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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 September 30, 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.)

 

13241 Bartram Park Blvd., Suite 2401, Jacksonville, Florida 32258

(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 website, 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 September 30, 2018 (Unaudited) and December 31, 2017 4
   
Interim Condensed Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended September 30, 2018 and 2017 5
   
Interim Condensed Consolidated Statement of Changes in Members’ Capital (Unaudited) for the Nine Months Ended September 30, 2018 6
   
Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 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 21
   
Item 3. Quantitative and Qualitative Disclosure About Market Risk 40
   
Item 4. Controls and Procedures 40
   
PART II. OTHER INFORMATION 40
   
Item 1. Legal Proceedings 40
   
Item 1A. Risk Factors 40
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
   
Item 3. Defaults upon Senior Securities 42
   
Item 4. Mine Safety Disclosures 42
   
Item 5. Other Information 42
   
Item 6. Exhibits 43

 

 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)  September 30,
2018
   December 31,
2017
 
   (Unaudited)     
Assets          
Cash and cash equivalents  $3,345   $3,478 
Accrued interest receivable   620    720 
Loans receivable, net   42,541    30,043 
Foreclosed assets   6,323    1,036 
Property, plant and equipment, net   1,023    1,020 
Other assets   274    58 
           
Total assets  $54,126   $36,355 
           
Liabilities, Redeemable Preferred Equity and Members’ Capital          
           
Liabilities          
           
Customer interest escrow  $877   $935 
Accounts payable and accrued expenses   863    705 
Accrued interest payable   1,867    1,353 
Notes payable secured, net of deferred financing costs   20,338    11,644 
Notes payable unsecured, net of deferred financing costs   24,847    16,904 
Due to preferred equity member   32    31 
           
Total liabilities   48,824    31,572 
           
Commitments and Contingencies (Notes 3 and 9)          
           
Redeemable Preferred Equity          
           
Series C preferred equity   1,426    1,097 
           
Members’ Capital          
           
Series B preferred equity   1,320    1,240 
Class A common equity   2,556    2,446 
Members’ capital   3,876    3,686 
           
Total liabilities, redeemable preferred equity and members’ capital  $54,126   $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 and Nine Months ended September 30, 2018 and 2017

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
(in thousands of dollars)  2018   2017   2018   2017 
Interest Income                    
Interest and fee income on loans  $2,045   $1,673   $5,917   $4,203 
Interest expense:                    
Interest related to secured borrowings   552    342    1,480    718 
Interest related to unsecured borrowings   587    424    1,550    1,192 
Interest expense   1,139    748    3,030    1,910 
                     
Net interest income   906    925    2,887    2,293 
Less: Loan loss provision   2    8    61    34 
                     
Net interest income after loan loss provision   904    917    2,826    2,259 
                     
Non-Interest Income                    
Gain from sale of foreclosed assets   -    -    -    77 
Gain from foreclosure of assets   20    -    20    - 
                     
Total non-interest expense/income   20    -    20    77 
                     
Income   924    917    2,846    2,336 
                     
Non-Interest Expense                    
Selling, general and administrative   680    525    1,988    1,423 
Depreciation and amortization   23    12    61    24 
Loss from sale of foreclosed assets   3    -    3    - 
Loss from foreclosure of assets   47    -    47    - 
Impairment loss on foreclosed assets   4    47    89    202 
                     
Total non-interest expense   757    584    2,188    1,649 
                     
Net Income  $167    333   $658   $687 
                     
Earned distribution to preferred equity holders   69    61    199    149 
                     
Net income attributable to common equity holders  $98    272   $459   $538 

 

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 Nine Months Ended September 30, 2018

 

(in thousands of dollars) 

Nine Months

Ended

September 30,
2018

 
     
Members’ capital, beginning balance  $3,686 
Net income   658 
Contributions from members (preferred)   80 
Earned distributions to preferred equity holders   (199)
Distributions to common equity holders   (349)
Members’ capital, ending balance  $3,876 

 

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

 

 6 
 

 

