Note 15. Discontinued Operations

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The loans which constitute the commercial loan portfolio are in the process of disposition including transfers to other financial institutions. As such, financial results of the commercial lending operations are presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed are presented as assets held-for-sale on the consolidated balance sheets.

The following table presents financial results of the commercial lending business included in net income (loss) from discontinued operations for the three and nine months ended September 30, 2019 and 2018 (in thousands).



	For the three months ended September 30,		For the nine months ended September 30,
	2019	2018	2019	2018
Interest income	$ 1,609	$ 2,295	$ 5,293	$ 6,888
Interest expense	-	-	-	-
Net interest income	1,609	2,295	5,293	6,888

Non-interest income	9	14	33	883
Non-interest expense	1,467	2,679	3,451	8,035

Income (loss) before taxes	151	(370)	1,875	(264)
Income tax expense (benefit)	125	(346)	574	(345)
Net income (loss)	$ 26	$ (24)	$ 1,301	$ 81



	September 30,	December 31,
	2019	2018
Loans, net	$ 136,109	$ 170,662
Other real estate owned	25,989	27,169
Total assets	$ 162,098	$ 197,831

Non-interest expense included fair value adjustments of $0 for the three and nine months ended September 30, 2019 and $427,000 and $1.4 million, respectively, for the three and nine months ended September 30, 2018. Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flow analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans. These credit and collateral related assumptions are subject to uncertainty. The results of discontinued operations do not include any future severance payments. Of the approximately $1.1 billion in book value of loans in that portfolio as of the September 30, 2014 date of discontinuance of operations, $162.1 million of loans and other real estate owned remain in assets held-for-sale on the September 30, 2019 consolidated balance sheet as a result of loan sales, principal paydowns and fair value charges as of September 30, 2019. The Company is attempting to dispose of those remaining loans and other real estate owned.

Additionally, the consolidated balance sheet reflects $49.4 million in investment in unconsolidated entity, which is comprised of notes owned by the Company as a result of the sale of certain discontinued loans to Walnut Street, see Note 8, Fair Value Measurements. The investment in Walnut Street is classified as continuing operations in the accompanying consolidated financial statements.