UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

[X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended ~~September 30, 2018~~March 31, 2019

[ ]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.)

13241 Bartram Park Blvd., Suite 2401, Jacksonville, Florida 32258

(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 website, 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	[ ]X]	Smaller reporting company	[X]
Emerging growth company	[X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

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

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

FORM 10-Q

SHEPHERD’S FINANCE, LLC

TABLE OF CONTENTS

	Page

Cautionary Note Regarding Forward-Looking Statements	3

PART I. FINANCIAL INFORMATION	4

Item 1. Financial Statements	4

Interim Condensed Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 (Unaudited) and December 31, ~~2017~~2018	4

Interim Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2019 and ~~Nine Months Ended September 30,~~ 2018 ~~and 2017~~	5

Interim Condensed Consolidated Statement of Changes in Members’ Capital (Unaudited) for the ~~Nine~~Three Months Ended, ~~September 30,~~2019 and 2018	6

Interim Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 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	2119

Item 3. Quantitative and Qualitative Disclosure About Market Risk	4035

Item 4. Controls and Procedures	4035

PART II. OTHER INFORMATION	4036

Item 1. Legal Proceedings	4036

Item 1A. Risk Factors	4036

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4136

Item 3. Defaults upon Senior Securities	4237

Item 4. Mine Safety Disclosures	4237

Item 5. Other Information	4237

Item 6. Exhibits	4337

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, ~~2017,~~2018, 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 ~~2017~~Annual Report on Form 10-K for the year ended December 31, 2018 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
(in thousands of dollars)	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(Unaudited)				(Unaudited)
Assets
Cash and cash equivalents	$	3,345	$	3,478	$	1,912	$	1,401
Accrued interest receivable		620		720		697		568
Loans receivable, net		42,541		30,043		49,991		46,490
Foreclosed assets		6,323		1,036		6,069		5,973
Property, plant and equipment, net		1,023		1,020
Premises and equipment						1,030		1,051
Other assets		274		58		80		327

Total assets	$	54,126	$	36,355	$	59,779	$	55,810

Liabilities, Redeemable Preferred Equity and Members’ Capital

Liabilities

Liabilities and Members’ Capital
Customer interest escrow	$	877	$	935	$	1,289	$	939
Accounts payable and accrued expenses		863		705		581		724
Accrued interest payable		1,867		1,353		2,098		2,140
Notes payable secured, net of deferred financing costs		20,338		11,644		26,085		23,258
Notes payable unsecured, net of deferred financing costs		24,847		16,904		23,231		22,635
Due to preferred equity member		32		31		34		32

Total liabilities		48,824		31,572	$	53,318	$	49,728

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

Redeemable Preferred Equity

Series C preferred equity		1,426		1,097	$	2,457	$	2,385

Members’ Capital

Series B preferred equity		1,320		1,240		1,380		1,320
Class A common equity		2,556		2,446		2,624		2,377
Members’ capital		3,876		3,686	$	4,004	$	3,697

Total liabilities, redeemable preferred equity and members’ capital	$	54,126	$	36,355	$	59,779	$	55,810

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Operations - Unaudited

For the Three ~~and Nine~~ Months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(in thousands of dollars)	2018		2017		2018		2017		2019		2018
Interest Income
Interest and fee income on loans	$	2,045	$	1,673	$	5,917	$	4,203	$	2,432	$	1,707
Interest expense:
Interest related to secured borrowings		552		342		1,480		718		681		411
Interest related to unsecured borrowings		587		424		1,550		1,192		625		450
Interest expense		1,139		748		3,030		1,910		1,306		861

Net interest income		906		925		2,887		2,293		1,126		846
Less: Loan loss provision		2		8		61		34		47		40

Net interest income after loan loss provision		904		917		2,826		2,259		1,079		806

Non-Interest Income
Gain from sale of foreclosed assets		-		-		-		77
Gain from foreclosure of assets		20		-		20		-		-		-

Total non-interest expense/income		20		-		20		77
Total non-interest income										-		-

Income		924		917		2,846		2,336		1,079		806

Non-Interest Expense
Selling, general and administrative		680		525		1,988		1,423		624		497
Depreciation and amortization		23		12		61		24		23		17
Loss from sale of foreclosed assets		3		-		3		-
Loss from foreclosure of assets		47		-		47		-
Impairment loss on foreclosed assets		4		47		89		202		80		5

Total non-interest expense		757		584		2,188		1,649		727		519

Net Income	$	167		333	$	658	$	687	$	352	$	287

Earned distribution to preferred equity holders		69		61		199		149		105		63

Net income attributable to common equity holders	$	98		272	$	459	$	538	$	247	$	224

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

Shepherd’s Finance, LLC

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

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018

(in thousands of dollars)	Nine Months Ended September 30, 2018			Three Months Ended March 31, 2019			Three Months Ended March 31, 2018

Members’ capital, beginning balance	$	3,686		$	3,697		$	3,686
Net income		658			352			287
Contributions from members (preferred)		80			60			-
Earned distributions to preferred equity holders		(199	)		(105	)		(63	)
Distributions to common equity holders		(349	)		-			(22	)
Members’ capital, ending balance	$	3,876		$	4,004		$	3,888

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Cash Flows - Unaudited

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~

	Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands of dollars)	2018			2017			2019			2018

Cash flows from operations
Net income	$	658		$	687		$	352		$	287
Adjustments to reconcile net income to net cash provided by operating activities
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Amortization of deferred financing costs		142			165			65			48
Provision for loan losses		61			34			47			40
Net loan origination fees deferred		375			120			54			85
Change in deferred origination expense		(31	)		(26	)		5			(23	)
Impairment of foreclosed assets		89			202			80			5
Depreciation and amortization		61			24			20			17
Gain on foreclosed assets		(20	)		-
Loss on foreclosed assets		47			-
Gain from sale of foreclosed assets		-			(77	)
Loss from sale of foreclosed assets		3			-
Net change in operating assets and liabilities
Net change in operating assets and liabilities:
Other assets		(216	)		(67	)		247			(39	)
Accrued interest receivable		(143	)		(155	)		(129	)		(246	)
Customer interest escrow		(58	)		39			350			(149	)
Accounts payable and accrued expenses		672			217			(185	)		(207	)

Net cash provided by operating activities		1,640			1,163
Net cash provided by (used in) operating activities								906			(182	)

Cash flows from investing activities
Loan originations and principal collections, net		(18,072	)		(9,663	)		(3,606	)		(9,751	)
Proceeds from sale of loans		198			-
Investment in foreclosed assets		(1,039	)		(296	)		(176	)		(48	)
Proceeds from sale of foreclosed assets		370			1,890
Property plant and equipment additions		(64	)		(698	)		-			(25	)

Net cash used in investing activities		(18,607	)		(8,767	)		(3,782	)		(9,824	)

Cash flows from financing activities
Contributions from redeemable preferred equity		1,400			1,004
Contributions from members (preferred)		80			70
Distributions to redeemable preferred equity		(1,176	)		-
Contributions from preferred equity holders								60			-
Distributions to preferred equity holders		(93	)		(88	)		(32	)		(30	)
Distributions to common equity holders		(349	)		(189	)		-			(22	)
Proceeds from secured note payable		19,181			11,760			5,262			7,581
Repayments of secured note payable		(9,905	)		(6,914	)		(2,459	)		(1,665	)
Proceeds from unsecured notes payable		12,149			9,412			3,925			4,479
Redemptions/repayments of unsecured notes payable		(4,258	)		(6,481	)		(3,087	)		(3,400	)
Deferred financing costs paid		(195	)		(65	)		(282	)		(35	)

Net cash provided by financing activities		16,834			8,509			3,387			6,908

Net increase (decrease) in cash and cash equivalents		(133	)		905			511			(3,098	)

Cash and cash equivalents
Beginning of period		3,478			1,566			1,401			3,478
End of period	$	3,345		$	2,471		$	1,912		$	380

Supplemental disclosure of cash flow information
Cash paid for interest	$	2,466		$	1,616		$	1,348		$	813

Non-cash investing and financing activities
Earned but not paid distribution of preferred equity holders	$	105		$	29
Foreclosure of assets	$	4,494		$	-
Accrued interest reduction due to foreclosure	$	243		$	-
Secured line of credit reduction due to construction loan purchase	$	477			-
Earned but not paid distribution of preferred B equity holders							$	34		$	33
Earned but not paid preferred C equity holders								72			33

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

Shepherd’s Finance, LLC

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

Information presented throughout these notes to the interim condensed consolidated financial statements (unaudited) is in thousands of dollars.

1. Description of Business and Basis of Presentation

Description of Business

Shepherd’s Finance, LLC and subsidiary (the “Company”) was originally formed as a Pennsylvania limited liability company on May 10, 2007. The Company is the sole member of a consolidating subsidiary, 84 REPA, LLC. The Company operates pursuant to its Second Amended and Restated Operating Agreement, as amended, by and among Daniel M. Wallach and the other members of the Company effective as of March 16, 2017.

As of ~~September 30, 2018,~~March 31, 2019, the Company extends commercial loans to residential homebuilders (in 1621 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) interim condensed consolidated balance sheet as of December 31, ~~2017,~~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, 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, ~~2018.~~2019. These unaudited interim condensed consolidated financial statements should be read in conjunction with the ~~2017~~2018 consolidated financial statements and notes thereto (the “2018 Financial Statements”) included in the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2017.~~2018 (the “2018 Form 10-K”). The accounting policies followed by the Company are set forth in Note 2 –Summary of Significant Accounting Policies in the ~~2017 financial statements.~~2018 Financial Statements.

Accounting Standards Adopted in the Period

Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (An Amendment of FASB ASC 825).” The Financial Accounting Standards Board (“FASB”) issued ASU 2016-01 in January 2016, and it 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 Accounting Standards Codification (“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 goods or services is transferred to the 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.

On January 1, 2018, the Company implemented ASU 2014-09, codified at ASC Topic 606. The Company adopted ASC Topic 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 Topic 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 Topic 606. All of the Company’s revenue that is subject to ASC Topic 606 would be included in non-interest income; however, not all non-interest income is subject to ASC Topic 606. The Company had no contract liabilities or unsatisfied performance obligations with customers as of ~~September 30, 2018.~~March 31, 2019.

Reclassifications

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

2. Fair Value

The Company had no financial instruments measured at fair value on a recurring basis as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

The following tables present the balances of non-financial instruments measured at fair value on a non-recurring basis as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

~~September 30, 2018~~

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

Foreclosed assets	$	6,069	$	6,069	$	–	$	–	$	6,069
Impaired assets		2,617		2,617		–		–		2,617
Total	$	8,686	$	8,686	$	–	$	–	$	8,686

Carrying Estimated
Quoted Prices
in Active
Markets for
Identical
Assets

Significant
Other
Observable
Inputs

Significant
Unobservable
Inputs

Amount Fair Value Level 1 Level 2 Level 3

Foreclosed assets $ 6,323 $ 6,323 $ - $ - $ 6,323
Impaired Loans 1,000 997 - - 997

Quoted Prices

in Active

Significant

Markets for

Other

Significant

December 31, 2018

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Foreclosed assets

5,973

–

5,973

Impaired assets

2,503

–

2,503

Total

8,476

–

8,476

~~December 31, 2017~~

The table below is a summary of fair value estimates for financial instruments and the level of the fair value hierarchy within which the fair value measurements are categorized at the periods indicated:

~~September 30, 2018~~

Quoted Prices

in Active

Significant

Markets for

Other

Significant

March 31, 2019

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Financial Assets

Cash and cash equivalents

1,912

–

Loans receivable, net

49,991

–

49,991

Accrued interest on loans

697

–

697

Financial Liabilities

Customer interest escrow

1,289

–

1,289

Notes payable secured, net

26,085

–

26,085

Notes payable unsecured, net

23,231

–

23,231

Accrued interest payable

2,098

–

2,098

Quoted Prices
in Active

Markets for
Significant
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 $ 3,345 $ 3,345 $ 3,345 $ – $ –
Loans receivable, net 42,541 42,541 – – 42,541
Accrued interest receivable 620 620 – – 620
Financial Liabilities:
Customer interest escrow 877 877 – – 877
Notes payable secured, net 20,338 20,338 – – 20,338
Notes payable unsecured, net 24,847 24,847 – – 24,847
Accrued interest payable 1,867 1,867 – – 1,867

~~December 31, 2017~~

Quoted
Prices
in Active
Markets for
Significant
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 $ 3,478 $ 3,478 $ 3,478 $ – $ –
Loans receivable, net 30,043 30,043 – – 30,043
Accrued interest receivable 720 720 – – 720
Financial Liabilities:
Customer interest escrow 935 935 – – 935
Notes payable secured 11,644 11,644 – – 11,644
Notes payable unsecured, net 16,904 16,904 – – 16,904
Accrued interest payable 1,353 1,353 – – 1,353

Quoted Prices

in Active

Significant

Markets for

Other

Significant

December 31, 2018

Identical

Observable

Unobservable

Carrying

Estimated

Assets

Inputs

Amount

Fair Value

Level 1

Level 2

Level 3

Financial Assets

Cash and cash equivalents

1,401

–

Loans receivable, net

46,490

–

46,490

Accrued interest on loans

568

–

568

Financial Liabilities

Customer interest escrow

939

–

939

Notes payable secured, net

23,258

–

23,258

Notes payable unsecured, net

22,635

–

22,635

Accrued interest payable

2,140

–

2,140

3. Financing Receivables

Financing receivables are comprised of the following as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018

Loans receivable, gross	$	45,214		$	32,375		$	52,931		$	49,127
Less: Deferred loan fees		(1,222	)		(847	)		(1,303	)		(1,249	)
Less: Deposits		(1,434	)		(1,497	)		(1,707	)		(1,510	)
Plus: Deferred origination expense		141			109
Plus: Deferred origination costs								303			308
Less: Allowance for loan losses		(158	)		(97	)		(233	)		(186	)

Loans receivable, net	$	42,541		$	30,043		$	49,991		$	46,490

Commercial Construction and Development Loans

Commercial Loans – Construction Loan Portfolio Summary

As of ~~September 30, 2018,~~March 31, 2019, the Company’s portfolio consisted of ~~232~~289 commercial construction and seven development loans with 6875 borrowers ~~within 16~~in 21 states.