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Cash Flows - Unaudited

For the Nine Months Ended September 30, 2018 and 2017

 

  

Nine Months Ended

September 30,

 
(in thousands of dollars)  2018   2017 
         
Cash flows from operations          
Net income  $658   $687 
Adjustments to reconcile net income to net cash provided by operating activities          
Amortization of deferred financing costs   142    165 
Provision for loan losses   61    34 
Net loan origination fees deferred   375    120 
Change in deferred origination expense   (31)   (26)
Impairment of foreclosed assets   89    202 
Depreciation and amortization   61    24 
Gain on foreclosed assets   (20)   - 
Loss on foreclosed assets   47    - 
Gain from sale of foreclosed assets   -    (77)
Loss from sale of foreclosed assets   3    - 
Net change in operating assets and liabilities          
Other assets   (216)   (67)
Accrued interest receivable   (143)   (155)
Customer interest escrow   (58)   39 
Accounts payable and accrued expenses   672    217 
           
Net cash provided by operating activities   1,640    1,163 
           
Cash flows from investing activities          
Loan originations and principal collections, net   (18,072)   (9,663)
Proceeds from sale of loans   198    - 
Investment in foreclosed assets   (1,039)   (296)
Proceeds from sale of foreclosed assets   370    1,890 
Property plant and equipment additions   (64)   (698)
           
Net cash used in investing activities   (18,607)   (8,767)
           
Cash flows from financing activities          
Contributions from redeemable preferred equity   1,400    1,004 
Contributions from members (preferred)   80    70 
Distributions to redeemable preferred equity   (1,176)   - 
Distributions to preferred equity holders   (93)   (88)
Distributions to common equity holders   (349)   (189)
Proceeds from secured note payable   19,181    11,760 
Repayments of secured note payable   (9,905)   (6,914)
Proceeds from unsecured notes payable   12,149    9,412 
Redemptions/repayments of unsecured notes payable   (4,258)   (6,481)
Deferred financing costs paid   (195)   (65)
           
Net cash provided by financing activities   16,834    8,509 
           
Net increase (decrease) in cash and cash equivalents   (133)   905 
           
Cash and cash equivalents          
Beginning of period   3,478    1,566 
End of period  $3,345   $2,471 
           
Supplemental disclosure of cash flow information          
Cash paid for interest  $2,466   $1,616 
           
Non-cash investing and financing activities          
Earned but not paid distribution of preferred equity holders  $105   $29 
Foreclosure of assets  $4,494   $- 
Accrued interest reduction due to foreclosure  $243   $- 
Secured line of credit reduction due to construction loan purchase  $477    - 

 

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

 

Shepherd’s Finance, LLC and subsidiary (the “Company”) was originally formed as a Pennsylvania limited liability company on May 10, 2007. The Company is the sole member of a consolidating subsidiary, 84 REPA, LLC. The Company operates pursuant to its Second Amended and Restated Operating Agreement by and among Daniel M. Wallach and the other members of the Company effective as of March 16, 2017.

 

As of September 30, 2018, the Company extends commercial loans to residential homebuilders (in 16 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) interim condensed consolidated balance sheet as of December 31, 2017, 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, 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 accounting policies followed by the Company are set forth in Note 2 – Summary of Significant Accounting Policies in the 2017 financial statements.

 

Accounting Standards Adopted in the Period

 

Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).” The Financial Accounting Standards Board (“FASB”) issued ASU 2016-01 in January 2016, and it 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 Accounting Standards Codification (“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.

 

On January 1, 2018, the Company implemented ASU 2014-09, codified at ASC Topic 606. The Company adopted ASC Topic 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 Topic 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 Topic 606. All of the Company’s revenue that is subject to ASC Topic 606 would be included in non-interest income; however, not all non-interest income is subject to ASC Topic 606. The Company had no contract liabilities or unsatisfied performance obligations with customers as of September 30, 2018.

 

Reclassifications

 

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

 

2. Fair Value

 

The Company had no financial instruments measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017.

