Loans | NOTE 4 – LOANS Major classifications of loans are summarized as follows: June 30, December 31, (in thousands) Commercial: Real estate $ 205,402 $ 185,223 Land development — 1,400 Other 42,858 38,160 Residential real estate: First mortgage 83,165 80,661 Construction 3,726 3,388 Consumer: Home equity and lines of credit 16,592 17,032 Other 145 128 Subtotal 351,888 325,992 Net deferred loan costs 863 655 Allowance for loan losses (3,132 ) (2,858 ) Loans, net $ 349,619 $ 323,789 Deposit accounts in an overdrawn position and reclassified as loans totaled $26,000 and $106,000 at June 30, 2022 and December 31, 2021, respectively. The Company provides several types of loans to its customers, including commercial, residential, construction 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 within the metropolitan Milwaukee, Wisconsin area, there are no concentrations with individual borrowers or groups of related borrowers. During the normal course of business, the Company may transfer a portion of a loan as a participation loan to another financial institution in order to manage portfolio risk. In order to be eligible for sales treatment, all cash flows from the loan must be divided proportionately, and rights of each loan holder must have the same priority, the loan holders must have no recourse to the transferor other than standard representations and warranties, and no loan holder can have the right to pledge or exchange the entire loan. As of June 30, 2022 and December 31, 2021, respectively, the Company had transferred $34.9 million and $32.1 million in participation loans which were eligible for sales treatment to other financial institutions, all of which continue to be serviced by the Company. An analysis of past due loans is presented below: June 30, 2022 30-89 Days 90 Days or Total Past Current Total (in thousands) Commercial: Real estate $ — $ — $ — $ 205,402 $ 205,402 Land development — — — — — Other — — — 42,858 42,858 Residential real estate: First mortgage 69 — 69 83,096 83,165 Construction — — — 3,726 3,726 Consumer: Home equity and lines of credit 27 — 27 16,565 16,592 Other — — — 145 145 Total $ 96 $ — $ 96 $ 351,792 $ 351,888 December 31, 2021 30-89 Days 90 Days or Total Current Total (in thousands) Commercial: Real estate $ — $ — $ — $ 185,223 $ 185,223 Land development — — — 1,400 1,400 Other 33 — 33 38,127 38,160 Residential real estate: First mortgage 342 — 342 80,319 80,661 Construction — — — 3,388 3,388 Consumer: Home equity and lines of credit — — — 17,032 17,032 Other — — — 128 128 Total $ 375 $ — $ 375 $ 325,617 $ 325,992 There were no loans 90 days or more past due and accruing interest as of June 30, 2022 or December 31, 2021, respectively. A summary of activity in the allowance for loan losses for the three and six months ended June 30, 2022 and June 30, 2021, respectively, is presented below: Commercial Residential Consumer Total (in thousands) Three months ended June 30, 2022 Allowance for loan losses Beginning balance $ 1,814 $ 745 $ 458 $ 3,017 Provision for loan losses 105 — — 105 Loans charged-off — — (1 ) (1 ) Recoveries 5 — 6 11 Ending balance $ 1,924 $ 745 $ 463 $ 3,132 Three months ended June 30, 2021 Allowance for loan losses Beginning balance $ 1,614 $ 745 $ 340 $ 2,699 Provision for loan losses — — — — Loans charged-off — — (1 ) (1 ) Recoveries 4 — 30 34 Ending balance $ 1,618 $ 745 $ 369 $ 2,732 Commercial Residential Consumer Total (in thousands) Six months ended June 30, 2022 Allowance for loan losses Beginning balance $ 1,657 $ 745 $ 456 $ 2,858 Provision for loan losses 210 — — 210 Loans charged-off — — (4 ) (4 ) Recoveries 57 — 11 68 Ending balance $ 1,924 $ 745 $ 463 $ 3,132 Six months ended June 30, 2021 Allowance for loan losses Beginning balance $ 1,609 $ 745 $ 349 $ 2,703 Provision for loan losses — — — — Loans charged-off — — (17 ) (17 ) Recoveries 9 — 37 46 Ending balance $ 1,618 $ 745 $ 369 $ 2,732 A summary of the allowance for loan losses for loans evaluated individually and collectively for impairment is presented below: June 30, 2022 Commercial Residential Consumer Total (in thousands) Loans: Individually evaluated for impairment $ 4,009 $ 1,192 $ 35 $ 5,236 Collectively evaluated for impairment 244,251 85,699 16,702 346,652 Total loans $ 248,260 $ 86,891 $ 16,737 $ 351,888 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 1,924 745 463 3,132 Total allowance for loan losses $ 1,924 $ 745 $ 463 $ 3,132 December 31, 2021 Commercial Residential Consumer Total (in thousands) Loans: Individually evaluated for impairment $ 4,833 $ 1,357 $ 37 $ 6,227 Collectively evaluated for