Explanatory Note for Purposes of the “Safe Harbor Provisions” of Section 21E of the Securities Exchange Act of 1934, as amended

Certain statements in this report,Report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward‑lookingForward-looking statements are included with respect to, among other things, our current business plan, core strategy and portfolio management. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results or outcomes to differ materially from those contained in the forward-looking statements. Important factors that we believe might cause such differences are discussed in the section entitled, “Risk“Risk Factors” in Part I, Item 1A of this Form 10-K or otherwise accompany the forward-looking statements contained in this Form 10-K. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-K.

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OUR COMPANY

Our Identity and History

Contact Information

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Throughout this document, we refer to Ministry Partners Investment Company, LLC and its subsidiaries as “the Company,” “we,” “us,” or “our.”

Purpose and Mission

Ministry Partners Investment Company, LLC’s mission has been to strengthen Christian stewardship by providing financial products and services to churches and ministries, individuals and businesses, as well as other financial institutions including credit unions and banks, investment and insurance companies, and denominational loan funds. Whether you are working with our investment advisory, insurance agency, broker-dealer, church financing, or servicing operations, our unique approach to financial services is designed to provide you with the highest quality advice based upon sound biblical and business principles.

Our value proposition is built upon a foundational premise that stewardship excellence can be achieved by working in collaboration with multiple financial professionals with broad-

based expertise who are focused on helping the individuals, ministries, business owners, and organizations we serve meet their financial objectives.

Organization

We are a credit union service organization (CUSO) owned by 11 credit unions and organized as a California limited liability company that has beencompany. We commenced operations in business since 1991. Our primary missional purpose is to enhance Christian stewardship. We implement our missional purpose by assisting Christian ministries with Biblically based, value driven financial services. We provide financial services, investment products and financing solutions for churches, colleges, schools, ministry organizations, individuals and privately owned businesses. We also originate, invest in, and service loans made to evangelical Christian churches, ministries, and not for profit organizations.

Organization

Since inception, we have conducted our operations as a non-bank credit union service organization, or ("CUSO"). While we were initially formed as a wholly-owned subsidiary of the Evangelical Christian Credit Union (“ECCU”), we currently have 11 equity owners, all of whom are federal or state chartered credit unions.

We also have four wholly-ownedwholly owned subsidiaries through which we conduct various aspects of our business:

governance surrounding churches and ministries to effectively provide and expand the services we offer. We also serve the retail marketplace throughout the United States. While the retail market segment has large national competitors that offer alternative options, MP Securities’ comprehensive approach to offering investment and insurance advice with a missional purpose of strengthening Christian stewardship of financial resources enables us to provide services and products to an expanding market of potential clients.

The religious loan market segment

This segment has grown since our inceptionlaunch in 1991, and we believe that the demand for ministry loans originated and serviced by niche lenders to churches and ministries will continue to exceed available lending and financing sources for this sector. We believe that the availability of lenders serving this market has been somewhat unpredictable as larger financial institutions expand, contract, or vacate this niche market during periods of fluctuating demand.demand and changing market conditions. We have specialized in assistinghelping these organizations since we commencedbegan operations in 1991 and believe that the lack of predictable financing sources for evangelical Christian churches and organizations enables us to serve ministries that otherwise may not be able to obtain cost-effective mortgage loans.

Although the demand for church financing is both broad and fragmented, no one lender has a dominant competitive position in the market. We compete with church bond financing companies, banks, credit unions, denominational loan funds, REITs, insurance companies, and other financial institutions to service this market. Many of these entities have greater marketing resources, extensive networks of offices, larger staffs, and lower cost of operations due to their size. WeHowever, we believe however, we have developed an efficient, effective, and economical operation that (i) specializes in identifying and creating a diversified portfolio of church mortgage loans that we or other credit unions originate and (ii) preserves our capital base and generates consistent income for payments on our debt obligations and distribution togenerates investment returns for our equity investors.

We rely upon the extensive experience of our officers, management team, and Board of Managers in working with ministry related financing transactions, loan origination, and investment in churches, schools, ministries, and non-profit organizations.

With respect to the investment advisory, broker-dealer, and insurance services provided through MP Securities, there are many mainstream financial services organizations that serve the faith-based market segment throughout the United States. Most of the competitors in this institutional market segment are banks, credit unions, denominational investment funds, as well as larger investment and insurance organizations. However, the overall size of the market segment provides ample opportunities for quality firms with specialized knowledge of the governance surrounding churches and ministries to effectively provide and expand the services we offer. In addition, MP Securities also serves the retail marketplace throughout the United States. While the retail market segment has large national competitors that offer alternative options, MP Securities’ holistic approach to providing investment and insurance advice enables us to provide services and products to an expanding market of potential clients.

