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, ~~2020~~2021

~~[ ]~~ ☐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 333-224557

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.~~Boulevard, Suite 2401, Jacksonville, Florida32258

(Address of principal executive offices)

(~~302)~~ 302)752-2688

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
None		None		None

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 every Interactive Data File required to be submitted 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 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	~~[X]~~☒	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. ~~[X]~~☒

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, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020	4

Interim Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5

Interim Condensed Consolidated ~~Statements~~Statement of Changes in Members’ Capital (Unaudited) for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020 and for the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6

Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	7

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918

Item 3. Quantitative and Qualitative Disclosure About Market Risk	3835

Item 4. Controls and Procedures	3835

PART II. OTHER INFORMATION	3835

Item 1. Legal Proceedings	3835

Item 1A. Risk Factors	3835

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3935

Item 3. Defaults upon Senior Securities	3936

Item 4. Mine Safety Disclosures	3936

Item 5. Other Information	4036

Item 6. Exhibits	4036

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. These risks and uncertainties include, but are not limited to: uncertainties relating to the effects of COVID-19; the length of the COVID-19 pandemic and severity of such outbreak nationally and across the globe; the pace of recovery following the COVID-19 pandemic; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the rate and the pace of economic recovery following economic downturns; and those other risks described in other risk factors as outlined in our Registration Statement on Form S-1, as amended, and our Annual Report on Form 10-K. 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. For further information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of the documents we file from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and subsequent Quarterly Reports on Form 10-Q. When considering forward-looking statements, you should keep these risk factors, as well as the other cautionary statements in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 in mind. You should not place undue reliance on any forward-looking statement. We are not obligated to update forward-looking statements.

PART I – FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

Shepherd’s Finance, LLC

Interim Condensed Consolidated Balance Sheets


(in thousands of dollars)	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
	(Unaudited)					(Unaudited)
Assets
Cash and cash equivalents	$	3,150	$	1,883	$	1,452	$	4,749
Accrued interest receivable		748		1,031		483		601
Loans receivable, net		47,984		55,369		47,457		46,405
Real estate investments		1,154		-		1,258		1,181
Foreclosed assets		3,690		4,916
Foreclosed assets, net						2,747		4,449
Premises and equipment		911		936		881		903
Other assets		462		202		992		981
Total assets	$	58,099	$	64,337	$	55,270	$	59,269

Liabilities and Members’ Capital
Customer interest escrow	$	447	$	643	$	568	$	510
Accounts payable and accrued expenses		234		466		323		289
Accrued interest payable		3,047		2,533		2,250		3,158
Notes payable secured, net of deferred financing costs		22,753		26,991		18,666		22,959
Notes payable unsecured, net of deferred financing costs		26,484		26,520		26,913		26,978
PPP Loan and EIDL Advance		371		-
PPP loan and EIDL advance						-		10
Due to preferred equity member		10		37		124		106
Total liabilities	$	53,346	$	57,190	$	48,844	$	54,010

Commitments and Contingencies (Note 10)						-

Redeemable Preferred Equity
Series C preferred equity	$	3,197	$	2,959	$	4,699	$	3,582

Members’ Capital
Series B preferred equity		1,550		1,470		1,710		1,630
Class A common equity		6		2,718		17		47
Members’ capital	$	1,556	$	4,188	$	1,727	$	1,677

Total liabilities, redeemable preferred equity and members’ capital	$	58,099	$	64,337	$	55,270	$	59,269

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Operations - Unaudited

For the Three and Nine Months ~~Ended~~ended September 30, ~~2020~~2021 and ~~2019~~2020


	Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
	September 30,				September 30,					September 30,				September 30,
(in thousands of dollars)	2020		2019		2020			2019		2021		2020		2021			2020
Interest Income
Interest and fee income on loans	$	1,909	$	2,600	$	5,841		$	7,486	$	2,063	$	1,909	$	5,785		$	5,841
Interest expense:
Interest related to secured borrowings		727		746		2,354			2,196		446		727		1,521			2,354
Interest related to unsecured borrowings		793		736		2,335			2,077		787		793		2,398			2,335
Interest expense		1,520		1,482		4,689			4,273		1,233		1,520		3,919			4,689

Net interest income		389		1,118		1,152			3,213		830		389		1,866			1,152

Less: Loan loss provision		70		3		1,665			201		83		70		342			1,665

Net interest income after loan loss provision		319		1,115		(513	)		3,012
Net interest income (loss) after loan loss provision											747		319		1,524			(513	)

Non-Interest Income
Gain on extinguishment of debt											361		-		371			-
Impairment gain on foreclosed assets											-		95		-			95
Gain on sale of foreclosed assets		135		-		138			-		64		135		165			138
Gain on foreclosure of assets		-		86		-			181
Impairment gain on foreclosed assets		95		-		95			-

Total non-interest income		230		86		233			181		425		230		536			233

Income		549		1,201		(280	)		3,193
Income (Loss)											1,172		549		2,060			(280	)

Non-Interest Expense
Selling, general and administrative		367		703		1,536			1,947		483		367		1,458			1,536
Depreciation and amortization		21		21		64			66		12		21		41			64
Loss on foreclosure of assets											-		2		-			2
Loss on sale of foreclosed assets		51		274		86			274		-		51		69			86
Loss on foreclosure of assets		2		-		2			169
Impairment loss on foreclosed assets		4		-		205			107		-		4		10			205

Total non-interest expense		445		998		1,893			2,563		495		445		1,578			1,893

Net Income	$	104	$	203	$	(2,173	)	$	630
Net Income (Loss)										$	677	$	104	$	482		$	(2,173	)

Earned distribution to preferred equity holders		104		118		322			333		262		104		512			322

Net income attributable to common equity holders	$	-	$	85	$	(2,495	)	$	297
Net Income (loss) attributable to common equity holders										$	415	$	-	$	(30	)	$	(2,495	)

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Changes in Members’ Capital - Unaudited

For the Nine and Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

For the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(in thousands of dollars)	2020			2019			2021			2020

Members’ capital, beginning balance, December 31	$	4,188		$	3,697		$	1,677		$	4,188
Net income less distributions to Series C preferred equity holders of $275 and $229		(2,448	)		401
Net income (loss) less distributions to Series C preferred equity holders of $388 and $275								94			(2,448	)
Contributions from Series B preferred equity holders		80			130			80			80
Earned distributions to Series B preferred equity holders		(47	)		(104	)		(124	)		(47	)
Distributions to common equity holders		(217	)		(166	)		-			(217	)
Members’ capital, ending balance September 30	$	1,556		$	3,958
Members’ capital, ending balance, September 30							$	1,727		$	1,556

For the Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

(in thousands of dollars)	2020			2019			2021			2020

Members’ capital, beginning balance, June 30	$	1,526		$	3,844		$	1,292		$	1,526
Net income less distributions to Series C preferred equity holders of $94 and $85		10			118
Net income less distributions to Series C preferred equity holders of $138 and $94								539			10
Contributions from Series B preferred equity holders		30			30			20			30
Earned distributions to Series B preferred equity holders		(10	)		(34	)		(124	)		(10	)
Distributions to common equity holders		-			-			-			-
Members’ capital, ending balance September 30	$	1,556		$	3,958
Members’ capital, ending balance, September 30							$	1,727		$	1,556

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Cash Flows - Unaudited

For the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020


	Nine Months Ended September 30,						Nine Months Ended September 30,
(in thousands of dollars)	2020			2019			2021			2020

Cash flows from operations
Net (loss) income	$	(2,173	)	$	630
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Net income (loss)							$	482		$	(2,173	)
Adjustments to reconcile net income (loss) to net cash used in operating activities
Amortization of deferred financing costs		112			197			122			112
Provision for loan losses		1,665			201			342			1,665
Change in loan origination fees, net		89			440			258			89
Gain on sale of foreclosed assets								(165	)		(138	)
Loss on sale of foreclosed assets								69			86
Loss on foreclosure of assets								-			2
Impairment of foreclosed assets, net								10			110
Depreciation and amortization		64			66			41			64
Impairment of foreclosed assets, net		110			107
Gain on sale of foreclosed assets, net		(138	)		(181	)
Loss on foreclosed assets		2			169
Loss on sale of foreclosed assets		86			274
Gain on extinguishment of debt								(371	)		86
Net change in operating assets and liabilities:
Other assets		(313	)		(107	)		(30	)		(313	)
Accrued interest receivable		283			(116	)		118			283
Customer interest escrow		(270	)		(125	)		(48	)		(270	)
Accrued interest payable		514			244			(908	)		514
Accounts payable and accrued expenses		(232	)		(312	)		34			(232	)

Net cash (used in) provided by operating activities		(201	)		1,487
Net cash used in operating activities								(46	)		(201	)

Cash flows from investing activities
Loan originations and principal collections, net		4,212			(8,491	)
Loan additions and principal collections, net								(1,926	)		4,212
Investment in foreclosed assets		(801	)		(608	)		(612	)		(801	)
Proceeds from sale of foreclosed assets		2,246			4,543
Premises and equipment additions		-			(4	)
Additions for construction in real estate investments								(277	)		-
Deposits from construction in real estate investments								200			-
Proceeds from the sale of foreclosed assets								2,674			2,246

Net cash provided by (used in) investing activities		5,657			(4,560	)
Net cash provided by investing activities								59			5,657

Cash flows from financing activities
Contributions from preferred equity holders		80			330
Distributions to redeemable preferred equity holders		(37	)		(30	)
Contributions from preferred B equity holders								80			80
Contributions from preferred C equity holders								800			-
Distributions to preferred equity holders								(71	)		(37	)
Distributions to common equity holders		(217	)		(166	)		-			(217	)
Proceeds from secured note payable		9,739			13,954
Repayments of secured note payable		(14,010	)		(13,137	)
Proceeds from secured notes payable								6,088			9,739
Repayments of secured notes payable								(10,696	)		(14,010	)
Proceeds from unsecured notes payable		7,391			9,570			8,975			7,391
Redemptions/repayments of unsecured notes payable		(7,369	)		(6,356	)		(8,752	)		(7,369	)
Proceeds from PPP Loan and EIDL Advance		371			-			361			371
Deferred financing costs paid		(137	)		(5	)		(95	)		(137	)

Net cash (used in) provided by financing activities		(4,189	)		4,160
Net cash used in financing activities								(3,310	)		(4,189	)

Net change in cash and cash equivalents		1,267			1,087
Net (decrease) increase in cash and cash equivalents								(3,297	)		1,267

Cash and cash equivalents
Beginning of period		1,883			1,401			4,749			1,883
End of period	$	3,150		$	2,488		$	1,452		$	3,150

Supplemental disclosure of cash flow information
Cash paid for interest	$	4,175		$	4,029		$	4,827		$	4,175

Non-cash investing and financing activities
Earned by Series B preferred equity holders and distributed to customer interest escrow							$	106		$	74
Earned by Series B preferred equity holders but not distributed to customer interest escrow	$	10		$	36		$	124		$	10
Earned by Series B preferred equity holders and distributed to customer interest escrow	$	74		$	100
Foreclosure of assets transferred from loans receivable, net	$	279		$	2,006
Earned but not paid distributions of Series C preferred equity holders	$	275		$	229		$	388		$	275
Unsecured transferred to secured notes payable	$	38		$	1,014		$	315		$	38
Construction loans repaid through the reduction of Secured LOC Principal Balance	$	-		$	410
Reclassification of deferred financing costs from other assets	$	-		$	330
Transfer of loan receivables to real estate investments	$	1,140		$	-		$	-		$	1,140
Foreclosure of assets transferred from loans receivable, net							$	274		$	279
EIDL advance forgiveness in reduction of debt							$	10		$	-

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

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,~~Shepherd’s Stable Investments, LLC. The Company operates pursuant to its Second Amended and Restated ~~Operating~~Limited Liability Company Agreement, as amended, by and among Daniel M. Wallach and the other members of the Company effective as of March 16, ~~2017.~~2017, and as subsequently amended.

~~As of September 30, 2020, the~~The Company extends commercial loans to residential homebuilders (in ~~21 states)~~22 states as of September 30, 2021) 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 September 30, 2020, which has been derived from audited consolidated financial statements, and (b)~~ unaudited interim condensed consolidated financial statements for the period ended September 30, 2021 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 8 of Regulation S-X. The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements. 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, ~~2020.~~2021. These unaudited interim condensed consolidated financial statements should be read in conjunction with the ~~2019~~2020 consolidated financial statements and notes thereto (the ~~“2019~~“2020 Financial Statements”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”). The accounting policies followed by the Company are set forth in Note 2 – Summary of Significant Accounting Policies in the ~~2019~~2020 Financial Statements.

Accounting Standards to be Adopted

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments”. The amendments in ASU 2016-13 introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. ~~ASU 2016-13 also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets.~~ Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in ASU 2016-13, along with related amendments in ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. For smaller reporting companies, the effective date for annual and interim periods is January 1, 2023. The Company is reviewing its policies and processes to ensure compliance with the requirements in ASU 2016-13.

2. Accounting Standards Adopted

FASB ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” amends the disclosure requirements of Topic 820, Fair Value Measurement, to remove disclosure of transfers between Level 1 and Level 2 of the fair value hierarchy and to include disclosure of the range and weighted average used in Level 3 fair value measurements, among other amendments. The ASU applies to all entities that are required to provide disclosures about recurring or non-recurring fair value measurements. Amendments should be applied retrospectively to all periods presented, except for certain amendments, which should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The effective date for the additional disclosures for calendar year-end public companies is January 1, 2020. ASU 2018-13 became effective for the Company on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

2. Fair Value

The Company had no financial instruments measured at fair value on a recurring basis as of September 30, ~~2020 or~~2021 and December 31, ~~2019.~~2020.

The following tables present the balances of non-financial instruments measured at fair value on a non-recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

September 30, 2020
Quoted
Prices in Active
Markets for Identical

Significant
Other Observable
Significant Unobservable
Carrying Estimated Assets Inputs Inputs
Amount Fair Value Level 1 Level 2 Level 3

Foreclosed assets $ 3,690 $ 3,690 $ - $ - $ 3,690
Impaired loans due to COVID-19, net 9,107 9,107 - - 9,107
Other impaired loans, net 1,625 1,625 - - 1,625
Total $ 14,422 $ 14,422 $ - $ - $ 14,422

December 31, 2019
Quoted Prices in Active
Markets for Identical

Significant
Other Observable
Significant Unobservable
Carrying Estimated Assets Inputs Inputs
Amount Fair Value Level 1 Level 2 Level 3

Foreclosed assets $ 4,916 $ 4,916 $ - $ - $ 4,916
Impaired assets, net 1,487 1,487 - - 1,487
Total $ 6,403 $ 6,403 $ - $ - $ 6,403

Schedule of Non-financial Instruments Measured at Fair Value on Non-recurring Basis

	September 30, 2021				Quoted Prices in Active Markets		Significant Other		Significant
			Estimated		for Identical		Observable		Unobservable
	Carrying Amount		Fair Value		Assets Level 1		Inputs Level 2		Inputs Level 3

Foreclosed assets, net	$	2,747	$	2,747	$	–	$	–	$	2,747
Impaired loans due to COVID-19, net		5,035		5,035		–		–		5,035
Other impaired loans, net		2,915		2,915		–		–		2,915
Total	$	10,697	$	10,697	$	–	$	–	$	10,697

	December 31, 2020				Quoted Prices in Active Markets		Significant Other		Significant
	Carrying Amount		Estimated Fair Value		for Identical Assets Level 1		Observable Inputs Level 2		Unobservable Inputs Level 3

Foreclosed assets	$	4,449	$	4,449	$	–	$	–	$	4,449
Impaired loans due to COVID-19, net		9,054		9,054		–		–		9,054
Other impaired loans, net		1,064		1,064		–		–		1,064
Total	$	14,567	$	14,567	$	–	$	–	$	14,567

The table below is a summary of fair value estimates for financial instruments:

September 30, 2020 December 31, 2019
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Financial Assets
Cash and cash equivalents $ 3,150 $ 3,150 $ 1,883 $ 1,883
Loans receivable, net 47,984 47,984 55,369 55,369
Accrued interest on loans 748 748 1,031 1,031
Financial Liabilities
Customer interest escrow 447 447 643 643
Notes payable secured, net 22,753 22,753 26,991 26,991
Notes payable unsecured, net 26,484 26,484 26,520 26,520
PPP Loan and EIDL Advance 371 371 - -
Accrued interest payable 3,047 3,047 2,533 2,533

Schedule of Fair Value Estimates for Financial Instruments

	September 30, 2021				December 31, 2020
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	1,452	$	1,452	$	4,749	$	4,749
Loans receivable, net		47,457		47,457		46,405		46,405
Accrued interest on loans		483		483		601		601
Financial Liabilities
Customer interest escrow		568		568		510		510
Notes payable secured, net		18,666		18,666		22,959		22,959
Notes payable unsecured, net		26,913		26,913		26,978		26,978
PPP loan and EIDL advance		-		-		10		10
Accrued interest payable		2,250		2,250		3,158		3,158

3. Financing Receivables

Financing receivables are comprised of the following as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30, 2020 December 31, 2019

Loans receivable, gross $ 51,521 $ 57,608
Less: Deferred loan fees (1,116 ) (856 )
Less: Deposits (1,400 ) (1,352 )
Plus: Deferred origination costs 375 204
Less: Allowance for loan losses (1,396 ) (235 )

Loans receivable, net $ 47,984 $ 55,369

Schedule of Financing Receivables

	September 30, 2021			December 31, 2020

Loans receivable, gross	$	51,276		$	50,449
Less: Deferred loan fees		(1,354	)		(1,092	)
Less: Deposits		(1,020	)		(1,337	)
Plus: Deferred origination costs		357			353
Less: Allowance for loan losses		(1,802	)		(1,968	)

Loans receivable, net	$	47,457		$	46,405

The allowance for loan losses atas of September 30, ~~2020~~2021 was ~~$1,396,~~$1,802, of which ~~$163~~$165 is related to loans without specific reserves. The Company recorded specific reserves for loans impaired due to impacts from COVID-19 of ~~$1,041,~~$1,483, special mention loans of ~~$120~~$60, and impaired loans not due to impacts from COVID-19 of ~~$72.~~$94. As of December 31, ~~2019,~~2020, the allowance was ~~$235,~~$1,968, of which ~~$230~~$151 is related to loans without specific reserves.

