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EX-32.2 - Shepherd's Finance, LLCex32-2.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 31, 2018

 

or

 

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Transition Period From               to             

 

Commission File Number 333-203707

 

SHEPHERD’S FINANCE, LLC

(Exact name of registrant as specified on its charter)

 

Delaware   36-4608739
(State or other jurisdiction of   (I.R.S. Employer
Incorporation or organization)   Identification No.)

 

12627 San Jose Blvd., Suite 203, Jacksonville, FL 32223

(Address of principal executive offices)

 

302-752-2688

(Registrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [  ] Accelerated filer [  ]
  Non-accelerated filer [  ] Smaller reporting company [X]
  Emerging growth company [X]    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

 

 

 
 

 

FORM 10-Q

SHEPHERD’S FINANCE, LLC

TABLE OF CONTENTS

 

  Page 
    
Cautionary Note Regarding Forward-Looking Statements  3 
     
PART I. FINANCIAL INFORMATION  4 
     
Item 1. Financial Statements  4 
     
Interim Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017  4 
     
Interim Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2018 and 2017  5 
     
Interim Condensed Consolidated Statement of Changes in Members’ Capital (Unaudited) for the Three Months Ended March 31, 2018  6 
     
Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2018 and 2017  7 
     
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)  8 
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  18 
     
Item 3. Quantitative and Qualitative Disclosure About Market Risk  34 
     
Item 4. Controls and Procedures  34 
     
PART II. OTHER INFORMATION  35 
     
Item 1. Legal Proceedings  35 
     
Item 1A. Risk Factors  35 
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  35 
     
Item 3. Defaults upon Senior Securities  35 
     
Item 4. Mine Safety Disclosures  35 
     
Item 5. Other Information  35 
     
Item 6. Exhibits  35 

 

 2 
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Form 10-Q of Shepherd’s Finance, LLC, other than historical facts, may be considered forward-looking statements within the meaning of the federal securities laws. Words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “continue,” “predict,” or other similar words identify forward-looking statements. Forward-looking statements appear in a number of places in this report, including without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and include statements regarding our intent, belief or current expectation about, among other things, trends affecting the markets in which we operate, our business, financial condition and growth strategies. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including but not limited to those set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission. If any of the events described in “Risk Factors” occur, they could have an adverse effect on our business, consolidated financial condition, results of operations, and cash flows.

 

When considering forward-looking statements, you should keep these risk factors, as well as the other cautionary statements in this report and in our 2017 Form 10-K in mind. You should not place undue reliance on any forward-looking statement. We are not obligated to update forward-looking statements.

 

 3 
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Shepherd’s Finance, LLC

Interim Condensed Consolidated Balance Sheets

 

    As of  
(in thousands of dollars)  

March 31,

2018

   

December 31,

2017

 
    (Unaudited)        
Assets            
Cash and cash equivalents   $ 380     $ 3,478  
Accrued interest receivable     966       720  
Loans receivable, net     39,692       30,043  
Foreclosed assets     1,079       1,036  
Property, plant and equipment, net     1,033       1,020  
Other assets     92       58  
                 
Total assets   $ 43,242     $ 36,355  
                 
Liabilities, Redeemable Preferred Equity and Members’ Capital                
                 
Liabilities                
                 
Customer interest escrow   $ 786     $ 935  
Accounts payable and accrued expenses     478       705  
Accrued interest payable     1,373       1,353  
Notes payable secured, net of deferred financing costs     17,554       11,644  
Notes payable unsecured, net of deferred financing costs     18,002       16,904  
Due to preferred equity member     31       31  
                 
Total liabilities     38,224       31,572  
                 
Commitments and Contingencies (Notes 3 and 9)                
                 
Redeemable Preferred Equity                
                 
Series C preferred equity   $ 1,130      $ 1,097  
                 
Members’ Capital                
                 
Series B preferred equity     1,240       1,240  
Class A common equity     2,648       2,446  
Members’ capital     3,888       3,686  
                 
Total liabilities, redeemable preferred equity and members’ capital   $ 43,242     $ 36,355  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 4 
 

 

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Operations - Unaudited

For the Three Months ended March 31, 2018 and 2017

 

    Three Months Ended  
    March 31,  
(in thousands of dollars)   2018     2017  
Interest Income                
Interest and fee income on loans   $ 1,827     $ 1,174  
Interest expense:                
Interest related to secured borrowings     411       179  
Interest related to unsecured borrowings     450       367  
Interest expense     861       546  
                 
Net interest income     966       628  
Less: Loan loss provision     40       11  
                 
Net interest income after loan loss provision     926       617  
                 
Non-Interest Income                
Gain from foreclosure of assets     -       77  
                 
Total non-interest income     -       77  
                 
Income     926       694  
                 
Non-Interest Expense                
Selling, general and administrative     617       448  
Depreciation and amortization     17       6  
Impairment loss on foreclosed assets     5       49  
                 
Total non-interest expense     639       503  
                 
Net Income   $ 287     $ 191  
                 
Earned distribution to preferred equity holders     63       31  
                 
Net income attributable to common equity holders   $ 224     $ 160  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 5 
 

 

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Changes In Members’ Capital - Unaudited

For the Three Months Ended March 31, 2018

 

(in thousands of dollars) 

Three Months

Ended

March 31,

2018

 
     
Members’ capital, beginning balance  $3,686 
Net income   287 
Earned distributions to preferred equity holders   (63)
Distributions to common equity holders   (22)
Members’ capital, ending balance  $3,888 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 6 
 

 

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Cash Flows - Unaudited

For the Three Months Ended March 31, 2018 and 2017

 

   

