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 ~~June~~September 30, 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 Boulevard, Suite 2401, Jacksonville, Florida 32258

(Address of principal executive offices)

(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 ~~June~~September 30, 2021 (Unaudited) and December 31, 2020	4

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

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

Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 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	18

Item 3. Quantitative and Qualitative Disclosure About Market Risk	35

Item 4. Controls and Procedures	35

PART II. OTHER INFORMATION	35

Item 1. Legal Proceedings	35

Item 1A. Risk Factors	35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3. Defaults upon Senior Securities	36

Item 4. Mine Safety Disclosures	36

Item 5. Other Information	3736

Item 6. Exhibits	3736

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, 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, 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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Balance Sheets


(in thousands of dollars)	June 30, 2021			December 31, 2020		September 30, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
Assets
Cash and cash equivalents	$	6,118		$	4,749	$	1,452	$	4,749
Accrued interest receivable		371			601		483		601
Loans receivable, net		45,533			46,405		47,457		46,405
Real estate investments		1,240			1,181		1,258		1,181
Foreclosed assets, net		3,065			4,449		2,747		4,449
Premises and equipment		887			903		881		903
Other assets		1,048			981		992		981
Total assets	$	58,262		$	59,269	$	55,270	$	59,269

Liabilities and Members’ Capital
Customer interest escrow	$	527		$	510	$	568	$	510
Accounts payable and accrued expenses		441			289		323		289
Accrued interest payable		2,727			3,158		2,250		3,158
Notes payable secured, net of deferred financing costs		21,109			22,959		18,666		22,959
Notes payable unsecured, net of deferred financing costs		27,214			26,978		26,913		26,978
PPP loan and EIDL advance		361			10		-		10
Due to preferred equity member		-			106		124		106
Total liabilities	$	52,379		$	54,010	$	48,844	$	54,010

Commitments and Contingencies (Note 10)		-			-		-

Redeemable Preferred Equity
Series C preferred equity	$	4,591		$	3,582	$	4,699	$	3,582

Members’ Capital
Series B preferred equity		1,690			1,630		1,710		1,630
Class A common equity		(398	)		47		17		47
Members’ capital	$	1,292		$	1,677	$	1,727	$	1,677

Total liabilities, redeemable preferred equity and members’ capital	$	58,262		$	59,269	$	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 ~~Six~~Nine Months ended ~~June~~September 30, 2021 and 2020


	Three Months Ended						Six Months Ended						Three Months Ended				Nine Months Ended
	June 30,						June 30,						September 30,				September 30,
(in thousands of dollars)	2021			2020			2021			2020			2021		2020		2021			2020
Interest Income
Interest and fee income on loans	$	1,944		$	1,356		$	3,722		$	3,931		$	2,063	$	1,909	$	5,785		$	5,841
Interest expense:
Interest related to secured borrowings		518			810			1,075			1,627			446		727		1,521			2,354
Interest related to unsecured borrowings		801			774			1,611			1,542			787		793		2,398			2,335
Interest expense		1,319			1,584			2,686			3,169			1,233		1,520		3,919			4,689

Net interest income (loss)		625			(228	)		1,036			762
Net interest income														830		389		1,866			1,152

Less: Loan loss provision		45			1,560			259			1,595			83		70		342			1,665

Net interest income (loss) after loan loss provision		580			(1,788	)		777			(833	)		747		319		1,524			(513	)

Non-Interest Income
Gain on extinguishment of debt		-			-			10			-			361		-		371			-
Impairment gain on foreclosed assets														-		95		-			95
Gain on sale of foreclosed assets		13			3			101			3			64		135		165			138

Total non-interest income		13			3			111			3			425		230		536			233

Income (Loss)		593			(1,785	)		888			(830	)		1,172		549		2,060			(280	)

Non-Interest Expense
Selling, general and administrative		438			462			975			1,169			483		367		1,458			1,536
Depreciation and amortization		13			21			29			43			12		21		41			64
Loss on foreclosure of assets		-			-			-			35			-		2		-			2
Loss on sale of foreclosed assets		51			-			69			-			-		51		69			86
Impairment loss on foreclosed assets		-			91			10			200			-		4		10			205
Total non-interest expense		502			574			1,083			1,447			495		445		1,578			1,893

Net Income (Loss)	$	91		$	(2,359	)	$	(195	)	$	(2,277	)	$	677	$	104	$	482		$	(2,173	)

Earned distribution to preferred equity holders		135			92			250			218			262		104		512			322

Net loss attributable to common equity holders	$	(44	)	$	(2,451	)	$	(445	)	$	(2,495	)
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 ~~Six~~Nine and Three Months Ended ~~June~~September 30, 2021 and 2020

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


(in thousands of dollars)	2021			2020			2021			2020

Members’ capital, beginning balance, December 31	$	1,677		$	4,188		$	1,677		$	4,188
Net loss less distributions to Series C preferred equity holders of $250 and $181		(445	)		(2,458	)
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		60			50			80			80
Earned distributions to Series B preferred equity holders		-			(37	)		(124	)		(47	)
Distributions to common equity holders		-			(217	)		-			(217	)
Members’ capital, ending balance, June 30	$	1,292		$	1,526
Members’ capital, ending balance, September 30							$	1,727		$	1,556

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

(in thousands of dollars)	2021			2020			2021			2020

Members’ capital, beginning balance, March 31	$	1,286		$	3,927
Net loss less distributions to Series C preferred equity holders of $135 and $92		(44	)		(2,451	)
Members’ capital, beginning balance, June 30							$	1,292		$	1,526
Net income less distributions to Series C preferred equity holders of $138 and $94								539			10
Contributions from Series B preferred equity holders		50			50			20			30
Earned distributions to Series B preferred equity holders		-			-			(124	)		(10	)
Distributions to common equity holders		-			-			-			-
Members’ capital, ending balance, June 30	$	1,292		$	1,526
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 ~~Six~~Nine Months Ended ~~June~~September 30, 2021 and 2020


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

Cash flows from operations
Net loss	$	(195	)	$	(2,277	)
Adjustments to reconcile net loss to net cash provided by (used in) 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		80			79			122			112
Provision for loan losses		259			1,595			342			1,665
Change in loan origination fees, net		488			(203	)		258			89
Gain on sale of foreclosed assets		(101	)		(3	)		(165	)		(138	)
Loss on sale of foreclosed assets		69			35			69			86
Impairment and loss on foreclosed assets		10			200
Loss on foreclosure of assets								-			2
Impairment of foreclosed assets, net								10			110
Depreciation and amortization		29			43			41			64
Gain on extinguishment of debt		(10	)		-			(371	)		86
Net change in operating assets and liabilities:
Other assets		(80	)		(83	)		(30	)		(313	)
Accrued interest receivable		230			394			118			283
Customer interest escrow		(89	)		(167	)		(48	)		(270	)
Accrued interest payable		(431	)		167			(908	)		514
Accounts payable and accrued expenses		152			(313	)		34			(232	)

Net cash provided by (used in) operating activities		411			(533	)
Net cash used in operating activities								(46	)		(201	)

Cash flows from investing activities
Loan additions and principal collections, net		(149	)		3,040			(1,926	)		4,212
Investment in foreclosed assets		(439	)		(686	)		(612	)		(801	)
Additions for construction in real estate investments		(59	)		-			(277	)		-
Deposits from construction in real estate investments								200			-
Proceeds from the sale of foreclosed assets		2,119			348			2,674			2,246