 

The following tables present the balances of non-financial instruments measured at fair value on a non-recurring basis as of September 30, 2018 and December 31, 2017.

 

September 30, 2018

 

   Carrying   Estimated  

Quoted Prices

in Active

Markets for

Identical

Assets

  

Significant

Other

Observable

Inputs

  

Significant

Unobservable

Inputs

 
   Amount   Fair Value   Level 1   Level 2   Level 3 
                     
Foreclosed assets  $6,323   $6,323   $   -   $      -   $6,323 
Impaired Loans   1,000    997    -    -    997 

 

 9 
 

 

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  
                                         
Foreclosed assets   $ 1,036     $ 1,036     $             $               $ 1,036  

 

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:

 

September 30, 2018

 

                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   $ 3,345     $ 3,345     $ 3,345     $            $  
Loans receivable, net     42,541       42,541                   42,541  
Accrued interest receivable     620       620                   620  
Financial Liabilities:                                        
Customer interest escrow     877       877                   877  
Notes payable secured, net     20,338       20,338                   20,338  
Notes payable unsecured, net     24,847       24,847                   24,847  
Accrued interest payable     1,867       1,867                   1,867  

 

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  

 

 10 
 

 

3. Financing Receivables

 

Financing receivables are comprised of the following as of September 30, 2018 and December 31, 2017:

 

    September 30,
2018
    December 31,
2017
 
             
Loans receivable, gross   $ 45,214     $ 32,375  
Less: Deferred loan fees     (1,222 )     (847 )
Less: Deposits     (1,434 )     (1,497 )
Plus: Deferred origination expense     141       109  
Less: Allowance for loan losses     (158 )     (97 )
                 
Loans receivable, net   $ 42,541     $ 30,043  

 

Commercial Construction and Development Loans

 

Commercial Loans – Construction Loan Portfolio Summary

 

As of September 30, 2018, the Company’s portfolio consisted of 232 commercial construction and seven development loans with 68 borrowers within 16 states.

 

The following is a summary of the loan portfolio to builders for home construction loans as of September 30, 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     16       68       232     $ 91,989     $ 60,943     $ 40,179       66 %(3)     5 %
2017     16       52       168       75,931       47,087       29,564       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 September 30, 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       7     $ 7,046     $ 6,434     $ 5,035       71 %   $ 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. A portion of this collateral is $1,320 and $1,240 as of September 30, 2018 and December 31, 2017, respectively, 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 recover the loan balance. In addition, a portion 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”.

 

 11 
 

 

Credit Quality Information

 

The following tables present credit-related information at the “class” level in accordance with FASB ASC 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.

 

Gross finance receivables – By risk rating:

 

    September 30,
2018
    December 31,
2017
 
             
Pass   $ 40,103     $ 25,656  
Special mention     4,111       6,719  
Classified – accruing     -       -  
Classified – nonaccrual     1,000       -  
Total   $ 45,214     $ 32,375  

 

Gross finance receivables – Method of impairment calculation:

 

    September 30,
2018
    December 31,
2017
 
             
Performing loans evaluated individually   $ 17,193     $ 14,992  
Performing loans evaluated collectively     27,021       17,383  
Non-performing loans with a specific reserve     -       -  
Non-performing loans without a specific reserve     1,000       -  
Total   $ 45,214     $ 32,375  

 

As September 30, 2018 and December 31, 2017, there were no loans acquired with deteriorated credit quality.

 

Impaired Loans

 

The following is a summary of our impaired nonaccrual commercial construction loans as of September 30, 2018 and December 31, 2017.

