Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2025 was
carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. Based on the evaluation, management identified material
weaknesses related to the Company’s internal control over financial reporting and, as a result, concluded that the Company’s disclosure controls and procedures were ineffective as of March 31, 2025. A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements would not be prevented or detected on a timely basis.
Subsequent to the original filing of the Form 10-Q and as discussed within the Explanation Note, on October 15, 2025, the Company’s management, with oversight of
the Audit Committee of the Company, concluded that the Company’s unaudited interim consolidated financial statements for the quarter ended March 31, 2025, contained errors that required restatement related to participation loans that should be
treated as secured borrowings rather than sold loans.
In addition, the Company discovered that an appraisal had been received for a collateral dependent loan prior to the date that the financial statements were available
to be issued. Had this appraisal been considered in estimating the value of the collateral and the expected credit losses on the loan, the allowance for credit losses would have been misstated as of March 31, 2025.
Management identified the following material weaknesses in the Company’s internal control over financial reporting:
The Company did not maintain effective components of the COSO framework in the areas of control activities, information and communication process and monitoring
activities that contributed to the following material weaknesses:
•
The ineffective design of the management review control relating to the evaluation of the accounting for loan participations sold in accordance with generally
accepted accounting principles, including the assignment of personnel with appropriate levels of knowledge, experience and training.
•
The Company did not have controls in place to identify unusual or infrequent equity-related contracts entered into which could have a material impact on
accounting and financial reporting.
•
The Company did not maintain controls to consider subsequent appraisals for collateral dependent loans.
Remediation Plans
In response to the identified material weaknesses, the Company’s management, with the oversight of the Audit Committee of our Board of Directors, has begun to
dedicate significant resources, including additional employee training, toward efforts to improve our internal control over financial reporting. Management is actively engaged in the planning for, and implementation of, remediation efforts to
address the material weaknesses.
•
Implementation of additional control procedures, including redesigning and enhancing control activities related to preparation and review of existing and
new loan participation agreements, and any amendments thereto,
•
Thorough discussion and review of all new unusual or infrequent equity-related contracts each quarter with documentation of accounting treatment and
disclosure with respect to such transactions that could have a potential impact on the Company’s financial statements, and
•
An enhancement of the controls over the allowance for credit losses at each quarter end to evaluate that all appraisals for collateral dependent loans that
are received prior to the date that the financial statements are issued have been evaluated by management and considered in the estimate of the allowance for credit losses.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months
ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
37
Table of
Contents
PART II. OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
None
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.