Three Months Ended

March 31,

 
(in thousands of dollars)   2018     2017  
             
Cash flows from operations                
Net income   $ 287     $ 191  
Adjustments to reconcile net income to net cash provided by (used in) operating activities                
Amortization of deferred financing costs     48       64  
Provision for loan losses     40       11  
Net loan origination fees deferred     85       198  
Change in deferred origination expense     (23 )     (64 )
Impairment of foreclosed assets     5       49  
Depreciation and amortization     17       6  
Gain from foreclosure of assets     -       (77 )
Net change in operating assets and liabilities:                
Other assets     (39 )     9  
Accrued interest receivable     (246 )     (40 )
Customer interest escrow     (149 )     209  
Accounts payable and accrued expenses     (207 )     119  
                 
Net cash (used in) provided by operating activities     (182 )     675  
                 
Cash flows from investing activities                
Loan originations and principal collections, net     (9,751 )     (4,221 )
Investment in foreclosed assets     (48 )     (145 )
Proceeds from sale of foreclosed assets     -       1,890  
Property plant and equipment additions     (25 )     (556 )
                 
Net cash used in investing activities     (9,824 )     (3,032 )
                 
Cash flows from financing activities                
Contributions from redeemable preferred equity     -       440  
Contributions from preferred equity holders     -       10  
Distributions to preferred equity holders     (30 )     (28 )
Distributions to common equity holders     (22 )     (12 )
Proceeds from secured note payable     7,581       2,001  
Repayments of secured note payable     (1,665 )     (2,595 )
Proceeds from unsecured notes payable     4,479       4,144  
Redemptions/repayments of unsecured notes payable     (3,400 )     (2,573 )
Deferred financing costs paid     (35 )     (10 )
                 
Net cash provided by financing activities     6,908       1,377  
                 
Net decrease in cash and cash equivalents     (3,098)       (980 )
                 
Cash and cash equivalents                
Beginning of period     3,478       1,566  
End of period   $ 380     $ 586  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ 813     $ 488  
                 
Non-cash investing and financing activities                
Earned but not paid distribution of preferred equity holders   $ 33     $ 31  

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 7 
 

 

Shepherd’s Finance, LLC

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Information presented throughout these notes to the interim condensed consolidated financial statements (unaudited) is in thousands of dollars.

 

1. Description of Business and Basis of Presentation

 

Description of Business

 

Description of Business

 

Shepherd’s Finance, LLC and subsidiary (the “Company”, “we”, or “our”) was originally formed as a Pennsylvania limited liability company on May 10, 2007. We are the sole member of a consolidating subsidiary, 84 REPA, LLC. The Company operated pursuant to an operating agreement by and among Daniel M. Wallach and the members of the Company from its inception through March 29, 2012, at which time it adopted an amended and restated operating agreement.

 

As of March 31, 2018, the Company extends commercial loans to residential homebuilders (in 17 states) to:

 

  construct single family homes,
  develop undeveloped land into residential building lots, and
  purchase and improve for sale older homes.

 

Basis of Presentation

 

The accompanying (a) condensed consolidated balance sheet as of March 31, 2018, which has been derived from audited consolidated financial statements, and (b) unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. While certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the unaudited interim condensed consolidated information presented not misleading. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The consolidated results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, 2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2017 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2017 (the “2017 Statements”). The accounting policies followed by the Company are set forth in Note 2 - Summary of Significant Accounting Policies in the 2017 Statements.

 

Accounting Standards Adopted in the Period

 

ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).” Issued in January 2016, ASU 2016-01 was intended to enhance the reporting model for financial instruments to provide users of financial statements with improved decision-making information. The amendments of ASU 2016-01 include: (i) requiring equity investments, except those accounted for under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value, with changes in fair value recognized in net income; (ii) requiring a qualitative assessment to identify impairment of equity investments without readily determinable fair values; and (iii) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

 

 8 
 

 

ASU 2016-01 became effective for the Company on January 1, 2018. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.

 

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” Issued in May 2014, ASU 2014-09 added FASB ASC Topic 606, Revenue from Contracts with Customers, and superseded revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition and certain cost guidance in FASB ASC Topic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. ASU 2014-09 requires an entity to recognize revenue when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity’s performance, or at a point in time, when control of the goods or services is transferred to the customer. ASU 2014-09 became effective for the Company on January 1, 2018. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements.

 

Revenue

 

On January 1, 2018, the Company implemented Accounting Standards Update 2014-09, Revenue from Contracts with Customers, codified at ASC Topic 606. The Company adopted ASC 606 using the modified retrospective transition method. As of December 31, 2017, the Company had no uncompleted customer contracts and, as a result, no cumulative transition adjustment was made during the first quarter of 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts continue to be reported under legacy U.S. GAAP.

 

The majority of the Company’s revenue is generated through interest earned on financial instruments, including loans, which falls outside the scope of ASC 606. All of the Company’s revenue that is subject to ASC 606 would be included in non-interest income; however, not all non-interest income is subject to ASC 606. The Company had no contract liabilities or unsatisfied performance obligations with customers as of March 31, 2018.

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with current period presentation.

 

2. Fair Value

 

There has been no change in our fair value policy during 2018.

 

The following tables present the balances of non-financial instruments measured at fair value on a non-recurring basis as of March 31, 2018 and December 31, 2017.