Net cash provided by investing activities		1,472			2,702			59			5,657

Cash flows from financing activities
Contributions from preferred B equity holders		60			50			80			80
Contributions from preferred C equity holders		800			-			800			-
Distributions to preferred equity holders		(41	)		(24	)		(71	)		(37	)
Distributions to common equity holders		-			(217	)		-			(217	)
Proceeds from secured notes payable		5,018			7,302			6,088			9,739
Repayments of secured notes payable		(7,183	)		(8,879	)		(10,696	)		(14,010	)
Proceeds from unsecured notes payable		6,373			6,604			8,975			7,391
Redemptions/repayments of unsecured notes payable		(5,830	)		(6,594	)		(8,752	)		(7,369	)
Proceeds from PPP Loan and EIDL Advance		361			371			361			371
Deferred financing costs paid		(72	)		(124	)		(95	)		(137	)

Net cash used in financing activities		(514	)		(1,511	)		(3,310	)		(4,189	)

Net increase in cash and cash equivalents		1,369			657
Net (decrease) increase in cash and cash equivalents								(3,297	)		1,267

Cash and cash equivalents
Beginning of period		4,749			1,883			4,749			1,883
End of period	$	6,118		$	2,540		$	1,452		$	3,150

Supplemental disclosure of cash flow information
Cash paid for interest	$	3,117		$	3,002		$	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		$	106		$	74
Earned by Series B preferred equity holders but not distributed to customer interest escrow							$	124		$	10
Earned but not paid distributions of Series C preferred equity holders	$	250		$	181		$	388		$	275
Secured transferred to unsecured notes payable	$	315		$	1,116
Unsecured transferred to secured notes payable							$	315		$	38
Transfer of loan receivables to real estate investments	$	-		$	1,140		$	-		$	1,140
Foreclosure of assets transferred from loans receivable, net	$	274		$	-		$	274		$	279
EIDL advance forgiveness in reduction of debt	$	10		$	0		$	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, Shepherd’s Stable Investments, LLC. The Company operates pursuant to its Second Amended and Restated 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, and as subsequently amended.

The Company extends commercial loans to residential homebuilders (in 2322 states as of ~~June~~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 unaudited interim condensed consolidated financial statements for the period ended ~~June~~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, 2021. These unaudited interim condensed consolidated financial statements should be read in conjunction with the 2020 consolidated financial statements and notes thereto (the “2020 Financial Statements”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”). The accounting policies followed by the Company are set forth in Note 2 – Summary of Significant Accounting Policies in the 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. 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.

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 ~~June~~September 30, 2021 and December 31, 2020.

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

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

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

Foreclosed assets, net	$	3,065	$	3,065	$	–	$	–	$	3,065	$	2,747	$	2,747	$	–	$	–	$	2,747
Impaired loans due to COVID-19, net		5,076		5,076		–		–		5,076		5,035		5,035		–		–		5,035
Other impaired loans, net		1,046		1,046		–		–		1,046		2,915		2,915		–		–		2,915
Total	$	9,187	$	9,187	$	–	$	–	$	9,187	$	10,697	$	10,697	$	–	$	–	$	10,697

	December 31, 2020				Quoted Prices in Active Markets for Identical		Significant Other Observable		Significant Unobservable		December 31, 2020				Quoted Prices in Active Markets		Significant Other		Significant
	Carrying Amount		Estimated Fair Value		Assets Level 1		Inputs Level 2		Inputs Level 3		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	$	4,449	$	4,449	$	–	$	–	$	4,449
Impaired loans due to COVID-19, net		9,054		9,054		–		–		9,054		9,054		9,054		–		–		9,054
Other impaired loans, net		1,064		1,064		–		–		1,064		1,064		1,064		–		–		1,064
Total	$	14,567	$	14,567	$	–	$	–	$	14,567	$	14,567	$	14,567	$	–	$	–	$	14,567

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

Schedule of Fair Value Estimates for Financial Instruments


	June 30, 2021				December 31, 2020				September 30, 2021				December 31, 2020
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value		Amount		Fair Value		Amount		Fair Value
Financial Assets
Cash and cash equivalents	$	6,118	$	6,118	$	4,749	$	4,749	$	1,452	$	1,452	$	4,749	$	4,749
Loans receivable, net		45,533		45,533		46,405		46,405		47,457		47,457		46,405		46,405
Accrued interest on loans		371		371		601		601		483		483		601		601
Financial Liabilities
Customer interest escrow		527		527		510		510		568		568		510		510
Notes payable secured, net		21,109		21,109		22,959		22,959		18,666		18,666		22,959		22,959
Notes payable unsecured, net		27,214		27,214		26,978		26,978		26,913		26,913		26,978		26,978
PPP loan and EIDL advance		361		361		10		10		-		-		10		10
Accrued interest payable		2,727		2,727		3,158		3,158		2,250		2,250		3,158		3,158

3. Financing Receivables

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

Schedule of Financing Receivables

	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Loans receivable, gross	$	49,755		$	50,449		$	51,276		$	50,449
Less: Deferred loan fees		(1,669	)		(1,092	)		(1,354	)		(1,092	)
Less: Deposits		(1,276	)		(1,337	)		(1,020	)		(1,337	)
Plus: Deferred origination costs		442			353			357			353
Less: Allowance for loan losses		(1,719	)		(1,968	)		(1,802	)		(1,968	)

Loans receivable, net	$	45,533		$	46,405		$	47,457		$	46,405

The allowance for loan losses as of ~~June~~September 30, 2021 was $~~1,719~~1,802, of which $~~167~~165 is related to loans without specific reserves. The Company recorded specific reserves for loans impaired due to impacts from COVID-19 of $~~1,413~~1,483, special mention loans of $60, and impaired loans not due to impacts from COVID-19 of $7994. As of December 31, 2020, the allowance was $1,968, of which $151 is related to loans without specific reserves.

During the quarter and ~~six~~nine months ended ~~June~~September 30, 2021, we incurred $~~227~~ 0and $509in direct charge-offs, respectively, compared to $72for the year ended December 31, 2020.

Commercial Construction and Development Loans

Construction Loan Portfolio Summary

As of ~~June~~September 30, 2021, the Company’s portfolio consisted of ~~237~~228 commercial construction and 1115 development loans with 6867 borrowers in 2322 states.

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

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

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

237

101,070

68,727

41,866

%⁽³⁾

228

99,984

67,253

43,347

%⁽³⁾

2020

213

86,268

61,714

42,219

%⁽³⁾

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.

Real Estate Development Loan Portfolio Summary

The following is a summary of our loan portfolio to builders for land development as of ~~June~~September 30, 2021 and December 31, 2020:

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

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

11,767

11,356

7,889

%⁽⁴⁾

varies

11,892

9,217

7,929

%⁽⁴⁾

varies

2020

11,628

10,815

8,230

%⁽⁴⁾

11,628

10,815

8,230

%⁽⁴⁾

⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid. For ~~June~~September 30, 2021 and December 31, 2020, a portion of this collateral is $~~1,690~~1,710 and $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, “Receivables - Disclosures.” See our 2020 Form 10-K, as filed with the SEC, for more information.