During the quarter and nine months ended September 30, ~~2020,~~2021, we incurred ~~$504~~$0 and $509 in direct charge-offs, respectively, compared to ~~$173~~$72 for the year ended December 31, ~~2019.~~2020.

Commercial Construction and Development Loans

~~Commercial Loans –~~ Construction Loan Portfolio Summary

As of September 30, 2021, the Company’s portfolio consisted of 228 commercial construction and 15 development loans with 67 borrowers in 22 states.

The following is a summary of the loan portfolio to builders for home construction loans as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

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
2020 21 67 235 $ 88,860 $ 63,928 $ 42,368 72 %⁽³⁾ 5 %
2019 21 70 241 93,211 65,273 48,611 70 %⁽³⁾ 5 %

Schedule of Commercial Loans - Construction Loan Portfolio Summary

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

2021

228

99,984

67,253

43,347

%⁽³⁾

2020

213

86,268

61,714

42,219

%⁽³⁾

⁽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, ~~2020~~2021 and December 31, ~~2019:~~2020:

Year
Number
of
States

Number of
Borrowers

Number of
Loans

Gross
Value of
Collateral⁽¹⁾
Commitment Amount⁽²⁾
Gross Amount
Outstanding

Loan to Value
Ratio⁽³⁾
Interest Spread
2020 4 5 8 $ 10,748 $ 10,608 $ 9,153 86 % 7 %
2019 4 5 9 13,007 9,866 8,997 69 % 7 %

Schedule of Commercial Loans - Real Estate Development Loan Portfolio Summary

Year

Number of
States

Number

Borrowers

Number

of
Loans

Gross Value
of
Collateral⁽¹⁾

Commitment Amount⁽²⁾

Gross Amount

Outstanding

Loan to Value

Ratio⁽³⁾

Interest Spread

2021

11,892

9,217

7,929

%⁽⁴⁾

varies

2020

11,628

10,815

8,230

%⁽⁴⁾

⁽¹⁾

The value is determined by the appraised value adjusted for remaining costs to be paid. AFor September 30, 2021 and December 31, 2020, a portion of this collateral is ~~$1,550~~$1,710 and ~~$1,470 as of September 30, 2020 and December 31, 2019,~~$1,630, 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 commitment amount does not include letters of credit and cash bonds.

⁽³⁾	The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.

⁽⁴⁾	Represents the weighted average loan to value ratio of the loans.

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 Financing~~ Receivables ~~and the Allowance for Credit Losses~~- Disclosures.” See our ~~2019~~2020 Form 10-K, as filed with the SEC, for more information.

~~Finance~~Gross finance receivables – By risk rating:

September 30, 2020 December 31, 2019

Pass $ 37,314 $ 53,542
Special mention 2,353 2,571
Classified – accruing - -
Classified – nonaccrual 11,854 1,495

Total $ 51,521 $ 57,608

Summary of Finance ~~receivables~~Receivables by Classification

	September 30, 2021		December 31, 2020

Pass	$	39,715	$	35,544
Special mention		2,033		3,089
Classified – accruing		–		–
Classified – nonaccrual		9,528		11,816

Total	$	51,276	$	50,449

Finance Receivables – Method of impairment calculation:

September 30, 2020 December 31, 2019

Performing loans evaluated individually $ 16,954 $ 26,233
Performing loans evaluated collectively 22,713 29,880
Non-performing loans without a specific reserve 4,120 1,467
Non-performing loans with a specific reserve to COVID-19 7,015 -
Non-performing loans with a specific reserve 719 28

Total evaluated collectively for loan losses $ 51,521 $ 57,608

Schedule of Finance Receivables Impairment Calculation Method

	September 30, 2021		December 31, 2020

Performing loans evaluated individually	$	17,315	$	16,412
Performing loans evaluated collectively		24,433		22,221
Non-performing loans without a specific reserve		2,759		1,518
Non-performing loans with a specific reserve due to COVID-19		6,518		9,555
Other non-performing loans with a specific reserve		251		743

Total evaluated collectively for loan losses	$	51,276	$	50,449

As of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, 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, ~~2020~~2021 and December 31, ~~2019.~~2020.

September 30, 2020 December 31, 2019

Unpaid principal balance (contractual obligation from customer) $ 11,875 $ 1,495
Charge-offs and payments applied (21 ) -
Gross value before related allowance 11,854 1,495
Related allowance (1,122 ) (8 )
Value after allowance $ 10,732 $ 1,487

~~Concentrations~~Schedule of Impaired Loans

	September 30, 2021			December 31, 2020

Unpaid principal balance (contractual obligation from customer)	$	10,037		$	11,888
Charge-offs and payments applied		(509	)		(72	)
Gross value before related allowance		9,528			11,816
Related allowance		(1,578	)		(1,698	)
Value after allowance	$	7,950		$	10,118

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable. Our concentration risks for our top three customers listed by geographic real estate market are summarized in the table below:

September 30, 2020 December 31, 2019
Percent of Percent of
Borrower Loan Borrower Loan
City Commitments City Commitments

Highest concentration risk Pittsburgh, PA 26 % Pittsburgh, PA 25 %
Second highest concentration risk Orlando, FL 13 % Orlando, FL 15 %
Third highest concentration risk Cape Coral, FL 7 % Cape Coral, FL 3 %

Schedule of Concentration Risk

September 30, 2021

December 31, 2020

Percent of

Borrower

Loan

Borrower

Loan

City

Commitments

City

Commitments

Highest concentration risk

Pittsburgh, PA

Second highest concentration risk

Orlando, FL

Third highest concentration risk

Spokane, WA

Cape Coral, FL

4. Real Estate Investment Assets

During June 2020, the Company acquired two lots from a borrower in exchange for the transfer of loans secured by those lots. The Company extinguished the principal balance for the loans on the lots in the amount of $640 and in addition, paid a $500 management fee for the development of homes on certain of the Company’s lots that were previously carried as loan receivables. The management fee was paid through reducing the principal balance on a current loan receivable with the borrower.

The following table is a roll forward of real estate investment assets:

Nine Months
Ended
September 30, 2020

Year
Ended
December 31, 2019

Nine Months
Ended
September 30, 2019

Beginning balance $ – $ – $ –
Transfers from loans 1,140 – –
Additions for construction/development 14 – –
Ending balance $ 1,154 $ – $ –

Schedule of Roll Forward of Real Estate Investment Assets

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020		Nine Months Ended September 30, 2020

Beginning balance	$	1,181		$	–	$	–
Transfers from loans		-			1,140		1,140
Additions for construction/development		277			41		14
Deposits from real estate investments	$	(200	)		-		-
Ending balance	$	1,258		$	1,181	$	1,154

5. Foreclosed Assets

The following table is a roll forward of foreclosed assets:

Nine Months
Ended
September 30,
2020

Year
Ended
December 31,
2019

Nine Months
Ended
September 30,
2019

Beginning balance $ 4,916 $ 5,973 $ 5,973
Additions from loans 279 3,352 2,006
Additions for construction/development 801 763 608
Sale proceeds (2,246 ) (4,543 ) (4,543 )
Loss on sale (86 ) (274 ) (274 )
Gain on foreclosure - 203 181
Gain on sale of foreclosed assets 138 - -
Impairment gain on foreclosed assets 68 - -
Impairment gain on foreclosed assets due to COVID-19 27 - -
Loss on foreclosure (2 ) - (169 )
Impairment loss on foreclosed assets (114 ) - (107 )
Impairment loss on foreclosed assets due to COVID-19 (91 ) (558 ) -
Ending balance $ 3,690 $ 4,916 $ 3,675

Schedule of Roll Forward of Foreclosed Assets

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Beginning balance	$	4,449		$	4,916		$	4,916
Additions from loans		274			2,118			279
Additions for construction/development		612			1,410			801
Sale proceeds		(2,674	)		(3,697	)		(2,246	)
Loss on foreclosure		-			(54	)		(2	)
Loss on sale		(69	)		(102	)		(86	)
Gain on foreclosure		-			52			-
Gain on sale		165			160			138
Impairment gain on foreclosed assets		-			-			68
Impairment gain on foreclosed assets due to COVID-19		-			-			27
Impairment loss on foreclosed assets		(10	)		(290	)		(114	)
Impairment loss on foreclosed assets due to COVID-19		-			(64	)		(91	)
Ending balance	$	2,747		$	4,449		$	3,690

6. Borrowings

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

Priority Rank September 30, 2020 December 31, 2019
Borrowing Source
Purchase and sale agreements and other secured borrowings 1 $ 22,762 $ 26,806
Secured lines of credit from affiliates 2 1 189
Unsecured line of credit (senior) 3 - 500
PPP Loan and EIDL Advance 3 371 -
Other unsecured debt (senior subordinated) 4 1,377 1,407
Unsecured Notes through our public offering, gross 5 21,319 20,308
Other unsecured debt (subordinated) 5 3,633 4,131
Other unsecured debt (junior subordinated) 6 590 590

Total $ 50,053 $ 53,931

Schedule of Borrowings

	Priority Rank		September 30, 2021		December 31, 2020
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	18,674	$	22,968
Secured line of credit from affiliates		2		–		–
Unsecured line of credit (senior)		3		500		500
PPP loan and EIDL advance		3		–		10
Other unsecured debt (senior subordinated)		4		1,053		1,800
Unsecured Notes through our public offering, gross		5		20,901		21,482
Other unsecured debt (subordinated)		5		4,401		2,747
Other unsecured debt (junior subordinated)		6		447		864

Total			$	45,976	$	50,371

The following table shows the maturity of outstanding debt as of September 30, ~~2020:~~2021:

Year Maturing
Total Amount
Maturing

Public
Offering

Other
Unsecured⁽¹⁾

Secured
Borrowings

2020 $ 25,431 $ 974 $ 2,676 $ 21,781
2021 13,257 12,073 1,168 16
2022 5,541 3,706 1,819 16
2023 1,119 824 189 106
2024 and thereafter 4,705 3,742 120 843
Total $ 50,053 $ 21,319 $ 5,972 $ 22,762

⁽¹⁾

Other Unsecured includes our PPP Loan of $361 and EIDL Advance of $10 (each described below) of which $21, $247, and $103, collectively, matures during 2020, 2021 and 2022, respectively. All or a portion of the PPP Loan may be forgiven.

Schedule of Maturities of Debt

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured		Secured Borrowings
2021	$	20,057	$	1,557	$	646	$	17,854
2022		6,812		6,259		537		16
2023		4,919		3,433		1,414		72
2024		8,595		4,881		3,587		127
2025 and thereafter		5,593		4,771		217		605
Total	$	45,976	$	20,901	$	6,401	$	18,674

Secured Borrowings

~~New~~ Lines of Credit

During September 2020, we entered into an amended line of credit agreement (the “Eppinger LOC Agreement”) with Jeffrey Eppinger. The original line of credit from Mr. Eppinger was one of the New LOC Agreements described in the 2019 Form 10-K. Pursuant to the Eppinger LOC Agreement, Mr. Eppinger will provide us with a revolving line of credit of $1,500, an increase of $500. Principal for the New LOC Agreements, as amended, will not exceed $5,500. All other terms were unchanged.

~~Lines of Credit from Affiliates~~

As of September 30, ~~2020,~~2021, the Company had borrowed $1$0 on its lines of credit from affiliates, which have a total limit of ~~$2,500.~~$2,500.

None of our lines of credit have given us notice of nonrenewal during the third quarter of 2021, and the lines will continue to automatically renew unless notice of nonrenewal is given by a lender.

Secured Deferred Financing Costs

The Company had secured deferred financing costs of ~~$9 and $5 as of~~$8 for both periods ended September 30, ~~2020~~2021 and December 31, ~~2019, respectively.~~2020.

Summary

Borrowings secured by commercial and development loan assets are summarized below:

September 30, 2020 December 31, 2019

Book Value of
Loans which Served as
Collateral

Due from Shepherd’s
Finance to Loan Purchaser or
Lender
Book Value of Loans which Served as Collateral Due from Shepherd’s Finance to Loan Purchaser or Lender
Loan Purchaser
Builder Finance, Inc. $ 8,860 $ 6,202 $ 13,711 $ 9,375
S.K. Funding, LLC 7,063 4,791 10,394 6,771

Lender
Stephen K. Shuman 1,722 1,325 1,785 1,325
Jeffrey Eppinger 3,170 1,500 1,821 1,000
Hardy Enterprises, Inc. 1,726 1,000 1,684 1,000
Gary Zentner 389 250 472 250
R. Scott Summers 1,416 847 841 628
Paul Swanson 8,304 5,862 8,377 5,824
Total $ 32,650 $ 21,777 $ 39,085 $ 26,173

Schedule of Secured Borrowings

	September 30, 2021				December 31, 2020
	Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender		Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	4,659	$	3,616	$	7,981	$	5,919
S.K. Funding, LLC		9,273		5,500		4,551		3,898

Lender
Shuman		1,069		125		1,916		1,325
Jeff Eppinger		1,391		200		2,206		1,500
Hardy Enterprises, Inc.		-		-		1,590		1,000
Gary Zentner		-		-		424		250
R. Scott Summers		1,906		847		1,259		847
John C. Solomon		1,452		563		743		563
Paul Swanson		11,124		7,000		9,381		6,685

Total	$	30,874	$	17,851	$	30,051	$	21,987

Unsecured Borrowings

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

On March 22, 2019, the Company terminated its second public offering and commenced its third public offering of fixed rate subordinated notes (the “Notes”). The effective interest rate on borrowings through our Notes Program at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~10.31%~~9.53% and ~~10.56%~~10.38%, respectively, not including the amortization of deferred financing costs. We generally offer four durations at any given time, ranging from 12 to 48 months from the date of issuance. There are limited rights of early redemption. Our 36-month Note has mandatory early redemption options, subject to certain conditions, and all of our Notes have a mandatory early redemption option, subject to certain conditions. The following table shows the roll forward of our Notes Program:

Nine Months
Ended
September 30,
2020

Year Ended
December 31,
2019

Nine Months
Ended
September 30,
2019

Gross Notes outstanding, beginning of period $ 20,308 $ 17,348 $ 17,348
Notes issued 6,454 11,127 9,201
Note repayments / redemptions (5,443 ) (8,167 ) (5,793 )

