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Loans | 9 Months Ended
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Sep. 30, 2022
Loans |
Loans | (3) Loans Major classifications of loans at September 30, 2022 and December 31, 2021 are summarized as follows:
(Dollars in thousands) |  |  |  |  |  |
|  | September 30, 2022 |  |  | December 31, 2021 |
Real estate loans: |  |  |  |  |  |
Construction and land development |  | $ | 112,854 |  |  |  | 95,760 |
Single-family residential |  |  | 312,208 |  |  |  | 266,111 |
Single-family residential - |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 20,469 |  |  |  | 23,147 |
Commercial |  |  | 399,015 |  |  |  | 337,841 |
Multifamily and farmland |  |  | 62,040 |  |  |  | 58,366 |
Total real estate loans |  |  | 906,586 |  |  |  | 781,225 |
Loans not secured by real estate: |  |  |  |  |  |  |  |
Commercial loans |  |  | 76,434 |  |  |  | 91,172 |
Farm loans |  |  | 961 |  |  |  | 796 |
Consumer loans |  |  | 6,438 |  |  |  | 6,436 |
All other loans |  |  | 14,488 |  |  |  | 5,240 |
Total loans |  |  | 1,004,907 |  |  |  | 884,869 |
Less allowance for loan losses |  |  | (10,030 | ) |  |  | (9,355 | )
Total net loans |  | $ | 994,877 |  |  |  | 875,514 |
The Bank makes loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties and also in Mecklenburg, Wake, Rowan and Forsyth counties of North Carolina. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market. Risk characteristics of the major components of the Bank’s loan portfolio are discussed below:
| · | Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral.
| · | Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.
| · | Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property.
| · | Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business.
| · | Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans.
Loans are considered past due if the required principal and interest payments have not been received within 30 days of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following tables present an age analysis of past due loans, by loan type, as of September 30, 2022 and December 31, 2021:
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Loans 30-89 Days Past Due |  |  | Loans 90 or More Days Past Due |  |  | Total Past Due Loans |  |  | Total Current Loans |  |  | Total Current Loans |  |  | Total Loans |  |  | Accruing Loans 90 or More Days Past Due |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  | $ | 513 |  |  |  | - |  |  |  | 513 |  |  |  | 112,341 |  |  |  | - |  |  |  | 112,854 |  |  |  | - |
Single-family residential |  |  | 1,050 |  |  |  | 158 |  |  |  | 1,208 |  |  |  | 311,000 |  |  |  | - |  |  |  | 312,208 |  |  |  | - |
Single-family residential - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 602 |  |  |  | 191 |  |  |  | 793 |  |  |  | 19,676 |  |  |  | - |  |  |  | 20,469 |  |  |  | - |
Commercial |  |  | 123 |  |  |  | - |  |  |  | 123 |  |  |  | 398,892 |  |  |  | - |  |  |  | 399,015 |  |  |  | - |
Multifamily and farmland |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 62,040 |  |  |  | - |  |  |  | 62,040 |  |  |  | - |
Total real estate loans |  |  | 2,288 |  |  |  | 349 |  |  |  | 2,637 |  |  |  | 903,949 |  |  |  | - |  |  |  | 906,586 |  |  |  | - |
Loans not secured by real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  | 1,237 |  |  |  | - |  |  |  | 1,237 |  |  |  | 75,197 |  |  |  | - |  |  |  | 76,434 |  |  |  | - |
Farm loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 961 |  |  |  | - |  |  |  | 961 |  |  |  | - |
Consumer loans |  |  | 41 |  |  |  | 3 |  |  |  | 44 |  |  |  | 6,394 |  |  |  | - |  |  |  | 6,438 |  |  |  | - |
All other loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14,488 |  |  |  | - |  |  |  | 14,488 |  |  |  | - |