 

    September 30,
2018
    December 31,
2017
 
             
Unpaid principal balance (contractual obligation from customer)   $ 1,000     $         -  
Charge-offs and payments applied     -       -  
Gross value before related allowance     1,000       -  
Related allowance     (3 )     -  
Value after allowance   $ 997     $ -  

 

 12 
 

 

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:

 

   September 30, 2018  December 31, 2017
      Percent of      Percent of 
   Borrower  Loan   Borrower  Loan 
   City  Commitments   City  Commitments 
               
Highest concentration risk  Pittsburgh, PA   25%  Pittsburgh, PA   22%
Second highest concentration risk  Orlando, FL   10%  Sarasota, FL   7%
Third highest concentration risk  Cape Coral, FL   3%  Savannah, GA   5%

 

4. Foreclosed Assets

 

The following table is a roll forward of foreclosed assets:

 

  

Nine Months

Ended
September 30,
2018

  

Year

Ended
December 31,
2017

  

Nine Months

Ended
September 30,
2017

 
             
Beginning balance  $1,036   $2,798   $2,798 
Additions from loans   4,737    -    - 
Additions for construction/development   1,039    317    296 
Sale proceeds   (370)   (1,890)   (1,890)
Gain on sale   -    77    77 
Loss on sale   (3)   -    - 
Gain on foreclosure   20    -    - 
Loss on foreclosure   (47)   -    - 
Impairment loss on foreclosed assets   (89)   (266)   (202)
Ending balance  $6,323   $1,036   $1,079 

 

During the nine months ended September 30, 2018 we recorded four deed in lieu of foreclosures. Three of the four were with a certain borrower with a completed home and two lots. The fourth was with a borrower who defaulted on a loan by failing to make interest payments.

 

During the first nine of months of 2018, we reclassified $4,737 to foreclosed assets, $4,494 of principal from loans receivable, net; and $243 from accrued interest receivable. We sold one of our foreclosed assets with sales proceeds of $370 and a loss on the sale of $3.

 

During the quarter ended September 30, 2018, we reclassified $597 to foreclosed assets and recognized a gain on foreclosure of $20 on the two lots and a loss on foreclosure of $47 on the completed home.

 

 13 
 

 

5. Borrowings

 

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

 

    Priority Rank     September 30,
2018
    December 31,
2017
 
Borrowing Source                        
Borrowings secured by loans     1     $ 16,931     $ 11,644  
Other secured borrowings     2       3,511       -  
Unsecured line of credit (senior)     3       500       -  
Other unsecured borrowings (senior subordinated)     4       1,008       279  
Unsecured Notes through our public offering, gross     5       17,975       14,121  
Other unsecured borrowings (subordinated)     5       5,008       2,617  
Other unsecured borrowings (junior subordinated)     6       590       173  
Total           $ 45,523     $ 28,834  

 

The following table shows the maturity of outstanding borrowings as of September 30, 2018:

 

Year Maturing  

Total

Amount

Maturing

    Public
Offering
    Other
Unsecured
    Secured
Borrowings
 
                         
2018   $ 18,254     $ 1,259     $ 60     $ 16,935  
2019     12,888       7,386       2,628       2,874  
2020     6,723       3,436       3,272       15  
2021     3,789       3,773       -       16  
2022 and thereafter     3,869       2,121       1,146       602  
Total   $ 45,523     $ 17,975     $ 7,106     $ 20,442  

 

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.

 

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, then 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 nine 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.

 

 14 
 

 

Lines of Credit

 

Amendments to the Lines of Credit with Mr. Wallach and His Affiliates

 

During June 2018, we entered into a First Amendment to the line of credit with our Chief Executive Officer and his wife (the “Wallach LOC”) which modified the interest rate on the Wallach LOC to generally equal the prime rate plus 3%. The interest rate for the Wallach LOC was 8.0% and 4.4% as of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we borrowed $0 against the Wallach LOC. Interest was $10 and $20 for the quarter and nine months ended September 30, 2018, respectively. As of September 30, 2018, $1,250 remained available on the Wallach LOC.

 

During June 2018, we entered into a First Amendment to the line of credit with the 2007 Daniel M. Wallach Legacy Trust, which is our CEO’s trust (the “Wallach Trust LOC”) which modified the interest rate on the Wallach Trust LOC to generally equal the prime rate plus 3%. The interest rate for this borrowing was 8.0% and 4.4% as of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we borrowed $0 against the Wallach Trust LOC. As of September 30, 2018, $250 remained available on the Wallach Trust LOC.

