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Note 4 - Loans Receivable

12 Months Ended

Dec. 31, 2022

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4 – LOANS RECEIVABLE

Loans receivable are as follows:

	*December 31,*
	*2022*			*2021*
One-to-four family residential real estate	$	23,094		$	30,133
Multi-family mortgage		536,295			426,136
Nonresidential real estate		119,660			103,172
Construction and land		160			—
Commercial loans and leases		552,494			489,512
Consumer		1,584			1,685
		1,233,287			1,050,638
Net deferred loan origination costs		1,585			284
Allowance for loan losses		(8,129	)		(6,715	)
Loans, net	$	1,226,743		$	1,044,207

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 originates multi-family mortgages, nonresidential real estate, commercial loans, commercial leases and equipment finance transactions, and a limited quantity of construction and land loans. We originated one-to-four family residential mortgage loans until December 31, 2017. We also occasionally purchase and sell loan participations. The following briefly describes our principal loan products.

Commercial Real Estate

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 $8.5 million at December 31, 2022. Approximately 45% 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 $7.5 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 nonresidential 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. 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.

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.

Construction and Land Loans

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.

Commercial Loans and Leases

The commercial loan and lease category includes all commercial credit facilities extended for the purpose of financing working capital or operating assets, including Equipment Finance, Commercial Finance and Community Finance exposures. In general, 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, such as personal or corporate guarantors. In addition to evaluating the borrower’s financial condition, 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 may be supplemented with trade credit reports or verifications of credit or assets. We review proposed collateral for a secured transaction to determine its use in business operations, and its potential value as a secondary source of repayment. Where applicable, we evaluate personal or corporate guarantors’ financial capacity and credit history as a tertiary source of repayment. 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 overall credit risk of the credit exposure, with due consideration given to borrowers with appropriate deposit relationships.

Equipment Finance

The Company lends money for equipment and software finance transactions (collectively, “equipment finance transactions”) on a national basis. The Company originates equipment finance transactions through equipment leasing companies, banks, vendors and other market sources. Generally, equipment finance transactions are secured by an assignment of the payments due under the obligation and by a security interest in the assets financed. In most cases, the obligor acknowledges our security interest in the assets financed and agrees to send all payments directly to us or to a third-party paying agency. Consequently, the Company underwrites equipment finance transactions by examining the creditworthiness of the obligor and any surety, and the purpose, use and value of the assets financed for collateral purposes. Equipment finance transactions are generally non-recourse to the originating company.

The Company conducts equipment finance transactions for the U.S. Government, state and local governments, publicly-traded companies with and without public debt ratings, privately-held companies, and small businesses. Generally, the Company’s equipment finance transactions are secured primarily by technology equipment, medical equipment, material handling equipment and other capital equipment; however, licenses for software essential for the operation of financed equipment, or to the operations of the obligor, are also eligible for financing. In general, the Company conducts software finance transactions only for U.S. Government, investment-grade State government or investment-grade corporate obligors. Generally, equipment finance transactions have a maximum maturity of five years, repaid on a fully-amortizing basis. Our total equipment finance portfolio as of December 31, 2022 was $455.7 million. We have $140.8 million in total equipment or software finance credit exposure to 31 departments or agencies of the U.S. Government, of which the ten largest exposures total $113.3 million, with a portfolio average credit exposure amount of $4.5 million at December 31, 2022. We have $70.7 million in total equipment or software finance credit exposure to 76 state or local governments, of which the ten largest exposures total $43.1 million, with a portfolio average amount of $930,000 at December 31, 2022. We have $209.4 million in total commercial equipment finance transactions to 214 corporate and middle-market obligors, with the ten largest exposures totaling $60.9 million, with a portfolio average amount of $979,000 at December 31, 2022. We have $34.8 million in total small business equipment finance credit exposure to 529 obligors, with a portfolio average amount of $66,000 at December 31, 2022.

Commercial Finance

The Company lends money to finance small- and medium-size businesses for working capital purposes on a national basis. The Company offers traditional commercial lines of credit, asset-based lines of credit and accounts receivable factoring to companies in manufacturing, distribution/logistics, health care and professional services sectors, including contractors of the U.S. Government; however, not all types of commercial finance credit facilities are presently available to all business sectors. Commercial finance borrowers are typically subject to more stringent liquidity and collateral underwriting, and ongoing credit monitoring practices, than traditional commercial bank credit borrowers. Generally, commercial finance transactions have a maximum maturity of two years. The maximum outstanding credit commitment to any commercial finance borrower is $15 million for transactions secured by health-care receivables or contract payments due from the U.S. Government; however, the average commercial finance credit commitment was $776,000 at December 31, 2022.

