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 March 31, ~~2017~~2018

[ ]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 333-203707

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.)

12627 San Jose Blvd., Suite 203, Jacksonville, FL 32223

(Address of principal executive offices)

302-752-2688

(Registrant’s telephone number including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	[ ]	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. [ ]

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				~~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 March 31, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017		4


Interim Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017		5


Interim Condensed Consolidated Statement of Changes in Members’ Capital (Unaudited) for the Three Months Ended March 31, ~~2017~~2018		6


Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017		7


Notes to Interim Condensed Consolidated Financial Statements (Unaudited)		8

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2218

	Item 3. Quantitative and Qualitative Disclosure About Market Risk		41
34
	~~Item 4. Controls and Procedures~~			41

~~PART II. OTHER INFORMATION~~Item 4. Controls and Procedures
34
	~~Item 1. Legal Proceedings~~			42

	~~Item 1A. Risk Factors~~PART II. OTHER INFORMATION			4235

Item 1. Legal Proceedings		35

Item 1A. Risk Factors		35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4235

	Item 3. Defaults upon Senior Securities		4335

	Item 4. Mine Safety Disclosures		4335

	Item 5. Other Information			4335

	Item 6. Exhibits			4335

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. Actual results may differ materially from those predicted in the forward-looking statements as a result of various factors, including but not limited to those set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, as filed with the Securities and Exchange Commission. 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.

When considering forward-looking statements, you should keep these risk factors, as well as the other cautionary statements in this report and in our ~~2016~~2017 Form 10-K 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

	As of				As of
(in thousands of dollars)	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017
		(Unaudited)			(Unaudited)
Assets
Cash and cash equivalents	$	586	$	1,566	$	380	$	3,478
Accrued interest on loans		320		280
Accrued interest receivable						966		720
Loans receivable, net		24,167		20,091		39,692		30,043
Foreclosed assets		1,081		2,798		1,079		1,036
Property, plant and equipment		625		–
Property, plant and equipment, net						1,033		1,020
Other assets		67		151		92		58

Total assets	$	26,846	$	24,886	$	43,242	$	36,355

Liabilities, Redeemable Preferred Equity and Members’ Capital

Liabilities

Customer interest escrow	$	1,021	$	812	$	786	$	935
Accounts payable and accrued expenses		1,482		1,363		478		705
Notes payable secured		6,728		7,322
Accrued interest payable						1,373		1,353
Notes payable secured, net of deferred financing costs						17,554		11,644
Notes payable unsecured, net of deferred financing costs		13,587		11,962		18,002		16,904
Due to preferred equity member		31		28		31		31

Total liabilities		22,849		21,487		38,224		31,572

Commitments and Contingencies (Notes 3 and 10)
Commitments and Contingencies (Notes 3 and 9)

Redeemable Preferred Equity

Series C preferred equity		440		–	$	1,130	$	1,097

Members’ Capital

Series B preferred equity		1,160		1,150		1,240		1,240
Class A common equity		2,397		2,249		2,648		2,446
Members’ capital		3,557		3,399		3,888		3,686

Total liabilities, redeemable preferred equity and members’ capital	$	26,846	$	24,886	$	43,242	$	36,355

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 Months ended March 31, ~~2017~~2018 and ~~2016~~2017

(in thousands of dollars) 2017 2016

Net Interest Income
Interest and fee income on loans $ 1,174 $ 849
Interest expense:
Interest related to secured borrowings 179 117
Interest related to unsecured borrowings 367 245
Interest expense 546 362

Net interest income 628 487
Less: Loan loss provision 11 8

Net interest income after loan loss provision 617 479

Non-Interest Income
Gain from sale of foreclosed assets 77 –

Income 694 479

Non-Interest Expense
Selling, general and administrative 454 350
Impairment loss on foreclosed assets 49 –

Total non-interest expense 503 350

Net income $ 191 $ 129

Earned distribution to preferred equity holders 31 26

Net income attributable to common equity holders $ 160 $ 103

	Three Months Ended
	March 31,
(in thousands of dollars)	2018		2017
Interest Income
Interest and fee income on loans	$	1,827	$	1,174
Interest expense:
Interest related to secured borrowings		411		179
Interest related to unsecured borrowings		450		367
Interest expense		861		546

Net interest income		966		628
Less: Loan loss provision		40		11

Net interest income after loan loss provision		926		617

Non-Interest Income
Gain from foreclosure of assets		-		77

Total non-interest income		-		77

Income		926		694

Non-Interest Expense
Selling, general and administrative		617		448
Depreciation and amortization		17		6
Impairment loss on foreclosed assets		5		49

Total non-interest expense		639		503

Net Income	$	287	$	191

Earned distribution to preferred equity holders		63		31

Net income attributable to common equity holders	$	224	$	160

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 Three Months Ended March 31, ~~2017~~2018

(in thousands of dollars)	2017			Three Months Ended March 31, 2018

Members’ capital, beginning balance	$	3,399		$	3,686
Net income		191			287
Contributions from members (preferred)		10
Earned distributions to preferred equity holder		(31	)
Earned distributions to preferred equity holders					(63	)
Distributions to common equity holders		(12	)		(22	)

Members’ capital, ending balance	$	3,557		$	3,888

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Cash Flows - Unaudited

For the Three Months Ended March 31, ~~2017~~2018 and ~~2016~~2017

							Three Months Ended March 31,
(in thousands of dollars)	2017			2016			2018			2017

Cash flows from operations
Net income	$	191		$	129		$	287		$	191
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Amortization of deferred financing costs		64			67			48			64
Provision for loan losses		11			8			40			11
Net loan origination fees deferred (earned)		198			(49	)
Net loan origination fees deferred								85			198
Change in deferred origination expense		(64	)		(10	)		(23	)		(64	)
Impairment of foreclosed assets		49			–			5			49
Gain from sale of foreclosed assets		(77	)		–
Net change in operating assets and liabilities
Depreciation and amortization								17			6
Gain from foreclosure of assets								-			(77	)
Net change in operating assets and liabilities:
Other assets		15			–			(39	)		9
Accrued interest on loans		(40	)		(103	)
Accrued interest receivable								(246	)		(40	)
Customer interest escrow		209			(35	)		(149	)		209
Accounts payable and accrued expenses		119			269			(207	)		119

Net cash provided by (used in) operating activities		675			276
Net cash (used in) provided by operating activities								(182	)		675

Cash flows from investing activities
Loan originations and principal collections, net		(4,221	)		(3,404	)		(9,751	)		(4,221	)
Investment in foreclosed assets		(145	)		(213	)		(48	)		(145	)
Proceeds from sale of foreclosed assets		1,890			–			-			1,890
Property plant and equipment additions		(556	)		–			(25	)		(556	)

Net cash provided by (used in) investing activities		(3,032	)		(3,617	)
Net cash used in investing activities								(9,824	)		(3,032	)

Cash flows from financing activities
Contributions from redeemable preferred equity		440			–			-			440
Contributions from members (preferred)		10			40
Distributions to members		(40	)		(190	)
Contributions from preferred equity holders								-			10
Distributions to preferred equity holders								(30	)		(28	)
Distributions to common equity holders								(22	)		(12	)
Proceeds from secured note payable		2,001			3,892			7,581			2,001
Repayments of secured note payable		(2,595	)		(1,578	)		(1,665	)		(2,595	)
Proceeds from unsecured notes payable		4,144			633			4,479			4,144
Redemptions/repayments of unsecured notes payable		(2,573	)		(10	)		(3,400	)		(2,573	)
Deferred financing costs paid		(10	)		(19	)		(35	)		(10	)

Net cash provided by (used in) financing activities		1,377			2,768
Net cash provided by financing activities								6,908			1,377

Net increase (decrease) in cash and cash equivalents		(980	)		(573	)
Net decrease in cash and cash equivalents								(3,098)			(980	)

Cash and cash equivalents
Beginning of period		1,566			1,341			3,478			1,566

End of period	$	586		$	768		$	380		$	586

Supplemental disclosure of cash flow information
Cash paid for interest	$	488		$	152		$	813		$	488

Non-cash investing and financing activities
Earned but not paid distribution of preferred equity holders	$	31		$	1		$	33		$	31

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

Description of Business

Shepherd’s Finance, LLC and subsidiary (the “Company”, “we”, or “our”) was originally formed as a Pennsylvania limited liability company on May 10, 2007. We are the sole member of a consolidating subsidiary, 84 REPA, LLC. The Company operated pursuant to an operating agreement by and among Daniel M. Wallach and the members of the Company from its inception through March 29, 2012, at which time it adopted an amended and restated operating agreement.

~~The~~As of March 31, 2018, the Company ~~lends money~~extends commercial loans to residential homebuilders to construct single family homes, to develop undeveloped land into residential building lots, and to purchase and improve for sale older homes. The loans are extended to residential homebuilders and, as such, are commercial loans. We lend in 16 states as of March 31, 2017.(in 17 states) to:

	●	construct single family homes,
	●	develop undeveloped land into residential building lots, and
	●	purchase and improve for sale older homes.

Basis of Presentation

The accompanying (a) condensed consolidated balance sheet as of ~~December~~March 31, ~~2016,~~2018, which has been derived from audited consolidated financial statements, and (b) unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. 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, ~~2017.~~2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with the ~~2016~~2017 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016~~2017 (the ~~“2016~~“2017 Statements”). The accounting policies followed by the Company are set forth in Note 2 -Summary of Significant Accounting Policies ~~(“Note 2”)~~in the 2017 Statements.

Accounting Standards Adopted in the Period

ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).” Issued in January 2016, ASU 2016-01 was intended to enhance the reporting model for financial instruments to provide users of financial statements with improved decision-making information. The amendments of ASU 2016-01 include: (i) requiring equity investments, except those accounted for under the equity method of accounting or those that result in the consolidation of an investee, to be measured at fair value, with changes in fair value recognized in net income; (ii) requiring a qualitative assessment to identify impairment of equity investments without readily determinable fair values; and (iii) clarifying that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

ASU 2016-01 became effective for the Company on January 1, 2018. The adoption of ASU 2016-01 did not have a material impact on the Company’s consolidated financial statements.

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” Issued in May 2014, ASU 2014-09 added FASB ASC Topic 606, Revenue from Contracts with Customers, and superseded revenue recognition requirements in FASB ASC Topic 605, Revenue Recognition and certain cost guidance in FASB ASC Topic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. ASU 2014-09 requires an entity to recognize revenue when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue should be recognized either over time, in a manner that depicts the entity’s performance, or at a point in time, when control of the ~~notes~~goods or services is transferred to the ~~2016 Statements.~~customer.ASU 2014-09 became effective for the Company on January 1, 2018. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements.

Revenue

On January 1, 2018, the Company implemented Accounting Standards Update 2014-09, Revenue from Contracts with Customers, codified at ASC Topic 606. The Company adopted ASC 606 using the modified retrospective transition method. As of December 31, 2017, the Company had no uncompleted customer contracts and, as a result, no cumulative transition adjustment was made during the first quarter of 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts continue to be reported under legacy U.S. GAAP.

The majority of the Company’s revenue is generated through interest earned on financial instruments, including loans, which falls outside the scope of ASC 606. All of the Company’s revenue that is subject to ASC 606 would be included in non-interest income; however, not all non-interest income is subject to ASC 606. The Company had no contract liabilities or unsatisfied performance obligations with customers as of March 31, 2018.

Reclassifications

Certain prior year amounts have been reclassified for consistency with current period presentation.

2. Fair Value

~~Utilizing Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 820, the Company~~There has ~~established a framework for measuring~~been no change in our fair value under U.S. GAAP using a hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. 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. Three levels of inputs are used to measure fair value, as follows:

	~~Level 1 –~~	~~quoted prices in active markets for identical assets or liabilities;~~

	~~Level 2 –~~	~~quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or~~

	~~Level 3 –~~	~~unobservable inputs, such as discounted cash flow models or valuations.~~

~~A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.~~

~~Fair Value Measurements of Non-financial Instruments on a Recurring Basis~~

~~The Company has no non-financial instruments measured at fair value on a recurring basis.~~

~~Fair Value Measurements of Non-Financial Instruments on a Non-recurring Basis~~

~~Foreclosed Assets~~

~~Foreclosed~~assets consist of properties obtained through foreclosure or in satisfaction of loans and is recorded at the fair value of the property, less estimated costs to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically significant unobservable inputs for determining fari value.policy during 2018.

The following tables ~~presents~~present the balances of non-financial instruments measured at fair value on a non-recurring basis as of March 31, ~~2017~~2018 and December 31, ~~2016.~~2017.

March 31, ~~2017~~2018

Quoted

Prices

in Active

Markets

Significant

for

Other

Significant

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Foreclosed assets

1,079

–

1,079

December 31, ~~2016~~

~~Fair Value of Financial Instruments~~2017

ASC 825 requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Quoted

Prices

in Active

Markets

Significant

for

Other

Significant

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Foreclosed assets

1,036

–

1,036

~~Cash and Cash Equivalents~~

~~The carrying amount approximates fair value because of the short maturity of these instruments.~~

~~Loans Receivable and Commitments to Extend Credit~~

For variable rate loans that reprice frequently with no significant change in credit risk, estimated fair values of collateral are based on carrying values at both March 31, 2017 and December 31, 2016. Because the loans are demand loans and therefore have no known time horizon, there is no significant impact from fluctuating interest rates. For unfunded commitments to extend credit, because there would be no adjustment between fair value and carrying amount for the amount if actually loaned, there is no adjustment to the amount before it is loaned. The amount for commitments to extend credit is not listed in the tables below because there is no difference between carrying value and fair value, and the amount is not recorded on the consolidated balance sheets as a liability.

~~Interest Receivable~~

Although interest receivable from our customers does not yield additional interest to us, because interest is due roughly 10 days after it is billed, the impact is negligible and the fair value approximates the carrying value at both March 31, 2017 and December 31, 2016.

~~Customer Interest Escrow~~

The customer interest escrow does not yield interest to the customer, but because: 1) the customer loans are demand loans, 2) there is no way to estimate how long the escrow will be in place, and 3) the interest rate which could be used to discount this amount is negligible, the fair value approximates the carrying value at both March 31, 2017 and December 31, 2016.

~~Borrowings under Credit Facilities~~

The fair value of the Company’s borrowings under credit facilities is estimated based on the expected cash flows discounted using the current rates offered to the Company for debt of the same remaining maturities. As all of the borrowings under credit facilities or the Notes are either payable on demand or at similar rates to what the Company can borrow funds for today, the fair value of the borrowings is determined to approximate carrying value at both March 31, 2017 and December 31, 2016. The interest on our Notes offering is paid to our Note holders either monthly or at the end of their investment, compounded on a monthly basis. For the same reasons as the determination for the principal balances on the Notes, the fair value approximates the carrying value for the interest as well. The interest payable makes up the bulk of our accounts payable and accrued expenses.