Total loans |  | $ | 3,566 |  |  |  | 352 |  |  |  | 3,918 |  |  |  | 1,000,989 |  |  |  | - |  |  |  | 1,004,907 |  |  |  | - |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Loans 30-89 Days Past Due |  |  | Loans 90 or More Days Past Due |  |  | Total Past Due Loans |  |  | Total Current Loans |  |  | Total Loans |  |  | Accruing Loans 90 or More Days Past Due |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  | $ | - |  |  |  | - |  |  |  | - |  |  |  | 95,760 |  |  |  | 95,760 |  |  |  | - |
Single-family residential |  |  | 2,323 |  |  |  | 634 |  |  |  | 2,957 |  |  |  | 263,154 |  |  |  | 266,111 |  |  |  | - |
Single-family residential - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 2,593 |  |  |  | 112 |  |  |  | 2,705 |  |  |  | 20,442 |  |  |  | 23,147 |  |  |  | - |
Commercial |  |  | 488 |  |  |  | - |  |  |  | 488 |  |  |  | 337,353 |  |  |  | 337,841 |  |  |  | - |
Multifamily and farmland |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 58,366 |  |  |  | 58,366 |  |  |  | - |
Total real estate loans |  |  | 5,404 |  |  |  | 746 |  |  |  | 6,150 |  |  |  | 775,075 |  |  |  | 781,225 |  |  |  | - |
Loans not secured by real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  | 43 |  |  |  | - |  |  |  | 43 |  |  |  | 91,129 |  |  |  | 91,172 |  |  |  | - |
Farm loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 796 |  |  |  | 796 |  |  |  | - |
Consumer loans |  |  | 38 |  |  |  | - |  |  |  | 38 |  |  |  | 6,398 |  |  |  | 6,436 |  |  |  | - |
All other loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,240 |  |  |  | 5,240 |  |  |  | - |
Total loans |  | $ | 5,485 |  |  |  | 746 |  |  |  | 6,231 |  |  |  | 878,638 |  |  |  | 884,869 |  |  |  | - |
The following table presents non-accrual loans as of September 30, 2022 and December 31, 2021:
(Dollars in thousands) |  |  |  |  |  |
|  | September 30, 2022 |  |  | December 31, 2021 |
Real estate loans: |  |  |  |  |  |
Construction and land development |  | $ | - |  |  |  | - |
Single-family residential |  |  | 1,999 |  |  |  | 1,642 |
Single-family residential - |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 1,462 |  |  |  | 1,232 |
Commercial |  |  | 133 |  |  |  | 200 |
Multifamily and farmland |  |  | 96 |  |  |  | 105 |
Total real estate loans |  |  | 3,690 |  |  |  | 3,179 |
Loans not secured by real estate: |  |  |  |  |  |  |  |
Commercial loans |  |  | - |  |  |  | 49 |
Consumer loans |  |  | 18 |  |  |  | 2 |
Total |  | $ | 3,708 |  |  |  | 3,230 |
At each reporting period, the Bank determines which loans are impaired. Accordingly, the Bank’s impaired loans are reported at their estimated fair value on a non-recurring basis. An allowance for each impaired loan that is collateral-dependent is calculated based on the fair value of its collateral less estimated selling costs. The fair value of the collateral is based on appraisals performed by REAS, a subsidiary of the Bank. REAS is staffed by certified appraisers that also perform appraisals for other companies. Factors, including the assumptions and techniques utilized by the appraiser, are considered by management. If the recorded investment in the impaired loan exceeds the measure of fair value of the collateral, a valuation allowance is recorded as a component of the allowance for loan losses. An allowance for each impaired loan that is not collateral dependent is calculated based on the present value of projected cash flows. If the recorded investment in the impaired loan exceeds the present value of projected cash flows, a valuation allowance is recorded as a component of the allowance for loan losses. Impaired loans under $250,000 are not individually evaluated for impairment with the exception of the Bank’s Troubled Debt