 

March 31, 2018

 

           Quoted         
           Prices         
           in Active         
           Markets   Significant     
           for   Other   Significant 
           Identical   Observable   Unobservable 
   Carrying   Estimated   Assets   Inputs   Inputs 
   Amount   Fair Value   Level 1   Level 2   Level 3 
                          
Foreclosed assets  $1,079   $1,079   $   $   $1,079 

 

December 31, 2017

 

           Quoted         
           Prices         
           in Active         
           Markets   Significant     
           for   Other   Significant 
           Identical   Observable   Unobservable 
   Carrying   Estimated   Assets   Inputs   Inputs 
   Amount   Fair Value   Level 1   Level 2   Level 3 
                          
Foreclosed assets  $1,036   $1,036   $   $   $1,036 

 

 9 
 

 

The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized at the periods indicated:

 

March 31, 2018

 

           Quoted Prices         
           in Active   Significant     
           Markets for   Other   Significant 
           Identical   Observable   Unobservable 
   Carrying   Estimated   Assets   Inputs   Inputs 
   Amount   Fair Value   Level 1   Level 2   Level 3 
Financial Assets:                         
Cash and cash equivalents  $380   $380   $380   $   $ 
Loans receivable, net   39,692    39,692            39,692 
Accrued interest receivable   966    966            966 
Financial Liabilities:                         
Customer interest escrow   786    786            786 
Notes payable related party   1,000    1,000            1,000 
Notes payable secured   16,554    16,554            16,554 
Notes payable unsecured, net   18,002    18,002            18,002 
Accrued interest payable   1,373    1,373            1,373 

 

December 31, 2017

 

           Quoted Prices         
           in Active         
          

Markets

for

   Significant Other   Significant 
           Identical   Observable   Unobservable 
   Carrying   Estimated   Assets   Inputs   Inputs 
   Amount   Fair Value   Level 1   Level 2   Level 3 
Financial Assets:                         
Cash and cash equivalents  $3,478   $3,478   $3,478   $   $ 
Loans receivable, net   30,043    30,043            30,043 
Accrued interest receivable   720    720            720 
Financial Liabilities:                         
Customer interest escrow   935    935            935 
Notes payable secured   11,644    11,644            11,644 
Notes payable unsecured, net   16,904    16,904            16,904 
Accrued interest payable   1,353    1,353            1,353 

 

3. Financing Receivables

 

Financing receivables are comprised of the following as of March 31, 2018 and December 31, 2017:

 

  

March 31,

2018

  

December 31,

2017

 
         
Loans receivable, gross  $42,201   $32,375 
Less: Deferred loan fees   (932)   (847)
Less: Deposits   (1,573)   (1,497)
Plus: Deferred origination expense   133    109 
Less: Allowance for loan losses   (137)   (97)
           
Loans receivable, net  $39,692   $30,043 

 

 10 
 

 

Commercial Construction and Development Loans

 

Commercial Loans – Construction Loan Portfolio Summary

 

As of March 31, 2018, we have 64 borrowers, all of whom, including our three development loan customers (the “Hoskins Group,” consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark Hoskins, being the largest of the three), borrow money for the purpose of building new homes.

 

The following is a summary of our loan portfolio to builders for home construction loans as of March 31, 2018 and December 31, 2017:

 

Year 

Number of

States

  

Number

of Borrowers

  

Number of

Loans

   Value of Collateral(1)   Commitment Amount  

Gross

Amount

Outstanding

  

Loan to Value

Ratio(2)

   Loan Fee 
2018   17    64    199   $84,753   $54,773   $36,959    65%(3)   5%
2017   16    52    168    75,931    47,087    29,563    62%(3)   5%

 

(1) The value is determined by the appraised value.
   
(2) The loan to value ratio is calculated by taking the commitment amount and dividing by the appraised value.
   
(3) Represents the weighted average loan to value ratio of the loans.

 

Commercial Loans – Real Estate Development Loan Portfolio Summary

 

The following is a summary of our loan portfolio to builders for land development as of March 31, 2018 and December 31, 2017:

 

Year  Number of States   Number of Borrowers  

Number

of Loans(4)

   Gross Value of Collateral(1)   Commitment Amount(3)  

Gross Amount

Outstanding

  

Loan to Value

Ratio(2)

   Loan Fee 
2018   3    3    6   $8,019   $6,362   $5,242    65%  $1,000 
2017   1    1    3    4,997    4,600    2,811    56%   1,000 

 

(1) The value is determined by the appraised value adjusted for remaining costs to be paid. Part of this collateral is $1,240 as of March 31, 2018 and December 31, 2017 of preferred equity in our Company. In the event of a foreclosure on the property securing these loans, the portion of our collateral that is preferred equity might be difficult to sell, which may impact our ability to eliminate the loan balance. Part of the collateral value is estimated based on the selling prices anticipated for the homes.
   
(2) The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.
   
(3) The commitment amount does not include letters of credit and cash bonds.
   
(4) As of December 31, 2017, our development loans consisted of borrowings which originated in December 2011 and to which we refer throughout this report as the “Pennsylvania Loans”. During the first quarter of 2018, we added one additional development loan to the Pennsylvania Loans.

 

Credit Quality Information

 

The following table presents credit-related information at the “class” level in accordance with Financial Accounting Standards Board Accounting Standards Codification 310-10-50, Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses. See our Form 10-K for the year ended December 31, 2017, as filed with the SEC, for more information.

 

 11 
 

 

Gross finance receivables – By risk rating:

 

  

March 31,

2018

  

December 31,

2017

 
         
Pass  $31,194   $25,656 
Special mention   7,231    6,719 
Classified – accruing   3,776     
Classified – nonaccrual        
Total  $42,201   $32,375 

 

Gross finance receivables – Method of impairment calculation:

 

  

March 31,

2018

  

December 31,

2017

 
         
Performing loans evaluated individually  $11,217   $14,992 
Performing loans evaluated collectively   27,208    17,383 
Non-performing loans without a specific reserve   3,776     
Non-performing loans with a specific reserve        
Total  $42,201   $32,375 

 

At March 31, 2018 and December 31, 2017, there were no loans acquired with deteriorated credit quality.

