Filed pursuant to Rule 424(b)(3)

File No. 333-224557

SHEPHERD’S FINANCE, LLC

SUPPLEMENT NO. 2 DATED May 20, 2020

TO THE PROSPECTUS DATED April 22, 2020

This document supplements, and should be read in conjunction with, the prospectus of Shepherd’s Finance, LLC (the “Company,” “we,” or “our”) dated April 22, 2020 and Supplement No. 1 dated May 4, 2020. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.

The purpose of this supplement is to disclose:

Status of Our Offering

We commenced this offering of Fixed Rate Subordinated Notes (“Notes”), which is our second follow-on offering of Notes (our “Current Offering”), on March 22, 2019. As of May 15, 2020, we have issued approximately $14.6 million of Notes in our Current Offering. As of May 15, 2020, approximately $55.4 million of Notes remain available for sale to the public under our Current Offering. The Current Offering will not last beyond March 22, 2021, which is two years after the effective date of this Current Offering, unless extended by our board of managers as permitted under applicable law. We also reserve the right to terminate the Current Offering at any time.

We commenced our initial public offering of Notes on October 4, 2012. On September 29, 2015, we terminated our initial public offering, having issued approximately $8.25 million in Notes. We commenced our first follow-on offering of Notes (our “First Follow-on Offering”) on September 29, 2015. On March 22, 2019, we terminated our First Follow-on Offering, having issued approximately $29.99 million in Notes.

Update Regarding Our Lending Policies and Response to COVID-19

As previously disclosed, we face risks related to the novel coronavirus (COVID-19), which continues to cause significant disruptions to the economy. As previously disclosed, we have made certain changes to our lending policies in response to COVID-19.

On May 7, 2020, the Company made the decision to reopen lending under normal, pre-COVID-19 terms for a limited group of certain of its customers. In addition, the decision was made to allow rehab loans to builders at terms that are less conservative than the 50% loan to value established in April 2020 but more conservative than terms prior to the arrival of COVID-19. As a result of this and the other changes to our lending policies previously disclosed, the committed amount on the remaining loans that we have not released for construction to begin is $4 million with $3 million unfunded as of May 15, 2020.

On May 5, 2020, we entered into an agreement to borrow approximately $0.4 million pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. The loan has an interest rate of 1.0% and a term of 24 months. No payments are due for the first 6 months, although interest accrues, and monthly payments, which include interest, are due over the next 18 months to pay off the loan. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan may be forgivable, as provided by the terms of the PPP. The loan is evidenced by a promissory note, which contains customary events of default relating to, among other things, payment defaults and breaches of representations. We may prepay the loan at any time prior to maturity with no prepayment penalties.

We plan on continuously monitoring the markets, builders, and the COVID-19 situation for the remaining loans which we have not yet released for construction. Our management anticipates revisiting these lending parameters in the next several weeks as the COVID-19 situation continues to develop.

Our business, financial condition, liquidity, results of operations, and prospects, including our ability to repay the Notes, could be adversely impacted by COVID-19. The ultimate extent of the impact of the COVID-19 outbreak on our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the COVID-19 outbreak and the actions to contain or treat its impact, among others.

All references in our prospectus to our lending policies, COVID-19, and our response to COVID-19 are hereby updated accordingly.

Update to “Risk Factors”

The first risk factor on page 16 of the prospectus is hereby replaced with the following:

We face risks related to an epidemic, pandemic or other health crisis, such as the recent outbreak of the novel coronavirus (COVID-19), which could have a material adverse effect on our business, financial condition, liquidity, results of operations, and prospects.

We face risks related to an epidemic, pandemic, or other health crisis. COVID-19 has spread globally and the outbreak has caused significant disruptions to the economy. Infections have been reported in all of the markets in which we lend. Our operating results depend significantly on the homebuilding industry. The outbreak has caused weakness in national, regional, and local economies, and has decreased the demand for sales of homes in some areas. It may cause additional decreases in demand for the sales of homes in those areas and others in the future, which could negatively affect our homebuilding customers and their ability to repay our loans. In such event, our business, financial condition, liquidity, results of operations, and prospects could be adversely impacted, including our ability to repay our Notes. The ultimate extent of the impact of the COVID-19 outbreak on our business, financial condition, liquidity, results of operations, and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the COVID-19 outbreak and the actions to contain or treat its impact, among others.

