Loans Receivable (Notes)

12 Months Ended

Dec. 31, 2019



	December 31,
	2019			2018
One-to-four family residential real estate	$	55,750		$	70,371
Multi-family mortgage	563,750			619,870
Nonresidential real estate	134,674			152,442
Construction and land	—			172
Commercial loans	145,714			187,406
Commercial leases	272,629			299,394
Consumer	2,211			1,539
	1,174,728			1,331,194
Net deferred loan origination costs	912			1,069
Allowance for loan losses	(7,632		)	(8,470		)
Loans, net	$	1,168,008		$	1,323,793

Loan Origination/Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. The Company reviews and approves these policies and procedures on a periodic basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans via trend and risk rating migration. The Company requires title insurance insuring the priority of our lien on real estate collateral, fire and extended coverage casualty insurance, and, if appropriate, flood insurance, in order to protect our security interest in the underlying real property collateral.

The majority of the loans the Company originates are commercial-related loans, such as multi-family, nonresidential real estate, commercial, construction and land loans, and commercial leases. In addition, we originated one-to-four family residential mortgage loans and consumer loans until December 31, 2017. We also occasionally purchase and sell loan participations. The following briefly describes our principal loan products.

The Company originates real estate loans principally secured by first liens, both non-owner occupied and owner occupied commercial real estate. The non-owner occupied commercial real estate properties are predominantly multi-family apartment buildings, office buildings, light industrial buildings, shopping centers and mixed-use developments and, to a much lesser extent, more specialized properties such as nursing homes and other healthcare facilities.

Multi-family mortgage loans generally are secured by multi-family rental properties such as apartment buildings, including subsidized apartment units. In general, loan amounts range between $500,000 and $5.0 million at December 31, 2019. Approximately 57.0% of the collateral is located outside of our primary market area; however, we do not have a concentration in any single market in excess of 25% of our loan portfolio outside of our primary market area. In underwriting multi-family mortgage loans, the Company considers a number of factors, which include the projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), the age and condition of the collateral, the financial resources and income level of the borrower, the borrower’s experience in owning or managing similar properties and, proximity to diverse employment opportunities. Multi-family mortgage loans are generally originated in amounts up to 80% of the appraised value of the property securing the loan. Personal guarantees are usually obtained on multi-family mortgage loans if the borrower/property owner is a legal entity.

Loans secured by multi-family mortgages generally involve a greater degree of credit risk as a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family mortgages typically depends upon the successful operation of the related real estate property. If the cash flow from the project is reduced below acceptable thresholds, the borrower’s ability to repay the loan may be impaired.

The Company emphasizes nonresidential real estate loans with initial principal balances between $500,000 and $5.0 million. Substantially all of our nonresidential real estate loans are secured by properties located in our primary market area. The Company’s nonresidential real estate loans are generally written as three- or five-year adjustable-rate mortgages or mortgages with balloon maturities of three or five years. Amortization on these loans is typically based on 20- to 30-year schedules. The Company also originates some 15-year fixed-rate, fully amortizing loans.

In the underwriting of nonresidential real estate loans, the Company generally lends up to 80% of the property’s appraised value. Decisions to lend are based on the economic viability of the property as the primary source of repayment and the creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%), computed after deduction for a vacancy factor and property expenses we deem appropriate. Personal guarantees are usually pursued and obtained from nonresidential real estate borrowers.

Nonresidential real estate loans generally carry higher interest rates and have shorter terms and typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

The Company makes various types of secured and unsecured commercial loans to customers in our market area for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. The terms of these loans generally range from less than one year to five years. The loans are either negotiated on a fixed-rate basis or carry adjustable interest rates indexed to (i) a lending rate that is determined internally, or (ii) a short-term market rate index.

Commercial credit decisions are based upon our assessment of the borrower’s cash flow, proposed collateral, business and credit history and any additional positive or negative credit risk factors. The Company determines the borrower’s ability to repay in accordance with the proposed terms of the loans and we assess the risks involved. An evaluation is made of the borrower to determine character and capacity to manage. Personal guarantees of the principals are pursued and usually obtained. In addition to evaluating the loan borrower’s financial statements, we consider the adequacy of the primary and secondary sources of repayment for the loan. Independent reports of the borrower’s credit history supplement our analysis of the borrower’s creditworthiness and at times are supplemented with inquiries to other banks and trade investigations. Moreover, certain assets listed on personal financial statements are verified. Proposed collateral for a secured transaction also is analyzed to determine its marketability. Commercial business loans generally have higher interest rates because they have a higher risk of default since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of any collateral. Pricing of commercial loans is based primarily on the credit risk of the borrower, with due consideration given to borrowers with appropriate deposit relationships.