 

Concentrations

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable. Our concentration risks for individual borrowers are summarized in the table below:

 

   March 31, 2018  December 31, 2017
      Percent of      Percent of 
   Borrower  Loan   Borrower  Loan 
   City  Commitments   City  Commitments 
               
Highest concentration risk  Pittsburgh, PA   21%  Pittsburgh, PA   22%
Second highest concentration risk  Sarasota, FL   6%  Sarasota, FL   7%
Third highest concentration risk  Orlando, FL   5%  Savannah, GA   5%

 

4. Foreclosed Assets

 

Roll forward of foreclosed assets:

 

  

Three Months

Ended

March 31,

2018

  

Year

Ended

December 31,

2017

  

Three Months

Ended

March 31,

2017

 
             
Beginning balance  $1,036   $2,798   $2,798 
Additions for construction/development   48    317    296 
Sale proceeds   -    (1,890)   (1,890)
Gain on sale   -    77    77 
Impairment loss on foreclosed assets   (5)   (266)   (202)
Ending balance  $1,079   $1,036   $1,079 

 

 12 
 

 

5. Borrowings

 

The following table displays our borrowings and a ranking of priority:

 

   Priority Rank  

March 31,

2018

  

December 31,

2017

 
Borrowing Source               
Purchase and sale agreements and other secured borrowings   1   $16,559   $11,644 
Secured line of credit from affiliates   2    1,000     
Unsecured line of credit (senior)   3    500     
Other unsecured debt (senior subordinated)   4    1,007    279 
Unsecured Notes through our public offering, gross   5    13,785    14,121 
Other unsecured debt (subordinated)   5    2,387    2,617 
Other unsecured debt (junior subordinated)   6    590    173 
Total       $35,828   $28,834 

 

The following table shows the maturity of outstanding debt as of March 31, 2018.

 

Year Maturing  

Total

Amount

Maturing

   

Public

Offering

    Other Unsecured    

Purchase

and Sale

Agreements

and other secured borrowings

 
                         
2018   $ 22,413      $ 3,547      $ 1,954     $ 16,912  
2019     4,876        4,029        833       14  
2020     2,269        2,154        100       15  
2021     3,904        3,889        -       15  
2022 and thereafter     2,366        166        1,597       603  
Total   $ 35,828      $ 13,785      $ 4,484     $ 17,559  

 

Secured Borrowings

 

Purchase and Sale Agreements

 

In March 2018, we entered into the Seventh Amendment (the “Seventh Amendment”) to our Loan Purchase and Sale Agreement (the “S.K. Funding LPSA”) with S.K. Funding, LLC (“S.K. Funding”).

 

The purpose of the Seventh Amendment was to allow S.K. Funding to purchase a portion of the Pennsylvania Loans for a purchase price of $649 under parameters different from those specified in the S.K. Funding LPSA.

 

 13 
 

 

The timing of the Company’s principal and interest payments to S.K. Funding under the Seventh Amendment, and S.K. Funding’s obligation to fund the Pennsylvania Loans, vary depending on the total principal amount of the Pennsylvania Loans outstanding at any time, as follows:

 

  If the total principal amount exceeds $1,000, S.K. Funding must fund the amount between $1,000 and less than or equal to $3,500.
  If the total principal amount is less than $4,500 the Company will also repay S.K. Funding’s principal as principal payments are received on the Pennsylvania Loans from the underlying borrowers in the amount by which the total principal amount is less than $4,500 until S.K. Funding’s principal has been repaid in full.
  The interest rate accruing to S.K. Funding under the Seventh Amendment is 10.5% calculated on a 365/366-day basis.

 

The Seventh Amendment has a term of 24 months and will automatically renew for an additional six-month term unless either party gives written notice of its intent not to renew at least six months prior to the end of a term. S.K. Funding will have a priority position as compared to the Company in the case of a default by any of the borrowers.

 

Lines of Credit

 

During March  2018, we borrowed $1,000 against our line of credit with our Chief Executive Officer and his wife. Interest was $4 and $0 in the first quarter of 2018 and 2017, respectively. The interest rate for this borrowing was 4.4% as of March 31, 2018.

 

During July 2017, we entered into a line of credit agreement (the “Shuman LOC Agreement”) with a group of lenders (collectively, “Shuman”). Pursuant to the Shuman LOC Agreement, Shuman provides us with a revolving line of credit (the “Shuman LOC”) with the following terms:

 

  Principal not to exceed $1,325;
  Secured with assignments of certain notes and mortgages;
  Cost of funds to us of 10%; and
  Due in July 2018 unless extended by Shuman for one or more additional 12-month periods.

 

The Shuman LOC was fully borrowed as of March 31, 2018

 

During October 2017, we entered into a line of credit agreement (the “Swanson LOC Agreement”) with Paul Swanson. Pursuant to the Swanson LOC Agreement, Mr. Swanson provides us with a revolving line of credit (the “Swanson LOC”) with the following terms:

 

  Principal not to exceed $4,000;
  Secured with assignments of certain notes and mortgages;
  Cost of funds to us of 10%; and
  Due in January 2019 unless extended by Mr. Swanson for one or more additional 15-month periods.

 

As of March 31, 2018, we have borrowed $3,851 under the Swanson LOC.

 

Mortgage Payable

 

During the first quarter of 2018, we entered into a commercial mortgage on our office building with the following terms:

 

  Principal not to exceed $660;
  Secured with assignments of certain notes and mortgages;
  Interest rate at 5.07% per annum based on a year of 360 days; and
  Due in January 2033.

