Loans

6 Months Ended

Jun. 30, 2024

NOTE 4 – LOANS

Major classifications of loans, reported at amortized cost, are summarized as follows:


	June 30, 2024			December 31, 2023
	(in thousands)
Commercial:
Real estate	$	237,645		$	231,893
Other		46,078			47,898
Residential real estate:
First mortgage		98,419			97,747
Construction		691			359
Consumer:
Home equity and lines of credit		18,943			19,683
Other		80			134
Subtotal (1)		401,856			397,714
Net deferred loan costs		818			854
Allowance for credit losses for loans		(3,871	)		(3,734	)
Loans, net	$	398,803		$	394,834

(1) Totals do not include accrued interest receivable, which was $1.1 million at both June 30, 2024 and December 31, 2023, and which is recorded separately on the Company’s Consolidated Balance Sheets.

Deposit accounts in an overdrawn position and reclassified as loans totaled $18,000 and $78,000 at June 30, 2024 and December 31, 2023, 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 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 tend to be geographically concentrated in the Company's metropolitan Milwaukee market area, and while a significant portion of the Company’s loan portfolio is secured by commercial and residential real estate, there are no significant concentrations whose primary sources of repayment are reliant upon an individual or group of related borrowers.

The Company also purchases loan participations from other financial institutions. The outstanding balance of loans purchased are included in the totals above and totaled $65.1 million as of June 30, 2024 and $50.8 million as of December 31, 2023. In addition, the amount available for future draws totaled $56.2 million at June 30, 2024. Loans purchased are primarily comprised of commercial real estate and other commercial loans and are subject to the same underwriting standards as loans that are originated by the Company.

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, 2024 and December 31, 2023, respectively, the Company had transferred $27.9 million and $29.0 million in participation loans which were eligible for sales treatment to other financial institutions, all of which continue to be serviced by the Company.

NOTE 4 – LOANS (continued)

A summary of activity in the allowance for credit losses for loans and the allowance for credit losses for unfunded loan commitments for the three and six months ended June 30, 2024 and June 30, 2023, is presented below:


	Commercial			Residential			Consumer			Total
	(in thousands)
Three months ended June 30, 2024
Allowance for credit losses for loans
Beginning balance	$	2,649		$	839		$	191		$	3,679
Provision for credit losses		66			21			4			91
Loans charged-off		—			—			(2	)		(2	)
Recoveries		99			—			4			103
Ending balance	$	2,814		$	860		$	197		$	3,871

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	987		$	31		$	—		$	1,018
Provision for credit losses		(15	)		(1	)		—			(16	)
Ending balance	$	972		$	30		$	—		$	1,002

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,786		$	890		$	197		$	4,873

Three months ended June 30, 2023
Allowance for credit losses for loans
Beginning balance	$	2,669		$	848		$	176		$	3,693
Provision for credit losses		(42	)		(17	)		1			(58	)
Loans charged-off		—			—			(1	)		(1	)
Recoveries		5			—			4			9
Ending balance	$	2,632		$	831		$	180		$	3,643

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	640		$	25		$	—		$	665
Provision for credit losses		131			2			—			133
Ending balance	$	771		$	27		$	—		$	798

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,403		$	858		$	180		$	4,441

NOTE 4 – LOANS (continued)


	Commercial		Residential		Consumer			Total
	(in thousands)
Six months ended June 30, 2024
Allowance for credit losses for loans
Beginning balance	$	2,693	$	849	$	192		$	3,734
Provision for credit losses		17		5		1			23
Loans charged-off		—		—		(3	)		(3	)
Recoveries		104		6		7			117
Ending balance	$	2,814	$	860	$	197		$	3,871

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	847	$	28	$	—		$	875
Provision for credit losses		125		2		—			127
Ending balance	$	972	$	30	$	—		$	1,002

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,786	$	890	$	197		$	4,873

Six months ended June 30, 2023
Allowance for credit losses for loans
Beginning balance	$	1,944	$	752	$	507		$	3,203
Provision for credit losses		12		4		1			17
CECL Adoption Adjustment(2)		666		75		(329	)		412
Loans charged-off		—		—		(7	)		(7	)
Recoveries		10		—		8			18
Ending balance	$	2,632	$	831	$	180		$	3,643

Allowance for credit losses for unfunded loan commitments(1)
Beginning balance	$	—	$	—	$	—		$	—
Provision for credit losses		131		2		—			133
CECL Adoption Adjustment(2)		640		25		—			665
Ending balance	$	771	$	27	$	—		$	798

Total Allowance for credit losses for loans and unfunded loan commitments	$	3,403	$	858	$	180		$	4,441

(1) The allowance for credit losses for unfunded loan commitments is included in other liabilities on the Company's Consolidated Balance Sheets.

