Loans and Allowance for Credit Losses

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Loans and Allowance for Credit Losses

LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Sale

The following table presents loans held for sale:

(Dollars in thousands)	March 31, 2023		December 31, 2022
Commercial	$	3,954	$	5,641
Total loans held for sale	$	3,954	$	5,641

Loans Held for Investment

Loans

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

	March 31, 2023						December 31, 2022
(Dollars in thousands)	Amortized Cost		Unpaid Principal		Difference		Amortized Cost		Unpaid Principal		Difference
Commercial real estate	$	695,160	$	696,121	$	(961)	$	678,144	$	679,239	$	(1,095)
Construction, land development, land	98,311		98,676		(365)		90,976		91,147		(171)
1-4 family residential	132,010		132,218		(208)		125,981		126,185		(204)
Farmland	67,596		67,797		(201)		68,934		69,185		(251)
Commercial	1,239,952		1,249,394		(9,442)		1,251,110		1,262,493		(11,383)
Factored receivables	1,178,104		1,182,374		(4,270)		1,237,449		1,241,032		(3,583)
Consumer	8,913		8,915		(2)		8,868		8,871		(3)
Mortgage warehouse	889,960		889,960		—		658,829		658,829		—
Total loans held for investment	4,310,006		$	4,325,455	$	(15,449)	4,120,291		$	4,136,981	$	(16,690)
Allowance for credit losses	(42,245)						(42,807)
	$	4,267,761					$	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 $11,009,000 and $13,383,000 at March 31, 2023 and December 31, 2022, respectively, and (2) net deferred origination and factoring fees totaling $4,440,000 and $3,307,000 at March 31, 2023 and December 31, 2022, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $21,751,000 and $19,279,000 at March 31, 2023 and December 31, 2022, respectively, and was included in other assets on the Company's consolidated balance sheets.

At March 31, 2023 and December 31, 2022, the Company had $203,171,000 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to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.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 March 31, 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 $7,772,000 and $8,202,000, respectively. These balances were fully reserved as of those respective dates.

At March 31, 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 March 31, 2023.

Loans with carrying amounts of $1,517,997,000 and $1,356,922,000 at March 31, 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 March 31, 2023
Commercial real estate	$	4,459	$	(237)	$	—	$	70	$	4,292
Construction, land development, land	1,155		(17)		—		1		1,139
1-4 family residential	838		169		(5)		2		1,004
Farmland	483		(11)		—		—		472
Commercial	15,918		947		(222)		40		16,683
Factored receivables	19,121		550		(2,293)		203		17,581
Consumer	175		21		(138)		127		185
Mortgage warehouse	658		231		—		—		889
	$	42,807	$	1,653	$	(2,658)	$	443	$	42,245
(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended March 31, 2022
Commercial real estate	$	3,961	$	(340)	$	(108)	$	14	$	3,527
Construction, land development, land	827		73		—		1		901
1-4 family residential	468		(21)		—		3		450
Farmland	562		(441)		—		—		121
Commercial	14,485		(607)		(724)		61		13,215
Factored receivables	20,915		2,235		(708)		29		22,471
Consumer	226		41		(111)		19		175
Mortgage warehouse	769		(76)		—		—		693
	$	42,213	$	864	$	(1,651)	$	127	$	41,553

The decrease in required ACL during the three months ended March 31, 2023 is a function of net charge-offs of $2,215,000 and credit loss expense of $1,653,000.

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 March 31, 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 March 31, 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 steeper 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 March 31, 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 changes in national home price index and national gross domestic product, the Company projected declines over the last three projected quarters to negative levels below recent actual periods. At March 31, 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 March 31, 2023, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $383,000. Decreases in required specific reserves decreased the required ACL at March 31, 2023 by $911,000. Changes in loan volume and mix during the three months ended March 31, 2023 did not have a material impact on the ACL during the period. Net charge-offs during the period were $2,215,000.