The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy ~~(as discussed in Note 2)~~ within which the fair value measurements are categorized at the periods indicated:

March 31, 2018

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Financial Assets:

Cash and cash equivalents

380

–

Loans receivable, net

39,692

–

39,692

Accrued interest receivable

966

–

966

Financial Liabilities:

Customer interest escrow

786

–

786

Notes payable related party

1,000

–

1,000

Notes payable secured

16,554

–

16,554

Notes payable unsecured, net

18,002

–

18,002

Accrued interest payable

1,373

–

1,373

~~March~~December 31, 2017

Quoted Prices
in Active Significant
Markets for
Other
Significant
Identical Observable Unobservable
Carrying Estimated Assets Inputs Inputs
Amount Fair Value Level 1 Level 2 Level 3
Financial Assets
Cash and cash equivalents $ 586 $ 586 $ 586 $ – $ –
Loans receivable, net 24,167 24,167 – – 24,167
Accrued interest on loans 320 320 – – 320
Financial Liabilities
Customer interest escrow 1,021 1,021 – – 1,021
Notes payable secured 6,728 6,728 – – 6,728
Notes payable unsecured, net 13,587 13,587 – – 13,587
Accrued interest payable 998 998 – – 998

~~December 31, 2016~~

					Quoted Prices										Quoted Prices
					in Active		Significant								in Active
					Markets for		Other		Significant						Markets for		Significant Other		Significant
					Identical		Observable		Unobservable						Identical		Observable		Unobservable
	Carrying		Estimated		Assets		Inputs		Inputs		Carrying		Estimated		Assets		Inputs		Inputs
	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets
Financial Assets:
Cash and cash equivalents	$	1,566	$	1,566	$	1,566	$	–	$	–	$	3,478	$	3,478	$	3,478	$	–	$	–
Loans receivable, net		20,091		20,091		–		–		20,091		30,043		30,043		–		–		30,043
Accrued interest on loans		280		280		–		–		280
Financial Liabilities
Accrued interest receivable												720		720		–		–		720
Financial Liabilities:
Customer interest escrow		812		812		–		–		812		935		935		–		–		935
Notes payable secured		7,322		7,322		–		–		7,322		11,644		11,644		–		–		11,644
Notes payable unsecured, net		11,962		11,962		–		–		11,962		16,904		16,904		–		–		16,904
Accrued interest payable		993		993		–		–		993		1,353		1,353		–		–		1,353

3. Financing Receivables

Financing receivables are comprised of the following as of March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:

March 31, 2017 December 31, 2016

Commercial loans, gross $ 26,121 $ 21,569
Less: Deferred loan fees (816 ) (618 )
Less: Deposits (1,192 ) (861 )
Plus: Deferred origination expense 119 55
Less: Allowance for loan losses (65 ) (54 )

Commercial loans, net $ 24,167 $ 20,091

~~Roll forward of commercial loans:~~

Three Months
Ended
March 31, 2017

Year
Ended
December 31, 2016

Three Months
Ended
March 31, 2016

Beginning balance $ 20,091 $ 14,060 $ 14,060
Additions 7,461 23,184 7,081
Payoffs/sales (2,909 ) (15,168 ) (3,620 )
Moved to foreclosed assets – (1,639 ) –
Change in deferred origination expense 64 55 10
Change in builder deposit (331 ) (340 ) (57 )
Change in loan loss provision (11 ) (16 ) (8 )
New loan fees (593 ) (1,270 ) (332 )
Earned loan fees 395 1,225 381

Ending balance $ 24,167 $ 20,091 $ 17,515

	March 31, 2018			December 31, 2017

Loans receivable, gross	$	42,201		$	32,375
Less: Deferred loan fees		(932	)		(847	)
Less: Deposits		(1,573	)		(1,497	)
Plus: Deferred origination expense		133			109
Less: Allowance for loan losses		(137	)		(97	)

Loans receivable, net	$	39,692		$	30,043

Commercial Construction and Development Loans

~~Pennsylvania Loans~~

We have three development loans (the “Pennsylvania Loans”) covering two developments. The loans are to the same borrowing group (the “Hoskins Group”). They are cross-defaulted and cross-collateralized with each other. Our total commitment amount under the Pennsylvania Loans is approximately $5,231 as of March 31, 2017, as described in more detail below. As such, we are currently reliant on a single developer and homebuilder for a significant portion of our revenues. As part of our agreement with the Hoskins Group, they invest in our preferred equity in an amount equal to $10 per closing of a lot payoff in the two developments. We collected a fee of $1,000 upon closing of the loans in 2011, which was recognized through July 2016, the original expected life of the loan. Additionally, we created an interest escrow account (the “Interest Escrow”) which has been funded at various times by borrowings, and by a portion of each lot payoff. Interest on the Pennsylvania Loans accrues annually at 7% (2% prior to August 1, 2016) plus the greater of (i) 5.0% or (ii) the weighted average price paid by us on or in connection with all of our borrowed funds (such weighted average price includes interest rates, loan fees, legal fees and any and all other costs paid by us on our borrowed funds, and, in the case of funds borrowed by us from our affiliates, the weighted average price paid by such affiliate on or in connection with such borrowed funds) (“COF”). Pursuant to the credit agreement, interest payments on the loans are funded from the Interest Escrow, with any shortfall funded by the Hoskins Group. Loans may be prepaid in whole or in part at any time without penalty.

The loans are secured by several first priority mortgages in residential building lots located in the subdivisions commonly known as the Hamlets of Springdale and the Tuscany Subdivision, both in Peters Township, Pennsylvania, a suburb of Pittsburgh, as well as the Interest Escrow.

~~Commercial Loans – Real Estate Development Loan Portfolio Summary~~

~~The following is a summary of our loan portfolio to builders for land development as of March 31, 2017. The Pennsylvania loans below are the Pennsylvania Loans discussed above.~~

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Pennsylvania 1 3 $ 6,333 $ 5,231 ⁽³⁾ $ 3,901 62 % $ 1,000
Total 1 3 $ 6,333 $ 5,231 $ 3,901 62 % $ 1,000

⁽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 $1,160 of preferred equity in our Company. In the event of a foreclosure on the property securing certain of our loans, a portion of our collateral is preferred equity in our Company, which might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value.~~

⁽³⁾	The commitment amount does not include letters of credit and cash bonds, as the sum of the total balance outstanding including the cash bonds plus the letters of credit and remaining to fund for construction is less than the $5,231 commitment amount.

~~The following is a summary of our loan portfolio to builders for land development as of December 31, 2016. The Pennsylvania loans below are the Pennsylvania Loans discussed above.~~

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Pennsylvania 1 3 $ 6,586 $ 5,931 ⁽³⁾ $ 4,082 62 % $ 1,000
Total 1 3 $ 6,586 $ 5,931 $ 4,082 62 % $ 1,000

⁽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 $1,150 of preferred equity in our Company. In the event of a foreclosure on the property securing certain of our loans, a portion of our collateral is preferred equity in our Company, which might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value.~~

⁽³⁾	The commitment amount does not include letters of credit and cash bonds, as the sum of the total balance outstanding including the cash bonds plus the letters of credit and remaining to fund for construction is less than the $5,931 commitment amount.

Commercial Loans – Construction Loan Portfolio Summary

As of March 31, ~~2017,~~2018, we have ~~43 other~~64 borrowers, all of whom, ~~along with~~including our three development loan customers (the “Hoskins Group,” consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark Hoskins, being the ~~Hoskins Group,~~largest of the three), borrow money for the purpose of building new homes.

The following is a summary of our loan portfolio to builders for home construction loans as of March 31, ~~2017.~~2018 and December 31, 2017:

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Colorado 2 5 $ 2,314 $ 1,566 $ 694 68 % 5 %
Connecticut 1 1 715 500 500 70 % 5 %
Delaware 1 1 244 171 40 70 % 5 %
Florida 11 23 17,194 10,633 6,158 62 % 5 %
Georgia 7 17 11,455 6,728 3,744 59 % 5 %
Indiana 2 2 995 597 103 60 % 5 %
Michigan 3 7 1,609 1,047 614 65 % 5 %
New Jersey 3 8 2,023 1,451 996 72 % 5 %
New York 1 6 1,855 853 805 46 % 5 %
North Carolina 1 2 490 343 131 70 % 5 %
Ohio 1 1 1,405 843 505 60 % 5 %
Pennsylvania 2 16 13,170 6,887 5,758 52 % 5 %
South Carolina 8 15 4,106 2,709 999 66 % 5 %
Tennessee 1 3 1,080 767 606 71 % 5 %
Utah 1 3 1,133 793 472 70 % 5 %
Virginia 1 1 408 260 95 64 % 5 %
Total 45 ⁽⁴⁾ 111 $ 60,196 $ 36,148 $ 22,221 60 %⁽³⁾ 5 %

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

2018

199

84,753

54,773

36,959

%⁽³⁾

2017

168

75,931

47,087

29,563

%⁽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.

⁽⁴⁾	~~One builder borrows in multiple states.~~

Commercial Loans – Real Estate Development Loan Portfolio Summary

The following is a summary of our loan portfolio to builders for ~~home construction loans~~land development as of March 31, 2018 and December 31, ~~2016.~~2017:

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Colorado 1 3 $ 1,615 $ 1,131 $ 605 70 % 5 %
Connecticut 1 1 715 500 479 70 % 5 %
Delaware 1 2 244 171 40 70 % 5 %
Florida 7 15 14,014 8,548 4,672 61 % 5 %
Georgia 4 9 6,864 4,249 2,749 62 % 5 %
Idaho 1 1 319 215 205 67 % 5 %
Michigan 1 1 210 126 118 60 % 5 %
New Jersey 1 3 977 719 528 74 % 5 %
New York 1 4 1,745 737 685 42 % 5 %
North Carolina 2 2 1,015 633 216 62 % 5 %
Ohio 1 1 1,405 843 444 60 % 5 %
Pennsylvania 2 15 12,725 6,411 5,281 50 % 5 %
South Carolina 5 7 2,544 1,591 783 63 % 5 %
Tennessee 1 3 1,080 767 430 71 % 5 %
Utah 1 2 715 500 252 70 % 5 %
Total 30 69 $ 46,187 $ 27,141 $ 17,487 59 %⁽³⁾ 5 %

Year

Number of States

Number of Borrowers

Number

of Loans⁽⁴⁾

Gross Value of Collateral⁽¹⁾

Commitment Amount⁽³⁾

Gross Amount

Outstanding

Loan to Value

Ratio⁽²⁾

Loan Fee

2018

8,019

6,362

5,242

1,000

2017

4,997

4,600

2,811

1,000

⁽¹⁾	The value is determined by the appraised ~~value.~~value adjusted for remaining costs to be paid. Part of this collateral is $1,240 as of March 31, 2018 and December 31, 2017 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 eliminate the loan balance. Part of the collateral value is estimated based on the selling prices anticipated for the homes.

⁽²⁾	The loan to value ratio is calculated by taking the ~~commitment~~outstanding amount and dividing by the appraised ~~value.~~value calculated as described above.

⁽³⁾	~~Represents~~The commitment amount does not include letters of credit and cash bonds.

⁽⁴⁾	As of December 31, 2017, our development loans consisted of borrowings which originated in December 2011 and to which we refer throughout this report as the ~~weighted average~~“Pennsylvania Loans”. During the first quarter of 2018, we added one additional development loan to ~~value ratio of~~ the ~~loans.~~Pennsylvania Loans.

Credit Quality Information

The following table presents credit-related information at the “class” level in accordance with ~~FASB ASC~~Financial Accounting Standards Board Accounting Standards Codification 310-10-50,Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses. ~~A class is generally a disaggregation of a portfolio segment. In determining~~See our Form 10-K for the ~~classes,~~year ended December 31, 2017, as filed with the ~~Company considered the~~SEC, for more information.

Gross finance ~~receivable characteristics and methods it applies in monitoring and assessing credit risk and performance.~~

~~The following table summarizes finance~~ receivables by the risk ratings that regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. Risk ratings are reviewed on a regular basis and are adjusted as necessary for updated information affecting the borrowers’ ability to fulfill their obligations.

~~The definitions of these ratings are as follows:~~

	●	~~Pass – finance receivables in this category do not meet the criteria for classification in one of the categories below.~~

	●	Special mention – a special mention asset exhibits potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date, result in the deterioration of the repayment prospects.

	●	Classified – a classified asset ranges from: 1) assets that are inadequately protected by the current sound worth and paying capacity of the borrower, and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected to 2) assets with weaknesses that make collection or liquidation in full unlikely on the basis of current facts, conditions, and values. Assets in this classification can be accruing or on non-accrual depending on the evaluation of these factors.

~~Finance Receivables~~ – By risk rating:

	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017

Pass	$	22,448	$	18,275	$	31,194	$	25,656
Special mention		3,673		3,294		7,231		6,719
Classified – accruing		–		–		3,776		–
Classified – nonaccrual		–		–		–		–
Total	$	26,121	$	21,569	$	42,201	$	32,375

~~Finance Receivables~~Gross finance receivables – Method of impairment calculation:

	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017

Performing loans evaluated individually	$	9,555	$	12,424	$	11,217	$	14,992
Performing loans evaluated collectively		16,566		9,145		27,208		17,383
Non-performing loans without a specific reserve		–		–		3,776		–
Non-performing loans with a specific reserve		–		–		–		–
Total	$	26,121	$	21,569	$	42,201	$	32,375

At March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, there were no loans acquired with deteriorated credit ~~quality, loans past due 90 or more days, impaired loans, or loans on nonaccrual status.~~quality.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of loans receivable. Our concentration risks for individual borrowers are summarized in the table below:

March 31, 2017 December 31, 2016
Percent of Percent of
Borrower Loan Borrower Loan
City Commitments City Commitments

Highest concentration risk Pittsburgh, PA 28 % Pittsburgh, PA 37 %
Second highest concentration risk Sarasota, FL 9 % Sarasota, FL 11 %
Third highest concentration risk Savannah, GA 5 % Savannah, GA 6 %

At March 31, 2017, our loans were significantly concentrated in a suburb of Pittsburgh, Pennsylvania, so the housing starts and prices in that area are more significant to our business than other areas until and if more loans are created in other markets.

March 31, 2018

December 31, 2017

Percent of

Borrower

Loan

Borrower

Loan

City

Commitments

City

Commitments

Highest concentration risk

Pittsburgh, PA

Second highest concentration risk

Sarasota, FL

Third highest concentration risk

Orlando, FL

Savannah, GA

4. Foreclosed Assets

Roll forward of ~~Foreclosed Assets:~~foreclosed assets:

Three Months
Ended
March 31, 2017

Year
Ended
December 31, 2016

Three Months
Ended
March 31, 2016

Beginning balance $ 2,798 $ 965 $ 965
Additions from loans – 1,813 –
Additions for construction/development 145 566 213
Sale proceeds (1,890 ) (463 ) –
Gain on sale 77 28 –
Impairment loss on foreclosed assets (49 ) (111 ) –
Ending balance $ 1,081 $ 2,798 $ 1,178

	Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Beginning balance	$	1,036		$	2,798		$	2,798
Additions for construction/development		48			317			296
Sale proceeds		-			(1,890	)		(1,890	)
Gain on sale		-			77			77
Impairment loss on foreclosed assets		(5	)		(266	)		(202	)
Ending balance	$	1,079		$	1,036		$	1,079

5. ~~Property, Plant and Equipment~~

~~We purchased a partially completed building in which we plan to operate for $625 in the first quarter of 2017. No depreciation has been recorded as the asset has not been placed in service.~~

6. Borrowings

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

	Priority Rank		March 31, 2017		December 31, 2016		Priority Rank		March 31, 2018		December 31, 2017
Borrowing Source
Purchase and sale agreements		1	$	6,728	$	7,322
Purchase and sale agreements and other secured borrowings								1	$	16,559	$	11,644
Secured line of credit from affiliates		2		–		–		2		1,000		–
Unsecured line of credit (senior)		3		–		–		3		500		–
Other unsecured debt (senior subordinated)		4		279		279		4		1,007		279
Unsecured Notes through our public offering		5		12,792		11,221
Unsecured Notes through our public offering, gross								5		13,785		14,121
Other unsecured debt (subordinated)		5		700		700		5		2,387		2,617
Other unsecured debt (junior subordinated)		6		173		173		6		590		173
Total			$	20,672	$	19,695			$	35,828	$	28,834

The following table shows the maturity of outstanding debt as of March 31, ~~2017.~~2018.

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured		Purchase and Sale Agreements		Total Amount Maturing		Public Offering		Other Unsecured		Purchase and Sale Agreements and other secured borrowings

2017	$	8,575	$	1,247	$	600	$	6,728
2018		3,091		3,091		–		–	$	22,413	$	3,547	$	1,954	$	16,912
2019		3,563		3,563		–		–		4,876		4,029		833		14
2020		2,578		2,578		–		–		2,269		2,154		100		15
2021		2,865		2,313		552		–		3,904		3,889		-		15
2022 and thereafter										2,366		166		1,597		603
Total	$	20,672	$	12,792	$	1,152	$	6,728	$	35,828	$	13,785	$	4,484	$	17,559

Secured Borrowings

Purchase and Sale Agreements

~~We have two current purchase~~In March 2018, we entered into the Seventh Amendment (the “Seventh Amendment”) to our Loan Purchase and ~~sale agreement relationships where we are the seller of portions of loans we create. The two purchasers are Builder Finance, Inc. and~~Sale Agreement (the “S.K. Funding LPSA”) with S.K. Funding, LLC. Generally, the purchasers buy between 50% and 70% of each loan sold. Builder Finance, Inc., a subsidiary of 1st Financial Bank, USA, began purchasing portions of loans effective as of August 1, 2016. Prior to August 1, 2016, 1st Financial Bank, USA had purchased these loans under a separate loan purchase and sale agreement.LLC (“S.K. Funding”).