Gross Notes outstanding, end of period $ 21,319 $ 20,308 $ 20,756

Less deferred financing costs, net 435 416 425

Notes outstanding, net $ 20,884 $ 19,892 $ 20,331

Schedule of Roll Forward of Notes Outstanding

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Gross Notes outstanding, beginning of period	$	21,482		$	20,308		$	20,308
Notes issued		7,239			7,691			6,454
Note repayments / redemptions		(7,820	)		(6,517	)		(5,443	)

Gross Notes outstanding, end of period	$	20,901		$	21,482		$	21,319

Less deferred financing costs, net		(389	)		(416	)		(435	)

Notes outstanding, net	$	20,512		$	21,066		$	20,884

The following is a roll forward of deferred financing costs:

Nine Months
Ended
September 30,
2020

Year
Ended
December 31,
2019

Nine Months
Ended
September 30,
2019

Deferred financing costs, beginning balance $ 786 $ 1,212 $ 1,212
Additions 131 365 336
Disposals - (791 ) -
Deferred financing costs, ending balance 917 786 1,548
Less accumulated amortization (482 ) (370 ) (1,123 )
Deferred financing costs, net $ 435 $ 416 $ 425

Schedule of Roll Forward of Deferred Financing Costs

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Deferred financing costs, beginning balance	$	942		$	786		$	786
Additions		95			156			131
Deferred financing costs, ending balance		1,037			942			917
Less accumulated amortization		(648	)		(526	)		(482	)
Deferred financing costs, net	$	389		$	416		$	435

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

Nine Months
Ended
September 30,
2020

Year
Ended
December 31,
2019

Nine Months
Ended
September 30,
2019

Accumulated amortization, beginning balance $ 370 $ 1,000 $ 1,000
Additions 112 161 123
Disposals - (791 ) -
Accumulated amortization, ending balance $ 482 $ 370 $ 1,123

Schedule of Roll Forward of Accumulated Amortization of Deferred Financing Costs

	Nine Months Ended September 30, 2021		Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Accumulated amortization, beginning balance	$	526	$	370		$	370
Additions		122		165			112
Disposals		–		(9	)		–
Accumulated amortization, ending balance	$	648	$	526		$	482

Other Unsecured Debts

Our other unsecured debts are detailed below:

Principal Amount Outstanding as of
Loan
Maturity
Date

Interest
Rate⁽¹⁾

September 30,
2020
December 31, 2019
Unsecured Note with Seven Kings Holdings, Inc. Demand⁽²⁾ 9.5 % $ 500 $ 500
Unsecured Line of Credit from Paul Swanson October 2020⁽⁶⁾ 10.0 % 1,138 1,176
Subordinated Promissory Note October 2020 9.5 % 563 563
Subordinated Promissory Note December 2021 10.5 % 146 146
Subordinated Promissory Note April 2024 10.0 % 100 100
Subordinated Promissory Note April 2021 10.0 % 174 174
Subordinated Promissory Note August 2022 11.0 % 200 200
Subordinated Promissory Note March 2023 11.0 % 169 169
Subordinated Promissory Note April 2020 6.5 % - 500
Subordinated Promissory Note February 2021 11.0 % 600 600
Subordinated Promissory Note Demand 5.0 % - 500
Subordinated Promissory Note December 2020 5.0 % 3 3
Subordinated Promissory Note December 2023 11.0 % 20 -
Subordinated Promissory Note February 2024 11.0 % 20 -
Senior Subordinated Promissory Note March 2022⁽³⁾ 10.0 % 370 400
Senior Subordinated Promissory Note March 2022⁽⁴⁾ 1.0 % 728 728
Junior Subordinated Promissory Note March 2022⁽⁴⁾ 22.5 % 417 417
Senior Subordinated Promissory Note October 2020⁽⁵⁾ 1.0 % 279 279
Junior Subordinated Promissory Note October 2020⁽⁵⁾ 20.0 % 173 173
$ 5,600 $ 6,628

Schedule of Other Unsecured Loans

					Principal Amount Outstanding as of
Loan	Maturity Date	Interest Rate⁽¹⁾			September 30, 2021		December 31, 2020
Unsecured Note with Seven Kings Holdings, Inc.	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Paul Swanson	July 2022		10.0	%		-		315
Subordinated Promissory Note	December 2021		10.5	%		146		146
Subordinated Promissory Note	April 2024		10.0	%		100		100
Subordinated Promissory Note	October 2022		10.0	%		-		174
Subordinated Promissory Note	August 2022		11.0	%		200		200
Subordinated Promissory Note	March 2023		11.0	%		-		169
Subordinated Promissory Note	February 2023		10.0	%		600		600
Subordinated Promissory Note	June 2023		10.0	%		400		-
Subordinated Promissory Note	December 2022		5.0	%		3		3
Subordinated Promissory Note	December 2023		11.0	%		20		20
Subordinated Promissory Note	February 2024		11.0	%		20		20
Subordinated Promissory Note	January 2025		10.0	%		15		-
Subordinated Promissory Note	November 2023		9.5	%		200		200
Subordinated Promissory Note	October 2024		10.0	%		700		700
Subordinated Promissory Note	December 2024		10.0	%		100		100
Subordinated Promissory Note	April 2025		10.0	%		202		-
Subordinated Promissory Note	July 2023		8.0	%		100		-
Subordinated Promissory Note	July 2024		5.0	%		1,500		-
Subordinated Promissory Note	September 2023		7.0	%		94		-
Senior Subordinated Promissory Note	March 2022⁽³⁾		10.0	%		334		352
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		1.0	%		-		728
Junior Subordinated Promissory Note	March 2022⁽⁴⁾		22.5	%		-		417
Senior Subordinated Promissory Note	October 2024⁽⁵⁾		1.0	%		720		720
Junior Subordinated Promissory Note	October 2024⁽⁵⁾		20.0	%		447		447
Total other unsecured debts					$	6,401	$	5,911

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

⁽⁴⁾	These notes were issued to the same holder and, when calculated together, yield a blended return of 11% per annum.

⁽⁵⁾	These notes were issued to the same holder and, when calculated together, yield a blended return of 10% per annum.

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

⁽⁴⁾~~These notes were issued to the same holder and, when calculated together, yield a blended rate of 11% per annum.~~

⁽⁵⁾~~These notes were issued to the same holder and, when calculated together, yield a blended rate of 10% per annum.~~

⁽⁶⁾~~Amount due in October 2020 is $1,000 with the remainder due in November 2020.~~

In May 2020, the Company entered into a loan agreement (the “PPP Loan”) with LCA Bank Corporation to borrow $361 pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. All or a portion of the loan may be forgivable, as provided by the terms of the PPP. During April 2020, the Company received a grant under the Economic Injury Disaster Loan Emergency Advance (the “EIDL Advance”) which may be used for payroll and other certain operating expenses. The EIDL Advance will reduce the forgiveness of the PPP Loan depending on certain parameters required by the CARES Act.

7. 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,
2020

Year
Ended
December 31,
2019

Nine Months
Ended
September 30,
2019

Beginning balance $ 2,959 $ 2,385 $ 2,385
Additions from new investment - 300 200
Redemptions (37 ) (42 ) (30 )
Additions from reinvestment 275 316 229

Ending balance $ 3,197 $ 2,959 $ 2,784

Schedule of Roll Forward of Redeemable Preferred Equity

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Beginning balance	$	3,582		$	2,959		$	2,959
Additions from new investment		800			300			-
Distributions		(71	)		(49	)		(37	)
Additions from reinvestment		388			372			275

Ending balance	$	4,699		$	3,582		$	3,197

The following table shows the earliest redemption options for investors in our Series C Preferred Units as of September 30, ~~2020:~~2021:

Year of Available Redemption
Total Amount
Redeemable

2024 $ 2,963
2025 234
Total $ 3,197

Schedule of Redemption Option for Investors

Year Maturing	Total Amount Redeemable

2024	$	3,160
2025		390
2026		309
2027		840

Total	$	4,699

8. 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, ~~2020,~~2021, the Class A Common Units are held by eight 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~~as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

Series B Preferred Units were initially issued to the Hoskins Group (consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark L. Hoskins) 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 Hamlets and Tuscany subdivisions. As of September 30, ~~2020,~~2021, the Hoskins Group ~~owns~~owned a total of ~~15.5~~17.1 Series B Preferred Units, which were issued for a total of ~~$1,550.~~$1,710.

Earned but unpaid distributions on the Series B cumulative preferred units for the second and third quarters of 2020 total approximately $37 and $28, respectively, and have been rolled forward to be paid in a subsequent quarter.

9. Related Party Transactions

As of September 30, ~~2020,~~2021, the Company had ~~$1,249, $250,~~$1,250, $250, and ~~$1,000~~$1,000 available to borrow against the line of credit from Daniel M. Wallach (our Chief Executive Officer and chairman of the board of managers) and his wife, the line of credit from the 2007 Daniel M. Wallach Legacy Trust, and the line of credit from William Myrick (our Executive Vice President of Sales), respectively. A more detailed description is included in Note 67 of our ~~2019~~2020 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

In July 2020, the Company purchased two loans at cost from Daniel M. Wallach (the Company’s CEO and Chairman of the board of managers) for approximately $198. Those loans had previously been purchased from the Company by Mr. Wallach.

10. Commitments and Contingencies

Unfunded commitments for construction loans to extend credit, which have similar collateral, credit risk, and market risk to our outstanding loans, were ~~$21,560~~$23,906 and ~~$16,662~~$19,495 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

11. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

Summarized unaudited quarterly condensed consolidated financial data for the quarters of ~~2020~~2021 and ~~2019~~2020 are as follows:

Quarter 3 Quarter 2 Quarter 1 Quarter 4 Quarter 3 Quarter 2 Quarter 1
2020 2020⁽¹⁾ 2020 2019 2019 2019 2019

Net Interest Income (loss) $ 389 $ (228 ) $ 990 $ 1,138 $ 1,118 $ 969 $ 1,126
Loan loss provision 70 1,560 35 21 3 151 47
Net (Loss) Interest Income after Loan Loss Provision 319 (1,788 ) 955 1,117 1,115 818 1,079
Gain on sale of foreclosed assets 135 3 – – – – –
Gain on foreclosure of assets – – – 22 86 95 –
Impairment gain on foreclosed assets 95 – – – – –
SG&A Expense 367 462 708 447 703 620 624
Depreciation and Amortization 21 21 21 26 21 22 23
Loss on Sale of Foreclosed Assets 51 – 35 – 274 – –
Loss on Foreclosure of Assets 2 – – – – 169 –
Impairment Loss on Foreclosed Assets 4 91 109 282 – 27 80
Net (Loss) Income $ 104 $ (2,359 ) $ 82 $ 384 $ 203 $ 75 $ 352

Schedule of Unaudited Quarterly Condensed Consolidated Financial Data

⁽¹⁾

During the quarter ended June 30, 2020, net interest income after loan loss provision was reduced due to COVID-19 by $1,492. In addition, the Company wrote off $469 of interest income directly related to COVID-19. During the quarter ended June 30, 2020, impairment loss on foreclosed assets of $91 was due to the impact of COVID-19.

	Quarter 3		Quarter 2		Quarter 1			Quarter 4		Quarter 3		Quarter 2			Quarter 1
	2021		2021		2021			2020		2020		2020			2020

Net interest income (loss) after loan loss provision	$	747	$	580	$	197		$	792	$	319	$	(1,788	)	$	955
Non-interest income		425		13		98			379		230		3			-
SG&A expense		483		438		537			648		367		462			708
Depreciation and amortization		12		13		16			22		21		21			21
Loss on Foreclosure of Assets		–		–		–			–		2		–			35
Loss on Sale of Foreclosed Assets		–		51		18			16		51		–			–
Impairment Loss on Foreclosed Assets		–		–		10			241		4		91			109
Net income (loss)	$	677	$	91	$	(286	)	$	244	$	104	$	(2,359	)	$	82

12. Non-Interest Expense Detail

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

For the Nine Months Ended
September 30,

2020 2019
Selling, general and administrative expenses
Legal and accounting $ 202 $ 211
Salaries and related expenses 684 1,143
Board related expenses 74 66
Advertising 54 102
Rent and utilities 36 36
Loan and foreclosed asset expenses 303 179
Travel 105 101
Other 78 109
Total SG&A $ 1,536 $ 1,947

Schedule of Selling General and Administrative Expenses

	2021		2020
	For the Nine Months Ended September 30,
	2021		2020
Selling, general and administrative expenses
Legal and accounting	$	143	$	202
Salaries and related expenses		613		684
Board related expenses		74		74
Advertising		54		54
Rent and utilities		40		36
Loan and foreclosed asset expenses		299		303
Travel		105		105
Other		130		78
Total SG&A	$	1,458	$	1,536

13. Subsequent Events

Management of the Company has evaluated subsequent events through November ~~5, 2020,~~11, 2021, the date these interim condensed consolidated financial statements were issued.

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

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 (the ~~“2019~~“2020 Financial Statements”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.

Overview

The Company has been impacted by and continues to face risks related to COVID-19, which has caused disruptions to the economy and in all of the markets in which the Company lends. The Company’s operating results depend significantly on the homebuilding industry.

As of June 30, 2020, the Company had 46 loans at a gross loans receivable balance of $12,993 of impaired loans primarily due to COVID-19. In addition, we recognized $1,492 in loan loss expense and $91 in impairment loss of foreclosed assets during the quarter ended June 30, 2020.

As of September 30, 2020, the Company had 37 loans at a gross loans receivable balance of $11,854 of impaired loans primarily due to COVID-19. In addition, we reversed $170 in loan loss expense and $27 in impairment loss of foreclosed assets during the quarter ended September 30, 2020 related to the write offs from the quarter ended June 30, 2020.

~~The Company continues to lose interest income on assets that do not accrue interest.~~ During the quarter ended June 30 and September 30, 2020 the estimated loss on interest income related to impaired and foreclosed assets was $578 and 484, respectively. Looking ahead, we expect this to decrease by year end and again by the end of the first quarter of 2021. We anticipate the lack of interest income will primarily be resolved by the end of the first quarter of 2021.

Finally, the impact of COVID-19 and prior to COVID-19 is the lack of loan originations which impacts our earnings through the loss of fee income. Loan originations and fee income for the first six months of 2020 and 2019 was $18,504 and $796 and $32,860 and $1,325, respectively. For the quarter ended September 30, 2020, loan originations increased to $21,374 compared to $13,111 for the same period of 2019 and we anticipate this rate of increase to continue through the fourth quarter of 2020 and first quarter of 2021.

~~Response~~ ~~to COVID-19~~

During March 2020, the Company made the decision due to the potential impact of COVID-19 to inform its borrowers that the Company would fund all loans where the underlying asset was currently under construction. Borrowers with loans in which the underlying asset was at a non-start position were informed to not start construction until told to do so by the Company.

During April 2020, as the Company continued to monitor market conditions overall and in the specific markets in which the Company lends, the Company observed that some markets had little to no impact from a housing perspective as a result of COVID-19; however, the Company’s borrowers in Pennsylvania and Michigan were significantly impacted due to the government shutting down home construction completely, and customers in Florida were significantly impacted by the changes in lending rules for end users and the high levels of unemployment caused by COVID-19. The Company made the decision to fund new loans to borrowers in stronger markets for the purpose of developing presold homes, which loans have reduced loan-to-value ratios. In addition, the Company continued to monitor funding spec loans in some markets on a case-by-case basis for loans with reduced loan-to-value ratios. In addition, the Company stopped recognizing interest on loans issued to customers impacted by COVID-19 which continued through September and is expected to continue until those loans are paid off. Through the quarter ended September 30 2020, the amount of estimated unearned interest income due to COVID-19 that was not recognized was $355.

On May 7, 2020, the Company made the decision to reopen lending under normal, pre-COVID-19 terms for a limited group of certain of its customers. In addition, the decision was made to allow rehab loans to builders at terms that are less conservative than those established in April 2020 but more conservative than terms prior to the arrival of COVID-19. Currently, the Company is offering normal terms to approximately 40% of its customers, and restricted terms to approximately 60% of its customers. The Company averaged $2,251 in new loan originations in the first five months of 2020, but under these terms the Company averaged $7,155 of loan originations in June through September 2020. The fees from these originations are typically recognized over 12 months. New loan fees from these four months before deferred loan origination costs were $746, which we will recognize over 12 months. The Company attributes this increase in volume to many of its larger nonbank competitors going out of business or leaving the lending business.

