
	NOTE 9 - OTHER REAL ESTATE OWNED (“OREO”)

OREO assets are presented net of the valuation allowance. 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 OREO activity follows.


	Nine Months Ended September 30,		Years Ended December 31,
(dollars in thousands)	2018	2017	2017
Balance at beginning of year	$ 9,341	$ 7,763	$ 7,763
Additions of underlying property	282	3,622	3,634
Disposals of underlying property	(991)	(1,068)	(1,456)
Valuation allowance	(425)	(576)	(600)
Balance at end of period	$ 8,207	$ 9,741	$ 9,341

During the nine months ended September 30, 2018 and 2017, OREO additions were $282,000 and $3.6 million, respectively. During the nine months ended September 30, 2018, additions of $282,000 were for $139,000 of capitalized costs to improve a development project and $143,000 for commercial real estate. During the nine months ended September 30, 2017, additions of $3.6 million consisted of $3.0 million related to the foreclosure of a stalled residential development project. Further, additions included $103,000 for residential lots and $495,000 for a commercial office building.

During the nine months ended September 30, 2018 and 2017, there were OREO disposals of $991,000 and $1.1 million, respectively. The Company recognized net losses of $8,000 on disposals of multiple residential lots of $188,000, a commercial building of $476,000 and a commercial lot of $327,000 for the nine months ended September 30, 2018. The Company recognized net gains of $36,000 on disposals of $1.1 million for four residential properties and multiple residential lots for the nine months ended September 30, 2017. The Bank provided $200,000 in financing for one residential property and the three residential lots which were transferred from OREO to loans 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 had no impaired loans and $122,000 of impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of September 30, 2018 and December 31, 2017, respectively.

To adjust properties to current appraised values, additions to the valuation allowance of $425,000 and $576,000 were taken for the nine months ended September 30, 2018 and 2017, 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.


	Three Months Ended September 30,		Nine Months Ended September 30,
(dollars in thousands)	2018	2017	2018	2017
Valuation allowance	$ 142	$ 263	$ 425	$ 576
Losses (gains) on dispositions	-	-	8	(36)
Operating expenses	23	20	83	47
	$ 165	$ 283	$ 516	$ 587