Gross finance receivables – By risk rating:

Summary of Finance Receivables by Classification

	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Pass	$	39,234	$	35,544	$	39,715	$	35,544
Special mention		2,907		3,089		2,033		3,089
Classified – accruing		–		–		–		–
Classified – nonaccrual		7,614		11,816		9,528		11,816

Total	$	49,755	$	50,449	$	51,276	$	50,449

Finance Receivables – Method of impairment calculation:

Schedule of Finance Receivables Impairment Calculation Method

	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Performing loans evaluated individually	$	15,907	$	16,412	$	17,315	$	16,412
Performing loans evaluated collectively		26,233		22,221		24,433		22,221
Non-performing loans without a specific reserve		875		1,518		2,759		1,518
Non-performing loans with a specific reserve to COVID-19		6,490		9,555
Non-performing loans with a specific reserve due to COVID-19						6,518		9,555
Other non-performing loans with a specific reserve		250		743		251		743

Total evaluated collectively for loan losses	$	49,755	$	50,449	$	51,276	$	50,449

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

Schedule of Impaired Loans

	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Unpaid principal balance (contractual obligation from customer)	$	8,123		$	11,888		$	10,037		$	11,888
Charge-offs and payments applied		(509	)		(72	)		(509	)		(72	)
Gross value before related allowance		7,614			11,816			9,528			11,816
Related allowance		(1,492	)		(1,698	)		(1,578	)		(1,698	)
Value after allowance	$	6,122		$	10,118		$	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:

Schedule of Concentration Risk

June 30, 2021

December 31, 2020

September 30, 2021

December 31, 2020

Percent of

Percent of

Borrower

Loan

Borrower

Loan

Borrower

Loan

Borrower

Loan

City

Commitments

City

Commitments

City

Commitments

City

Commitments

Highest concentration risk

Pittsburgh, PA

26.4

Pittsburgh, PA

Second highest concentration risk

Orlando, FL

7.4

Orlando, FL

Third highest concentration risk

Spokane, WA

2.4

Cape Coral, FL

Spokane, WA

Cape Coral, FL

4. Real Estate Investment Assets

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

Schedule of Roll Forward of Real Estate Investment Assets

Six Months
Ended
June 30, 2021

Year
Ended
December 31, 2020

Six Months
Ended
June 30, 2020

Beginning balance $ 1,181 $ – $ –
Transfers from loans – 1,140 1,140
Additions for construction/development 59 41 –
Ending balance $ 1,240 $ 1,181 $ 1,140

	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:

Schedule of Roll Forward of Foreclosed Assets

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	4,449		$	4,916		$	4,916
Additions from loans		274			2,118			-			274			2,118			279
Additions for construction/development		439			1,410			686			612			1,410			801
Sale proceeds		(2,119	)		(3,697	)		(348	)		(2,674	)		(3,697	)		(2,246	)
Loss on foreclosure		-			(54	)		(35	)		-			(54	)		(2	)
Loss on sale		(69	)		(102	)		-			(69	)		(102	)		(86	)
Gain on foreclosure		-			52			3			-			52			-
Gain on sale		101			160			(91	)		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	)		(109	)		(10	)		(290	)		(114	)
Impairment loss on foreclosed assets due to COVID-19		-			(64	)		-			-			(64	)		(91	)
Ending balance	$	3,065		$	4,449		$	5,022		$	2,747		$	4,449		$	3,690

6. Borrowings

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

Schedule of Borrowings

	Priority Rank		June 30, 2021		December 31, 2020		Priority Rank		September 30, 2021		December 31, 2020
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	21,117	$	22,968		1	$	18,674	$	22,968
Secured line of credit from affiliates		2		–		–		2		–		–
Unsecured line of credit (senior)		3		500		500		3		500		500
PPP loan and EIDL advance		3		361		10		3		–		10
Other unsecured debt (senior subordinated)		4		1,782		1,800		4		1,053		1,800
Unsecured Notes through our public offering, gross		5		21,599		21,482		5		20,901		21,482
Other unsecured debt (subordinated)		5		2,876		2,747		5		4,401		2,747
Other unsecured debt (junior subordinated)		6		864		864		6		447		864

Total			$	49,099	$	50,371			$	45,976	$	50,371

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

Schedule of Maturities of Debt

Year Maturing Total Amount
Maturing Public
Offering Other
Unsecured⁽¹⁾ Secured Borrowings
2021 $ 26,243 $ 5,220 $ 727 $ 20,296
2022 7,351 5,412 1,923 16
2023 4,525 3,024 1,429 72
2024 7,098 4,884 2,087 127
2025 and thereafter 3,882 3,059 217 606
Total $ 49,099 $ 21,599 $ 6,383 $ 21,117

⁽¹⁾

~~Other Unsecured includes our PPP Loan of $361~~ ~~(described below) of which $~~80~~, $241, and $~~40~~, collectively, matures during 2021, 2022 and 2023, respectively. All or a portion of the PPP Loan may be forgiven.~~

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

Lines of Credit

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

None of our lines of credit have given us notice of nonrenewal during the ~~second~~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 $8 for both periods ended ~~June~~September 30, 2021 and December 31, 2020.

Summary

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

Schedule of Secured Borrowings

	June 30, 2021				December 31, 2020				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		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.	$	6,431	$	4,604	$	7,981	$	5,919	$	4,659	$	3,616	$	7,981	$	5,919
S.K. Funding, LLC		6,620		5,499		4,551		3,898		9,273		5,500		4,551		3,898

Lender
Shuman		1,818		1,325		1,916		1,325		1,069		125		1,916		1,325
Jeff Eppinger		990		200		2,206		1,500		1,391		200		2,206		1,500
Hardy Enterprises, Inc.		-		-		1,590		1,000		-		-		1,590		1,000
Gary Zentner		1,372		250		424		250		-		-		424		250
R. Scott Summers		1,542		847		1,259		847		1,906		847		1,259		847
John C. Solomon		940		563		743		563		1,452		563		743		563
Paul Swanson		11,288		7,000		9,381		6,685		11,124		7,000		9,381		6,685

Total	$	31,001	$	20,288	$	30,051	$	21,987	$	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 ~~June~~September 30, 2021 and December 31, 2020 was ~~9.90%~~9.53% and ~~10.38%~~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. ~~See Note 13 – Subsequent Events for a more detailed description of recent changes to our indenture to provide for the mandatory early redemption option for all Notes.~~ The following table shows the roll forward of our Notes Program:

Schedule of Roll Forward of Notes Outstanding

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	21,482		$	20,308		$	20,308
Notes issued		6,330			7,691			5,668			7,239			7,691			6,454
Note repayments / redemptions		(6,213	)		(6,517	)		(5,199	)		(7,820	)		(6,517	)		(5,443	)

Gross Notes outstanding, end of period	$	21,599		$	21,482		$	20,777		$	20,901		$	21,482		$	21,319

Less deferred financing costs, net		(407	)		(416	)		(456	)		(389	)		(416	)		(435	)

Notes outstanding, net	$	21,192		$	21,066		$	20,321		$	20,512		$	21,066		$	20,884

The following is a roll forward of deferred financing costs:

Schedule of Roll Forward of Deferred Financing Costs

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	942		$	786		$	786
Additions		71			156			119			95			156			131
Disposals		–			–			–
Deferred financing costs, ending balance		1,013			942			905			1,037			942			917
Less accumulated amortization		(606	)		(526	)		(449	)		(648	)		(526	)		(482	)
Deferred financing costs, net	$	407		$	416		$	456		$	389		$	416		$	435

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

Schedule of Roll Forward of Accumulated Amortization of Deferred Financing Costs

Six Months Ended
June 30, 2021
Year Ended
December 31, 2020
Six Months Ended
June 30, 2020

Accumulated amortization, beginning balance $ 526 $ 370 $ 370
Additions 80 165 79
Disposals – (9 ) –
Accumulated amortization, ending balance $ 606 $ 526 $ 449

	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:

