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Loans and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Sale

The following table presents loans held for sale:


(Dollars in thousands)	June 30, 2023		December 31, 2022
1-4 family residential	$	89	$	—
Commercial	6		5,641
Total loans held for sale	$	95	$	5,641

Loans Held for Investment

Loans

The following table presents the amortized cost and unpaid principal balance of loans held for investment:


	June 30, 2023						December 31, 2022
(Dollars in thousands)	Amortized Cost		Unpaid Principal		Difference		Amortized Cost		Unpaid Principal		Difference
Commercial real estate	$	768,711	$	769,682	$	(971)	$	678,144	$	679,239	$	(1,095)
Construction, land development, land	110,071		110,456		(385)		90,976		91,147		(171)
1-4 family residential	130,628		130,830		(202)		125,981		126,185		(204)
Farmland	67,913		68,090		(177)		68,934		69,185		(251)
Commercial	1,218,892		1,227,039		(8,147)		1,251,110		1,262,493		(11,383)
Factored receivables	1,173,794		1,177,702		(3,908)		1,237,449		1,241,032		(3,583)
Consumer	8,409		8,411		(2)		8,868		8,871		(3)
Mortgage warehouse	846,340		846,340		—		658,829		658,829		—
Total loans held for investment	4,324,758		$	4,338,550	$	(13,792)	4,120,291		$	4,136,981	$	(16,690)
Allowance for credit losses	(34,970)						(42,807)
	$	4,289,788					$	4,077,484

The difference between the amortized cost and the unpaid principal is due to (1) premiums and discounts associated with acquired loans totaling $9,848,000 and $13,383,000 at June 30, 2023 and December 31, 2022, respectively, and (2) net deferred origination and factoring fees totaling $3,944,000 and $3,307,000 at June 30, 2023 and December 31, 2022, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $23,230,000 and $19,279,000 at June 30, 2023 and December 31, 2022, respectively, and was included in other assets on the Company's consolidated balance sheets.

At June 30, 2023 and December 31, 2022, the Company had $198,960,000 and $249,288,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

At June 30, 2023 and December 31, 2022 the balance of the Over-Formula Advance Portfolio, acquired from Transport Financial Solutions during 2020, included in factored receivables was $4,011,000 and $8,202,000, respectively. These balances were fully reserved as of those respective dates. During the six months ended June 30, 2023, new adverse developments with one of the two remaining Over-Formula Advance clients caused us to charge-off the entire Over-Formula Advance amount due from that client. This resulted in a net charge-off of $3,330,000; however, this net charge-off had no impact on credit loss expense as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant will reimburse us for $1,665,000 of this charge-off which is reflected as a receivable in other assets on our June 30, 2023 Consolidated Balance Sheet.

At June 30, 2023 the Company carried a separate $19,361,000 receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest Over-Formula Advance Portfolio carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. We are a party to litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of June 30, 2023.

Loans with carrying amounts of $1,598,726,000 and $1,356,922,000 at June 30, 2023 and December 31, 2022, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity, Paycheck Protection Program Liquidity Facility borrowings and Federal Reserve Bank discount window borrowing capacity.

Allowance for Credit Losses

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the allowance for credit losses (“ACL”) related to loans held for investment is as follows:


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended June 30, 2023
Commercial real estate	$	4,292	$	491	$	—	$	—	$	4,783
Construction, land development, land	1,139		95		—		1		1,235
1-4 family residential	1,004		34		—		8		1,046
Farmland	472		4		—		—		476
Commercial	16,683		1,368		(5,124)		50		12,977
Factored receivables	17,581		1,521		(5,820)		159		13,441
Consumer	185		44		(133)		70		166
Mortgage warehouse	889		(43)		—		—		846
	$	42,245	$	3,514	$	(11,077)	$	288	$	34,970



(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended June 30, 2022
Commercial real estate	$	3,527	$	1,594	$	—	$	46	$	5,167
Construction, land development, land	901		290		—		1		1,192
1-4 family residential	450		305		—		2		757
Farmland	121		369		—		—		490
Commercial	13,215		(407)		(260)		190		12,738
Factored receivables	22,471		(120)		(712)		573		22,212
Consumer	175		77		(96)		41		197
Mortgage warehouse	693		(39)		—		—		654
	$	41,553	$	2,069	$	(1,068)	$	853	$	43,407