~~Overview of Financial Results~~

~~Net income for the quarter and~~ nine months ended September 30, ~~2020 decreased $99 and $2,803, respectively, when compared~~2021, the Company continued to ~~the same periods of 2019. The decrease~~focus on specific issues that arose in ~~net income was~~2020 primarily due to the ~~economic effects stemming from~~pandemic and, more specifically, focused on the ~~COVID-19 pandemic, which included the following:~~

	●	Interest income decreased $451 to $1,476 and $876 to $4,612 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. The decrease was due primarily to direct write offs of interest income of $469 for the nine months ended September 30, 2020. In addition, the Company estimated $355 and $757 in reduced interest income for the quarter and nine months ended September 30, 2020 due to non-performing loans not accruing interest due to COVID-19.

	●	Fee income decreased $239 to $433 and $769 to $1,229 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. Originations for the quarter and nine months ended September 30, 2020 were $21,374 and $39,878, respectively, compared to $13,111 and $58,771 for the same periods of 2019. The increase for the quarter ended September 30, 2020 was primarily due to stronger demand and less competition. The decrease in originations for the nine months ended September 30, 2020 was primarily due to the impact of the COVID-19 pandemic.

	●	Loan loss provision increased $67 to $70 and $1,464 to $1,665 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. The increase was due primarily to impairment on loans related to COVID-19.

	●	Gain on sale of foreclosed assets increased $135 and $138 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. During the quarter ended September 30, 2020, the Company sold four foreclosed assets with a gain on sale of $135 compared to nonereduction of non-interest earning assets. As of September 30, 2021, loans classified as non-accrual were 23 or $9,528 compared to 27 or $11,854 for the same period ~~of 2019. During the nine months ended September 30, 2020, the Company sold five foreclosed assets with a gain on sale of $138 compared to the same period of 2019.~~

	●	Impairment gain on foreclosed assets increased $95 during both the quarter and nine months ended September 30, 2020 compared to the same periods of 2019. The increase was due primarily to percentage of completion increasing while costs remained low. In addition, during the third quarter of 2020 the Company reversed $27 in losses recognized during the second quarter of 2020.

	●	Loss on sale of foreclosed assets decreased $223 to $51 and $188 to $86 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. The decreases related primarily to the sale of four and five foreclosed assets during the quarter and nine months ended September 30, 2020 for a loss of $51 and $86, respectively. During both the quarter and nine months ended September 30, 2019, the Company sold one foreclosed asset for a loss of $274.

	●	Impairment loss on foreclosed assets increased $4 and $98 for both the quarter and nine months ended September 30, 2020, compared to the same periods of 2019. During the nine months ended September 30, 2020, the Company recognized $91 in impairment loss on foreclosed assets due to COVID-19.

~~The Company anticipates an increase in profit~~ in the ~~fourth quarter of 2020 compared~~prior year.

While the Company continues to face COVID-19 risks as it relates to the ~~third quarter of 2020. To achieve these increases in profits,~~economy and the ~~Company is focused~~homebuilding industry, management made the decision during the nine months ended September 30, 2021 to focus on the following three ~~things:~~areas:

	1.	~~First,~~ Decrease the ~~Company is focused on reducing the number~~amount of non-interest-bearing assets, ~~currently not paying interest. Due primarily to the impact of COVID-19, the Company transferred the loan receivables balance of $9,728 for one of~~which includes cash, our ~~largest borrowers into a non-performing asset. The Company’s reduction of non-performing assets is expected to be achieved by a combination of the selling of~~ foreclosed assets and ~~the payoff of nonperforming loans;~~classified non-accrual loans or impaired loans receivables;
	2.	Increase loan originations which were lower during the year ended December 31, 2020 due primarily to COVID-19; and
	2.3.	~~Second, the Company is focused on continuing the higher level of~~Maintain liquidity to fund new loan originations ~~that~~and for the ~~Company did not realize during the first six months~~completion of ~~2020. Average originations during the six months ended June 30, 2020 and three months ended September 30, 2020 was $3,084 and $7,125, respectively; and~~

	3.	~~Third, the Company seeks to have the cash to fund new originations through new financing and the potential reduction of nonperforming assets.~~construction costs for existing loans.

We anticipate that for the remainder of 2021, the housing market in most of the areas in which we do business will be strong despite the impact of ~~COVID-19, and that doing business with our best customers in those markets will provide good performing loans for our balance sheet.~~COVID-19. We also anticipate that the losses we incurred in principal related to COVID-19 will not continue, and that the lack of interest due to ~~nonperforming~~non-performing assets from COVID-19 will decrease significantly ~~over~~in the ~~course~~fourth quarter of ~~the rest of 2020.~~2021.

~~During the nine months ended September 30, 2020, the Company purchased $10,000 of life insurance covering Daniel M. Wallach for the benefit of the Company as a beneficiary, which renews annually.~~

We had ~~$47,984~~$47,457 and ~~$55,369~~$46,405 in loan assets as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. In addition, as of September 30, ~~2020,~~2021, we had ~~235~~228 construction loans in 2122 states with 67 borrowers and ~~eight~~15 development loans in ~~four~~7 states with ~~five~~12 borrowers.

Net cash ~~(used in) provided by operations~~used in operating activities decreased ~~$1,688~~$154 for the nine months ended September 30, ~~2020~~2021 as compared to the same period of ~~2019.~~2020. Our ~~decrease~~increase in operating cash flow was due primarily to ~~impairment loss related to impacts of~~ the ~~COVID-19 pandemic.~~change in net income.

Critical Accounting Estimates

To assist in evaluating our interim condensed consolidated financial statements, we describe below information regarding 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, have had or would have a material impact on our consolidated financial condition or results of operations. See our ~~2019~~2020 Form 10-K, 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, ~~2019~~2020 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.

Change in Fair Value Assumption

September 30, 2020

Loan Loss

Provision Higher/(Lower)

September 30, 2021 Loan Loss Provision Higher/(Lower)

Increasing fair value of the real estate collateral by 35%*

–

Decreasing fair value of the real estate collateral by 35%**

5,192

(3,255

)

* 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 ~~$47,984.~~$47,457.

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).

Change in Fair Value Assumption

September 30, 2020

Foreclosed

Assets Higher/(Lower)

September 30, 2021

Foreclosed

Assets Higher/(Lower)

Increasing fair value of the foreclosed assets by 35%*

Decreasing fair value of the foreclosed assets by 35%**

(1,292

)

(961

)

* 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 ~~$3,690.~~$2,747.

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,
	2021					2020					2021					2020
Interest Income					*					*					*					*
Estimated interest income	$	1,532		12	%	$	1,831		14	%	$	4,533		12	%	$	5,838		14	%
Estimated unearned interest income due to COVID-19		(228	)	(2	)%		(335	)	(3	)%		(684	)	(2	)%		(757	)	(2	)%
Write-offs due to COVID-19		-		-	%		-		-	%		-		-	%		(469	)	(1	)%
Interest income on loans	$	1,304		10	%	$	1,476		11	%	$	3,849		10	%	$	4,612		11	%

Fee income on loans		959		8	%		594		4	%		2,557		7	%		1,631		4	%
Deferred loan fees		(200	)	(2	)%		(161	)	(1	)%		(621	)	(2	)%		(402	)	(1	)%
Fee income on loans, net		759		6	%		433		3	%		1,936		5	%		1,229		3	%

Interest and fee income on loans		2,063		16	%		1,909		14	%		5,785		15	%		5,841		14	%

Interest expense unsecured		745		6	%		760		5	%		2,276		6	%		2,223		5	%
Interest expense secured		446		4	%		727		6	%		1,521		4	%		2,354		6	%
Amortization offering costs		42		-	%		33		-	%		122		-	%		112		-	%
Interest expense		1,233		10	%		1,520		12	%		3,919		10	%		4,689		11	%
Net interest income (spread)		830		6	%		389		3	%		1,866		5	%		1,152		3	%

Weighted average outstanding loan asset balance	$	50,156				$	51,881				$	50,226				$	55,124

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Interest Income * * * *
Estimated interest income $ 1,831 14 % $
1,927

14
% $ 5,838 14 % $
5,488

14
%
Estimated unearned interest income due to COVID-19 (355 ) (3 )%

-

-
% (757 ) (2 )%

-

-
%
Write-offs due to COVID-19 - - % - - % (469 ) (1 )% - - %
Interest income on loans $ 1,476 11 % $ 1,927 14 % $ 4,612 11 % $ 5,488 14 %

Fee income on loans 433 3 % 673 5 % 1,229 3 % 1,998 5 %
Interest and fee income on loans

1,909

14
%

2,600

19
%

5,841

14
%

7,486

19
%
Interest expense unsecured 760 5 % 696 4 % 2,223 5 % 1,954 4 %
Interest expense secured 727 6 % 746 4 % 2,354 6 % 2,196 4 %
Amortization offering costs 33 - % 40 - % 112 - % 123 - %
Interest expense 1,520 12 % 1,482 11 % 4,689 11 % 4,273 11 %
Net interest income (spread) 389 3 % 1,118 8 % 1,152 3 %

3,213
8 %

Weighted average outstanding loan asset balance $ 51,881 $ 54,029 $ 55,124 $ 52,389

* Annualized amount as percentage of the weighted average outstanding gross loan balance.

There are three main components that can impact our interest spread:

● Difference between the interest rate received (on our loan assets) and the interest rate paid (on our borrowings). The loans ~~we have~~ originated have interest rates which are based on our cost of funds, with a minimum cost of funds of 7%. For most loans, the margin is fixed at 3%; however, for our development loans the margin is generally fixed at 7%. This component is also impacted by the lending of money with no interest cost (our equity).

Interest income on loans ~~decreased to 11%~~was 10% for both the quarter and nine months ended September 30, ~~2020, respectively,~~2021 compared to ~~14%~~11% for the same periods of ~~2019. The Company expensed $469 in~~2020. This decrease was due primarily to fewer loans paying higher interest ~~income for the nine months ended September 30, 2020~~ due to ~~impairment~~lower cost of ~~loans associated with four of our borrowers directly related~~funds.

Interest expense decreased to ~~COVID-19. In addition, estimated interest not earned during the quarter and nine months ended September 30, 2020 related to those borrowers was approximately $355 and $757, respectively.~~

~~The difference between estimated interest income on loans due to COVID-19 and the interest paid was 2%~~10% for both the quarter and nine months ended September 30, ~~2020~~2021 compared to the same periods of ~~2019,~~2020 which was due primarily to management’s decision to paydown certain notes payables with higher interest rates. In addition, during the third quarter of 2021, the interest rate on one secured line of credit decreased.

Notes payable with higher interest rates is ~~our standard margin.~~expected to decrease over the next quarter as we continue to pay down outstanding debt.

We anticipate our standard margin to be generally 3% and 7% on all future construction loans and ~~7% on~~ all development loans, respectively, which yields a blended margin of approximately ~~3.4%~~3.9%.

● Fee income. Our construction loan fee is 5% on the amount we commit to lend, which is amortized over the expected life of each loan. WeIn addition, our development loans do not recognize a loan ~~fee on our development loans.~~fee. When loans terminate before ~~than~~ their expected ~~life,~~maturity, the remaining fee is recognized at the termination of the loan. Faster turning loans typically yield a higher fee income percentage.

~~During both~~For the quarter and nine months ended September 30, ~~2020,~~2021, fee income ~~on loans decreased 2%~~increased to 8% and 7%, respectively, compared to 4% for both of the same periods of ~~2019.~~2020. The ~~decrease related~~increases were primarily due to ~~less loan originations.~~fewer old loans (which are fully amortized) and more faster turning loans.

● Amount of nonperforming assets. Generally, we can have two types of nonperforming assets that negatively affect interest spread: loans not paying interest and foreclosed assets.

As of September 30, ~~2020~~2021 and ~~2019,~~2020, we had 3723 and 27 impaired loans not paying interest in the aggregate gross loan amount of $9,528 and $11,854, ~~and 10 impaired loans in the aggregate amount of $1,780 that were not paying interest,~~ respectively. Non-performing assets not related to the impact of COVID-19 were $1,705. Due to the impact of COVID-19, the Company transferred the loan receivables balance of $9,728 as of June 30, 2020 for one of our largest borrowers into a non-performing asset. As of September 30, 2020, the amount due from this certain borrower is $8,058.

Foreclosed assets do not provide a monthly interest return. AsForeclosed assets decreased $1,702 to $2,747 as of September 30, ~~2020 and 2019,~~2021 compared to $4,449 as of December 31, 2020. The decrease in foreclosed assets ~~were $3,690 and $3,675, respectively, which~~ resulted in a ~~negative~~positive impact onto our interest spread in both years.

The amount of nonperforming assets is expected to decrease inover the ~~fourth~~next quarter ~~of 2020~~ as we continue to sell our foreclosed assets ~~when construction is complete.~~following completion of construction.

~~SG&A Expenses~~

~~The following table displays our SG&A expenses:~~

Three Months
Ended September 30,

Nine Months
Ended September 30,

2020 2019 2020 2019
Selling, general and administrative expenses
Legal and accounting $ 21 $ 37 $ 202 $ 211
Salaries and related expenses 200 359 684 1,143
Board related expenses 24 25 74 66
Advertising 18 52 54 102
Rent and utilities 13 11 36 36
Loan and foreclosed asset expenses 69 132 303 179
Travel 23 55 105 101
Other (1 ) 32 78 109
Total SG&A $ 367 $ 703 $ 1,536 $ 1,947

~~Our SG&A expense decreased $336~~Cash also does not yield a return. During the third quarter of 2021 we used cash to reduce the amount of debt while maintaining a responsible level of liquidity to cover unfunded commitments on loans and ~~$411~~cash needs for ~~the quarter and nine months ended~~operations. As of September 30, ~~2020, respectively, compared~~2021 and June 30, 2021 cash was $1,452 and $6,118, respectively. Repayments of secured notes payable increased $3,513 to ~~the same periods of 2019 due significantly to the following:~~

●

Salaries and related expenses decreased for the quarter and nine months ended September 30, 2020 by $159 and $459, respectively, compared to the same periods of 2019. The decrease was due to the increase in deferred originations costs of $138 to $260 and $188 to $573 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. In addition, profit sharing expense decreased by $66 and $210 to $0 for both the quarter and nine months ended September 30, 2020, respectively compared to the same period of 2019.

●

Loan and foreclosed asset expenses decreased $63 to $69 for the quarter ended September 30, 2020 compared to the same period of 2019. The decrease was primarily due to the completion and sale of our largest foreclosed asset during the quarter ended September 30, 2019.

Loan and foreclosed asset expenses increased $124 to $303 for the nine months ended September 30, 2020 compared to the same period of 2019 due to additional real estate owned asset expenses for taxes and insurance.

~~Loan Loss Provision~~

Our loan loss provision increased $67 to $70 and $1,464 to $1,665 for the quarter and nine months ended September 30, 2020, respectively, compared to the same periods of 2019. The increase in loan loss provision was primarily due to specific reserves for loan assets impaired due to the impact of the COVID-19 pandemic of $1,042 and special mention assets of $120.

~~Consolidated Financial Position~~

~~Loans Receivable~~

~~Commercial Loans – Construction Loan Portfolio Summary~~

~~We anticipate that the aggregate balance of our construction loan portfolio will increase as loans near maturity and as we have new loan originations.~~

~~The following is a summary of our loan portfolio to builders for home construction loans~~$10,696 as of September 30, ~~2020:~~

State
Number
of
Borrowers

Number of
Loans

Value of
Collateral⁽¹⁾

Commitment
Amount

Gross Amount
Outstanding

Loan to
Value
Ratio⁽²⁾
Loan Fee
Arizona 2 3 $ 2,289 $ 1,290 $ 754 56 % 5 %
Connecticut 1 1 343 226 141 66 % 5 %
Delaware 1 1 585 410 142 70 % 5 %
Florida 17 108 30,425 24,375 17,485 80 % 5 %
Georgia 2 2 595 452 430 76 % 5 %
Idaho 1 2 700 490 259 70 % 5 %
Illinois 1 1 1,245 747 368 60 % 5 %
Indiana 1 1 347 243 233 70 % 5 %
Michigan 4 10 2,713 2,112 775 78 % 5 %
New Jersey 2 8 2,495 2,415 1,728 97 % 5 %
New York 3 3 2,433 1,235 1,252 51 % 5 %
North Carolina 6 20 5,118 3,542 1,640 69 % 5 %
Ohio 3 9 3,794 2,520 1,584 66 % 5 %
Oregon 1 2 1,267 887 475 70 % 5 %
Pennsylvania 3 20 19,193 12,102 8,925 63 % 5 %
South Carolina 8 20 5,878 4,419 2,438 75 % 5 %
Tennessee 3 5 2,169 1,463 297 67 % 5 %
Texas 4 7 2,405 1,684 1,167 70 % 5 %
Utah 2 6 2,558 1,822 1,469 71 % 5 %
Washington 1 5 1,769 1,162 474 66 % 5 %
Wisconsin 1 1 539 332 332 62 % 5 %
Total 67 235 $ 88,860 $ 63,928 $ 42,368 72 %⁽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.~~

~~The following is a summary of our loan portfolio~~2021 compared to ~~builders for home construction loans~~$7,183 as of ~~December 31, 2019:~~June 30, 2021.

