| Loans Receivable | Note 3 - Loans Receivable Loans receivable at March 31, 2016 and December 31, 2015 are summarized as follows: March 31, 2016 December 31, 2015 (In Thousands) Mortgage loans: Residential real estate: One- to four-family $ 377,514 381,992 Multi-family 542,163 547,250 Home equity 23,946 24,326 Construction and land 12,866 19,148 Commercial real estate 130,640 118,820 Consumer 338 361 Commercial loans 24,770 23,037 $ 1,112,237 1,114,934 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 credit risks are geographically concentrated in the Company's Milwaukee metropolitan area, there are no concentrations with individual or groups of related borrowers. Qualifying loans receivable totaling $886.5 million and $872.8 million at March 31, 2016 and December 31, 2015, respectively, are pledged as collateral against $300.0 million in outstanding Federal Home Loan Bank of Chicago (FHLBC) advances under a blanket security agreement. As of March 31, 2016 and December 31, 2015, there were no loans 90 or more days past due and still accruing interest. An analysis of past due loans receivable as of March 31, 2016 and December 31, 2015 follows: As of March 31, 2016 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 $ 1,856 - 6,438 8,294 369,220 377,514 Multi-family - - 702 702 541,461 542,163 Home equity 98 58 110 266 23,680 23,946 Construction and land - - 227 227 12,639 12,866 Commercial real estate - - 213 213 130,427 130,640 Consumer - - - - 338 338 Commercial loans 26 3 - 29 24,741 24,770 Total $ 1,980 61 7,690 9,731 1,102,506 1,112,237 As of December 31, 2015 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 $ 851 1,133 6,503 8,487 373,505 381,992 Multi-family — 207 1,858 2,065 545,185 547,250 Home equity 255 96 110 461 23,865 24,326 Construction and land - - 238 238 18,910 19,148 Commercial real estate 57 - 223 280 118,540 118,820 Consumer - - - - 361 361 Commercial loans - - — — 23,037 23,037 Total $ 1,163 1,436 8,932 11,531 1,103,403 1,114,934 (1) Includes $1.1 million and $315,000 at March 31, 2016 and December 31, 2015, respectively, which are on non-accrual status. (2) Includes $60,000 and $467,000 at March 31, 2016 and December 31, 2015, respectively, which are on non-accrual status. (3) Includes $6.5 million and $7.9 million at March 31, 2016 and December 31, 2015, respectively, which are on non-accrual status. A summary of the activity for the three months ended March 31, 2016 and 2015 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, 2016 Balance at beginning of period $ 7,763 5,000 433 904 1,680 9 396 16,185 Provision (credit) for loan losses 298 98 74 (299 ) (59 ) 1 92 205 Charge-offs (205 ) (432 ) - - - - - (637 ) Recoveries 15 18 6 13 - - - 52 Balance at end of period $ 7,871 4,684 513 618 1,621 10 488 15,805 Three months ended March 31, 2015 Balance at beginning of period $ 9,877 5,358 422 687 1,951 8 403 18,706 Provision (credit) for loan losses 330 121 17 (46 ) (67 ) (2 ) (18 ) 335 Charge-offs (769 ) (1,243 ) (48 ) - (43 ) - - (2,103 ) Recoveries 229 520 60 13 5 2 - 829 Balance at end of period $ 9,667 4,756 451 654 1,846 8 385 17,767 A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of March 31, 2016 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 $ 1,144 - 208 - 98 - 3 1,453 Allowance related to loans collectively evaluated for impairment 6,727 4,684 305 618 1,523 10 485 14,352 Balance at end of period $ 7,871 4,684 513 618 1,621 10 488 15,805 Loans individually evaluated for impairment $ 16,481 4,313 528 1,784 1,684 - 25 24,815 Loans collectively evaluated for impairment 361,033 537,850 23,418 11,082 128,956 338 24,745 1,087,422 Total gross loans $ 377,514 542,163 23,946 12,866 130,640 338 24,770 1,112,237 A summary of the allowance for loan loss for loans evaluated individually