Note W—Discontinued Operations

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations and focus on its specialty finance lending. The loans which constitute the Philadelphia commercial loan portfolio are in the process of disposition including transfers to other financial institutions. As such, financial results of the commercial lending operations are presented as separate from continuing operations on the consolidated statements of operations, and the assets of the commercial lending operations to be disposed are presented as assets held-for-sale from discontinued operations in the consolidated balance sheets.

The following table presents financial results of the commercial lending business included in net income (loss) from discontinued operations for the twelve months ended December 31, 2019, 2018 and 2017. The majority of non-interest expense is comprised of loan related charges including charge-offs, realized and unrealized gains and losses, other real estate loan charges and attorney fees.



	For the year ended December 31,
	2019		2018	2017
		(in thousands)
Interest income	$ 6,710		$ 8,810	$ 12,655
Interest expense	-		-	-
Net interest income	6,710		8,810	12,655

Non-interest income	34		910	1,095
Non-interest expense	6,234		8,229	9,691

Income before taxes	510		1,491	4,059
Income tax (benefit) expense	219		354	(276)
Net income	$ 291		$ 1,137	$ 4,335



	December 31,	December 31,
	2019	2018
	(in thousands)
Loans, net	$ 115,879	$ 170,662
Other real estate owned	24,778	27,169
Total assets	$ 140,657	$ 197,831

Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flows analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans.

The Company has securitized or sold loans with a book value of approximately $406.8 million, of the approximately $1.1 billion in book value of loans in that portfolio as of the September 30, 2014 date of discontinuance of operations. The $406.8 million of loans sold had a face value of approximately $481.7 million. Loans with an approximate face and book value of $267.6 million and $192.7 million, respectively, were securitized in the fourth quarter of 2014 to WS 2014. The securitization, referred to as Walnut Street, is managed by an independent investor, which contributed $16 million of equity to that entity. The balance of the securitization was financed by the Bank and is reflected on the consolidated balance sheet as investment in unconsolidated entity. After $74.9 million of loan charges reflected in the difference between the face value and book value of the loans securitized, the Company recognized a gain on sale of $17.0 million. In the second quarter of 2015, an additional $149.6 million of loans were sold at a gain of approximately $2.2 million. In the third quarter of 2016, $64.6 million of loans were sold at minimal gain. In 2017 and 2018, further dispositions including refinancings at other financial institutions and were reflected in the reduction of the discontinued operations balance to $140.7 million, compared to a balance of $197.8 million and $304.3 million, respectively at December 31, 2018 and 2017. The Company continues to pursue additional loan and other collateral dispositions.

Additionally, the consolidated balance sheet reflects $39.2 million in investment in unconsolidated entity, which is comprised of notes owned by the Company as a result of the sale of certain discontinued loans to Walnut Street, in which the Company retains an interest as explained above.