The following is a summary of the loan portfolio to builders for home construction loans as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

Year	Number of States		Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee			Number of States		Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
2019																				21		75		289	$	111,976	$	75,343	$	46,662		67	%⁽³⁾		5	%
2018		16		68		232	$	91,989	$	60,943	$	40,179		66	%⁽³⁾		5	%		18		75		259		102,808		68,364		43,107		67	%⁽³⁾		5	%
2017		16		52		168		75,931		47,087		29,564		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.

Commercial Loans – Real Estate Development Loan Portfolio Summary

The following is a summary of our loan portfolio to builders for land development as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

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		Number of States		Number of Borrowers		Number of Loans		Gross Value of Collateral⁽¹⁾		Commitment Amount⁽²⁾		Gross Amount Outstanding		Loan to Value Ratio⁽³⁾			Loan Fee
2019																			3		3		7	$	11,564	$	8,010	$	6,269		54	%	$	1,000
2018		3		3		7	$	7,046	$	6,434	$	5,035		71	%	$	1,000		3		4		9		10,134		7,456		6,020		59	%		1,000
2017		1		1		3		4,997		4,600		2,811		56	%		1,000

⁽¹⁾	The value is determined by the appraised value adjusted for remaining costs to be paid. A portion of this collateral is ~~$1,320~~$1,380 and ~~$1,240~~$1,320 as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively, of preferred equity in our Company. In the event of a foreclosure on the property securing these loans, the portion of our collateral that is preferred equity might be difficult to sell, which may impact our ability to recover the loan balance. In addition, a portion of the collateral value is estimated based on the selling prices anticipated for the homes.

⁽²⁾	The commitment amount does not include letters of credit and cash bonds.

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


⁽³⁾	~~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 “Pennsylvania Loans”.~~11

Credit Quality Information

The following tables present credit-related information at the “class” level in accordance with FASB ASC 310-10-50, “Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses.” See our 2018 Form 10-K, ~~for the year ended December 31, 2017,~~ as filed with the SEC, for more information.

Gross finance receivables – By risk rating:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018

Pass	$	40,103	$	25,656	$	47,941	$	43,402
Special mention		4,111		6,719		2,373		3,222
Classified – accruing		-		-		–		–
Classified – nonaccrual		1,000		-		2,617		2,503

Total	$	45,214	$	32,375	$	52,931	$	49,127

Gross finance receivables – Method of impairment calculation:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018

Performing loans evaluated individually	$	17,193	$	14,992	$	20,882	$	19,037
Performing loans evaluated collectively		27,021		17,383		29,432		27,587
Non-performing loans without a specific reserve						2,311		2,204
Non-performing loans with a specific reserve		-		-		306		299
Non-performing loans without a specific reserve		1,000		-
Total	$	45,214	$	32,375

Total evaluated collectively for loan losses					$	52,931	$	49,127

As ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there were no loans acquired with deteriorated credit quality.

Impaired Loans

The following is a summary of our impaired nonaccrual commercial construction loans as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

	September 30, 2018			December 31, 2017		March 31, 2019			December 31, 2018

Unpaid principal balance (contractual obligation from customer)	$	1,000		$	-	$	2,617		$	2,503
Charge-offs and payments applied		-			-		-			-
Gross value before related allowance		1,000			-		2,617			2,503
Related allowance		(3	)		-		(29	)		(20	)
Value after allowance	$	997		$	-	$	2,588		$	2,483

Concentrations

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

September 30, 2018

December 31, 2017

March 31, 2019

December 31, 2018

Percent of

Borrower

Loan

Borrower

Loan

Borrower

Loan

Borrower

Loan

City

Commitments

City

Commitments

City

Commitments

City

Commitments

Highest concentration risk

Pittsburgh, PA

Second highest concentration risk

Orlando, FL

Sarasota, FL

Orlando, FL

Third highest concentration risk

Cape Coral, FL

Savannah, GA

Cape Coral, FL

4. Foreclosed Assets

The following table is a roll forward of foreclosed assets:

Nine Months
Ended
September 30,
2018

Year
Ended
December 31,
2017

Nine Months
Ended
September 30,
2017

Beginning balance $ 1,036 $ 2,798 $ 2,798
Additions from loans 4,737 - -
Additions for construction/development 1,039 317 296
Sale proceeds (370 ) (1,890 ) (1,890 )
Gain on sale - 77 77
Loss on sale (3 ) - -
Gain on foreclosure 20 - -
Loss on foreclosure (47 ) - -
Impairment loss on foreclosed assets (89 ) (266 ) (202 )
Ending balance $ 6,323 $ 1,036 $ 1,079

	Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Beginning balance	$	5,973		$	1,036		$	1,036
Additions from loans		-			4,738			-
Additions for construction/development		176			1,608			48
Sale proceeds		-			(809	)		-
Gain on sale		-			-			-
Loss on sale		-			(103	)		-
Gain on foreclosure		-			19			-
Loss on foreclosure		-			(47	)		-
Impairment loss on foreclosed assets		(80	)		(468	)		(5	)
Ending balance	$	6,069		$	5,973		$	1,079

During the nine months ended September 30, 2018 we recorded four deed in lieu of foreclosures. Three of the four were with a certain borrower with a completed home and two lots. The fourth was with a borrower who defaulted on a loan by failing to make interest payments.

During the first nine of months of 2018, we reclassified $4,737 to foreclosed assets, $4,494 of principal from loans receivable, net; and $243 from accrued interest receivable. We sold one of our foreclosed assets with sales proceeds of $370 and a loss on the sale of $3.

During the quarter ended September 30, 2018, we reclassified $597 to foreclosed assets and recognized a gain on foreclosure of $20 on the two lots and a loss on foreclosure of $47 on the completed home.

5. Borrowings

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

Priority Rank September 30,
2018 December 31,
2017
Borrowing Source
Borrowings secured by loans 1 $ 16,931 $ 11,644
Other secured borrowings 2 3,511 -
Unsecured line of credit (senior) 3 500 -
Other unsecured borrowings (senior subordinated) 4 1,008 279
Unsecured Notes through our public offering, gross 5 17,975 14,121
Other unsecured borrowings (subordinated) 5 5,008 2,617
Other unsecured borrowings (junior subordinated) 6 590 173
Total $ 45,523 $ 28,834

	Priority Rank	March 31, 2019		December 31, 2018
Borrowing Source
Purchase and sale agreements and other secured borrowings	1	$	25,382	$	22,521
Secured lines of credit from affiliates	2		758		816
Unsecured line of credit (senior)	3		500		500
Other unsecured debt (senior subordinated)	4		1,008		1,008
Unsecured notes through our public offering, gross	5		18,831		17,348
Other unsecured debt (subordinated)	5		2,756		3,401
Other unsecured debt (junior subordinated)	6		590		590

Total		$	49,825	$	46,184

The following table shows the maturity of outstanding ~~borrowings~~debt as of ~~September 30, 2018:~~March 31, 2019:

Year Maturing
Total
Amount
Maturing
Public
Offering Other
Unsecured Secured
Borrowings

2018 $ 18,254 $ 1,259 $ 60 $ 16,935
2019 12,888 7,386 2,628 2,874
2020 6,723 3,436 3,272 15
2021 3,789 3,773 - 16
2022 and thereafter 3,869 2,121 1,146 602
Total $ 45,523 $ 17,975 $ 7,106 $ 20,442

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured		Secured Borrowings
2019	$	32,914	$	5,521	$	1,887	$	25,506
2020		5,073		4,006		1,052		15
2021		7,202		7,187		-		15
2022		3,841		2,079		1,746		16
2023 and thereafter		795		38		169		588
Total	$	49,825	$	18,831	$	4,854	$	26,140

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.~~

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, then 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 nine 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

~~Amendments to~~As of March 31, 2019, the ~~Lines of Credit with Mr. Wallach and His Affiliates~~

~~During June 2018, we entered into a First Amendment to the line~~Company had borrowed $758 on its lines of credit ~~with our Chief Executive Officer and his wife (the “Wallach LOC”)~~from affiliates, which ~~modified the interest rate on the Wallach LOC to generally equal the prime rate plus 3%. The interest rate for the Wallach LOC was 8.0% and 4.4% as~~have a total limit of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we borrowed $0 against the Wallach LOC. Interest was $10 and $20 for the quarter and nine months ended September 30, 2018, respectively. As of September 30, 2018, $1,250 remained available on the Wallach LOC.

During June 2018, we entered into a First Amendment to the line of credit with the 2007 Daniel M. Wallach Legacy Trust, which is our CEO’s trust (the “Wallach Trust LOC”) which modified the interest rate on the Wallach Trust LOC to generally equal the prime rate plus 3%. The interest rate for this borrowing was 8.0% and 4.4% as of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we borrowed $0 against the Wallach Trust LOC. As of September 30, 2018, $250 remained available on the Wallach Trust LOC.

~~Line of Credit (Shuman)~~

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 2019, unless extended by Shuman for one or more additional 12-month periods.~~

~~The Shuman LOC was fully borrowed as of September 30, 2018. Interest expense was $33 and $100 for the quarter and nine months ended September 30, 2018, respectively.~~

~~Modification to the Line of Credit with Paul Swanson~~

During April 2018, we entered into a Master Loan Modification Agreement (the “Swanson Modification Agreement”) with Paul Swanson which modified the line of credit agreement between us and Mr. Swanson dated October 23, 2017. Pursuant to the Swanson Modification Agreement, Mr. Swanson provides us with a revolving line of credit (the “Swanson LOC”) with the following terms:

	●	~~Principal not to exceed $7,000;~~
	●	~~Secured with assignments of certain notes and mortgages;~~
	●	~~Cost of funds to us of 9%; and~~
	●	~~Automatic renewal in September 2018 and extended for 15 months.~~

~~The Swanson LOC was fully borrowed as of September 30, 2018. Interest expense was $180 and $445 for the quarter and nine months ended September 30, 2018, respectively.~~

~~Line of Credit (Myrick)~~

During June 2018, we entered into a line of credit agreement (the “Myrick LOC Agreement”) with our Executive Vice President (“EVP”) of Sales, William Myrick. Pursuant to the Myrick LOC Agreement, Mr. Myrick provides us with a line of credit (the “Myrick LOC”) with the following terms:

	●	~~Principal not to exceed $1,000;~~
	●	~~Secured by a lien against all of our assets;~~
	●	~~Cost of funds to us of prime rate plus 3%; and~~
	●	~~Due upon demand.~~

~~As of September 30, 2018, $1,000 remained available on the Myrick LOC. Interest expense was $14 and $17 for the quarter and nine months ended September 30, 2018, respectively.~~

~~London Financial~~

~~During September 2018, we entered into a Master Loan Agreement (“London Loan”) with London Financial Company, LLC (“London Financial”) with the following terms:~~

	●	~~Principal of $3,250;~~
	●	~~Secured by collateral of land and improvements by a certain foreclosed asset;~~
	●	~~Cost of funds to us of 12%; and~~
	●	~~Due in September 2019.~~

As of September 30, 2018, $2,860 was borrowed against the London Loan with an additional $390 that remained available upon completion of additional work performed of the foreclosed asset. Interest expense was $3 for the quarter and nine months ended September 30, 2018.$2,500.

