Loans Held for Sale

12 Months Ended

Dec. 31, 2022

SBA loans held for sale represent the guaranteed portion of SBA loans originated and are reflected at the lower of aggregate cost or market value. There were $5.2 million of SBA loans held for sale at December 31, 2022, consisting of $3.1 million SBA commercial and industrial loans and $2.1 million SBA commercial real estate loans. As of December 31, 2021, SBA loans held for sale totaled $3.1 million, consisting of $2.6 million of SBA commercial and industrial loans and $562,000 SBA commercial real estate loans. During 2022 and 2021, $274,000 and $281,000 SBA loans previously classified as held for sale were transferred to held for investment, respectively.

In September 2020, one commercial and industrial loan of $5.0 million was reclassified from loans held for investment to loans held for sale. The loan was sold in October 2020 which resulted in proceeds of $5.0 million. No held of investment loan was reclassified to held of sale during 2022 and 2021.

The Company generally sells the guaranteed portion of its SBA loans to a third party and retains the servicing, holding the unguaranteed portion in its portfolio. When sales of SBA loans do occur, the premium received on the sale and the present value of future cash flows of the servicing assets, less the discount of the retained portion of the loan are recognized in income.

Servicing assets represent the estimated fair value of retained servicing rights, net of servicing costs, at the time loans are sold. Servicing assets are amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment will be evaluated based on stratifying the underlying financial assets by date of origination and term. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Any impairment, if temporary, would be reported as a valuation allowance.

Serviced loans sold to others are not included in the accompanying consolidated balance sheets. The total amount of such loans serviced, but owned by third party, amounted to approximately $47.3 million and $29.6 million at December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the servicing asset has a carrying value of $886,000 and $584,000, respectively, and fair value of $1.0 million and $617,000 respectively. Income and fees collected for loan servicing are credited to non-interest income when earned, net of amortization on the related servicing assets.

The following table presents an analysis of the activity in the SBA servicing assets for the years ended December 31, 2022, 2021 and 2020:


(In thousands)	Year Ended December 31,
	2022		2021		2020
Beginning balance	$	584	$	316	$	201
Servicing rights capitalized	400		335		137
Servicing rights amortized	(87)		(22)		(22)
Servicing rights disposed	(11)		(45)		—
Ending balance	$	886	$	584	$	316

The servicing assets are included in the other assets on the consolidated balance sheet.