Restructurings (“TDR”) loans in the residential mortgage loan portfolio, which are individually evaluated for impairment. Impaired loans were $15.7 million and $18.3 million at September 30, 2022 and December 31, 2021, respectively. Interest income recognized on accruing impaired loans was $649,000 and $754,000 for the nine months ended September 30, 2022 and 2021, respectively. Interest income recognized on accruing impaired loans was $217,000 and $253,000 for the three months ended September 30, 2022 and the three months ended September 30, 2021, respectively. No interest income is recognized on non-accrual impaired loans subsequent to their classification as non-accrual. The following table presents impaired loans as of September 30, 2022:
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Unpaid Contractual Principal Balance |  |  | Recorded Investment With No Allowance |  |  | Recorded Investment With Allowance |  |  | Recorded Investment in Impaired Loans |  |  | Related Allowance |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  | $ | 59 |  |  |  | - |  |  |  | 59 |  |  |  | 59 |  |  |  | 1 |
Single-family residential |  |  | 3,929 |  |  |  | 240 |  |  |  | 3,381 |  |  |  | 3,621 |  |  |  | 62 |
Single-family residential - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 10,557 |  |  |  | - |  |  |  | 9,890 |  |  |  | 9,890 |  |  |  | 619 |
Commercial |  |  | 1,996 |  |  |  | 426 |  |  |  | 1,502 |  |  |  | 1,928 |  |  |  | 9 |
Multifamily and farmland |  |  | 107 |  |  |  | - |  |  |  | 96 |  |  |  | 96 |  |  |  | - |
Total impaired real estate loans |  |  | 16,648 |  |  |  | 666 |  |  |  | 14,928 |  |  |  | 15,594 |  |  |  | 691 |
Loans not secured by real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  | 130 |  |  |  | - |  |  |  | 130 |  |  |  | 130 |  |  |  | 1 |
Consumer loans |  |  | 21 |  |  |  | - |  |  |  | 20 |  |  |  | 20 |  |  |  | - |
Total impaired loans |  | $ | 16,799 |  |  |  | 666 |  |  |  | 15,078 |  |  |  | 15,744 |  |  |  | 692 |
The following table presents impaired loans as of and for the year ended December 31, 2021:
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Unpaid Contractual Principal Balance |  |  | Recorded Investment With No Allowance |  |  | Recorded Investment With Allowance |  |  | Recorded Investment in Impaired Loans |  |  | Related Allowance |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  | $ | 73 |  |  |  | - |  |  |  | 73 |  |  |  | 73 |  |  |  | 3 |
Single-family residential |  |  | 5,138 |  |  |  | 524 |  |  |  | 4,374 |  |  |  | 4,898 |  |  |  | 86 |
Single-family residential - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Banco de la Gente non-traditional |  |  | 11,753 |  |  |  | - |  |  |  | 10,922 |  |  |  | 10,922 |  |  |  | 687 |
Commercial |  |  | 2,138 |  |  |  | 435 |  |  |  | 1,608 |  |  |  | 2,043 |  |  |  | 11 |
Multifamily and farmland |  |  | 113 |  |  |  | - |  |  |  | 105 |  |  |  | 105 |  |  |  | - |
Total impaired real estate loans |  |  | 19,215 |  |  |  | 959 |  |  |  | 17,082 |  |  |  | 18,041 |  |  |  | 787 |
Loans not secured by real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  | 282 |  |  |  | 49 |  |  |  | 170 |  |  |  | 219 |  |  |  | 2 |
Consumer loans |  |  | 8 |  |  |  | - |  |  |  | 4 |  |  |  | 4 |  |  |  | - |
Total impaired loans |  | $ | 19,505 |  |  |  | 1,008 |  |  |  | 17,256 |  |  |  | 18,264 |  |  |  | 789 |
The following table presents the average impaired loan balance and the interest income recognized by loan class for the three and nine months ended September 30, 2022 and 2021.
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Three months ended |  |  | Nine months ended |
|  | September 30, 2022 |  |  | September 30, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |
|  | Average Balance |  |  | Interest Income Recognized |  |  | Average Balance |  |  | Interest Income Recognized |  |  | Average Balance |  |  | Interest Income Recognized |  |  | Average Balance |  |  | Interest Income Recognized |
Real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction and land development |  | $ | 60 |  |  |  | 1 |  |  |  | 76 |  |  |  | 1 |  |  |  | 65 |  |  |  | 4 |  |  |  | 91 |  |  |  | 5 |
Single-family residential |  |  | 1,393 |  |  |  | 51 |  |  |  | 5,875 |  |  |  | 49 |  |  |  | 1,131 |  |  |  | 150 |  |  |  | 5,683 |  |  |  | 166 |
Single-family residential - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Banco de la Gente stated income |  |  | 12,487 |  |  |  | 134 |  |  |  | 10,349 |  |  |  | 140 |  |  |  | 13,454 |  |  |  | 407 |  |  |  | 11,090 |  |  |  | 477 |
Commercial |  |  | 1,939 |  |  |  | 25 |  |  |  | 2,280 |  |  |  | 20 |  |  |  | 1,985 |  |  |  | 75 |  |  |  | 2,617 |  |  |  | 85 |
Multifamily and farmland |  |  | 97 |  |  |  | 1 |  |  |  | 110 |  |  |  | 2 |  |  |  | 100 |  |  |  | 4 |  |  |  | 113 |  |  |  | 4 |
Total impaired real estate loans |  |  | 15,976 |  |  |  | 212 |  |  |  | 18,690 |  |  |  | 212 |  |  |  | 16,735 |  |  |  | 640 |  |  |  | 19,594 |  |  |  | 737 |
Loans not secured by real estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial loans |  |  | 138 |  |  |  | 3 |  |  |  | 248 |  |  |  | 5 |  |  |  | 163 |  |  |  | 7 |  |  |  | 330 |  |  |  | 16 |
Farm loans (non RE) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |
Consumer loans |  |  | 21 |  |  |  | 1 |  |  |  | 9 |  |  |  | - |  |  |  | 14 |  |  |  | 2 |  |  |  | 19 |  |  |  | 1 |
Total impaired loans |  | $ | 16,135 |  |  |  | 216 |  |  |  | 18,947 |  |  |  | 217 |  |  |  | 16,912 |  |  |  | 649 |  |  |  | 19,943 |  |  |  | 754 |
Impaired loans collectively evaluated for impairment totaled $5.1 million at September 30, 2022 and December 31, 2021 and are included in the tables above. Allowance on impaired loans collectively evaluated for impairment totaled $44,000 and $52,000 at September 30, 2022 and December 31, 2021, respectively. The following tables present changes in the allowance for loan losses for the three and nine months ended September 30, 2022 and 2021. Unallocated balances in the following tables include allowance for loan losses based on qualitative factors such as economic outlook, concentrations of credit, interest rate risk and loan volume trends. Paycheck Protection Program (“PPP”) loans are excluded from the allowance for loan losses as PPP loans are 100 percent guaranteed by the Small Business Administration (“SBA”).
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Real Estate Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Construction and Land Development |  |  | Single-Family Residential |  |  | Single-Family Residential - Banco de la Gente Non-traditional |  |  | Commercial |  |  | Multifamily and Farmland |  |  | Commercial |  |  | Farm |  |  | Consumer and All Other |  |  | Unallocated |  |  | Total |
Nine months ended September 30, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,193 |  |  |  | 2,013 |  |  |  | 864 |  |  |  | 2,234 |  |  |  | 150 |  |  |  | 711 |  |  |  | - |  |  |  | 110 |  |  |  | 2,080 |  |  |  | 9,355 |
Charge-offs |  |  | - |  |  |  | (120 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (20 | ) |  |  | - |  |  |  | (450 | ) |  |  | - |  |  |  | (590 | )
Recoveries |  |  | - |  |  |  | 219 |  |  |  | - |  |  |  | 6 |  |  |  | - |  |  |  | 64 |  |  |  | - |  |  |  | 87 |  |  |  | - |  |  |  | 376 |
Provision |  |  | 180 |  |  |  | 78 |  |  |  | (101 | ) |  |  | 885 |  |  |  | 5 |  |  |  | (14 | ) |  |  | - |  |  |  | 467 |  |  |  | (611 | ) |  |  | 889 |
