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.

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