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| Loans | Note 4—Loans Loans Held for Sale The major categories of loans held for sale were as follows:
At December 31, 2022, loans held for sale includes nonaccrual residential real estate loans of $1,942. At December 31, 2021, loans held for sale includes nonaccrual loans of $18,026, consisting of residential real estate loans of $8,671 and commercial real estate loans of $9,355, of which one commercial real estate loan of $2,059 was considered a troubled debt restructuring. During the year ended December 31, 2021, commercial real estate loans with a carrying value of $61,549 were reclassified as loans held for sale from loans held for investment due to management’s change in intent and decision to sell the loans. On the date of transfer, the amortized cost exceeded the fair value of the loans due to credit deterioration. The Company recorded a charge-off of $7,921 to the allowance for loan losses, which established a new aggregate cost basis for the loans of $53,628 on the date of transfer. In February 2022, the Company sold substantially all of its commercial real estate loans held for sale, which loans had a carrying value of $49,455 on the date of sale, to a third party for cash proceeds of $49,610. Loans Held for Investment and Allowance for Loan Losses The major categories of loans held for investment and the allowance for loan losses were as follows:
Accrued interest receivable related to total gross loans, including loans held for sale, was $6,894 and $7,282 as of December 31, 2022 and 2021, respectively, and is recorded separately from the amortized cost basis of the loans on the consolidated balance sheets. Loans totaling $389,830 and $557,410 were pledged as collateral on the FHLB borrowings at December 31, 2022 and 2021, respectively. In October 2022, the Company acquired a pool of residential mortgage loans with an unpaid principal balance of $31,307 for a total purchase price of $30,847 from a third party investor. These loans were considered performing loans at the time of purchase. During the year ended December 31, 2022, the Company charged off $4,064 of its recorded investment in certain higher risk commercial real estate loans held in its portfolio. These commercial real estate loans were then sold to a third-party investor for net cash proceeds of $17,794. No gain or loss was recorded on the sale of the commercial real estate loans. During the year ended December 31, 2022 and 2021, the Company repurchased pools of Advantage Loan Program loans with a total outstanding principal balance of $65,621 and $173,829, respectively. The Advantage Loan Program loans that have been repurchased and included in the loan portfolio have an outstanding principal balance of $179,828 and $171,185 at December 31, 2022 and 2021, respectively. For more information on the repurchases of Advantage Loan Program loans, refer to Note 19—Commitments and Contingencies. The following tables present the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2022, 2021 and 2020:
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment by impairment methodology as of December 31, 2022 and 2021:
The following tables present information related to impaired loans by class of loans as of and for the periods indicated:
In the tables above, the unpaid principal balance is not reduced for partial charge offs. Also, the recorded investment excludes accrued interest receivable on loans, which was not significant. Also presented in the table above is the average recorded investment of the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. The average balances are calculated based on the month-end balances of the loans for the period reported. The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual, excluding nonaccrual loans held for sale, by class of loans as of December 31, 2022 and 2021:
As of December 31, 2022, there were nonaccrual loans of $33,690 of which an allowance for loan losses of $5,160 has been allocated with respect to these loans. The estimated fair value of the collateral securing these loans exceeded their carrying amount, or the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered necessary. The following tables present the aging of the recorded investment in past due loans as of December 31, 2022 and 2021 by class of loans:
The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential real estate and other consumer loans, the Company also evaluates credit quality based on the aging status of the loan, which is presented above, and by payment activity. The Company reviews the status of nonperforming loans, which include loans 90 days past due and still accruing interest, and nonaccrual loans. Troubled Debt Restructurings At December 31, 2022 and 2021, the balance of outstanding loans identified as troubled debt restructurings, along with the allocated portion of the allowance for loan losses with respect to these loans, was as follows:
During the year ended December 31, 2022, there were no loans modified as troubled debt restructurings. At December 31, 2022, there were no troubled debt restructurings in default. During the year ended December 31, 2021, there were no loans that defaulted for which the default occurred within one year of modification. At December 31, 2021, there were five loans totaling $15,752 in default that had been modified as troubled debt restructurings. The terms of certain other loans have been modified during 2022 and 2021 that did not meet the definition of a troubled debt restructuring. These other loans that were modified were not considered significant. Forbearance Loans The CARES Act created a forbearance program for impacted borrowers and imposed a temporary 60-day moratorium on foreclosures and foreclosure-related evictions related to federally backed mortgage loans, which included loans secured by a first or subordinate lien on residential one-to-four family real property that have been purchased by Fannie Mae or Freddie Mac, are insured by the Department of Housing and Urban Development or are insured or guaranteed by other listed agencies. The federal agencies extended these programs on multiple occasions into late 2021, but they have since expired. The California legislature responded by enacting some statewide eviction protections which are in some cases supplemented by local ordinances, while the New York legislature extended the state’s eviction moratorium through January 2022. The Company had offered forbearance under the CARES Act to customers facing COVID-19-related financial difficulties that generally provided for principal and interest forbearance for 120 days to residential borrowers with extensions available to qualified borrowers available for up to a maximum deferral period of twelve months, and these loans were not considered troubled debt restructurings. Under the forbearance program, interest continued to accrue at the note rate. At the end of the forbearance period, the borrower’s accrued but unpaid interest was added to their outstanding principal balance while keeping the principal and interest payment at the amount determined in accordance with the terms of the note, thus extending the loan’s maturity date. The terms of commercial loan forbearances were reviewed and determined on a case-by-case basis, and these loans were not considered troubled debt restructurings. The Company terminated the forbearance program, effective July 31, 2021. There were no loans outstanding under the COVID-19 forbearance program at December 31, 2022. Foreclosure Proceedings At December 31, 2022 and 2021, the recorded investment of residential mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled $5,711 and $2,780, respectively. Of the loans in formal foreclosure proceedings, $603 and $2,770 were included in loans held for sale in the consolidated balance sheets at December 31, 2022 and 2021, respectively, and were carried at the lower of amortized cost or fair value. The balance of loans are classified as held for investment and receive an allocation of the allowance for loan losses consistent with a substandard loan loss allocation rate as these loans were classified as substandard. Credit Quality Indicators The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current 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. This analysis includes homogeneous loans, such as residential real estate and other consumer loans, and non-homogeneous loans, such as commercial lines of credit, construction and commercial real estate loans. This analysis is performed at least quarterly. The Company uses the following definitions for risk ratings: Pass: Loans are of satisfactory quality. Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date. Substandard: Loans classified as substandard 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 liquidation of the loan. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. At December 31, 2022 and 2021, the risk rating of loans by class of loans was as follows:
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