4.    Mortgages Receivable

The Company offers secured, non-bank loans to real estate owners and investors (also known as “hard money” loans) to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in Connecticut, New York and Florida. The Company’s lending standards typically require that the original principal amount of all mortgage receivable notes be secured by first mortgage liens on one or more properties owned by the borrower or related parties and that the maximum LTV be no greater than 70% of the appraised value of the underlying collateral, as determined by an independent appraiser at the time of the loan origination. The Company considers the maximum LTV as an indicator for the credit quality of a mortgage note receivable. In the case of properties undergoing renovation, the loan-to-value ratio is calculated based on the estimated fair market value of the property after the renovations have been completed. However, the Company makes exceptions to this guideline if the facts and circumstances support the incremental risk. These factors include the additional collateral provided by the borrower, the credit profile of the borrower, the Company’s previous relationship, if any, with the borrower, the nature of the property, the geographic market in which the property is located and any other information the Company deems appropriate.

The loans are generally for a term of one to three years. The loans are initially recorded and carried thereafter, in the financial statements, at cost. Most of the loans provide for monthly payments of interest only (in arrears) during the term of the loan and a “balloon” payment of the principal on the maturity date.

Allowance for credit losses is charged to income in amounts sufficient to maintain an allowance for credit losses inherent in the loans which are established systematically by management as of the reporting date. Management’s estimate of expected credit losses is based on an evaluation of relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the future collectability of the reported amounts. The Company uses static pool modeling techniques to determine the allowance for loan losses expected over the remaining life of the loans, which is supplemented by management judgment. Expected losses are estimated for groups of accounts aggregated by geographical location.

The Company’s estimate of expected credit losses includes a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. The Company reviews charge-off experience factors, contractual delinquency, historical collection rates, the value of underlying collateral and other information to make the necessary judgments as to credit losses expected in the portfolio as of the reporting date. While management utilizes the best information available to make its evaluations, changes in macroeconomic conditions, interest rate environments, or both, may significantly impact the assumptions and inputs used in determining the allowance for credit losses. The Company’s charge-off policy is determined by a review of each delinquent loans. The Company has an accounting policy to not place loans on nonaccrual status unless they are more than 90 days delinquent. Accrual of interest income is generally resumed when the delinquent contractual principal and interest is paid in full or when a portion of the delinquent contractually payments are made and the ongoing required contractual payments have been made for an appropriate period.

As of June 30, 2023 and December 31, 2022, loans on nonaccrual status had an outstanding principal balance of $96,371,599 and $55,691,857, respectively. The nonaccrual loans are inclusive of loans pending foreclosure. For the three and six months ended June 30, 2023, $174,397 and $222,506 of interest income, respectively, was recorded on nonaccrual loans.

For the six months ended June 30, 2023 and 2022, the aggregate amounts of loans funded by the Company were $114,468,454 and $191,971,926, respectively, offset by principal repayments of $66,355,505 and $60,895,362, respectively.

As of June 30, 2023, the Company’s mortgage loan portfolio includes loans ranging in size up to $34.0 million with stated interest rates ranging from 5.0% to 14.2%. The default interest rate is generally 18% but could be more or less depending on state usury laws and other considerations deemed relevant by the Company.

At June 30, 2023, and December 31, 2022, no single borrower or group of related borrowers had loans outstanding representing more than 10% of the total balance of the loans outstanding.

The Company may agree to extend the term of a loan if, at the time of the extension, the loan and the borrower meet all the Company’s then underwriting requirements. The Company treats a loan extension as a new loan. If an interest reserve is established at the time a loan is funded, accrued interest is paid out of the interest reserve and recognized as interest income at the end of each month. If no reserve is established, the borrower is required to pay the interest monthly from its own funds. The deferred origination, loan servicing and amendment fee income represents amounts that will be recognized over the contractual life of the underlying mortgage notes receivable.

Allowance for Credit Loss

In assessing the Allowance for Credit Losses (“CECL Allowance”), the Company considers historical loss experience, current conditions, and a reasonable and supportable forecast of the macroeconomic environment. The Company derived an annual historical loss rate based on its historical loss experience in its portfolio, adjusted to incorporate the risks of construction lending and to reflect the Company’s expectations of the macroeconomic environment.

The following table summarizes the activity in the CECL Allowance from adoption on January 1, 2023:

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(1) As of December 31, 2022, amounts represent probable loan loss provisions recorded before the adoption of the ASU 2016-13.

(2) As a component of the adoption of ASU 2016-13, $531,500 of the CECL allowance is excluded from this table because it relates to unfunded commitments and has been recorded as a liability under accounts payable and accrued liabilities in the Company’s consolidated balance sheet.

Presented below is the Company’s loan portfolio by geographical location:

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Presented below are the carrying values by Property Type:

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The following tables allocate the carrying value of the Company’s loan portfolio based on internal credit quality indicators in assessing estimated credit losses and vintage of origination at the dates indicated:

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The following table sets forth the maturities of mortgages receivable as of June 30, 2023 and December 31, 2022:

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At June 30, 2023, of the 360 mortgage loans included in the Company’s loan portfolio, 126, or approximately 19.1%, representing approximately $97.1 million of mortgage receivables, have matured but have not been repaid in full or extended. Of these 126 loans, 51 are in foreclosure status, of which have an aggregate principal balance of approximately $47.2 million.

At December 31, 2022, of the 444 mortgage loans included in the Company’s loan portfolio, 105 loans, or 13.4%, representing approximately $61.6 million of mortgage receivables had matured but have not been repaid in full or extended. Of these 105 loans, 40 were in foreclosure status, of which had an aggregate principal balance of approximately $22.5 million.

All loans in maturity default and not in foreclosure are subject to modification and will be extended if the borrower can satisfy the Company’s underwriting criteria, including the proper loan-to-value ratio, at the time of renewal. In the case of each of the loans in foreclosure, the Company believed the value of the collateral exceeded the outstanding balance on the loan.