~~Mortgage Payable~~Deferred Financing Cost

~~During January 2018, we entered into~~The following is a ~~commercial mortgage on our office building with the following terms:~~roll forward of secured deferred financing costs:

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

~~The principal amount of the Company’s commercial mortgage was $651 as of September 30, 2018. Interest expense was $9 and $27 for the quarter and nine months ended September 30, 2018, respectively.~~

	Three Months			Year			Three Months
	Ended			Ended			Ended
	March 31, 2019			December 31, 2018			March 31, 2018

Deferred financing costs, beginning balance	$	104		$	–		$	–
Additions		–			104			5
Deferred financing costs, ending balance	$	104		$	104		$	5
Less accumulated amortization		(50	)		(25	)		–
Deferred financing costs, net	$	54		$	79		$	5

Summary

Borrowings secured by loan assets are summarized below:

	March 31, 2019				December 31, 2018
			Due from				Due from
	Book Value of Loans which		Shepherd’s Finance to Loan		Book Value of Loans which		Shepherd’s Finance to Loan
	Served as Collateral		Purchaser or Lender		Served as Collateral		Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	9,578	$	6,254	$	8,742	$	5,294
S.K. Funding, LLC		12,693		6,907		11,788		6,408

Lender
Stephen K. Shuman		1,855		1,325		2,051		1,325
Paul Swanson		9,476		7,000		8,079		5,986

Total	$	33,602	$	21,486	$	30,660	$	19,013

Unsecured Borrowings

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

On March 22, 2019, the Company terminated its second public offering and commenced its third public offering of fixed rate subordinated notes (the “Notes”). The effective interest rate on borrowings through our Notes Program at March 31, 2019 and December 31, 2018 was 10.09% and 10.07%, 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 from 12 to 48 months from the date of issuance. The following table shows the roll forward of our Notes Program:

	Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Gross Notes outstanding, beginning of period	$	17,348		$	14,121		$	14,121
Notes issued		3,532			9,645			1,309
Note repayments / redemptions		(2,049	)		(6,418	)		(1,645	)

Gross Notes outstanding, end of period	$	18,831		$	17,348		$	13,785

Less deferred financing costs, net		454			212			267

Notes outstanding, net	$	18,377		$	17,136		$	13,518

The following is a roll forward of deferred financing costs:

	Three Months			Year			Three Months
	Ended			Ended			Ended
	March 31, 2019			December 31, 2018			March 31, 2018

Deferred financing costs, beginning balance	$	1,212		$	1,102		$	1,102
Additions		282			117			29
Disposals		–			(7	)		–
Deferred financing costs, ending balance		1,494			1,212			1,131
Less accumulated amortization		(1,040	)		(1,000	)		(864	)
Deferred financing costs, net	$	454		$	212		$	267

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

	Three Months		Year		Three Months
	Ended		Ended		Ended
	March 31, 2019		December 31, 2018		March 31, 2018

Accumulated amortization, beginning balance	$	1,000	$	816	$	816
Additions		40		184		48
Accumulated amortization, ending balance	$	1,040	$	1,000	$	864

Other Unsecured Debts*Debts

Our other unsecured debts are detailed below:

					Principal Amount Outstanding as of				Maturity	Interest			Principal Amount Outstanding as of
Loan	Maturity Date	Interest Rate⁽¹⁾			September 30, 2018		December 31, 2017		Date	Rate⁽¹⁾			March 31, 2019		December 31, 2018
Unsecured Note with Seven Kings Holdings, Inc.	February 2019⁽²⁾		9.5	%	$	500	$	500	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Builder Finance, Inc.	January 2019		10.0	%		500		-	January 2020		10.0	%		500		500
Unsecured Line of Credit from Paul Swanson	April 2020⁽³⁾		9.0	%		2,621		1,904	March 2019		10.0	%		-		1,014
Subordinated Promissory Note	September 2019⁽⁴⁾		9.5	%		1,125		-	September 2019		9.5	%		1,125		1,125
Subordinated Promissory Note	December 2019		10.5	%		113		113	December 2019		10.5	%		113		113
Subordinated Promissory Note	April 2020		10.0	%		100		100	April 2020		10.0	%		100		100
Subordinated Promissory Notes									October 2019		10.0	%		150		150
Subordinated Promissory Note									August 2022		11.0	%		200		-
Subordinated Promissory Note	October 2019		10.0	%		150		-	September 2020⁽⁶⁾		11.0	%		168		-
Senior Subordinated Promissory Note	March 2022⁽⁴⁾		10.0	%		400		-	March 2022⁽³⁾		10.0	%		400		400
Senior Subordinated Promissory Note	March 2022⁽⁵⁾		1.0	%		728		-	March 2022⁽⁴⁾		1.0	%		728		728
Junior Subordinated Promissory Note	March 2022⁽⁵⁾		22.5	%		417		-	March 2022⁽⁴⁾		22.5	%		417		417
Senior Subordinated Promissory Note	October 2020⁽⁶⁾		1.0	%		279		279	October 2020⁽⁵⁾		1.0	%		279		279
Junior Subordinated Promissory Note	October 2020⁽⁶⁾		20.0	%		173		173	October 2020⁽⁵⁾		20.0	%		173		173
					$	7,106	$	3,069					$	4,853	$	5,499

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

⁽²⁾Due six months after lender gives notice.

⁽³⁾~~Automatically renewed in September 2018 and extended for 15 months.~~

⁽⁴⁾~~Due on the earlier of six months after lender gives notice or September 2019.~~

⁽⁴⁾Lender may require us to repay $20 of principal and all unpaid interest with 10 days’ notice.

⁽⁵⁾⁽⁴⁾These notes were issued to the same holder and, when calculated together, yield a blended return of 11% per annum.

⁽⁶⁾⁽⁵⁾These notes were issued to the same holder and, when calculated together, yield a blended return of 10% per annum.

~~Unsecured Notes through the Public Offering (“Notes Program”)~~⁽⁶⁾Due one month after lender gives notice, which notice may not be given prior to August 1, 2020.

The effective interest rate on the notes (“Notes”) offered pursuant to the Notes Program at September 30, 2018 and December 31, 2017 was 9.83% 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 the Notes Program:

Nine Months
Ended
September 30,
2018 Year
Ended
December 31,
2017 Nine Months
Ended
September 30,
2017

Gross Notes outstanding, beginning of period $ 14,121 $ 11,221 $ 11,221
Notes issued 6,357 8,375 8,299
Note repayments / redemptions (2,503 ) (5,475 ) (5,381 )

Gross Notes outstanding, end of period $ 17,975 $ 14,121 $ 14,139

Less deferred financing costs, net 233 286 311

Notes outstanding, net $ 17,742 $ 13,835 $ 13,828

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

Nine Months Year Nine Months
Ended Ended Ended
September 30,
2018 December 31,
2017 September 30,
2017

Deferred financing costs, beginning balance $ 1,102 $ 1,014 $ 1,014
Additions 89 88 65
Deferred financing costs, ending balance $ 1,191 $ 1,102 $ 1,079
Less accumulated amortization (958 ) (816 ) (768 )
Deferred financing costs, net $ 233 $ 286 $ 311

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

Nine Months Year Nine Months
Ended Ended Ended
September 30,
2018 December 31,
2017 September 30,
2017

Accumulated amortization, beginning balance $ 816 $ 603 $ 603
Additions 142 213 165
Accumulated amortization, ending balance $ 958 $ 816 $ 768

6. Redeemable Preferred Equity

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

	Nine Months Ended September 30, 2018			Year Ended December 31, 2017		Nine Months Ended September 30, 2017		Three Months Ended March 31, 2019		Year Ended December 31, 2018		Three Months Ended March 31, 2018

Beginning balance	$	1,097		$	–	$	–	$	2,385	$	1,097	$	1,097
Additions from new investment		1,400			1,004		1,004		-		2,300		-
Redemptions		(1,176	)		-		-		-		1,177		-
Additions from reinvestment		105			93		61		72		165		33

Ending balance	$	1,426		$	1,097	$	1,065	$	2,457	$	2,385	$	1,130

On July 31, 2018, we redeemed all of our outstanding Series C Preferred Units, which were held by two investors. On August 1, 2018, we sold 12 of our Preferred Units to Daniel M. Wallach, our CEO and Chairman of our board of managers, and his wife, Joyce S. Wallach, for the total price of $1,200. In addition, on August 30, 2018, we sold two of our Series C Preferred Units to two investors, for the total price of $200,000.

The following table shows the earliest redemption options for investors in our Series C Preferred Units as of ~~September 30, 2018:~~March 31, 2019:

Year of Available Redemption	Total Amount Redeemable		Total Amount Redeemable

2024	$	1,426	$	2,457

Total	$	1,426	$	2,457

7. Members’ Capital

There are currently two classes of equity units outstanding that the Company classifies as Members’ Capital: Class A common units (“Class A Common Units”) and Series B cumulative preferred units (“Series B Preferred Units”). As of ~~September 30, 2018,~~March 31, 2019, the Class A Common Units are held by ~~nine~~eight members, all of whom have no personal liability. All Class A common members have voting rights in proportion to their capital account. There were 2,629 Class A Common Units outstanding at both ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~

In January 2018, our Chief Financial Officer and EVP of Operations purchased 2% and 1% of our outstanding Class A Common Units, respectively, from our CEO. In March 2018, our EVP of Sales purchased 14.3% of our outstanding Class A Common Units from our CEO.2018.

The Series B Preferred Units were issued to the Hoskins Group through a reduction in a loan issued by the Hoskins Group to the Company. In December 2015, the Hoskins Group agreed to purchase 0.1 Series B Preferred Units for $10 at each closing of a lot to a third party in the Hamlet’s and Tuscany subdivision. As of ~~September 30, 2018,~~March 31, 2019, the Hoskins Group owns a total of ~~13.2~~13.8 Series B Preferred Units, which were issued for a total of ~~$1,320.~~$1,380.

8. Related Party Transactions

As of September 30, 2018, each of the Company’s two independent managers own 1% of our Class A Common Units. As of September 30, 2018, our CFO, EVP of Operations, and EVP of Sales each own 2%, 2%, and 15.3% of our Class A Common Units, respectively.

~~As of September 30, 2018,~~March 31, 2019, the Company had ~~$1,250,~~$1,108, $250, and ~~$1,000~~$384 available to borrow against the line of credit from Daniel M. Wallach ~~LOC,~~(our Chief Executive Officer and chairman of the board of managers) and his wife, the line of credit from the 2007 Daniel M. Wallach Legacy Trust, ~~LOC~~ and the line of credit from William Myrick ~~LOC,~~(our Executive Vice President of Sales), respectively. A more detailed description is included in Note ~~5 above.~~6 of our 2018 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

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

~~On August 1, 2018, we sold 12 of our Preferred Units to Daniel M. Wallach, our CEO and Chairman of our board of managers, and his wife, Joyce S. Wallach, for the total price of $1,200.~~

In September 2018, we sold three loans to our CEO at their gross loans receivable balance of $281, and as such, no gain or loss was recognized on the sale. Cash received was $104 and the remaining purchase price was funded through a $177 reduction in the principal balance of the line of credit extended by the CEO to the Company. The Company continues to service these loans. As of September 30, 2018, we had $16 in builder deposits related to these loans, and the principal balance being serviced was $281.

Also, in September 2018, we sold two loans to our EVP of Sales at their gross loans receivable balance of $394, and as such, no gain or loss was recognized on the sale. Cash received was $94 and the remaining purchase price was funded through a $300 reduction in the principal balance of the line of credit extended by the EVP of Sales to the Company. The Company continues to service these loans. As of September 30, 2018, we had $6 in builder deposits related to these loans, and the principal balance being serviced was $394.

9. Commitments and Contingencies

Unfunded commitments to extend credit, which have similar collateral, credit risk, and market risk to our outstanding loans, were ~~$22,163~~$30,422 and ~~$19,312~~$25,258 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

10. Selected Quarterly Condensed Consolidated Financial Data (Unaudited)

Summarized unaudited quarterly condensed consolidated financial data for the ~~three~~ quarters of ~~2018~~2019 and ~~four quarters of 2017~~2018 are as follows:

Quarter
3 Quarter
2
Quarter
1

Quarter
4

Quarter
3

Quarter
2

Quarter
1

2018 2018 2018 2017 2017 2017 2017

Net Interest Income after Loan Loss Provision $ 904 $ 996 $ 926 $ 802 $ 917 $ 725 $ 617
Non-Interest Income 20 - - – – – 77
SG&A expense 680 691 617 643 537 456 454
Depreciation and Amortization 23 21 17 – – – 6
Loss from sale of foreclosed assets 3 - - - - - -
Non-Interest Expense 47 - - - - - -
Impairment loss on foreclosed assets 4 80 5 64 47 106 49
Net Income $ 167 $ 204 $ 287 $ 95 $ 333 $ 163 $ 191

	Quarter 1		Quarter 4			Quarter 3		Quarter 2		Quarter 1
	2019		2018			2018		2018		2018

Net interest income after loan loss provision	$	1,079	$	914		$	783	$	876	$	806
Non-interest income		–		(1	)		20		–		–
SG&A expense		624		403			559		571		497
Depreciation and amortization		23		21			23		21		17
Loss on sale of foreclosed assets		–		100			3		–		–
Impairment loss on foreclosed assets		80		379			51		80		5
Net income	$	352	$	10		$	167	$	204	$	287

11. Non-Interest expense detail

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

	For the Nine Months Ended September 30,				For the Three Months Ended March 31,
	2018		2017		2019		2018
Selling, general and administrative expenses
Legal and accounting	$	277	$	164	$	127	$	143
Salaries and related expenses		1,306		976		362		236
Board related expenses		54		82		16		22
Advertising		58		42		19		17
Rent and utilities		38		22		9		10
Loan and foreclosed asset expenses		80		30		20		8
Travel		73		45		32		23
Other		102		62		39		38

Total SG&A	$	1,988	$	1,423	$	624	$	497

12. Subsequent Events

Management of the Company has evaluated subsequent events through ~~November 8, 2018,~~May 9, 2019, the date these interim condensed consolidated financial statements were issued.