Schedule of Other Unsecured Loans

		Interest			Principal Amount Outstanding as of								Principal Amount Outstanding as of
Loan	Maturity Date	Rate⁽¹⁾			June 30, 2021		December 31, 2020		Maturity Date	Interest Rate⁽¹⁾			September 30, 2021		December 31, 2020
Unsecured Note with Seven Kings Holdings, Inc.	Demand⁽²⁾		9.5	%	$	500	$	500	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Paul Swanson	October 2022		10.0	%		-		315	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	December 2021		10.5	%		146		146	March 2023		11.0	%		-		169
Subordinated Promissory Note	April 2024		10.0	%		100		100	February 2023		10.0	%		600		600
Subordinated Promissory Note	October 2022		10.0	%		-		174	June 2023		10.0	%		400		-
Subordinated Promissory Note	August 2022		11.0	%		200		200	December 2022		5.0	%		3		3
Subordinated Promissory Note	March 2023		11.0	%		169		169	December 2023		11.0	%		20		20
Subordinated Promissory Note	February 2023		10.0	%		600		600	February 2024		11.0	%		20		20
Subordinated Promissory Note	June 2023		10.0	%		400		-	January 2025		10.0	%		15		-
Subordinated Promissory Note	December 2022		5.0	%		3		3	November 2023		9.5	%		200		200
Subordinated Promissory Note	December 2023		11.0	%		35		20	October 2024		10.0	%		700		700
Subordinated Promissory Note	February 2024		11.0	%		20		20	December 2024		10.0	%		100		100
Subordinated Promissory Note	November 2023		9.5	%		200		200	April 2025		10.0	%		202		-
Subordinated Promissory Note	October 2024		10.0	%		700		700	July 2023		8.0	%		100		-
Subordinated Promissory Note	December 2024		10.0	%		100		100	July 2024		5.0	%		1,500		-
Subordinated Promissory Note	April 2025		10.0	%		202		-	September 2023		7.0	%		94		-
Senior Subordinated Promissory Note	March 2022⁽³⁾		10.0	%		334		352	March 2022⁽³⁾		10.0	%		334		352
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		1.0	%		728		728	March 2022⁽⁴⁾		1.0	%		-		728
Junior Subordinated Promissory Note	March 2022⁽⁴⁾		22.5	%		417		417	March 2022⁽⁴⁾		22.5	%		-		417
Senior Subordinated Promissory Note	October 2024⁽⁵⁾		1.0	%		720		720	October 2024⁽⁵⁾		1.0	%		720		720
Junior Subordinated Promissory Note	October 2024⁽⁵⁾		20.0	%		447		447	October 2024⁽⁵⁾		20.0	%		447		447
					$	6,021	$	5,911
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%~~11% per annum.


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

7. Redeemable Preferred Equity

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

Schedule of Roll Forward of Redeemable Preferred Equity

Six Months
Ended
June 30, 2021

Year Ended
December 31, 2020

Six Months
Ended
June 30, 2020

Beginning balance $ 3,582 $ 2,959 $ 2,959
Additions from new investment 800 300 -
Distributions (41 ) (49 ) (24 )
Additions from reinvestment 250 372 180

Ending balance $ 4,591 $ 3,582 $ 3,115

	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 ~~June~~September 30, 2021:

Schedule of Redemption Option for Investors

Year Maturing	Total Amount Redeemable		Total Amount Redeemable

2024	$	3,079	$	3,160
2025		379		390
2026		309		309
2027		824		840

Total	$	4,591	$	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 ~~June~~September 30, 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 as of ~~June~~September 30, 2021 and December 31, 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$10 at each closing of a lot to a third party in the Hamlets and Tuscany subdivisions.As of ~~June~~September 30, 2021, the Hoskins Group owned a total of ~~16.9~~17.1 Series B Preferred Units, which were issued for a total of $~~1,690~~1,710.

9. Related Party Transactions

As of ~~June~~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 of our 2020 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

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 $~~26,860~~23,906 and $19,495 at ~~June~~September 30, 2021 and December 31, 2020, respectively.

11. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

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

Schedule of Unaudited Quarterly Condensed Consolidated Financial Data

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

Net (loss) interest Income after Loan Loss Provision $ 580 $ 197 $ 792 $ 319 $ (1,788 ) $ 955
Non-Interest Income 13 98 379 230 3 -
SG&A Expense 438 537 648 367 462 708
Depreciation and Amortization 13 16 22 21 21 21
Loss on Foreclosure of Assets – – – – – 35
Loss on Sale of Foreclosed Assets 51 18 16 51 – –
Impairment Loss on Foreclosed Assets – 10 241 6 91 109
Net income (loss) $ 91 $ (286 ) $ 244 $ 104 $ (2,359 ) $ 82

	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:

Schedule of Selling General and Administrative Expenses

					2021		2020
	For the Six Months Ended June 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Selling, general and administrative expenses
Legal and accounting	$	126	$	181	$	143	$	202
Salaries and related expenses		328		484		613		684
Board related expenses		50		50		74		74
Advertising		61		36		54		54
Rent and utilities		22		23		40		36
Loan and foreclosed asset expenses		237		234		299		303
Travel		60		82		105		105
Other		91		79		130		78
Total SG&A	$	975	$	1,169	$	1,458	$	1,536

13. Subsequent Events

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

On July 27, 2021, the Company entered into Amendment No. 2 (the “Amendment”) to the Indenture (the “Indenture”) with U.S. Bank National Association, as trustee. Pursuant to the Amendment, the Company added additional redemption options in the Indenture for holders of a Note. Unless the subordination provisions in the Indenture restrict the Company’s ability to make the redemption, Note holders may require the Company to redeem all or a portion of their Note, regardless of amount, for a redemption price equal to the principal amount plus an amount equal to the unpaid interest thereon for such Note at the stated rate to the redemption date, upon one business day’s advance notice to the Company, but only if the holder immediately upon redemption invests the entirety of the proceeds from such redemption in another Note or another security then-offered by the Company, if any. In such event, the Note holder will not be subject to a holding period requirement or an interest penalty. These redemption options are in addition to the other redemption options described in the Indenture.

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

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

Overview

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company continued to focus on specific issues that arose in 2020 ~~which were~~ primarily due to the pandemic and, more specifically, focused on the reduction of non-interest earning assets. As of ~~June~~September 30, 2021, loans classified as non-accrual were 1423 or ~~$7,614~~$9,528 compared to 4627 or ~~$12,993~~$11,854 for the same period in the prior year.

While the Company continues to face COVID-19 risks as it ~~related~~relates to the economy and the homebuilding industry, management made the decision during the ~~six~~nine months ended ~~June~~September 30, 2021 to focus on the following three areas:

Decrease the amount of non-interest-bearing assets, which includes cash, our foreclosed assets and

classified non-accrual loans or impaired loans receivables;

Increase loan originations which were lower during the year ended December 31, 2020 due primarily to

COVID-19; and

Maintain liquidity to fund new loan originations and for the completion of 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. 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 non-performing assets from COVID-19 will decrease significantly in the ~~third~~fourth quarter of 2021.

We had ~~$45,533~~$47,457 and $46,405 in loan assets as of ~~June~~September 30, 2021 and December 31, 2020, respectively. In addition, as of ~~June~~September 30, 2021, we had ~~237~~228 construction loans in 2322 states with 6867 borrowers and 1115 development loans in ~~six~~7 states with 1012 borrowers.

Net cash ~~provided by operations increased $944~~used in operating activities decreased $154 for the ~~six~~nine months ended ~~June~~September 30, 2021 as compared to the same period of 2020. Our increase in operating cash flow was due primarily to the change in ~~loan origination fees, net.~~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 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, 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	June 30, 2021 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%**	$	(2,592	)	$	(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 ~~$45,533.~~$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

June 30, 2021

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%**

(1,073

)

(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 ~~$3,065.~~$2,747.