The Company also lends money to small and mid-size leasing companies for equipment financing leases. Generally, commercial leases are secured by an assignment by the leasing company of the lease payments and by a secured interest in the equipment being leased. In most cases, the lessee acknowledges our security interest in the leased equipment and agrees to send lease payments directly to us. Consequently, the Company underwrites lease loans by examining the creditworthiness of the lessee rather than the lessor. Lease loans generally are non-recourse to the leasing company.

Generally, the Company’s commercial leases are secured primarily by technology equipment, medical equipment, material handling equipment and other capital equipment. Lessees tend to be publicly-traded companies with investment-grade rated debt or companies that have not issued public debt and therefore do not have a public debt rating. Commercial leases to these entities have a maximum outstanding credit exposure of $20.0 million to any single entity. Typically, commercial leases to these lessees have a maximum maturity of five years and a maximum outstanding credit exposure of $10.0 million to any single entity. In addition, the Company will originate commercial leases to lessees with below investment-grade public debt ratings and have a maximum outstanding credit exposure of $10.0 million to any single entity. Lease loans are almost always fully amortizing, with fixed interest rates.

Although the Company does not actively originate construction and land loans presently, construction and land loans generally consist of land acquisition loans to help finance the purchase of land intended for further development, including single-family homes, multi-family housing and commercial income property, development loans to builders in our market area to finance improvements to real estate, consisting mostly of single-family subdivisions, typically to finance the cost of utilities, roads, sewers and other development costs.

Until December 31, 2017, the Company offered conforming and non-conforming, fixed-rate and adjustable-rate residential mortgage loans with maturities of up to 30 years and maximum loan amounts generally of up to $2.5 million. One-to-four family residential mortgage loans were generally underwritten according to Fannie Mae guidelines, and loans that conformed to such guidelines are referred to as “conforming loans.” Private mortgage insurance is required for first mortgage loans with loan-to-value ratios in excess of 80%.

The ability of the Company’s borrowers to repay their loans, and the value of the collateral securing such loans, could be adversely impacted by economic weakness in its local markets as a result of unemployment, declining real estate values, or increased residential, office, industrial and retail shopping vacancies due to changes in business conditions. This not only could result in the Company experiencing charge-offs and/or nonperforming assets, but also could necessitate an increase in the provision for loan losses. These events, if they were to recur, would have an adverse impact on the Company’s results of operations and its capital.

The following tables present the balance in the allowance for loan losses and the loans receivable by portfolio segment and based on impairment method:



	Allowance for loan losses						Loan Balances
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
December 31, 2019
One-to-four family residential real estate	$	—	$	675	$	675	$	1,835	$	53,915	$	55,750
Multi-family mortgage	—		3,676		3,676		620		563,130		563,750
Nonresidential real estate	—		1,176		1,176		288		134,386		134,674
Commercial loans	—		1,308		1,308		—		145,714		145,714
Commercial leases	—		757		757		—		272,629		272,629
Consumer	—		40		40		—		2,211		2,211
	$	—	$	7,632	$	7,632	$	2,743	$	1,171,985	1,174,728
Net deferred loan origination costs											912
Allowance for loan losses											(7,632		)
Loans, net											$	1,168,008



	Allowance for loan losses						Loan Balances
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
December 31, 2018
One-to-four family residential real estate	$	—	$	699	$	699	$	2,218	$	68,153	$	70,371
Multi-family mortgage	—		3,991		3,991		653		619,217		619,870
Nonresidential real estate	27		1,449		1,476		270		152,172		152,442
Construction and land	—		4		4		—		172		172
Commercial loans	—		1,517		1,517		—		187,406		187,406
Commercial leases	—		755		755		—		299,394		299,394
Consumer	—		28		28		—		1,539		1,539
	$	27	$	8,443	$	8,470	$	3,141	$	1,328,053	1,331,194
Net deferred loan origination costs											1,069
Allowance for loan losses											(8,470		)
Loans, net											$	1,323,793

The following table presents the activity in the allowance for loan losses by portfolio segment:



	One-to-four family residential real estate			Multi-family mortgage			Non-residential real estate			Construc-tion and land			Commer-cial loans			Commer-cial leases		Consumer			Total
December 31, 2019
Allowance for loan losses:
Beginning balance	$	699		$	3,991		$	1,476		$	4		$	1,517		$	755	$	28		$	8,470
Provision for (recovery of) loan losses	123			(346		)	(217		)	(4		)	4,224			2		43			3,825
Loans charged off	(222		)	—			(83		)	—			(4,443		)	—		(31		)	(4,779		)
Recoveries	75			31			—			—			10			—		—			116
Total ending allowance balance	$	675		$	3,676		$	1,176		$	—		$	1,308		$	757	$	40		$	7,632

December 31, 2018
Allowance for loan losses:
Beginning balance	850			3,849			1,605			32			1,357			655		18			$	8,366
Provision for (recovery of) loan losses	(126		)	143			(36		)	(30		)	71			95		28			145
Loans charged off	(231		)	(35		)	(93		)	—			(140		)	—		(19		)	(518		)
Recoveries	206			34			—			2			229			5		1			477
Total ending allowance balance	$	699		$	3,991		$	1,476		$	4		$	1,517		$	755	$	28		$	8,470

Impaired loans

The following tables present loans individually evaluated for impairment by class of loans:



	Loan Balance		Recorded Investment		Partial Charge-off		Allowance for Loan Losses Allocated		Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2019
With no related allowance recorded
One-to-four family residential real estate	$	2,168	$	1,835	$	339	$	—	$	2,208	$	51
Multi-family mortgage - Illinois	620		620		—		—		637		37
Nonresidential real estate	280		288		—		—		589		2
	$	3,068	$	2,743	$	339	$	—	$	3,434	$	90

December 31, 2018
With no related allowance recorded
One-to-four family residential real estate	$	2,751	$	2,172	$	575	$	—	$	3,274	$	41
One-to-four family residential real estate - non-owner occupied	86		46		43		—		95		—
Multi-family mortgage - Illinois	654		653		—		—		795		39
	3,491		2,871		618		—		4,164		80

With an allowance recorded - nonresidential real estate	356		270		93		27		21		—
	$	3,847	$	3,141	$	711	$	27	$	4,185	$	80

Nonaccrual loans

The following tables present the recorded investment in nonaccrual and loans 90 days or more past due still on accrual by class of loans:



	Loan Balance		Recorded Investment		Loans Past Due Over 90 Days, still accruing
December 31, 2019
One-to-four family residential real estate	$	598	$	512	$	—
Nonresidential real estate	280		288		—
Investment-rated commercial leases	47		—		47
	$	925	$	800	$	47
December 31, 2018
One-to-four family residential real estate	$	1,445	$	1,168	$	—
One-to-four family residential real estate – non-owner occupied	119		79		—
Nonresidential real estate	356		270		—
	$	1,920	$	1,517	$	—

Nonaccrual loans and impaired loans are defined differently. Some loans may be included in both categories, and some may only be included in one category. Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The Company’s reserve for uncollected loan interest was $81,000 and $72,000 at December 31, 2019 and 2018, respectively. When a loan is on non-accrual status and the ultimate collectability of the total principal of an impaired loan is in doubt, all payments are applied to principal under the cost recovery method. Alternatively, when a loan is on non-accrual status but there is doubt concerning only the ultimate collectability of interest, contractual interest is credited to interest income only when received, under the cash basis method pursuant to the provisions of FASB ASC 310–10, as applicable. In all cases, the average balances are calculated based on the month–end balances of the financing receivables within the period reported pursuant to the provisions of FASB ASC 310–10, as applicable.

Past Due Loans

The following tables present the aging of the recorded investment in past due loans at December 31, 2019 by class of loans:



	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
One-to-four family residential real estate loans:
Owner occupied	$	777	$	340	$	507	$	1,624	$	43,365	$	44,989
Non-owner occupied	280		15		—		295		10,466		10,761
Multi-family mortgage:
Illinois	981		302		—		1,283		246,680		247,963
Other	—		—		—		—		315,787		315,787
Nonresidential real estate	—		—		288		288		134,386		134,674
Commercial loans:
Regional commercial banking	—		—		—		—		24,853		24,853
Health care	—		—		—		—		70,430		70,430
Direct commercial lessor	—		—		—		—		50,431		50,431
Commercial leases:
Investment-rated commercial leases	826		—		47		873		132,966		133,839
Other commercial leases	543		136		—		679		138,111		138,790
Consumer	24		37		—		61		2,150		2,211
	$	3,431	$	830	$	842	$	5,103	$	1,169,625	$	1,174,728

