
	NOTE 9 - 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)	2018	2017
Balance at beginning of year	$ 9,341	$ 7,763
Additions of underlying property	307	3,634
Disposals of underlying property	(1,005)	(1,456)
Transfers to premises and equipment	-	-
Valuation allowance	(532)	(600)
Balance at end of period	$ 8,111	$ 9,341

During the year ended December 31, 2018, additions of $307,000 consisted of $165,000 of capitalized costs to improve a development project and $142,000 for commercial real estate. The Company disposed of commercial real estate for proceeds of $807,000 and gains of $4,000 along with residential lots for proceeds of $190,000 and a loss of $12,000 for the year ended December 31, 2018.

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 recognized net gains on OREO disposals of $43,000 for the year ended December 31, 2017. Disposals consisted of five residential and multiple residential lots totaling $1.5 million. 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 had $122,000 of impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of December 31, 2017. There were no loans secured by residential real estate for which formal foreclosure proceedings were in process as of December 31, 2018.

Additions to the valuation allowances of $532,000, $600,000 and $574,000 were taken to adjust properties to current appraised values for the years ended December 31, 2018, 2017 and 2016, 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)	2018	2017	2016
Valuation allowance	$ 532	$ 600	$ 574
Losses (gains) on dispositions	8	(43)	436
Operating expenses	117	146	287
	$ 657	$ 703	$ 1,297