(2) On January 1, 2023, the Company adopted ASU 2016-13 ("CECL"). See Note 2 for additional information regarding the adoption of ASU 2016-13.

NOTE 4 – LOANS (continued)

The provision for credit losses is determined by the Company as the amount that is to be added to the allowance for credit losses accounts to bring the allowance to a level that, in management's judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. The following table presents the components of the provision for credit losses:


	Three months ended June 30,
	2024			2023
	(in thousands)
Provision for credit losses for:
Loans	$	91		$	(58	)
Unfunded loan commitments		(16	)		133
Total	$	75		$	75


	Six months ended June 30,
	2024		2023
	(in thousands)
Provision for credit losses for:
Loans	$	23	$	17
Unfunded loan commitments		127		133
Total	$	150	$	150

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The credit quality indicators monitored differ depending on the class of loan. The credit quality indicators for commercial real estate and other commercial loans are based on the following ratings:

•

"Pass" ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

•

"Watch and Special Mention" ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

•

"Substandard" ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.

•

"Doubtful" ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is unlikely.

Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing or in nonaccrual status. Refer to Note 1 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K, filed with the SEC on March 29, 2024, for additional information on our nonaccrual policy.

NOTE 4 – LOANS (continued)

The following tables presents the amortized cost basis of our loans by credit quality indicator and origination year, at June 30, 2024 and December 31, 2023:


	June 30, 2024
	2024		2023		2022		2021		2020		2019 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial real estate:
Pass	$	3,456	$	27,562	$	81,857	$	39,104	$	38,829	$	41,451	$	60	$	-	$	232,319
Watch and special mention		-		1,669		-		202		-		389		-		-		2,260
Substandard		-		-		1,864		-		-		1,202		-		-		3,066
Nonperforming		-		-		-		-		-		-		-		-		-
Total commercial real estate		3,456		29,231		83,721		39,306		38,829		43,042		60		-		237,645
Other commercial loans:
Pass		3,079		6,811		5,279		3,132		470		1,045		10,661		-		30,477
Watch and special mention		2,944		7,327		3,867		429		45		41		35		-		14,688
Substandard		-		-		203		123		-		87		500		-		913
Total other commercial loans		6,023		14,138		9,349		3,684		515		1,173		11,196		-		46,078
Total commercial loans		9,479		43,369		93,070		42,990		39,344		44,215		11,256		-		283,723
Residential real estate - first mortgage:
Performing		3,797		13,688		13,749		32,919		15,245		18,322		-		-		97,720
Nonaccrual		-		-		-		-		-		699		-		-		699
Total residential real estate - first mortgage		3,797		13,688		13,749		32,919		15,245		19,021		-		-		98,419
Residential real estate - construction:
Performing		211		480		-		-		-		-		-		-		691
Nonaccrual		-		-		-		-		-		-		-		-		-
Total residential real estate - construction		211		480		-		-		-		-		-		-		691
Total residential real estate		4,008		14,168		13,749		32,919		15,245		19,021		-		-		99,110
Consumer - home equity and lines of credit:
Performing		75		72		43		134		63		1,101		15,908		1,458		18,854
Nonaccrual		-		-		-		-		-		85		4		-		89
Total consumer - home equity and lines of credit		75		72		43		134		63		1,186		15,912		1,458		18,943
Consumer - other
Performing		10		26		39		-		5		-		-		-		80
Nonaccrual		-		-		-		-		-		-		-		-		-
Total consumer - other		10		26		39		-		5		-		-		-		80
Total consumer		85		98		82		134		68		1,186		15,912		1,458		19,023
Total loans	$	13,572	$	57,635	$	106,901	$	76,043	$	54,657	$	64,422	$	27,168	$	1,458	$	401,856

