NOTE 12. OBLIGATION UNDER PARTICIPATION AGREEMENT

As discussed in Note 2, “Summary of Significant Accounting Policies,” the Company follows the guidance in FASB Topic ASC 860, Transfers and Servicing when accounting for participation in commercial loans and investments. ASC 860 states, if the sale of a participation does not have all of the characteristics of a participating interest, it does not achieve sale accounting and is treated as a secured borrowing and accordingly, the original commercial loan investment remains on the Company’s consolidated balance sheets and the proceeds are recorded as an obligation under participation agreement.

As described in Note 4, “Commercial Loans and Investments”, the Company’s 2025 Loan Participation Sale for $10.0 million and 2026 Loan Participation Sale for $10.8 million at a 10.0% interest rate did not achieve sale accounting. As of June 30, 2026, the Company’s obligation under participation agreement had a face value of $19.1 million, and the carrying value of the loan that is associated with this obligation under participation agreement was $18.9 million, net of a CECL reserve of $0.2 million. As of December 31, 2025, the Company’s obligation under participation agreement had a face value of $10.0 million, and the carrying value of the loan that is associated with this obligation under participation agreement was $9.9 million, net of a CECL reserve of $0.1 million.

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