 

Summary

 

The Purchase and Sale Agreements and Lines of Credit are summarized below:

 

   March 31, 2018   December 31, 2017 
       Due From       Due From 
   Book Value of   Shepherd’s   Book Value of   Shepherd’s 
   Loans which   Finance to Loan   Loans which   Finance to Loan 
   Served as
Collateral
  

Purchaser or

Lender

  

Served as

Collateral

  

Purchaser or

Lender

 
Loan Purchaser                    
Builder Finance, Inc.  $7,506   $4,262   $7,483   $4,089 
S.K. Funding   13,046    6,463    9,128    4,134 
                     
Lender                    
Shuman   2,134    1,325    1,747    1,325 
Paul Swanson   5,147    3,851    2,518    2,096 
                     
Total  $27,833   $15,901   $20,876   $11,644 

 

 14 
 

 

Unsecured Borrowings

 

Other Unsecured Debts

 

Our other unsecured debts are detailed below:

 

              Principal Amount Outstanding
as of
 
    Maturity   Interest     March 31,     December 31,  
Loan   Date   Rate (1)     2018     2017  
Unsecured Note with Seven Kings Holdings, Inc.   August 2018     7.5 %     500       500  
                             
Unsecured Line of Credit from Builders Finance, Inc.   January 2019     10.0 %     500       -  
                             
Unsecured Line of Credit from Paul Swanson   June 2018(2)     10.0 %     149       1,904  
                             
Subordinated Promissory Note   Demand(3)     7.5 %     1,125       -  
                             
Subordinated Promissory Note   December 2019     10.5 %     113       113  
                             
Subordinated Promissory Note   April 2020     10.0 %     100       100  
                             
Senior Subordinated Promissory Note   March 2022(4)     10.0 %     400       -  
                             
Senior Subordinated Promissory Note   March 2022     1.0 %     728       -  
                             
Junior Subordinated Promissory Note   March 2022     22.5 %     417       -  
                             
Senior Subordinated Promissory Note   October 2022     1.0 %     279       279  
                             
Junior Subordinated Promissory Note   October 2022     20.0 %     173       173  
                             
                $ 4,484     $ 3,069  

 

(1) Interest rate per annum, based upon actual days outstanding and a 365/366 day year.

 

(2) Due in June 2018 unless extended by Mr. Swanson for one or more additional 15-month periods.

 

(3) Principal due six months after lender gives notice. This note may be prepaid without fee, premium or penalty.

 

(4) This note may be prepaid upon lender's request at least 10 days prior to an interest payment and up to $20 of principal.

 

Unsecured Notes through the Public Offering (“Notes Program”)

 

The effective interest rate on the Notes offered pursuant to the Notes Program at March 31, 2018 and December 31, 2017 was 9.16% and 9.21%, respectively, not including the amortization of deferred financing costs. There are limited rights of early redemption. The following table shows the roll forward of our Notes Program:

 

 15 
 

 

   Three Months
Ended
March 31,
2018
   Year Ended
December 31,
2017
   Three Months
Ended
March 31,
2017
 
             
Gross Notes outstanding, beginning of period  $14,121   $11,221   $11,221 
Notes issued   1,309    8,375    4,144 
Note repayments / redemptions   (1,645)   (5,475)   (2,573)
                
Gross Notes outstanding, end of period  $13,785   $14,121   $12,792 
                
Less deferred financing costs, net   267    286    357 
                
Notes outstanding, net  $13,518   $13,835   $12,435 

 

The following is a roll forward of deferred financing costs:

 

   Three Months   Year   Three Months 
   Ended   Ended   Ended 
   March 31,
2018
   December 31,
2017
   March 31,
2017
 
             
Deferred financing costs, beginning balance  $1,102   $1,014   $1,014 
Additions   29    88    10 
Deferred financing costs, ending balance  $1,131   $1,102   $1,024 
Less accumulated amortization   (864)   (816)   (667)
Deferred financing costs, net  $267   $286   $357 

 

The following is a roll forward of the accumulated amortization of deferred financing costs:

 

   Three Months   Year   Three Months 
   Ended   Ended   Ended 
   March 31,
2018
   December 31,
2017
   March 31,
2017
 
             
Accumulated amortization, beginning balance  $816   $603   $603 
Additions   48    213    64 
Accumulated amortization, ending balance  $864   $816   $667 

 

6. Redeemable Preferred Equity

 

The following is a roll forward our of Series C cumulative preferred equity (“Series C Preferred Units”):

 

  

Three Months

Ended

March 31,

2018

  

Year

Ended

December 31,

2017

  

Three Months

Ended

March 31,

2017

 
             
Beginning balance  $1,097   $   $ 
Additions from new investment       1,004    440 
Additions from reinvestment   33    93     
                
Ending balance  $1,130   $1,097   $440 

 

 16 
 

 

The following table shows the earliest redemption options for investors in our Series C Preferred Units as of March 31, 2018:

 

Year Maturing   Total Amount
Redeemable
 
       
2023   $ 1,130  
         
Total   $ 1,130  

 

7. Members’ Capital

 

There are currently two classes of units outstanding: Class A common units (“Class A Common Units”) and Series B cumulative preferred units (“Series B Preferred Units”). The Class A Common Units are held by nine members, all of whom have no personal liability. All Class A common members have voting rights in proportion to their capital account. There were 2,629 Class A Common Units outstanding at both March 31, 2018 and December 31, 2017.

 

In January 2018, our Chief Financial Officer and Executive Vice President of Operations purchased 2% and 1% of our outstanding Class A Common Units, respectively, from our CEO. In March 2018, our Executive Vice President of Sales purchased 14.3% of our outstanding Class A Common Units from our CEO.

 

8. Related Party Transactions

 

As of March 31, 2018, each of our two independent managers own 1% of our Class A Common Units. As of March 31, 2018, our CFO, Executive Vice President of Operations, and Executive Vice President of Sales each own 2%, 2%, and 15.3% of our Class A Common Units, respectively.

 

In March 2018, we borrowed $1,000 against our line of credit with our CEO and his wife. A more detailed description is included in Note 5 above. This borrowing is included in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

 

In February 2018, we issued a Subordinated Promissory Note in the principal amount of $1,125 to a trust affiliated with Seven Kings Holdings, Inc. One of our independent managers, Kenneth R. Summers, is the trustee of that trust. This borrowing is included in notes payable unsecured, net of deferred financing costs on the interim condensed consolidated balance sheet.