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Six Months Ended June 30, 2023
Commercial real estate	$	4,459	$	254	$	—	$	70	$	4,783
Construction, land development, land	1,155		78		—		2		1,235
1-4 family residential	838		203		(5)		10		1,046
Farmland	483		(7)		—		—		476
Commercial	15,918		2,315		(5,346)		90		12,977
Factored receivables	19,121		2,071		(8,113)		362		13,441
Consumer	175		65		(271)		197		166
Mortgage warehouse	658		188		—		—		846
	$	42,807	$	5,167	$	(13,735)	$	731	$	34,970


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Six months ended June 30, 2022
Commercial real estate	$	3,961	$	1,254	$	(108)	$	60	$	5,167
Construction, land development, land	827		363		—		2		1,192
1-4 family residential	468		284		—		5		757
Farmland	562		(72)		—		—		490
Commercial	14,485		(1,014)		(984)		251		12,738
Factored receivables	20,915		2,115		(1,420)		602		22,212
Consumer	226		118		(207)		60		197
Mortgage warehouse	769		(115)		—		—		654
	$	42,213	$	2,933	$	(2,719)	$	980	$	43,407

The decrease in required ACL during the three months ended June 30, 2023 is a function of net charge-offs of $10,789,000 and credit loss expense of $3,514,000.

The decrease in required ACL during the six months ended June 30, 2023 is a function of net charge-offs of $13,004,000 and credit loss expense of $5,167,000.

The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and PPP), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the future interest rate environment. The impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.

For all DCF models at June 30, 2023, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At June 30, 2023 as compared to December 31, 2022, the Company forecasted a slight decrease national unemployment, a steeper decrease in one-year percentage change in national retail sales, a decrease in one-year percentage change in the national home price index, and a minimal change in one-year percentage change in national gross domestic product. At June 30, 2023 for national unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected a near-zero level in the first projected quarter followed by a decline to negative levels over the last three projected quarters to a level below recent actual periods. For percentage change in national home price index, the Company projected a negative levels for all four quarters with such negative levels peaking in the third projected quarter. For percentage change in national gross domestic product, management projected near-zero growth for each projected quarter. At June 30, 2023, the Company slowed its historical prepayment speeds in response to the expected interest rate environment in the macro economy.

The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.

For the three months ended June 30, 2023, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period did not have a meaningful impact on the required ACL. Likewise, changes in loan volume and mix did not have a meaningful impact on the ACL during the period. Decreases in required specific reserves decreased the required ACL by $7,108,000. Net charge-offs during the period were $10,789,000.

For the three months ended June 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $2,558,000. Changes in loan volume and mix decreased the required ACL by $1,624,000. Increases in required specific reserves increased the required ACL by $919,000. Net charge-offs during the period were $215,000.

For the six months ended June 30, 2023, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period did not have a meaningful impact on the required ACL. Likewise, changes in loan volume and mix did not have a meaningful impact on the ACL during the period. Decreases in required specific reserves decreased the required ACL by $8,019,000. Net charge-offs during the period were $13,004,000.

For the six months ended June 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $1,541,000. Changes in loan volume and mix decreased the required ACL by $2,146,000. Increases in required specific reserves increased the required ACL by $1,798,000. Net charge-offs during the period were $1,739,000.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


(Dollars in thousands)	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
June 30, 2023
Commercial real estate	$	1,209	$	—	$	179	$	803	$	2,191	$	32
Construction, land development, land	—		—		—		—		—		—
1-4 family residential	1,059		—		—		26		1,085		126
Farmland	303		—		—		92		395		—
Commercial	1,045		—		2,652		2,383		6,080		1,990
Factored receivables	—		36,951		—		—		36,951		8,004
Consumer	—		—		—		180		180		—
Mortgage warehouse	—		—		—		—		—		—
Total	$	3,616	$	36,951	$	2,831	$	3,484	$	46,882	$	10,152

At June 30, 2023 the balance of the Over-Formula Advance Portfolio included in factored receivables was $4,011,000 and was fully reserved. At June 30, 2023 the balance of Misdirected Payments included in factored receivables was $19,361,000 and carried no ACL allocation.


(Dollars in thousands)	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
December 31, 2022
Commercial real estate	$	1,003	$	—	$	—	$	140	$	1,143	$	283
Construction, land development, land	150		—		—		—		150		—
1-4 family residential	1,342		—		—		49		1,391		108
Farmland	196		—		108		96		400		—
Commercial	193		—		5,334		10,370		15,897		4,737
Factored receivables	—		42,409		—		—		42,409		13,042
Consumer	—		—		—		91		91		—
Mortgage warehouse	—		—		—		—		—		—
Total	$	2,884	$	42,409	$	5,442	$	10,746	$	61,481	$	18,170

At December 31, 2022 the balance of the Over-Formula Advance Portfolio included in factored receivables was $8,202,000 and carried an ACL allocation of $8,202,000. At December 31, 2022 the balance of Misdirected Payments included in factored receivables was $19,361,000 and carried no ACL allocation.