For the three months ended March 31, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period decreased the required ACL by $1,017,000. Increases in required specific reserves increased the required ACL at March 31, 2022 by $879,000. Changes in loan volume and mix during the three months ended March 31, 2022 decreased the required ACL by $522,000. Net charge-offs during the period were $1,524,000.

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
March 31, 2023
Commercial real estate	$	563	$	—	$	—	$	2,299	$	2,862	$	32
Construction, land development, land	—		—		—		—		—		—
1-4 family residential	1,180		—		—		45		1,225		126
Farmland	419		—		104		131		654		—
Commercial	112		—		3,213		10,203		13,528		5,402
Factored receivables	—		39,481		—		—		39,481		11,701
Consumer	—		—		—		89		89		—
Mortgage warehouse	—		—		—		—		—		—
Total	$	2,274	$	39,481	$	3,317	$	12,767	$	57,839	$	17,261

At March 31, 2023 the balance of the Over-Formula Advance Portfolio included in factored receivables was $7,772,000 and was fully reserved. At March 31, 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
March 31, 2023
Commercial real estate	$	919	$	—	$	1,058	$	1,977	$	693,183	$	695,160	$	—
Construction, land development, land	298		—		—		298		98,013		98,311		—
1-4 family residential	782		227		725		1,734		130,276		132,010		—
Farmland	402		33		—		435		67,161		67,596		—
Commercial	992		3,180		3,458		7,630		1,232,322		1,239,952		—
Factored receivables	21,233		5,676		32,897		59,806		1,118,298		1,178,104		32,897
Consumer	146		14		9		169		8,744		8,913		—
Mortgage warehouse	—		—		—		—		889,960		889,960		—
Total	$	24,772	$	9,130	$	38,147	$	72,049	$	4,237,957	$	4,310,006	$	32,897

(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 March 31, 2023 and December 31, 2022, total past due Over-Formula Advances recorded in factored receivables was $7,772,000 and $8,202,000, respectively, all of which was considered past due 90 days or more. At March 31, 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:

	March 31, 2023				December 31, 2022
(Dollars in thousands)	Total Nonaccrual		Nonaccrual With No ACL		Total Nonaccrual		Nonaccrual With No ACL
Commercial real estate	$	2,598	$	2,468	$	871	$	319
Construction, land development, land	—		—		150		150
1-4 family residential	1,226		1,020		1,391		1,238
Farmland	654		654		400		400
Commercial	13,529		3,273		15,393		3,662
Factored receivables	—		—		—		—
Consumer	89		89		91		91
Mortgage warehouse	—		—		—		—
	$	18,096	$	7,504	$	18,296	$	5,860

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

	Three Months Ended March 31,
(Dollars in thousands)	2023		2022
Commercial real estate	$	16	$	—
Construction, land development, land	—		—
1-4 family residential	—		—
Farmland	22		—
Commercial	7		4
Factored receivables	—		—
Consumer	—		—
Mortgage warehouse	—		—
	$	45	$	4

There was no interest earned on nonaccrual loans during the three months ended March 31, 2023 and 2022.

The following table presents information regarding nonperforming loans:

(Dollars in thousands)	March 31, 2023		December 31, 2022
Nonaccrual loans	$	18,096	$	18,296
Factored receivables greater than 90 days past due	25,125		28,940
Other nonperforming factored receivables(1)	276		491
Troubled debt restructurings accruing interest	—		503
	$	43,497	$	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 March 31, 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
March 31, 2023	2023		2022		2021		2020		2019		Prior
Commercial real estate
Pass	$	39,937	$	213,434	$	160,658	$	193,211	$	27,623	$	49,660	$	2,665	$	423	$	687,611
Classified	755		3,748		423		2,568		39		16		—		—		7,549
Total commercial real estate	$	40,692	$	217,182	$	161,081	$	195,779	$	27,662	$	49,676	$	2,665	$	423	$	695,160
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction, land development, land
Pass	$	22,290	$	61,733	$	6,550	$	3,398	$	3,146	$	459	$	735	$	—	$	98,311
Classified	—		—		—		—		—		—		—		—		—
Total construction, land development, land	$	22,290	$	61,733	$	6,550	$	3,398	$	3,146	$	459	$	735	$	—	$	98,311
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1-4 family residential
Pass	$	9,364	$	25,699	$	21,231	$	8,811	$	2,745	$	23,886	$	38,378	$	590	$	130,704
Classified	46		30		136		6		53		966		69		—		1,306
Total 1-4 family residential	$	9,410	$	25,729	$	21,367	$	8,817	$	2,798	$	24,852	$	38,447	$	590	$	132,010
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	5
Farmland
Pass	$	3,852	$	15,682	$	6,706	$	8,095	$	2,757	$	23,748	$	1,105	$	200	$	62,145
Classified	3,848		927		—		118		104		454		—		—		5,451
Total farmland	$	7,700	$	16,609	$	6,706	$	8,213	$	2,861	$	24,202	$	1,105	$	200	$	67,596
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial
Pass	$	124,074	$	294,695	$	148,791	$	112,083	$	39,021	$	15,779	$	476,912	$	630	$	1,211,985
Classified	738		11,283		12,482		2,180		652		184		448		—		27,967
Total commercial	$	124,812	$	305,978	$	161,273	$	114,263	$	39,673	$	15,963	$	477,360	$	630	$	1,239,952
YTD gross charge-offs	$	1	$	—	$	5	$	216	$	—	$	—	$	—	$	—	$	222
Factored receivables
Pass	$	1,139,571	$	—	$	—	$	7,496	$	—	$	—	$	—	$	—	$	1,147,067
Classified	11,400		—		—		19,637		—		—		—		—		31,037
Total factored receivables	$	1,150,971	$	—	$	—	$	27,133	$	—	$	—	$	—	$	—	$	1,178,104
YTD gross charge-offs	$	—	$	2,293	$	—	$	—	$	—	$	—	$	—	$	—	$	2,293
Consumer
Pass	$	827	$	2,386	$	2,139	$	725	$	253	$	2,400	$	94	$	—	$	8,824
Classified	—		9		1		—		—		79		—		—		89
Total consumer	$	827	$	2,395	$	2,140	$	725	$	253	$	2,479	$	94	$	—	$	8,913
YTD gross charge-offs	$	114	$	13	$	7	$	2	$	—	$	2	$	—	$	—	$	138
Mortgage warehouse
Pass	$	889,960	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	889,960
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	889,960	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	889,960
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total loans
Pass	$	2,229,875	$	613,629	$	346,075	$	333,819	$	75,545	$	115,932	$	519,889	$	1,843	$	4,236,607
Classified	16,787		15,997		13,042		24,509		848		1,699		517		—		73,399
Total loans	$	2,246,662	$	629,626	$	359,117	$	358,328	$	76,393	$	117,631	$	520,406	$	1,843	$	4,310,006
YTD gross charge-offs	$	115	$	2,306	$	12	$	218	$	—	$	7	$	—	$	—	$	2,658

													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 March 31, 2023
(Dollars in thousands)		Amortized Cost		% of Portfolio
Commercial real estate		$	119	—	%
Commercial		895		0.1	%

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

	Term Extension
		Three Months Ended March 31, 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		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 March 31, 2023
(Dollars in thousands)	Amortized Cost		% of Portfolio
Commercial real estate	$	755	0.1	%

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

	Payment Delay
		Three Months Ended March 31, 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:

	March 31, 2023
(Dollars in thousands)	Current		Past Due 30-89 Days		Past Due 90 Days or More
Commercial real estate	$	874	$	—	$	—
Commercial	895		—		—
	$	1,769	$	—	$	—

At March 31, 2023, the Company had $327,000 of 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 months ended March 31, 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 March 31, 2023 and December 31, 2022, the Company had $136,000 and $129,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.