The buyers receive interest rates ranging from our cost of funds to the note rate charged to the borrower (interest rates we paid were between 9% and 12% for both 2017 and 2016). The buyers generally receive nonepurpose of the ~~loan fees we charge. We have the right~~Seventh Amendment was to ~~call some of the loans sold, with some restrictions. Once sold, the buyer must fund their~~allow S.K. Funding to purchase a portion of the ~~loans purchased. We service~~Pennsylvania Loans for a purchase price of $649 under parameters different from those specified in the ~~loans. Also, there are limited put options in some cases, whereby~~S.K. Funding LPSA.

The timing of the ~~purchaser can cause us~~Company’s principal and interest payments to ~~repurchase a loan. The purchase~~S.K. Funding under the Seventh Amendment, and ~~sale agreements are recorded~~S.K. Funding’s obligation to fund the Pennsylvania Loans, vary depending on the total principal amount of the Pennsylvania Loans outstanding at any time, as ~~secured borrowings.~~follows:

	●	If the total principal amount exceeds $1,000, S.K. Funding must fund the amount between $1,000 and less than or equal to $3,500.
	●	If the total principal amount is less than $4,500 the Company will also repay S.K. Funding’s principal as principal payments are received on the Pennsylvania Loans from the underlying borrowers in the amount by which the total principal amount is less than $4,500 until S.K. Funding’s principal has been repaid in full.
	●	The interest rate accruing to S.K. Funding under the Seventh Amendment is 10.5% calculated on a 365/366-day basis.

The ~~purchase~~Seventh Amendment has a term of 24 months and ~~sale agreements are detailed below:~~will automatically renew for an additional six-month term unless either party gives written notice of its intent not to renew at least six months prior to the end of a term. S.K. Funding will have a priority position as compared to the Company in the case of a default by any of the borrowers.

March 31, 2017 December 31, 2016
Book Value of Due From Book Value of Due From
Loans which Shepherd’s Loans which Shepherd’s
Served as Finance to Loan Served as Finance to Loan
Collateral Purchaser Collateral Purchaser
Loan purchaser
1st Financial Bank, USA/Builder Finance, Inc. $ 5,706 $ 3,025 $ 5,779 $ 2,517
S.K. Funding, LLC 8,182 3,703 7,770 4,805

Total $ 13,888 $ 6,728 $ 13,549 $ 7,322

Lines of Credit

~~At December 31, 2016,~~During March 2018, we borrowed $1,000 against our line of credit with our Chief Executive Officer and his wife. Interest was $4 and $0 in the ~~$7,770~~first quarter of ~~loans which served as collateral~~2018 and 2017, respectively. The interest rate for ~~S.K. Funding does not include the book value of the foreclosed assets which also secured their position, which amount~~this borrowing was ~~$1,813. There were no foreclosed assets securing S.K. Funding, LLC’s position~~4.4% as of March 31, ~~2017.~~2018.

During July 2017, we entered into a line of credit agreement (the “Shuman LOC Agreement”) with a group of lenders (collectively, “Shuman”). Pursuant to the Shuman LOC Agreement, Shuman provides us with a revolving line of credit (the “Shuman LOC”) with the following terms:

	●	Principal not to exceed $1,325;
	●	Secured with assignments of certain notes and mortgages;
	●	Cost of funds to us of 10%; and
	●	Due in July 2018 unless extended by Shuman for one or more additional 12-month periods.

The Shuman LOC was fully borrowed as of March 31, 2018

During October 2017, we entered into a line of credit agreement (the “Swanson LOC Agreement”) with Paul Swanson. Pursuant to the Swanson LOC Agreement, Mr. Swanson provides us with a revolving line of credit (the “Swanson LOC”) with the following terms:

	●	Principal not to exceed $4,000;
	●	Secured with assignments of certain notes and mortgages;
	●	Cost of funds to us of 10%; and
	●	Duein January 2019 unless extended by Mr. Swanson for one or more additional 15-month periods.

As of March 31, 2018, we have borrowed $3,851 under the Swanson LOC.

Mortgage Payable

During the first quarter of 2018, we entered into a commercial mortgage on our office building with the following terms:

	●	Principal not to exceed $660;
	●	Secured with assignments of certain notes and mortgages;
	●	Interest rate at 5.07% per annum based on a year of 360 days; and
	●	Due in January 2033.

~~Affiliate Loans~~Summary

~~In December 2011, the Company entered into two secured revolving lines~~The Purchase and Sale Agreements and Lines of ~~credit with affiliates, both of whom~~Credit are members. These loans have an interest rate of the affiliates’ cost of funds, which was 4.19% as of both March 31, 2017 and December 31, 2016, respectively. They are demand notes. The maximum that can be borrowed under these notes is $1,500, at the discretion of the lenders. The security for the lines of credit includes all of the assets of the Company. The Company has not borrowed on these lines in either 2017 or 2016.summarized below:

	March 31, 2018				December 31, 2017
			Due From				Due From
	Book Value of		Shepherd’s		Book Value of		Shepherd’s
	Loans which		Finance to Loan		Loans which		Finance to Loan
	Served as Collateral		Purchaser or Lender		Served as Collateral		Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	7,506	$	4,262	$	7,483	$	4,089
S.K. Funding		13,046		6,463		9,128		4,134

Lender
Shuman		2,134		1,325		1,747		1,325
Paul Swanson		5,147		3,851		2,518		2,096

Total	$	27,833	$	15,901	$	20,876	$	11,644

Unsecured Borrowings

Other Unsecured ~~Loans~~Debts

~~In August 2015, we entered into an~~Our other unsecured ~~note with Seven Kings Holdings, Inc. (“7Kings”), under which we~~debts are ~~the borrower. The~~detailed below:

					Principal Amount Outstanding as of
	Maturity	Interest			March 31,		December 31,
Loan	Date	Rate⁽¹⁾			2018		2017
Unsecured Note with Seven Kings Holdings, Inc.	August 2018		7.5	%		500		500

Unsecured Line of Credit from Builders Finance, Inc.	January 2019		10.0	%		500		-

Unsecured Line of Credit from Paul Swanson	June 2018⁽²⁾		10.0	%		149		1,904

Subordinated Promissory Note	Demand⁽³⁾		7.5	%		1,125		-

Subordinated Promissory Note	December 2019		10.5	%		113		113

Subordinated Promissory Note	April 2020		10.0	%		100		100

Senior Subordinated Promissory Note	March 2022⁽⁴⁾		10.0	%		400		-

Senior Subordinated Promissory Note	March 2022		1.0	%		728		-

Junior Subordinated Promissory Note	March 2022		22.5	%		417		-

Senior Subordinated Promissory Note	October 2022		1.0	%		279		279

Junior Subordinated Promissory Note	October 2022		20.0	%		173		173

					$	4,484	$	3,069

⁽¹⁾Interest rate per annum, based upon actual days outstanding and a 365/366 day year.

⁽²⁾Due in June 2018 unless extended by Mr. Swanson for one or more additional 15-month periods.

⁽³⁾Principal due six months after lender gives notice. This note has a maximum amount outstanding of $500, of which $500 was outstanding as of both March 31, 2017 and December 31, 2016. Interest on the 7Kings loan accrues annually at a rate of 7.5%. The note was due on February 19, 2016 and was renewed several times. The maturity date is now August 18, 2017 and may be prepaid ~~at any time~~ without fee, premium or penalty. ~~Interest is due at the end of each month and was $9 for both of the three month periods ended March 31, 2017 and 2016.~~

~~We have four other unsecured notes, which are listed in the first two tables~~⁽⁴⁾This note may be prepaid upon lender's request at least 10 days prior to an interest payment and up to $20 of ~~this Note 6. The interest rates and priorities vary. We recorded $15 and $2 in interest related to these four notes for the three months ended March 31, 2017 and 2016, respectively.~~principal.

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

The effective interest rate on the ~~unsecured subordinated notes (the “Notes”)~~Notes offered pursuant to ~~our public offering~~the Notes Program at March 31, ~~2017~~2018 and December 31, ~~2016~~2017 was ~~8.58%~~9.16% and ~~8.26%~~9.21%, respectively, not including the amortization of deferred financing costs. There are limited rights of early redemption. ~~We generally offer four durations at any given time, ranging anywhere from 12 to 48 months.~~ The following table shows the roll forward of our Notes ~~program:~~Program:

	Three Months Ended March 31, 2017			Year Ended December 31, 2016			Three Months Ended March 31, 2016			Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Gross notes outstanding, beginning of period	$	11,221		$	8,496		$	8,496
Gross Notes outstanding, beginning of period										$	14,121		$	11,221		$	11,221
Notes issued		4,144			4,972			633			1,309			8,375			4,144
Note repayments / redemptions		(2,573	)		(2,247	)		(10	)		(1,645	)		(5,475	)		(2,573	)

Gross notes outstanding, end of period	$	12,792		$	11,221		$	9,119
Gross Notes outstanding, end of period										$	13,785		$	14,121		$	12,792

Less deferred financing costs, net		357			411			551			267			286			357

Notes outstanding, net	$	12,435		$	10,810		$	8,568		$	13,518		$	13,835		$	12,435

The following is a roll forward of deferred financing costs:

	Three Months						Three Months			Three Months			Year			Three Months
	Ended			Year Ended			Ended			Ended			Ended			Ended
	March 31, 2017			December 31, 2016			March 31, 2016			March 31, 2018			December 31, 2017			March 31, 2017

Deferred financing costs, beginning balance	$	1,014		$	935		$	935		$	1,102		$	1,014		$	1,014
Additions		10			79			19			29			88			10
Deferred financing costs, ending balance	$	1,024		$	1,014		$	954		$	1,131		$	1,102		$	1,024
Less accumulated amortization		(667	)		(603	)		(403	)		(864	)		(816	)		(667	)
Deferred financing costs, net	$	357		$	411		$	551		$	267		$	286		$	357

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

Three Months Three Months
Ended Year Ended Ended
March 31, 2017 December 31, 2016 March 31, 2016

Accumulated amortization, beginning balance $ 603 $ 336 $ 336
Additions 64 267 67
Accumulated amortization, ending balance $ 667 $ 603 $ 403

	Three Months		Year		Three Months
	Ended		Ended		Ended
	March 31, 2018		December 31, 2017		March 31, 2017

Accumulated amortization, beginning balance	$	816	$	603	$	603
Additions		48		213		64
Accumulated amortization, ending balance	$	864	$	816	$	667

7.6. Redeemable Preferred Equity

The following is a roll forward our of Series C cumulative preferred units were issued to Margaret Rauscher IRA LLC (Margaret Rauscher is the wife of our manager Eric Rauscher). They are redeemable by the Company at any time, upon a change of control or liquidation, or by the investor any time after 6 years from the initial date of purchase. The equity (“Series C units have a fixed value which is their purchase price, and preferred liquidation and distribution rights. Yearly distributions of 12% of the Series C units’ value (provided profits are available) will be made quarterly. This rate can increase if our interest rates on our Note Program rise above 12%. Dividends can be reinvested monthly into additional Series C units.Preferred Units”):

~~Roll forward of redeemable preferred equity:~~

Three Months
Ended
March 31, 2017

Year
Ended
December 31, 2016

Three Months
Ended
March 31, 2016

Beginning balance $ – $ – $ –
Additions from new investment 440 – –

Ending balance $ 440 $ – $ –

	Three Months Ended March 31, 2018		Year Ended December 31, 2017		Three Months Ended March 31, 2017

Beginning balance	$	1,097	$	–	$	–
Additions from new investment		–		1,004		440
Additions from reinvestment		33		93		–

Ending balance	$	1,130	$	1,097	$	440

The following table shows the earliest redemption options for investors in our Series C ~~units~~Preferred Units as of March 31, ~~2017.~~2018:

Year Maturing	Total Amount Redeemable		Total Amount Redeemable

2023	$	440	$	1,130

Total	$	440	$	1,130

8.7. Members’ Capital

There are currently ~~three~~two classes of ~~units:~~units outstanding: Class A common units (“Class A Common Units”) and Series B cumulative preferred units ~~and~~ (“Series ~~C cumulative preferred units.~~

B Preferred Units”). The Class A ~~common units~~Common Units are held by ~~eight~~nine 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~~Common Units outstanding at both March 31, ~~2017~~2018 and December 31, ~~2016. On December 31, 2015, an affiliate~~2017.

In January 2018, our Chief Financial Officer and Executive Vice President of ~~7Kings, S.K. Funding, LLC,~~Operations purchased 4%2% and 1% of our ~~common equity~~outstanding Class A Common Units, respectively, from ~~the Wallach family.~~our CEO. In March ~~2017, S.K. Funding, LLC sold its 4% interest in our common equity in equal 1% portions to each of our three independent managers and~~2018, our Executive Vice President of ~~Operations.~~Sales purchased 14.3% of our outstanding Class A Common Units from our CEO.

The Series B cumulative preferred units were issued to the Hoskins Group through a reduction in a loan issued by the Hoskins Group to the Company. The Series B preferred units are redeemable only at the option of the Company or upon a change or control or liquidation. Ten Series B preferred units were initially issued for a total of $1,000. The Series B preferred units have a fixed value which is their purchase price, and preferred liquidation and distribution rights. Yearly distributions of 10% of the Series B preferred units’ value (provided profits are available) will be made quarterly. The Hoskins Group’s Series B preferred units are also used as collateral for that group’s loans to the Company. There is no liquid market for the Series B preferred units, so we can give no assurance as to our ability to generate any amount of proceeds from that collateral. In December 2015, the Hoskins Group agreed to purchase 0.1 units of Series B preferred units for $10 at each closing of a lot to a third party in the Hamlets and Tuscany subdivision. As of March 31, 2017, the Hoskins Group owns a total of 11.6 Series B preferred units, which were issued for a total of $1,160.

There are two additional authorized unit classes, of which no units are outstanding: Class A preferred units and Class B profit units. Once Class B profit units are issued, the existing Class A common units will become Class A preferred units. Class A preferred units will receive preferred treatment in terms of distributions and liquidation proceeds.

~~The members’ capital balances by class are as follows:~~

Class
March 31, 2017
December 31, 2016
B Preferred Units $ 1,160 $ 1,150
A Common Units 2,397 2,249

Members’ Capital $ 3,557 $ 3,399

9.8. Related Party Transactions

~~The Company has a loan agreement with two~~As of March 31, 2018, each of our ~~affiliates, as more fully described in Note 6 –~~~~Affiliate Loans~~.

~~The Company has loan agreements with the Hoskins Group, as more fully described in Note 3.~~

~~The Hoskins Group has a preferred equity interest in the Company, as more fully described in Note 8.~~

~~Each of our three~~two independent managers ~~on our board of managers and our Executive Vice President of Operations~~ own 1% of our Class A ~~common units.~~Common Units. As of March 31, 2018, our CFO, Executive Vice President of Operations, and Executive Vice President of Sales each own 2%, 2%, and 15.3% of our Class A Common Units, respectively.

~~The Company has accepted new investments under~~In March 2018, we borrowed $1,000 against our line of credit with our CEO and his wife. A more detailed description is included in Note 5 above. This borrowing is included in notes payable secured, net of deferred financing costs on the Notes program from employees, managers, members and relatives of managers and members, with $2,355 and $2,197 outstanding at March 31, 2017 and December 31, 2016, respectively. The larger of these investments are detailed below:interim condensed consolidated balance sheet.

Weighted
average interest Interest earned during the
three months ended
Relationship to Amount invested as of rate as of March 31,
Investor
Shepherd’s Finance

March 31, 2017

March 31, 2016

March 31, 2017
2017 2016
William Myrick Independent Manager $ 260 $ 288 8.94 % $ 7 $ 6

R. Scott Summers Son of Independent Manager 275 375 8.00 % 3 6

Wallach Family Irrevocable Educational Trust Trustee is Member 200 200 9.00 % 5 4

Eric Rauscher Independent Manager 475 600 10.00 % 9 11

Joseph Rauscher Parents of Independent Manager 195 186 9.33 % 4 4

Seven Kings Holdings, Inc.⁽¹⁾ Affiliate of Member 500 500 9.00 % 11 9

⁽¹⁾	~~S.K. Funding, LLC, an affiliate of Seven Kings Holdings, Inc., is no longer a member of the Company as of March 2017.~~

~~10.~~In February 2018, we issued a Subordinated Promissory Note in the principal amount of $1,125 to a trust affiliated with Seven Kings Holdings, Inc. One of our independent managers, Kenneth R. Summers, is the trustee of that trust. This borrowing is included in notes payable unsecured, net of deferred financing costs on the interim condensed consolidated balance sheet.

