Note 15. Discontinued Operations

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its commercial lending operations to focus on its specialty finance lending. The loans which constitute the commercial loan portfolio are in the process of disposition. 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 months and nine months ended September 30, 2018 and 2017 (in thousands).



	For the three months ended September 30,		For the nine months ended September 30,
	2018	2017	2018	2017
Interest income	$ 2,295	$ 3,098	$ 6,888	$ 9,594
Interest expense	-	-	-	-
Net interest income	2,295	3,098	6,888	9,594

Non interest income	14	549	883	1,001
Non interest expense	2,679	2,818	8,035	5,107

Income (loss) before taxes	(370)	829	(264)	5,488
Income tax (benefit) expense	(346)	318	(345)	2,050
Net income (loss)	$ (24)	$ 511	$ 81	$ 3,438



	September 30,	December 31,
	2018	2017
Loans, net	$ 197,353	$ 270,050
Other real estate owned	28,673	34,262
Total assets	$ 226,026	$ 304,313

Non-interest expense included fair value adjustments of $427,000 and $1.4 million, respectively, for the three and nine months ended September 30, 2018 and $1.8 million for both the three and nine months ended Sepetember 30, 2017. 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. 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, $226.0 million of loans and other real estate owned remain in assets held for sale on the September 30, 2018 consolidated balance sheet as a result of loan sales, principal paydowns and fair value charges as of September 30, 2018. The Company is attempting to sell those remaining loans and other real estate owned.

Additionally, the Consolidated Balance Sheet reflects $64.2 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.