Our Principal Business and Markets

Overview

We provide ourserve individuals, businesses, churches, ministries, and financial servicesinstitutions through two primary business segments. One is our church loan financing group and the other consists of our investment advisory practice, broker-dealer firm, and insurance agency.agency and the other consists of our ministry and business lending

financing group. Within these segments, we offer a wide range of products and services for investors, borrowers, ministries, businesses,our customers and individuals.

When initially founded, the Company relied solely on interest income generated from its mortgage loan investments. Since inception, the Company has expanded its equity ownership and ability to originate, service, and sell participation interests in the loans it originates. We also made substantial investments to broaden our sources of revenue by forming a broker-dealer and investment advisory firm. In management’s view, creating multiple revenue sources enables us to operate a more diversified business that is able to respond more effectively to economic cycles. To that end, the Company has substantially diversified the sources of its revenues by generating investment services revenue through MP Securities and by generating fee income from selling and servicing participations in our loans receivable. We plan to continue to invest in financial services products and services that will provide fee income and diversify the Company’s revenue and expansion opportunities.clients.

We generate our revenue primarily from the following sources:

Securities offers its insurance products and services to help protect clients from unexpected life events. MP Securities also offers life, disability, long-term care, fixed, variable, and indexed annuities to its retail and institutional clients. With respect to the annuity products available through MP Securities, many of our clients use annuity products that mitigate risk through income guarantees. In all cases, MP Securities and its advisors have an obligation to act in the best interest of its clients.

MP Securities keeps a clearing firm relationship with Royal Bank of Canada Dain Rauscher (“RBC Dain”), which provides additional investment platform options for our clientele. As a non-carrying broker-dealer, MP Securities opens brokerage accounts for its customers through its clearing firm agreement with RBC Dain.

MP Securities also serves financial institutions by providing securities brokerage services to credit unions, credit union service organizations,CUSOs, and the customers and institutions it serves. It also acts as a selling agent for the Company’s debt securities offered through both public and private note offerings. As a non-carrying broker-dealer,  MP Securities opens brokerage accounts for its customers through its clearing firm agreement with RBC Dain.

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), California’s Department of Financial Protection and Innovation (formerly Department of Business Oversight), and the California Department of Insurance all directly regulate MP Securities due to its broad offering of products and professional services. In addition, state insurance or securities divisions have granted MP Securities a license to do business in every state in which we conduct offer services. As of December 31, 2020,  MP Securities was licensed to serve as an insurance broker in 15 states and offer investments in 24 states.

Church Loan Financing Segment

Overview

We assist evangelicalhelp Christian churches and organizations by providing financing for the acquisition, development, and/or renovation of churches or church-related properties, and provide investors the opportunity to participate in funding those projects. We typically secure these loans by real property owned by evangelical churches or church-related organizations such as Christian schools and ministries. As of December 31, 2020,  99.9%2022, real estate secured 99.4% of the loans in our portfolio were securedportfolio. We also invest in for-profit commercial and business loans to entities run by real estate.Christian principals. Currently, we conduct substantially all of our business operations in California. However, while we have more loan investments in California than in any other state, we own loan interests in 2928 different states.

To fund a substantial portion of our loan investments, we rely on sales of our debt securities to new investors, and the purchase of our debt securities by repeat investors. We market our debt securities primarily to investors who are in or associated with the Christian community, including individuals, ministries, and other organizations and associations. We also have funded substantial portions of our loan investments through term-debt from financial institutions. Additionally, to raise funds, we sell participation interests in our loan investments to other financial institutions. Finally, the Company’s owners have made significant capital investment into the Company that is available to fund the balance sheet along with the Company’s ongoing earnings. Going forward, we plan to continue to use all of these methods to fund our loan investments.

Lending Activities

Loan Acquisition

We acquire loans either through originating loans internally or purchasingbuying loans or loan participation interests from other financial institutions. When we originate a loan, we rely entirely on our own underwriting capabilities and standards. For loans that we purchase,buy, we apply our internally developed underwriting criteria and loan acquisition policies and review the underwriting procedures carried out by the financial institution that is selling the loan or participation interest. We funded $19.4 million in loans during the year ended December 31, 2020 and $8.0 million for the year ended December 31, 2019.

