
	NOTE 8 - OTHER REAL ESTATE OWNED (“OREO”)

OREO assets are presented net of the allowance for losses. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. An analysis of the activity follows.


	Years Ended December 31,
(dollars in thousands)	2017	2016	2015
Balance at beginning of year	$ 7,763	$ 9,449	$ 5,883
Additions of underlying property	3,634	3,120	5,436
Disposals of underlying property	(1,456)	(3,860)	(1,206)
Transfers to premises and equipment	-	(372)	-
Valuation allowance	(600)	(574)	(664)
Balance at end of period	$ 9,341	$ 7,763	$ 9,449

During the year ended December 31, 2017, additions of $3.6 million consisted of $3.0 million related to the foreclosure of a stalled residential development project. The Bank is working with a construction manager to stabilize and market the project. Further, additions included $103,000 for residential lots and $495,000 for a commercial office building. The Company disposed of five residential properties and multiple residential lots for proceeds of $1.5 million and a gain of $43,000 for the year ended December 31, 2017. The Bank provided $200,000 in financing for one residential property and the three residential lots during the first quarter of 2017. The transaction qualified for full accrual sales treatment under ASC Topic 360-20-40 “Property Plant and Equipment – Derecognition”.

The Company recognized net losses on OREO disposals of $436,000 for the year ended December 31, 2016. Disposals consisted of properties with the following carrying values; $337,000 for seven residential lots, $584,000 for four residential properties, $501,000 for two commercial properties, $138,000 for a commercial lot and $2.2 million for an apartment and condominium property. The Bank provided financing for the apartment and condominium purchase and the transaction qualified for full accrual sales treatment under ASC Topic 360-20-40 “Property Plant and Equipment – Derecognition”. In addition, the Company transferred one commercial condominium with a carrying value of $372,000 into premises for commercial lending office space.

The Company had $122,000 and $353,000 of impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of December 31, 2017 and 2016, respectively.

Additions to the valuation allowances of $600,000, $574,000 and $664,000 were taken to adjust properties to current appraised values for the years ended December 31, 2017, 2016 and 2015, respectively. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. Expenses applicable to OREO assets included the following..


	Years Ended December 31,
(dollars in thousands)	2017	2016	2015
Valuation allowance	$ 600	$ 574	$ 664
Operating expenses	146	287	395
	$ 746	$ 861	$ 1,059