As a result of the potential impact of COVID-19, we suspended originations of new loans as of March 20, 2020 in order to maintain our liquidity and based on our expectation that home values will likely decrease in the near future. As of May 15, 2020, we have approximately $14.3 million in unfunded commitments to builders. We initially told all of our borrowers that we will fund all loans where the underlying home is already under construction, and advised them to build as quickly as possible to bring the homes on the market as soon as possible. For loans where the borrower has not yet begun construction of the underlying home, we initially told them that we would not fund construction and they should therefore not start construction.

Recently, and as described above, we made the strategic decision to fund certain of our loans. Management anticipates revisiting these lending parameters during May 2020 as the COVID-19 situation continues to develop.

Update to “Business”

The following is hereby added as a new subsection in the “Business — Debt Summary and Sources of Liquidity” section of the prospectus:

Paycheck Protection Program Loan

On May 5, 2020, we entered into an agreement to borrow approximately $0.4 million pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. The loan has an interest rate of 1.0% and a term of 24 months. No payments are due for the first 6 months, although interest accrues, and monthly payments, which include interest, are due over the next 18 months to pay off the loan. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan may be forgivable, as provided by the terms of the PPP. The loan is evidenced by a promissory note, which contains customary events of default relating to, among other things, payment defaults and breaches of representations. We may prepay the loan at any time prior to maturity with no prepayment penalties.

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 supplement. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with our audited annual consolidated financial statements and related notes and other consolidated financial data (the “2019 Financial Statements”) included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

Overview

The Company faces risks related to COVID-19, which has caused significant disruptions to the economy. COVID-19 has spread globally and the outbreak has caused significant disruptions to the economy, including in the United States and in all of the markets in which the Company lends. The Company’s operating results depend significantly on the homebuilding industry.

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

During April 2020, as the Company continued to monitor market conditions overall and in the specific markets in which the Company lends, the Company observed that some markets had little to no impact from a housing perspective as a result of COVID-19; however, the Company’s borrowers in Pennsylvania and Michigan were significantly impacted due to the government shutting down home construction completely. The Company made the decision to fund new loans to borrowers in stronger markets for the purpose of developing presold homes, which loans have reduced loan-to-value ratios. In addition, the Company will continue to monitor funding spec loans in some markets on a case-by-case basis for loans with reduced loan -to-value ratios.

On May 7, 2020, the Company made the decision to reopen lending under normal, pre-COVID-19 terms for a limited group of certain of its customers. In addition, the decision was made to allow rehab loans to builders at terms that are less conservative than the 50% loan to value established in April 2020 but more conservative than terms prior to the arrival of COVID-19.

Net income for the first quarter of 2020 decreased by $270 when compared to the same period of 2019. The decrease in net income was primarily due to the following:

We had $54,197 and $55,369 in loan assets as of March 31, 2020 and December 31, 2019, respectively. In addition, as of March 31, 2020, we had 218 construction loans in 21 states with 67 borrowers and nine development loans in four states with five borrowers.

Cash used in operations decreased $1,019 for three months ended March 31, 2020 as compared to the same period of 2019. Our decrease in operating cash flow was due primarily to a decrease in interest escrow of $349, net income of $270 and change in loan origination fees, net of $250.

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 2019 Form 10-K, as filed with the SEC, for more information on our critical accounting estimates. No material changes to our critical accounting estimates have occurred since December 31, 2019 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.

* 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 $54,197.

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).

* 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 $5,031.

Interest Spread

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

*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 7%. For most loans, the margin is fixed at 3%; however, for our development loans the margin is fixed at 7%. This component is also impacted by the lending of money with no interest cost (our equity).

Interest income on loans increased 1% for the quarter ended March 31, 2020 compared to the same period of 2019 due primarily to our cost of funds. During the quarter ended March 31, 2020 and 2019, our cost of funds was 10.69% and 10.45%, respectively. In addition, loans receivables, net increased $4,206 to $54,197 as of March 31, 2020 compared to $49,991 as of March 31, 2019. The difference between interest rate received on loans and the interest paid was 3% for both the periods ended March 31, 2020 and 2019 which is our standard margin.

We currently anticipate that the difference between our interest income and interest expense will continue to be 3% for the remainder of 2020, however our margin could be compressed as a result of COVID-19. 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%.