Past Due and Nonaccrual Loans

The following tables present an aging of contractually past due loans:


(Dollars in thousands)	Past Due 30-59 Days		Past Due 60-90 Days		Past Due 90 Days or More		Total Past Due		Current		Total		Past Due 90 Days or More and Accruing
June 30, 2023
Commercial real estate	$	—	$	42	$	16	$	58	$	768,653	$	768,711	$	—
Construction, land development, land	—		—		—		—		110,071		110,071		—
1-4 family residential	783		157		431		1,371		129,257		130,628		—
Farmland	3,848		231		—		4,079		63,834		67,913		—
Commercial	4,277		5,242		3,773		13,292		1,205,600		1,218,892		—
Factored receivables	17,787		3,543		26,819		48,149		1,125,645		1,173,794		26,819
Consumer	13		91		108		212		8,197		8,409		—
Mortgage warehouse	—		—		—		—		846,340		846,340		—
Total	$	26,708	$	9,306	$	31,147	$	67,161	$	4,257,597	$	4,324,758	$	26,819


(Dollars in thousands)	Past Due 30-59 Days		Past Due 60-90 Days		Past Due 90 Days or More		Total Past Due		Current		Total		Past Due 90 Days or More and Accruing
December 31, 2022
Commercial real estate	$	1,301	$	—	$	455	$	1,756	$	676,388	$	678,144	$	—
Construction, land development, land	—		—		145		145		90,831		90,976		—
1-4 family residential	936		531		776		2,243		123,738		125,981		—
Farmland	—		—		—		—		68,934		68,934		—
Commercial	1,630		3,139		2,847		7,616		1,243,494		1,251,110		—
Factored receivables	42,797		12,651		37,142		92,590		1,144,859		1,237,449		37,142
Consumer	52		41		2		95		8,773		8,868		—
Mortgage warehouse	—		—		—		—		658,829		658,829		—
Total	$	46,716	$	16,362	$	41,367	$	104,445	$	4,015,846	$	4,120,291	$	37,142

At June 30, 2023 and December 31, 2022, total past due Over-Formula Advances recorded in factored receivables was $4,011,000 and $8,202,000, respectively, all of which was considered past due 90 days or more. At June 30, 2023 and December 31, 2022, the Misdirected Payments totaled $19,361,000, all of which was considered past due 90 days or more. Given the nature of factored receivables, these assets are disclosed as past due 90 days or more still accruing; however, the Company is not recognizing income on the assets. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.

The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:


	June 30, 2023				December 31, 2022
(Dollars in thousands)	Total Nonaccrual		Nonaccrual With No ACL		Total Nonaccrual		Nonaccrual With No ACL
Commercial real estate	$	1,933	$	1,818	$	871	$	319
Construction, land development, land	—		—		150		150
1-4 family residential	1,085		881		1,391		1,238
Farmland	394		394		400		400
Commercial	5,501		1,813		15,393		3,662
Factored receivables	—		—		—		—
Consumer	180		180		91		91
Mortgage warehouse	—		—		—		—
	$	9,093	$	5,086	$	18,296	$	5,860

The following table presents accrued interest on nonaccrual loans reversed through interest income:


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Commercial real estate	$	—	$	—	$	16	$	—
Construction, land development, land	—		—		—		—
1-4 family residential	6		—		6		—
Farmland	—		—		22		—
Commercial	1		2		8		6
Factored receivables	—		—		—		—
Consumer	1		—		1		—
Mortgage warehouse	—		—		—		—
	$	8	$	2	$	53	$	6

There was no interest earned on nonaccrual loans during the three and six months ended June 30, 2023 and 2022.

The following table presents information regarding nonperforming loans:


(Dollars in thousands)	June 30, 2023		December 31, 2022
Nonaccrual loans	$	9,093	$	18,296
Factored receivables greater than 90 days past due	22,808		28,940
Other nonperforming factored receivables(1)	61		491
Troubled debt restructurings accruing interest	—		503
	$	31,962	$	48,230

(1)Other nonperforming factored receivables represent the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification as well as other nonperforming factored receivables less than 90 days past due. This amount is also considered Classified from a risk rating perspective.

Credit Quality Information

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and 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 as to credit risk on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings:

Pass – Pass rated loans have low to average risk and are not otherwise classified.

Classified – Classified loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Certain classified loans have 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.

