OTHER REAL ESTATE OWNED ("OREO")

9 Months Ended

Sep. 30, 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.


	Nine Months Ended September 30,				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	1,240		3,266		3,567
Disposals of underlying property	(2,838)		(416)		(3,004)
Valuation allowance	(2,177)		(766)		(901)
Balance at end of period	$	3,998	$	10,195	$	7,773

During the nine months ended September 30, 2020 and 2019, OREO additions were $1.2 million and $3.3 million, respectively. During the nine months ended September 30, 2020, additions of $1.2 million consisted of a commercial lot with a contract expected to settle during the fourth quarter of 2020. During the nine months ended September 30, 2019, additions of $3.3 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 cost basis.

During the nine months ended September 30, 2020, the Company recognized net losses of $7,000 on disposals of $2.3 million for commercial real estate and $505,000 for residential real estate. During the nine months ended September 30, 2019, the Company recognized net gains of $188,000 on disposals of $416,000 for multiple residential lots of $65,000, commercial real estate of $316,000 and commercial equipment of $35,000. In connection with the sale of commercial real estate, 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”.

To adjust properties to current appraised values, additions to the valuation allowance were taken for the nine months ended September 30, 2020 and 2019 and the year ended December 31, 2019.

Expenses applicable to OREO assets included the following.


	Nine Months Ended September 30,
(dollars in thousands)	2020		2019

Valuation allowance	$	2,177	$	766
Losses (gains) on dispositions	7		(188)
Operating expenses	119		173
	$	2,303	$	751

There were no impaired loans secured by residential real estate for which formal foreclosure proceedings were in process as of September 30, 2020 and December 31, 2019.