State
Number
of
Borrowers

Number
of
Loans

Value of
Collateral⁽¹⁾

Commitment
Amount

Gross
Amount
Outstanding

Loan to
Value
Ratio⁽²⁾
Loan Fee
Colorado 1 1 $ 630 $ 425 $ 424 67 % 5 %
Connecticut 1 1 340 224 55 66 % 5 %
Florida 17 112 32,259 24,031 16,826 74 % 5 %
Georgia 3 4 2,085 1,343 917 64 % 5 %
Idaho 1 1 310 217 173 70 % 5 %
Indiana 2 3 1,687 1,083 383 64 % 5 %
Michigan 4 11 3,696 2,566 1,820 69 % 5 %
New Jersey 3 6 1,925 1,471 1,396 76 % 5 %
New York 2 3 1,370 940 743 69 % 5 %
North Carolina 6 20 5,790 4,009 2,471 69 % 5 %
Ohio 3 9 4,117 2,664 2,153 65 % 5 %
Oregon 1 2 1,137 796 739 70 % 5 %
Pennsylvania 3 24 20,791 13,322 11,772 64 % 5 %
South Carolina 11 25 8,809 6,419 4,786 73 % 5 %
Tennessee 3 4 1,367 1,069 503 78 % 5 %
Texas 3 4 1,984 1,270 843 64 % 5 %
Utah 2 4 1,862 1,389 1,000 75 % 5 %
Virginia 1 3 1,245 815 734 65 % 5 %
Washington 1 2 1,040 728 445 70 % 5 %
Wisconsin 1 1 539 332 285 62 % 5 %
Wyoming 1 1 228 160 143 70 % 5 %
Total 70 241 $ 93,211 $ 65,273 $ 48,611 70 %⁽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, 2020:~~

State
Number
of Borrowers

Number
of
Loans
Value of
Collateral⁽¹⁾ Commitment Amount⁽²⁾
Gross
Amount
Outstanding

Loan to
Value
Ratio⁽³⁾

Interest
Spread

Pennsylvania 1 3 $ 8,425 $ 8,200 $ 7,583 90 % 7 %
Florida 2 2 843 898 730 87 % 7
North Carolina 1 1 400 260 136 34 % 7
South Carolina 1 2 1,080 1,250 704 65 % 7
Total 5 8 $ 10,748 $ 10,608 $ 9,153 86 %⁽⁴⁾ 7 %

⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid and third-party mortgage balances. Part of this collateral is $1,550 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 in our Company might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The commitment amount does not include unfunded letters of credit.~~

⁽³⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.~~

⁽⁴⁾	~~Represents the weighted average loan to value ratio of the loans.~~

~~The following is a summary of our loan portfolio to builders for land development as of December 31, 2019:~~

State
Number
of
Borrowers

Number
of
Loans
Value of
Collateral⁽¹⁾ Commitment Amount⁽²⁾
Gross
Amount
Outstanding

Loan to
Value
Ratio⁽³⁾

Interest
Spread

Pennsylvania 1 3 $ 10,191 $ 7,000 $ 7,389 73 % 7 %
Florida 2 3 1,301 1,356 891 68 % 7
North Carolina 1 1 400 260 99 25 % 7
South Carolina 1 2 1,115 1,250 618 55 % 7
Total 5 9 $ 13,007 $ 9,866 $ 8,997 69 %⁽⁴⁾ 7 %

⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid and third-party mortgage balances. Part of this collateral is $1,470 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 in our Company might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The commitment amount does not include unfunded letters of credit.~~

⁽³⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.~~

⁽⁴⁾	~~Represents the weighted average loan to value ratio of the loans.~~

~~Combined Loan Portfolio Summary~~

~~Financing receivables are comprised of the following as of September 30, 2020 and December 31, 2019:~~

The allowance for loan losses at September 30, 2020 was $1,396, of which $163 is related to loans without specific reserves. The Company recorded specific reserves for loans impaired due to impacts from COVID-19 of $1,041, special mention loans of $120 and impaired loans not due to impacts from COVID-19 of $72. As of December 31, 2019, the allowance was $235, of which $230 related to loans without specific reserves. During the nine months ended September 30, 2020, we incurred $504 in direct charge-offs compared to $173 for the year ended December 31, 2019.

~~The following is a roll forward of combined loans:~~

Nine Months
Ended
September 30, 2020

Year
Ended
December 31, 2019

Nine Months
Ended
September 30, 2019

Beginning balance $ 55,369 $ 46,490 $ 46,490
Additions 33,347 56,842 41,902
Principal collections (37,511 ) (45,009 ) (34,551 )
Transferred to foreclosed assets (279 ) (3,352 ) (2,006 )
Transferred to real estate investments (1,140 ) - -
Change in builder deposit (48 ) 157 25
Loan loss provision (1,665 ) (49 ) (201 )
Change in loan fees, net (89 ) 290 265
Ending balance $ 47,984 $ 55,369 $ 51,924

~~Finance Receivables – By risk rating:~~

September 30, 2020 December 31, 2019

Pass $ 37,314 $ 53,542
Special mention 2,353 2,571
Classified – accruing - –
Classified – nonaccrual 11,854 1,495

Total $ 51,521 $ 57,608

~~Finance Receivables – Method of impairment calculation:~~

September 30, 2020 December 31, 2019

Performing loans evaluated individually $ 16,954 $ 26,233
Performing loans evaluated collectively 22,713 29,880
Non-performing loans without a specific reserve 4,120 1,467
Non-performing loans with a specific reserve to COVID-19 7,015 –
Other non-performing loans with a specific reserve 719 28

Total evaluated collectively for loan losses $ 51,521 $ 57,608

~~As of September 30, 2020 and December 31, 2019, 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, 2020 and December 31, 2019.~~

~~Below is an aging schedule of loans receivable as of September 30, 2020, on a recency basis:~~

No.
Loans

Unpaid
Balances
%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days) 208 $ 39,883 78 %
60-89 days - - - %
90-179 days 32 10,149 20 %
180-269 days 3 1,489 2 %

Subtotal 243 $ 51,521 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) - $ - - %

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.) - $ - - %

Total 243 $ 51,521 100 %

~~Below is an aging schedule of loans receivable as of September 30, 2020, on a contractual basis:~~

No.
Loans

Unpaid
Balances
%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date. 208 $ 39,883 78 %
60-89 days - - - %
90-179 days 32 10,149 20 %
180-269 days 3 1,489 2 %

Subtotal 243 $ 51,521 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) - $ - - %

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.) - $ - - %

Total 243 $ 51,521 100 %

~~Below is an aging schedule of loans receivable as of December 31, 2019, on a recency basis:~~

No.
Loans

Unpaid
Balances
%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days) 246 $ 56,113 97 %
60-89 days – – – %
90-179 days 4 1,495 3 %
180-269 days – – – %

Subtotal 250 $ 57,608 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) – $ – – %

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.) – $ – – %

Total 250 $ 57,608 100 %

~~Below is an aging schedule of loans receivable as of December 31, 2019, on a contractual basis:~~

No.
Loans

Unpaid
Balances
%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date. 246 $ 56,113 97 %
60-89 days - - - %
90-179 days 4 1,495 3 %
180-269 days - - - %

Subtotal 250 $ 57,608 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) - $ - - %

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.) - $ - - %

Total 250 $ 57,608 100 %

~~Foreclosed Assets~~

~~Below is a roll forward of foreclosed assets:~~

~~Customer Interest Escrow~~

~~Below is a roll forward of interest escrow:~~

Nine Months
Ended
September 30, 2020

Year Ended
December 31, 2019

Nine Months
Ended
September 30, 2019

Beginning balance $ 643 $ 939 $ 939
Preferred equity dividends 73 136 100
Additions from Pennsylvania loans 819 1,107 964
Additions from other loans 308 768 570
Interest, fees, principal or repaid to borrower (1,396 ) (2,307 ) (1,659 )
Ending balance $ 447 $ 643 $ 914

~~Related Party Borrowings~~

As of September 30, 2020, the Company had $1,249, $250, and $1,000 available to borrow against the line of credit from Daniel M. Wallach (our Chief Executive Officer and chairman of the board of managers) and his wife, the line of credit from the 2007 Daniel M. Wallach Legacy Trust, and the line of credit from William Myrick (our Executive Vice President of Sales), respectively. A more detailed description is included in Note 6 to the 2019 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

~~Secured Borrowings~~

~~New Lines of Credit~~

~~Lines of Credit from Affiliates~~Non-Interest Income

~~As of September 30, 2020, the Company had borrowed $1 on its lines of credit from affiliates, which have a total limit of $2,500.~~

None of our lines of credit (including with related parties and non-related parties) have given us notice of nonrenewal, and the lines will continue to automatically renew unless notice is given by a lender.

~~Secured Deferred Financing Costs~~

The Company had secured deferred financing costs of $9 and $5 as of September 30, 2020 and December 31, 2019, respectively. Amortization expense for secured deferred financing costs was immaterial for the quarter and nine months ended September 30, 2020 and for the year ended December 31, 2019.

~~Summary~~

~~The borrowings secured by loan assets are summarized below:~~

~~Unsecured Borrowings~~

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

On March 22, 2019, we terminated our second public offering and commenced our third public offering of fixed rate subordinated notes (the “Notes”). The effective interest rate on borrowings through our Notes Program at September 30, 2020 and December 31, 2019 was 10.31% and 10.56%, respectively, not including the amortization of deferred financing costs. We generally offer four durations at any given time, ranging from 12 to 48 months from the date of issuance. There are limited rights of early redemption. Our 36-month Note has a mandatory early redemption option, subject to certain conditions. The following table shows the roll forward of our Notes Program:

Nine Months
Ended
September 30,
2020 Year Ended
December 31,
2019 Nine Months
Ended
September 30,
2019

Gross Notes outstanding, beginning of period $ 20,308 $ 17,348 $ 17,348
Notes issued 6,454 11,127 9,201
Note repayments / redemptions (5,443 ) (8,167 ) (5,793 )

Gross Notes outstanding, end of period $ 21,319 $ 20,308 $ 20,756

Less deferred financing costs, net 435 416 425

Notes outstanding, net $ 20,884 $ 19,892 $ 20,331

~~The following is a roll forward of deferred financing costs:~~

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

~~Other Unsecured Debts~~

~~Our other unsecured debts are detailed below:~~

Principal Amount Outstanding as of
Loan Maturity
Date Interest
Rate⁽¹⁾ September 30,
2020 December 31, 2019
Unsecured Note with Seven Kings Holdings, Inc. Demand⁽²⁾ 9.5 % $ 500 $ 500
Unsecured Line of Credit from Paul Swanson October 2020⁽⁶⁾ 10.0 % 1,138 1,176
Subordinated Promissory Note October 2020 9.5 % 563 563
Subordinated Promissory Note December 2021 10.5 % 146 146
Subordinated Promissory Note April 2024 10.0 % 100 100
Subordinated Promissory Note April 2021 10.0 % 174 174
Subordinated Promissory Note August 2022 11.0 % 200 200
Subordinated Promissory Note March 2023 11.0 % 169 169
Subordinated Promissory Note April 2020 6.5 % - 500
Subordinated Promissory Note February 2021 11.0 % 600 600
Subordinated Promissory Note Demand 5.0 % - 500
Subordinated Promissory Note December 2020 5.0 % 3 3
Subordinated Promissory Note December 2023 11.0 % 20 -
Subordinated Promissory Note February 2024 11.0 % 20 -
Senior Subordinated Promissory Note March 2022⁽³⁾ 10.0 % 370 400
Senior Subordinated Promissory Note March 2022⁽⁴⁾ 1.0 % 728 728
Junior Subordinated Promissory Note March 2022⁽⁴⁾ 22.5 % 417 417
Senior Subordinated Promissory Note October 2020⁽⁵⁾ 1.0 % 279 279
Junior Subordinated Promissory Note October 2020⁽⁵⁾ 20.0 % 173 173
$ 5,600 $ 6,628

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

⁽⁴⁾~~These notes were issued to the same holder and, when calculated together, yield a blended rate of 11% per annum.~~

⁽⁵⁾~~These notes were issued to the same holder and, when calculated together, yield a blended rate of 10% per annum.~~

⁽⁶⁾~~Amount due in October 2020 is $1,000 with the remainder due in November 2020.~~

~~Paycheck Protection Program Loan~~

~~On May 5, 2020~~Gain on the Company entered into a loan agreement (the “PPP Loan”) with LCA Bank Corporation to borrow $361 pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. The loan has an interest rateExtinguishment of 1.0% and a term of 24 months. No payments are due for the first six months, although interest accrues, and monthly payments, which include interest, are due over the next 18 months to pay off the loan. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan may be forgivable, as provided by the terms of the PPP. The loan is evidenced by a promissory note, which contains customary events of default relating to, among other things, payment defaults and breaches of representations. We may prepay the loan at any time prior to maturity with no prepayment penalties.Debt

~~Economic Injury Disaster Loan Advance (the “EIDL Advance”)~~

~~The Economic Injury Disaster Loan Emergency Advance is a $10 grant for companies that successfully submit an EIDL (“Economic Injury Disaster Loan”) application.~~ During April 2020, the Company received the grant (the “EIDL Advance”) which may be used for payroll and other certain operating expenses. The EIDL Advance will reduce the forgiveness of the PPP Loan depending on certain parameters required by the CARES Act.

~~Redeemable Preferred Equity and Members’ Capital~~

We strive to maintain a reasonable (about 15%) balance between (1) redeemable preferred equity plus members’ capital and (2) loan assets, net. The ratio of redeemable preferred equity plus members’ capital to loan assets, net was 9.8% and 12.9% as of September 30, 2020 and December 31, 2019, respectively. The ratio decreased significantly due to losses related to COVID-19. We anticipate this ratio to increase as we retain earnings for the remainder of 2020.

~~Priority of Borrowings~~

~~The following table displays our borrowings and a ranking of priority. The lower the number, the higher the priority.~~

~~Liquidity and Capital Resources~~

Our primary liquidity management objective is to meet expected cash flow needs while continuing to service our business and customers. Combined loans outstanding as of September 30, 2020 and December 31, 2019 were 243 and 250, respectively. Gross loans receivable as of September 30, 2020 and December 31, 2019 totaled $51,521 and $57,608, respectively. Our unfunded commitments to extend credit, which have similar collateral, credit, and market risk to our outstanding loans, were $21,560 and $16,662 as September 30, 2020 and December 31, 2019, respectively.

We anticipate an increase in our gross loan receivables over the 12 months subsequent to September 30, 2020 by directly increasing originations by funding new loans to borrowers in stronger markets. Competition has declined and, therefore, we believe the ability to return to historical levels may be achieved through 2021.

~~To fund our combined loans, we rely on secured debt, unsecured debt, and equity, which are described in the following table:~~

Source of Liquidity
As of
September 30, 2020

As of
December 31, 2019

Secured debt, net of deferred financing costs $ 22,753 $ 26,991
Unsecured debt, net of deferred financing costs 26,484 26,520
Equity 4,753 7,147

Secured debt, net of deferred financing costs decreased $4,238 to $22,753 as of September 30, 2020 compared to December 31, 2019 which consisted of a decrease in borrowings secured by loans and affiliate lines of $4,050 and $188, respectively. We anticipate increasing our secured debt by roughly half of the increase in loan asset balances over the 12 months subsequent to September 30, 2020 through our existing loan purchase and sale agreements and additional lines of credit.