Community Finance

The Company makes various types of secured and unsecured commercial loans to for-profit, not-for-profit and local government borrowers in our primary 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.

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, 2022
One-to-four family residential real estate	$	—	$	281	$	281	$	751	$	22,343	$	23,094
Multi-family mortgage		—		4,013		4,013		473		535,822		536,295
Nonresidential real estate		—		1,234		1,234		—		119,660		119,660
Construction and land		—		4		4		—		160		160
Commercial loans and leases		—		2,548		2,548		1,481		551,013		552,494
Consumer		—		49		49		—		1,584		1,584
	$	—	$	8,129	$	8,129	$	2,705	$	1,230,582		1,233,287
Net deferred loan origination costs												1,585
Allowance for loan losses												(8,129	)
Loans, net											$	1,226,743

	*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, 2021
One-to-four family residential real estate	$	—	$	331	$	331	$	1,299	$	28,834	$	30,133
Multi-family mortgage		—		3,377		3,377		498		425,638		426,136
Nonresidential real estate		30		1,281		1,311		297		102,875		103,172
Commercial loans and leases		—		1,652		1,652		76		489,436		489,512
Consumer		—		44		44		—		1,685		1,685
	$	30	$	6,685	$	6,715	$	2,170	$	1,048,468		1,050,638
Net deferred loan origination costs												284
Allowance for loan losses												(6,715	)
Loans, net											$	1,044,207

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

	*Beginning balance*		*Provision for (recovery of) loan losses*			*Loans charged off*			*Recoveries*		*Ending balance*
December 31, 2022
One-to-four family residential real estate	$	331	$	15		$	(76	)	$	11	$	281
Multi-family mortgage		3,377		616			—			20		4,013
Nonresidential real estate		1,311		111			(192	)		4		1,234
Construction and land		—		4			—			—		4
Commercial loans and leases		1,652		1,032			(156	)		20		2,548
Consumer		44		50			(61	)		16		49
	$	6,715	$	1,828		$	(485	)	$	71	$	8,129

December 31, 2021
One-to-four family residential real estate	$	518	$	(395	)	$	(3	)	$	211	$	331
Multi-family mortgage		4,062		(718	)		—			33		3,377
Nonresidential real estate		1,569		(251	)		(7	)		—		1,311
Construction and land		12		(12	)		—			—		—
Commercial loans and leases		1,536		119			(93	)		90		1,652
Consumer		54		17			(29	)		2		44
	$	7,751	$	(1,240	)	$	(132	)	$	336	$	6,715

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, 2022
With no related allowance recorded
One-to-four family residential real estate	$	752	$	751	$	—	$	—	$	1,143	$	29
Multi-family mortgage - Illinois		473		473		—		—		590		27
Commercial leases		1,606		1,481		49		—		445		47
	$	2,831	$	2,705	$	49	$	—	$	2,178	$	103

December 31, 2021
With no related allowance recorded
One-to-four family residential real estate	$	1,299	$	1,299	$	—	$	—	$	1,473	$	29
Multi-family mortgage - Illinois		498		498		—		—		509		30
Commercial leases		83		76		7		—		7		—
		1,880		1,873		7		—		1,989		59

With an allowance recorded - nonresidential real estate		280		297		7		30		296		—
	$	2,160	$	2,170	$	14	$	30	$	2,285	$	59

Nonaccrual loans

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

	*Nonaccrual Loans*		*Loans Past Due Over 90 Days, still accruing*
December 31, 2022
One-to-four family residential real estate	$	92	$	—
Equipment finance		1,306		233
Consumer		5		—
	$	1,403	$	233
December 31, 2021
One-to-four family residential real estate	$	367	$	—
Nonresidential real estate		297		—
Commercial loans		—		10
Equipment finance		76		—
	$	740	$	10