 

Line of Credit (Shuman)

 

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 2019, unless extended by Shuman for one or more additional 12-month periods.

 

The Shuman LOC was fully borrowed as of September 30, 2018. Interest expense was $33 and $100 for the quarter and nine months ended September 30, 2018, respectively.

 

Modification to the Line of Credit with Paul Swanson

 

During April 2018, we entered into a Master Loan Modification Agreement (the “Swanson Modification Agreement”) with Paul Swanson which modified the line of credit agreement between us and Mr. Swanson dated October 23, 2017. Pursuant to the Swanson Modification Agreement, Mr. Swanson provides us with a revolving line of credit (the “Swanson LOC”) with the following terms:

 

  Principal not to exceed $7,000;
  Secured with assignments of certain notes and mortgages;
  Cost of funds to us of 9%; and
  Automatic renewal in September 2018 and extended for 15 months.

 

The Swanson LOC was fully borrowed as of September 30, 2018. Interest expense was $180 and $445 for the quarter and nine months ended September 30, 2018, respectively.

 

Line of Credit (Myrick)

 

During June 2018, we entered into a line of credit agreement (the “Myrick LOC Agreement”) with our Executive Vice President (“EVP”) of Sales, William Myrick. Pursuant to the Myrick LOC Agreement, Mr. Myrick provides us with a line of credit (the “Myrick LOC”) with the following terms:

 

  Principal not to exceed $1,000;
  Secured by a lien against all of our assets;
  Cost of funds to us of prime rate plus 3%; and
  Due upon demand.

 

As of September 30, 2018, $1,000 remained available on the Myrick LOC. Interest expense was $14 and $17 for the quarter and nine months ended September 30, 2018, respectively.

 

 15 
 

 

London Financial

 

During September 2018, we entered into a Master Loan Agreement (“London Loan”) with London Financial Company, LLC (“London Financial”) with the following terms:

 

  Principal of $3,250;
  Secured by collateral of land and improvements by a certain foreclosed asset;
  Cost of funds to us of 12%; and
  Due in September 2019.

 

As of September 30, 2018, $2,860 was borrowed against the London Loan with an additional $390 that remained available upon completion of additional work performed of the foreclosed asset. Interest expense was $3 for the quarter and nine months ended September 30, 2018.

 

Mortgage Payable

 

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

 

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

 

The principal amount of the Company’s commercial mortgage was $651 as of September 30, 2018. Interest expense was $9 and $27 for the quarter and nine months ended September 30, 2018, respectively.

 

Summary

 

Borrowings secured by loan assets are summarized below:

 

    September 30, 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.   $ 7,467     $ 4,510     $ 7,483     $ 4,089  
S.K. Funding     9,366       6,716       9,128       4,134  
                                 
Lender                                
Shuman     1,575       1,325       1,747       1,325  
Paul Swanson     5,965       4,380       2,518       2,096  
                                 
Total   $ 24,373     $ 16,931     $ 20,876     $ 11,644  

 

 16 
 

 

Unsecured Borrowings

 

Other Unsecured Debts*

 

Our other unsecured debts are detailed below:

 

          Principal Amount Outstanding
as of
 
Loan   Maturity
Date
  Interest
Rate (1)
    September 30, 2018     December 31,
2017
 
Unsecured Note with Seven Kings Holdings, Inc.   February 2019 (2)     9.5 %    $ 500      $ 500  
Unsecured Line of Credit from Builder Finance, Inc.   January 2019     10.0 %     500       -  
Unsecured Line of Credit from Paul Swanson   April 2020(3)     9.0 %     2,621       1,904  
Subordinated Promissory Note   September 2019(4)     9.5 %     1,125       -  
Subordinated Promissory Note   December 2019     10.5 %     113       113  
Subordinated Promissory Note   April 2020     10.0 %     100       100  
Subordinated Promissory Note   October 2019     10.0  %     150       -  
Senior Subordinated Promissory Note   March 2022(4)     10.0 %     400       -  
Senior Subordinated Promissory Note   March 2022(5)     1.0 %     728       -  
Junior Subordinated Promissory Note   March 2022(5)     22.5 %     417       -  
Senior Subordinated Promissory Note   October 2020(6)     1.0 %     279       279  
Junior Subordinated Promissory Note   October 2020(6)     20.0 %     173       173  
                $ 7,106     $ 3,069  

 

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

 

(2) Due six months after lender gives notice.

