Note 15. 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 to focus on its specialty finance lending. The loans which constitute the 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 assets of the commercial lending operations to be disposed are presented as assets held-for-sale on 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 three months ended March 31, 2020 and 2019 (in thousands).



	For the three months ended March 31,
	2020	2019
Interest income	$ 1,275	$ 2,025
Interest expense	-	-
Net interest income	1,275	2,025

Non-interest income	13	14
Non-interest expense	2,063	1,234

Income (loss) before taxes	(775)	805
Income tax expense (benefit)	(205)	286
Net income (loss)	$ (570)	$ 519



	March 31,	December 31,
	2020	2019
Loans, net	$ 111,008	$ 115,879
Other real estate owned	23,110	24,778
Total assets	$ 134,118	$ 140,657

Non-interest expense included fair value adjustments of $819,000 for the three months ended March 31, 2020 and $0 for the three months ended March 31, 2019. Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flow analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans. These credit and collateral related assumptions are subject to uncertainty. The results of discontinued operations do not include any future severance payments. 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, $134.1 million of loans and other real estate owned remain in assets held-for-sale on the March 31, 2020 consolidated balance sheet as a result of loan sales, principal paydowns and fair value charges as of March 31, 2020. The Company is attempting to dispose of those remaining loans and other real estate owned.

Additionally, the consolidated balance sheet reflects $34.3 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 (see Note 8, Fair Value Measurements). The investment in Walnut Street is classified as continuing operations in the accompanying consolidated financial statements.