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 $38,000 and $140,000 at December 31, 2022 and 2021, 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 of loans 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*
December 31, 2022
One-to-four family residential real estate loans:
Owner occupied	$	430	$	19	$	72	$	521	$	17,820	$	18,341
Non-owner occupied		1		—		—		1		4,752		4,753
Multi-family mortgage:
Illinois		31		—		—		31		310,141		310,172
Other		—		—		—		—		226,123		226,123
Nonresidential real estate		—		—		—		—		119,660		119,660
Construction and land		—		—		—		—		160		160
Commercial loans and leases:
Commercial		—		—		—		—		76,716		76,716
Asset-based & factored receivables		106		4		—		110		19,925		20,035
Equipment finance:
Government		2,030		5,106		—		7,136		204,370		211,506
Corporate – Investment-rated		—		81		127		208		57,677		57,885
Corporate – Other		2,346		334		438		3,118		92,488		95,606
Middle market		534		353		—		887		55,023		55,910
Small ticket		74		—		4		78		34,758		34,836
Consumer		12		4		5		21		1,563		1,584
	$	5,564	$	5,901	$	646	$	12,111	$	1,221,176	$	1,233,287

	*30-59 Days Past Due*		*60-89 Days Past Due*		*90 Days or Greater Past Due*		*Total Past Due*		*Loans Not Past Due*		*Total*
December 31, 2021
One-to-four family residential real estate loans:
Owner occupied	$	181	$	250	$	367	$	798	$	23,333	$	24,131
Non-owner occupied		2		9		—		11		5,991		6,002
Multi-family mortgage:
Illinois		189		—		—		189		235,681		235,870
Other		—		—		—		—		190,266		190,266
Nonresidential real estate		—		—		297		297		102,875		103,172
Commercial loans and leases:
Commercial		—		—		—		—		67,995		67,995
Asset-based & factored receivables		26		6		10		42		19,358		19,400
Equipment finance:
Government		3,160		4,718		—		7,878		170,584		178,462
Corporate – Investment-rated		290		1,201		—		1,491		81,135		82,626
Corporate – Other		3,015		—		76		3,091		85,760		88,851
Middle market		—		—		—		—		40,582		40,582
Small ticket		—		—		—		—		11,596		11,596
Consumer		13		4		—		17		1,668		1,685
	$	6,876	$	6,188	$	750	$	13,814	$	1,036,824	$	1,050,638

Troubled Debt Restructurings

The Company evaluates loan extensions or modifications not qualified under Section 4013 of the CARES Act or under OCC Bulletin 2020-35 in accordance with FASB ASC 340-10 with respect to the classification of the loan as a TDR.

Under ASC 340-10, if the Company grants a loan extension or modification to a borrower experiencing financial difficulties 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, 2022 and 2021. During the years ending December 31, 2022 and 2021, there were no loans modified and classified as TDRs. During the years ending December 31, 2022 and 2021, there were no TDR 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.

Based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

	*Pass*		*Special Mention*		*Substandard*		*Nonaccrual*		*Total*
December 31, 2022
One-to-four family residential real estate loans:
Owner occupied	$	17,987	$	4	$	258	$	92	$	18,341
Non-owner occupied		4,685		—		68		—		4,753
Multi-family mortgage:
Illinois		310,172		—		—		—		310,172
Other		226,123		—		—		—		226,123
Nonresidential real estate		119,660		—		—		—		119,660
Construction and land		160		—		—		—		160
Commercial loans and leases:
Commercial		76,716		—		—		—		76,716
Asset-based & factored receivables		15,346		873		3,816		—		20,035
Equipment finance:
Government		211,454		—		52		—		211,506
Corporate – Investment-rated		57,755		—		130		—		57,885
Corporate – Other		94,588		644		43		331		95,606
Middle market		55,023		—		—		887		55,910
Small ticket		34,748		—		—		88		34,836
Consumer		1,571		4		4		5		1,584
	$	1,225,988	$	1,525	$	4,371	$	1,403	$	1,233,287

	*Pass*		*Special Mention*		*Substandard*		*Nonaccrual*		*Total*
December 31, 2021
One-to-four family residential real estate loans:
Owner occupied	$	23,396	$	—	$	368	$	367	$	24,131
Non-owner occupied		5,894		—		108		—		6,002
Multi-family mortgage:
Illinois		235,545		325		—		—		235,870
Other		190,266		—		—		—		190,266
Nonresidential real estate		102,875		—		—		297		103,172
Commercial loans and leases:
Commercial		67,995		—		—		—		67,995
Asset-based & factored receivables		19,400		—		—		—		19,400
Equipment finance:
Government		178,427		35		—		—		178,462
Corporate – Investment-rated		82,626		—		—		—		82,626
Corporate – Other		87,685		1,090		—		76		88,851
Middle market		40,582		—		—		—		40,582
Small ticket		11,596		—		—		—		11,596
Consumer		1,675		4		6		—		1,685
	$	1,047,962	$	1,454	$	482	$	740	$	1,050,638