Ending balance |  | $ | 1,373 |  |  |  | 2,190 |  |  |  | 763 |  |  |  | 3,125 |  |  |  | 155 |  |  |  | 741 |  |  |  | - |  |  |  | 214 |  |  |  | 1,469 |  |  |  | 10,030 |
Three months ended September 30, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,272 |  |  |  | 2,171 |  |  |  | 813 |  |  |  | 3,156 |  |  |  | 157 |  |  |  | 633 |  |  |  | - |  |  |  | 216 |  |  |  | 1,371 |  |  |  | 9,789 |
Charge-offs |  |  | - |  |  |  | (89 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13 | ) |  |  | - |  |  |  | (204 | ) |  |  | - |  |  |  | (306 | )
Recoveries |  |  | - |  |  |  | 92 |  |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | 8 |  |  |  | - |  |  |  | 37 |  |  |  | - |  |  |  | 139 |
Provision |  |  | 101 |  |  |  | 16 |  |  |  | (50 | ) |  |  | (33 | ) |  |  | (2 | ) |  |  | 113 |  |  |  | - |  |  |  | 165 |  |  |  | 98 |  |  |  | 408 |
Ending balance |  | $ | 1,373 |  |  |  | 2,190 |  |  |  | 763 |  |  |  | 3,125 |  |  |  | 155 |  |  |  | 741 |  |  |  | - |  |  |  | 214 |  |  |  | 1,469 |  |  |  | 10,030 |
Allowance for loan losses at September 30, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | - |  |  |  | 37 |  |  |  | 605 |  |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 648 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  |  | 1,373 |  |  |  | 2,153 |  |  |  | 158 |  |  |  | 3,119 |  |  |  | 155 |  |  |  | 741 |  |  |  | - |  |  |  | 214 |  |  |  | 1,469 |  |  |  | 9,382 |
Ending balance |  | $ | 1,373 |  |  |  | 2,190 |  |  |  | 763 |  |  |  | 3,125 |  |  |  | 155 |  |  |  | 741 |  |  |  | - |  |  |  | 214 |  |  |  | 1,469 |  |  |  | 10,030 |
Loans at September 30, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 112,854 |  |  |  | 312,208 |  |  |  | 20,469 |  |  |  | 399,015 |  |  |  | 62,040 |  |  |  | 76,434 |  |  |  | 961 |  |  |  | 20,926 |  |  |  | - |  |  |  | 1,004,907 |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | - |  |  |  | 547 |  |  |  | 8,703 |  |  |  | 1,401 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10,651 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 112,854 |  |  |  | 311,661 |  |  |  | 11,766 |  |  |  | 397,614 |  |  |  | 62,040 |  |  |  | 76,434 |  |  |  | 961 |  |  |  | 20,926 |  |  |  | - |  |  |  | 994,256 |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Real Estate Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Construction and Land Development |  |  | Single-Family Residential |  |  | Single-Family Residential - Banco de la Gente Non-traditional |  |  | Commercial |  |  | Multifamily and Farmland |  |  | Commercial |  |  | Farm |  |  | Consumer and All Other |  |  | Unallocated |  |  | Total |
Nine months ended September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,196 |  |  |  | 1,843 |  |  |  | 1,052 |  |  |  | 2,212 |  |  |  | 122 |  |  |  | 1,345 |  |  |  | - |  |  |  | 128 |  |  |  | 2,010 |  |  |  | 9,908 |
Charge-offs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (293 | ) |  |  | - |  |  |  | (249 | ) |  |  | - |  |  |  | (542 | )
Recoveries |  |  | 121 |  |  |  | 165 |  |  |  | - |  |  |  | 50 |  |  |  | 3 |  |  |  | 7 |  |  |  | - |  |  |  | 114 |  |  |  | - |  |  |  | 460 |
Provision |  |  | (421 | ) |  |  | (306 | ) |  |  | (162 | ) |  |  | 46 |  |  |  | 22 |  |  |  | (153 | ) |  |  | - |  |  |  | 98 |  |  |  | 13 |  |  |  | (863 | )
Ending balance |  | $ | 896 |  |  |  | 1,702 |  |  |  | 890 |  |  |  | 2,308 |  |  |  | 147 |  |  |  | 906 |  |  |  | - |  |  |  | 91 |  |  |  | 2,023 |  |  |  | 8,963 |
Three months ended September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance |  | $ | 1,038 |  |  |  | 1,723 |  |  |  | 980 |  |  |  | 2,180 |  |  |  | 148 |  |  |  | 996 |  |  |  | - |  |  |  | 89 |  |  |  | 2,133 |  |  |  | 9,287 |
Charge-offs |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (215 | ) |  |  | - |  |  |  | (91 | ) |  |  | - |  |  |  | (306 | )