~~On October 31, 2018, we~~In April 2019, the Company sold ~~four~~one loan to our Executive Vice President of ~~our Series C Preferred Units~~Sales at its gross loans receivable balance of $214, and as such, no gain or loss was recognized on the sale. The purchase price was funded through a reduction in the principal balance of the line of credit extended by the Executive Vice President of Sales to ~~an investor for~~ the ~~total price of $400.~~Company.

In April 2019, we entered into a line of credit agreement Jeffrey Eppinger which provides us with a revolving line of credit with the following terms:

	●	Principal not to exceed $1,000;
	●	Secured with assignments of certain notes and mortgages; and
	●	Cost of funds to us of 10%.

In April 2019, the Company signed an unsecured promissory note for $500 at a rate of 10% with Paul Swanson. The outstanding principal balance together with all accrued and unpaid interest is due in July 2019.

ITEM 2.

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

(All dollar [$] amounts shown in thousands.)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our interim condensed consolidated financial statements and the notes thereto contained elsewhere in this report. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our audited annual consolidated financial statements and related notes and other consolidated financial data (the “2018 Financial Statements”) included in the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2017.~~2018 (the “2018 Form 10-K”). See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I.

Overview

Net income for the ~~third~~first quarter ~~and first nine months~~ of ~~2018 decreased~~2019 increased by ~~$166 and $29~~$65 when compared to the same ~~periods~~period of ~~2017, respectively.~~2018. The ~~decrease~~increase in net income was mainly due to ~~a loss of~~an increase in net interest income of ~~$138~~$280, partially offset by increases in loan loss reserve and ~~$280 for the third quarter~~impairment of $82 and ~~first nine months of 2018; respectively, related to an increase in our foreclosed assets. In addition, our~~ selling, general and administrative (“SG&A”) expenses ~~increased $80 and $330 for the third quarter and first nine months~~ of ~~2018, respectively.~~

For the nine months ended September 30, 2018, we did not receive default rate interest on non-performing loans. For the quarter and nine months ended September 30, 2017 interest income included $104 of default rate interest on certain loans.

Management made the decision to add additional employees to support the growth of the Company, which primarily includes our Chief Financial Officer, Executive Vice President of Sales, and Vice President of Administration, and resulted in an increase in our payroll expenses.$127. As of ~~September 30, 2018,~~March 31, 2019, we had a total of 2019 employees compared to ~~seven as of September 30, 2017.~~17 at March 31, 2018.

We had ~~$45,215~~$49,991 and ~~$30,043~~$46,490 in loan assets as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. In addition, as of March 31, 2019, we had ~~232~~289 construction loans in 1621 states with 6875 borrowers and seven development loans in three states with three borrowers.

Cash provided by operations increased ~~$477~~$1,088 for ~~the nine~~three months ended ~~September 30, 2018~~March 31, 2019 as compared to the same period of ~~2017.~~2018. Our increase in operating cash flow was due primarily to higher loan originations.

~~Originations~~Loan originations increased by ~~$6,802~~$3,024 or ~~114%~~19% to ~~$14,572~~$18,981 for the quarter ended ~~September 30, 2018 and by $18,675 or 62% to $48,772 for the nine months ended September 30, 2018~~March 31, 2019 compared to the same ~~periods~~period of ~~2017.~~

2018.

Critical Accounting Estimates

To assist in evaluating our interim condensed 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 2018 Form 10-K, ~~as of and 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~~2018 unless listed below.

Loan Losses

Fair value of collateral has the potential to impact the calculation of the loan loss provision (the amount we have expensed over time in anticipation of loan losses we have not yet realized). Specifically, relevant to the allowance for loan loss reserve is the fair value of the underlying collateral supporting the outstanding loan balances. Fair value measurements are an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Due to a rapidly changing economic market, an erratic housing market, the various methods that could be used to develop fair value estimates, and the various assumptions that could be used, determining the collateral’s fair value requires significant judgment.

	September 30, 2018			March 31, 2019
	Loan Loss			Loan Loss
	Provision			Provision
Change in Fair Value Assumption	Higher/(Lower)			Higher/(Lower)
Increasing fair value of the real estate collateral by 35%*	$	-		$	-
Decreasing fair value of the real estate collateral by 35%**	$	(1,671	)	$	(1,881	)

* Increases in the fair value of the real estate collateral do not impact the loan loss provision, as the value generally is not “written up.”

** Assumes the loans were nonperforming and a book amount of the loans outstanding of ~~$37,770.~~$49,991.

Foreclosed Assets

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

	September 30, 2018			March 31, 2019
	Foreclosed			Foreclosed
	Assets			Assets
Change in Fair Value Assumption	Higher/(Lower)			Higher/(Lower)
Increasing fair value of the foreclosed asset by 35%*	$	-		$	-
Decreasing fair value of the foreclosed asset by 35%	$	(2,213	)
Decreasing fair value of the foreclosed asset by 35%**				$	(2,124	)

* Increases in the fair value of the foreclosed assets do not impact the carrying value, as the value generally is not “written up.” Those gains would be recognized at the sale of the asset.

** Assumes a book amount of the foreclosed assets of ~~$6,323.~~$6,069.

Consolidated Results of Operations

Key financial and operating data for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 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 interim condensed consolidated financial statements, including the related notes and the other information contained in this document.

	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2018		2017		2018		2017		2019		2018
Interest Income
Interest and fee income on loans	$	2,045	$	1,673	$	5,917	$	4,203	$	2,432	$	1,707
Interest expense:
Interest related to secured borrowings		552		342		1,480		718		681		411
Interest related to unsecured borrowings		587		424		1,550		1,192		625		450
Interest expense		1,139		748		3,030		1,910		1,306		861

Net interest income		906		925		2,887		2,293		1,126		846
Less: Loan loss provision		2		8		61		34		47		40

Net interest income after loan loss provision		904		917		2,826		2,259		1,079		806

Non-Interest Income
Gain from sale of foreclosed assets		-		-		-		77
Gain from foreclosure of assets		20		-		20		-		-		-

Total non-interest expense/income		20		-		20		77
Total non-interest income										-		-

Income		924		917		2,846		2,336		1,079		806

Non-Interest Expense
Selling, general and administrative		680		525		1,988		1,423		624		497
Depreciation and amortization		23		12		61		24		23		17
Loss from sale of foreclosed assets		3		-		3		-
Loss from foreclosure of assets		47		-		47		-
Impairment loss on foreclosed assets		4		47		89		202		80		5

Total non-interest expense		757		584		2,188		1,649		727		519

Net Income	$	167		333	$	658	$	687	$	352	$	287

Earned distribution to preferred equity holders		69		61		199		149		105		63

Net income attributable to common equity holders	$	98		272	$	459	$	538	$	247	$	224

Interest Spread

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

	Three Months Ended									Nine Months Ended								Three Months Ended
	September 30,									September 30,								March 31,
	2018					2017				2018				2017				2019				2018
Interest Income					*				*				*				*			*				*
Interest income on loans	$	1,400	��	13	%	$	1,198	15	%	$	4,108	14	%	$	2,829	14	%	$	1,712	13	%	$	1,291	14	%
Fee income on loans		645		6	%		475	6	%		1,809	6	%		1,374	6	%		720	6	%		416	4	%
Interest and fee income on loans		2,045		19	%		1,673	21	%		5,917	20	%		4,203	20	%		2,432	19	%		1,707	18	%
Interest expense unsecured		540		5	%		380	5	%		1,408	5	%		1,027	5	%		585	5	%		402	4	%
Interest expense secured		552		5	%		324	4	%		1,480	5	%		718	3	%		681	5	%		411	4	%
Amortization offering costs		47		-	%		44	-	%		142	-	%		165	1	%
Amortization of offering costs																			40	-			48	1	%
Interest expense		1,139		10	%		748	9	%		3,030	10	%		1,910	9	%		1,306	10	%		861	9	%
Net interest income (spread)		906		9	%		925	12	%		2,887	10	%		2,293	11	%	$	1,126	9	%	$	846	9	%

Weighted average outstanding loan asset balance	$	43,732				$	31,742			$	40,566			$	27,161			$	50,886			$	37,831

*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%7%. For most loans, the margin is fixed at 2%3%; however, for our development loans the margin is fixed at 7%. Loans originated after June 30, 2018 are at an increase of 1% to approximately 3% margin, older loans are at a 2% margin. This component is also impacted by the lending of money with no interest cost (our equity).

For the ~~quarter and nine months~~period ended ~~September 30, 2018,~~March 31, 2019, the ~~difference between~~ interest income and interest expense was 3% and 4%, respectively. For the quarter and nine months ended September 30, 2017, the difference between interest income and interest expense was 6% and 5%, respectively. The decrease of 3% for the quarter ended September 30, 2018 compared to 2017 was due primarily to 1) higher default rate interest charged and collected on ~~certain of our~~ loans in 2017 vs. 2018 (1%), 2) $104 of the associated interest income of these defaulted loans was recognized in the third quarter of 2017 instead of the second quarter of 2017, which increased the spread in the third quarter of 2017decreased by 1% compared to the prior year’s same ~~quarter in 2018 by 1%, and 3) an increase in~~period due to foreclosed assets which we now own (and which are not paying interest) were performing loans in the ~~third quarter of 2018~~same period last year. The difference between the interest rate received on our loans and the interest we paid was 3%, as compared to ~~the same quarter in 2018 (also 1%)~~5%. The ~~1% decrease for the nine month period~~3% is lower due to ~~both~~ the ~~increase in~~dollar amount of loans that are not paying interest. The 5% from last year was higher than typical because of the dollar amount of loans we had paying default rate interest. Some of those loans have since paid off, and some have become foreclosed ~~assets~~assets. While our stated margin is 3%, our actual is different because 1) some loans pay higher than the stated margin, 2) some loans are not paying interest, and 3) the ~~lack~~dollar amount of ~~collected default interest on nonperforming loans.~~

loans may be different than the dollar amount of debt. Another factor that impacts this margin is the percentage of loans which are development loans paying the 7% margin.

We currently anticipate that the difference between our interest income and interest expense will continue to be 3% for the remainder of ~~2018.~~2019. With the increase in our pricing which started with loans created in the third quarter of 2018, we anticipate our standard margin to be 3% on all future construction loans and 7% on all development loans which yields a blended margin of approximately 3.4%. This will be decreased currently by about 1% by having an abnormal amount of foreclosed assets while we only have seven foreclosed assets compared to 237 loans, the balance is $6,323 compared to $42,541 of loans due to one large foreclosed asset in Sarasota for $3,897) and by loans not paying interest (typically impacting the number by 0.3%) and increased (typically by 0.5%) by loans which have higher interest rates due to age and other factors and by 0.8% due to lending a portion of our equity. These factors should yield us a spread in the low 3%’s until the ~~Sarasota property~~foreclosed asset balance is ~~sold,~~reduced significantly, and then in the low 4%’s thereafter, assuming no other significant changes to our business. ~~Currently we are finishing construction of~~Our largest foreclosed asset, a property in Sarasota, Florida, is completed and on the ~~Sarasota property and anticipate listing it for sale in the fourth quarter of 2018.~~market.

●Fee income. Our construction loans have a 5% fee on the amount that 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 terminate quicker than their expected life, the remaining unrecognized fee is recognized upon the termination of the loan. ~~When loans exceed their expected life, no additional~~Our fee income ~~is recognized. For both the quarter~~increased due to a modification fee charged to our largest customer of $125, and ~~nine months ended September 30, 2018~~an increase in our ~~fee income remained consistent compared to the same periods of 2017.~~loan turns.

We currently anticipate that fee income will ~~continue at the same 6% rate~~be 5% for the remainder of ~~2018.~~2019.

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

As of March 31, 2019 and ~~cash. All~~2018, $2,617 and $3,776, respectively, of ~~our~~ loans were ~~paying interest in the quarter ended September 30, 2018 and quarter and nine months ended September 30, 2017. One loan was~~ not paying ~~interest in~~interest. Slightly more than half of the ~~nine months ended September 30, 2018.~~2019 amount is due to the death of a customer.

Foreclosed assets do not provide a monthly interest return. ~~During the nine months ended September 30,~~As of March 31, 2019 and 2018, we ~~recorded $4,494 from Loan receivables, net to Foreclosed~~had $6,069 and $1,079, respectively, in foreclosed assets, ~~on the balance sheet as of September 30, 2018,~~ which resulted in a negative impact on our interest spread.

The amount of nonperforming assets is expected to ~~rise~~increase over the next ~~several months,~~quarter due to ~~expected development costs related to~~some of the nonperforming loans becoming foreclosed assets, ~~anticipated foreclosure~~and will decrease as we sell some of ~~assets, and idle cash increases related to anticipated large borrowing inflows. The nonperforming asset balance will drop significantly with the sale of the Sarasota property.~~those properties.