In March 2018, we issued a Senior Subordinated Promissory Note in the principal amount of $400 to family members of one of our CEO.This borrowing is included in the notes payable unsecured, net of deferred financing costs on the interim condensed consolidated balance sheet.

In March 2018, we issued a Senior Subordinated Promissory Note in the principal amount of $400 to family members of one of our CEO.

9. Commitments and Contingencies

In the normal course of business there may be outstanding commitments to extend credit that are not included in the consolidated financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon and some of the funding may come from the earlier repayment of the same loan (in the case of revolving lines), the total commitment amounts do not necessarily represent future cash requirements. The financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the consolidated financial statements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The Company has several Letters of Credit relating to development loans which are part of the unfunded commitment amount. Unfunded commitments to extend credit, which have similar collateral, credit risk, and market risk to our outstanding loans, were ~~$15,257~~$18,935 and ~~$11,503~~$19,312 at March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

~~11.~~10. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

Summarized unaudited quarterly condensed consolidated financial data for the four quarters of ~~2017~~each of 2018 and ~~2016~~2017 are as ~~follows (in thousands):~~follows:

	Quarter 4		Quarter 3		Quarter 2		Quarter 1		Quarter 4		Quarter 3		Quarter 2		Quarter 1		Quarter 1		Quarter 4		Quarter 3		Quarter 2		Quarter 1
	2017		2017		2017		2017		2016		2016		2016		2016		2018		2017		2017		2017		2017

Net Interest Income after Loan Loss Provision	$	–	$	–	$	–	$	617	$	491	$	442	$	464	$	479	$	926	$	802	$	917	$	725	$	617
Non-Interest Income		–		–		–		77		28		–		44		–		–		–		–		–		77
SG&A expense		–		–		–		454		367		297		305		350		617		643		537		456		448
Depreciation and Amortization																		17		–		–		–		6
Impairment loss on foreclosed assets		–		–		–		49		111		–		–		–		5		64		47		106		49
Net Income	$	–	$	–	$	–	$	191	$	41	$	145	$	203	$	129	$	287	$	95	$	333	$	163	$	191

~~12.~~11. Non-Interest expense detail

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

	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2017		2016		2018		2017
Selling, general and administrative expenses
Legal and accounting	$	96	$	86	$	143	$	96
Salaries and related expenses		254		180		356		254
Board related expenses		29		29		22		29
Advertising		17		18		17		17
Rent and utilities		5		5		10		5
Printing		6		4
Loan and foreclosed asset expenses		7		4		8		7
Travel		15		9		23		15
Software		8		–
Other		17		15		38		25
Total SG&A	$	454	$	350	$	617	$	448

~~13.~~12. Subsequent Events

Management of the Company has evaluated subsequent events through ~~April 27, 2017,~~May 10, 2018, the date these consolidated financial statements were issued.

As described more fully in Note 5, in October 2017, we entered into the Swanson LOC Agreement, pursuant to which Mr. Swanson provided us with the Swanson LOC. We and Mr. Swanson entered into a Master Loan Modification Agreement which modified the Swanson LOC Agreement (the “Modification Agreement”) and is effective and enforceable by us as of April 13, 2018. The Modification Agreement increased the maximum borrowing amount under the Swanson LOC from $4,000 to $7,000. If Mr. Swanson elects not to renew the Modification Agreement, Mr. Swanson must give us written notice at least 120 days before the expiration date of the then current term. If Mr. Swanson provides such written notice, we must repay $4,000 of the Swanson LOC by the expiration date and must repay the remaining balance on the Swanson LOC by 120 days after the expiration date. Our obligation to repay the Swanson LOC is evidenced by two Modified Promissory Notes from us, one dated April 12, 2018 and evidencing a promise to repay the secured portion of the Swanson LOC and the other dated April 13, 2018 and evidencing a promise to repay the unsecured portion of the Swanson LOC. The Modification Agreement did not affect the other terms of the Swanson LOC Agreement.

In April 2018, we fully repaid our line of credit to our CEO and his wife, which had a $1,000 outstanding principal balance as of March 31, 2018.

In February 2016, we entered into a construction loan agreement (the “Vista Loan Agreement”) with Lex Partners II, LLC (“Lex Partners II”), pursuant to which we extended a construction loan (the “Vista Loan”) to Lex Partners II to be used for the refinance of a parcel of land located at 1333 Vista Drive, Sarasota, Florida 34239 and the construction of a home thereon (the “Vista Property”). On June 30, 2016, Lex Partners II deeded the Vista Property to 1333 Vista Drive, LLC (the “Property Owner”), an unaffiliated third party, but Lex Partners II remained the borrower on the Vista Loan. As of April 24, 2018, the principal balance on the Vista Loan was approximately $3,776 and the unpaid interest on the Vista Loan was approximately $243.

In February 2018, Lex Partners II defaulted under the Vista Loan by failing to make an interest payment that was due. Subsequently, on April 27, 2018, we and the Property Owner entered into an Agreement (the “Master Agreement”), which requires, among other things, that the Property Owner deed the Vista Property to us in lieu of foreclosure. When such deed in lieu of foreclosure is effective, the Master Agreement requires we pay the sum of $50 to the Property Owner. On April ~~14, 2017,~~27, 2018, we and the Property Owner executed a Deed in Lieu of Foreclosure Agreement (the “Deed Agreement”). As required by the Deed Agreement, on April 27, 2018, the Property Owner also executed a Warranty Deed in Lieu of Foreclosure in favor of the Company, ~~sold 5.637 Series C Cumulative Preferred Units (the “Preferred Units”) for~~pursuant to which the ~~total price~~Property Owner deeded the Vista Property to us, and on May 3, 2018, we made the required payment of ~~$564~~$50 to ~~William Myrick, one~~the Property Owner.

Pursuant to the Master Agreement, we may complete construction of the ~~Company’s independent managers, through his individual retirement account (such transaction,~~single family residence being built on the ~~“Preferred Units Sale Transaction”). The Preferred Units Sale Transaction was effected~~Vista Property, but we are not required to do so. When we sell the Vista Property, the Master Agreement requires that we pay the first $250 of profit (as defined in ~~a private transaction exempt from~~ the registration requirements of the Securities Act of 1933 (the “Securities Act”) under Section 4(a)(2) of the Securities Act. The Preferred Units Sale Transaction did not involve any public offering, was made without general solicitation or advertising, and the buyer representedMaster Agreement) to the ~~Company that it is an “accredited investor” as defined under the Securities Act, with access~~Property Owner, subject to ~~all relevant information necessary to evaluate the investment~~certain limitations contained in the ~~Preferred Units.~~Master Agreement.

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 included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2017. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.

Overview

We ~~were organized in the Commonwealth of Pennsylvania in 2007 under the name 84 RE Partners, LLC~~had $39,692 and changed our name to Shepherd’s Finance, LLC on December 2, 2011. We converted to a Delaware limited liability company on March 29, 2012. Our business is focused on commercial lending to participants in the residential construction and development industry. We believe this market is underserved because of the lack of traditional lenders currently participating in the market. We are located in Jacksonville, Florida. Our operations are governed pursuant to our operating agreement.

From 2007 through the majority of 2011, we were the lessor in three commercial real estate leases with a then affiliate, 84 Lumber Company. Beginning in late 2011, we began commercial lending to residential homebuilders. Our current loan portfolio is described more fully in this section under the sub heading “Commercial Construction and Development Loans.” Since 2011, we have originated approximately 225 construction loans totaling $66,000. We currently have 10 paid employees, including our Executive Vice President of Operations. We currently use three employees to originate most of our new loans. Our office staff processes, underwrites, documents, and funds our loans. Our office staff also manages our investor relations and relationships with other debt holders. Our board of managers is comprised of Daniel M. Wallach and three independent managers — William Myrick, Eric A. Rauscher, and Kenneth R. Summers. Our officers are responsible for our day-to-day operations, while the board of managers is responsible for overseeing our business.

The commercial loans we extend are secured by mortgages on the underlying real estate. We extend and service commercial loans to small-to-medium sized homebuilders for the purchase of lots and/or the construction of homes thereon. In some circumstances, the lot is purchased with an older home on the lot which is then either removed or rehabilitated. If the home is rehabilitated, the loan is referred to as a “rehab” loan. We also extend and service loans for the purchase of undeveloped land and the development of that land into residential building lots. In addition, we may, depending on our cash position and the opportunities available to us, do none, any or all of the following: purchase defaulted unsecured debt from suppliers to homebuilders at a discount (and then secure that debt with real estate or other collateral), purchase defaulted secured debt from financial institutions at a discount, and purchase real estate in which we will operate our business. In February 2017, we purchased a building in which we intend to operate once renovation has been completed. We anticipate that renovation will be completed in the summer of 2017.

Our Chief Executive Officer, Mr. Wallach, has been in the housing industry since 1985. He was the CFO of a multi-billion dollar supplier of building materials to home builders for 11 years. He also was responsible for that company’s lending business for 20 years. During those years, he was responsible for the creation and implementation of many secured lending programs to builders. Some of these were performed fully by that company, and some were performed in partnership with banks. In general, the creation of all loans, and the resolution of defaulted loans, was his responsibility, whether the loans were company loans or loans in partnership with banks. Through these programs, he was responsible for the creation of approximately $2,000,000 in loans which generated interest spread of $50,000, after deducting for loan losses. Through the years, he managed the development of systems for reducing and managing the risks and losses on defaulted loans. Mr. Wallach also was responsible for that company’s unsecured debt to builders, which reached over $300,000 at its peak. He also gained experience in securing defaulted unsecured debt.

~~We had $24,167 and $20,091~~$30,043 in loan assets as of March 31, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. As of March 31, ~~2017,~~2018, we have ~~111~~199 construction loans in 1617 states with 4564 borrowers and ~~have~~six development loans in three states. As of March 31, 2018 and December 31, 2017, we had four and three development loans, respectively, in Pittsburgh, ~~Pennsylvania. We~~Pennsylvania (the “Pennsylvania Loans”). In addition, we have ~~entered into two purchase and sale agreement relationships with third-parties to sell portions~~various sources of ~~our loans. The first loan portions sold under the program took place during~~capital, detailed below:

	March 31, 2018		December 31, 2017
Capital Source
Purchase and sale agreements and other secured borrowings	$	16,559	$	11,644
Secured line of credit from affiliates		1,000		–
Unsecured senior line of credit from a bank		500		–
Unsecured Notes through our Notes Program		13,785		14,121
Other unsecured debt		3,984		3,069
Preferred equity, Series B units		1,240		1,240
Preferred equity, Series C units		1,130		1,097
Common equity		2,648		2,446

Total	$	40,846	$	33,617

Our net income increased for the first quarter of ~~2015. These agreements have allowed us~~2018 as compared to the same period in 2017 due primarily to increased loan originations, which was partially offset by payroll cost increases due to an increase the number of employees, and an increase in our loan ~~balances and commitments significantly. In January 2017, we entered into a line~~loss reserve.

Cash used in operations was $182 as of ~~credit agreement with a bank~~March 31, 2018 as compared to cash provided by operations of $675 for ~~$500, which we used at times during~~ the ~~first three months~~same period of 2017. Our decrease in operating cash flow in 2018 is mainly due to an increase in accrued interest receivable of $246 offset by a decrease in interest and other payables of $207. In ~~March~~ 2017, ~~we added a third class~~our increase in operating cash flow, as compared to net income, was due to an increase in accrued expenses of ~~equity, Series C cumulative preferred units. These Series C preferred units have a redemption feature after six years,~~$119, an increase in interest escrow of $209, and ~~therefore show as mezzanine equity on our financial statements.~~

~~We currently have eight sources~~an increase in interest and other payables of ~~capital:~~$119.

March 31, 2017 December 31, 2016
Capital Source
Purchase and sale agreements⁽¹⁾ $ 6,728 $ 7,322
Secured line of credit from affiliates – –
Unsecured senior line of credit from a bank – –
Unsecured Notes through our public offering 12,792 11,221
Other unsecured debt 1,152 1,152
Preferred equity, Series B units 1,160 1,150
Preferred equity, Series C units⁽²⁾ 440 –
Common equity 2,397 2,249

Total $ 24,669 $ 23,094

⁽¹⁾	We have two current purchase and sale agreement relationships where we are the seller of portions of loans we create. The two purchasers are Builder Finance, Inc. and S.K. Funding, LLC. Generally, the purchasers buy between 50% and 70% of each loan sold. Builder Finance, Inc., a subsidiary of 1st Financial Bank, USA, began purchasing portions of loans effective as of August 1, 2016. Prior to August 1, 2016, 1st Financial Bank, USA had purchased these loans under a separate loan purchase and sale agreement.

⁽²⁾	~~The first Series C preferred units were issued in March 2017.~~

Critical Accounting Estimates

To assist in evaluating our consolidated financial statements, we describe below 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, would have a material impact on our consolidated financial condition or results of operations. See our Form 10-K for the year ended December 31, 2017, 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, 2017 unless listed below.

Loan Losses

Loan losses, as applicable, are accounted for both on the consolidated balance sheets and the consolidated statements of operations. On the consolidated statements of operations, management estimates the amount of losses to capture during the current year. This current period amount incurred is referred to as the loan loss provision. The calculation of our allowance for loan losses, which appears on our consolidated balance sheets, requires us to compile relevant data for use in a systematic approach to assess and estimate the amount of probable losses inherent in our commercial lending operations and to reflect that estimated risk in our allowance calculations. We use the policy summarized as follows:

We establish a collective reserve for all loans which are not more than 60 days past due at the end of a quarter. This collective reserve takes into account both historical information and a qualitative analysis of housing and other economic factors that may impact our future realized losses. For loans to one borrower with committed balances less than 10% of our total committed balances on all loans extended to all customers, we individually analyze for impairment all loans which are more than 60 days past due at the end of a quarter. For loans to one borrower with committed balances equal to or greater than 10% of our total committed balances on all loans extended to all customers, we individually analyze all loans for potential impairment. The analysis of loans, if required, includes a comparison of estimated collateral value to the principal amount of the loan. For impaired loans, if the value determined is less than the principal amount due (less any builder deposit), then the difference is included in the allowance for loan loss. As values change, estimated loan losses may be provided for more or less than the previous period, and some loans may not need a loss provision based on payment history. For homes which are partially complete, we appraise on an as-is and completed basis, and use the one that more closely aligns with our planned method of disposal for the property.

For loans greater than 12 months in age that are individually evaluated for impairment, appraisals have been prepared within the last 13 months. For all loans individually evaluated for impairment, there is also a broker’s opinions of value (“BOV”) prepared, if the appraisal is more than six months old. The lower of any BOV prepared in the last six months, or the most recent appraisal, is used, unless we determine a BOV to be invalid based on the comparable sales used. If we determine a BOV to be invalid, we will use the appraised value. Appraised values are adjusted down for estimated costs associated with asset disposal. Broker’s opinion of selling price, currently valid sales contracts on the subject property, or representative recent actual closings by the builder on similar properties may be used in place of a broker’s opinion of value.

Appraisers are state certified, and are selected by first attempting to utilize the appraiser who completed the original appraisal report. If that appraiser is unavailable or unreasonably expensive, we use another appraiser who appraises routinely in that geographic area. BOVs are created by real estate agents. We try to first select an agent we have worked with, and then, if that fails, we select another agent who works in that geographic area.

Fair value of collateral has the potential to impact the calculation of the loan loss ~~provision.~~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.

March 31, 2017
Loan Loss
Provision
Change in Fair Value Assumption Higher/(Lower)
Increasing fair value of the real estate collateral by 30%* $ –
Decreasing fair value of the real estate collateral by 30%** $ 46

	March 31, 2018
	Loan Loss
	Provision
Change in Fair Value Assumption	Higher/(Lower)
Increasing fair value of the real estate collateral by 35%*	$	–
Decreasing fair value of the real estate collateral by 35%**	$	(1,908	)

* 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.”

**If Assumes the loans were nonperforming ~~assuming~~and a book amount of the loans outstanding of ~~$24,167, and the fair value of the real estate collateral on all outstanding loans was reduced by 30%, an addition to the loan loss provision of $46 would be required.~~$39,692.