impairment 219,950 82,692 17,123 319,765 Total loans $ 224,783 $ 84,049 $ 17,160 $ 325,992 Allowance for loan losses: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 1,657 745 456 2,858 Total allowance for loan losses $ 1,657 $ 745 $ 456 $ 2,858 The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for loan losses. The credit quality indicators monitored differ depending on the class of loan. Pass Watch and Special Mention Substandard Doubtful A summary of the Company’s internal risk ratings of loans is presented below: June 30, 2022 Pass Watch and Substandard Total (in thousands) Commercial: Real estate $ 196,641 $ 5,188 $ 3,573 $ 205,402 Land development — — — — Other 40,556 1,866 436 42,858 Total $ 237,197 $ 7,054 $ 4,009 $ 248,260 December 31, 2021 Pass Watch and Substandard Total (in thousands) Commercial: Real estate $ 172,172 $ 8,963 $ 4,088 $ 185,223 Land development 1,400 — — 1,400 Other 37,414 1 745 38,160 Total $ 210,986 $ 8,964 $ 4,833 $ 224,783 There were no loans rated Doubtful or Loss as of June 30, 2022 or December 31, 2021, respectively. Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loan. Management determines that a loan is impaired or non-performing June 30, 2022 Performing Non Total (in thousands) Residential real estate: First mortgage $ 82,383 $ 782 $ 83,165 Construction 3,726 — 3,726 Consumer: Home equity and lines of credit 16,557 35 16,592 Other 145 — 145 Total $ 102,811 $ 817 $ 103,628 December 31, 2021 Performing Non Total (in thousands) Residential real estate: First mortgage $ 79,722 $ 939 $ 80,661 Construction 3,388 — 3,388 Consumer: Home equity and lines of credit 16,954 78 17,032 Other 128 — 128 Total $ 100,192 $ 1,017 $ 101,209 Information regarding impaired loans is presented below: As of and for the Six Months Ended June 30, 2022 Recorded Unpaid Reserve Average Interest (in thousands) Impaired loans with reserve: Commercial: Real estate $ — $ — $ — $ — $ — Land development — — — — — Other — — — — — Residential real estate: First mortgage — — — — — Construction — — — — — Consumer: Home equity and lines of credit — — — — — Other — — — — — Total impaired loans with reserve — — — — — Impaired loans with no reserve: Commercial: Real estate 3,573 3,573 NA 3,785 71 Land development — — NA — — Other 436 436 NA 505 62 Residential real estate: First mortgage 1,192 1,412 NA 1,271 32 Construction — — NA — — Consumer: Home equity and lines of credit 35 40 NA 36 1 Other — — NA — — Total impaired loans with no reserve 5,236 5,461 NA 5,597 166 Total impaired loans $ 5,236 $ 5,461 $ — $ 5,597 $ 166 As of and for the Year Ended December 31, 2021 Recorded Unpaid Reserve Average Interest (in thousands) Impaired loans with reserve: Commercial: Real estate $ — $ — $ — $ — $ — Land development — — — — — Other — — — — — Residential real estate: First mortgage — — — — — Construction — — — — — Consumer: Home equity and lines of credit — — — — — Other — — — — — Total impaired loans with reserve — — — — — Impaired loans with no reserve: Commercial: Real estate 4,088 4,089 NA 5,615 213 Land development — — NA 734 33 Other 745 796 NA 1,478 35 Residential real estate: First mortgage 1,357 1,572 NA 914 34 Construction — — NA — — Consumer: Home equity and lines of credit 37 41 NA 17 22 Other — — NA — — Total impaired loans with no reserve 6,227 6,498 NA 8,758 337 Total impaired loans $ 6,227 $ 6,498 $ — $ 8,758 $ 337 Management regularly monitors impaired loan relationships. In the event facts and circumstances change, additional reserves may be necessary. There were no additional funds committed to impaired loans as of June 30, 2022 and December 31, 2021, respectively. Nonperforming loans are as follows: June 30, December 31, (in thousands) Nonaccrual loans, other than troubled debt restructurings $ 630 $ 826 Nonaccrual loans, troubled debt restructurings 187 191 Total nonperforming loans $ 817 $ 1,017 Troubled debt restructurings, accruing $ 410 $ 418 There were no loans modified as troubled debt restructurings during the six months ended June 30, 2022 and year ended December 31, 2021, respectively. 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 COVID-19 The Company considers a troubled debt restructuring in default if it becomes past due more than 90 days. There were no Information on non-accrual June 30, December 31, (in thousands) Commercial: Real estate $ — $ — Land development — — Other — — Residential real estate: First mortgage 782 939 Construction — — Consumer: Home equity and lines of credit 35 78 Other — — Total non-accrual $ 817 $ 1,017 Total non-accrual 0.23 % 0.31 % Total non-accrual 0.15 % 0.19 % |