SG&A Expenses

The following table displays our SG&A expenses:

	Three Months				Nine Months
	Ended September 30,				Ended September 30,				For the Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Selling, general and administrative expenses
Legal and accounting	$	54	$	39	$	277	$	164	$	127	$	143
Salaries and related expenses		473		393		1,306		976		362		236
Board related expenses		17		27		54		82		16		22
Advertising		23		17		58		42		19		17
Rent and utilities		18		8		38		22		9		10
Loan and foreclosed asset expenses		42		4		80		30		20		8
Travel		22		13		73		45		32		23
Other		31		24		102		62		39		38
Total SG&A	$	680	$	525	$	1,988	$	1,423	$	624	$	497

Our SG&A expense increased ~~$155 and $565~~$127 for the quarter ~~and nine months~~ ended ~~September 30, 2018~~March 31, 2019 due significantly to the following:

	●	~~Legal and accounting expenses increased due to additional work performed related to the growth of the Company;~~
	●	Salaries and related expenses increased due to our hiring of ~~13 new employees, which was partially offset by a reduction in our CEO’s salary;~~additional employees; and
	●	Loan and foreclosed asset expenses increased due to an increase in additional loan title and search fees of related to higher originations and an increase in foreclosed asset expenses related to work performed to complete certain of our foreclosed assets.
	●	These items were partially offset by a decrease in accounting expenses that resulted from changing audit firms based on a competitive proposal process.

Impairment Loss on Foreclosed Assets

We owned ~~seven foreclosed assets as of September 30, 2018, compared to~~six and four foreclosed assets as of ~~December~~March 31, ~~2017.~~2019 and 2018, respectively. Three of the foreclosed assets are lots under construction, ~~two are~~one is a completed ~~homes,~~home, and two are land lots. We do not anticipate losses on the sale of foreclosed assets in the future; however, this may be subject to change based on the final selling price of the foreclosed assets.

We ~~had three impaired loans as~~finished our largest foreclosed asset in Sarasota, Florida and recorded an impairment of ~~September 30, 2018 and none as of December 31, 2017. During~~$80 during the ~~third~~ quarter ~~of 2018, we reclassified $27 from interest income to accrued interest receivable~~ on ~~the interim condensed consolidated balance sheet related to the impaired loans.~~that property.

Loan Loss Provision

Our loan loss provision ~~decreased by $6 and~~ increased by ~~$27~~$7 for the quarter ~~and nine months~~ ended ~~September 30, 2018, respectively,~~March 31, 2019, compared to the same ~~periods~~period of ~~2017. The decrease for~~2018. In both quarters we increased our loan loss percentage on the ~~quarter ended September 30, 2018~~collective reserve, and the increase of $7 was ~~primarily~~ due to ~~a reduction in loan balances. The increase in~~ the ~~nine months ended September 30, 2018 was primarily due to increases in~~larger loan balances ~~and qualitative reserve percentage~~in 2019 as ~~a result of the change in housing values.~~compared to 2018.

Consolidated Financial Position

Loans Receivable

Commercial Loans – Construction Loan Portfolio Summary

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

The following is a summary of our loan portfolio to builders for home construction loans as of ~~September 30, 2018.~~March 31, 2019:

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

Loan to Value
Ratio⁽²⁾

Loan
Fee

Colorado 3 7 3,878 2,684 2,096 69 % 5 %
Florida 18 73 24,789 17,463 10,349 70 % 5 %
Georgia 7 9 6,955 4,781 3,830 69 % 5 %
Idaho 1 2 605 424 53 70 % 5 %
Indiana 2 7 2,124 1,486 699 70 % 5 %
Michigan 4 28 6,303 4,205 2,501 67 % 5 %
New Jersey 5 16 5,295 3,645 2,741 69 % 5 %
New York 1 3 915 641 555 70 % 5 %
North Carolina 5 12 4,196 2,872 1,429 68 % 5 %
North Dakota 1 1 375 263 227 70 % 5 %
Ohio 1 2 1,620 1,000 902 62 % 5 %
Pennsylvania 3 32 23,055 13,184 9,740 57 % 5 %
South Carolina 12 29 8,319 5,823 3,648 70 % 5 %
Tennessee 1 2 750 525 310 70 % 5 %
Utah 1 1 485 319 107 66 % 5 %
Virginia 3 8 2,325 1,628 992 70 % 5 %
Total 68 232 $ 91,989 $ 60,943 $ 40,179 66 %⁽³⁾ 5 %

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona		1		3	$	1,830	$	1,167	$	393		64	%		5	%
Connecticut		1		1		340		204		44		60	%		5	%
Colorado		2		4		2,549		1,739		1,576		68	%		5	%
Florida		16		119		33,500		24,195		12,935		72	%		5	%
Georgia		6		9		7,233		4,749		3,770		66	%		5	%
Idaho		1		2		605		423		121		70	%		5	%
Indiana		1		2		717		502		312		70	%		5	%
Michigan		4		30		7,119		4,863		2,787		68	%		5	%
New Jersey		5		14		4,728		3,591		2,881		76	%		5	%
New York		2		3		1,175		823		586		70	%		5	%
North Carolina		4		14		3,685		2,538		1,365		69	%		5	%
North Dakota		1		1		375		263		242		70	%		5	%
Ohio		3		6		4,787		3,057		1,937		64	%		5	%
Oregon		1		3		1,704		1,193		354		70	%		5	%
Pennsylvania		3		33		25,543		14,900		10,960		58	%		5	%
South Carolina		13		25		9,027		6,296		3,739		70	%		5	%
Tennessee		2		3		1,120		784		381		70	%		5	%
Texas		2		3		535		374		143		70	%		5	%
Utah		3		7		3,072		2,105		1,141		69	%		5	%
Virginia		2		6		2,104		1,417		953		67	%		5	%
Wyoming		1		1		228		160		42		70	%		5	%
Total		75		289	$	111,976	$	75,343	$	46,662		67	%⁽³⁾		5	%

	⁽¹⁾	The value is determined by the appraised value.

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

	⁽³⁾	Represents the weighted average loan to value ratio of the loans.

The following is a summary of our loan portfolio to builders for home construction loans as of December 31, ~~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		Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Arizona																			1		1	$	1,140	$	684	$	214		60	%		5	%
Colorado		3			6	$	3,224	$	2,196	$	925		68	%		5	%		2		4		2,549		1,739		1,433		68	%		5	%
Delaware		1			1		244		171		147		70	%		5	%
Florida		15			54		25,368		16,555		10,673		65	%		5	%		18		104		32,381		22,855		12,430		71	%		5	%
Georgia		7			13		8,932		5,415		3,535		61	%		5	%		5		6		5,868		3,744		2,861		64	%		5	%
Idaho																			1		2		605		424		77		70	%		5	%
Indiana		2			2		895		566		356		63	%		5	%		2		5		1,567		1,097		790		70	%		5	%
Michigan		4			25		7,570		4,717		2,611		62	%		5	%		4		26		5,899		3,981		2,495		67	%		5	%
New Jersey		2			11		3,635		2,471		1,227		68	%		5	%		5		15		4,999		3,742		2,820		75	%		5	%
New York		1			5		1,756		929		863		53	%		5	%		2		4		1,555		1,089		738		70	%		5	%
North Carolina		3			6		1,650		1,155		567		70	%		5	%		5		12		3,748		2,580		1,712		69	%		5	%
North Dakota																			1		1		375		263		227		70	%		5	%
Ohio		1			1		711		498		316		70	%		5	%		2		3		3,220		1,960		1,543		61	%		5	%
Oregon		1			1		607		425		76		70	%		5	%
Pennsylvania		2			20		15,023		7,649		5,834		51	%		5	%		3		34		24,808		14,441		10,087		58	%		5	%
South Carolina		7			18		4,501		3,058		1,445		68	%		5	%		15		29		9,702		6,738		4,015		69	%		5	%
Tennessee		1			2		690		494		494		72	%		5	%		1		2		750		525		347		70	%		5	%
Texas																			1		1		179		125		26		70	%		5	%
Utah		1			2		790		553		344		70	%		5	%		4		4		1,788		1,206		486		67	%		5	%
Virginia		1			1		335		235		150		70	%		5	%		3		6		1,675		1,172		806		70	%		5	%
Total		52	⁽⁴⁾		168	$	75,931	$	47,087	$	29,564		62	%⁽³⁾		5	%		75		259	$	102,808	$	68,365	$	43,107		67	%⁽³⁾		5	%

	⁽¹⁾	The value is determined by the appraised value.

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

	⁽³⁾	Represents the weighted average loan to value ratio of the loans.

⁽⁴⁾	~~One builder in multiple 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. A significant portion of our development loans consist of three development loans to a borrower in Pittsburgh, Pennsylvania (the “Pennsylvania Loans”). Our additional development loans are with borrowers 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		Number of States		Number of Borrowers		Number of Loans		Gross Value of Collateral⁽¹⁾		Commitment Amount⁽³⁾		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
2019																				3		3		7	$	11,564	$	8,010	$	6,269		54	%	$	1,000
2018		3		3		7	$	7,046	$	6,434		$	5,035		71	%	$	1,000		3		4		9		10,134		7,456		6,020		59	%		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~~A portion of this collateral is $1,380 and $1,320 as of ~~September 30, 2018~~March 31, 2019 and ~~$1,240 as of~~ December 31, ~~2017~~2018, respectively, of preferred equity in our Company. In the event of a foreclosure on the property securing these loans, the portion of our collateral that is preferred equity might be difficult to sell, which may impact our ability to ~~eliminate~~recover the loan balance. ~~Part~~In addition, a portion of the collateral value is estimated based on the selling prices anticipated for the homes. ~~Appraised values will replace these estimates in the third 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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018

Loans receivable, gross	$	45,214		$	32,375		$	52,931		$	49,127
Less: Deferred loan fees		(1,222	)		(847	)		(1,303	)		(1,249	)
Less: Deposits		(1,434	)		(1,497	)		(1,707	)		(1,510	)
Plus: Deferred origination expense		141			109
Plus: Deferred origination costs								303			308
Less: Allowance for loan losses		(158	)		(97	)		(233	)		(186	)

Loans receivable, net	$	42,541		$	30,043		$	49,991		$	46,490

The following is a roll forward of combined loans:

	Nine Months Ended September 30, 2018			Year Ended December 31, 2017			Nine Months Ended September 30, 2017			Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Beginning balance	$	30,043		$	20,091		$	20,091		$	46,490		$	30,043		$	30,043
Additions		30,606			33,451			24,099			13,403			54,145			14,476
Payoffs/sales		(22,260	)		(22,645	)		(13,810	)		(9,600	)		(32,899	)		(4,649	)
Moved to foreclosed assets		4,494			-			–
Transferred to foreclosed assets											–			(4,494	)		–
Change in deferred origination expense		31			55			26			(5	)		199			23
Change in builder deposit		64			(636	)		(626	)		(197	)		(12	)		(76	)
Change in loan loss provision		(61	)		(44	)		(34	)		(47	)		(89	)		(40	)
New loan fees		(2,194	)		(2,127	)		(1,494	)		(947	)		(2,949	)		(619	)
Earned loan fees		1,818			1,898			1,374			894			2,546			534
Ending balance	$	42,541		$	30,043		$	29,626		$	49,991		$	46,490		$	39,692

Finance Receivables – By risk rating:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018

Pass	$	40,103	$	25,656	$	47,941	$	43,402
Special mention		4,111		6,719		2,373		3,222
Classified - accruing		-		-
Classified – accruing						–		–
Classified – nonaccrual		1,000		-		2,617		2,503

Total	$	45,214	$	32,375	$	52,931	$	49,127

Finance Receivables – Method of impairment calculation:

	September 30, 2018		December 31, 2017		March 31, 2019		December 31, 2018

Performing loans evaluated individually	$	17,193	$	14,992	$	20,882	$	19,037
Performing loans evaluated collectively		27,021		17,383		29,432		27,587
Non-performing loans with a non-specific reserve		-		-
Non-performing loans without a specific reserve		1,000		-		2,311		2,204
Total	$	45,214	$	32,375
Non-performing loans with a specific reserve						306		299

Total evaluated collectively for loan losses					$	52,931	$	49,127

At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, there were no loans acquired with deteriorated credit quality.

Impaired Loans

The following is a summary of our impaired nonaccrual commercial construction loans as of ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017. All loans listed have a related allowance for loan losses:~~2018.