Foreclosed Assets

Foreclosed assets, as applicable, are accounted for both on the consolidated balance sheets and the interim condensed consolidated statements of operations. On the interim condensed consolidated statements of operations, management estimates the amount of impairment to capture when a loan is converted to a foreclosed asset, the impairment when the value of an asset drops below its carrying amount, and any gain or loss upon final disposition of the asset. The calculation of the impairment, which appears on our interim condensed consolidated balance sheets as a reduction in the asset, requires us to compile relevant data for use in a systematic approach to assess and estimate the value of the asset and therefore any required impairment thereof. We use the policy summarized as follows:

For properties which exist in the condition in which we intend to sell them, we obtain an appraisal of the asset’s current value. We reduce the appraised value by 10% to account for selling costs. This amount is used to initially record the asset. Typically, prior to the initial booking of the foreclosed asset, the loan has already been reserved to this level. If during ownership, the value of the foreclosed asset drops, an additional impairment is recorded. For assets that need to be improved prior to sale, the above calculation is performed at the time of the booking of the foreclosed asset (an appraisal “as-is”), but subsequent to that, we look at the to be completed value minus 10% and subtract off the estimated cost of remaining work to be done. If this results in additional impairment, it is booked in non-interest expense. For assets which are going to be improved, while the asset is a loan (before it becomes a foreclosed asset) the calculation of the specific loan loss reserve is done based on the to be completed value as compared to the book value plus estimated completion costs. This can result in an impairment at the initial booking of the foreclosed asset.

The fair value of real estate will impact our foreclosed asset value, which is ~~booked~~recorded at 100% of fair value (after selling costs are deducted). ~~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.~~

March 31, 2017
Foreclosed
Assets
Change in Fair Value Assumption Higher/(Lower)
Increasing fair value of the foreclosed asset by 30%* $ –
Decreasing fair value of the foreclosed asset by 30% $ (324 )

	March 31, 2018
	Foreclosed
	Assets
Change in Fair Value Assumption	Higher/(Lower)
Increasing fair value of the foreclosed asset by 35%*	$	–
Decreasing fair value of the foreclosed asset by 35%	$	(378	)

* 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.

~~Amortization of Deferred Financing Costs~~

We amortize our deferred financing costs based on the effective interest method. As such, we make estimates for the duration of the future investment proceeds we anticipate receiving from our Notes offering. If this estimate is determined to be incorrect in the future, the rate at which we are amortizing the deferred financing costs as interest expense would be adjusted.

Currently, we anticipate a consistent average duration of 34 months for the Notes in our current offering. An increasing average duration over the remaining anticipated length of the Notes offering would decrease the amount of amortization reflected in interest in the next 12 months, and a decreasing average duration of investments over the remaining anticipated length would increase the amount reflected in the next 12 months.

Change in Anticipated Average Duration Resulting adjustment needed to Interest Expense during the next 12 months
Higher/(Lower)
Decreasing the average duration to 5 months for all remaining months of origination $ 15
Increasing the average duration to 5 months for all remaining months of origination $ (11 )

~~Other Loss Contingencies~~

Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third-parties such as courts, arbitrators, juries, or regulators.

~~Accounting and Auditing Standards Applicable to “Emerging Growth Companies”~~

We are an “emerging growth company” under the recently enacted JOBS Act. For as long as we are an “emerging growth company,” we are not required to: (1) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (2) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (3) comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, or (4) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. We intend to take advantage of such extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our consolidated financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

~~Other Significant Accounting Policies~~

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the consolidated financial statements. Policies related to credit quality information, fair value measurements, offsetting assets and liabilities, related party transactions and revenue recognition require difficult judgments on complex matters that are often subject to multiple and recent changes in the authoritative guidance. Certain of these matters are among topics currently under reexamination or have recently been addressed by accounting standard setters and regulators. Specific conclusions have not been reached by these standard setters, and outcomes cannot be predicted with confidence. Also, see Notes 1 and 2 to our 2016 consolidated financial statements, as they discuss accounting policies that we have selected from acceptable alternatives.

Consolidated Results of Operations

Key financial and operating data for the three months ended March 31, ~~2017~~2018 and ~~2016~~2017 are set forth below. For a more complete understanding of our industry, the drivers of our business, and our current period results, this discussion should be read in conjunction with our consolidated financial statements, including the related notes and the other information contained in this document.

	Three Months Ended
	March 31,
	2018		2017
Interest Income
Interest and fee income on loans	$	1,827	$	1,174
Interest expense:
Interest related to secured borrowings		411		179
Interest related to unsecured borrowings		450		367
Interest expense		861		546

Net interest income		966		628
Less: Loan loss provision		40		11

Net interest income after loan loss provision		926		617

Non-Interest Income
Gain from foreclosure of assets		-		77

Total non-interest income		-		77

Income		926		694

Non-Interest Expense
Selling, general and administrative		617		448
Depreciation and amortization		17		6
Impairment loss on foreclosed assets		5		49

Total non-interest expense		639		503

Net Income	$	287	$	191

Earned distribution to preferred equity holders		63		31

Net income attributable to common equity holders	$	224	$	160

Three Months Ended March 31,
2017 2016

Net Interest Income
Interest and fee income on loans $ 1,174 $ 849
Interest expense:
Interest related to secured borrowings 179 117
Interest related to unsecured borrowings 367 245
Interest expense 546 362

Net interest income 628 487
Less: Loan loss provision 11 8

Net interest income after loan loss provision 617 479

Non-Interest Income
Gain from sale of foreclosed assets 77 –

Income 694 479

Non-Interest Expense
Selling, general and administrative 454 350
Impairment loss on foreclosed assets 49 –

Total non-interest expense 503 350

Net income $ 191 $ 129

Earned distribution to preferred equity holders 31 26

Net income attributable to common equity holders $ 160 $ 103

Interest Spread

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

									Three Months Ended
	For the Three Months Ended March 31,								March 31,
	2017				2016				2018				2017
Interest Income			*				*				*				*
Interest income on loans	$	780	13	%	$	505	12	%	$	1,291	13	%	$	780	13	%
Fee income on loans		394	7	%		344	8	%		536	6	%		394	7	%
Interest and fee income on loans		1,174	20	%		849	20	%		1,827	19	%		1,174	20	%
Interest expense – secured		179	3	%		117	3	%
Interest expense – unsecured		303	5	%		178	4	%
Interest expense unsecured										402	4	%		303	5	%
Interest expense secured										411	4	%		179	3	%
Amortization of offering costs		64	1	%		67	2	%		48	1	%		64	1	%
Interest expense		546	9	%		362	9	%		861	9	%		546	9	%
Net interest income (spread)		628	11	%		487	11	%	$	966	10	%	$	628	11	%

Weighted average outstanding loan asset balance	$	23,756			$	17,131			$	37,831			$	23,756

*annualized amount as percentage of weighted average outstanding gross loan balance

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

●●Difference between the interest rate received (on our loan assets) and the interest rate paid (on our borrowings).The loans we have originated have interest rates which are based on our cost of funds, with a minimum cost of funds of 5%. For most loans, the margin is fixed at 2%; however, for our development loans the margin is fixed at 7%. Future loans are anticipated to be originated at approximately the same 2% margin. This component is also impacted by the lending of money with no interest cost (our equity). ~~Our interest income on loans was higher in the first three months of~~For both 2018 and 2017, ~~as compared to 2016 by 1%. This increase was due to an increase in the rate we are charging on~~ our development loans. Our interest expense for unsecured borrowings increased in 2017 as compared to 2016 due to an increase in what we are paying our Note holders, but this was offset by a decrease in the percentage cost of our offering costs, which decreased due to an increase in borrowings without an increase in cost. We anticipate the difference between interest income and interest expense was 4%. We currently anticipate that the difference between our interest income and interest expense will continue to be ~~between 3% and~~ 4% ~~during 2017.~~for the remainder of 2018.

●Fee income.Fee income is displayed in the table above. ~~The two loans originated in December 2011 had a net origination fee of $924. This fee was recognized over the life of the loans, and has been fully recognized as of August 2016.~~ Our construction loans have a 5% fee on the amount we commit to lend, which is amortized over the expected life of each of those loans; however, we do not recognize a loan fee on our development loans. When loans ~~pay back~~terminate quicker than their expected life, the remaining unrecognized fee is recognized upon the termination of the loan. ~~Our~~When loans exceed their expected life, no additional fee income is recognized. In 2018 our fee income decreased as a percentage of our loan balance because the recognition of our loan fee on our development loans was completed in 2016. We anticipate that our fee percentage in 2017 compared to 2016 will be lower in the first seven months due to the development loan fee income, and higher in the last five months1% due to an increase in ~~construction~~ loans ~~as a percentage~~that exceeded their expected life. We currently anticipate that fee income will continue at the same 6% rate for the remainder of ~~our total balance.~~2018.

●Amount of nonperforming assets.Generally, we can have three types of nonperforming ~~assets. Loans~~assets that negatively affect interest spread: loans not paying interest, ~~can impact our interest spread.~~foreclosed assets, and cash. We had no ~~such~~nonperforming loans in the first ~~three months~~quarter of ~~both 2017~~2018 and ~~2016.~~2017. Foreclosed assets do not ~~have~~provide a monthly interest return. ~~While we had fewer~~The difference between our average foreclosed ~~assets as of March 31, 2017~~asset balance in 2018 as compared to ~~March 31, 2016,~~2017 did not have a major impact on our ~~average balance of foreclosed assets during the three month period ended March 31, 2017 was higher than the same period of 2016.~~

~~Loan Loss Provision~~

~~We recorded $11 and $8~~performance in the ~~three~~first quarter of 2018. The amount of nonperforming assets is expected to rise over the next twelve months, ~~ended March 31, 2017~~due to work expected on the two lots we currently own, anticipated foreclosure of assets, and ~~2016, respectively, in loss reserve provision~~due to idle cash increases related to our collective reserve (loans not individually impaired). These increases were due to increases in loan balances. We did not reserve any amount in those same periods in our specific reserve (for loans individually impaired). We anticipate that the collective reserve will increase as our balances rise throughout 2017.anticipated large borrowing inflows.

Non-Interest Income

WeFor the three months ended March 31, 2018, we did not recognize non-interest income compared to the same period in 2017. In the first quarter of 2017, we sold a foreclosed asset ~~in 2017~~ and recognized a gain of $77.

SG&A Expenses

The following table displays our SG&A expenses:

	For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2017		2016		2018		2017
Selling, general and administrative expenses
Legal and Accounting	$	96	$	86
Selling, general and administrative expenses:
Legal and accounting					$	143	$	96
Salaries and related expenses		254		180		356		254
Board related expenses		29		29		22		29
Advertising		17		18		17		17
Rent and Utilities		5		5
Printing		6		4
Rent and utilities						10		5
Loan and foreclosed asset expenses		7		4		8		7
Travel		15		9		23		15
Software		8		–
Other		17		15		38		25
Total SG&A	$	454	$	350	$	617	$	448

~~We had twice as many employees during the three month period ended March 31, 2017 as we did during the same period in 2016, which~~Legal and accounting expenses increased ~~our payroll and travel costs. We anticipate adding more staff in 2017. We will also have expenses~~due to additional work performed related to ~~operating from~~the growth of the Company. Payroll increased due to our hiring of nine new ~~office~~employees, which was partially offset by a reduction in ~~the second half of 2017. We added a loan document software package in the second half of 2016. We may also expend funds to improve~~ our ~~back office computer systems in 2017.~~

~~Consolidated Financial Position~~CEO’s salary.

~~Cash and Cash Equivalents~~Impairment Loss on Foreclosed Assets

We ~~try to avoid borrowing on our line~~owned four foreclosed assets as of ~~credit from affiliates. To accomplish this, we must carry some cash for liquidity. At~~ March 31, ~~2017 and~~2018, compared to five foreclosed assets that we owned as of December 31, ~~2016, we had $586~~2017. Two of the foreclosed assets are lots under construction and ~~$1,566, respectively, in cash. When we create new loans, they typically~~the remaining two have completed homes on the lots. We do not ~~have significant outstanding loan balances for several months. In January 2017, we executed a line~~anticipate losses on the sale of ~~credit with a bank with a maximum outstanding~~foreclosed assets in the future; however this may be subject to change based on the final selling price of ~~$500, which should lessen somewhat~~ the ~~amount of cash we carry on our books.~~foreclosed assets.

~~Deferred Financing Costs, Net~~Loan Loss Provision

Our ~~deferred financing costs are related~~loan loss provision increased $29 to our public offering of unsecured Notes. The deferred financing costs are reflected as a reduction in the unsecured Notes offering liability. The first offering which was effective from October 2012 through September 2015 cost more to create than our second offering, which has been effective since September 2015. As the amortization from$40 during the first ~~offering is being wrapped up and the second offering’s amortization is increasing, the effect~~quarter of ~~this is a small decrease in total amortization during the three months ended March 31, 2017 as~~2018 compared to the same period in 2017 due to an increase in loan balances and qualitative reserve percentage as a result of ~~2016. As~~ the ~~amortization is much more than the amount we are spending on the offerings during these same periods, the net deferred financing costs have been decreasing.~~change in housing values.

Consolidated Financial Position

The following is a roll forward of deferred financing costs:

										Three Months			Year			Three Months
										Ended			Ended			Ended
	Three Months			Year Ended			Three Months Ended			March 31, 2018			December 31, 2017			March 31, 2017
	March 31, 2017			December 31, 2016			March 31, 2016
Deferred financing costs, beginning balance	$	1,014		$	935		$	935		$	1,102		$	1,014		$	1,014
Additions		10			79			19			29			88			10
Deferred financing costs, ending balance	$	1,024		$	1,014		$	954		$	1,131		$	1,102		$	1,024
Less accumulated amortization		(667	)		(603	)		(403	)		(864	)		(816	)		(667	)
Deferred financing costs, net	$	357		$	411		$	551		$	267		$	286		$	357

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

Three Months Ended Year Ended Three Months Ended
March 31, 2017 December 31,2016 March 31, 2016
Accumulated amortization, beginning balance $ 603 $ 336 $ 336
Additions 64 267 67
Accumulated amortization, ending balance $ 667 $ 603 $ 403

~~Loans Receivable~~

In December 2011, we originated two new loans and assumed a lender’s position on a third loan, which, net of unearned loan fees, had total balances of $3,901 and $4,082 as of March 31, 2017 and December 31, 2016, respectively. These loans were all to borrowers that are affiliated with each other, and are cross-collateralized. Collectively, the development loans are referred to herein as the “Pennsylvania Loans.” No individual impairment has been deemed necessary for these loans. The purpose of the loans was to develop two subdivisions in a suburb of Pittsburgh, Pennsylvania. The Hamlets subdivision is a five phase subdivision of 81 lots, of which 63 have been developed and sold, 18 are developed and not sold, as of March 31, 2017. The Tuscany subdivision is a single phase 18 lot subdivision, with four lots remaining as of March 31, 2017.

	Three Months		Year		Three Months
	Ended		Ended		Ended
	March 31, 2018		December 31, 2017		March 31, 2017

Accumulated amortization, beginning balance	$	816	$	603	$	603
Additions		48		213		64
Accumulated amortization, ending balance	$	864	$	816	$	667

The borrower also owns Series B preferred equity units in the Company which serves as collateral for the Pennsylvania Loans. There is no liquid market for the Series B preferred units, so we can give no assurance as to our ability to generate any amount of proceeds from that collateral. Beginning in December 2015, the Hoskins Group invests in our Series B preferred units in an amount equal to $10 per closing of a lot payoff in the Hamlets or Tuscany subdivisions.

~~As of March 31, 2017, we have 43 other borrowers, all of whom, along with the Hoskins Group, borrow money for the purpose of building new homes.~~

~~Commercial~~ Loans ~~– Real Estate Development Loan Portfolio Summary~~Receivable

~~The following is a summary of our loan portfolio to builders for land development as of March 31, 2017. The Pennsylvania loans below are the Pennsylvania Loans discussed above.~~

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Pennsylvania 1 3 $ 6,333 $ 5,231 ⁽³⁾ $ 3,901 62 % $ 1,000
Total 1 3 $ 6,333 $ 5,231 $ 3,901 62 % $ 1,000

⁽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 $1,160 of preferred equity in our Company. In the event of a foreclosure on the property securing certain of our loans, a portion of our collateral is preferred equity in our Company, which might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value.~~

⁽³⁾	The commitment amount does not include letters of credit and cash bonds, as the sum of the total balance outstanding including the cash bonds plus the letters of credit and remaining to fund for construction is less than the $5,231 commitment amount.

