Note

Loans Held for Sale

As of

September 30, 2020,

loans held for sale consist of

one

commercial and industrial loan held for sale of

$5.0

million and

$1.8

million SBA loans held for sale. The

one

commercial loan represents a single loan with an agreed upon sale price which was in process of being sold at period end and the sale was completed on

October 22, 2020.

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. As of

September 30, 2020,

SBA loans held for sale, consisted of

$851,000

commercial and industrial loans and

$950,000

commercial real estate loans. There were

$15.3

million of SBA loans held for sale at

December 31, 2019,

consisting of

$10.2

million commercial and industrial loans and

$5.1

million commercial real estate loans. During the

nine

months ended

September 30, 2020,

$9.5

million SBA loans previously classified as held for sale were transferred to held for investment.

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

$18.6

million and

$13.6

million at

September 30, 2020

and

December 31, 2019,

respectively. The servicing asset has a carrying value of

$301,000

and fair value of

$362,000

September 30, 2020.

Income and fees collected for loan servicing are credited to noninterest income when earned, net of amortization on the related servicing assets. The servicing asset is included in other assets on the consolidated balance sheets.

The following table presents an analysis of the activity in the SBA servicing assets for the

three

and

nine

months ended

September 30, 2020

and

2019:

(In thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Beginning balance	$	221			156		$	201			37
Servicing rights capitalized		86			44			115			169
Servicing rights amortized		(6	)		(4	)		(15	)		(10	)
Ending balance		301			196			301			196