Recoveries |  |  | 31 |  |  |  | 86 |  |  |  | - |  |  |  | 2 |  |  |  | 4 |  |  |  | 1 |  |  |  | - |  |  |  | 40 |  |  |  | - |  |  |  | 164 |
Provision |  |  | (173 | ) |  |  | (107 | ) |  |  | (90 | ) |  |  | 126 |  |  |  | (5 | ) |  |  | 124 |  |  |  | - |  |  |  | 53 |  |  |  | (110 | ) |  |  | (182 | )
Ending balance |  | $ | 896 |  |  |  | 1,702 |  |  |  | 890 |  |  |  | 2,308 |  |  |  | 147 |  |  |  | 906 |  |  |  | - |  |  |  | 91 |  |  |  | 2,023 |  |  |  | 8,963 |
Allowance for loan losses at September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 1 |  |  |  | 58 |  |  |  | 710 |  |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 776 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  |  | 895 |  |  |  | 1,644 |  |  |  | 180 |  |  |  | 2,301 |  |  |  | 147 |  |  |  | 906 |  |  |  | - |  |  |  | 91 |  |  |  | 2,023 |  |  |  | 8,187 |
Ending balance |  | $ | 896 |  |  |  | 1,702 |  |  |  | 890 |  |  |  | 2,308 |  |  |  | 147 |  |  |  | 906 |  |  |  | - |  |  |  | 91 |  |  |  | 2,023 |  |  |  | 8,963 |
Loans at September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 80,009 |  |  |  | 258,403 |  |  |  | 24,043 |  |  |  | 363,174 |  |  |  | 58,856 |  |  |  | 94,376 |  |  |  | 633 |  |  |  | 11,511 |  |  |  | - |  |  |  | 891,005 |
Ending balance: individually |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 6 |  |  |  | 1,398 |  |  |  | 10,236 |  |  |  | 1,450 |  |  |  | - |  |  |  | 54 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 13,144 |
Ending balance: collectively |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
evaluated for impairment |  | $ | 80,003 |  |  |  | 257,005 |  |  |  | 13,807 |  |  |  | 361,724 |  |  |  | 58,856 |  |  |  | 94,322 |  |  |  | 633 |  |  |  | 11,511 |  |  |  | - |  |  |  | 877,861 |
The Bank utilizes an internal risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 8. These risk grades are evaluated on an ongoing basis. A description of the general characteristics of the eight risk grades is as follows:
| · | Risk Grade 1 – Excellent Quality: Loans are well above average quality and a minimal amount of credit risk exists. CD or cash secured loans or properly margined actively traded stock or bond secured loans would fall in this grade.
| · | Risk Grade 2 – High Quality: Loans are of good quality with risk levels well within the Bank’s range of acceptability. The organization or individual is established with a history of successful performance though somewhat susceptible to economic changes.
| · | Risk Grade 3 – Good Quality: Loans of average quality with risk levels within the Bank’s range of acceptability but higher than normal. This may be a new organization or an existing organization in a transitional phase (e.g. expansion, acquisition, market change). PPP loans are classified as risk grade 3.
| · | Risk Grade 4 – Management Attention: These loans have higher risk and servicing needs but still are acceptable. Evidence of marginal performance or deteriorating trends is observed. These are not problem credits presently, but may be in the future if the borrower is unable to change its present course.
| · | Risk Grade 5 – Watch: These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date.
| · | Risk Grade 6 – Substandard: A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
| · | Risk Grade 7 – Doubtful: Loans classified as Doubtful have all the weaknesses inherent in loans classified Substandard, plus 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. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off.
| · | Risk Grade 8 – Loss: Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be realized in the future. Loss is a temporary grade until the appropriate authority is obtained to charge the loan off.