~~The following is a summary of our loan portfolio to builders for land development as of December 31, 2016. The Pennsylvania loans below are the Pennsylvania Loans discussed above.~~

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Pennsylvania 1 3 $ 6,586 $ 5,931 ⁽³⁾ $ 4,082 62 % $ 1,000
Total 1 3 $ 6,586 $ 5,931 $ 4,082 62 % $ 1,000

⁽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 $1,150 of preferred equity in our Company. In the event of a foreclosure on the property securing certain of our loans, a portion of our collateral is preferred equity in our Company, which might be difficult to sell, which could impact our ability to eliminate the loan balance.

⁽²⁾	~~The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value.~~

⁽³⁾	The commitment amount does not include letters of credit and cash bonds, as the sum of the total balance outstanding including the cash bonds plus the letters of credit and remaining to fund for construction is less than the $5,931 commitment amount.

Commercial Loans – Construction Loan Portfolio Summary

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

The following is a summary of our loan portfolio to builders for home construction loans as of March 31, ~~2017.~~2018.

State	Number of Borrowers			Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee			Number of Borrowers			Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾				Loan Fee
Colorado		2			5	$	2,314	$	1,566	$	694		68	%		5	%		3			6	$	3,225	$	2,196	$	1,244		68	%			5	%
Connecticut		1			1		715		500		500		70	%		5	%
Delaware		1			1		244		171		40		70	%		5	%		1			1		244		171		167		70	%			5	%
Florida		11			23		17,194		10,633,		6,158		62	%		5	%		17			56		24,455		16,252		11,588		66	%			5	%
Georgia		7			17		11,455		6,728		3,744		59	%		5	%		7			13		9,253		6,038		4,695		65	%			5	%
Indiana		2			2		995		597		103		60	%		5	%		2			2		640		448		241		70	%			5	%
Michigan		3			7		1,609		1,047		614		65	%		5	%		5			24		6,354		4,080		2,634		64	%			5	%
New Jersey		3			8		2,023		1,451		996		72	%		5	%		3			13		4,298		2,934		1,730		68	%			5	%
New York		1			6		1,855		853		805		46	%		5	%		1			7		2,491		1,444		1,393		58	%			5	%
North Carolina		1			2		490		343		131		70	%		5	%		3			6		1,650		1,155		809		70	%			5	%
North Dakota																			1			1		375		263		108		70	%			5	%
Ohio		1			1		1,405		843		505		60	%		5	%		1			3		2,331		1,498		658		64	%			5	%
Oregon																			1			1		607		425		169		70	%			5	%
Pennsylvania		2			16		13,170		6,887		5,758		52	%		5	%		3			22		16,688		9,434		7,230		57	%			5	%
South Carolina		8			15		4,106		2,709		999		66	%		5	%		10			29		7,595		5,224		2,990		69	%			5	%
Tennessee		1			3		1,080		767		606		71	%		5	%		1			3		1,120		795		449		71	%			5	%
Utah		1			3		1,133		793		472		70	%		5	%		1			1		400		280		207		70	%			5	%
Virginia		1			1		408		260		95		64	%		5	%		4			11		3,027		2,136		647		71	%			5	%
Total		45	⁽⁴⁾		111	$	60,196	$	36,148	$	22,221		60	%⁽³⁾		5	%		64	⁽⁴⁾		199	$	84,753	$	54,773	$	36,959		65	%	⁽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.

⁽⁴⁾	One builder borrows in multiple states.

The following is a summary of our loan portfolio to builders for home construction loans as of December 31, ~~2016.~~2017:

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

Loan to Value
Ratio⁽²⁾
Loan Fee
Colorado 1 3 $ 1,615 $ 1,131 $ 605 70 % 5 %
Connecticut 1 1 715 500 479 70 % 5 %
Delaware 1 2 244 171 40 70 % 5 %
Florida 7 15 14,014 8,548 4,672 61 % 5 %
Georgia 4 9 6,864 4,249 2,749 62 % 5 %
Idaho 1 1 319 215 205 67 % 5 %
Michigan 1 1 210 126 118 60 % 5 %
New Jersey 1 3 977 719 528 74 % 5 %
New York 1 4 1,745 737 685 42 % 5 %
North Carolina 2 2 1,015 633 216 62 % 5 %
Ohio 1 1 1,405 843 444 60 % 5 %
Pennsylvania 2 15 12,725 6,411 5,281 50 % 5 %
South Carolina 5 7 2,544 1,591 783 63 % 5 %
Tennessee 1 3 1,080 767 430 71 % 5 %
Utah 1 2 715 500 252 70 % 5 %
Total 30 69 $ 46,187 $ 27,141 $ 17,487 59 %⁽³⁾ 5 %

State	Number of Borrowers			Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Amount Outstanding		Loan to Value Ratio⁽²⁾				Loan Fee
Colorado		3			6	$	3,224	$	2,196	$	925		68	%			5	%
Delaware		1			1		244		171		147		70	%			5	%
Florida		15			54		25,368		16,555		10,673		65	%			5	%
Georgia		7			13		8,932		5,415		3,535		61	%			5	%
Indiana		2			2		895		566		356		63	%			5	%
Michigan		4			25		7,570		4,717		2,611		62	%			5	%
New Jersey		2			11		3,635		2,471		1,227		68	%			5	%
New York		1			5		1,756		929		863		53	%			5	%
North Carolina		3			6		1,650		1,155		567		70	%			5	%
Ohio		1			1		711		498		316		70	%			5	%
Oregon		1			1		607		425		76		70	%			5	%
Pennsylvania		2			20		15,023		7,649		5,834		51	%			5	%
South Carolina		7			18		4,501		3,058		1,445		68	%			5	%
Tennessee		1			2		690		494		494		72	%			5	%
Utah		1			2		790		553		344		70	%			5	%
Virginia		1			1		335		235		150		70	%			5	%
Total		52	⁽⁴⁾		168	$	75,931	$	47,087	$	29,563		62	%	⁽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.

⁽⁴⁾	We have one builder in two states.

Commercial Loans – Real Estate Development Loan Portfolio Summary

The following is a summary of our loan portfolio to builders for land development as of March 31, 2018 and December 31, 2017. A significant portion of our development loans consist of the Pennsylvania Loans. Our additional development loans are in South Carolina and Florida.

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
2018		3		3		6	$	8,019	$	6,362	⁽³⁾	$	5,242		65	%	$	1,000
2017		1		1		3		4,997		4,600	⁽³⁾		2,811		56	%		1,000

⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid. Part of this collateral is $1,240 as of March 31, 2018 and December 31, 2017 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 eliminate the loan balance. Part of the collateral value is estimated based on the selling prices anticipated for the homes. Appraised values will replace these estimates in the second quarter of 2018.

⁽²⁾	The loan to value ratio is calculated by taking the outstanding amount and dividing by the appraised value calculated as described above.

⁽³⁾	The commitment amount does not include letters of credit and cash bonds.

Combined Loan Portfolio Summary

Financing receivables are comprised of the following as of March 31, ~~2017~~2018 and December 31, ~~2016:~~2017:

	March 31, 2018			December 31, 2017

Loans receivable, gross	$	42,201		$	32,375
Deferred loan fees		(932	)		(847	)
Deposits		(1,573	)		(1,497	)
Deferred origination expense		133			109
Allowance for loan losses		(137	)		(97	)

Loans receivable, net	$	39,692		$	30,043

~~Below~~The following is a roll forward of commercial loans:

	Three Months Ended March 31, 2017			Year Ended December 31, 2016			Three Months Ended March 31, 2016			Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Beginning balance	$	20,091		$	14,060		$	14,060		$	30,043		$	20,091		$	20,091
Additions		7,461			23,184			7,081			14,476			33,451			7,461
Payoffs/Sales		(2,909	)		(15,168	)		(3,620	)
Payoffs/sales											(4,649	)		(22,645	)		(2,909	)
Moved to foreclosed assets		–			(1,639	)		–			–			–			–
Change in deferred origination expense		64			55			10			23			55			64
Change in builder deposit		(331	)		(340	)		(57	)		(76	)		(636	)		(331	)
Change in loan loss provision		(11	)		(16	)		(8	)		(40	)		(44	)		(11	)
New loan fees		(593	)		(1,270	)		(332	)		(619	)		(2,127	)		(593	)
Earned loan fees		395			1,225			381			534			1,898			395

Ending balance	$	24,167		$	20,091		$	17,515		$	39,692		$	30,043		$	24,167

Finance Receivables – By risk rating:

	March 31, 2017		December 31, 2016		March 31, 2018		December 31, 2017

Pass	$	22,448	$	18,275	$	31,194	$	25,656
Special mention		3,673		3,294		7,231		6,719
Classified – accruing		–		–		3,776		–
Classified – nonaccrual		–		–		–		–

Total	$	26,121	$	21,569	$	42,201	$	21,569

Below is an aging schedule of gross loans receivable as of March 31, 2018, on a recency basis:

	No. Accts.		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)		204	$	38,425		91	%
60-89 days		1		3,776		9	%
90-179 days		–		–		0	%
180-269 days		–		–		0	%

Subtotal		205	$	42,201		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		–	$	–		0	%

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.)		–	$	–		0	%

Total		205	$	42,201		100	%

Below is an aging schedule of gross loans receivable as of March 31, 2018, on a contractual basis:

	No. Accts.		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.		204	$	38,425		91	%
60-89 days		1		3,776		9	%
90-179 days		–		–		0	%
180-269 days		–		–		0	%

Subtotal		205	$	42,201		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		–	$	–		0	%

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.)		–	$	–		0	%

Total		205	$	42,201		100	%

Below is an aging schedule of gross loans receivable as of December 31, 2017, on a recency basis:

	No. Accts.		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)		153	$	26,421		82	%
60-89 days		18		5,954		18	%
90-179 days		–		–		0	%
180-269 days		–		–		0	%

Subtotal		171	$	32,375		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		–	$	–		0	%

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.)		–	$	–		0	%

Total		171	$	32,375		100	%

Below is an aging schedule of gross loans receivable as of December 31, 2017, on a contractual basis:

	No. Accts.		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.		153	$	26,421		82	%
60-89 days		18		5,954		18	%
90-179 days		–		–		0	%
180-269 days		–		–		0	%

Subtotal		171	$	32,375		100	%

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days)		–	$	–		0	%

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.)		–	$	–		0	%

Total		171	$	32,375		100	%

Foreclosed Assets

Below is a roll forward of foreclosed assets:

	Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Beginning balance	$	1,036		$	2,798		$	2,798
Additions for construction/development		48			317			296
Sale proceeds		–			(1,890	)		(1,890	)
Gain on sale		–			77			77
Impairment loss on foreclosed assets		(5	)		(266	)		(202	)
Ending balance	$	1,079		$	1,036		$	1,079

Customer Interest Escrow

Below is a roll forward of interest escrow:

	Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Beginning balance	$	935		$	812		$	812
Preferred equity dividends		30			115			28
Additions from Pennsylvania Loans		-			480			51
Additions from other loans		102			1,163			629
Interest, fees, principal or repaid to borrower		(281	)		(1,635	)		(499	)
Ending balance	$	786		$	935		$	1,021

Related Party Borrowings

During March 2018, we borrowed $1,000 under our line of credit with our CEO and his wife. We incurred $4 and $0 of interest expense during the period ended March 31, 2018 and 2017, respectively. The interest rate for this borrowing was 4.4% as of March 31, 2018.

Secured Borrowings

Purchase and Sale Agreements

In March 2018, we entered into the Seventh Amendment (the “Seventh Amendment”) to our Loan Purchase and Sale Agreement (the “S.K. Funding LPSA”) with S.K. Funding, LLC (“S.K. Funding”).

The purpose of the Seventh Amendment was to allow S.K. Funding to purchase a portion of the Pennsylvania Loans for a purchase price of $649 under parameters different from those specified in the S.K. Funding LPSA.

The timing of the Company’s principal and interest payments to S.K. Funding under the Seventh Amendment, and S.K. Funding’s obligation to fund the Pennsylvania Loans, vary depending on the total principal amount of the Pennsylvania Loans outstanding at any time, as follows:

	●	If the total principal amount exceeds $1,000, S.K. Funding must fund the amount between $1,000 and less than or equal to $3,500.
	●	If the total principal amount is less than $4,500 the Company will also repay S.K. Funding’s principal as principal payments are received on the Pennsylvania Loans from the underlying borrowers in the amount by which the total principal amount is less than $4,500 until S.K. Funding’s principal has been repaid in full.
	●	The interest rate accruing to S.K. Funding under the Seventh Amendment is 10.5% calculated on a 365/366-day basis.

The Seventh Amendment has a term of 24 months and will automatically renew for an additional six-month term unless either party gives written notice of its intent not to renew at least six months prior to the end of a term. S.K. Funding will have a priority position as compared to the Company in the case of a default by any of the borrowers.

Lines of Credit

	●	Principal not to exceed $1,325;
	●	Secured with assignments of certain notes and mortgages;
	●	Cost of funds to us of 10%; and
	●	Due in July 2018 unless extended by Shuman for one or more additional 12-month periods.

The Shuman LOC was fully borrowed as of March 31, 2018

	●	Principal not to exceed $4,000;
	●	Secured with assignments of certain notes and mortgages;
	●	Cost of funds to us of 10%; and
	●	Duein January 2019 unless extended by Mr. Swanson for one or more additional 15-month periods.

As of March 31, 2018, we have borrowed $3,851 under the Swanson LOC.

Summary

The secured borrowings are detailed below:

	March 31, 2018				December 31, 2017
			Due From				Due From
	Book Value of		Shepherd’s		Book Value of		Shepherd’s
	Loans which		Finance to Loan		Loans which		Finance to Loan
	Served as		Purchaser or		Served as		Purchaser or
	Collateral		Lender		Collateral		Lender
Loan Purchaser
Builder Finance, Inc.	$	7,506	$	4,262	$	7,483	$	4,089
S.K. Funding, LLC		13,046		6,463		9,128		4,134

Lender
Shuman		2,134		1,325		1,747		1,325
Paul Swanson		5,147		3,851		2,518		2,096

Total	$	27,833	$	15,901	$	20,876	$	11,644

			Typical Current Advance Rate			Does Buyer Portion
	Year Initiated		On New Loans			Have Priority?		Rate
Loan Purchaser
Builder Finance, Inc.		2014		70	%		Yes		The rate our customer pays us
S.K. Funding, LLC		2015		55	%		Varies		9–9.5%

Lender
Shuman		2017		67	%		Yes		10	%
Paul Swanson		2017		67	%		Yes		10	%

Unsecured Borrowings

Other Unsecured Debts

Our other unsecured debts are detailed below:

					Principal Amount Outstanding as of
	Maturity	Interest			March 31,		December 31,
Loan	Date	Rate⁽¹⁾			2018		2017
Unsecured Note with Seven Kings Holdings, Inc.	August 2018		7.5	%		500		500

Unsecured Line of Credit from Builders Finance, Inc.	January 2019		10.0	%		500		-

Unsecured Line of Credit from Paul Swanson	June 2018⁽²⁾		10.0	%		149		1,904

Subordinated Promissory Note	Demand⁽³⁾		7.5	%		1,125		-

Subordinated Promissory Note	December 2019		10.5	%		113		113

Subordinated Promissory Note	April 2020		10.0	%		100		100

Senior Subordinated Promissory Note	March 2022⁽⁴⁾		10.0	%		400		-

Senior Subordinated Promissory Note	March 2022		1.0	%		728		-

Junior Subordinated Promissory Note	March 2022		22.5	%		417		-

Senior Subordinated Promissory Note	October 2022		1.0	%		279		279

Junior Subordinated Promissory Note	October 2022		20.0	%		173		173

					$	4,484	$	3,069

⁽¹⁾Interest rate per annum, based upon actual days outstanding and a 365/366 day year.

⁽²⁾Due in June 2018 unless extended by Mr. Swanson for one or more additional 15-month periods.

⁽³⁾Principal due six months after lender gives notice. This note may be prepaid without fee, premium or penalty.

⁽⁴⁾This note may be prepaid upon lender's request at least 10 days prior to an interest payment and up to $20 of principal.