 

(3) Automatically renewed in September 2018 and extended for 15 months.

 

(4) Due on the earlier of six months after lender gives notice or September 2019.

 

(4) Lender may require us to repay $20 of principal and all unpaid interest with 10 days’ notice.

 

(5) These notes were issued to the same holder and, when calculated together, yield a blended return of 11% per annum.

 

(6) These notes were issued to the same holder and, when calculated together, yield a blended return of 10% per annum.

 

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

 

The effective interest rate on the notes (“Notes”) offered pursuant to the Notes Program at September 30, 2018 and December 31, 2017 was 9.83% 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 the Notes Program:

 

    Nine Months
Ended
September 30,
2018
    Year
Ended
December 31,
2017
    Nine Months
Ended
September 30,
2017
 
                   
Gross Notes outstanding, beginning of period   $ 14,121     $ 11,221     $ 11,221  
Notes issued     6,357       8,375       8,299  
Note repayments / redemptions     (2,503 )     (5,475 )     (5,381 )
                         
Gross Notes outstanding, end of period   $ 17,975     $ 14,121     $ 14,139  
                         
Less deferred financing costs, net     233       286       311  
                         
Notes outstanding, net   $ 17,742     $ 13,835     $ 13,828  

 

 17 
 

 

The following is a roll forward of deferred financing costs:

 

    Nine Months     Year     Nine Months  
    Ended     Ended     Ended  
    September 30,
2018
    December 31,
2017
    September 30,
2017
 
                   
Deferred financing costs, beginning balance   $ 1,102     $ 1,014     $ 1,014  
Additions     89       88       65  
Deferred financing costs, ending balance   $ 1,191     $ 1,102     $ 1,079  
Less accumulated amortization     (958 )     (816 )     (768 )
Deferred financing costs, net   $ 233     $ 286     $ 311  

 

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

 

    Nine Months     Year     Nine Months  
    Ended     Ended     Ended  
    September 30,
2018
    December 31,
2017
    September 30,
2017
 
                   
Accumulated amortization, beginning balance   $ 816     $ 603     $ 603  
Additions     142       213       165  
Accumulated amortization, ending balance   $ 958     $ 816     $ 768  

 

6. Redeemable Preferred Equity

 

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

 

   

Nine Months

Ended

September 30,
2018

   

Year

Ended

December 31,
2017

   

Nine Months

Ended

September 30,
2017

 
                   
Beginning balance   $ 1,097     $     $  
Additions from new investment     1,400       1,004       1,004  
Redemptions     (1,176 )     -       -  
Additions from reinvestment     105       93       61  
                         
Ending balance   $ 1,426     $ 1,097     $ 1,065  

 

On July 31, 2018, we redeemed all of our outstanding Series C Preferred Units, which were held by two investors. On August 1, 2018, we sold 12 of our Preferred Units to Daniel M. Wallach, our CEO and Chairman of our board of managers, and his wife, Joyce S. Wallach, for the total price of $1,200. In addition, on August 30, 2018, we sold two of our Series C Preferred Units to two investors, for the total price of $200,000.

 

The following table shows the earliest redemption options for investors in our Series C Preferred Units as of September 30, 2018:

 

Year of Available Redemption  Total Amount
Redeemable
 
     
2024  $1,426 
      
Total  $1,426 

 

 18 
 

 

7. Members’ Capital

 

There are currently two classes of equity units outstanding that the Company classifies as Members’ Capital: Class A common units (“Class A Common Units”) and Series B cumulative preferred units (“Series B Preferred Units”). As of September 30, 2018, 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 September 30, 2018 and December 31, 2017.