 

In March 2018, we issued a Senior Subordinated Promissory Note in the principal amount of $400 to family members of one of our CEO. This borrowing is included in the notes payable unsecured, net of deferred financing costs on the interim condensed consolidated balance sheet.

 

In March 2018, we issued a Senior Subordinated Promissory Note in the principal amount of $400 to family members of one of our CEO.

 

9. Commitments and Contingencies

 

Unfunded commitments to extend credit, which have similar collateral, credit risk, and market risk to our outstanding loans, were $18,935 and $19,312 at March 31, 2018 and December 31, 2017, respectively.

 

10. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

 

Summarized unaudited quarterly condensed consolidated financial data for the four quarters of each of 2018 and 2017 are as follows:

 

  

Quarter

1

  

Quarter

4

  

Quarter

3

  

Quarter

2

  

Quarter

1

 
   2018   2017   2017   2017   2017 
                     
Net Interest Income after Loan Loss Provision  $926   $802   $917   $725   $617 
Non-Interest Income                   77 
SG&A expense   617    643    537    456    448 
Depreciation and Amortization   17                6 
Impairment loss on foreclosed assets   5    64    47    106    49 
Net Income  $287   $95   $333   $163   $191 

 

11. Non-Interest expense detail

 

The following table displays our selling, general and administrative (“SG&A”) expenses:

 

  

For the Three Months Ended

March 31,

 
   2018   2017 
Selling, general and administrative expenses          
Legal and accounting  $143   $96 
Salaries and related expenses   356    254 
Board related expenses   22    29 
Advertising   17    17 
Rent and utilities   10    5 
Loan and foreclosed asset expenses   8    7 
Travel   23    15 
Other   38    25 
Total SG&A  $617   $448 

 

12. Subsequent Events

 

Management of the Company has evaluated subsequent events through May 10, 2018, the date these consolidated financial statements were issued.

 

As described more fully in Note 5, in October 2017, we entered into the Swanson LOC Agreement, pursuant to which Mr. Swanson provided us with the Swanson LOC. We and Mr. Swanson entered into a Master Loan Modification Agreement which modified the Swanson LOC Agreement (the “Modification Agreement”) and is effective and enforceable by us as of April 13, 2018. The Modification Agreement increased the maximum borrowing amount under the Swanson LOC from $4,000 to $7,000. If Mr. Swanson elects not to renew the Modification Agreement, Mr. Swanson must give us written notice at least 120 days before the expiration date of the then current term. If Mr. Swanson provides such written notice, we must repay $4,000 of the Swanson LOC by the expiration date and must repay the remaining balance on the Swanson LOC by 120 days after the expiration date. Our obligation to repay the Swanson LOC is evidenced by two Modified Promissory Notes from us, one dated April 12, 2018 and evidencing a promise to repay the secured portion of the Swanson LOC and the other dated April 13, 2018 and evidencing a promise to repay the unsecured portion of the Swanson LOC. The Modification Agreement did not affect the other terms of the Swanson LOC Agreement.

 

In April 2018, we fully repaid our line of credit to our CEO and his wife, which had a $1,000 outstanding principal balance as of March 31, 2018.

 

In February 2016, we entered into a construction loan agreement (the “Vista Loan Agreement”) with Lex Partners II, LLC (“Lex Partners II”), pursuant to which we extended a construction loan (the “Vista Loan”) to Lex Partners II to be used for the refinance of a parcel of land located at 1333 Vista Drive, Sarasota, Florida 34239 and the construction of a home thereon (the “Vista Property”). On June 30, 2016, Lex Partners II deeded the Vista Property to 1333 Vista Drive, LLC (the “Property Owner”), an unaffiliated third party, but Lex Partners II remained the borrower on the Vista Loan. As of April 24, 2018, the principal balance on the Vista Loan was approximately $3,776 and the unpaid interest on the Vista Loan was approximately $243.

 

 17 
 

 

In February 2018, Lex Partners II defaulted under the Vista Loan by failing to make an interest payment that was due. Subsequently, on April 27, 2018, we and the Property Owner entered into an Agreement (the “Master Agreement”), which requires, among other things, that the Property Owner deed the Vista Property to us in lieu of foreclosure. When such deed in lieu of foreclosure is effective, the Master Agreement requires we pay the sum of $50 to the Property Owner. On April 27, 2018, we and the Property Owner executed a Deed in Lieu of Foreclosure Agreement (the “Deed Agreement”). As required by the Deed Agreement, on April 27, 2018, the Property Owner also executed a Warranty Deed in Lieu of Foreclosure in favor of the Company, pursuant to which the Property Owner deeded the Vista Property to us, and on May 3, 2018, we made the required payment of $50 to the Property Owner.

 

Pursuant to the Master Agreement, we may complete construction of the single family residence being built on the Vista Property, but we are not required to do so. When we sell the Vista Property, the Master Agreement requires that we pay the first $250 of profit (as defined in the Master Agreement) to the Property Owner, subject to certain limitations contained in the Master Agreement.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

(All dollar [$] amounts shown in thousands.)

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our interim condensed consolidated financial statements and the notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our audited annual consolidated financial statements and related notes and other consolidated financial data included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2017. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.

 

Overview

 

We had $39,692 and $30,043 in loan assets as of March 31, 2018 and December 31, 2017, respectively. As of March 31, 2018, we have 199 construction loans in 17 states with 64 borrowers and six development loans in three states. As of March 31, 2018 and December 31, 2017, we had four and three development loans, respectively, in Pittsburgh, Pennsylvania (the “Pennsylvania Loans”). In addition, we have various sources of capital, detailed below:

 

  

March 31,

2018

  

December 31,

2017

 
Capital Source          
Purchase and sale agreements and other secured borrowings  $16,559   $11,644 
Secured line of credit from affiliates   1,000     
Unsecured senior line of credit from a bank   500     
Unsecured Notes through our Notes Program   13,785    14,121 
Other unsecured debt   3,984    3,069 
Preferred equity, Series B units   1,240    1,240 
Preferred equity, Series C units   1,130    1,097 
Common equity   2,648    2,446 
           
Total  $40,846   $33,617 

 

Our net income increased for the first quarter of 2018 as compared to the same period in 2017 due primarily to increased loan originations, which was partially offset by payroll cost increases due to an increase the number of employees, and an increase in our loan loss reserve.