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. As of June 30, 2023 and December 31, 2022, based on the most recent analysis performed, the risk category of loans is as follows:


													Revolving Loans		Revolving Loans Converted To Term Loans		Total
(Dollars in thousands)	Year of Origination
June 30, 2023	2023		2022		2021		2020		2019		Prior
Commercial real estate
Pass	$	81,407	$	189,531	$	155,250	$	188,216	$	24,049	$	41,734	$	80,562	$	174	$	760,923
Classified	872		3,177		732		2,953		38		16		—		—		7,788
Total commercial real estate	$	82,279	$	192,708	$	155,982	$	191,169	$	24,087	$	41,750	$	80,562	$	174	$	768,711
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction, land development, land
Pass	$	39,791	$	54,122	$	6,494	$	3,361	$	3,006	$	392	$	2,905	$	—	$	110,071
Classified	—		—		—		—		—		—		—		—		—
Total construction, land development, land	$	39,791	$	54,122	$	6,494	$	3,361	$	3,006	$	392	$	2,905	$	—	$	110,071
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential
Pass	$	14,577	$	23,352	$	20,376	$	8,345	$	2,639	$	22,464	$	37,263	$	182	$	129,198
Classified	317		23		127		5		53		789		116		—		1,430
Total 1-4 family residential	$	14,894	$	23,375	$	20,503	$	8,350	$	2,692	$	23,253	$	37,379	$	182	$	130,628
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	5

Farmland
Pass	$	6,801	$	14,731	$	6,437	$	8,275	$	2,541	$	21,301	$	1,640	$	172	$	61,898
Classified	4,702		895		—		21		99		298		—		—		6,015
Total farmland	$	11,503	$	15,626	$	6,437	$	8,296	$	2,640	$	21,599	$	1,640	$	172	$	67,913
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	191,873	$	273,932	$	112,284	$	102,327	$	35,368	$	14,440	$	467,359	$	816	$	1,198,399
Classified	1,069		9,873		6,490		1,977		33		168		883		—		20,493
Total commercial	$	192,942	$	283,805	$	118,774	$	104,304	$	35,401	$	14,608	$	468,242	$	816	$	1,218,892
YTD gross charge-offs	$	1	$	598	$	4,395	$	342	$	10	$	—	$	—	$	—	$	5,346

Factored receivables
Pass	$	1,138,485	$	—	$	—	$	3,950	$	—	$	—	$	—	$	—	$	1,142,435
Classified	11,937		—		—		19,422		—		—		—		—		31,359
Total factored receivables	$	1,150,422	$	—	$	—	$	23,372	$	—	$	—	$	—	$	—	$	1,173,794
YTD gross charge-offs	$	2,490	$	2,293	$	—	$	3,330	$	—	$	—	$	—	$	—	$	8,113

Consumer
Pass	$	2,277	$	2,064	$	920	$	599	$	209	$	2,109	$	61	$	—	$	8,239
Classified	—		—		99		—		—		71		—		—		170
Total consumer	$	2,277	$	2,064	$	1,019	$	599	$	209	$	2,180	$	61	$	—	$	8,409
YTD gross charge-offs	$	242	$	13	$	11	$	3	$	—	$	2	$	—	$	—	$	271

Mortgage warehouse
Pass	$	846,340	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	846,340
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	846,340	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	846,340
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total loans
Pass	$	2,321,551	$	557,732	$	301,761	$	315,073	$	67,812	$	102,440	$	589,790	$	1,344	$	4,257,503
Classified	18,897		13,968		7,448		24,378		223		1,342		999		—		67,255
Total loans	$	2,340,448	$	571,700	$	309,209	$	339,451	$	68,035	$	103,782	$	590,789	$	1,344	$	4,324,758
YTD gross charge-offs	$	2,733	$	2,904	$	4,406	$	3,675	$	10	$	7	$	—	$	—	$	13,735


													Revolving Loans		Revolving Loans Converted To Term Loans		Total
(Dollars in thousands)	Year of Origination
December 31, 2022	2022		2021		2020		2019		2018		Prior
Commercial real estate
Pass	$	231,427	$	156,895	$	198,541	$	28,033	$	17,786	$	35,658	$	3,675	$	—	$	672,015
Classified	3,668		551		1,855		39		—		16		—		—		6,129
Total commercial real estate	$	235,095	$	157,446	$	200,396	$	28,072	$	17,786	$	35,674	$	3,675	$	—	$	678,144

