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Shepherd’s Finance, LLC Reports Third Quarter 2018 Results

JACKSONVILLE, FL , Nov. 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.

/EIN News/ -- 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
Interest
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  

Contact: 

Catherine Loftin 
                    Shepherd’s Finance, LLC 
                    13241 Bartram Park Blvd, STE 2401 | Jacksonville, FL, 32258 
                    Direct (904) 518-3422 | Office (302) 752-2688 
                    catherineloftin@shepherdsfinance.com | www.shepherdsfinance.com


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