We anticipate that the other half of the loan asset growth will come from a combination of decreases in nonperforming assets, many of which are not used as collateral in secured lines, and increases in our unsecured debt and equity. Unsecured debt, net of deferred financing costs decreased $36 to $26,484 as of September 30, 2020 compared to December 31, 2019 due primarily to a decrease in other unsecured debts of $1,027 which was offset by an increased participation in our Notes Program of $991.

~~In addition, in May 2020,~~February 2021, we borrowed approximately $361 pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan may be forgivable, as provided by the terms of the PPP.

~~Equity decreased $2,394 to $4,753 as~~In August 2021, the full principal amount of the PPP loan or $361 and the accrued interest were forgiven by the U.S. Small Business Administration.

During April 2020, the Company received a grant under the Economic Injury Disaster Loan Emergency Advance (the “EIDL Advance”) of $10 which was used for payroll and other certain operating expenses.

In February 2021, the full EIDL Advance of $10 and accrued interest were forgiven by the U.S. Small Business Administration.

Gain on Sale of Foreclosed Assets

During the quarter and nine months ended September 30, ~~2020~~2021, we recognized $64 and $165, respectively, as a gain on the sale of foreclosed assets, compared to ~~$7,147 as~~$135 and $138, respectively, for the same periods of ~~December 31, 2019.~~ 2020.

Non-Interest Expense

Selling, General and Administrative (“SG&A”) Expenses

The ~~decrease was due primarily~~following table displays our SG&A expenses:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021		2020
Legal and accounting	$	17		$	21		$	143	$	202
Salaries and related expenses		285			200			613		684
Board related expenses		24			24			74		74
Advertising		(7	)		18			54		54
Rent and utilities		18			13			40		36
Loan and foreclosed asset expenses		62			69			299		303
Travel		45			23			105		105
Other		39			(1	)		130		78
Total SG&A	$	483		$	367		$	1,458	$	1,536

Our SG&A increased $116 and decreased $78 for the quarter and nine months ended September 30, 2021, respectively, compared to the ~~decline in net income for Class A common equity~~same periods of ~~$2,495. Equity increased $112~~2020 due significantly to the following:

●

During the quarter ended September 30, 2021, Salaries and related expenses increased $85 to $285 compared to $200 for the same period of 2020. The increase was primarily due to lower deferred loan origination salaries expense which were $115 and $260 for the quarters ended September 30, 2021 and 2020, respectively. In addition, profit share expense was $36 and $0 for the quarters ended September 30, 2021 and 2020, respectively. The increase in salaries and related expenses was partially offset by the employee retention credit recognized during the third quarter of 2021 related to the second quarter of 2021 of $103.

●

During the nine months ended September 30, 2021, Legal and accounting expenses decreased $59 due to the addition of internal counsel during the second quarter of 2020.

Loss on the Sale of Foreclosed Assets

During the quarter ended September 30, 2021 and 2020, ~~compared to~~we recognized $0 and $51, respectively, as a loss on the sale of foreclosed assets.

During the nine months ended September 30, 2021 and 2020, we recognized $69 and $86, respectively, as a loss on the sale of foreclosed assets.

Impairment Loss on Foreclosed Assets

During the quarter ended ~~June~~September 30, 2021 and 2020, impairment loss on foreclosed assets was $0 and $4, respectively.

During the nine months ended September 30, 2021 and 2020, impairment loss on foreclosed assets was $10 and $205, respectively.

Consolidated Financial Position

Loans Receivable

Commercial Loans – Construction Loan Portfolio Summary

We anticipate that the aggregate balance of our construction loan portfolio will increase as loans near maturity and as we have new loan originations.

The following is a summary of our loan portfolio to builders for home construction loans as of September 30, 2021:

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona		2		3	$	995	$	697	$	300		146	%		5	%
Connecticut		2		4		1,535		1,084		400		71	%		5	%
Delaware		1		6		5,960		2,387		1,601		40	%		5	%
Florida		17		77		24,158		18,815		11,896		78	%		5	%
Georgia		2		2		1,130		631		186		56	%		5	%
Illinois		2		2		1,890		1,199		627		63	%		5	%
Indiana		1		2		1,149		804		544		70	%		5	%
Louisiana		2		3		590		387		54		66	%		5	%
Michigan		2		11		2,782		2,159		1,987		78	%		5	%
Nevada		1		1		675		335		280		50	%		5	%
New Jersey		1		8		2,807		2,519		2,213		90	%		5	%
New York		2		2		1,159		833		814		72	%		5	%
North Carolina		8		13		7,436		4,527		2,225		61	%		5	%
Ohio		2		9		2,929		2,132		1,015		73	%		5	%
Oregon		2		9		3,832		2,650		1,977		69	%		5	%
Pennsylvania		3		24		23,735		14,589		10,915		61	%		5	%
South Carolina		9		36		8,748		6,048		3,081		69	%		5	%
Tennessee		2		2		916		544		530		59	%		5	%
Texas		2		3		1,645		1,121		765		68	%		5	%
Utah		1		1		228		160		144		70	%		5	%
Virginia		2		2		830		564		272		68	%		5	%
Washington		1		8		4,855		3,068		1,521		63	%		5	%
Total		67		228	$	99,984	$	67,253	$	43,347		67	%⁽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.

The following is a summary of our loan portfolio to builders for home construction loans as of December 31, 2020:

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona		3		4	$	1,821	$	1,503	$	1,004		60	%		5	%
Connecticut		1		1		515		382		262		65	%		5	%
Delaware		1		1		585		409		187		70	%		5	%
Florida		16		80		25,779		21,193		16,201		82	%		5	%
Georgia		3		3		1,300		839		476		65	%		5	%
Illinois		2		2		1,890		1,199		474		60	%		5	%
Michigan		4		9		2,451		1,942		805		79	%		5	%
Mississippi		1		1		240		189		166		79	%		5	%
New Jersey		1		5		1,357		1,339		928		99	%		5	%
New York		3		2		1,184		814		845		69	%		5	%
North Carolina		6		18		4,519		3,123		2,059		69	%		5	%
Ohio		3		8		2,703		2,020		1,393		75	%		5	%
Oregon		1		2		1,217		852		238		70	%		5	%
Pennsylvania		3		24		22,791		13,593		9,825		60	%		5	%
South Carolina		8		27		7,284		4,930		3,195		68	%		5	%
Tennessee		3		5		2,169		1,463		509		67	%		5	%
Texas		3		8		2,806		2,106		1,191		75	%		5	%
Utah		2		6		2,583		1,822		1,542		71	%		5	%
Virginia		1		1		505		353		79		70	%		5	%
Washington		1		5		2,030		1,311		508		65	%		5	%
Wisconsin		1		1		539		332		332		62	%		5	%
Total		67		213	$	86,268	$	61,714	$	42,219		72	%⁽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, 2021:

States	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount⁽²⁾		Gross Amount Outstanding		Loan to Value Ratio⁽³⁾			Interest Spread
Pennsylvania		1		4	$	8,026	$	6,500	$	6,142		77	%		varies
Delaware		1		1		321		147		147		46	%		7	%
Florida		4		4		956		1,159		653		68	%		7	%
North Carolina		1		1		400		260		242		60	%		7	%
South Carolina		3		3		1,631		846		559		34	%		7	%
Connecticut		1		1		350		180		180		51	%		7	%
Texas		1		1		208		125		6		3	%		7	%
Total		12		15	$	11,892	$	9,217	$	7,929		67	%⁽⁴⁾		varies

⁽¹⁾

The value is determined by the appraised value adjusted for remaining costs to be paid and third-party mortgage balances. Part of this collateral is $1,710 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 in our Company might be difficult to sell, which could impact our ability to eliminate the loan balance.

	⁽²⁾	The commitment amount does not include unfunded letters of credit.

	⁽³⁾	The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.

	⁽⁴⁾	Represents the weighted average loan to value ratio of the loans.

The following is a summary of our loan portfolio to builders for land development as of December 31, 2020:

States	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount⁽²⁾		Gross Amount Outstanding		Loan to Value Ratio⁽³⁾			Interest Spread
Pennsylvania		1		2	$	7,361	$	8,200	$	6,175		84	%		7	%
Florida		3		3		1,373		1,193		1,029		87	%		7	%
New York		1		1		1,238		451		452		36	%		7	%
North Carolina		1		1		400		260		136		34	%		7	%
South Carolina		2		2		1,256		711		438		35	%		7	%
Total		8		9	$	11,628	$	10,815	$	8,230		71	%⁽⁴⁾		7	%

	⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid and third-party mortgage balances. Part of this collateral is $1,630 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 in our Company might be difficult to sell, which could impact our ability to eliminate the loan balance.

	⁽²⁾	The commitment amount does not include unfunded letters of credit.

	⁽³⁾	The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.

	⁽⁴⁾	Represents the weighted average loan to value ratio of the loans.

Combined Loan Portfolio Summary

Financing receivables are comprised of the following as of September 30, 2021 and December 31, 2020:

	September 30, 2021			December 31, 2020

Loans receivable, gross	$	51,276		$	50,449
Less: Deferred loan fees		(1,354	)		(1,092	)
Less: Deposits		(1,020	)		(1,337	)
Plus: Deferred origination costs		357			353
Less: Allowance for loan losses		(1,802	)		(1,968	)

Loans receivable, net	$	47,457		$	46,405

The allowance for loan losses as of September 30, 2021 was $1,802, of which $165 is related to loans without specific reserves. The Company recorded specific reserves for loans impaired due to impacts from COVID-19 of $1,483, special mention loans of $60, and impaired loans not due to impacts from COVID-19 of $94. As of December 31, 2020, the allowance was $1,968, of which $151 is related to loans without specific reserves.

During the quarter and nine months ended September 30, 2021, we incurred $0 and $509 in direct charge-offs, respectively, compared to $72 for the year ended December 31, 2020.

The following is a roll forward of combined loans:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Beginning balance	$	46,405		$	55,369		$	55,369
Additions		34,499			46,249			33,347
Principal collections		(33,914	)		(50,079	)		(37,511	)
Transferred to foreclosed assets		(274	)		(2,118	)		(279	)
Transferred to real estate investments		-			(1,140	)		(1,140	)
Change in builder deposit		317			16			(48	)
Change in loan loss provision		166			(1,805	)		(1,665	)
Change in loan fees, net		258			(87	)		(89	)
Ending balance	$	47,457		$	46,405		$	47,984

Finance Receivables – By risk rating:

	September 30, 2021		December 31, 2020

Pass	$	39,715	$	35,544
Special mention		2,033		3,089
Classified – accruing		–		–
Classified – nonaccrual		9,528		11,816

Total	$	51,276	$	50,449

Finance Receivables – Method of impairment calculation:

	September 30, 2021		December 31, 2020

Performing loans evaluated individually	$	17,315	$	16,412
Performing loans evaluated collectively		24,433		22,221
Non-performing loans without a specific reserve		2,759		1,518
Non-performing loans with a specific reserve due to COVID-19		6,518		9,555
Other non-performing loans with a specific reserve		251		743

Total evaluated collectively for loan losses	$	51,276	$	50,449

As of September 30, 2021, and December 31, 2020, 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, 2021 and December 31, 2020.

	September 30, 2021			December 31, 2020

Unpaid principal balance (contractual obligation from customer)	$	10,037		$	11,888
Charge-offs and payments applied		(509	)		(72	)
Gross value before related allowance		9,528			11,816
Related allowance		(1,578	)		(1,698	)
Value after allowance	$	7,950		$	10,118

Below is an aging schedule of loans receivable as of September 30, 2021, on a recency basis:

	No. Loans		Unpaid Balances		%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days)		220	$	41,748		81.2	%
60-89 days		10		1,861		3.6	%
90-179 days		1		389		1.0	%
180-269 days		-		-		-	%
>270 days		12		7,278		14.2	%

Subtotal		243	$	51,276		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		-	$	-		-	%

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		-	$	-		-	%

Total		243	$	51,276		100	%

Below is an aging schedule of loans receivable as of September 30, 2021, on a contractual basis:

	No. Loans		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with instalments past due less than 60 days from due date.		220	$	41,748		81.2	%
60-89 days		10		1,861		3.6	%
90-179 days		1		389		1.0	%
180-269 days		-		-		-	%
>270 days		12		7,278		14.2	%

Subtotal		243	$	51,276		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		-	$	-		-	%

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		-	$	-		-	%

Total		243	$	51,276		100	%

Below is an aging schedule of loans receivable as of December 31, 2020, on a recency basis:

	No. Loans		Unpaid Balances		%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days)		194	$	38,956		77.2	%
60-89 days		-		-		-	%
90-179 days		-		-		-	%
180-269 days		28		11,493		22.8	%

Subtotal		222	$	50,449		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		-	$	-		-	%

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		-	$	-		-	%

Total		222	$	50,449		100	%

Below is an aging schedule of loans receivable as of December 31, 2020, on a contractual basis:

	No. Loans		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with instalments past due less than 60 days from due date.		194	$	38,956		77.2	%
60-89 days		-		-		-	%
90-179 days		-		-		-	%
180-269 days		28		11,493		22.8	%

Subtotal		222	$	50,449		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		-	$	-		-	%

Partial Payment accounts (Accounts on which the total received in the last 60 days was less than 50% of the original contractual monthly payment. “Total received” to include interest on simple interest accounts, as well as late charges on deferment charges on pre-computed accounts.)		-	$	-		-	%

Total		222	$	50,449		100	%

Below is a roll forward of foreclosed assets:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Beginning balance	$	4,449		$	4,916		$	4,916
Additions from loans		274			2,118			279
Additions for construction/development		612			1,410			801
Sale proceeds		(2,674	)		(3,697	)		(2,246	)
Loss on foreclosure		-			(54	)		(2	)
Loss on sale		(69	)		(102	)		(86	)
Gain on foreclosure		-			52			-
Gain on sale		165			160			138
Impairment gain on foreclosed assets		-			-			68
Impairment gain on foreclosed assets due to COVID-19		-			-			27
Impairment loss on foreclosed assets		(10	)		(290	)		(114	)
Impairment loss on foreclosed assets due to COVID-19		-			(64	)		(91	)
Ending balance	$	2,747		$	4,449		$	3,690

For both the nine months ended September 30, 2021 and 2020, we reclassed one construction loan from loans receivable to foreclosed assets.

In addition, during the nine months ended September 30, 2021, we sold 13 foreclosed assets compared to 15 during the same period of 2020.

Customer Interest Escrow

Below is a roll forward of interest escrow:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Beginning balance	$	510		$	643		$	643
Preferred equity dividends		106			83			73
Additions from Pennsylvania loans		501			1,173			819
Additions from other loans		633			448			308
Interest, fees, principal or repaid to borrower		(1,182	)		(1,837	)		(1,396	)
Ending balance	$	568		$	510		$	447

Related Party Borrowings

As of September 30, 2021, the Company had $1,250, $250, and $1,000 available to borrow against the line of credit from Daniel M. Wallach (our Chief Executive Officer and chairman of the board of managers) and his wife, the line of credit from the 2007 Daniel M. Wallach Legacy Trust, and the line of credit from William Myrick (our Executive Vice President of Sales), respectively. A more detailed description is included in Note 7 to the 2020 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

Secured Borrowings

Lines of Credit

As of September 30, 2021, the Company had borrowed $0 on its lines of credit from affiliates, which have a total limit of $2,500.