Construction, land development, land
Pass	$	71,236	$	11,328	$	4,535	$	3,186	$	35	$	506	$	—	$	—	$	90,826
Classified	—		—		5		—		—		145		—		—		150
Total construction, land development, land	$	71,236	$	11,328	$	4,540	$	3,186	$	35	$	651	$	—	$	—	$	90,976

1-4 family residential
Pass	$	26,306	$	22,639	$	9,536	$	2,929	$	3,528	$	20,910	$	38,361	$	300	$	124,509
Classified	137		199		7		53		1		1,006		69		—		1,472
Total 1-4 family residential	$	26,443	$	22,838	$	9,543	$	2,982	$	3,529	$	21,916	$	38,430	$	300	$	125,981

Farmland
Pass	$	18,190	$	7,291	$	10,027	$	2,699	$	6,742	$	18,569	$	1,016	$	204	$	64,738
Classified	1,062		2,796		120		108		—		110		—		—		4,196
Total farmland	$	19,252	$	10,087	$	10,147	$	2,807	$	6,742	$	18,679	$	1,016	$	204	$	68,934

Commercial
Pass	$	358,983	$	181,933	$	136,635	$	41,912	$	5,842	$	12,145	$	486,889	$	161	$	1,224,500
Classified	10,721		10,579		3,767		1,038		96		116		293		—		26,610
Total commercial	$	369,704	$	192,512	$	140,402	$	42,950	$	5,938	$	12,261	$	487,182	$	161	$	1,251,110

Factored receivables
Pass	$	1,196,912	$	—	$	7,710	$	—	$	—	$	—	$	—	$	—	$	1,204,622
Classified	12,974		—		19,853		—		—		—		—		—		32,827
Total factored receivables	$	1,209,886	$	—	$	27,563	$	—	$	—	$	—	$	—	$	—	$	1,237,449

Consumer
Pass	$	2,768	$	1,981	$	894	$	304	$	266	$	2,418	$	147	$	—	$	8,778
Classified	—		1		2		—		8		79		—		—		90
Total consumer	$	2,768	$	1,982	$	896	$	304	$	274	$	2,497	$	147	$	—	$	8,868

Mortgage warehouse
Pass	$	658,829	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	658,829
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	658,829	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	658,829

Total loans
Pass	$	2,564,651	$	382,067	$	367,878	$	79,063	$	34,199	$	90,206	$	530,088	$	665	$	4,048,817
Classified	28,562		14,126		25,609		1,238		105		1,472		362		—		71,474
Total loans	$	2,593,213	$	396,193	$	393,487	$	80,301	$	34,304	$	91,678	$	530,450	$	665	$	4,120,291

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table presents the amortized cost basis at the end of the reporting period of the loans modifications to borrowers experiencing financial difficulty:


	Term Extension
	Three Months Ended June 30, 2023				Six Months Ended June 30, 2023
(Dollars in thousands)	Amortized Cost		% of Portfolio		Amortized Cost		% of Portfolio
Commercial real estate	$	116	—	%	$	116	—	%



Commercial	—		—	%	1,218		0.1	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Term Extension

Three Months Ended June 30, 2023

Six Months Ended June 30, 2023

Commercial real estate

Modification added a weighted average 0.3 years to the life of the modified loans, which did not have a material impact on cash flows.

Commercial

N/A

Modification added a weighted average 0.3 years to the life of the modified loans, which did not have a material impact on cash flows.


	Payment Delay
	Three Months Ended June 30, 2023				Six Months Ended June 30, 2023
(Dollars in thousands)	Amortized Cost		% of Portfolio		Amortized Cost		% of Portfolio
Commercial real estate	$	—	—	%	$	756	0.1	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Payment Delay

Six Months Ended June 30, 2023

Commercial real estate

Modification allowed for a weighted average 0.5 years of interest only payments with remaining balances due at maturity.

The following table presents the performance of loans that have been modified in the last twelve months:


	June 30, 2023
(Dollars in thousands)	Current		Past Due 30-89 Days		Past Due 90 Days or More
Commercial real estate	$	872	$	—	$	—



Commercial	1,218		—		—



	$	2,090	$	—	$	—

At June 30, 2023, the Company had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

There were no loans to borrowers experiencing financial difficulty that had a payment default during the three and six months ended June 30, 2023 and were modified in the twelve months prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure. Modified loans in default are individually evaluated for the allowance for credit losses or if the modified loan is deemed uncollectible, the loan, or a portion of the loan, is written off and the allowance for credit losses is adjusted accordingly.

Residential Real Estate Loans In Process of Foreclosure

At June 30, 2023 and December 31, 2022, the Company had $0 and $129,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.