OTHER REAL ESTATE OWNED ("OREO")

3 Months Ended

Mar. 31, 2020

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.


	Three Months Ended March 31,						Years Ended December 31,
(dollars in thousands)	2020		2019		2019
Balance at beginning of year	$	7,773	$	8,111	$	8,111
Additions of underlying property	—		3,215		3,567
Disposals of underlying property	(703)		(316)		(3,004)
Valuation allowance	(732)		(61)		(901)
Balance at end of period	$	6,338	$	10,949	$	7,773

During the three months ended March 31, 2020 and 2019, OREO additions were zero and $3.2 million, respectively. During the three months ended March 31, 2019, additions of $3.2 million were for commercial real estate acquired at foreclosure on a $3.8 million classified loan relationship recorded at the estimated fair value at the date of foreclosure less selling cost, establishing a new costs basis.

During the three months ended March 31, 2020, the Company disposed of a commercial lot with a carrying value of $703,000 for proceeds of $700,000 resulting in a loss of $3,000. During the three months ended March 31, 2019, the Company recognized net gains of $10,000 on the disposal of $316,000 of commercial lots for proceeds of $326,000. In connection with the sale, the Bank provided a loan of $280,000. The transaction qualified for sales treatment under ASC Topic 610-20 “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets”.

There were no impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of March 31, 2020 and December 31, 2019.

To adjust properties to current appraised values, additions to the valuation allowance were taken for the three months ended March 31, 2020 and 2019 and the year ended December 31, 2019. 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 March 31,
(dollars in thousands)	2020		2019
Valuation allowance	$	732	$	61
Losses (gains) on dispositions	3		(10)
Operating expenses	47		5
	$	782	$	56