	September 30, 2018		December 31, 2017		March 31, 2019			December 31, 2018

Unpaid principal balance (contractual obligation from customer)	$	1,000	$	-	$	2,617		$	2,503
Charge-offs and payments applied		-		-		-			-
Gross value before related allowance		1,000		-		2,617			2,503
Related allowance		3		-		(29	)		(20	)
Value after allowance	$	997	$	-	$	2,588		$	2,483

Below is an aging schedule of ~~gross~~ loans receivable as of ~~September 30, 2018,~~March 31, 2019, 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) 237 44,482 98 %
60–89 days - - %
90–179 days 2 732 2 %
180–269 days - - - %

Subtotal 239 45,214 100 %

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

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

Total 239 45,214 100 %

~~Below is an aging schedule of gross loans receivable as of September 30, 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. 237 44,482 98 %
60–89 days - - - %
90–179 days 2 732 2 %
180–269 days - - - %

Subtotal 239 45,214 100 %

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

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

Total 239 45,214 100 %

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

	No. Accts.		Unpaid Balances		%			No. Loans		Unpaid Balances		%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days)		153	$	26,421		82	%		273	$	50,314		95	%
60–89 days		18		5,954		18	%
90–179 days		–		–		–	%
180–269 days		–		–		–	%
60-89 days									20		1,617		3	%
90-179 days									–		–		–	%
180-269 days									3		1,000		2	%

Subtotal		171	$	32,375		100	%		296	$	52,931		100	%

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

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

Total		171	$	32,375		100	%		296	$	52,931		100	%

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

	No. Loans		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.		273	$	50,314		95	%
60-89 days		20		1,617		3	%
90-179 days		–		–		–	%
180-269 days		3		1,000		2	%

Subtotal		296	$	52,931		100	%

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

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

Total		296	$	52,931		100	%

Below is an aging schedule of loans receivable as of December 31, ~~2017,~~2018, on a recency basis:

	No. Loans		Unpaid Balances		%
Current loans (current accounts and accounts on which more than 50% of an original contract payment was made in the last 59 days)		265	$	48,144		98	%
60-89 days		–		–		–	%
90-179 days		1		299		1	%
180-269 days		2		684		1	%

Subtotal		268	$	49,127		100	%

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

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

Total		268	$	49,127		100	%

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

	No. Accts.		Unpaid Balances		%			No. Loans		Unpaid Balances		%
Contractual Terms - All current Direct Loans and Sales Finance Contracts with installments past due less than 60 days from due date.		153	$	26,421		82	%		265	$	48,144		98	%
60–89 days		18		5,954		18	%
90–179 days		–		–		–	%
180–269 days		–		–		–	%
60-89 days									–		–		–	%
90-179 days									1		299		1	%
180-269 days									2		684		1	%

Subtotal		171	$	32,375		100	%		268	$	49,127		100	%

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

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

Total		171	$	32,375		100	%		268	$	49,127		100	%

Foreclosed Assets

Below is a roll forward of foreclosed assets:

	Nine Months Ended September 30, 2018			Year Ended December 31, 2017			Nine Months Ended September 30, 2017			Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Beginning balance	$	1,036		$	2,798		$	2,798		$	5,973		$	1,036		$	1,036
Additions from loans		4,737			-			-			-			4,738			-
Additions for construction/development		1,039			317			296			176			1,608			48
Sale proceeds		(370	)		(1,890	)		(1,890	)		-			(809	)		-
Gain on sale		-			77			77			-			-			-
Loss on sale		(3	)		-			-			-			(103	)		-
Gain on foreclosure		20			-			-			-			19			-
Loss on foreclosure		(47	)		-			-			-			(47	)		-
Impairment loss on foreclosed assets		(89	)		(266	)		(202	)		(80	)		(468	)		(5	)
Ending balance	$	6,323		$	1,036		$	1,079		$	6,069		$	5,973		$	1,079

During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we ~~recorded four deeds~~finished our largest foreclosed asset, a property in ~~lieu~~Sarasota, Florida, and listed it for sale. That property had an $80 impairment in the quarter. We also added $176 total for the construction/development of ~~foreclosure. Three of~~three properties: the ~~four were with a certain borrower with a completed home~~Sarasota property and two ~~lots. The fourth was with a borrower who defaulted on a loan by failing to make interest payments. In addition,~~homes we sold one of our foreclosed assets with sales proceeds of $370 and a loss on the sale of $3. During the quarter ended September 30, 2018, we recognized a gain on foreclosure of $20 on the two lots and a loss on foreclosure of $47 on the completed home.

~~During the first nine of months of 2018 we reclassified $4,737 to Foreclosed assets, $4,494 of which was principal from Loans receivable; net, and $243 of which was from Accrued interest receivable.~~are building Georgia.

Customer Interest Escrow

Below is a roll forward of interest escrow:

	Nine Months Ended September 30, 2018			Year Ended December 31, 2017			Nine Months Ended September 30, 2017			Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Beginning balance	$	935		$	812		$	812		$	939		$	935		$	935
Preferred equity dividends		93			115			86			33			125			30
Additions from Pennsylvania Loans		331			480			345
Additions from Pennsylvania loans											715			362			-
Additions from other loans		781			1,163			962			108			1,214			102
Interest, fees, principal or repaid to borrower		(1,263	)		(1,635	)		(1,354	)		(506	)		(1,697	)		(281	)
Ending balance	$	877		$	935		$	851		$	1,289		$	939		$	786

Related Party Borrowings

~~During June 2018, we entered into a First Amendment~~As of March 31, 2019, the Company had $1,108, $250, and $384 available to borrow against the line of credit ~~with our~~from Daniel M. Wallach (our Chief Executive Officer and chairman of the board of managers) and his wife, (the “Wallach LOC”) which modified the interest rate on the Wallach LOC to generally equal the prime rate plus 3%. The interest rate for the Wallach LOC was 8.0% and 4.4% as of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we had borrowed $0 against the Wallach LOC. Interest was $10 and $20 for the quarter and nine months ended September 30, 2018, respectively. As of September 30, 2018, there was $1,250 remaining availability on the Wallach LOC.

~~During June 2018, we entered into a First Amendment to~~ the line of credit ~~with~~from the 2007 Daniel M. Wallach Legacy Trust, ~~which is our CEO’s trust (the “Wallach Trust LOC”) which modified~~and the interest rate on the Wallach Trust LOC to generally equal the prime rate plus 3%. The interest rate for this borrowing was 8.0% and 4.4% as of September 30, 2018 and 2017, respectively. As of September 30, 2018, and 2017, we borrowed $0 against the Wallach Trust LOC. As of September 30, 2018, there was $250 remaining availability on the Wallach Trust LOC.

~~During June 2018, we entered into a~~ line of credit ~~agreement (the “Myrick LOC Agreement”) with our~~from William Myrick (our Executive Vice President of ~~Sales, William Myrick. Pursuant~~Sales), respectively. A more detailed description is included in Note 6 to the ~~Myrick LOC Agreement, Mr. Myrick provides us with a line~~2018 Financial Statements. These borrowings are in notes payable secured, net of ~~credit (the “Myrick LOC”) with~~deferred financing costs on the ~~following terms:~~interim condensed consolidated balance sheet.

	●	~~Principal not to exceed $1,000;~~
	●	~~Secured by a lien against all of our assets;~~
	●	~~Cost of funds to us of prime rate plus 3%; and~~
	●	~~Due upon demand.~~28

As of September 30, 2018, we had borrowed $0 against the Myrick LOC and there was $1,000 remaining in availability. Interest expense was $14 and $17 for the quarter and nine months ended September 30, 2018, respectively.

Secured Borrowings

~~Borrowings Secured by Loan Assets~~

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.

	●	~~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.~~

Lines of Credit

~~During July 2017, we entered into a line~~As of March 31, 2019 the Company had borrowed $758 on its lines of credit ~~agreement (the “Shuman LOC Agreement”) with~~from affiliates, which have a ~~group~~total limit of ~~lenders (collectively, “Shuman”). Pursuant to the Shuman LOC Agreement, Shuman provides us with a revolving line~~$2,500.

None of our lines of credit ~~(the “Shuman LOC”) with~~have given us notice of nonrenewal, and 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 2019, unless extended~~lines will continue to automatically renew unless notice is given by ~~Shuman for one or more additional 12-month periods.~~

~~The Shuman LOC was fully borrowed as of September 30, 2018. Interest expense was $33 and $100 for the quarter and nine months ended September 30, 2018, respectively.~~

~~During April 2018, we entered into~~ a Master Loan Modification Agreement (the “Swanson Modification Agreement”) with Paul Swanson which modified the Line of Credit Agreement between us and Mr. Swanson dated October 23, 2017. Pursuant to the Swanson Modification Agreement, Mr. Swanson provides us with a revolving line of credit (the “Swanson LOC”) with the following terms:

	●	~~Principal not to exceed $7,000;~~
	●	~~Secured with assignments of certain notes and mortgages;~~
	●	~~Cost of funds to us of 10%; and~~
	●	~~Automatic renewal in September 2018 and extended for 15 months.~~

~~The Swanson LOC was fully borrowed as of September 30, 2018. Interest expense was $180 and $445 for the quarter and nine months ended September 30, 2018, respectively.~~lender.

~~Mortgage Payable~~

~~During January 2018, we entered into a commercial mortgage on our office building with the following terms:~~

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

~~The principal amount of our commercial mortgage was $651 as of September 30, 2018. Interest expense was $9 and $27 for the quarter and nine months ended September 30, 2018, respectively.~~

~~London Loan~~Deferred Financing Costs

~~During September 2018, we entered into~~The following is a ~~Master Loan Agreement (“London Loan”) with London Financial Company, LLC (“London Financial”) with the following terms:~~roll forward of deferred financing costs:

	●	~~Principal of $3,250;~~
	●	~~Secured by collateral of land and improvements by a certain foreclosed asset;~~
	●	~~Cost of funds to us of 12%; and~~
	●	~~Due in September 2019.~~

	Three Months			Year			Three Months
	Ended			Ended			Ended
	March 31, 2019			December 31, 2018			March 31, 2018

Deferred financing costs, beginning balance	$	104		$	–		$	–
Additions		–			104			5
Deferred financing costs, ending balance	$	104		$	104		$	5
Less accumulated amortization		(50	)		(25	)		–
Deferred financing costs, net	$	54		$	79		$	5

Summary

The borrowings secured by loan assets are summarized below:

September 30, 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. $ 7,467 4,510 $ 7,483 $ 4,089
S.K. Funding 9,366 6,716 9,128 4,134

Lender
Shuman 1,575 1,325 1,747 1,325
Paul Swanson 5,965 4,380 2,518 2,096

Total $ 24,373 16,931 $ 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 2015 55 % Varies 9–9.5 %

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

	March 31, 2019				December 31, 2018
			Due from				Due from
	Book Value of Loans which		Shepherd’s Finance to Loan		Book Value of Loans which		Shepherd’s Finance to Loan
	Served as Collateral		Purchaser or Lender		Served as Collateral		Purchaser or Lender
Loan Purchaser
Builder Finance, Inc.	$	9,578	$	6,254	$	8,742	$	5,294
S.K. Funding, LLC		12,693		6,907		11,788		6,408

Lender
Stephen K. Shuman		1,855		1,325		2,051		1,325
Paul Swanson		9,476		7,000		8,079		5,986

Total	$	33,602	$	21,486	$	30,660	$	19,013

	Year	Typical Current Advance Rate			Does Buyer Portion
	Initiated	On New Loans			Have Priority?		Rate
Loan Purchaser
Builder Finance, Inc.	2014		75	%		Yes		The rate our customer pays us
S.K. Funding, LLC	2015		55	%		Varies		9-10.5	%

Lender
Stephen K. Shuman	2017		67	%		Yes		10	%
Paul Swanson	2017		67	%		Yes		10	%

Unsecured Borrowings

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

On March 22, 2019, the Company terminated its second public offering and commenced its third public third public offering of fixed rate subordinated notes (the “Notes”). The effective interest rate on borrowings through our Notes Program at March 31, 2019 and December 31, 2018 was 10.09% and 10.07%, 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 from 12 to 48 months from the date of issuance. The following table shows the roll forward of our Notes Program:

	Three Months Ended March 31, 2019			Year Ended December 31, 2018			Three Months Ended March 31, 2018

Gross Notes outstanding, beginning of period	$	17,348		$	14,121		$	14,121
Notes issued		3,532			9,645			1,309
Note repayments / redemptions		(2,049	)		(6,418	)		(1,645	)

Gross Notes outstanding, end of period	$	18,831		$	17,348		$	13,785

Less deferred financing costs, net		454			212			267

Notes outstanding, net	$	18,377		$	17,136		$	13,518

The following is a roll forward of deferred financing costs:

	Three Months			Year			Three Months
	Ended			Ended			Ended
	March 31, 2019			December 31, 2018			March 31, 2018

Deferred financing costs, beginning balance	$	1,212		$	1,102		$	1,102
Additions	$	282		$	117		$	29
Disposals		–			(7	)		–
Deferred financing costs, ending balance	$	1,494		$	1,212		$	1,131
Less accumulated amortization		(1,040	)		(1,000	)		(864	)
Deferred financing costs, net	$	454		$	212		$	267

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

	Three Months		Year		Three Months
	Ended		Ended		Ended
	March 31, 2019		December 31, 2018		March 31, 2018

Accumulated amortization, beginning balance	$	1,000	$	816	$	816
Additions		40		184		48
Accumulated amortization, ending balance	$	1,040	$	1,000	$	864

Other Unsecured Debts

Our other unsecured debts are detailed below:

						Principal Amount Outstanding as of				Maturity	Interest			Principal Amount Outstanding as of
Loan	Maturity Date		Interest Rate⁽¹⁾			September 30, 2018		December 31, 2017		Date	Rate⁽¹⁾			March 31, 2019		December 31, 2018
Unsecured Note with Seven Kings Holdings, Inc.		February 2019⁽²⁾		9.5	%		500		500	Demand⁽²⁾		9.5	%	$	500	$	500
Unsecured Line of Credit from Builder Finance, Inc.		January 2019		10.0	%		500		-	January 2020		10.0	%		500		500
Unsecured Line of Credit from Paul Swanson		April 2020⁽³⁾		9.0	%		2,621		1,904	March 2019		10.0	%		-		1,014
Subordinated Promissory Note		September 2019⁽⁴⁾		9.5	%		1,125		-	September 2019		9.5	%		1,125		1,125
Subordinated Promissory Note		December 2019		10.5	%		113		113	December 2019		10.5	%		113		113
Subordinated Promissory Note		April 2020		10.0	%		100		100	April 2020		10.0	%		100		100
Subordinated Promissory Notes										October 2019		10.0	%		150		150
Subordinated Promissory Note										August 2022		11.0	%		200		-
Subordinated Promissory Note		October 2019		10.0	%		150		-	September 2020⁽⁶⁾		11.0	%		169		-
Senior Subordinated Promissory Note		March 2022⁽⁴⁾		10.0	%		400		-	March 2022⁽³⁾		10.0	%		400		400
Senior Subordinated Promissory Note		March 2022⁽⁵⁾		1.0	%		728		-	March 2022⁽⁴⁾		1.0	%		728		728
Junior Subordinated Promissory Note		March 2022⁽⁵⁾		22.5	%		417		-	March 2022⁽⁴⁾		22.5	%		417		417
Senior Subordinated Promissory Note		October 2020⁽⁶⁾		1.0	%		279		279	October 2020⁽⁵⁾		1.0	%		279		279
Junior Subordinated Promissory Note		October 2020⁽⁶⁾		20.0	%		173		173	October 2020⁽⁵⁾		20.0	%		173		173
						$	7,106	$	3,069					$	4,854	$	5,499

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

⁽²⁾Due six months after lender gives notice.

⁽³⁾~~Automatically renewed in September 2018 and extended for 15 months.~~

⁽⁴⁾~~Due on the earlier of six months after lender gives notice or September 2019.~~

⁽⁴⁾Lender may require us to repay $20 of principal and all unpaid interest with 10 days’ notice.

⁽⁵⁾⁽⁴⁾These notes were issued to the same holder and, when calculated together, yield a blended return of 11% per annum.

⁽⁶⁾⁽⁵⁾These notes were issued to the same holder and, when calculated together, yield a blended return of 10% per annum.

⁽⁶⁾Due one month after lender gives notice, which notice may not be given prior to August 1, 2020.

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

The effective interest rate on the Notes offered pursuant to the Notes Program at September 30, 2018 and December 31, 2017 was 9.83% 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:

Nine Months
Ended
September 30,
2018
Year
Ended
December 31,
2017
Nine Months
Ended
September 30,
2017

Gross Notes outstanding, beginning of period $ 14,121 $ 11,221 $ 11,221
Notes issued 6,357 8,375 8,105
Note repayments / redemptions (2,503 ) (5,475 ) (5,087 )

Gross Notes outstanding, end of period $ 17,975 $ 14,121 $ 14,239

Less deferred financing costs, net 233 286 330

Notes outstanding, net $ 17,742 $ 13,835 $ 13,909

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

Nine Months Year Nine Months
Ended Ended Ended
September 30,
2018 December 31,
2017 September 30,
2017

Deferred financing costs, beginning balance $ 1,102 $ 1,014 $ 1,014
Additions 89 88 40
Deferred financing costs, ending balance $ 1,191 $ 1,102 $ 1,054
Less accumulated amortization (958 ) (816 ) (724 )
Deferred financing costs, net $ 233 $ 286 $ 330

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

Nine Months Year Nine Months
Ended Ended Ended
September 30,
2018 December 31,
2017 September 30,
2017

Accumulated amortization, beginning balance $ 816 $ 603 $ 603
Additions 142 213 121
Accumulated amortization, ending balance $ 958 $ 816 $ 724

Redeemable Preferred Equity and Members’ Capital

On July 31, 2018, we redeemed all of our outstanding Series C cumulative preferred units (“Series C Preferred Units”), which were held by two investors. On August 1, 2018, we sold 12 of our Series C Preferred Units to Daniel M. Wallach, our CEO and Chairman of our board of managers, and his wife, Joyce S. Wallach, for the total price of $1,200. In addition, on August 30, 2018, we sold two Series C Preferred Units to two investors for the total price of $200.

We strive to maintain a reasonable (about 15%) balance between (1) redeemable preferred equity plus members’ capital and (2) total assets. The ratio of redeemable preferred equity plus members’ capital to assets was ~~10%~~11% as of ~~September 30, 2018~~March 31, 2019 and ~~13%~~12% as of December 31, ~~2017.~~2018. We anticipate this ratio ~~dropping~~further decreasing until more preferred equity is added. We are currently exploring potential increases in preferred equity.

In January 2018, our Chief Financial Officer and Executive Vice President of Operations purchased 2% and 1% of our Class A common units, respectively, from our CEO. In March 2018, our Executive Vice President of 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
September 30,
2018 December 31,
2017
Borrowing Source
Borrowings secured by loan assets 1 $ 16,931 $ 11,644
Other secured borrowings 2 3,511 -
Unsecured line of credit (senior) 3 500 -
Other unsecured borrowings (senior subordinated) 4 1,008 279
Unsecured Notes through our Notes Program, gross 5 17,975 14,121
Other unsecured borrowings (subordinated) 5 5,008 2,617
Other unsecured borrowings (junior subordinated) 6 590 173
Total $ 45,523 $ 28,834

	Priority Rank		March 31, 2019		December 31, 2018
Borrowing Source
Purchase and sale agreements and other secured borrowings		1	$	25,382	$	22,521
Secured lines of credit from affiliates		2		758		816
Unsecured line of credit (senior)		3		500		500
Other unsecured debt (senior subordinated)		4		1,008		1,008
Unsecured Notes through our public offering, gross		5		18,831		17,348
Other unsecured debt (subordinated)		5		2,756		3,401
Other unsecured debt (junior subordinated)		6		590		590

Total			$	49,825	$	46,184

Liquidity and Capital Resources

Our primary liquidity management objective is to meet expected cash flow needs while continuing to service our business and customers. As of ~~September 30, 2018,~~March 31, 2019 and December 31, ~~2017,~~2018, we had ~~239~~296 and ~~171,~~268, respectively, in combined loans outstanding, which totaled ~~$45,214~~$52,931 and ~~$32,375,~~$49,127, respectively, in gross loan receivables outstanding. Unfunded commitments to extend credit, which have similar collateral, credit and market risk to our outstanding loans, were ~~$22,163~~$30,422 and ~~$19,312~~$25,258 as ~~of September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively. We anticipate a significant increase in our gross loan receivables over the 12 months subsequent to ~~September 30, 2018~~March 31, 2019 by directly increasing originations to new and existing customers.

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

Source of Liquidity
As of
September 30, 2018
As of
December 31, 2017
Secured debt $ 20,338 $ 11,644
Unsecured debt 24,847 16,904
Equity 5,302 4,783

Source of Liquidity	As of March 31, 2019		As of December 31, 2018
Secured debt	$	26,085	$	23,258
Unsecured debt		23,231		22,635
Equity		6,461		6,082

Secured debt, net of deferred financing costs increased ~~$8,694~~$2,827 during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, which consisted of an increase in borrowings secured by loans and foreclosed assets ~~and~~of $2,886 offset by a ~~mortgage payable~~decrease in affiliate lines of ~~$8,043 and $651, respectively.~~$59. We anticipate increasing our secured debt by roughly half of the increase in loan asset balances over the 12 months subsequent to ~~September 30, 2018~~March 31, 2019 through our existing loan purchase and sale ~~agreements.~~agreements and additional lines of credit.

~~The~~We anticipate that the other half of the loan asset growth will come from a combination of increases in our unsecured debt and equity. Unsecured debt, net of deferred financing costs increased ~~$7,943~~$596 during the ~~nine~~three months ended ~~September 30, 2018, which consisted~~March 31, 2019, unsecured debt, net of deferred financing costs changed due to an increase in our Notes ~~Program~~program of ~~$3,854 and an increase~~$1,241, which was offset by a decrease in other unsecured debt of $645. The change in other unsecured debt was due to the ~~balances~~elimination of the of unsecured ~~lines~~portion of the line of credit from Paul Swanson of ~~$4,037.~~$1,014, which was off set by two new promissory notes of $369. We anticipate an increase in our unsecured debt through increased sales in the Notes Program to cover most of the increase in loan assets not covered by increases in our secured debt during the 12 months subsequent to ~~September 30, 2018.~~March 31, 2019.

Equity increased ~~$519~~$379 during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, which consisted of an increase in Series C cumulative preferred units (“Series C Preferred Units”), Series B cumulative preferred units, and Class A common equity of ~~$329, $80,~~$72, $60, and ~~$110,~~$247, respectively. We anticipate an increase in our equity during the 12 months subsequent to ~~September 30, 2018~~March 31, 2019, through the issuance of additional Series C Preferred Units. During the year ended December 31, ~~2017,~~2018, we increased the amount of Series C Preferred Units outstanding by ~~$1,097.~~$1,288. If we are not able to increase our equity through the issuance of additional Series C Preferred Units, we will ~~then attempt to raise~~rely more heavily on raising additional funds through the Notes Program. If we anticipate the ability to not fund our projected increases in loan balances as discussed above, we may reduce new loan originations to reduce need for additional funds.

~~Cash provided by operations was $1,640 as of September 30, 2018 as compared to $1,163 for the same period of 2017. Our increase in operating cash flow was primarily due to higher loan originations.~~

Contractual Obligations

The following table shows the maturity of ~~our~~ outstanding debt as of ~~September 30, 2018:~~March 31, 2019:

Year Maturing
Total
Amount
Maturing
Public
Offering Other Unsecured Secured Borrowings

2018 $ 18,254 $ 1,259 $ 60 $ 16,935
2019 12,888 7,386 2,628 2,874
2020 6,723 3,436 3,272 15
2021 3,789 3,773 - 16
2022 and thereafter 3,869 2,121 1,146 602
Total $ 45,523 $ 17,975 $ 7,106 $ 20,442

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured		Secured Borrowings
2019	$	32,914	$	5,521	$	1,887	$	25,506
2020		5,073		4,006		1,052		15
2021		7,202		7,187		-		15
2022		3,841		2,079		1,746		16
2023 and thereafter		795		38		169		588
Total	$	49,825	$	18,831	$	4,854	$	26,140

The total amount maturing through year ending December 31, 2019 is ~~$31,142,~~$32,914, which consists of secured borrowings of ~~$19,809~~$25,506 and unsecured borrowings of ~~$11,333.~~$7,408.

Secured borrowings maturing through year ending December 31, 2019 significantly consists of loan purchase and sale agreements with two loan purchasers (Builder Finance, Inc. and S. K. ~~Funding)~~Funding, LLC) and two lenders (Stephen K. Shuman and Paul Swanson). Our secured borrowings are mostly showing as due by 2019 because the related collateral is demand loans. The following lists our secured facilities with maturity and renewal dates:

	●	Swanson – ~~$4,380~~$7,000 due April ~~2020;~~2020, will automatically renew unless notice is given;
	●	Shuman – $1,325 due July ~~2019;~~2019, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – $3,500 of the total due July ~~2019;~~2019, will automatically renew unless notice is given;
	●	S. K. Funding, LLC – $3,408 no expiration date;
	●	~~1st~~Builder~~Financial Bank USA~~Finance, Inc. – ~~$4,510~~$6,254 no expiration date; ~~and~~
	●	London Financial Company, LLC – ~~$2,860~~$3,250 due September ~~2019.~~2019, renewal available;
	●	Wallach LOC – $142 no expiration date;
	●	Myrick LOC – $616 no expiration date; and
	●	Mortgage payable – $645.

Unsecured borrowings due on December 31, 2019 consist of Notes issued pursuant to the Notes Program and other unsecured debt of ~~$8,645~~$5,521 and ~~$2,688,~~$1,887, respectively. To the extent that Notes issued pursuant to the Notes Program are not ~~renewed~~reinvested upon maturity, we will be required to fund the maturities, which we anticipate funding through the issuance of new Notes in our Notes Program. Historically, approximately ~~75%~~82% of our Note holders ~~renew their investment.~~reinvest upon maturity. Our other unsecured debt has historically renewed. For more information on other unsecured borrowings, see Note 5 – Borrowings. If other unsecured borrowings are not renewed in the future, we anticipate funding such maturities through investments in our Notes Program.

Summary

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

Inflation, Interest Rates, and Housing Starts

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

Housing inflation generally has a positive impact on our operations. When we lend initially, we are lending a percentage of a home’s expected value, based on historical sales. If those estimates prove to be low (in an inflationary market), the percentage we loaned of the value actually decreases, reducing potential losses on defaulted loans. The opposite is true in a deflationary housing price market. It is our opinion that values are average in many of the housing markets in the U.S. today, and our lending against these values is safer than loans made by financial institutions in 2006 to 2008.