The following tables present the aging of the recorded investment in past due loans at December 31, 2018 by class of loans:



	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
One-to-four family residential real estate loans:
Owner occupied	$	1,383	$	638	$	1,168	$	3,189	$	54,155	$	57,344
Non-owner occupied	393		8		79		480		12,547		13,027
Multi-family mortgage:
Illinois	461		—		—		461		278,776		279,237
Other	—		—		—		—		340,633		340,633
Nonresidential real estate	—		270		—		270		152,172		152,442
Land	—		—		—		—		172		172
Commercial loans:
Regional commercial banking	—		—		—		—		39,574		39,574
Health care	—		—		—		—		85,343		85,343
Direct commercial lessor	—		—		—		—		62,489		62,489
Commercial leases:
Investment-rated commercial leases	498		—		—		498		165,711		166,209
Other commercial leases	—		—		—		—		133,185		133,185
Consumer	39		3		—		42		1,497		1,539
	$	2,774	$	919	$	1,247	$	4,940	$	1,326,254	$	1,331,194

Troubled Debt Restructurings

The Company evaluates loan extensions or modifications in accordance with FASB ASC 310–40 with respect to the classification of the loan as a TDR. In general, if the Company grants a loan extension or modification to a borrower for other than an insignificant period of time that includes a below–market interest rate, principal forgiveness, payment forbearance or other concession intended to minimize the economic loss to the Company, the loan extension or loan modification is classified as a TDR. In cases where borrowers are granted new terms that provide for a reduction of either interest or principal then due and payable, management measures any impairment on the restructured loan in the same manner as for impaired loans as noted above.

The Company had no TDRs at December 31, 2019 and $17,000 of TDRs at 2018, with no specific valuation reserves allocated at December 31, 2018. The Company had no outstanding commitments to borrowers whose loans are classified as TDRs at December 31, 2018.

During the years ending December 31, 2019 and 2018, there were no loans modified and classified as TDRs. During the year ending December 31, 2018, there were no loans that subsequently defaulted within twelve months of their modification.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

To determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans based on credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

Special Mention. A Special Mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans categorized as substandard continue to accrue interest, but exhibit a well-defined weakness or weaknesses that may jeopardize the liquidation of the debt. The loans continue to accrue interest because they are well secured and collection of principal and interest is expected within a reasonable time. The risk rating guidance published by the Office of the Comptroller of the Currency clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated Substandard, and that an individual loan’s loss potential does not have to be distinct for the loan to be rated Substandard.

Nonaccrual. An asset classified Nonaccrual has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered “Pass” rated loans.

As of December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:



	Pass		Special Mention		Substandard		Nonaccrual		Total
One-to-four family residential real estate loans:
Owner occupied	$	43,908	$	36	$	533	$	512	$	44,989
Non-owner occupied	10,696		30		35		—		10,761
Multi-family mortgage:
Illinois	247,757		—		206		—		247,963
Other	315,787		—		—		—		315,787
Nonresidential real estate	134,134		162		90		288		134,674
Commercial loans:
Regional commercial banking	24,853		—		—		—		24,853
Health care	62,084		8,346		—		—		70,430
Direct commercial lessor	50,431		—		—		—		50,431
Commercial leases:
Investment-rated commercial leases	133,332		507		—		—		133,839
Other commercial leases	137,893		761		136		—		138,790
Consumer	2,153		5		53		—		2,211
	$	1,163,028	$	9,847	$	1,053	$	800	$	1,174,728

As of December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:



	Pass		Special Mention		Substandard		Nonaccrual		Total
One-to-four family residential real estate loans:
Owner occupied	$	55,353	$	495	$	328	$	1,168	$	57,344
Non-owner occupied	12,911		—		37		79		13,027
Multi-family mortgage:
Illinois	279,021		—		216		—		279,237
Other	340,633		—		—		—		340,633
Nonresidential real estate	151,793		281		98		270		152,442
Land	172		—		—		—		172
Commercial loans:
Regional commercial banking	34,764		4,810		—		—		39,574
Health care	85,001		—		342		—		85,343
Direct commercial lessor	62,489		—		—		—		62,489
Commercial leases:
Investment-rated commercial leases	165,508		701		—		—		166,209
Other commercial leases	133,185		—		—		—		133,185
Consumer	1,529		3		7		—		1,539
	$	1,322,359	$	6,290	$	1,028	$	1,517	$	1,331,194

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

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