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| 8-K - Shepherd's Finance, LLC | form8-k.htm |
Shepherd’s Finance, LLC Reports Second Quarter 2018 Results
JACKSONVILLE, FL – August 14, 2018 (GLOBE NEWSWIRE) – Shepherd’s Finance, LLC (“Shepherd’s” or the “Company”) announced its operating results for the quarter and six months ended June 30, 2018.
2018 Financial Highlights to Date
| ● | Earnings Growth – Net income increased approximately $0.1 million, or 25.1%, to $0.2 million, and $0.1 million, or 38.7% to $0.5 million for the quarter and six months ended June 30, 2018, respectively, compared to the same periods of 2017. |
| ● | Interest Income Growth – Interest and fees on loans increased approximately $0.7 million, or 50.8%, to approximately $2.0 million, and $1.3 million, or 53.0%, to $3.9 million for the quarter and six months ended June 30, 2018, respectively, compared to the same periods of 2017. The growth resulted from higher average loan volume. |
| ● | Loan Growth – Loans receivable, net increased approximately $11.8 million, or 39.2%, to approximately $41.8 million as of June 30, 2018 compared to loans receivable, net of approximately $30.0 million for the year ended December 31, 2017. |
The CEO of Shepherd’s, Daniel M. Wallach, commented “During the first half of 2018 we continued to see substantial growth in demand for both construction and development loans at Shepherd’s Finance. We increased the number of loans outstanding adding 77 construction and 4 development loans, which allowed for significant increases in interest income and net income.”
Results of Operations
| ● | Net interest income increased approximately $0.3 million to $1.0 million and $0.6 million to $2.0 million for the quarter and six months ended June 30, 2018, respectively, compared compared to the same periods of 2017. The increase resulted primarily from higher weighted average outstanding loan asset balances of $42.4 million and $40.1 million for the quarter and six months ended June 30, 2018, respectively, which represent an increase in both periods of approximately $14.2 million compared to the same periods of 2017. |
| ● | Non-interest expense increased approximately $0.2 million and $0.4 million to $0.8 million and $1.4 million for the quarter and six months ended June 30, 2018, respectively, compared to the same periods of 2017. The increase in non-interest expense related primarily to an increase in legal and accounting fees as a direct result of our growth and an increase in payroll costs as we hired a number of new employees during the six months ended June 30, 2018. |
Balance Sheet Management
| ● | We had approximately $0.2 million in cash as of June 30, 2018, compared to approximately $3.5 million as of December 31, 2017. |
| ● | Loan receivables, net totaled approximately $41.8 million as of June 30, 2018, compared to approximately $30.0 million as of December 31, 2017. The increase primarily included approximately $8.7 million in commercial loans and $3.1 million in real estate development loans. |
| ● | Foreclosed assets totaled approximately $5.6 million as of June 30, 2018, compared to approximately $1.0 million as of December 31, 2017. The increase was primarily due to the reclassification of $4.1 million, consisting of $3.9 million of principal from loan receivable, net and $0.2 million of interest from accrued interest receivable to foreclosed assets on the balance sheet as of June 30, 2018. The reclassification was a result of our prior entry into a Deed in Lieu of Foreclosure Agreement with a borrower who defaulted on a loan. |
| ● | Notes payable unsecured, net totaled approximately $20.8 million as of June 30, 2018, compared to approximately $16.9 million as of December 31, 2017. A significant portion of our notes payable unsecured, net was from our public notes offering, constituting approximately $15.0 million and $13.8 million as of June 30, 2018 and December 31, 2017, respectively. We expect our notes payable unsecured balance to increase as we raise funds in our public notes offering. |
| ● | Notes payable secured, net totaled approximately $21.1 million as of June 30, 2018, compared to approximately $11.6 million as of December 31, 2017. The increase primarily resulted from an increase in our loan purchase and sale agreements of approximately $6.9 million as of June 30, 2018 compared to the same period of 2017. |
Notable 2018 Events to Date
| ● | Announcement of an Interest Rate Increase in the Subordinated Notes Program - Shepherd’s announced the following increases in interest rates for its public notes offering, effective as of June 7, 2018: |
| Maturity (Duration) | Annual Interest Rate | Annual Effective Yield (i) | Effective Yield to Maturity (ii) | |||||||||
| 12 Months | 11 | % | 11.57 | % | 11.57 | % | ||||||
| 26 Months | 11 | % | 11.57 | % | 26.78 | % | ||||||
| 42 Months | 11 | % | 11.57 | % | 46.70 | % | ||||||
| 48 Months | 11 | % | 11.57 | % | 54.96 | % | ||||||
| (i) | The Annual Effective Yield is determined by taking the Annual Interest Rate as a decimal and dividing it by 12 for a monthly rate, then taking that rate plus 1 and multiplying that by itself 11 more times, then subtracting the one back off and converting back to a percentage. For instance, for an Annual Interest Rate of 11.00%, we take .11/12 which is .00917 plus 1 which is 1.00917, and then multiply 1.00917 by itself 11 more times which yields 1.1157, then subtracting off the 1, leaving .1157, and finally converting to a percentage, which gives us an Annual Effective Yield of 11.57%. |
| (ii) | The Effective Yield to Maturity is determined by taking the Annual Interest Rate as a decimal and dividing it by 12 for a monthly rate, then taking that rate plus 1 and multiplying that by itself by (the total number of months of the investment minus one) times, then subtracting the one back off and converting back to a percentage. For instance, for a 48 month investment with an Annual Interest Rate of 11.00%, we take .11/12 which is .00917 plus 1 which is 1.00917, and then multiply 1.00917 by itself 47 more times which yields 1.5496, then subtracting off the 1, leaving .5496, and finally converting to a percentage, which gives us an Effective Yield To Maturity of 54.96%. |
About Shepherd’s Finance, LLC
Shepherd’s Finance, LLC is headquartered in Jacksonville, Florida and is focused on commercial lending to participants in the residential construction and development industry. As of June 30, 2018, Shepherd’s Finance, LLC had approximately $42.0 million in loan assets and had 245 construction loans in 17 states with 68 borrowers. For more information, please visit http://shepherdsfinance.com/.