 

 18 
 

 

Cash used in operations was $182 as of March 31, 2018 as compared to cash provided by operations of $675 for the same period of 2017. Our decrease in operating cash flow in 2018 is mainly due to an increase in accrued interest receivable of $246 offset by a decrease in interest and other payables of $207. In 2017, our increase in operating cash flow, as compared to net income, was due to an increase in accrued expenses of $119, an increase in interest escrow of $209, and an increase in interest and other payables of $119.

 

Critical Accounting Estimates

 

To assist in evaluating our consolidated financial statements, we describe below the critical accounting estimates that we use. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used, would have a material impact on our consolidated financial condition or results of operations. See our Form 10-K for the year ended December 31, 2017, as filed with the SEC, for more information on our critical accounting estimates. No material changes to our critical accounting estimates have occurred since December 31, 2017 unless listed below.

 

Loan Losses

 

Fair value of collateral has the potential to impact the calculation of the loan loss provision (the amount we have expensed over time in anticipation of loan losses we have not yet realized). Specifically, relevant to the allowance for loan loss reserve is the fair value of the underlying collateral supporting the outstanding loan balances. Fair value measurements are an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Due to a rapidly changing economic market, an erratic housing market, the various methods that could be used to develop fair value estimates, and the various assumptions that could be used, determining the collateral’s fair value requires significant judgment.

 

   March 31, 2018 
   Loan Loss 
   Provision 
Change in Fair Value Assumption  Higher/(Lower) 
Increasing fair value of the real estate collateral by 35%*  $ 
Decreasing fair value of the real estate collateral by 35%**  $(1,908)

 

* Increases in the fair value of the real estate collateral do not impact the loan loss provision, as the value generally is not “written up.”

 

** Assumes the loans were nonperforming and a book amount of the loans outstanding of $39,692.

 

Foreclosed Assets

 

The fair value of real estate will impact our foreclosed asset value, which is recorded at 100% of fair value (after selling costs are deducted).

 

   March 31, 2018 
   Foreclosed 
   Assets 
Change in Fair Value Assumption  Higher/(Lower) 
Increasing fair value of the foreclosed asset by 35%*  $ 
Decreasing fair value of the foreclosed asset by 35%  $(378)

 

* Increases in the fair value of the foreclosed assets do not impact the carrying value, as the value generally is not “written up.” Those gains would be recognized at the sale of the asset.

 

 19 
 

 

Consolidated Results of Operations

 

Key financial and operating data for the three months ended March 31, 2018 and 2017 are set forth below. For a more complete understanding of our industry, the drivers of our business, and our current period results, this discussion should be read in conjunction with our consolidated financial statements, including the related notes and the other information contained in this document.

 

   Three Months Ended 
   March 31, 
   2018   2017 
Interest Income          
Interest and fee income on loans  $1,827   $1,174 
Interest expense:          
Interest related to secured borrowings   411    179 
Interest related to unsecured borrowings   450    367 
Interest expense   861    546 
           
Net interest income   966    628 
Less: Loan loss provision   40    11 
           
Net interest income after loan loss provision   926    617 
           
Non-Interest Income          
Gain from foreclosure of assets   -    77 
           
Total non-interest income   -    77 
           
Income   926    694 
           
Non-Interest Expense          
Selling, general and administrative   617    448 
Depreciation and amortization   17    6 
Impairment loss on foreclosed assets   5    49 
           
 Total non-interest expense   639    503 
           
Net Income  $287   $191 
           
Earned distribution to preferred equity holders   63    31 
           
Net income attributable to common equity holders  $224   $160 

 

 20 
 

 

Interest Spread

 

The following table displays a comparison of our interest income, expense, fees, and spread:

 

   Three Months Ended 
   March 31, 
   2018   2017 
Interest Income        *          *  
Interest income on loans  $1,291    13%  $780    13%
Fee income on loans   536    6%   394    7%
Interest and fee income on loans   1,827    19%   1,174    20%
Interest expense unsecured   402    4%   303    5%
Interest expense secured   411    4%   179    3%
Amortization of offering costs   48    1%   64    1%
Interest expense   861    9%   546    9%
Net interest income (spread)  $966    10%  $628    11%
                     

Weighted average outstanding

loan asset balance

  $37,831        $23,756      

 

*annualized amount as percentage of weighted average outstanding gross loan balance

 

There are three main components that can impact our interest spread:

 

Difference between the interest rate received (on our loan assets) and the interest rate paid (on our borrowings). The loans we have originated have interest rates which are based on our cost of funds, with a minimum cost of funds of 5%. For most loans, the margin is fixed at 2%; however, for our development loans the margin is fixed at 7%. Future loans are anticipated to be originated at approximately the same 2% margin. This component is also impacted by the lending of money with no interest cost (our equity). For both 2018 and 2017, our difference between interest income and interest expense was 4%. We currently anticipate that the difference between our interest income and interest expense will continue to be 4% for the remainder of 2018.

 

Fee income. Fee income is displayed in the table above. Our construction loans have a 5% fee on the amount we commit to lend, which is amortized over the expected life of each of those loans; however, we do not recognize a loan fee on our development loans. When loans terminate quicker than their expected life, the remaining unrecognized fee is recognized upon the termination of the loan. When loans exceed their expected life, no additional fee income is recognized. In 2018 our fee income decreased 1% due to an increase in loans that exceeded their expected life. We currently anticipate that fee income will continue at the same 6% rate for the remainder of 2018.