Interest Spread

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

	Three Months Ended										Six Months Ended										Three Months Ended										Nine Months Ended
	June 30,										June 30,										September 30,										September 30,
	2021					2020					2021					2020					2021					2020					2021					2020
Interest Income					*					*					*					*					*					*					*					*
Estimated interest income	$	1,531		12	%	$	1,915		14	%	$	3,039		12	%	$	4,006		14	%	$	1,532		12	%	$	1,831		14	%	$	4,533		12	%	$	5,838		14	%
Estimated unearned interest income due to COVID-19		(227	)	(2	)%		(402	)	(3	)%		(494	)	(2	)%		(402	)	(1	)%		(228	)	(2	)%		(335	)	(3	)%		(684	)	(2	)%		(757	)	(2	)%
Write-offs due to COVID-19		-		-	%		(469	)	(3	)%		-		-	%		(469	)	(2	)%		-		-	%		-		-	%		-		-	%		(469	)	(1	)%
Interest income on loans	$	1,304		10	%	$	1,044		8	%	$	2,545		10	%	$	3,135		11	%	$	1,304		10	%	$	1,476		11	%	$	3,849		10	%	$	4,612		11	%

Fee income on loans		870		7	%		432		3	%		1,598		6	%		1,037		4	%		959		8	%		594		4	%		2,557		7	%		1,631		4	%
Deferred loan fees		(230	)	(2	)%		(120	)	(1	)%		(421	)	(1	)%		(241	)	(1	)%		(200	)	(2	)%		(161	)	(1	)%		(621	)	(2	)%		(402	)	(1	)%
Fee income on loans, net		640		5	%		312		2	%		1,177		5	%		796		3	%		759		6	%		433		3	%		1,936		5	%		1,229		3	%

Interest and fee income on loans		1,944		15	%		1,356		10	%		3,722		15	%		3,931		14	%		2,063		16	%		1,909		14	%		5,785		15	%		5,841		14	%

Interest expense unsecured		801		6	%		735		5	%		1,611		6	%		1,463		5	%		745		6	%		760		5	%		2,276		6	%		2,223		5	%
Interest expense secured		518		4	%		810		6	%		1,075		5	%		1,627		6	%		446		4	%		727		6	%		1,521		4	%		2,354		6	%
Amortization offering costs		39		-	%		39		-	%		80		-	%		79		-	%		42		-	%		33		-	%		122		-	%		112		-	%
Interest expense		1,358		10	%		1,584		11	%		2,766		11	%		3,169		11	%		1,233		10	%		1,520		12	%		3,919		10	%		4,689		11	%
Net interest income (spread)		586		5	%		(228	)	(1	)%		956		4	%		762		3	%		830		6	%		389		3	%		1,866		5	%		1,152		3	%

Weighted average outstanding loan asset balance	$	50,222				$	53,716				$	50,247				$	55,736				$	50,156				$	51,881				$	50,226				$	55,124

* 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 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 was 10% for both the quarter and ~~six~~nine months ended ~~June~~September 30, 2021 compared to ~~8% and~~ 11% for the same periods of 2020. ~~During the quarter ended June 30, 2021 interest income on loans increased 2% compared to the same period of 2020~~This decrease was due primarily to ~~COVID-19 related write offs which was partially offset by~~ fewer loans paying higher interest due to ~~aging. During the six months ended June 30, 2021 interest income on loans decreased 1% compared to the same period~~lower cost of ~~2020 due primarily to lower outstanding loan balances which pay interest.~~funds.

Interest expense decreased to 10% for both the quarter and nine months ended ~~June~~September 30, 2021 compared to the same ~~period~~periods of 2020 which was due primarily to management’s decision to paydown certain notes payables with higher interest rates. ~~The amount~~In addition, during the third quarter of ~~notes~~2021, the interest rate on one secured line of credit decreased.

Notes payable with higher interest rates is 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 all development loans, respectively, which yields a blended margin of approximately 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. In addition, our development loans do not recognize a loan fee. When loans terminate before their expected maturity, the remaining fee is recognized at the termination of the loan. Faster turning loans typically yield a higher fee income percentage. ~~The increase to 7% for~~

For the quarter and nine months ended ~~June~~September 30, 2021, fee income increased to 8% and 7%, respectively, compared to 3%4% for both of the same ~~period in the prior year is~~periods of 2020. The increases were primarily due to ~~having~~ fewer old loans (which are fully amortized) and more faster turning loans.

For both the quarter and six months ended June 30, 2021, fee income increased to 5% compared to 2% and 3% for the quarter and six months ended June 30, 2020, respectively. The increase in fee income was primarily due to higher loan originations.

● 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 ~~June~~September 30, 2021 and 2020, we had 1423 and 4627 impaired loans not paying interest in the aggregate gross loan amount of ~~$7,614~~$9,528 and ~~$12,993 not paying interest,~~$11,854, respectively.

Foreclosed assets do not provide a monthly interest return. AsForeclosed assets decreased $1,702 to $2,747 as of ~~June~~September 30, 2021 ~~and 2020,~~compared to $4,449 as of December 31, 2020. The decrease in foreclosed assets ~~were $3,065 and $5,022, respectively, which~~ resulted in a ~~negative~~positive impact to our interest spread in both years.

The amount of nonperforming assets is expected to decrease over the next quarter as we continue to sell our foreclosed assets following completion of construction.

Cash also does not yield a return. ~~We are working~~During the third quarter of 2021 we used cash to reduce the amount of debt ~~we have to reduce our cash,~~ while maintaining a responsible level of liquidity to cover ~~our~~ unfunded commitments on loans and cash needs for ~~operations~~operations. As of September 30, 2021 and ~~interest.~~June 30, 2021 cash was $1,452 and $6,118, respectively. Repayments of secured notes payable increased $3,513 to $10,696 as of September 30, 2021 compared to $7,183 as of June 30, 2021.

Non-Interest Income

Gain on ~~Sale~~the Extinguishment of ~~Foreclosed Assets~~Debt

~~During the quarters ended June 30, 2021 and 2020, we recognized $13 and $3, respectively, as a gain on the sale of foreclosed assets.~~

~~Gain on~~During February 2021, we borrowed approximately $361 pursuant to the ~~Extinguishment~~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 ~~Debt~~the loan 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.

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

In February 2021, the full EIDL Advance ~~for~~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, 2021, we recognized $64 and $165, respectively, as a gain on the sale of foreclosed assets, compared to $135 and $138, respectively, for the same periods of 2020.

Non-Interest Expense

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

The following table displays our SG&A expenses:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		2021		2020		2021			2020			2021		2020
Legal and accounting	$	23	$	42	$	126	$	181	$	17		$	21		$	143	$	202
Salaries and related expenses		119		206		328		484		285			200			613		684
Board related expenses		25		25		50		50		24			24			74		74
Advertising		52		15		61		36		(7	)		18			54		54
Rent and utilities		13		10		22		23		18			13			40		36
Loan and foreclosed asset expenses		124		99		237		234		62			69			299		303
Travel		36		23		60		82		45			23			105		105
Other		46		42		91		79		39			(1	)		130		78
Total SG&A	$	438	$	462	$	975	$	1,169	$	483		$	367		$	1,458	$	1,536

Our SG&A ~~expense~~increased $116 and decreased ~~$24 and $194~~$78 for the quarter and ~~six~~nine months ended ~~June~~September 30, 2021, respectively, compared to the same periods of 2020 due significantly to the following:

●

During the quarter ended September 30, 2021, Salaries and related expenses ~~decreased~~increased $85 to $285 compared to $200 for the ~~quarter and six months ended June 30, 2021 by $87 and $156, respectively, compared to the~~ same ~~periods~~period of 2020. The ~~decrease~~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 ~~second~~third quarter of 2021 related to the ~~first~~second quarter of 2021 of ~~$96; and~~$103.

