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Loans and Financing Receivables

6 Months Ended

Jun. 30, 2024

Loans and Financing Receivables

Loans and Financing Receivables

Note 6—Loans and Financing Receivables

The Company offers an agricultural lending product focused on farmers as a complement to the Company’s business of acquiring and owning farmland and leasing it to farmers. Under the FPI Loan Program, the Company makes loans to third-party farmers (both tenant and non-tenant) to provide financing for property acquisitions, working capital requirements, operational farming activities, farming infrastructure projects and for other farming and agricultural real estate related projects. The Company seeks to make loans that are collateralized by farm real estate or growing crops and in principal amounts of $1.0 million or more at fixed interest rates with maturities of up to six years. The Company expects the borrower to repay the loans in accordance with the loan agreements based on farming operations and access to other forms of capital, as permitted.

In addition to loans made under the FPI Loan Program, the Company, on certain occasions, makes short-term loans to tenants secured by collateral other than real estate, such as growing crops, equipment or inventory, when the Company believes such loans will ensure the orderly completion of farming operations on a property owned by the Company for a given crop year and other credit is not available to the borrower.

On November 18, 2022, the Company acquired land and buildings for four agriculture equipment dealerships in Ohio leased to Ag Pro (the seller), under the John Deere brand. In accordance with ASC Topic 842, control is not considered to have transferred to the Company under GAAP and these transactions are accounted for as financing arrangements under ASC 310 “Receivables” rather than as investments in real estate subject to operating leases. The leases mature in November 2037 and contain renewal options for periods up to 20 years from the original maturity date. The discount rate used for the transactions was 6.15%.

As of June 30, 2024 and December 31, 2023, the Company held the following loans and financing receivables:


($ in thousands)								Outstanding as of						Maturity
Loan		Terms						June 30, 2024			December 31, 2023			Date
Loans under FPI Loan Program:
Mortgage Note ⁽¹⁾		Principal & interest due at maturity						$	207		$	210		12/7/2028
Mortgage Note ⁽²⁾		Principal due at maturity & interest due quarterly							1,842			1,900		3/3/2025
Mortgage Note ⁽³⁾		Principal due at maturity & interest due quarterly							1,800			1,800		11/17/2028
Mortgage Note ⁽⁴⁾		Principal due at maturity & interest due semi-annually							7,648			8,009		12/28/2024
Mortgage Note ⁽⁵⁾		Principal due at maturity & interest due semi-annually							1,424			1,491		12/28/2024
Mortgage Note ⁽⁶⁾		Principal due at maturity & interest due monthly							500			500		6/30/2025
Line of Credit⁽⁷⁾		Principal & interest due at maturity							893			—		1/31/2025
Total outstanding principal									14,314			13,910
Sale-leaseback transactions accounted for as financing arrangements:
Financing Receivable, net ⁽⁸⁾		Monthly payments in accordance with lease agreement							5,933			5,920		11/17/2037
Financing Receivable, net ⁽⁸⁾		Monthly payments in accordance with lease agreement							4,497			4,498		11/17/2037
Financing Receivable, net ⁽⁸⁾		Monthly payments in accordance with lease agreement							3,564			3,563		11/17/2037
Financing Receivable, net ⁽⁸⁾		Monthly payments in accordance with lease agreement							3,234			3,237		11/17/2037
Total financing receivable									17,228			17,218
Interest receivable (net prepaid interest and points)									54			60
Allowance for credit losses									(158)			(168)
Provision for interest receivable									—			—
Total Loans and financing receivables, net								$	31,438		$	31,020

(1)

The original note was renegotiated and a second note was entered into simultaneously with the borrower during the three months ended March 31, 2017. The note is secured against farmland properties.

(2)

On March 3, 2022, the Company entered into two loans with the same party secured against farmland.

(3)

On November 17, 2023, the Company entered into a loan agreement secured by farmland in connection with a property disposition.

(4)

On December 28, 2023, the Company entered into a loan agreement secured by farmland in connection with a property disposition.

(5)

On December 28, 2023, the Company entered into a loan agreement secured by farmland in connection with a property disposition.

(6)

On December 28, 2023, the Company entered into a loan agreement secured by farmland and a feedlot in connection with a property disposition.

(7)

On May 2, 2024, the Company entered into a line of credit agreement with a former tenant secured by growing crop, crop insurance, government payments related to growing crop, and a second lien on farmland properties owned by the former tenant.

(8)

On November 18, 2022, the Company acquired land and buildings for four agriculture equipment dealerships in Ohio, accounted for as financing transactions. The leases may be extended beyond the stated maturity date, for up to an additional 20 years, at the option of the tenant.

Loans and financing receivables are stated at their unpaid principal balance and include unamortized direct origination costs and accrued interest through the reporting date, less any allowance for losses and unearned borrower paid points. The Company monitors its receivables based upon historical collection experience, collateral values, current trends, long-term probability of default (“PD”) and estimated loss given default (“LGD”). Accrued interest write-offs are recognized as credit loss expense. The Company has estimated its credit losses on its loan balances in accordance with ASC 326 to be less than $0.1 million as of June 30, 2024 and December 31, 2023. Additionally, the Company has recorded an allowance for credit losses on its financing receivables of less than $0.1 million as of June 30, 2024 and December 31, 2023. The Company recorded no credit loss expense related to receivables during the three and six months ended June 30, 2024 and 2023, respectively. There were no charge-offs or recoveries for the three and six months ended June 30, 2024 and 2023. In addition, as of June 30, 2024, all payments under loans and financing receivables have been received in accordance with the agreements.

The following tables detail the allowance for credit losses as of June 30, 2024 and December 31, 2023:


		June 30, 2024
($ in thousands)		Amortized Cost			Allowance			Loans and financing receivables, net			Allowance as a % of Amortized Cost
Loans under FPI Loan Program		$	14,368		$	(66)		$	14,302			0.46	%
Financing Receivables			17,228			(92)			17,136			0.53	%
Totals		$	31,596		$	(158)		$	31,438			0.50	%


		December 31, 2023
($ in thousands)		Amortized Cost			Allowance			Loans and financing receivables, net			Allowance as a % of Amortized Cost
Loans under FPI Loan Program		$	13,970		$	(76)		$	13,894			0.54	%
Financing Receivables			17,218			(92)			17,126			0.53	%
Totals		$	31,188		$	(168)		$	31,020			0.54	%

The following chart reflects the roll-forward of the allowance for credit losses for our loans and financing receivables for the six months ended June 30, 2024 and 2023:


								Six months ended June 30,
($ in thousands)								2024			2023
Balance at beginning of period								$	(168)		$	(92)
Initial allowance for financing receivables									—			—
Initial allowance for loan receivables									—			—
Current period change in credit allowance									10			—
Charge-offs									—			—
Recoveries									—			—
Balance at end of period								$	(158)		$	(92)

The collateral for the mortgage notes receivable consists of real estate and personal property.

The Company estimates the fair value of loans and financing receivables using Level 3 inputs under the hierarchy established by GAAP. Fair value is estimated by discounting cash flows using interest rates based on management’s estimates of market interest rates on loans receivable with comparable terms and credit risk whenever the interest rates on the loans receivable are deemed not to be at market rates. The fair value for financing receivables does not take into consideration any residual value upon the end of the lease term. As of June 30, 2024 and December 31, 2023, the estimated fair value of the loans and financing receivables was $24.7 million and $24.5 million, respectively.