and collectively for impairment by collateral class as of December 31, 2015 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 $ 1,114 242 108 3 106 - 3 1,576 Allowance related to loans collectively evaluated for impairment 6,649 4,758 325 901 1,574 9 393 14,609 Balance at end of period $ 7,763 5,000 433 904 1,680 9 396 16,185 Loans individually evaluated for impairment $ 18,385 5,100 472 1,795 1,766 - 27 27,545 Loans collectively evaluated for impairment 363,607 542,150 23,854 17,353 117,054 361 23,010 1,087,389 Total gross loans $ 381,992 547,250 24,326 19,148 118,820 361 23,037 1,114,934 The following table presents information relating to the Company's internal risk ratings of its loans receivable as of March 31, 2016 and December 31, 2015: One- to Four- Family Multi-Family Home Equity Construction and Land Commercial Real Estate Consumer Commercial Total (In Thousands) At March 31, 2016 Substandard $ 17,065 1,775 564 1,784 1,684 - 51 22,923 Watch 10,619 3,557 98 — 542 - 1,313 16,129 Pass 349,830 536,831 23,284 11,082 128,414 338 23,406 1,073,185 $ 377,514 542,163 23,946 12,866 130,640 338 24,770 1,112,237 At December 31, 2015 Substandard $ 19,148 2,553 684 1,794 1,766 - 55 26,000 Watch 11,352 3,634 128 - 1,161 - 402 16,677 Pass 351,492 541,063 23,514 17,354 115,893 361 22,580 1,072,257 $ 381,992 547,250 24,326 19,148 118,820 361 23,037 1,114,934 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. In addition, we utilize an independent loan review function 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, commercial real estate and commercial loans that individually, or as part of an overall borrower relationship exceed $1.0 million 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 Bank will sustain some loss if the deficiencies are not corrected. Finally, a loan is considered to be impaired when it is probable that the Bank 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, 2016 and December 31, 2015. As of or for the Three Months Ended March 31, 2016 Recorded Investment Unpaid Principal Reserve Cumulative Charge-Offs Average Recorded Investment Interest Paid (In Thousands) Total Impaired with Reserve One- to four-family $ 7,236 8,175 1,144 939 7,262 68 Multi-family - - - - - - Home equity 321 321 208 - 325 5 Construction and land - - - - - - Commercial real estate 304 713 98 409 309 2 Consumer - - - - - - Commercial 3 3 3 - 3 - 7,864 9,212 1,453 1,348 7,899 75 Total Impaired with no Reserve One- to four-family 9,245 10,606 - 1,361 9,451 101 Multi-family 4,313 5,350 - 1,037 4,326 61 Home equity 207 207 - - 207 1 Construction and land 1,784 1,897 - 113 1,787 14 Commercial real estate 1,380 1,380 - - 1,458 16 Consumer - - - - - - Commercial 22 22 - - 23 - 16,951 19,462 - 2,511 17,252 193 Total Impaired One- to four-family 16,481 18,781 1,144 2,300 16,713 169 Multi-family 4,313 5,350 - 1,037 4,326 61 Home equity 528 528 208 - 532 6 Construction and land 1,784 1,897 - 113 1,787 14 Commercial real estate 1,684 2,093 98 409 1,767 18 Consumer - - - - - - Commercial 25 25 3 - 26 - $ 24,815 28,674 1,453 3,859 25,151 268 As of or for the Year Ended December 31, 2015 Recorded Investment Unpaid Principal Reserve Cumulative Charge-Offs Average Recorded Investment Interest Paid (In Thousands) Total Impaired with Reserve One- to four-family $ 7,903 8,923 1,114 1,020 8,113 393 Multi-family 1,055 1,055 242 - 1,044 42 Home equity 169 169 108 - 174 10 Construction and land 156 269 3 113 155 - Commercial real estate 314 723 106 409 367 23 Consumer - - - - - - Commercial 3 3 3 - 5 1 9,600 11,142 1,576 1,542 9,858 469 Total Impaired with no Reserve One- to four-family 10,482 11,991 - 1,509 10,676 500 Multi-family 4,045 5,090 - 1,045 4,106 245 Home equity 303 303 - - 307 13 Construction and land 1,639 1,639 - - 1,827 62 Commercial real estate 1,452 1,452 - - 1,458 72 Consumer - - - - - - Commercial 24 24 - - 29 2 17,945 20,499 - 2,554 18,403 894 Total Impaired One- to four-family 18,385 20,914 1,114 2,529 18,789 893 Multi-family 5,100 6,145 242 1,045 5,150 287 Home equity 472 472 108 - 481 23 Construction and land 1,795 1,908 3 113 1,982 62 Commercial real estate 1,766 2,175 106 409 1,825 95 Consumer - - - - - - Commercial 27 27 3 - 34 3 $ 27,545 31,641 1,576 4,096 28,261 1,363 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. 