2020, total impaired loans included $11.6 million of troubled debt restructurings.

The following presents data on troubled debt restructurings:

		As of March 31, 2021
		Accruing				Non-accruing					Total
		Amount		Number		Amount			Number		Amount			Number
	(Dollars in Thousands)

One- to four-family		$	2,728		2		$	1,088		4		$	3,816		6
Commercial real estate			6,934		2			-		-			6,934		2
Commercial			1,097		1			-		-			1,097		1
		$	10,759		5		$	1,088		4		$	11,847		9

		As of December 31, 2020
		Accruing				Non-accruing					Total
		Amount		Number		Amount			Number		Amount			Number
	(Dollars in Thousands)

One- to four-family		$	2,733		2		$	532		3		$	3,265		5
Commercial real estate			7,207		3			-		-			7,207		3
Commercial			1,097		1			-		-			1,097		1
		$	11,037		6		$	532		3		$	11,569		9

At March 31, 2021, $11.8 million in loans had been modified in troubled debt restructurings and $1.1 million of these loans were included in the non-accrual loan total. The remaining $10.8 million, while meeting the internal requirements for modification in a troubled debt restructuring, were current with respect to payments under their original loan terms at the time of the restructuring and, therefore, continued to be included with accruing loans. Provided these loans perform in accordance with the modified terms, they will continue to be accounted for on an accrual basis.

All loans that have been modified in a troubled debt restructuring are considered to be impaired. As such, an analysis has been performed with respect to all of these loans to determine the need for a valuation reserve. When a loan is expected to perform in accordance with the restructured terms and ultimately return to and perform under contract terms, a valuation allowance is established for an amount equal to the excess of the present value of the expected future cash flows under the original contract terms as compared with the modified terms, including an estimated default rate. When there is doubt as to the borrower’s ability to perform under the restructured terms or ultimately return to and perform under market terms, a valuation allowance is established equal to the impairment when the carrying amount exceeds fair value of the underlying collateral. As a result of the impairment analysis, no valuation allowance was recorded as of March 31, 2021 with respect to the $11.8 million in troubled debt restructurings. As of December 31, 2020, no valuation allowance had been established with respect to the $11.6 million in troubled debt restructurings.

After a troubled debt restructuring reverts to market terms, a minimum of six consecutive contractual payments must be received prior to consideration for a return to accrual status. If an updated credit department review indicates no other evidence of elevated credit risk, the loan is returned to accrual status at that time.

The following presents troubled debt restructurings by concession type:

		As of March 31, 2021
	Performing in accordance with modified terms					In Default				Total
	Amount			Number		Amount		Number		Amount		Number
	(Dollars in Thousands)
Interest reduction and principal forbearance		$	3,206		4	$	-		-	$	3,206		4
Interest reduction			27		1		-		-		27		1
Principal forbearance			8,614		4		-		-		8,614		4
		$	11,847		9	$	-		-	$	11,847		9

		As of December 31, 2020
	Performing in accordance with modified terms					In Default				Total
	Amount			Number		Amount		Number		Amount		Number
	(Dollars in Thousands)
Interest reduction and principal forbearance		$	3,236		4	$	-		-	$	3,236		4
Interest reduction			302		2		-		-		302		2
Principal forebearance			8,031		3		-		-		8,031		3
		$	11,569		9	$	-		-	$	11,569		9

There was one one- to four-family loan modified as troubled debt restructurings with a balance of $583,000 during the three months ended March 31, 2021. There were no loans modified as troubled debt restructurings during the three months ended March 31, 2020.

There were no troubled debt restructurings within the past twelve months for which there was a default during the three months ended March 31, 2021 or March 31, 2020.

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020 and the earlier of (i) December 31, 2020 or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt these provisions of the CARES Act. At March 31, 2021, the Company had approximately $910,000 in outstanding loans subject to principal deferral agreements.

The following table presents data on non-accrual loans as of March 31, 2021 and December 31, 2020:

	March 31, 2021			December 31, 2020
	(Dollars in Thousands)
Non-accrual loans:
Residential real estate:
One- to four-family	$	3,734		$	5,072
Multi-family		314			341
Home equity		59			63
Construction and land		43			43
Commercial real estate		30			41
Commercial		-			-
Consumer		-			-
Total non-accrual loans	$	4,180		$	5,560
Total non-accrual loans to total loans receivable		0.31	%		0.40	%
Total non-accrual loans to total assets		0.19	%		0.25	%