●

~~Loan and foreclosed asset expenses increased for~~During the ~~quarter and six~~nine months ended ~~June~~September 30, 2021, ~~by $25~~Legal and ~~$3, respectively, compared~~accounting expenses decreased $59 due to the ~~same periods~~addition of ~~2020 due to additional real estate owned asset expenses for taxes and insurance.~~internal counsel during the second quarter of 2020.

Loss on the Sale of Foreclosed Assets

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

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 as of June 30, 2021 related to the sale of two properties from two separate original borrowers.~~assets.

Impairment Loss on Foreclosed Assets

During the ~~quarters~~quarter ended ~~June~~September 30, 2021 and 2020, impairment loss on foreclosed assets was $0 and ~~$91,~~$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 ~~June~~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			Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona		2		3	$	476		697		301		146	%		5	%		2		3	$	995	$	697	$	300		146	%		5	%
Connecticut		2		6		2,288		1,546		753		68	%		5	%		2		4		1,535		1,084		400		71	%		5	%
Delaware		1		6		5,960		2,122		1,375		36	%		5	%		1		6		5,960		2,387		1,601		40	%		5	%
Florida		18		72		24,893		18,913		12,741		76	%		5	%		17		77		24,158		18,815		11,896		78	%		5	%
Georgia		1		1		760		388		23		51	%		5	%		2		2		1,130		631		186		56	%		5	%
Idaho		2		2		980		624		297		64	%		5	%
Illinois		2		2		1,890		1,199		627		63	%		5	%		2		2		1,890		1,199		627		63	%		5	%
Indiana		1		2		1,149		804		218		70	%		5	%		1		2		1,149		804		544		70	%		5	%
Louisiana																		2		3		590		387		54		66	%		5	%
Michigan		2		12		3,091		2,453		1,625		79	%		5	%		2		11		2,782		2,159		1,987		78	%		5	%
Mississippi		1		1		240		189		189		79	%		5	%
Nevada		1		1		676		335		18		50	%		5	%		1		1		675		335		280		50	%		5	%
New Jersey		1		8		2,807		2,519		1,893		90	%		5	%		1		8		2,807		2,519		2,213		90	%		5	%
New York		2		2		1,159		833		811		72	%		5	%		2		2		1,159		833		814		72	%		5	%
North Carolina		9		13		5,684		3,817		1,780		67	%		5	%		8		13		7,436		4,527		2,225		61	%		5	%
Ohio		2		10		3,234		2,197		1,135		68	%		5	%		2		9		2,929		2,132		1,015		73	%		5	%
Oregon		2		14		5,007		3,478		2,169		69	%		5	%		2		9		3,832		2,650		1,977		69	%		5	%
Pennsylvania		3		23		21,900		13,543		9,406		62	%		5	%		3		24		23,735		14,589		10,915		61	%		5	%
South Carolina		9		37		8,911		6,222		3,269		70	%		5	%		9		36		8,748		6,048		3,081		69	%		5	%
Tennessee		2		2		786		529		441		67	%		5	%		2		2		916		544		530		59	%		5	%
Texas		2		6		2,755		2,042		1,224		74	%		5	%		2		3		1,645		1,121		765		68	%		5	%
Utah		1		3		699		489		442		70	%		5	%		1		1		228		160		144		70	%		5	%
Virginia		1		1		505		353		126		70	%		5	%		2		2		830		564		272		68	%		5	%
Washington		1		10		5,220		3,435		1,003		66	%		5	%		1		8		4,855		3,068		1,521		63	%		5	%
Total		68		237	$	101,070	$	68,727	$	41,866		68	%⁽³⁾		5	%		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 ~~June~~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			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	$	7,591	$	8,200	$	6,180		81	%		varies			1		4	$	8,026	$	6,500	$	6,142		77	%		varies
Delaware		1		1		321		147		147		46	%		7	%		1		1		321		147		147		46	%		7	%
Florida		4		4		1,990		1,788		984		49	%		7	%		4		4		956		1,159		653		68	%		7	%
North Carolina		1		1		400		260		242		60	%		7	%		1		1		400		260		242		60	%		7	%
South Carolina		2		2		1,256		711		330		26	%		7	%		3		3		1,631		846		559		34	%		7	%
Connecticut																		1		1		350		180		180		51	%		7	%
Texas		1		1		209		250		6		3	%		7	%		1		1		208		125		6		3	%		7	%
Total		10		11	$	11,767	$	11,356	$	7,889		67	%⁽⁴⁾		7	%		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 ~~$1,690~~$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 ~~June~~September 30, 2021 and December 31, 2020:

	June 30, 2021			December 31, 2020			September 30, 2021			December 31, 2020

Loans receivable, gross	$	49,755		$	50,449		$	51,276		$	50,449
Less: Deferred loan fees		(1,669	)		(1,092	)		(1,354	)		(1,092	)
Less: Deposits		(1,276	)		(1,337	)		(1,020	)		(1,337	)
Plus: Deferred origination costs		442			353			357			353
Less: Allowance for loan losses		(1,719	)		(1,968	)		(1,802	)		(1,968	)

Loans receivable, net	$	45,533		$	46,405		$	47,457		$	46,405

The allowance for loan losses as of ~~June~~September 30, 2021 was ~~$1,719,~~$1,802, of which ~~$167~~$165 is related to loans without specific reserves. The Company recorded specific reserves for loans impaired due to impacts from COVID-19 of ~~$1,413,~~$1,483, special mention loans of $60, and impaired loans not due to impacts from COVID-19 of ~~$79.~~$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 ~~six~~nine months ended ~~June~~September 30, 2021, we incurred ~~$227~~$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:

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	46,405		$	55,369		$	55,369
Additions		21,776			46,249			18,730			34,499			46,249			33,347
Principal collections		(23,171	)		(50,079	)		(22,293	)		(33,914	)		(50,079	)		(37,511	)
Transferred to foreclosed assets		(274	)		(2,118	)		-			(274	)		(2,118	)		(279	)
Transferred to real estate investments		-			(1,140	)		(1,140	)		-			(1,140	)		(1,140	)
Change in builder deposit		60			16			387			317			16			(48	)
Change in loan loss provision		249			(1,805	)		(1,459	)		166			(1,805	)		(1,665	)
Change in loan fees, net		488			(87	)		203			258			(87	)		(89	)
Ending balance	$	45,533		$	46,405		$	49,797		$	47,457		$	46,405		$	47,984

Finance Receivables – By risk rating:

June 30, 2021 December 31, 2020

Pass $ 39,234 $ 35,544
Special mention 2,907 3,089
Classified – accruing – –
Classified – nonaccrual 7,614 11,816

Total $ 49,755 $ 50,449

	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:

	June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020

Performing loans evaluated individually	$	15,907	$	16,412	$	17,315	$	16,412
Performing loans evaluated collectively		26,233		22,221		24,433		22,221
Non-performing loans without a specific reserve		875		1,518		2,759		1,518
Non-performing loans with a specific reserve to COVID-19		6,490		9,555
Non-performing loans with a specific reserve due to COVID-19						6,518		9,555
Other non-performing loans with a specific reserve		250		743		251		743

Total evaluated collectively for loan losses	$	49,755	$	50,449	$	51,276	$	50,449

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

June 30, 2021 December 31, 2020

Unpaid principal balance (contractual obligation from customer) $ 8,123 $ 11,888
Charge-offs and payments applied (509 ) (72 )
Gross value before related allowance 7,614 11,816
Related allowance (1,492 ) (1,698 )
Value after allowance $ 6,122 $ 10,118

