NOTE 6 – Loans

Major classifications of loans are as follows:


	June 30, 2021		June 30, 2020
Construction, land, development	$	2,458,461	$	4,598,382
1-4 family owner occupied		72,011,570		100,506,311
1-4 family non-owner occupied		22,368,557		21,213,680
Multifamily		91,876,323		76,444,156
Commercial owner occupied		6,405,226		6,733,183
Commercial non-owner occupied		14,182,106		20,237,534
Consumer and installment loans		7,530,197		8,920,659

Total loans		216,832,440		238,653,905
Less:
Allowance for loan losses		(1,412,489)		(1,353,427)

Loans, net	$	215,419,951	$	237,300,478

Deferred loan fees, net of costs are included within the unpaid principal balances above.

The Company engages in a variety of lending activities, including commercial, residential real estate and consumer transactions. The Company focuses its lending activities on individuals, professionals and small to medium sized businesses. Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral.

Commercial and industrial loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as having more risk of default than residential real estate loans with a personal purpose and consumer loans. These types of loans involve larger loan balances to a single borrower or groups of related borrowers and are more susceptible to a risk of loss during a downturn in the business cycle. Commercial real estate and residential real estate loans secured for a business purpose are originated primarily within the metropolitan Milwaukee market area at conservative loan-to-value ratios and often backed by the individual guarantees of the borrowers or owners. Repayment of this kind of loan is dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because commercial real estate borrowers’ ability to repay their loans depends on successful development of their properties, as well as the factors affecting residential real estate borrowers. Commercial and industrial loans may involve greater risk because the availability of funds to repay these loans depends on the successful operation of the borrower’s business. The assets financed are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversions of assets, such as accounts receivable and inventory, to cash. Typical collateral for commercial and industrial loans includes the borrower’s accounts receivable, inventory and machinery and equipment.

The Company originates fixed-rate and adjustable-rate real estate-residential mortgage loans for personal purposes that are secured by first liens on the underlying 1‑4 family residential properties. Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and adherence to underwriting policies that emphasize conservative loan-to-value ratios of generally no more than 80%. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion are generally insured by private mortgage insurance.

The real estate-home equity portfolio primarily consists of variable-rate home equity lines of credit, and to a lesser extent, fixed-rate home equity loans. Risks associated with loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market. Since most loans are secured by a primary or secondary residence, the borrower’s continued employment is the greatest risk to repayment.

The Company offers a variety of loans to individuals for personal and household purposes. Consumer loans are generally considered to have greater risk than first or second mortgages on real estate because they may be unsecured, or, if they are secured, the value of the collateral may be difficult to assess and is more likely to decrease in value than real estate. Credit risk in this portfolio is controlled by conservative underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and, if secured, collateral values.

Policies have been established that set standards for the maximum commercial real estate loan amount by type of property, loan terms, pricing structures, loan-to-value limits by property type, as well as policies and procedures for granting exceptions to established underwriting standards.

The Company’s residential real estate lending policies require all loans to have viable repayment sources. Residential real estate loans are evaluated for the adequacy of these repayment sources at the time of approval using such factors as credit scores, debt-to-income ratios and collateral values. Home equity loans and lines of credit are generally governed by the same lending policies.

Origination activities for construction real estate loans are similar to those described above for commercial real estate and residential real estate lending.

The Company has purchased loan participations in which they are not the primary lender. At June 30, 2021 and 2020, the aggregate amount of purchased participations was $5.5 million and $5.6 million, respectively. The Company has also participated out portions of loans that exceeded its loans-to-one borrower legal lending limit and for risk diversification. At June 30, 2021 and 2020 the Company had participated out portions of loans with aggregate balances of $29.3 million and $9.0 million, respectively.

Non-performing loans are as follows:


	June 30, 2021		June 30, 2020
Nonaccrual Loans	$	793,141	$	1,341,174
Total non-performing loans	$	793,141	$	1,341,174

Restructured loans, accruing	$	—	$	—
Total impaired loans	$	793,141	$	1,341,174

Impaired loans are as follows as of:


	June 30, 2021
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer &
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
With related allowance recorded
Recorded investment	$	—	$	—	$	—	$	—	$	182,532	$	—	$	23,133	$	205,665
Unpaid principal balance		—		—		—		—		182,532		—		23,133		205,665
Related allowance		—		—		—		—		65,626		—		23,133		88,759