Forward Looking Statements
This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans, or predictions of the future expressed or implied by such forward-looking statements. The Company undertakes no obligation to update these statements following the date of this press release, except as required by law. In addition, the Company, through its senior management, may make from time to time forward-looking public statements concerning the matters described herein. Such forward-looking statements are necessarily estimates reflecting the best judgment of the Company’s senior management based upon current information and involve a number of risks and uncertainties. Certain factors that could affect the accuracy of such forward-looking statements are identified in the public filings made by the Company with the Securities and Exchange Commission, and forward-looking statements contained in this press release or in other public statements of the Company or its senior management should be considered in light of those factors. This is neither an offer nor a solicitation to purchase securities.
Shepherd’s Finance, LLC
Interim Condensed Consolidated Balance Sheets
| As of | ||||||||
| (in thousands of dollars) | June 30, 2018 | December 31, 2017 | ||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 247 | $ | 3,478 | ||||
| Accrued interest receivable | 653 | 720 | ||||||
| Loans receivable, net | 41,819 | 30,043 | ||||||
| Foreclosed assets | 5,636 | 1,036 | ||||||
| Property, plant and equipment, net | 1,045 | 1,020 | ||||||
| Other assets | 176 | 58 | ||||||
| Total assets | $ | 49,576 | $ | 36,355 | ||||
| Liabilities, Redeemable Preferred Equity and Members’ Capital | ||||||||
| Liabilities | ||||||||
| Customer interest escrow | $ | 544 | $ | 935 | ||||
| Accounts payable and accrued expenses | 482 | 705 | ||||||
| Accrued interest payable | 1,654 | 1,353 | ||||||
| Notes payable secured, net of deferred financing costs | 21,058 | 11,644 | ||||||
| Notes payable unsecured, net of deferred financing costs | 20,769 | 16,904 | ||||||
| Due to preferred equity member | 31 | 31 | ||||||
| Total liabilities | 44,538 | 31,572 | ||||||
| Commitments and Contingencies (Notes 3 and 9) | ||||||||
| Redeemable Preferred Equity | ||||||||
| Series C preferred equity | 1,165 | 1,097 | ||||||
| Members’ Capital | ||||||||
| Series B preferred equity | 1,280 | 1,240 | ||||||
| Class A common equity | 2,593 | 2,446 | ||||||
| Members’ capital | 3,873 | 3,686 | ||||||
| Total liabilities, redeemable preferred equity and members’ capital | $ | 49,576 | $ | 36,355 | ||||
Shepherd’s Finance, LLC
Interim Condensed Consolidated Statements of Operations - Unaudited
For the Three and Six Months ended June 30, 2018 and 2017
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands of dollars) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Interest Income | ||||||||||||||||
| Interest and fee income on loans | $ | 2,045 | $ | 1,356 | $ | 3,872 | $ | 2,530 | ||||||||
| Interest expense: | ||||||||||||||||
| Interest related to secured borrowings | 517 | 215 | 928 | 394 | ||||||||||||
| Interest related to unsecured borrowings | 513 | 401 | 963 | 768 | ||||||||||||
| Interest expense | 1,030 | 616 | 1,891 | 1,162 | ||||||||||||
| Net interest income | 1,015 | 740 | 1,981 | 1,368 | ||||||||||||
| Less: Loan loss provision | 19 | 15 | 59 | 26 | ||||||||||||
| Net interest income after loan loss provision | 996 | 725 | 1,922 | 1,342 | ||||||||||||
| Non-Interest Income | ||||||||||||||||
| Gain from sale of foreclosed assets | – | – | – | 77 | ||||||||||||
| Total non-interest income | – | – | – | 77 | ||||||||||||
| Income | 996 | 725 | 1,922 | 1,419 | ||||||||||||
| Non-Interest Expense | ||||||||||||||||
| Selling, general and administrative | 691 | 450 | 1,308 | 898 | ||||||||||||
| Depreciation and amortization | 21 | 6 | 38 | 12 | ||||||||||||
| Impairment loss on foreclosed assets | 80 | 106 | 85 | 155 | ||||||||||||
| Total non-interest expense | 792 | 562 | 1,431 | 1,065 | ||||||||||||
| Net Income | $ | 204 | 163 | $ | 491 | $ | 354 | |||||||||
| Earned distribution to preferred equity holders | 67 | 57 | 130 | 88 | ||||||||||||
| Net income attributable to common equity holders | $ | 137 | 106 | $ | 361 | $ | 266 | |||||||||