The following tables present the credit risk profile of each loan type based on internally assigned risk grades as of September 30, 2022 and December 31, 2021:
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Real Estate Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Construction and Land Development |  |  | Single-Family Residential |  |  | Single-Family Residential - Banco de la Gente non-traditional |  |  | Commercial |  |  | Multifamily and Farmland |  |  | Commercial |  |  | Farm |  |  | Consumer |  |  | All Other |  |  | Total |
1- Excellent Quality |  | $ | - |  |  |  | 3,808 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,381 |  |  |  | - |  |  |  | 523 |  |  |  | - |  |  |  | 5,712 |
2- High Quality |  |  | 18,162 |  |  |  | 129,784 |  |  |  | - |  |  |  | 30,197 |  |  |  | 17 |  |  |  | 16,163 |  |  |  | - |  |  |  | 2,064 |  |  |  | 1,427 |  |  |  | 197,814 |
3- Good Quality |  |  | 93,266 |  |  |  | 163,179 |  |  |  | 7,777 |  |  |  | 334,206 |  |  |  | 59,539 |  |  |  | 56,973 |  |  |  | 961 |  |  |  | 3,600 |  |  |  | 12,782 |  |  |  | 732,283 |
4- Management Attention |  |  | 1,307 |  |  |  | 11,046 |  |  |  | 9,130 |  |  |  | 31,732 |  |  |  | 1,869 |  |  |  | 1,127 |  |  |  | - |  |  |  | 225 |  |  |  | 133 |  |  |  | 56,569 |
5- Watch |  |  | 60 |  |  |  | 915 |  |  |  | 1,150 |  |  |  | 2,321 |  |  |  | 519 |  |  |  | 786 |  |  |  | - |  |  |  | - |  |  |  | 146 |  |  |  | 5,897 |
6- Substandard |  |  | 59 |  |  |  | 3,476 |  |  |  | 2,412 |  |  |  | 559 |  |  |  | 96 |  |  |  | 4 |  |  |  | - |  |  |  | 26 |  |  |  | - |  |  |  | 6,632 |
7- Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
8- Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 112,854 |  |  |  | 312,208 |  |  |  | 20,469 |  |  |  | 399,015 |  |  |  | 62,040 |  |  |  | 76,434 |  |  |  | 961 |  |  |  | 6,438 |  |  |  | 14,488 |  |  |  | 1,004,907 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Real Estate Loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Construction and Land Development |  |  | Single-Family Residential |  |  | Single-Family Residential - Banco de la Gente non-traditional |  |  | Commercial |  |  | Multifamily and Farmland |  |  | Commercial |  |  | Farm |  |  | Consumer |  |  | All Other |  |  | Total |
1- Excellent Quality |  | $ | - |  |  |  | 5,923 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 371 |  |  |  | - |  |  |  | 581 |  |  |  | - |  |  |  | 6,875 |
2- High Quality |  |  | 11,752 |  |  |  | 109,337 |  |  |  | - |  |  |  | 28,546 |  |  |  | 19 |  |  |  | 16,177 |  |  |  | - |  |  |  | 2,039 |  |  |  | 1,309 |  |  |  | 169,179 |
3- Good Quality |  |  | 80,325 |  |  |  | 129,856 |  |  |  | 8,712 |  |  |  | 272,786 |  |  |  | 54,945 |  |  |  | 68,183 |  |  |  | 792 |  |  |  | 3,510 |  |  |  | 3,931 |  |  |  | 623,040 |
4- Management Attention |  |  | 3,534 |  |  |  | 14,964 |  |  |  | 10,478 |  |  |  | 30,937 |  |  |  | 2,754 |  |  |  | 5,214 |  |  |  | 4 |  |  |  | 284 |  |  |  | - |  |  |  | 68,169 |
5- Watch |  |  | 76 |  |  |  | 2,464 |  |  |  | 1,703 |  |  |  | 4,938 |  |  |  | 543 |  |  |  | 1,177 |  |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 10,902 |
6- Substandard |  |  | 73 |  |  |  | 3,567 |  |  |  | 2,254 |  |  |  | 634 |  |  |  | 105 |  |  |  | 50 |  |  |  | - |  |  |  | 21 |  |  |  | - |  |  |  | 6,704 |
7- Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
8- Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  | $ | 95,760 |  |  |  | 266,111 |  |  |  | 23,147 |  |  |  | 337,841 |  |  |  | 58,366 |  |  |  | 91,172 |  |  |  | 796 |  |  |  | 6,436 |  |  |  | 5,240 |  |  |  | 884,869 |
There were no new TDR modifications during the three and nine months ended September 30, 2022 and 2021. There were no loans modified as TDR loans that defaulted during the nine months ended September 30, 2022 and 2021, which were within 12 months of their modification date. On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the PPP. Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals were able to apply for loans from existing SBA lenders and other approved regulated lenders, subject to certain limitations and eligibility criteria. A second round of PPP funding provided a total of $320 billion additional funding for the PPP. The Bank participated as a lender in the PPP. Total PPP loans originated during the years ended December 31, 2020 and 2021 amounted to $128.1 million. The outstanding balance of PPP loans was $103,000 and $18.0 million at September 30, 2022 and December 31, 2021, respectively. These loans are classified as commercial loans in the tables above. The Bank recognized $54,000 and $489,000 of PPP loan fee income for the three months ended September 30, 2022 and the three months ended September 30, 2021, respectively. The Bank recognized $948,000 and $3.0 million of PPP loan fee income for the nine months ended September 30, 2022 and nine months ended September 30, 2021, respectively.

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