Loans Held for Sale

3 Months Ended

Mar. 31, 2024

SBA Loans held for sale

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 March 31, 2024, SBA loans held for sale was $1.3 million, consisting only of $1.3 million SBA commercial real estate loans. There were $9.9 million of SBA loans held for sale at December 31, 2023, consisting of $3.5 million SBA commercial and industrial loans and $6.4 million SBA commercial real estate loans. During the three months ended March 31, 2024, $5.5 million SBA loans previously classified as held for sale were transferred to held for investment. No SBA held for sale loans were transferred to held for investment in three months ended March 31, 2023.

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 $50.0 million and $47.5 million at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 and December 31, 2023, the servicing asset has a carrying value of $902,000 and $857,000, respectively, and fair value of $988,000 and $932,000, respectively. 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 months ended March 31, 2024 and 2023:


(In thousands)	Three Month Ended March 31,
	2024		2023
Beginning balance	$	857	$	886
Servicing rights capitalized	64		34
Servicing rights amortized	(19)		(11)
Servicing rights disposed	—		(16)
Ending balance	$	902	$	893

Loans held for sale - Consumer Loans

Patriot Bank's Digital Payments Group has entered into a Program Management Agreement with a Buyer. Under the agreement, Patriot originates various types of consumer loans that are marketed by the buyer. As of March 31, 2024, the Bank had credit card loans held for sale totaling $12.8 million. The credit card loans expected to be held for no longer than three days before being sold to the buyer. The credit card loans are fully cash-secured by deposits at Patriot. The credit card loans are sold to the buyer as a whole loan sale transaction, priced at par, thus there is no servicing asset or gain or loss on sale.