~~Below is an aging schedule of loans receivable as of June 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) 234 $ 42,140 84.7 %
60-89 days - - %
90-179 days - - %
180-269 days 14 7,615 15.3 %

Subtotal 248 $ 49,755 100 %

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 248 $ 49,755 100 %

	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 ~~June~~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		%			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.		234	$	42,140		84.7	%
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		14		7,615		15.3	%		-		-		-	%
>270 days									12		7,278		14.2	%

Subtotal		248	$	49,755		100	%		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		248	$	49,755		100	%		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		%			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.		194	$	38,956		77.2	%
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	%		28		11,493		22.8	%

Subtotal		222	$	50,449		100	%		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	%		222	$	50,449		100	%

Below is a roll forward of foreclosed assets:

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	4,449		$	4,916		$	4,916
Additions from loans		274			2,118			-			274			2,118			279
Additions for construction/development		439			1,410			686			612			1,410			801
Sale proceeds		(2,119	)		(3,697	)		(348	)		(2,674	)		(3,697	)		(2,246	)
Loss on foreclosure		-			(54	)		(35	)		-			(54	)		(2	)
Loss on sale		(69	)		(102	)		-			(69	)		(102	)		(86	)
Gain on foreclosure		-			52			3			-			52			-
Gain on sale		101			160			(91	)		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	)		(109	)		(10	)		(290	)		(114	)
Impairment loss on foreclosed assets due to COVID-19		_-			(64	)		-			-			(64	)		(91	)
Ending balance	$	3,065		$	4,449		$	5,022		$	2,747		$	4,449		$	3,690

~~During~~For both the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, we reclassed one construction loan from loans receivable to foreclosed ~~assets compared to none during the same period of 2020.~~assets.

In addition, during the ~~quarter and six~~nine months ended ~~June~~September 30, 2021, we sold ~~three and nine~~13 foreclosed assets ~~respectively,~~ compared to ~~one and two~~15 during the same ~~periods~~period of 2020.

Customer Interest Escrow

Below is a roll forward of interest escrow:

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

Beginning balance	$	510		$	643		$	643		$	510		$	643		$	643
Preferred equity dividends		106			83			74			106			83			73
Additions from Pennsylvania loans		297			1,173			713			501			1,173			819
Additions from other loans		488			448			82			633			448			308
Interest, fees, principal or repaid to borrower		(874	)		(1,837	)		(962	)		(1,182	)		(1,837	)		(1,396	)
Ending balance	$	527		$	510		$	550		$	568		$	510		$	447

Related Party Borrowings

As of ~~June~~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 ~~June~~September 30, 2021, the Company had borrowed $0 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.

Summary

The borrowings secured by loan assets are summarized below:

	June 30, 2021				December 31, 2020				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		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.	$	6,431	$	4,604	$	7,981	$	5,919	$	4,659	$	3,616	$	7,981	$	5,919
S.K. Funding, LLC		6,620		5,499		4,551		3,898		9,273		5,500		4,551		3,898

Lender
Shuman		1,818		1,325		1,916		1,325		1,069		125		1,916		1,325
Jeff Eppinger		990		200		2,206		1,500		1,391		200		2,206		1,500
Hardy Enterprises, Inc.		-		-		1,590		1,000		-		-		1,590		1,000
Gary Zentner		1,372		250		424		250		-		-		424		250
R. Scott Summers		1,542		847		1,259		847		1,906		847		1,259		847
John C. Solomon		940		563		743		563		1,452		563		743		563
Paul Swanson		11,288		7,000		9,381		6,685		11,124		7,000		9,381		6,685

Total	$	31,001	$	20,288	$	30,051	$	21,987	$	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 ~~June~~September 30, 2021 and December 31, 2020 was ~~9.90%~~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. ~~See Note 13 – Subsequent Events for a more detailed description of recent changes to our indenture to provide for the mandatory early redemption option for all Notes.~~ The following table shows the roll forward of our Notes Program:

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	21,482		$	20,308		$	20,308
Notes issued		6,330			7,691			5,668			7,239			7,691			6,454
Note repayments / redemptions		(6,213	)		(6,517	)		(5,199	)		(7,820	)		(6,517	)		(5,443	)

Gross Notes outstanding, end of period	$	21,599		$	21,482		$	20,777		$	20,901		$	21,482		$	21,319

Less deferred financing costs, net		(407	)		(416	)		(456	)		(389	)		(416	)		(435	)

Notes outstanding, net	$	21,192		$	21,066		$	20,321		$	20,512		$	21,066		$	20,884

The following is a roll forward of deferred financing costs:

	Six Months Ended June 30, 2021			Year Ended December 31, 2020			Six Months Ended June 30, 2020			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		$	942		$	786		$	786
Additions		71			156			119			95			156			131
Disposals		–			–			–
Deferred financing costs, ending balance		1,013			942			905			1,037			942			917
Less accumulated amortization		(606	)		(526	)		(449	)		(648	)		(526	)		(482	)
Deferred financing costs, net	$	407		$	416		$	456		$	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								Principal Amount Outstanding as of
Loan	Maturity Date	Interest Rate⁽¹⁾			June 30, 2021		December 31, 2020		Maturity Date	Interest Rate⁽¹⁾			September 30, 2021		December 31, 2020
Unsecured Note with Seven Kings Holdings, Inc.	Demand⁽²⁾		9.5	%	$	500	$	500	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Paul Swanson	October 2022		10.0	%		-		315	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	December 2021		10.5	%		146		146	March 2023		11.0	%		-		169
Subordinated Promissory Note	April 2024		10.0	%		100		100	February 2023		10.0	%		600		600
Subordinated Promissory Note	October 2022		10.0	%		-		174	June 2023		10.0	%		400		-
Subordinated Promissory Note	August 2022		11.0	%		200		200	December 2022		5.0	%		3		3
Subordinated Promissory Note	March 2023		11.0	%		169		169	December 2023		11.0	%		20		20
Subordinated Promissory Note	February 2023		10.0	%		600		600	February 2024		11.0	%		20		20
Subordinated Promissory Note	June 2023		10.0	%		400		-	January 2025		10.0	%		15		-
Subordinated Promissory Note	December 2022		5.0	%		3		3	November 2023		9.5	%		200		200
Subordinated Promissory Note	December 2023		11.0	%		35		20	October 2024		10.0	%		700		700
Subordinated Promissory Note	February 2024		11.0	%		20		20	December 2024		10.0	%		100		100
Subordinated Promissory Note	November 2023		9.5	%		200		200	April 2025		10.0	%		202		-
Subordinated Promissory Note	October 2024		10.0	%		700		700	July 2023		8.0	%		100		-
Subordinated Promissory Note	December 2024		10.0	%		100		100	July 2024		5.0	%		1,500		-
Subordinated Promissory Note	April 2025		10.0	%		202		-	September 2023		7.0	%		94		-
Senior Subordinated Promissory Note	March 2022⁽³⁾		10.0	%		334		352	March 2022⁽³⁾		10.0	%		334		352
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		1.0	%		728		728	March 2022⁽⁴⁾		1.0	%		-		728
Junior Subordinated Promissory Note	March 2022⁽⁴⁾		22.5	%		417		417	March 2022⁽⁴⁾		22.5	%		-		417
Senior Subordinated Promissory Note	October 2024⁽⁵⁾		1.0	%		720		720	October 2024⁽⁵⁾		1.0	%		720		720
Junior Subordinated Promissory Note	October 2024⁽⁵⁾		20.0	%		447		447	October 2024⁽⁵⁾		20.0	%		447		447
					$	6,021	$	5,911
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% ~~for both the periods ending June~~as of September 30, 2021 and December 31, 2020, respectively. The ratio ~~decreased significantly~~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		June 30, 2021		December 31, 2020		Priority Rank		September 30, 2021		December 31, 2020
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	21,117	$	22,968		1	$	18,674	$	22,968
Secured line of credit from affiliates		2		–		–		2		–		–
Unsecured line of credit (senior)		3		500		500		3		500		500
PPP loan and EIDL advance		3		361		10		3		–		10
Other unsecured debt (senior subordinated)		4		1,782		1,800		4		1,053		1,800
Unsecured Notes through our public offering, gross		5		21,599		21,482		5		20,901		21,482
Other unsecured debt (subordinated)		5		2,876		2,747		5		4,401		2,747
Other unsecured debt (junior subordinated)		6		864		864		6		447		864

Total			$	49,099	$	50,371			$	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 ~~248~~243 and 222 combined loans outstanding as of ~~June~~September 30, 2021 and December 31, 2020, respectively. Gross loans receivable ~~totaled $49,755~~was $51,276 and $50,449 as of ~~June~~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 ~~$26,860~~$23,906 and $19,495 as ~~June~~September 30, 2021 and December 31, 2020, respectively.