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

The effective interest rate on the Notes offered pursuant to our Notes Program at March 31, 2018 and December 31, 2017 was 9.16% and 9.21%, respectively, not including the amortization of deferred financing costs. There are limited rights of early redemption. The following table shows the roll forward of our Notes program:

	Three Months Ended March 31, 2018			Year Ended December 31, 2017			Three Months Ended March 31, 2017

Gross Notes outstanding, beginning of period	$	14,121		$	11,221		$	11,221
Notes issued		1,309			8,375			4,144
Note repayments / redemptions		(1,645	)		(5,475	)		(2,573	)

Gross Notes outstanding, end of period	$	13,785		$	14,121		$	12,792

Less deferred financing costs, net		267			286			357

Notes outstanding, net	$	13,518		$	13,835		$	12,435

~~Finance Receivables – Method~~The following is a roll forward of ~~impairment calculation:~~deferred financing costs:

March 31, 2017 December 31, 2016

Performing loans evaluated individually $ 9,555 $ 12,424
Performing loans evaluated collectively 16,566 9,145
Non-performing loans without a specific reserve – –
Non-performing loans with a specific reserve – –

Total $ 26,121 $ 21,569

	Three Months			Year			Three Months
	Ended			Ended			Ended
	March 31, 2018			December 31, 2017			March 31, 2017

Deferred financing costs, beginning balance	$	1,102		$	1,014		$	1,014
Additions		29			88			10
Deferred financing costs, ending balance	$	1,131		$	1,102		$	1,024
Less accumulated amortization		(864	)		(816	)		(667	)
Deferred financing costs, net	$	267		$	286		$	357

~~Below~~The following is ~~an aging schedule~~a roll forward of ~~loans receivable as~~the accumulated amortization of ~~March 31, 2017, on a recency basis:~~deferred financing costs:

No.
Accts. 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) 114 $ 26,121 100 %
60-89 days – – 0 %
90-179 days – – 0 %
180-269 days – – 0 %

Subtotal 114 $ 26,121 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) – $ – 0 %

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.) – $ – 0 %

Total 114 $ 26,121 100 %

~~Below is an aging schedule of loans receivable as of March 31, 2017, on a contractual basis:~~

No.
Accts. Unpaid
Balances %
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date. 114 $ 26,121 100 %
60-89 days – – 0 %
90-179 days – – 0 %
180-269 days – – 0 %

Subtotal 114 $ 26,121 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) – $ – 0 %

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.) – $ – 0 %

Total 114 $ 26,121 100 %

~~Below is an aging schedule of loans receivable as of December 31, 2016, on a recency basis:~~

No.
Accts. 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) 71 $ 18,617 86 %
60-89 days 1 2,952 14 %
90-179 days – – 0 %
180-269 days – – 0 %

Subtotal 72 $ 21,569 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) – $ – 0 %

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.) – $ – 0 %

Total 72 $ 21,569 100 %

~~Below is an aging schedule of loans receivable as of December 31, 2016, on a contractual basis:~~

No.
Accts. Unpaid
Balances %
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date. 71 $ 18,617 86 %
60-89 days 1 2,952 14 %
90-179 days – – 0 %
180-269 days – – 0 %

Subtotal 72 $ 21,569 100 %

Interest only accounts (Accounts on which interest, deferment, extension and/or default charges were received in the last 60 days) – $ – 0 %

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.) – $ – 0 %

Total 72 $ 21,569 100 %

	Three Months		Year		Three Months
	Ended		Ended		Ended
	March 31, 2018		December 31, 2017		March 31, 2017

Accumulated amortization, beginning balance	$	816	$	603	$	603
Additions		48		213		64
Accumulated amortization, ending balance	$	864	$	816	$	667

~~Foreclosed Assets~~

~~Below is a Roll forward of Foreclosed Assets:~~

Three Months Ended
March 31, 2017

Year Ended
December 31, 2016

Three Months Ended
March 31, 2016

Beginning balance $ 2,798 $ 965 $ 965
Additions from loans – 1,813 –
Additions for construction/development 145 566 213
Sale Proceeds (1,890 ) (463 ) –
Gain on sale 77 28 –
Impairment loss on foreclosed assets (49 ) (111 ) –

Ending balance $ 1,081 $ 2,798 $ 1,178

We foreclosed on five properties during 2015, of which four were acquired at the foreclosure sale and one was acquired via a deed in lieu of foreclosure. Three of the properties were lots in Georgia. We had an agreement with a builder to build a house on one of the lots which was completed in 2016 and sold and closed in November 2016. We recorded a gain of $28 as a result of that sale. We are starting construction on homes on the other two lots in the second quarter of 2017. Two of the properties were partially completed homes in Louisiana — one has been finished and work is proceeding to complete the second of these homes. The impairments in 2017 and 2016 have been on those two homes, as has the additions from construction in 2017. We acquired one property via a deed in lieu of foreclosure during 2016. This property is a beach lot in Sarasota, Florida, which we sold in March 2017 for slightly more than book value.

~~Property, Plant and Equipment~~

~~We purchased a partially completed building in which we plan to operate for $625 in the first quarter of 2017. No depreciation has been recorded as the asset has not been placed in service.~~

~~Customer Interest Escrow~~

The Pennsylvania Loans called for a funded interest escrow account (the “Interest Escrow”) which was funded with proceeds from the Pennsylvania Loans. The initial funding on the Interest Escrow was $450. The balance as of March 31, 2017 and December 31, 2016 was $449 and $541, respectively. To the extent the balance is available in the Interest Escrow, interest due on certain loans is deducted from the Interest Escrow on the date due. The Interest Escrow is increased by 20% of lot payoffs on the same loans, and by distributions on the Hoskins Group’s Series B preferred equity. All of these transactions are noncash to the extent that the total escrow amount does not need additional funding.

We have 27 and 16 other loans active as of March 31, 2017 and December 31, 2016, respectively, that also have interest escrows. The cumulative balance of all interest escrows other than the Pennsylvania Loans was $572 and $271 as of March 31, 2017 and December 31, 2016, respectively.

~~Roll forward of interest escrow:~~

Three Months Ended
March 31, 2017 Year Ended
December 31, 2016 Three Months Ended
March 31, 2016

Beginning balance $ 812 $ 498 $ 498
+ Preferred equity dividends 28 104 25
+ Additions from Pennsylvania Loans 51 926 114
+ Additions from other loans 629 430 66
- Interest and fees (471 ) (1,109 ) (240 )
- Repaid to borrower or used to reduce principal (28 ) (37 ) –

Ending balance $ 1,021 $ 812 $ 463

~~Notes Payable Unsecured~~

Our Notes payable unsecured increased in the three months ended March 31, 2017 with new Notes of $4,144 offset by redemptions of $2,573. We used our unsecured bank line during the first quarter of 2017, however the balance as of both March 31, 2017 and December 31, 2016 was $0. Our other unsecured notes payable had no change during the three months ended March 31, 2017.

~~Notes Payable to Related Parties~~

We have two lines of credit from affiliates, which had a combined, outstanding balance of $0 as of both March 31, 2017 and December 31, 2016. We had $1,500 available to us on the affiliate lines as of both March 31, 2017 and December 31, 2016, although the affiliates have no obligation to lend money under the note.

~~Purchase and Sale Agreements~~

Previously, we had entered into a Loan Purchase and Sale Agreement with 1st Financial Bank USA (“1st Financial”) dated as of December 24, 2014, as amended (the “1st Financial LPSA”). 1st Financial bought senior positions in the loans they purchased, generally 50% of each loan. 1st Financial generally receives the interest rate we charge the borrower (with a floor of 10%) on their portion of the loan balance, and we receive the rest of the interest and all of the loan fee. We service the loans. There is an unlimited right for us to call any loan sold, however in any case of such call, a minimum of 4% of the commitment amount of 1st Financial must have been received by 1st Financial in interest, or we must make up the difference. Also, 1st Financial has a put option, which is limited to 10% of the funding made by 1st Financial under all loans purchased in the trailing 12 months.

On February 6, 2017, we entered into a Loan Purchase and Sale Agreement (the “Builder Finance LPSA”) with Builder Finance, Inc. (“Builder Finance”), pursuant to which Builder Finance shall have the right, from time to time, to purchase from us senior priority interests in certain loans made to fund the vertical construction of one to four family residential dwellings. Builder Finance is a subsidiary of 1st Financial. The Builder Finance LPSA was made effective as of August 1, 2016 and governs all eligible loans purchased from us on or after August 1, 2016, even those that would have been owned by 1st Financial pursuant to the 1st Financial LPSA. Each eligible loan will be evidenced by notes secured by, among other things, mortgages or deeds of trust encumbering the respective construction properties. Builder Finance is buying senior positions in the loans they purchase, originally 60% and 70% on new loans as of February 6, 2017, of each loan. Builder Finance generally receives the interest rate we charge the borrower (with a floor of 10%) on their portion of the loan balance, and we receive the rest of the interest and all of the loan fee. We service the loans. There is an unlimited right for us to call any loan sold, however in any case of such call, a minimum of 4% of the commitment amount of Builder Finance must have been received by Builder Finance in interest, or we must make up the difference. Also, Builder Finance has a put option, which is limited to 10% of the funding provided by Builder Finance under all loans purchased in the trailing 12 months.

In April 2015, the Company entered into a purchase and sale agreement with 7Kings as purchaser and the Company as seller, whereby 7Kings buys loans offered to it by us, providing that their portions of the loans always total less than $1,500. On or about May 7, 2015, 7Kings assigned its right and interest in the purchase and sale agreement to S.K. Funding, an affiliate of 7Kings. S.K. Funding may adjust the $1,500 with notice, but such change will not cause a buyback by us. S.K. Funding is buying pari-passu positions in the loans they purchase, generally 50% of each loan. S.K. Funding generally receives a 9% interest rate on its portion of the loan balance, and we receive the rest of the interest and all of the loan fees. We service the loans. There is an unlimited right for us to call any loan sold. This transaction is accounted for as a secured line of credit. In the fourth quarter of 2015, we entered into a modification of our agreement with S.K. Funding whereby S.K. Funding agreed to buy priority interests of $1,000 each in two large loans we originated. In the first quarter of 2016, after one of such interests was repaid, we entered into an additional modification whereby S.K. Funding agreed to buy priority interests totaling $2,000 in a total of three large loans we originated. The interest rate for the loans covered by these modifications is 9.5% to S.K. Funding. On June 30, 2016, one of those two loans was terminated with a deed in lieu of foreclosure. The property is owned by us, and we owe S.K. Funding $1,000 on that property (secured by mortgage) to be repaid upon the sale of the property, which occurred in March 2017. This amount is still covered by our purchase and sale agreement and is included in the totals in the chart below for December 31, 2016. Two more amendments were signed in the fourth quarter of 2016 allowing for more priority purchases of loans under the same terms as the first two amendments. On December 31, 2015, S.K. Funding purchased 4% of our common equity from the Wallach family. However, it sold this 4% interest on March 31, 2017.

~~The purchase and sale agreements are recorded as secured borrowings.~~

~~The purchase and sale agreements are detailed below:~~

Redeemable Preferred Equity and Members’ Capital

We strive to maintain a reasonable (about 15%) balance between 1)(1) redeemable preferred equity plus members’ capital and ~~2) debt.~~(2) total assets. The ratio of redeemable preferred equity plus members’ capital to assets was ~~15% and 14%~~13% as of March 31, ~~2017~~2018 and 16% as of December 31, ~~2016 respectively.~~2017. We anticipate this ratio dropping until more preferred equity is added. We are currently exploring potential increases in preferred equity.

In ~~March 2017, S.K. Funding sold its 4% interest in~~January 2018, our ~~common equity in equal~~Chief Financial Officer and Executive Vice President of Operations purchased 2% and 1% ~~portions to each~~ of our ~~three independent managers and~~Class A common units; respectively, from our CEO. In March 2018, our Executive Vice President of ~~Operations.~~Sales purchased 14.3% of our Class A common units from our CEO.

Priority of Borrowings

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

Priority Rank
March 31, 2017
December 31, 2016
Borrowing Source
Purchase and sale agreements 1 $ 6,728 $ 7,322
Secured line of credit from affiliates 2 – –
Unsecured line of credit (senior) 3 – –
Other unsecured debt (senior subordinated) 4 279 279
Unsecured Notes through our public offering 5 12,792 11,221
Other unsecured debt (subordinated) 5 700 700
Other unsecured debt (junior subordinated) 6 173 173

Total $ 20,672 $ 19,695

	Priority Rank		March 31, 2018		December 31, 2017
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	16,559	$	11,644
Secured line of credit from affiliates		2		1,000		–
Unsecured line of credit (senior)		3		500		–
Other unsecured debt (senior subordinated)		4		1,007		279
Unsecured Notes through our Notes Program, gross		5		13,785		14,121
Other unsecured debt (subordinated)		5		2,387		2,617
Other unsecured debt (junior subordinated)		6		590		173
Total			$	35,828	$	28,834

Liquidity and Capital Resources

Our operations are subject to certain risks and uncertainties, particularly related to the concentration of our current operations, a significant portion of which are to a single customer and geographic region, as well as the evolution of the current economic environment and its impact on the United States real estate and housing markets. Both the concentration of risk and the economic environment could directly or indirectly cause or magnify losses related to certain transactions and access to and cost of adequate financing.

The Company’s anticipated primary sources of liquidity going forward, and the amounts received from such sources as of March 31, 2018 and 2017, are:

●

~~The purchase and sale agreements, which are allowing for a significant increase in loan balances. Our loan origination volume is dependent upon our buyers continuing to purchase loans from us;~~

●

The continued issuance of Notes to the general public through our second public Notes offering, which was declared effective by the SEC on September 29, 2015, and has been registered and declared effective in 44 states

Source of Liquidity	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017		Comment and Future Outlook
Secured debt	$	7,581	$	2,001	We increased our related party debt and added a mortgage on our office building. We will continue to increase funds through bank participation during 2018 as needed.
Unsecured debt		4,479		4,144	Our unsecured debt outside of our Notes Program increased during 2018. We plan to increase our unsecured borrowings as needed
Principal payments		4,649		2,909	Our loan volume increased in 2018 resulting in an increase in principal payments. We anticipate continued growth in payoffs as our volume increases.
Interest income		1,291		780	We anticipate interest income increasing as our loan balances grow. Our concentrations in large borrowers adds risk to this source of liquidity.
Funds from the sale of foreclosed assets		–		–	We anticipate selling more foreclosed assets in the future.

The Company’s anticipated primary uses of liquidity going forward, and the amounts expended on such uses as of March 31, 2017. We began to advertise for our Notes offerings in March 2013 and received an aggregate of approximately $12,792 and $11,221 in Notes proceeds as of March 31, 2017 and December 31, 2016, respectively (net of redemptions). We anticipate continuing our capital raising efforts in 2017, focusing on the efforts that have proven fruitful;

●

Interest income and/or principal repayments related to the loans. The Company’s ability to fund its operations remains dependent upon the ability of our largest borrower, whose loan commitments represented 28% and 37% our total outstanding loan commitments as of March 31, 2017 and December 31, 2016, respectively, to continue paying interest and/or principal. The risk of our largest customer not paying interest is mitigated in the short term by having an Interest Escrow, which had a balance of $449 and $541 as of March 31, 2017 and December 31, 2016, respectively. While a default by this large customer could impact our cash flow and/or profitability in the long term, we believe that, in the short term, a default might impact profitability, but not liquidity, as we are generally not receiving interest payments from the customer on the development loan portion of the customer’s balance while the customer is performing (this interest is being credited from the interest escrow). This customer is in good standing with us and is current on their construction loan interest payments. As of March 31, 2017, our next two largest customers made up 9% and 5% respectively of our loan commitments, with loans in Sarasota, Florida and Savannah, Georgia, respectively. As of December 31, 2016, our next two largest customers make up 11% and 6% respectively of our loan commitments, with loans in Sarasota, Florida and Savannah, Georgia, respectively;

●

~~Funds from the sale of foreclosed assets, net of any debt which we might have on those assets;~~

●

~~Funds borrowed from our bank line (which was effective in January 2017); and~~

●

~~Funds borrowed from affiliated creditors.~~

~~We generated net income of $191 and $129 for~~ the three months ended March 31, 2018 and 2017, and 2016, respectively and cash flow from operations of $675 and $276 for the same periods. At March 31, 2017 and December 31, 2016, we had cash on hand of $586 and $1,566, respectively, availability on our bank line of $500 and $0, respectively, and our outstanding debt totaled $20,672 and $19,695, respectively, of which $6,728 and $7,322 was secured, respectively. The secured amount is from our purchase and sale agreements, which add liquidity and allow us to expand our business. As of March 31, 2017 and December 31, 2016, the amount that we have not loaned, but are obligated to potentially lend to our customers based on our agreements with them, was $15,257 and $11,503, respectively. Our availability on our line of credit from our members was $1,500 at both March 31, 2017 and December 31, 2016. Our members are not obligated to fund requests under our line of credit.are:

~~Our current plan is to expand the commercial lending program by using current liquidity and available funding (including funding from our Notes program).~~

Use of Liquidity	Three Months Ended March 31, 2018		Three Months Ended March 31, 2017		Comment and Future Outlook
Unfunded and new loans	$	18,935	$	15,257	We have loan commitments which are unfunded which will need to be funded as the collateral of these loans are built. As we create new loans, some portion of those will be funded at the initial creation of the loan and then the rest will be funded over time.
Payments on secured debt		1,665		2,595	These will continue to grow as loan payoffs continue to rise.
Payments on unsecured debt		3,400		2,573	Consists mostly of borrowings from our Notes program. We anticipate these payments to increase in 2018.
Interest expense		861		546	We anticipate interest expense increasing as we grow.
Distributions to owners		52		40	Distributions are based on income

To help manage our liquidity, we:

	●	do not offer demand deposits (for instance, a checking account). We manage the duration of our Notes through the interest rates we offer at any time;

	●	fund loan requests with varying sources of capital, not just our Notes offering; and

	●	match our interest rate to our borrower to our cost of funds.