With no related allowance recorded
Recorded investment	$	—	$	587,476	$	—	$	—	$	—	$	—	$	—	$	587,476
Unpaid principal balance		—		587,476		—		—		—		—		—		587,476
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	587,476	$	—	$	—	$	182,532	$	—	$	23,133	$	793,141
Unpaid principal balance		—		587,476		—		—		182,532		—		23,133		793,141
Related allowance		—		—		—		—		65,626		—		23,133		88,759

Average recorded balance	$	—	$	780,405	$	41,013	$	—	$	181,950	$	—	$	109,214	$	1,112,582

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		20,084		—		—		—		—		—		20,084
Total interest on impaired loans	$	—	$	20,084	$	—	$	—	$	—	$	—	$	—	$	20,084

Impaired loans are as follows as of:


	June 30, 2020
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
With related allowance recorded
Recorded investment	$	—	$	161,931	$	—	$	—	$	189,249	$	—	$	103,673	$	454,853
Unpaid principal balance		—		161,931		—		—		189,249		—		103,673		454,853
Related allowance		—		64,780		—		—		79,351		—		61,792		205,923

With no related allowance recorded
Recorded investment	$	—	$	803,803	$	57,574	$	—	$	—	$	—	$	24,944	$	886,321
Unpaid principal balance		—		803,803		57,574		—		—		—		24,944		886,321
Related allowance		—		—		—		—		—		—		—		—

Total
Recorded investment	$	—	$	965,734	$	57,574	$	—	$	189,249	$	—	$	128,617	$	1,341,174
Unpaid principal balance		—		965,734		57,574		—		189,249		—		128,617		1,341,174
Related allowance		—		64,780		—		—		79,351		—		61,792		205,923

Average recorded balance	$	—	$	1,020,175	$	14,948	$	—	$	191,166	$	—	$	132,521	$	1,358,810

Interest income recognized while impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest income recognized on a cash basis while impaired		—		16,071		298		—		4,382		—		712		21,463
Total interest on impaired loans	$	—	$	16,071	$	298	$	—	$	4,382	$	—	$	712	$	21,463

Loans are individually evaluated for impairment once a weakness or adverse trend is identified that may jeopardize the repayment of the loan in accordance with the terms of the loan.

The following are the Company’s risk rating definitions:

Pass: Loans in this category are to persons or entities that span from having financial characteristics of unquestioned strength to entities that have potential risks that if left uncorrected could at some point result in deterioration of the Bank’s credit position. Loans in this category are rated “1” through “4” with the lower risk being identified with a lower numerical rating. General characteristics that are monitored include borrower net worth, liquidity and entity profitability.

Special Mention: Loans in this category contain some weakness or potential weakness that if left uncorrected may result in the deterioration of the repayment capacity. Loans in this category are rated as a “5”.

Substandard: Loans in this category exhibit the same characteristics as “5” rated credits and are inadequately protected by the current net worth and paying capacity of the obligor and/or of the collateral pledged as security for the asset. Loans in this category are rated as a “6”.

Real Estate in Judgement: Loans in this category have been placed in non-accrual and the Bank has taken legal action to preserve its position. Loans in this category are rated as a “7”.

The following is a summary of loans by risk rating:


	June 30, 2021
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
			Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
1-4	$	2,458,461	$	71,319,957	$	22,368,557	$	91,876,323	$	5,064,818	$	10,917,142	$	7,507,064	$	211,512,322
5		—		104,137		—		—		1,157,876		3,264,964		—		4,526,977
6		—		587,476		—		—		182,532		—		23,133		793,141
7		—		—		—		—		—		—		—		—
Total	$	2,458,461	$	72,011,570	$	22,368,557	$	91,876,323	$	6,405,226	$	14,182,106	$	7,530,197	$	216,832,440


	June 30, 2020
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
1-4	$	4,598,382	$	99,344,653	$	21,156,106	$	76,444,156	$	6,543,934	$	12,313,923	$	8,792,042	$	229,193,196
5		—		195,924		—		—		—		7,923,611		—		8,119,535
6		—		851,208		57,574		—		189,249		—		52,448		1,150,479
7		—		114,526		—		—		—		—		76,169		190,695
Total	$	4,598,382	$	100,506,311	$	21,213,680	$	76,444,156	$	6,733,183	$	20,237,534	$	8,920,659	$	238,653,905

The following is a summary of past due loans:


	June 30, 2021
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
30‑59 days, accruing	$	—	$	535,696	$	—	$	—	$	—	$	—	$	—	$	535,696
60‑89 days, accruing		—		—		—		—		—		—		—		—
90 days & over or nonaccrual		—		587,476		—		—		182,532		—		23,133		793,141
Total	$	—	$	1,123,172	$	—	$	—	$	182,532	$	—	$	23,133	$	1,328,837