We anticipate an increase in our gross loan receivables over the 12 months subsequent to ~~June~~September 30, 2021 by directly increasing originations to new and existing customers. In addition, business competition has ~~declined and,~~declined; therefore, we believe the ability to return to historical levels may be achieved through the remainder of the year.

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

Source of Liquidity	As of June 30, 2021		As of December 31, 2020		As of September 30, 2021		As of December 31, 2020
Secured debt	$	21,109	$	22,959	$	18,666	$	22,959
Unsecured debt		27,214		26,978		26,913		26,978
Equity		5,883		5,259		6,426		5,259
Cash		6,118		4,749		1,452		4,749

As of ~~June~~September 30, 2021 and December 31, 2020, cash was ~~$6,118~~$1,452 and $4,749, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company made the decision to pay down secured debt with high interest rates. The New Line of Credit Agreements decreased ~~$2,300~~$2,550 to ~~$1,860~~$1,609 as of ~~June~~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 ~~$1,850 during the six months ended June~~$4,293 as of September 30, 2021 compared to December 31, 2020 primarily due to the New Secured Line of Credit Agreement ~~payments which were offset by an~~and Shuman Line of Credit payments. We anticipate secured debt to increase ~~in Purchase and Sale Agreements of $286 to $10,103~~ as ~~of June 30, 2021 compared to $9,817 as of December 31, 2020.~~our loan receivable balances increase.

Unsecured debt, net of deferred financing costs ~~increased $236 during the six months ended June~~decreased $65 to $26,913 as of September 30, 2021 compared to $26,978 as of December 31, 2020 to $27,214 as of June 30, 2021 due primarily to an increased participation in our Notes Program of $127 and other unsecured debts of $110. We anticipate an increase in our unsecured debt through increased sales in the Notes Program during the 12 months subsequent to June 30, 2021.2020.

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 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.

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 ~~June~~September 30, 2021:

⁽¹⁾

Other Unsecured includes our PPP Loan of $361 (described below) of which $80, $241, and $40, collectively, matures during 2021, 2022 and 2023, respectively. All or a portion of the PPP Loan may be forgiven.

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

The total amount maturing through the year ending December 31, 2021 is ~~$26,243,~~$20,057, which consists of secured borrowings of ~~$20,296~~$17,854 and unsecured borrowings of ~~$5,947.~~$2,203.

Secured borrowings maturing through year ending December 31, 2021 ~~significantly~~ 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 2021 primarily because the related collateral is demand loans. The following lists our secured facilities with maturity and renewal dates:

	●	Swanson – $7,000 due ~~October~~July 2022, will automatically renew unless notice is given;
	●	Shuman ~~– $1,325~~- $125 due July 2022, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – $3,500 of the total due ~~January~~April 2022, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – $2,000 with no expiration date;
	●	Builder Finance, Inc. – ~~$4,604~~$3,616 with no expiration date;
	●	New LOC agreements – ~~$1,860~~$1,609 generally one-month notice and six months to reduce principal balance to zero;
	●	Mortgage payable – $8$4 due monthly.

Unsecured borrowings due by December 31, 2021 consist of Notes issued pursuant to the Notes Program and other unsecured debt of ~~$5,220~~$1,557 and ~~$727,~~$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 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 6six 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 ~~June~~September 30, 2021:

Year Maturing	Total Amount Redeemable		Total Amount Redeemable

2024	$	3,079	$	3,160
2025		379		390
2026		309		309
2027		824		840

Total	$	4,591	$	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 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. 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 some lower cost secured funding in the third 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 June 30, 2021 and December 31, 2020, other than unfunded loan commitments, 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

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

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 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 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 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 ~~June~~September 30, 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 1A. RISK FACTORS

Not applicable.

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 on ~~June~~September 30, 2021:

Owner	Units		Amount		Units		Amount
Daniel M. and Joyce S. Wallach		0.4999449	$	49,994.49		0.5150938	$	51,509.38
Gregory L. Sheldon and Madeline M. Sheldon		0.1186047		11,860.47		0.1221986		12,219.86
BLDR, LLC		0.1617472		16,174.72		0.1666483		16,664.83
Schultz Family Living Trust		0.0402366		4,023.66		0.0414558		4,145.58
Fernando Ascencio and Lorraine Carol Ascencio		0.0752829		7,528.29		0.0775640		7,756.40
Mark and Tris Ann Garboski		0.1510510		15,150.50		0.1560958		15,609.58
Total		1.0473214	$	104,732.13		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 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 ~~he/she/it~~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 Series C Cumulative Preferred Units~~

On April 1, 2021, the Registrant sold five of its Series C Preferred Units to two joint investors for the total price of $500,000. The proceeds received from the transaction were used for the funding of construction loans. The transaction 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 the Registrant that they were “accredited investors” 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.

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 ~~0.6~~0.2 Series B Preferred Units to the Hoskins Group during the quarter ended ~~June~~September 30, 2021.

The proceeds received from the ~~sales~~sale of the Series B Preferred Units in ~~those transactions~~that transaction were used for the funding of construction loans. The ~~transactions~~transaction in Series B Preferred Units described above ~~were~~was effected in a private ~~transactions~~transaction exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. The ~~transactions~~transaction described above did not involve any public offering, ~~were~~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 ~~June~~September 30, 2021, we had issued ~~$29,303~~$34,040,000 in Notes pursuant to our current public offering. As of ~~June~~September 30, 2021, we incurred expenses of ~~$564~~$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 ~~June~~September 30, 2021 were ~~$28,739,~~$33,452,000, all of which was used to increase loan balances.

	(c)	None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

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

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 ~~June~~September 30, 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 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 Second Amended and Restated Limited Liability Company Agreement of the Registrant, incorporated by reference to Exhibit 3.4 to the Registrant’s Quarterly Report on Form 10-Q, filed 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 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

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

~~10.1~~		Loan Agreement dated May 5, 2020 by and between the Registrant and LCA Bank Corporation, incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 11, 2020, Commission File No. 333-224557

~~10.2~~		Note dated May 5, 2020 from the Registrant in favor of LCA Bank Corporation, incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, filed on May 11, 2020, 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.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.

3837

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: ~~August 5,~~November 12, 2021	By:	/s/ Catherine Loftin
		Catherine Loftin
		Chief Financial Officer

	Six Months Ended June 30, 2021		Year Ended December 31, 2020			Six Months Ended June 30, 2020

Accumulated amortization, beginning balance	$	526	$	370		$	370
Additions		80		165			79
Disposals		–		(9	)		–
Accumulated amortization, ending balance	$	606	$	526		$	449