● Fee income. Our construction loan fee is 5% on the amount we commit to lend, which is amortized over the expected life of each loans. In addition, our development loans do not recognize a loan fee. When loans terminate before than their expected life, the remaining fee is recognized at the termination of the loan. During the quarter ended March 31, 2019, our fee income included a modification charge to our largest customer of $125. Excluding the modification charge, fee income on loans for the quarter ended March 31, 2019 was 5%. During the first quarter of 2020, our lower origination of new loans (partly due to competition and partly due to the COVID-19) caused the reduction to 4% for fee income in that quarter. Higher originations or a reduction in the balance of old loans will result in the fee income returning to 5%.

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

As of March 31, 2020 and 2019, $1,581 and $2,617 loans were not paying interest, respectively. As of late April 2020, and directly related to COVID-19, one of our customers in default located in Orlando, Florida entered into negotiations to sell half of his loans to another of our customers. We are working with the customer with respect to the remainder of his loans either through a deed in lieu of foreclosure or a foreclosure.

Foreclosed assets do not provide a monthly interest return. As of March 31, 2020 and 2019, foreclosed assets were $5,031 and $6,069, respectively, which resulted in a negative impact on our interest spread in both years.

The amount of nonperforming assets is expected to increase over the next quarter due to some of the nonperforming loans becoming foreclosed assets, and will decrease as we continue to sell our assets where construction is complete.

SG&A Expenses

The following table displays our SG&A expenses:

Our SG&A expense increased $84 for the quarter ended March 31, 2020 compared to the same period of 2019 due significantly to the following:

Impairment Loss on Foreclosed Assets

As of March 31, 2020 and 2019, impaired loss on foreclosed assets was $109 and $80, respectively. The increase in foreclosed assets was directly related to properties acquired back due to the death of a borrower in 2018. During the quarter ended March 31, 2019, we finished our largest foreclosed asset in Sarasota, Florida and recorded an impairment of $80 during the quarter on that property.

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.

Loan Loss Provision

Our loan loss provision decreased $12 for the quarter ended March 31, 2020, compared to the same periods of 2019. The decrease in loan loss provision was primarily due to the reduction in loan loss provision for our collective reserve of $46, which was offset by an increase in loans with a specific reserve of $34. The increase in our specific reserve related to additional impairment on two of our assets.

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 March 31, 2020:

The following is a summary of our loan portfolio to builders for home construction loans as of December 31, 2019:

Commercial Loans – Real Estate Development Loan Portfolio Summary

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

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

Combined Loan Portfolio Summary

Financing receivables are comprised of the following as of March 31, 2020 and December 31, 2019:

The following is a roll forward of combined loans:

Finance Receivables – By risk rating:

Finance Receivables – Method of impairment calculation:

At March 31, 2020 and December 31, 2019, there were no loans acquired with deteriorated credit quality.

Impaired Loans

The following is a summary of our impaired nonaccrual commercial construction loans as of March 31, 2020 and December 31, 2019.

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

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

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

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

Foreclosed Assets

Below is a roll forward of foreclosed assets:

During the quarter ended March 31, 2020, we impaired eight of our 32 foreclosed assets which related to assets received into foreclosure due to the death of a borrower in 2018. In addition, we sold one of our foreclosed assets for proceeds of $185 and a loss of $35.

Customer Interest Escrow

Below is a roll forward of interest escrow:

Related Party Borrowings

As of March 31, 2020, the Company had $1,250, $250, and $386 available to borrow against the line of credit from Daniel M. Wallach (our Chief Executive Officer and chairman of the board of managers) and his wife, the line of credit from the 2007 Daniel M. Wallach Legacy Trust, and the line of credit from William Myrick (our Executive Vice President of Sales), respectively. A more detailed description is included in Note 6 to the 2019 Financial Statements. These borrowings are in notes payable secured, net of deferred financing costs on the interim condensed consolidated balance sheet.

Secured Borrowings

Lines of Credit

As of March 31, 2020, the Company had borrowed $614 on its lines of credit from affiliates, which have a total limit of $2,500.

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

Summary

The borrowings secured by loan assets are summarized below:

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, 2020 and December 31, 2019 was 10.68% and 10.56%, respectively, not including the amortization of deferred financing costs. We generally offer four durations at any given time, ranging from 12 to 48 months from the date of issuance. There are limited rights of early redemption. Our 36-month Note has a mandatory early redemption option, subject to certain conditions. The following table shows the roll forward of our Notes Program:

The following is a roll forward of deferred financing costs:

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

Other Unsecured Debts

Our other unsecured debts are detailed below:

Redeemable Preferred Equity and Members’ Capital

We strive to maintain a reasonable (about 15%) balance between (1) redeemable preferred equity plus members’ capital and (2) total assets. The ratio of redeemable preferred equity plus members’ capital to loan assets was 13% as of March 31, 2020 and December 31, 2019. We anticipate this ratio to decrease until more preferred equity is added. 