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

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 ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, 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 ~~CEO~~Chief Executive Officer (our principal executive officer) and ~~CFO~~Chief Financial Officer (our principal financial officer) evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our CEO (our principal executive officer) and CFO (our principal financial officer) concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our CEO (our principal executive officer) and CFO (our principal financial officer), as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

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 thereThere has been no change in our internal controls over financial reporting during the quarter ~~and nine months~~ ended ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable.

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

(a)

Reinvestments in Partial Series C Cumulative Preferred Units

Investors in the Series C cumulative preferred units (“Series C Preferred Units”) may elect to reinvest their distributions in additional Series C Preferred Units (the “Series C Reinvestment Program”). Pursuant to the Series C Reinvestment Program, ~~on January 31, 2018,~~ we issued ~~approximately 0.0474022 of a~~the following Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,740.22, and approximately 0.0601630 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,016.30.

On February 28, 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 0.0607647 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,076.47.

OnUnits on March 31, 2018, we issued approximately 0.0483550 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,835.50, and approximately 0.0613723 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,137.23.2019:

Owner	Units		Amount
Daniel M. and Joyce S. Wallach		0.3821598	$	38,215.98
Gregory L. Sheldon		0.0630627		6,306.27
BLDR, LLC		0.1236402		12,364.02
Schultz Family Living Trust		0.0307570		3,075.70
Jeffrey L. Eppinger		0.1230281		12,302.81

On April 30, 2018, we issued approximately 0.0488386 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,883.86, and approximately 0.06198.60 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,198.60.

On May 31, 2018, we issued approximately 0.0493269 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,932.69, and approximately 0.0626059 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,260.59.

On June 30, 2018, we issued approximately 0.0498202 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $4,982.02, and approximately 0.0632320 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,323.20.

On July 31, 2018, we issued approximately 0.0503184 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $5,031.84 and approximately 0.0638643 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,386.43.

On August 31, 2018, we issued approximately 0.0508216 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $5,082.16, and approximately 0.0645029 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,450.29.

On September 30, 2018, we issued approximately 0.0513298 of a Series C Preferred Unit to Margaret Rauscher IRA LLC in exchange for distribution proceeds of approximately $5,132.98, and approximately 0.06514.79 of a Series C Preferred Unit to an IRA owned by William Myrick in exchange for distribution proceeds of approximately $6,514.79.

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

Issuance of Partial Series CB Cumulative Preferred Units
We previously entered into an agreement with the Hoskins Group (consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark L. Hoskins) pursuant to which we sell the Hoskins Group 0.1 Series B cumulative preferred units (“Series B Preferred Units”) upon the closing of certain lots. We issued 0.5 Series B Preferred Units to ~~Daniel M. Wallach~~the Hoskins Group on January 30, 2019 for $50,000, and ~~Joyce S. Wallach~~
~~On August 1, 2018, we sold 12~~0.1 Series CB Preferred Units to ~~Daniel M. Wallach, our Chief Executive Officer and Chairman of our board of managers, and his wife, Joyce S. Wallach,~~the Hoskins Group on January 31, 2019 for ~~the total price of $1,200,000.~~ $10,000.
The proceeds received from the ~~sale~~sales of the Series CB Preferred Units in ~~this transaction~~those transactions were used for the funding of construction loans. ~~This transaction was a~~The transactions in Series B Preferred Units described above were effected in private ~~transaction~~transactions exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. ~~This transaction~~The transactions described above did not involve any public offering, ~~was~~were made without general solicitation or advertising, and the buyers represented to ~~the~~ us that they ~~were each~~are an “accredited ~~investor” as defined~~investor’’ within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series ~~C Preferred Units.~~
~~Other Issuance of Series C Preferred Units~~
On August 30, 2018, we sold two Series C Preferred Units to two investors for the total price of $200,000. The proceeds received from the sale of the Series C Preferred Units in this transaction were used for the funding of construction loans This transaction was a private transaction exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. This transaction did not involve any public offering, was made without general solicitation or advertising, and the buyers represented to the us that they were each an “accredited investor” as defined under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series CB Preferred Units.

(b) We registered up to $70,000,000 in Fixed Rate Subordinated Notes (“Notes”) in our current public offering, which is our third public offering of Notes (SEC File No. ~~333-203707,~~333-224557, effective ~~September 29, 2015)~~March 22, 2019). As of ~~September 30, 2018,~~March 31, 2019, we had issued ~~$20,672,000~~$821,333 in Notes pursuant to ~~that~~our current public offering. From ~~September 29, 2015~~March 22, 2019 through ~~September 30, 2018,~~March 31, 2019, we incurred expenses of ~~$275,000~~$45,800 in connection with the issuance and distribution of the Notes in our current public offering, which were paid to third parties. These expenses were not for underwriters or discounts, but were for advertising, printing, and professional services. Net offering proceeds as of March 31, 2019 were $775,533, all of which was used to increase loan balances.
Our prior public offering, which was our second public offering of Notes (SEC File No. 333-203707, effective September ~~30, 2018~~29, 2015), terminated on March 22, 2019. As of March 22, 2019, we had issued $17,359,768 in Notes pursuant to our second public offering. From September 29, 2015 through March 22, 2019, we incurred expenses of $298,679 in connection with the issuance and distribution of the Notes in our second public offering, which were ~~$20,397,000, 100%~~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 22, 2019 were $17,061,089 all of which was used to increase loan balances.

(c) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

	(a)	During the quarter ended ~~September 30, 2018,~~March 31, 2019, there was no information required to be disclosed in a report on Form 8-K which was not disclosed in a report on Form 8-K.

	(b)	During the quarter ended ~~September 30, 2018,~~March 31, 2019, 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 ~~September 30, 2018~~March 31, 2019 (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 of the Registrant, incorporated by reference to Exhibit 3.1 to the ~~Company’s~~Registrant’s Form 8-K, filed on November 13, 2017, Commission File No. 333-203707

3.4*		Amendment No. 1 to the Registrant’s Second Amended and Restated Operating Agreement, dated as of March 21, 2019

4.1		Indenture Agreement (including Form of Note) dated ~~September 29, 2015,~~March 22, 2019, incorporated by reference to Exhibit 4.1 to the ~~Company’s~~Registrant’s Post-Effective Amendment No. 1, filed on ~~September 29, 2015,~~March 22, 2019, Commission File No. ~~333-203707~~333-224557

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

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

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

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


101.INS^**		XBRL Instance Document

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: ~~November 8, 2018~~May 9, 2019	By:	/s/ Catherine Loftin
		Catherine Loftin
		Chief Financial Officer

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

Foreclosed assets	$	6,323	$	6,323	$	-	$	-	$	6,323
Impaired Loans		1,000		997		-		-		997

Year Maturing	Total Amount Maturing		Public Offering		Other Unsecured		Secured Borrowings

2018	$	18,254	$	1,259	$	60	$	16,935
2019		12,888		7,386		2,628		2,874
2020		6,723		3,436		3,272		15
2021		3,789		3,773		-		16
2022 and thereafter		3,869		2,121		1,146		602
Total	$	45,523	$	17,975	$	7,106	$	20,442

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

Net Interest Income after Loan Loss Provision	$	904	$	996	$	926	$	802	$	917	$	725	$	617
Non-Interest Income		20		-		-		–		–		–		77
SG&A expense		680		691		617		643		537		456		454
Depreciation and Amortization		23		21		17		–		–		–		6
Loss from sale of foreclosed assets		3		-		-		-		-		-		-
Non-Interest Expense		47		-		-		-		-		-		-
Impairment loss on foreclosed assets		4		80		5		64		47		106		49
Net Income	$	167	$	204	$	287	$	95	$	333	$	163	$	191

State	Number of Borrowers		Number of Loans		Value of Collateral⁽¹⁾		Commitment Amount		Gross Amount Outstanding		Loan to Value Ratio⁽²⁾			Loan Fee
Colorado		3		7		3,878		2,684		2,096		69	%		5	%
Florida		18		73		24,789		17,463		10,349		70	%		5	%
Georgia		7		9		6,955		4,781		3,830		69	%		5	%
Idaho		1		2		605		424		53		70	%		5	%
Indiana		2		7		2,124		1,486		699		70	%		5	%
Michigan		4		28		6,303		4,205		2,501		67	%		5	%
New Jersey		5		16		5,295		3,645		2,741		69	%		5	%
New York		1		3		915		641		555		70	%		5	%
North Carolina		5		12		4,196		2,872		1,429		68	%		5	%
North Dakota		1		1		375		263		227		70	%		5	%
Ohio		1		2		1,620		1,000		902		62	%		5	%
Pennsylvania		3		32		23,055		13,184		9,740		57	%		5	%
South Carolina		12		29		8,319		5,823		3,648		70	%		5	%
Tennessee		1		2		750		525		310		70	%		5	%
Utah		1		1		485		319		107		66	%		5	%
Virginia		3		8		2,325		1,628		992		70	%		5	%
Total		68		232	$	91,989	$	60,943	$	40,179		66	%⁽³⁾		5	%

			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		2015		55	%		Varies	9–9.5	%

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

	Priority Rank		September 30, 2018		December 31, 2017
Borrowing Source
Borrowings secured by loan assets		1	$	16,931	$	11,644
Other secured borrowings		2		3,511		-
Unsecured line of credit (senior)		3		500		-
Other unsecured borrowings (senior subordinated)		4		1,008		279
Unsecured Notes through our Notes Program, gross		5		17,975		14,121
Other unsecured borrowings (subordinated)		5		5,008		2,617
Other unsecured borrowings (junior subordinated)		6		590		173
Total			$	45,523	$	28,834

Source of Liquidity	As of September 30, 2018		As of December 31, 2017
Secured debt	$	20,338	$	11,644
Unsecured debt		24,847		16,904
Equity		5,302		4,783


		*Issuance of Partial Series CB Cumulative Preferred Units* We previously entered into an agreement with the Hoskins Group (consisting of Benjamin Marcus Homes, LLC, Investor’s Mark Acquisitions, LLC, and Mark L. Hoskins) pursuant to which we sell the Hoskins Group 0.1 Series B cumulative preferred units (“Series B Preferred Units”) upon the closing of certain lots. We issued 0.5 Series B Preferred Units to ~~Daniel M. Wallach~~the Hoskins Group on January 30, 2019 for $50,000, and ~~Joyce S. Wallach~~ ~~On August 1, 2018, we sold 12~~0.1 Series CB Preferred Units to ~~Daniel M. Wallach, our Chief Executive Officer and Chairman of our board of managers, and his wife, Joyce S. Wallach,~~the Hoskins Group on January 31, 2019 for ~~the total price of $1,200,000.~~ $10,000. The proceeds received from the ~~sale~~sales of the Series CB Preferred Units in ~~this transaction~~those transactions were used for the funding of construction loans. ~~This transaction was a~~The transactions in Series B Preferred Units described above were effected in private ~~transaction~~transactions exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. ~~This transaction~~The transactions described above did not involve any public offering, ~~was~~were made without general solicitation or advertising, and the buyers represented to ~~the~~ us that they ~~were each~~are an “accredited ~~investor” as defined~~investor’’ within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series ~~C Preferred Units.~~ *~~Other Issuance of Series C Preferred Units~~* On August 30, 2018, we sold two Series C Preferred Units to two investors for the total price of $200,000. The proceeds received from the sale of the Series C Preferred Units in this transaction were used for the funding of construction loans This transaction was a private transaction exempt from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act. This transaction did not involve any public offering, was made without general solicitation or advertising, and the buyers represented to the us that they were each an “accredited investor” as defined under the Securities Act, with access to all relevant information necessary to evaluate the investment in the Series CB Preferred Units.

	(b)	We registered up to $70,000,000 in Fixed Rate Subordinated Notes (“Notes”) in our current public offering, which is our third public offering of Notes (SEC File No. ~~333-203707,~~333-224557, effective ~~September 29, 2015)~~March 22, 2019). As of ~~September 30, 2018,~~March 31, 2019, we had issued ~~$20,672,000~~$821,333 in Notes pursuant to ~~that~~our current public offering. From ~~September 29, 2015~~March 22, 2019 through ~~September 30, 2018,~~March 31, 2019, we incurred expenses of ~~$275,000~~$45,800 in connection with the issuance and distribution of the Notes in our current public offering, which were paid to third parties. These expenses were not for underwriters or discounts, but were for advertising, printing, and professional services. Net offering proceeds as of March 31, 2019 were $775,533, all of which was used to increase loan balances.

		Our prior public offering, which was our second public offering of Notes (SEC File No. 333-203707, effective September ~~30, 2018~~29, 2015), terminated on March 22, 2019. As of March 22, 2019, we had issued $17,359,768 in Notes pursuant to our second public offering. From September 29, 2015 through March 22, 2019, we incurred expenses of $298,679 in connection with the issuance and distribution of the Notes in our second public offering, which were ~~$20,397,000, 100%~~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 22, 2019 were $17,061,089 all of which was used to increase loan balances.

	(c)	None.