Attached files
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| 8-K - Shepherd's Finance, LLC | form8-k.htm |
Shepherd’s Finance, LLC Reports Third Quarter 2018 Results
JACKSONVILLE, FL – November 20, 2018 (GLOBE NEWSWIRE) – Shepherd’s Finance, LLC (“Shepherd’s” or the “Company”) announced its operating results for the quarter and nine months ended September 30, 2018.
2018 Financial Highlights to Date
| ● | Loan Growth – Loans receivable, net increased approximately $12.5 million, or 41.6%, to approximately $42.5 million as of September 30, 2018 compared to approximately $30.0 million for the year ended December 31, 2017. |
| ● | Interest and Fee Income Growth – Interest and fee income on loans increased approximately $0.4 million, or 22.2%, to approximately $2.0 million, and $1.7 million, or 40.8%, to $5.9 million for the quarter and nine months ended September 30, 2018, respectively, compared to the same periods of 2017. The growth resulted from higher construction loan originations, which was offset by a loss of default rate interest income from foreclosed assets. |
| ● | Net Income – Net income decreased approximately $0.2 million, or 49.8%, to $0.2 million, and remained consistent at approximately $0.7 million for the quarter and nine months ended September 30, 2018, respectively, compared to the same periods of 2017. The decline in net income resulted from a loss of default rate interest income due to an increase in foreclosed assets and an increase in selling, general and administrative expenses due to an increase in salaries and related expenses. |
The CEO of Shepherd’s, Daniel M. Wallach, commented: “While we continued to see significant increases in loan balances, our net income in the third quarter was negatively impacted by an increase in foreclosed assets and an increase in payroll to support the our loan growth. We anticipate our foreclosed assets to decrease in the fourth quarter as we have already sold one asset in during the month of November.”
Results of Operations
| ● | Net interest income remained consistent at approximately $0.9 million for the quarter ended September 30, 2018 and increased $0.6 million to $2.8 million for the nine months ended September 30, 2018 compared to the same periods of 2017. The increase for the nine months ended September 30, 2018 was primarily from higher weighted average outstanding loan balances, which was partially offset by a loss of interest income and default rate interest due to an increase in foreclosed assets. |
| ● | Non-interest expense increased approximately $0.2 million and $0.5 million to $0.8 million and $2.2 million for the quarter and nine months ended September 30, 2018, respectively, compared to the same periods of 2017. The increase in non-interest expense related primarily to an increase in salaries and related expenses as the Company had 13 additional employees during the nine months ended September 30, 2018 compared to the same period of 2017. |
Balance Sheet Management
| ● | The Company had approximately $3.3 million in cash as of September 30, 2018, compared to approximately $3.5 million as of December 31, 2017. |
| ● | Loans receivable, net totaled approximately $42.5 million as of September 30, 2018, compared to approximately $30.0 million as of December 31, 2017. The increase related primarily to approximately $10.6 million of originations in commercial loans and $2.2 million of originations in real estate development loans. |
| ● | Foreclosed assets totaled approximately $6.3 million as of September 30, 2018, compared to approximately $1.0 million as of December 31, 2017. The increase was primarily due to the reclassification of $4.7 million, consisting of $4.5 million of principal from loans receivable, net and $0.2 million of interest from accrued interest receivable to foreclosed assets on the balance sheet as of September 30, 2018. During the nine months ended September 30, 2018, the Company recorded four deeds in lieu of foreclosure. 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. |
| ● | Notes payable unsecured, net totaled approximately $24.8 million as of September 30, 2018, compared to approximately $16.9 million as of December 31, 2017. A significant portion of the Company’s notes payable unsecured, net was from the Company’s public notes offering, constituting approximately $18.0 million and $14.1 million as of September 30, 2018 and December 31, 2017, respectively. The Company expects its notes payable unsecured balance to increase as the Company raises funds in our public notes offering. |
| ● | Notes payable secured, net totaled approximately $20.3 million as of September 30, 2018, compared to approximately $11.6 million as of December 31, 2017. The increase primarily resulted from an increase in the balances on our loan purchase and sale agreements of approximately $7.4 million as of September 30, 2018 compared to the same period of 2017. |
Notable 2018 Events to Date
| ● | Announcement of an Interest Rate Decrease in the Subordinated Notes Program - Shepherd’s announced the following decreases in interest rates for its public notes offering, effective as of November 16, 2018: |
| Maturity
(Duration) | Annual
Rate | Annual Effective Yield (i) | Effective Yield to Maturity (ii) | |||||||||
| 12 Months | 6.00 | % | 6.17 | % | 6.17 | % | ||||||
| 26 Months | 8.00 | % | 8.30 | % | 13.46 | % | ||||||
| 42 Months | 9.50 | % | 9.92 | % | 32.83 | % | ||||||
| 48 Months | 10.00 | % | 10.47 | % | 48.94 | % | ||||||
| (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 6.00%, we take .06/12 which is 0.005 plus 1 which is 1.005, and then multiply 1.005 by itself 11 more times which yields 1.0617, then subtracting off the 1, leaving 0.0617, and finally converting to a percentage, which gives us an Annual Effective Yield of 6.17%.. |
| (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 10.00%, we take .10/12 which is .00833 plus 1 which is 1.00833, and then multiply 1.00833 by itself 47 more times which yields 1.4894, then subtracting off the 1, leaving 0.4894, and finally converting to a percentage, which gives us an Effective Yield To Maturity of 48.94%. |
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 September 30, 2018, Shepherd’s Finance, LLC had approximately $42.5 million in loan assets and had 239 construction and development loans in 16 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) | 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 | ||||||||
| 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 | ||||
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 | |||||||||