Priority of Borrowings

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

Liquidity and Capital Resources

Our primary liquidity management objective is to meet expected cash flow needs while continuing to service our business and customers. Combined loans outstanding as of March 31, 2020 and December 31, 2019 was 227 and 250, respectively. Gross loans receivable totaled $56,077 and $57,608, respectively. Our unfunded commitments to extend credit, which have similar collateral, credit and market risk to our outstanding loans, were $15,259 and $16,662 as March 31, 2020 and December 31, 2019, respectively.

We anticipate an increase in our gross loan receivables over the 12 months subsequent to March 31, 2020 by directly increasing originations by funding new loans to borrowers in stronger markets for the purpose of developing presold homes, which loans have reduced loan-to-value ratios. During the second and third quarter of 2020, we expect that loan originations will decrease compared to the same period of 2019 due to risk mitigation in response to COVID-19. In addition, competition has declined; therefore, we believe the ability to return to historical levels may be achieved through 2021.

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

Secured debt, net of deferred financing costs decreased $937 during the three months ended March 31, 2020, which consisted of a decrease in borrowings secured by loans of $1,362 offset by an increase in affiliate lines of $425. We anticipate increasing our secured debt by roughly half of the increase in loan asset balances over the 12 months subsequent to March 31, 2020 through our existing loan purchase and sale agreements and additional lines of credit.

We anticipate that the other half of the loan asset growth will come from a combination of increases in our unsecured debt and equity. Unsecured debt, net of deferred financing costs increased $1,896 during the three months ended March 31, 2020 due primarily to an increased participation in our Notes program of $725 and other unsecured debts of $1,171. 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 March 31, 2020.

In addition, in May 2020, we borrowed approximately $362 pursuant to the Paycheck Protection Program (“PPP”), created under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The PPP is intended to provide loans to qualified businesses to cover payroll and certain other identified costs. Funds from the loan may only be used for certain purposes, including payroll, benefits, rent, and utilities. All or a portion of the loan may be forgivable, as provided by the terms of the PPP.

Equity decreased $184 during the three months ended March 31, 2020 due primarily to distributions of Class A common equity of $217 which was offset by earned but not paid distributions of Series C cumulative preferred units of $89. We anticipate an increase in our equity during the 12 months subsequent to March 31, 2020, through the issuance of additional Series C Preferred Units. If we are not able to increase our equity through the issuance of additional Series C Preferred Units, we will 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.

Contractual Obligations

The following table shows the maturity of outstanding debt as of March 31, 2020:

The total amount maturing through year ending December 31, 2020 is $31,813, which consists of secured borrowings of $25,439 and unsecured borrowings of $6,373.

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

Unsecured borrowings due by December 31, 2020 consist of Notes issued pursuant to the Notes Program and other unsecured debt of $1,949 and $4,424, respectively. To the extent that Notes issued pursuant to the Notes Program are not reinvested upon maturity, we will be required to fund the maturities, which we anticipate funding through the issuance of new Notes in our Notes Program. Historically, approximately 81% of our Note holders 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. Our expectation to grow loan asset balances is subject to changes due to changes in demand, competition, and COVID-19. Although our secured debt is almost entirely listed as currently due because of the underlying collateral being demand notes, the vast majority of our secured debt is either contractually set to automatically renew unless notice is given or, in the case of purchase and sale agreements, has no end date as to when the purchasers will not purchase new loans (although they are never required to purchase additional loans).

Inflation, Interest Rates, and Housing Starts

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

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

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

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

Source: U.S. Census Bureau

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

Off-Balance Sheet Arrangements

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

Financial Statements

The financial statements listed below are contained in this supplement:

Shepherd’s Finance, LLC

Interim Condensed Consolidated Balance Sheets

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

Shepherd’s Finance, LLC

Interim Condensed Consolidated Statements of Operations - Unaudited

For the Three Months ended March 31, 2020 and 2019

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

Shepherd’s Finance, LLC

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

For the Three Months Ended March 31, 2020 and 2019

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 Three Months Ended March 31, 2020 and 2019