~~We currently (or may in the future) use liquidity to:~~

	●	~~make payments on other borrowings, including loans from affiliates and banks;~~

	●	~~pay Notes on their scheduled due date and Notes that we are required to redeem early;~~

	●	~~make interest payments on the Notes; and~~

	●	~~to the extent we have remaining net proceeds and adequate cash on hand, fund any one or more of the following activities:~~

	●	~~to extend commercial construction loans to homebuilders to build single or multi-family homes or develop lots;~~

	●	~~to make distributions to equity owners, including the preferred equity owners;~~

	●	~~for working capital and other corporate purposes;~~

	●	~~to purchase defaulted secured debt from financial institutions at a discount;~~

	●	~~to purchase defaulted unsecured debt from suppliers to homebuilders at a discount and then secure it with real estate or other collateral;~~

	●	~~to purchase and improve real estate in which we will operate our business (one such purchase occurred in February 2017); and~~

	●	~~to redeem Notes which we have decided to redeem prior to maturity.~~

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 mean higher effective interest rates for us, as the recognition of fees we charge is spread over a shorter period. Slower sales mean lower effective interest rates for us. Slower sales are likely to increase the default rate we experience.

Housing inflation 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.

Interest rates have several impacts on our business. First, rates affect housing (starts, home size, etc.). High ~~long term~~long-term interest rates may decrease housing starts, having the effects listed above. Higher interest rates will also affect our investors. We believe that there will be a spread between the rate our Notes yield to our investors and the rates the same investors could get on deposits at FDIC insured institutions. We also believe that the spread may need to widen if these rates rise. For instance, if we pay 7% above average CD rates when CDs are paying 0.5%, when CDs are paying 3%, we may have to have a larger than 7% difference. This may cause our lending rates, which are based on our cost of funds, to be uncompetitive. High interest rates may also increase builder defaults, as interest payments may become a higher portion of operating costs for the builder. Higher short-term rates may increase the rates builders are charged by banks faster than our rates to the builder will grow, which might be a benefit for us. Below is a chart showing ~~three year~~three-year U.S. treasury rates, which are being used by us here to approximate CD rates. Short term interest rates have risen slightly but are generally low historically.

~~Market Yield on U.S. Treasury Securities at 3-Year Constant Maturity~~

Year Yield Year Yield Year Yield Year Yield Year Yield Year Yield
1962 3.47 % 1972 5.72 % 1982 12.93 % 1992 5.30 % 2002 3.10 % 2012 0.38 %
1963 3.67 % 1973 6.96 % 1983 10.45 % 1993 4.44 % 2003 2.10 % 2013 0.54 %
1964 4.03 % 1974 7.84 % 1984 11.92 % 1994 6.27 % 2004 2.78 % 2014 0.90 %
1965 4.22 % 1975 7.50 % 1985 9.64 % 1995 6.25 % 2005 3.93 % 2015 1.02 %
1966 5.23 % 1976 6.77 % 1986 7.06 % 1996 5.99 % 2006 4.77 % 2016 1.00 %
1967 5.03 % 1977 6.68 % 1987 7.68 % 1997 6.10 % 2007 4.35 %
1968 5.68 % 1978 8.29 % 1988 8.26 % 1998 5.14 % 2008 2.24 %
1969 7.02 % 1979 9.70 % 1989 8.55 % 1999 5.49 % 2009 1.43 %
1970 7.29 % 1980 11.51 % 1990 8.26 % 2000 6.22 % 2010 1.11 %
1971 5.66 % 1981 14.46 % 1991 6.82 % 2001 4.09 % 2011 0.75 %

~~(Source: Federal Reserve)~~

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 March 31, ~~2017~~2018, and December 31, ~~2016,~~2017, 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~~CEO (our principal executive ~~officer~~officer) and CFO (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 ~~chief executive officer~~CEO (our principal executive ~~officer~~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 ~~chief executive officer~~CEO (our principal executive ~~officer~~officer) and CFO (our principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

~~There have~~During 2018, we hired a Vice President of Administrative Operations and Product Development to further implement segregation of duties. In addition, we placed into service an internally developed proprietary software system to assist in the management of our Notes Program, which replaced an electronic spreadsheet system. The development of the proprietary software system was designed in part to enhance the overall system of internal controls over financial reporting through further automation of various business processes. Except for the above-mentioned items there has been no ~~changes~~change in our internal ~~control~~controls over financial reporting ~~that occurred~~ during the quarter ended March 31, ~~2017~~2018 that ~~have~~has materially affected or ~~are~~is reasonably likely to materially affect our internal ~~control~~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)	*~~Issuance of~~Reinvestments in Partial Series BC Cumulative ~~Redeemable~~ Preferred ~~Unit~~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 ~~Tenth Amendment to the Credit Agreement and the Second Preferred Unit Purchase Agreement,~~Series C Reinvestment Program, on January 31, 2018, we agreed to issue and sell to Investor’s Mark Acquisitions, LLC (“IMA”) and Benjamin Marcus Homes, L.L.C. (“BMH”), in multiple closings, up to 5 Series B Cumulative Redeemable Preferred Units (“Series B Preferred Units”) at a liquidation preference of $100,000 per Series B Preferred Unit. Specifically, IMA and BMH agreed to purchase 1/10thissued approximately 0.0474022 of a Series BC Preferred Unit to Margaret Rauscher IRA LLC in exchange for ~~$10,000 upon the closing~~distribution proceeds of ~~each lot sold by IMA in the Tuscany subdivision or any subdivisions thereof~~approximately $4,740.22, and ~~each lot sold by BMH in the Hamlets of Springdale subdivision phases 3, 4, and 5.~~ ~~In January 2017, IMA and BMH closed a lot and, upon such closing, purchased 1/10th~~approximately 0.0601630 of a Series BC Preferred Unit to an IRA owned by William Myrick in exchange for ~~$10,000 pursuant to the Second~~distribution proceeds of approximately $6,016.30. On February 28, 2018, we issued approximately 0.0478762 of a Series C Preferred Unit ~~Purchase Agreement.~~to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,787.62, and approximately 0.0607647 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,076.47. On March 31, 2018, we issued approximately 0.0478762 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,787.62, and approximately 0.0613723 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,137.23. The proceeds received from the ~~sale~~sales of the partial Series BC Preferred ~~Unit~~Units in ~~that transaction was~~those transactions were used for the funding of construction loans. The ~~transaction~~transactions in Series C Preferred Units described above ~~was~~were effected in a private ~~transaction~~transactions exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. The ~~transaction~~transactions described above did not involve any public offering, ~~was~~were made without general solicitation or advertising, and the buyer represented to ~~the Registrant~~us that it is an “accredited ~~investor”~~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 BC Preferred Units. *~~Issuance of Series C Cumulative Redeemable Preferred Units~~* We had an additional unregistered sale of equity securities in the three months ended March 31, 2017 in the form of the sale of Series C cumulative redeemable preferred units, as disclosed in our Form 8-K filed on March 21, 2017.

	(b)	We registered up to $70,000,000 in Fixed Rate Subordinated Notes in our public offering (SEC File No. 333-203707, effective September 29, 2015). As of March 31, ~~2017,~~2018, we had issued ~~$10,383,000~~$15,981,000 in Notes pursuant to that public offering. From September 29, 2015 through March 31, ~~2017,~~2018, we incurred expenses of ~~$116,000~~$191,000 in connection with the issuance and distribution of the Notes, 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 March 31, ~~2017~~2018 were ~~$10,267,000,~~$15,790,000, 100% 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 March 31, ~~2017,~~2018, 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 March 31, ~~2017,~~2018, 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 March 31, ~~2017~~2018 (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 ~~Company’s~~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 ~~Company’s~~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, incorporated by reference to Exhibit ~~3.3~~3.1 to the ~~Company’s Registration Statement on Form S-1, filed on May 11, 2012, Commission File No. 333-181360~~

~~3.4~~		~~Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of Shepherd’s Finance, LLC, dated December 31, 2014, incorporated by reference to Exhibit 10.2 to the Company’s~~Registrant’s Form 8-K, filed on ~~January 6, 2015, Commission File No. 333-181360~~

~~3.5~~		Amendment No. 2 to the Amended and Restated Limited Liability Company Agreement of Shepherd’s Finance, LLC, dated March 30, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K, filed on March 30, 2015, Commission File No. 333-181360

~~3.6~~		Amendment No. 3 to the Amended and Restated Limited Liability Company Agreement of Shepherd’s Finance, LLC, dated as of December 28, 2015, incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K, filed on December 31, 2015, Commission File No. 333-203707

~~3.7~~		Amendment No. 4 to the Amended and Restated Limited Liability Company Agreement of Shepherd’s Finance, LLC, dated as of March 16, 2017, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K, filed on March 21,November 13, 2017, Commission File No. 333-203707

4.1		Indenture Agreement (including Form of Note) dated September 29, 2015, incorporated by reference to Exhibit 4.1 to the ~~Company’s~~Registrant’s Post-Effective Amendment No. 1, filed on September 29, 2015, Commission File No. 333-203707

10.1		~~Loan Purchase and Sale~~Twelfth Amendment to the Credit Agreement between Shepherd’s Finance, LLC, Benjamin Marcus Homes, L.L.C., and ~~Builder Finance, Inc.,~~Investor’s Mark Acquisitions, LLC, dated as of ~~February 6, 2017,~~January 5, 2018, incorporated by reference to Exhibit 10.1 to the ~~Company’s~~Registrant’s Form 8-K, filed on ~~February 10, 2017,~~January 8, 2018, Commission File No. 333-203707

~~10.2~~		Confirmation Agreement between Shepherd’s Finance, LLC, 1st Financial Bank USA, and Builder Finance, Inc., dated as of February 6, 2017, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K, filed on February 10, 2017, Commission File No. 333-203707

31.1*		Certification of Principal Executive Officer, ~~and~~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, ~~and~~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

101.SCH**		XBRL Schema Document

101.CAL**		XBRL Calculation Linkbase Document

101.DEF**		XBRL Definition Linkbase Document

101.LAB**		XBRL Labels Linkbase Document

101.PRE**		XBRL Presentation Linkbase Document

* Filed herewith.

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

SIGNATURES

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: ~~April 27, 2017~~May 10, 2018	By:	/s/ ~~Daniel M. Wallach~~Catherine Loftin
		~~Daniel M. Wallach~~Catherine Loftin
		Chief ~~Executive~~Financial Officer ~~and Manager~~

	March 31, 2017			December 31, 2016

Commercial loans, gross	$	26,121		$	21,569
Less: Deferred loan fees		(816	)		(618	)
Less: Deposits		(1,192	)		(861	)
Plus: Deferred origination expense		119			55
Less: Allowance for loan losses		(65	)		(54	)

Commercial loans, net	$	24,167		$	20,091

	Three Months Ended March 31, 2017			Year Ended December 31, 2016			Three Months Ended March 31, 2016

Beginning balance	$	20,091		$	14,060		$	14,060
Additions		7,461			23,184			7,081
Payoffs/sales		(2,909	)		(15,168	)		(3,620	)
Moved to foreclosed assets		–			(1,639	)		–
Change in deferred origination expense		64			55			10
Change in builder deposit		(331	)		(340	)		(57	)
Change in loan loss provision		(11	)		(16	)		(8	)
New loan fees		(593	)		(1,270	)		(332	)
Earned loan fees		395			1,225			381

Ending balance	$	24,167		$	20,091		$	17,515

Class	March 31, 2017		December 31, 2016
B Preferred Units	$	1,160	$	1,150
A Common Units		2,397		2,249

Members’ Capital	$	3,557	$	3,399

						Weighted average interest			Interest earned during the three months ended
	Relationship to	Amount invested as of				rate as of			March 31,
Investor	Shepherd’s Finance	March 31, 2017		March 31, 2016		March 31, 2017			2017		2016
William Myrick	Independent Manager	$	260	$	288		8.94	%	$	7	$	6

R. Scott Summers	Son of Independent Manager		275		375		8.00	%		3		6

Wallach Family Irrevocable Educational Trust	Trustee is Member		200		200		9.00	%		5		4

Eric Rauscher	Independent Manager		475		600		10.00	%		9		11

Joseph Rauscher	Parents of Independent Manager		195		186		9.33	%		4		4

Seven Kings Holdings, Inc.⁽¹⁾	Affiliate of Member		500		500		9.00	%		11		9

Change in Anticipated Average Duration	Resulting adjustment needed to Interest Expense during the next 12 months Higher/(Lower)
Decreasing the average duration to 5 months for all remaining months of origination	$	15
Increasing the average duration to 5 months for all remaining months of origination	$	(11	)

	Three Months Ended March 31,
	2017		2016

Net Interest Income
Interest and fee income on loans	$	1,174	$	849
Interest expense:
Interest related to secured borrowings		179		117
Interest related to unsecured borrowings		367		245
Interest expense		546		362

Net interest income		628		487
Less: Loan loss provision		11		8

Net interest income after loan loss provision		617		479

Non-Interest Income
Gain from sale of foreclosed assets		77		–

Income		694		479

Non-Interest Expense
Selling, general and administrative		454		350
Impairment loss on foreclosed assets		49		–

Total non-interest expense		503		350

Net income	$	191	$	129

Earned distribution to preferred equity holders		31		26

Net income attributable to common equity holders	$	160	$	103

Year		Yield			Year		Yield			Year		Yield			Year		Yield			Year		Yield			Year		Yield
	1962		3.47	%		1972		5.72	%		1982		12.93	%		1992		5.30	%		2002		3.10	%		2012		0.38	%
	1963		3.67	%		1973		6.96	%		1983		10.45	%		1993		4.44	%		2003		2.10	%		2013		0.54	%
	1964		4.03	%		1974		7.84	%		1984		11.92	%		1994		6.27	%		2004		2.78	%		2014		0.90	%
	1965		4.22	%		1975		7.50	%		1985		9.64	%		1995		6.25	%		2005		3.93	%		2015		1.02	%
	1966		5.23	%		1976		6.77	%		1986		7.06	%		1996		5.99	%		2006		4.77	%		2016		1.00	%
	1967		5.03	%		1977		6.68	%		1987		7.68	%		1997		6.10	%		2007		4.35	%
	1968		5.68	%		1978		8.29	%		1988		8.26	%		1998		5.14	%		2008		2.24	%
	1969		7.02	%		1979		9.70	%		1989		8.55	%		1999		5.49	%		2009		1.43	%
	1970		7.29	%		1980		11.51	%		1990		8.26	%		2000		6.22	%		2010		1.11	%
	1971		5.66	%		1981		14.46	%		1991		6.82	%		2001		4.09	%		2011		0.75	%