	June 30, 2020
	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer and
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
30‑59 days, accruing	$	69,174	$	1,274,585	$	—	$	—	$	—	$	—	$	63,765	$	1,407,524
60‑89 days, accruing		—		114,338		—		—		—		—		—		114,338
90 days & over or nonaccrual		—		965,734		57,574		—		189,249		—		128,617		1,341,174
Total	$	69,174	$	2,354,657	$	57,574	$	—	$	189,249	$	—	$	192,382	$	2,863,036

As of June 30, 2021 and 2020 there were no loans 90 days or over that were not on nonaccrual.

Certain directors and executive officers of the Company, and their related interests, had loans outstanding in the aggregate amounts of $1,063,485 and $1,080,531 at June 30, 2021 and 2020, respectively. During the year ended June 30, 2021, one new loan was made totaling $384,000, one loan was paid off totaling $357,261 and repayments totaled $43,784. During the year ended June 30, 2020, one new loan was made totaling $90,400 and repayments totaled $49,768. Except for loans with a discounted interest rate made to executive officers pursuant to a program that is available to all Company employees and that complies with applicable banking regulations, these loans were made on substantially the same terms, including collateral, as those prevailing at the same time for comparable transactions with unrelated persons and did not involve more than normal risks of collectability or present other unfavorable features.

TDRs involve the granting of some concession to a distressed borrower resulting in a loan modification such as; payment schedule changes, interest rate reductions, or principal charge-offs. There were two new TDRs during the year ending June 30, 2021, totaling $105,000 and one new TDR during the year ending June 30, 2020, totaling $195,924. There were no TDRs that defaulted during the period that were modified within the previous year as of June 30, 2021. One TDR was transferred out of TDR status during the year ended June 30, 2021. There were two TDRs as of June 30, 2021 and one TDR as of June 30, 2020. As discussed within Note 1, under Section 4013 of the CARES Act, a financial institution can suspend the requirements under U.S. GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Management has evaluated the loan and determined that based on the liquidation value of the collateral, no specific reserve is necessary.

Loans that have previously been restructured in a troubled debt restructuring and are no longer impaired based on the terms specified in their restructuring agreement and are now at a rate equal to or greater than a rate the Bank is willing to accept for a loan with comparable risk are transferred out of TDR status. One loan was transferred out of TDR status during the year ended June 30, 2021.

The following is a summary of TDRs as of June 30, 2021:


	Construction,		1-4 Family		1-4 Family				Commercial		Commercial
	Land,		Owner		Non-Owner				Owner		Non-Owner		Consumer &
	Development		Occupied		Occupied		Multifamily		Occupied		Occupied		Installment		Total
Accruing
Beginning balance June 30, 2020	$	—	$	195,924	$	—	$	—	$	—	$	—	$	—	$	195,924
Transfer to other loan category		—		—		—		—		—		—		—		—
Principal payments		—		(4,868)		—		—		—		—		—		(4,868)
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
New restructureds		—		104,375		—		—		—		—		—		104,375
Transfers out of TDR status		—		(191,294)		—		—		—				—		(191,294)
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers to nonaccrual		—		—		—		—		—		—		—		—
Transfers out of nonaccrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	104,137	$	—	$	—	$	—	$	—	$	—	$	104,137

Nonaccrual
Beginning balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Principal payments		—		—		—		—		—		—		—		—
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers from accrual		—		—		—		—		—		—		—		—
Transfers to accrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Totals
Beginning balance	$	—	$	195,924	$	—	$	—	$	—	$	—	$	—	$	195,924
Transfer to other loan category		—		—		—		—		—		—		—		—
Principal payments		—		(4,868)		—		—		—		—		—		(4,868)
Charge-offs		—		—		—		—		—		—		—		—
Sales		—		—		—		—		—		—		—		—
New restructureds		—		104,375		—		—		—		—		—		104,375
Transfers out of TDR status		—		(191,294)		—		—		—				—		(191,294)
Transfers to foreclosed properties		—		—		—		—		—		—		—		—
Transfers to nonaccrual		—		—		—		—		—		—		—		—
Transfers from accrual		—		—		—		—		—		—		—		—
Transfers out of nonaccrual		—		—		—		—		—		—		—		—
Ending balance	$	—	$	104,137	$	—	$	—	$	—	$	—	$	—	$	104,137