Summary

The borrowings secured by loan assets are summarized below:

	September 30, 2021				December 31, 2020
	Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender		Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	4,659	$	3,616	$	7,981	$	5,919
S.K. Funding, LLC		9,273		5,500		4,551		3,898

Lender
Shuman		1,069		125		1,916		1,325
Jeff Eppinger		1,391		200		2,206		1,500
Hardy Enterprises, Inc.		-		-		1,590		1,000
Gary Zentner		-		-		424		250
R. Scott Summers		1,906		847		1,259		847
John C. Solomon		1,452		563		743		563
Paul Swanson		11,124		7,000		9,381		6,685

Total	$	30,874	$	17,851	$	30,051	$	21,987

Unsecured Borrowings

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

On March 22, 2019, the Company terminated its second public offering and commenced its third public offering of fixed rate subordinated notes (the “Notes”). The effective interest rate on borrowings through our Notes Program at September 30, 2021 and December 31, 2020 was 9.53% and 10.38%, respectively, not including the amortization of deferred financing costs. We generally offer four durations at any given time, ranging from 12 to 48 months from the date of issuance. There are limited rights of early redemption. Our 36-month Note has mandatory early redemption options, subject to certain conditions, and all of our Notes have a mandatory early redemption option, subject to certain conditions. The following table shows the roll forward of our Notes Program:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Gross Notes outstanding, beginning of period	$	21,482		$	20,308		$	20,308
Notes issued		7,239			7,691			6,454
Note repayments / redemptions		(7,820	)		(6,517	)		(5,443	)

Gross Notes outstanding, end of period	$	20,901		$	21,482		$	21,319

Less deferred financing costs, net		(389	)		(416	)		(435	)

Notes outstanding, net	$	20,512		$	21,066		$	20,884

The following is a roll forward of deferred financing costs:

	Nine Months Ended September 30, 2021			Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Deferred financing costs, beginning balance	$	942		$	786		$	786
Additions		95			156			131
Deferred financing costs, ending balance		1,037			942			917
Less accumulated amortization		(648	)		(526	)		(482	)
Deferred financing costs, net	$	389		$	416		$	435

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

	Nine Months Ended September 30, 2021		Year Ended December 31, 2020			Nine Months Ended September 30, 2020

Accumulated amortization, beginning balance	$	526	$	370		$	370
Additions		122		165			112
Disposals		–		(9	)		–
Accumulated amortization, ending balance	$	648	$	526		$	482

Other Unsecured Debts

Our other unsecured debts are detailed below:

					Principal Amount Outstanding as of
Loan	Maturity Date	Interest Rate⁽¹⁾			September 30, 2021		December 31, 2020
Unsecured Note with Seven Kings Holdings, Inc.	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Paul Swanson	July 2022		10.0	%		-		315
Subordinated Promissory Note	December 2021		10.5	%		146		146
Subordinated Promissory Note	April 2024		10.0	%		100		100
Subordinated Promissory Note	October 2022		10.0	%		-		174
Subordinated Promissory Note	August 2022		11.0	%		200		200
Subordinated Promissory Note	March 2023		11.0	%		-		169
Subordinated Promissory Note	February 2023		10.0	%		600		600
Subordinated Promissory Note	June 2023		10.0	%		400		-
Subordinated Promissory Note	December 2022		5.0	%		3		3
Subordinated Promissory Note	December 2023		11.0	%		20		20
Subordinated Promissory Note	February 2024		11.0	%		20		20
Subordinated Promissory Note	January 2025		10.0	%		15		-
Subordinated Promissory Note	November 2023		9.5	%		200		200
Subordinated Promissory Note	October 2024		10.0	%		700		700
Subordinated Promissory Note	December 2024		10.0	%		100		100
Subordinated Promissory Note	April 2025		10.0	%		202		-
Subordinated Promissory Note	July 2023		8.0	%		100		-
Subordinated Promissory Note	July 2024		5.0	%		1,500		-
Subordinated Promissory Note	September 2023		7.0	%		94		-
Senior Subordinated Promissory Note	March 2022⁽³⁾		10.0	%		334		352
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		1.0	%		-		728
Junior Subordinated Promissory Note	March 2022⁽⁴⁾		22.5	%		-		417
Senior Subordinated Promissory Note	October 2024⁽⁵⁾		1.0	%		720		720
Junior Subordinated Promissory Note	October 2024⁽⁵⁾		20.0	%		447		447
Total other unsecured debts					$	6,401	$	5,911

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

⁽⁴⁾	These notes were issued to the same holder and, when calculated together, yield a blended return of 11% per annum.

⁽⁵⁾	These notes were issued to the same holder and, when calculated together, yield a blended return of 10% per annum.

Redeemable Preferred Equity and Members’ Capital

We strive to maintain a reasonable (about 15%) balance between (1) redeemable preferred equity plus members’ capital and (2) loan assets, net. The ratio of redeemable preferred equity plus members’ capital to loan assets, net was 13.5% and 12.9% as of September 30, 2021 and December 31, 2020, respectively. The ratio increased primarily due to fewer losses related to COVID-19. We anticipate this ratio to increase as we retain earnings for the remainder of 2021.

Priority of Borrowings

The following table displays our borrowings and a ranking of priority. The lower the number, the higher the priority.

	Priority Rank		September 30, 2021		December 31, 2020
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	18,674	$	22,968
Secured line of credit from affiliates		2		–		–
Unsecured line of credit (senior)		3		500		500
PPP loan and EIDL advance		3		–		10
Other unsecured debt (senior subordinated)		4		1,053		1,800
Unsecured Notes through our public offering, gross		5		20,901		21,482
Other unsecured debt (subordinated)		5		4,401		2,747
Other unsecured debt (junior subordinated)		6		447		864

Total			$	45,976	$	50,371

Liquidity and Capital Resources

Our primary liquidity management objective is to meet expected cash flow needs while continuing to service our business and customers. We had 243 and 222 combined loans outstanding as of September 30, 2021 and December 31, 2020, respectively. Gross loans receivable was $51,276 and $50,449 as of September 30, 2021 and December 31, 2020, respectively. Our unfunded commitments to extend credit, which have similar collateral, credit and market risk to our outstanding loans, were $23,906 and $19,495 as September 30, 2021 and December 31, 2020, respectively.

We anticipate an increase in our ~~equity during~~gross loan receivables over the 12 months subsequent to September 30, ~~2020, through retaining earnings~~2021 by directly increasing originations to new and ~~the issuance of additional Series C cumulative preferred equity (“Series C Preferred Units”). If~~existing customers. In addition, business competition has declined; therefore, we ~~are not able to increase our equity through retained earnings or the issuance of additional Series C Preferred Units, we will rely more heavily on raising additional funds through the Notes Program.~~

~~If we anticipate~~believe the ability to ~~not~~return to historical levels may be achieved through the remainder of the year.

To fund our ~~projected increases~~combined loans, we rely on secured debt, unsecured debt, equity and cash, which are described in the following table:

Source of Liquidity	As of September 30, 2021		As of December 31, 2020
Secured debt	$	18,666	$	22,959
Unsecured debt		26,913		26,978
Equity		6,426		5,259
Cash		1,452		4,749

As of September 30, 2021 and December 31, 2020, cash was $1,452 and $4,749, respectively. During the nine months ended September 30, 2021, the Company made the decision to pay down secured debt with high interest rates. The New Line of Credit Agreements decreased $2,550 to $1,609 as of September 30, 2021, compared to $4,159 as of December 31, 2020. In addition, the Shuman Line of Credit Agreement decreased $1,200 to $125 as of September 30, 2021 compared to $1,325 as of December 30, 2020. Secured debt, net of deferred financing costs decreased $4,293 as of September 30, 2021 compared to December 31, 2020 primarily due to the New Secured Line of Credit Agreement and Shuman Line of Credit payments. We anticipate secured debt to increase as our loan receivable balances increase.

Unsecured debt, net of deferred financing costs decreased $65 to $26,913 as ~~discussed above,~~of September 30, 2021 compared to $26,978 as of December 31, 2020.

In addition, in February 2021, we borrowed approximately $361 pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. Funds from the loan may ~~reduce new~~only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan ~~originations to reduce need for additional funds.~~may be forgivable, as provided by the terms of the PPP.

In August 2021, the full principal amount of the PPP loan or $361 and the accrued interest were forgiven by the U.S. Small Business Administration.

Contractual Obligations

The following table shows the maturity of outstanding debt as of September 30, ~~2020:~~2021:

Year Maturing		Total Amount Maturing		Public Offering		Other Unsecured		Secured Borrowings
	2021	$	20,057	$	1,557	$	646	$	17,854
	2022		6,812		6,259		537		16
	2023		4,919		3,433		1,414		72
	2024		8,595		4,881		3,587		127
	2025 and thereafter		5,593		4,771		217		605
	Total	$	45,976	$	20,901	$	6,401	$	18,674

Year Maturing Total Amount Maturing Public
Offering Other
Unsecured⁽¹⁾ Secured Borrowings
2020 $ 25,431 $ 974 $ 2,676 $ 21,781
2021 13,257 12,073 1,168 16
2022 5,541 3,706 1,819 16
2023 1,119 824 189 106
2024 and thereafter 4,705 3,742 120 843
Total $ 50,053 $ 21,319 $ 5,972 $ 22,762

⁽¹⁾

Other Unsecured includes our PPP Loan of $361 and EIDL Advance of $10 of which $21, $247, and $103, collectively, matures during 2020, 2021, and 2022, respectively. All or a portion of the PPP Loan may be forgiven.

The total amount maturing through the year ending December 31, ~~2020~~2021 is ~~$25,431,~~$20,057, which consists of secured borrowings of ~~$21,781~~$17,854 and unsecured borrowings of ~~$3,650.~~$2,203.

Secured borrowings maturing through year ending December 31, ~~2020 significantly~~2021 consist of loan purchase and sale agreements with two loan purchasers (Builder Finance, Inc. and S. K. Funding, LLC) and six lenders. Our secured borrowings are classified as maturing during ~~2020~~2021 primarily because the related collateral is demand loans. The following lists our secured facilities with maturity and renewal dates:

	●	Swanson – ~~$5,862~~$7,000 due July ~~2021,~~2022, will automatically renew unless notice is given;
	●	Shuman ~~– $1,325~~- $125 due July ~~2021,~~2022, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – $3,500 of the total due ~~July 2021,~~April 2022, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – ~~$1,291~~$2,000 with no expiration date;
	●	Builder Finance, Inc. – ~~$6,202~~$3,616 with no expiration date;
	●	New LOC ~~Agreements~~agreements – ~~$3,596~~$1,609 generally one-month notice and six months to reduce principal balance to zero;
	●	Mortgage payable – $4 due ~~monthly; and~~
	●	~~Wallach LOC – $1 with no expiration date.~~monthly.

Unsecured borrowings due by December 31, ~~2020~~2021 consist of Notes issued pursuant to the Notes Program and other unsecured debt of ~~$974~~$1,557 and ~~$2,676,~~$646, respectively. To the extent that Notes issued pursuant to the Notes Program are not reinvested upon maturity, we will be required to fund the maturities, which we anticipate funding through the issuance of new Notes in our Notes Program. Historically, approximately ~~80%~~77% of our Note holders reinvest upon maturity. Our other unsecured debt has historically renewed. For more information on other unsecured borrowings, see Note 6 – Borrowings. If other unsecured borrowings are not renewed in the future, we anticipate funding such maturities through investments in our Notes Program.

Series C cumulative preferred units (“Series C Preferred Units”) are redeemable by the Company at any time, upon a change of control or liquidation, or by the investor any time after six years from the initial date of purchase. The following table shows the earliest redemption options for investors in our Series C Preferred Units as of September 30, 2021:

Year Maturing	Total Amount Redeemable

2024	$	3,160
2025		390
2026		309
2027		840

Total	$	4,699

Summary

We have the funding available to address the loans we have today, including our unfunded commitments. We anticipate growing our assets through the net sources and uses (12-month liquidity) listed above as well as future capital increases from debt, redeemable preferred equity, and regular equity. Our expectation to grow loan asset balances is subject to changes due to changes in demand, competition, and COVID-19. Although our secured debt is almost entirely listed as currently due because of the underlying collateral being demand notes, the vast majority of our secured debt is either contractually set to automatically renew unless notice is given or, in the case of purchase and sale agreements, has no end date as to when the purchasers will not purchase new loans (although they are never required to purchase additional loans).

Inflation, Interest Rates, and Housing Starts

Since we are in the housing industry, we are affected by factors that impact that industry. Housing starts impact our customers’ ability to sell their homes. Faster sales generally mean higher effective interest rates for us, as the recognition of fees we charge is spread over a shorter period. Slower sales generally mean lower effective interest rates for us. Slower sales also are likely to increase the default rate we experience.

Housing inflation generally has a positive impact on our operations. When we lend initially, we are lending a percentage of a home’s expected value, based on historical sales. If those estimates prove to be low (in an inflationary market), the percentage we loaned of the value actually decreases, reducing potential losses on defaulted loans. The opposite is true in a deflationary housing price market. It is our opinion that values are average in many of the housing markets in the U.S. today, and our lending against these values is safer than loans made by financial institutions in 2006 to 2008. Our analysis of the COVID-19 ~~impact~~impacts on housing in the markets in which we do business is mixed. In many markets, our customers see demand as outpacing new housing starts. In Orlando, Florida (which is our second highest geographic concentration risk by borrower), there has been a significant lack of demand for housing sold by customers who sell more affordable homes, which has resulted in losses that we recognized in the ~~third~~second quarter of 2020. We note that nationwide, fewer first-time home buyers will qualify for government backed loans due to FICO score and other criteria changes.

Interest rates have several impacts on our business. First, rates affect housing (starts, home size, etc.). High long-term interest rates may decrease housing starts, having the effects listed above. Higher interest rates will also affect our investors. We believe that there will be a spread between the rate our Notes yield to our investors and the rates the same investors could get on deposits at FDIC insured institutions. We also believe that the spread may need to widen if these rates rise. ~~For instance, if we pay 7% above average CD rates when CDs are paying 0.5%, when CDs are paying 3%, we may have to have a larger than 7% difference.~~ This may cause our lending rates, which are based on our cost of funds, to be uncompetitive. High interest rates may also increase builder defaults, as interest payments may become a higher portion of operating costs for the builder. Higher short-term rates may increase the rates builders are charged by banks faster than our rates to the builder will grow, which might be a benefit for us. Below is a chart showing three-year U.S. treasury rates, which are being used by us here to approximate CD rates. The rates we are paying our investors are going down due to COVID-19, including the rate on our ~~three-month~~36-month Note which has additional redemption options but lower returns, because other alternative investments are paying lower rates. This in turn will lower the rates to our borrowers over time. ~~We also anticipate lower cost secured funding in the fourth quarter of 2020 which will also lower both our cost of funds and the rate we charge our customers.~~

Housing prices are also generally correlated with housing starts, so that increases in housing starts usually coincide with increases in housing values, and the reverse is generally true. Below is a graph showing single family housing starts from 2000 through today.

Source: U.S. Census Bureau

To date, changes in housing starts, CD rates, and inflation have not had a material impact on our business.

~~Off-Balance Sheet Arrangements~~

~~As of both September 30, 2020 and December 31, 2019, we had no off-balance sheet transactions, nor do we currently have any such arrangements or obligations.~~

~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management including our Chief Executive Officer (our principal executive officer) and ~~Acting~~ Chief Financial Officer (our principal financial officer) evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our CEO (our principal executive officer) and ~~Acting~~ CFO (our principal financial officer) concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our CEO (our principal executive officer) and ~~Acting~~ CFO (our principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during the quarter ended September 30, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

~~None.~~ITEM 1. LEGAL PROCEEDINGS

None.

~~ITEM 1A.~~

~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

Not applicable.

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Reinvestments in Partial Series C Cumulative Preferred Units

Investors in the Series C cumulative preferred units (“Series C Preferred Units”) may elect to reinvest their distributions in additional Series C Preferred Units (the “Series C Reinvestment Program”). Pursuant to the Series C Reinvestment Program, we issued the following Series C Preferred Units ~~as of~~on September 30, ~~2020:~~2021:

Owner	Units		Amount		Units		Amount
Daniel M. and Joyce S. Wallach		1.3314226	$	133,142.26		0.5150938	$	51,509.38
Gregory L. and Madeline M. Sheldon		0.3158608		31,586.08
Gregory L. Sheldon and Madeline M. Sheldon						0.1221986		12,219.86
BLDR, LLC		0.4307552		43,075.52		0.1666483		16,664.83
Schultz Family Living Trust		0.1071557		10,715.57		0.0414558		4,145.58
Jeffrey L. Eppinger		0.3636120		36,361.20
Fernando Ascencio and Lorraine Carol Ascencio		0.2004889		20,048.89		0.0775640		7,756.40
Mark and Tris Ann Garboski						0.1560958		15,609.58
Total		2.7492952	$	274,929.52		1.0790563	$	107,905.63

The proceeds received from the sales of the partial Series C Preferred Units in these transactions were used for the funding of construction loans. The transactions in Series C Preferred Units described above were effected in private transactions exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). The transactions described above did not involve any public offering, were made without general solicitation or advertising, and the buyer represented to us that he/she/it is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series C Preferred Units.