 

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

 

The Series B Preferred Units were issued to the Hoskins Group through a reduction in a loan issued by the Hoskins Group to the Company. In December 2015, the Hoskins Group agreed to purchase 0.1 Series B Preferred Units for $10 at each closing of a lot to a third party in the Hamlet’s and Tuscany subdivision. As of September 30, 2018, the Hoskins Group owns a total of 13.2 Series B Preferred Units, which were issued for a total of $1,320.

 

8. Related Party Transactions

 

As of September 30, 2018, each of the Company’s two independent managers own 1% of our Class A Common Units. As of September 30, 2018, our CFO, EVP of Operations, and EVP of Sales each own 2%, 2%, and 15.3% of our Class A Common Units, respectively.

 

As of September 30, 2018, the Company had $1,250, $250 and $1,000 available to borrow against the Wallach LOC, Wallach Trust LOC and Myrick LOC, respectively. A more detailed description is included in Note 5 above. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

 

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

 

On August 1, 2018, we sold 12 of our Preferred Units to Daniel M. Wallach, our CEO and Chairman of our board of managers, and his wife, Joyce S. Wallach, for the total price of $1,200.

 

In September 2018, we sold three loans to our CEO at their gross loans receivable balance of $281, and as such, no gain or loss was recognized on the sale. Cash received was $104 and the remaining purchase price was funded through a $177 reduction in the principal balance of the line of credit extended by the CEO to the Company. The Company continues to service these loans. As of September 30, 2018, we had $16 in builder deposits related to these loans, and the principal balance being serviced was $281.

 

Also, in September 2018, we sold two loans to our EVP of Sales at their gross loans receivable balance of $394, and as such, no gain or loss was recognized on the sale. Cash received was $94 and the remaining purchase price was funded through a $300 reduction in the principal balance of the line of credit extended by the EVP of Sales to the Company. The Company continues to service these loans. As of September 30, 2018, we had $6 in builder deposits related to these loans, and the principal balance being serviced was $394.

 

9. Commitments and Contingencies

 

Unfunded commitments to extend credit, which have similar collateral, credit risk, and market risk to our outstanding loans, were $22,163 and $19,312 at September 30, 2018 and December 31, 2017, respectively.

 

 19 
 

 

10. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

 

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

 

   Quarter
3
   Quarter
2
  

Quarter

1

  

Quarter

4

  

Quarter

3

  

Quarter

2

  

Quarter

1

 
   2018   2018   2018   2017   2017   2017   2017 
                             
Net Interest Income after Loan Loss Provision  $904   $996   $926   $802   $917   $725   $617 
Non-Interest Income   20    -    -                77 
SG&A expense   680    691    617    643    537    456    454 
Depreciation and Amortization   23    21    17                6 
Loss from sale of foreclosed assets   3    -    -    -    -    -    - 
Non-Interest Expense   47    -    -    -    -    -    - 
Impairment loss on foreclosed assets   4    80    5    64    47    106    49 
Net Income  $167   $204   $287   $95   $333   $163   $191 

 

11. Non-Interest expense detail

 

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

 

    For the Nine Months Ended
September 30,
 
    2018     2017  
Selling, general and administrative expenses                
Legal and accounting   $ 277     $ 164  
Salaries and related expenses     1,306       976  
Board related expenses     54       82  
Advertising     58       42  
Rent and utilities     38       22  
Loan and foreclosed asset expenses     80       30  
Travel     73       45  
Other     102       62  
                 
Total SG&A   $ 1,988     $  1,423  

 

12. Subsequent Events

 

Management of the Company has evaluated subsequent events through November 8, 2018, the date these interim condensed consolidated financial statements were issued.

 

On October 31, 2018, we sold four of our Series C Preferred Units to an investor for the total price of $400. 