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 $17.0 million of impaired loans as of March 31, 2016 for which no allowance has been provided, $2.5 million in 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 resulting in additional provisions to the allowance for loans losses or charge-offs. At March 31, 2016, total impaired loans included $15.0 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, 2015, total impaired loans included $17.5 million of troubled debt restructurings. The following presents data on troubled debt restructurings: As of March 31, 2016 Accruing Non-accruing Total Amount Number Amount Number Amount Number (dollars in thousands) One- to four-family $ 3,310 3 $ 4,738 38 $ 8,048 41 Multi-family 2,538 1 1,483 5 4,021 6 Home equity - - 98 1 98 1 Construction and land 1,556 2 - - 1,556 2 Commercial real estate 1,237 2 70 1 1,307 3 $ 8,641 8 $ 6,389 45 $ 15,030 53 As of December 31, 2015 Accruing Non-accruing Total Amount Number Amount Number Amount Number (dollars in thousands) One- to four-family $ 3,900 4 $ 5,739 45 $ 9,639 49 Multi-family 2,546 1 2,317 7 4,863 8 Home equity - - 98 1 98 1 Construction and land 1,556 2 - - 1,556 2 Commercial real estate 1,306 1 77 1 1,383 2 $ 9,308 8 $ 8,231 54 $ 17,539 62 At March 31, 2016, $15.0 million in loans had been modified in troubled debt restructurings and $6.4 million of these loans were included in the non-accrual loan total. The remaining $8.6 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 thus, 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, a $629,000 valuation allowance has been established as of March 31, 2016 with respect to the $15.0 million in troubled debt restructurings. As of December 31, 2015, a $996,000 valuation allowance had been established with respect to the $17.5 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, 2016 Performing in accordance with modified terms In Default Total Amount Number Amount Number Amount Number (dollars in thousands) Interest reduction and principal forbearance $ 10,783 25 $ 805 2 $ 11,588 27 Interest reduction 3,442 26 - - 3,442 26 $ 14,225 51 $ 805 2 $ 15,030 53 As of December 31, 2015 Performing in accordance with modified terms In Default Total Amount Number Amount Number Amount Number (dollars in thousands) Interest reduction and principal forbearance $ 13,971 30 $ 1,012 5 $ 14,983 35 Principal forbearance 97 1 - - 97 1 Interest reduction 2,459 26 - - 2,459 26 $ 16,527 57 $ 1,012 5 $ 17,539 62 There were no loans modified as troubled debt restructurings for the three months ended March 31, 2016 and March 31, 2015. There were no troubled debt restructurings within the past twelve months for which there was a default during the three months ended March 31, 2016 and March 31, 2015. The following table presents data on non-accrual loans as of March 31, 2016 and December 31, 2015: March 31, 2016 December 31, 2015 (Dollars in Thousands) Non-accrual loans: Residential One- to four-family $ 12,578 13,888 Multi-family 1,775 2,553 Home equity 416 437 Construction and land 227 239 Commercial real estate 447 460 Commercial - 27 Consumer 25 - Total non-accrual loans $ 15,468 17,604 Total non-accrual loans to total loans receivable 1.39 % 1.58 % Total non-accrual loans to total assets 0.89 % 1.00 % |