~~Issuance of Partial Series B Cumulative Preferred Units~~

We previously entered into an agreement with the Hoskins Group (consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark L. Hoskins) pursuant to which we sell the Hoskins Group 0.1 Series B cumulative preferred units (“Series B Preferred Units”) upon the closing of certain lots. We issued 0.3 Series B Preferred Units to the Hoskins Group during the quarter ended September 30, 2020.

The proceeds received from the sales of the Series B Preferred Units in those transactions were used for the funding of construction loans. The transactions in Series B Preferred Units described above were effected in private transactions exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. The transactions described above did not involve any public offering, were made without general solicitation or advertising, and the buyers represented to us that they are an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series B Preferred Units.

~~(b)~~

The proceeds received from the sales of the partial Series C Preferred Units in these transactions were used for the funding of construction loans. The transactions in Series C Preferred Units described above were effected in private transactions exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”) under Section 4(a)(2) of the Securities Act. The transactions described above did not involve any public offering, were made without general solicitation or advertising, and the buyer represented to us that the buyer is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series C Preferred Units.

Issuance of Partial Series B Cumulative Preferred Units

We previously entered into an agreement with the Hoskins Group (consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark L. Hoskins) pursuant to which we sell the Hoskins Group 0.1 Series B cumulative preferred units (“Series B Preferred Units”) upon the closing of certain lots. We issued 0.2 Series B Preferred Units to the Hoskins Group during the quarter ended September 30, 2021.

The proceeds received from the sale of the Series B Preferred Units in that transaction were used for the funding of construction loans. The transaction in Series B Preferred Units described above was effected in a private transaction exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. The transaction described above did not involve any public offering, was made without general solicitation or advertising, and the buyers represented to us that they are an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series B Preferred Units.

	(b)	We registered up to $70,000,000 in Fixed Rate Subordinated Notes (“Notes”) in our current public offering, which is our third public offering of Notes (SEC File No. 333-224557, effective March 22, 2019). As of September 30, ~~2020,~~2021, we had issued ~~$15,198,000~~$34,040,000 in Notes pursuant to our current public offering. As of September 30, ~~2020,~~2021, we incurred expenses of ~~$484,000~~$588,000 in connection with the issuance and distribution of the Notes in our current public offering, which were paid to third parties. These expenses were not for underwriters or discounts, but were for advertising, printing, and professional services. Net offering proceeds as of September 30, ~~2020~~2021 were ~~$14,714,000,~~$33,452,000, all of which was used to increase loan balances.

	(c)	None.

~~(c)~~

~~None.~~

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

~~ITEM 5.~~

~~OTHER INFORMATION~~

ITEM 5. OTHER INFORMATION

	(a)	During the quarter ended September 30, ~~2020,~~2021, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.

	(b)	During the quarter ended September 30, ~~2020,~~2021, there were no material changes to the procedures by which members may recommend nominees to our board of managers.

~~ITEM 6.~~

~~EXHIBITS~~

ITEM 6. EXHIBITS

The exhibits required to be filed with this report are set forth on the Exhibit Index hereto and incorporated by reference herein.

EXHIBIT INDEX

The following exhibits are included in this report on Form 10-Q for the period ended September 30, ~~2020~~2021 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.		Name of Exhibit
3.1		Certificate of Conversion, incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, filed on May 11, 2012, Commission File No. 333-181360

3.2		Certificate of Formation, incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, filed on May 11, 2012, Commission File No. 333-181360

3.3		Second Amended and Restated Operating Agreement of the ~~Company,~~Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on November 13, 2017, Commission File No. 333-203707

3.4		Amendment No. 1 to ~~the Registrant’s~~ Second Amended and Restated ~~Operating~~Limited Liability Company Agreement ~~dated as~~ of ~~March 21, 2019,~~the Registrant, incorporated by reference to Exhibit 3.4 to the ~~Company’s~~Registrant’s Quarterly Report on Form 10-Q, filed on May 9, 2019, Commission File No. 333-203707

3.5		Amendment No. 2 to Second Amended and Restated Limited Liability Company Agreement of the Registrant, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed March 31, 2020, Commission File No. 333-224557

4.1		Indenture Agreement (including Form of Note) dated March 22, 2019, incorporated by reference to Exhibit 4.1 to the ~~Company’s~~Registrant’s Post-Effective Amendment No. 1, filed on March 22, 2019, Commission File No. 333-224557

4.2		Amendment No. 1 to Indenture Agreement (including Form of Note) dated February 4, 2020, incorporated by reference to Exhibit 4.1 to the Registrant’s Post-Effective Amendment No. 4, filed on February 4, 2020, Commission File No. 333-224557

31.1*4.3		Amendment No. 2 to Indenture Agreement (including Form of Note) dated July 27, 2021, incorporated by reference to Exhibit 4.1 to the Registrant’s Post-Effective Amendment No. 8, filed on July 27, 2021, Commission File No. 333-224557

31.1*		Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

101.INS101.INS^		XBRL Instance Document - the instance document does not appear in the Interactive Data File Because its XBRL tags are embedded within the Inline XBRL document

101.SCH**		Inline XBRL Schema Document

101.CAL**		Inline XBRL Calculation Linkbase Document

101.DEF**		Inline XBRL Definition Linkbase Document

101.LAB**		Inline XBRL Labels Linkbase Document

101.PRE**		Inline XBRL Presentation Linkbase Document

104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Pursuant to Regulation 406T of Regulation S-T, these Interactive Data Files are deemed not filed or part of a registration statement or prospectus for purpose of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SHEPHERD’S FINANCE, LLC (Registrant)

Dated: November ~~5, 2020~~12, 2021	By:	/s/ Catherine Loftin
		Catherine Loftin
		~~Acting~~ Chief Financial Officer

	September 30, 2020				Quoted Prices in Active Markets for Identical		Significant Other Observable		Significant Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3

Foreclosed assets	$	3,690	$	3,690	$	-	$	-	$	3,690
Impaired loans due to COVID-19, net		9,107		9,107		-		-		9,107
Other impaired loans, net		1,625		1,625		-		-		1,625
Total	$	14,422	$	14,422	$	-	$	-	$	14,422

	December 31, 2019				Quoted Prices in Active Markets for Identical		Significant Other Observable		Significant Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3

Foreclosed assets	$	4,916	$	4,916	$	-	$	-	$	4,916
Impaired assets, net		1,487		1,487		-		-		1,487
Total	$	6,403	$	6,403	$	-	$	-	$	6,403

	Nine Months Ended September 30, 2020			Year Ended December 31, 2019			Nine Months Ended September 30, 2019

Beginning balance	$	4,916		$	5,973		$	5,973
Additions from loans		279			3,352			2,006
Additions for construction/development		801			763			608
Sale proceeds		(2,246	)		(4,543	)		(4,543	)
Loss on sale		(86	)		(274	)		(274	)
Gain on foreclosure		-			203			181
Gain on sale of foreclosed assets		138			-			-
Impairment gain on foreclosed assets		68			-			-
Impairment gain on foreclosed assets due to COVID-19		27			-			-
Loss on foreclosure		(2	)		-			(169	)
Impairment loss on foreclosed assets		(114	)		-			(107	)
Impairment loss on foreclosed assets due to COVID-19		(91	)		(558	)		-
Ending balance	$	3,690		$	4,916		$	3,675

	Priority Rank	September 30, 2020		December 31, 2019
Borrowing Source
Purchase and sale agreements and other secured borrowings	1	$	22,762	$	26,806
Secured lines of credit from affiliates	2		1		189
Unsecured line of credit (senior)	3		-		500
PPP Loan and EIDL Advance	3		371		-
Other unsecured debt (senior subordinated)	4		1,377		1,407
Unsecured Notes through our public offering, gross	5		21,319		20,308
Other unsecured debt (subordinated)	5		3,633		4,131
Other unsecured debt (junior subordinated)	6		590		590

Total		$	50,053	$	53,931

	September 30, 2020				December 31, 2019
	Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender		Book Value of Loans which Served as Collateral		Due from Shepherd’s Finance to Loan Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	8,860	$	6,202	$	13,711	$	9,375
S.K. Funding, LLC		7,063		4,791		10,394		6,771

Lender
Stephen K. Shuman		1,722		1,325		1,785		1,325
Jeffrey Eppinger		3,170		1,500		1,821		1,000
Hardy Enterprises, Inc.		1,726		1,000		1,684		1,000
Gary Zentner		389		250		472		250
R. Scott Summers		1,416		847		841		628
Paul Swanson		8,304		5,862		8,377		5,824
Total	$	32,650	$	21,777	$	39,085	$	26,173

	Nine Months Ended September 30, 2020			Year Ended December 31, 2019			Nine Months Ended September 30, 2019

Gross Notes outstanding, beginning of period	$	20,308		$	17,348		$	17,348
Notes issued		6,454			11,127			9,201
Note repayments / redemptions		(5,443	)		(8,167	)		(5,793	)

Gross Notes outstanding, end of period	$	21,319		$	20,308		$	20,756

Less deferred financing costs, net		435			416			425

Notes outstanding, net	$	20,884		$	19,892		$	20,331

					Principal Amount Outstanding as of
Loan	Maturity Date	Interest Rate⁽¹⁾			September 30, 2020		December 31, 2019
Unsecured Note with Seven Kings Holdings, Inc.	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Paul Swanson	October 2020⁽⁶⁾		10.0	%		1,138		1,176
Subordinated Promissory Note	October 2020		9.5	%		563		563
Subordinated Promissory Note	December 2021		10.5	%		146		146
Subordinated Promissory Note	April 2024		10.0	%		100		100
Subordinated Promissory Note	April 2021		10.0	%		174		174
Subordinated Promissory Note	August 2022		11.0	%		200		200
Subordinated Promissory Note	March 2023		11.0	%		169		169
Subordinated Promissory Note	April 2020		6.5	%		-		500
Subordinated Promissory Note	February 2021		11.0	%		600		600
Subordinated Promissory Note	Demand		5.0	%		-		500
Subordinated Promissory Note	December 2020		5.0	%		3		3
Subordinated Promissory Note	December 2023		11.0	%		20		-
Subordinated Promissory Note	February 2024		11.0	%		20		-
Senior Subordinated Promissory Note	March 2022⁽³⁾		10.0	%		370		400
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		1.0	%		728		728
Junior Subordinated Promissory Note	March 2022⁽⁴⁾		22.5	%		417		417
Senior Subordinated Promissory Note	October 2020⁽⁵⁾		1.0	%		279		279
Junior Subordinated Promissory Note	October 2020⁽⁵⁾		20.0	%		173		173
					$	5,600	$	6,628

Year of Available Redemption	Total Amount Redeemable

2024	$	2,963
2025		234
Total	$	3,197

	For the Nine Months Ended September 30,
	2020		2019
Selling, general and administrative expenses
Legal and accounting	$	202	$	211
Salaries and related expenses		684		1,143
Board related expenses		74		66
Advertising		54		102
Rent and utilities		36		36
Loan and foreclosed asset expenses		303		179
Travel		105		101
Other		78		109
Total SG&A	$	1,536	$	1,947

	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020		2019
Selling, general and administrative expenses
Legal and accounting	$	21		$	37	$	202	$	211
Salaries and related expenses		200			359		684		1,143
Board related expenses		24			25		74		66
Advertising		18			52		54		102
Rent and utilities		13			11		36		36
Loan and foreclosed asset expenses		69			132		303		179
Travel		23			55		105		101
Other		(1	)		32		78		109
Total SG&A	$	367		$	703	$	1,536	$	1,947

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona		2		3	$	2,289	$	1,290	$	754		56	%		5	%
Connecticut		1		1		343		226		141		66	%		5	%
Delaware		1		1		585		410		142		70	%		5	%
Florida		17		108		30,425		24,375		17,485		80	%		5	%
Georgia		2		2		595		452		430		76	%		5	%
Idaho		1		2		700		490		259		70	%		5	%
Illinois		1		1		1,245		747		368		60	%		5	%
Indiana		1		1		347		243		233		70	%		5	%
Michigan		4		10		2,713		2,112		775		78	%		5	%
New Jersey		2		8		2,495		2,415		1,728		97	%		5	%
New York		3		3		2,433		1,235		1,252		51	%		5	%
North Carolina		6		20		5,118		3,542		1,640		69	%		5	%
Ohio		3		9		3,794		2,520		1,584		66	%		5	%
Oregon		1		2		1,267		887		475		70	%		5	%
Pennsylvania		3		20		19,193		12,102		8,925		63	%		5	%
South Carolina		8		20		5,878		4,419		2,438		75	%		5	%
Tennessee		3		5		2,169		1,463		297		67	%		5	%
Texas		4		7		2,405		1,684		1,167		70	%		5	%
Utah		2		6		2,558		1,822		1,469		71	%		5	%
Washington		1		5		1,769		1,162		474		66	%		5	%
Wisconsin		1		1		539		332		332		62	%		5	%
Total		67		235	$	88,860	$	63,928	$	42,368		72	%⁽³⁾		5	%

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Colorado		1		1	$	630	$	425	$	424		67	%		5	%
Connecticut		1		1		340		224		55		66	%		5	%
Florida		17		112		32,259		24,031		16,826		74	%		5	%
Georgia		3		4		2,085		1,343		917		64	%		5	%
Idaho		1		1		310		217		173		70	%		5	%
Indiana		2		3		1,687		1,083		383		64	%		5	%
Michigan		4		11		3,696		2,566		1,820		69	%		5	%
New Jersey		3		6		1,925		1,471		1,396		76	%		5	%
New York		2		3		1,370		940		743		69	%		5	%
North Carolina		6		20		5,790		4,009		2,471		69	%		5	%
Ohio		3		9		4,117		2,664		2,153		65	%		5	%
Oregon		1		2		1,137		796		739		70	%		5	%
Pennsylvania		3		24		20,791		13,322		11,772		64	%		5	%
South Carolina		11		25		8,809		6,419		4,786		73	%		5	%
Tennessee		3		4		1,367		1,069		503		78	%		5	%
Texas		3		4		1,984		1,270		843		64	%		5	%
Utah		2		4		1,862		1,389		1,000		75	%		5	%
Virginia		1		3		1,245		815		734		65	%		5	%
Washington		1		2		1,040		728		445		70	%		5	%
Wisconsin		1		1		539		332		285		62	%		5	%
Wyoming		1		1		228		160		143		70	%		5	%
Total		70		241	$	93,211	$	65,273	$	48,611		70	%⁽³⁾		5	%

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount⁽²⁾		Gross Amount Outstanding		Loan to Value Ratio⁽³⁾			Interest Spread
Pennsylvania		1		3	$	8,425	$	8,200	$	7,583		90	%		7	%
Florida		2		2		843		898		730		87	%		7
North Carolina		1		1		400		260		136		34	%		7
South Carolina		1		2		1,080		1,250		704		65	%		7
Total		5		8	$	10,748	$	10,608	$	9,153		86	%⁽⁴⁾		7	%

	Nine Months Ended September 30, 2020			Year Ended December 31, 2019			Nine Months Ended September 30, 2019

Beginning balance	$	55,369		$	46,490		$	46,490
Additions		33,347			56,842			41,902
Principal collections		(37,511	)		(45,009	)		(34,551	)
Transferred to foreclosed assets		(279	)		(3,352	)		(2,006	)
Transferred to real estate investments		(1,140	)		-			-
Change in builder deposit		(48	)		157			25
Loan loss provision		(1,665	)		(49	)		(201	)
Change in loan fees, net		(89	)		290			265
Ending balance	$	47,984		$	55,369		$	51,924

	Nine Months Ended September 30, 2020			Year Ended December 31, 2019			Nine Months Ended September 30, 2019

Beginning balance	$	643		$	939		$	939
Preferred equity dividends		73			136			100
Additions from Pennsylvania loans		819			1,107			964
Additions from other loans		308			768			570
Interest, fees, principal or repaid to borrower		(1,396	)		(2,307	)		(1,659	)
Ending balance	$	447		$	643		$	914

Source of Liquidity	As of September 30, 2020		As of December 31, 2019
Secured debt, net of deferred financing costs	$	22,753	$	26,991
Unsecured debt, net of deferred financing costs		26,484		26,520
Equity		4,753		7,147

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured⁽¹⁾		Secured Borrowings
2020	$	25,431	$	974	$	2,676	$	21,781
2021		13,257		12,073		1,168		16
2022		5,541		3,706		1,819		16
2023		1,119		824		189		106
2024 and thereafter		4,705		3,742		120		843
Total	$	50,053	$	21,319	$	5,972	$	22,762