NOTE 4 – LOANS (continued)


	December 31, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial real estate:
Pass	$	22,486	$	78,098	$	40,597	$	40,914	$	8,881	$	34,342	$	42	$	-	$	225,360
Watch and special mention		-		232		-		-		1,706		328		-		-		2,266
Substandard		-		1,885		598		-		287		1,075		-		-		3,845
Nonaccrual		-		79		-		-		-		343		-		-		422
Total commercial real estate		22,486		80,294		41,195		40,914		10,874		36,088		42		-		231,893
Other commercial loans:
Pass		16,949		11,347		4,729		974		64		1,488		9,905		-		45,456
Watch and special mention		-		-		197		31		15		48		828		-		1,119
Substandard		-		236		411		-		-		116		560		-		1,323
Total other commercial loans		16,949		11,583		5,337		1,005		79		1,652		11,293		-		47,898
Total commercial loans		39,435		91,877		46,532		41,919		10,953		37,740		11,335		-		279,791
Residential real estate - first mortgage:
Performing		13,485		14,419		33,619		15,854		3,033		16,680		-		-		97,090
Nonaccrual		-		-		-		-		-		657		-		-		657
Total residential real estate - first mortgage		13,485		14,419		33,619		15,854		3,033		17,337		-		-		97,747
Residential real estate - construction:
Performing		359		-		-		-		-		-		-		-		359
Nonaccrual		-		-		-		-		-		-		-		-		-
Total residential real estate - construction		359		-		-		-		-		-		-		-		359
Total residential real estate		13,844		14,419		33,619		15,854		3,033		17,337		-		-		98,106
Consumer - home equity and lines of credit:
Performing		74		53		142		66		167		1,504		16,939		707		19,652
Nonaccrual		-		-		-		-		-		31		-		-		31
Total consumer - home equity and lines of credit		74		53		142		66		167		1,535		16,939		707		19,683
Consumer - other
Performing		73		46		-		7		-		8		-		-		134
Nonaccrual		-		-		-		-		-		-		-		-		-
Total consumer - other		73		46		-		7		-		8		-		-		134
Total consumer		147		99		142		73		167		1,543		16,939		707		19,817
Total loans	$	53,426	$	106,395	$	80,293	$	57,846	$	14,153	$	56,620	$	28,274	$	707	$	397,714

There were no commercial loans rated Doubtful or Loss as of June 30, 2024 or December 31, 2023.

NOTE 4 – LOANS (continued)

The following tables present gross charge-offs of our loans for each portfolio class, by origination year, that occurred during the three and six months ended June 30, 2024 and three and six months ended June 30, 2023. Refer to Note 1 to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K for additional information on our charge-off policy.


	For the three months ended June 30, 2024
	2024		2023		2022		2021		2020		2019 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		-		-		1		-		1		-		-		2
Total consumer		-		-		-		1		-		1		-		-		2
Total current period charge-offs	$	-	$	-	$	-	$	1	$	-	$	1	$	-	$	-	$	2


	For the three months ended June 30, 2023
	2023		2022		2021		2020		2019		2018 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		-		-		1		-		-		-		-		1
Total consumer		-		-		-		1		-		-		-		-		1
Total current period charge-offs	$	-	$	-	$	-	$	1	$	-	$	-	$	-	$	-	$	1

NOTE 4 – LOANS (continued)


	For the six months ended June 30, 2024
	2024		2023		2022		2021		2020		2019 and Prior		Revolving Lines of Credit		Revolving Lines of Credit Converted to Term Loans		Total Loans
	(in thousands)
Commercial:
Real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Land development		-		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		-		-
Total commercial loans		-		-		-		-		-		-		-		-		-
Residential real estate:
First mortgage		-		-		-		-		-		-		-		-		-
Construction		-		-		-		-		-		-		-		-		-
Total residential real estate		-		-		-		-		-		-		-		-		-
Consumer:
Home equity and lines of credit		-		-		-		-		-		-		-		-		-
Other		-		1		-		1		-		1		-		-		3
Total consumer		-		1		-		1		-		1		-		-		3
Total current period charge-offs	$	-	$	1	$	-	$	1	$	-	$	1	$	-	$	-	$	3

1895 Bancorp of Wisconsin, Inc. /MD/ 10-Q