 

 20 
 

 

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

 

Net income for the third quarter and first nine months of 2018 decreased by $166 and $29 when compared to the same periods of 2017, respectively. The decrease in net income was mainly due to a loss of interest income of $138 and $280 for the third quarter and first nine months of 2018; respectively, related to an increase in our foreclosed assets. In addition, our selling, general and administrative (“SG&A”) expenses increased $80 and $330 for the third quarter and first nine months of 2018, respectively.

 

For the nine months ended September 30, 2018, we did not receive default rate interest on non-performing loans. For the quarter and nine months ended September 30, 2017 interest income included $104 of default rate interest on certain loans.

 

Management made the decision to add additional employees to support the growth of the Company, which primarily includes our Chief Financial Officer, Executive Vice President of Sales, and Vice President of Administration, and resulted in an increase in our payroll expenses. As of September 30, 2018, we had a total of 20 employees compared to seven as of September 30, 2017.

 

We had $45,215 and $30,043 in loan assets as of September 30, 2018 and December 31, 2017, respectively. In addition, we had 232 construction loans in 16 states with 68 borrowers and seven development loans in three states with three borrowers.

 

Cash provided by operations increased $477 for the nine months ended September 30, 2018 as compared to the same period of 2017. Our increase in operating cash flow was due primarily to higher loan originations.

 

Originations increased by $6,802 or 114% to $14,572 for the quarter ended September 30, 2018 and by $18,675 or 62% to $48,772 for the nine months ended September 30, 2018 compared to the same periods of 2017.

 

Critical Accounting Estimates

 

To assist in evaluating our interim condensed 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 as of and 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.

 

    September 30, 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%**   $ (1,671 )

 

* 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 $37,770.

 

 21 
 

 

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).

 

    September 30, 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%   $ (2,213 )

 

* 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.

 

** Assumes a book amount of the foreclosed assets of $6,323.

 

Consolidated Results of Operations

 

Key financial and operating data for the three and nine months ended September 30, 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 interim condensed consolidated financial statements, including the related notes and the other information contained in this document.

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Interest Income                                
Interest and fee income on loans   $ 2,045     $ 1,673     $ 5,917     $ 4,203  
Interest expense:                                
Interest related to secured borrowings     552       342       1,480       718  
Interest related to unsecured borrowings     587       424       1,550       1,192  
Interest expense     1,139       748       3,030       1,910  
                                 
Net interest income     906       925       2,887       2,293  
Less: Loan loss provision     2       8       61       34  
                                 
Net interest income after loan loss provision     904       917       2,826       2,259  
                                 
Non-Interest Income                                
Gain from sale of foreclosed assets     -       -       -       77  
Gain from foreclosure of assets     20       -       20       -  
                                 
Total non-interest expense/income     20       -       20       77  
                                 
Income     924       917       2,846       2,336  
                                 
Non-Interest Expense                                
Selling, general and administrative     680       525       1,988       1,423  
Depreciation and amortization     23       12       61       24  
Loss from sale of foreclosed assets     3       -       3       -  
Loss from foreclosure of assets     47       -       47       -  
Impairment loss on foreclosed assets     4       47       89       202  
                                 
Total non-interest expense     757       584       2,188       1,649  
                                 
Net Income   $ 167       333     $ 658     $ 687  
                                 
Earned distribution to preferred equity holders     69       61       199       149  
                                 
Net income attributable to common equity holders   $ 98       272     $ 459     $ 538  

 

 22 
 

 

Interest Spread

 

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

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2018     2017     2018     2017  
Interest Income               *               *               *               *
Interest income on loans   $ 1,400       13 %   $ 1,198       15 %   $ 4,108       14 %   $ 2,829       14 %
Fee income on loans     645       6 %     475       6 %     1,809       6 %     1,374       6 %
Interest and fee income on loans     2,045       19 %     1,673       21 %     5,917       20 %     4,203       20 %
Interest expense unsecured     540       5 %     380       5 %     1,408       5 %     1,027       5 %
Interest expense secured     552       5 %     324