 

Amount of nonperforming assets. Generally, we can have three types of nonperforming assets that negatively affect interest spread: loans not paying interest, foreclosed assets, and cash. We had no nonperforming loans in the first quarter of 2018 and 2017. Foreclosed assets do not provide a monthly interest return. The difference between our average foreclosed asset balance in 2018 as compared to 2017 did not have a major impact on our performance in the first quarter of 2018. The amount of nonperforming assets is expected to rise over the next twelve months, due to work expected on the two lots we currently own, anticipated foreclosure of assets, and due to idle cash increases related to anticipated large borrowing inflows.

 

Non-Interest Income

 

For the three months ended March 31, 2018, we did not recognize non-interest income compared to the same period in 2017. In the first quarter of 2017, we sold a foreclosed asset and recognized a gain of $77.

 

 21 
 

 

SG&A Expenses

 

The following table displays our SG&A expenses:

 

  

For the Three Months

Ended
March 31,

 
   2018   2017 
Selling, general and administrative expenses:          
Legal and accounting  $143   $96 
Salaries and related expenses   356    254 
Board related expenses   22    29 
Advertising   17    17 
Rent and utilities   10    5 
Loan and foreclosed asset expenses   8    7 
Travel   23    15 
Other   38    25 
Total SG&A  $617   $448 

 

Legal and accounting expenses increased due to additional work performed related to the growth of the Company. Payroll increased due to our hiring of nine new employees, which was partially offset by a reduction in our CEO’s salary.

 

Impairment Loss on Foreclosed Assets

 

We owned four foreclosed assets as of March 31, 2018, compared to five foreclosed assets that we owned as of December 31, 2017. Two of the foreclosed assets are lots under construction and the remaining two have completed homes on the lots. We do not anticipate losses on the sale of foreclosed assets in the future; however this may be subject to change based on the final selling price of the foreclosed assets.

 

Loan Loss Provision

 

Our loan loss provision increased $29 to $40 during the first quarter of 2018 compared to the same period in 2017 due to an increase in loan balances and qualitative reserve percentage as a result of the change in housing values.

 

Consolidated Financial Position

 

The following is a roll forward of deferred financing costs:

 

   Three Months   Year   Three Months 
   Ended   Ended   Ended 
  

March 31,

2018

  

December 31,

2017

  

March 31,

2017

 
             
Deferred financing costs, beginning balance  $1,102   $1,014   $1,014 
Additions   29    88    10 
Deferred financing costs, ending balance  $1,131   $1,102   $1,024 
Less accumulated amortization   (864)   (816)   (667)
Deferred financing costs, net  $267   $286   $357 

 

The following is a roll forward of the accumulated amortization of deferred financing costs:

 

   Three Months   Year   Three Months 
   Ended   Ended   Ended 
  

March 31,

2018

  

December 31,

2017

  

March 31,

2017

 
             
Accumulated amortization, beginning balance  $816   $603   $603 
Additions   48    213    64 
Accumulated amortization, ending balance  $864   $816   $667 

 

 22 
 

 

Loans Receivable

 

Commercial Loans – Construction Loan Portfolio Summary

 

We anticipate that the aggregate balance of our construction loan portfolio will increase as loans near maturity, and due to new loan originations.

 

The following is a summary of our loan portfolio to builders for home construction loans as of March 31, 2018.

 

State  Number of Borrowers   Number of Loans   Value of Collateral(1)   Commitment Amount  

Gross

Amount

Outstanding

  

Loan to Value

Ratio(2)

    

Loan

Fee

 
Colorado   3    6   $3,225   $2,196   $1,244    68%     5%
Delaware   1    1    244    171    167    70%     5%
Florida   17    56    24,455    16,252    11,588    66%     5%
Georgia   7    13    9,253    6,038    4,695    65%     5%
Indiana   2    2    640    448    241    70%     5%
Michigan   5    24    6,354    4,080    2,634    64%     5%
New Jersey   3    13    4,298    2,934    1,730    68%     5%
New York   1    7    2,491    1,444    1,393    58%     5%
North Carolina   3    6    1,650    1,155    809    70%     5%
North Dakota   1    1    375    263    108    70%     5%
Ohio   1    3    2,331    1,498    658    64%     5%
Oregon   1    1    607    425    169    70%     5%
Pennsylvania   3    22    16,688    9,434    7,230    57%     5%
South Carolina   10    29    7,595    5,224    2,990    69%     5%
Tennessee   1    3    1,120    795    449    71%     5%
Utah   1    1    400    280    207    70%     5%
Virginia   4    11    3,027    2,136    647    71%     5%
Total   64(4)   199   $84,753   $54,773   $36,959    65% (3)   5%

 

(1) The value is determined by the appraised value.
   
(2) The loan to value ratio is calculated by taking the commitment amount and dividing by the appraised value.
   
(3) Represents the weighted average loan to value ratio of the loans.
   
(4) One builder borrows in multiple states.

 

The following is a summary of our loan portfolio to builders for home construction loans as of December 31, 2017:

 

State 

Number

of
Borrowers

   Number of
Loans
   Value of
Collateral (1)
   Commitment
Amount
   Amount
Outstanding
   Loan to
Value Ratio(2)
     Loan
Fee
 
Colorado   3    6   $3,224   $2,196   $925    68%     5%
Delaware   1    1    244    171    147    70%     5%
Florida   15    54    25,368    16,555    10,673    65%     5%
Georgia   7    13    8,932    5,415    3,535    61%     5%
Indiana   2    2    895    566    356    63%     5%
Michigan   4    25    7,570    4,717    2,611    62%     5%
New Jersey   2    11    3,635    2,471    1,227    68%     5%
New York   1    5    1,756    929    863