Funding Our Operations

Overview

We usehave relied on three primary on-balance sheet sources to fund our church and ministry loan investments. These include (i) our investor notes;debt securities; (ii) term-debt borrowings from financial institutions; and (iii) capital investments of our equity members. To fund a substantial part of our loan investments, we rely on sales of our debt securities to new and

repeat investors. We market our debt securities primarily to investors who are in or associated with the Christian community. Our investors include individuals, businesses, churches, and ministries. We also have funded portions of our loan investments through borrowings from financial institutions. From time to time, we also raise funds by selling participation interests in our loan investments to other financial institutions. Finally, the Company’s owners have made significant capital investment into the Company that is available to fund the balance sheet along with the Company’s ongoing earnings.

In the past several years, we have reduced our funding reliance on credit facility term-debt,borrowings from financial institutions, shifting the funding focus on investor notessecurities and members equity. The chart below shows the shift in the strategy we have used to finance our investments and business operations (dollars in thousands):

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Over the shift in funding strategy, the Company has capitalized on opportunities to deleverage its term-debt when there is a financial advantage to do so. For the year ended December 31, 2020,past three years, we took advantage of an opportunityopportunities to make andiscounted early payoff of one ofpayoffs on our term-debt credit facilities, whichfacilities. During 2022, the Company paid off $15.0the remaining $32.8 million in debt and resultedthat was outstanding as of December 31, 2021, resulting in a $2.4 million gain on debt extinguishment. Aside from theextinguishment of $2.5 million in 2022. Our gain the Company realized, there are several benefits of theon debt extinguishment toover the Company’s cash flow and liquidity going forward. The monthly payment of $129 thousand will no longer be required on this facility, thus reducing the monthly cash flow needed to service this debt. In addition, the loan had a balloon payment due on November 1, 2026 of approximately $7.5 million. Retiring the debt early eliminated the future requirement to make the large balloon payment. Paying off the debt also released approximately $22.0last three years totaled $7.3 million of loans pledged as collateral. These loans are now available to secure other credit facilities or may be sold if

additional liquidity is needed. The Company will continue to evaluate opportunities to further deleverage and re-evaluate its use of term-debt facilities as may be presented in the future. To that end, on March 5, 2021 we made a prepayment of $14.3 million on our remaining term-debt credit facility. 

One of the strategies we have employed in making this shift in funding sources is to sell participation interests in our mortgage loans. This enables the Company to fund loan acquisitions while conserving cash and increasing our non-interest income. This model allows us to acquire loans with little liquidity deployment while still enabling the Company to fulfill one of its key missional objectives of providing financing to Christian churches and ministries. To facilitate the implementation of this model, on September 30, 2020 we entered into a $7.0 million warehouse line of credit with KCT Credit Union, an Elgin, Illinois credit union (“KCT”). The warehouse line of credit will enable the Company to fund loans and warehouse them until sold without using long-term borrowing facilities or investor notes. We believe these developments create a stronger financial model for our investors and equity owners. We executed the loan participation model in 2020 and as a result, the Company sold $19.8$71.4 million in loans during 2020 as compared to no loan sales in 2019. 

Capital investments made byterm-debt paid off. With our equity members along with the Company’s retained earnings also provide funds for our church and ministry loan investments. Members’ equity provides investors with protection against losses and provides investment capital for the Company. Equity comes in the form of cash invested in the Company by its equity owners and retained earnings of the Company. As detailed in the chart above, the Company has increased its members’ equityterm-debt fully paid off, going forward we do not expect any future income from $8.2 million to $12.9 million over the most recent five-year period, providing an additional $4.7 million in equity protection against losses for its investors.

Funding from Our Investor Notes

Our investorgains on debt consists of various series of notes sold under several registered public offerings as well as in private offerings. We sell these debt securities to faith-based ministries, institutions, and individual investors. Notes pay interest at stated spreads over an index rate. The investor may reinvest the interest or have the interest paid to them at their option. The Company may repurchase all or a portion of notes at any time at its sole discretion by providing at least thirty (30) but not more than sixty (60) days prior written notice. In addition, the Company may allow investors to redeem their notes prior to maturity at its sole discretion.

Funding from Term-Debt

At December 31, 2020, our borrowings from institutional lenders consisted of the following term-debt borrowings (dollars in thousands):

We cannot borrow additional funds on these debt obligations; therefore, we will need to replace any principal paid on these debt obligations through another source.

MU Term-Debt Credit Facility.

This facility replaced the original $100 million credit facility entered into by and between the Company and Members United Corporate Federal Credit Union on May 7, 2008. The $87.3 million facility was entered into on November 4, 2011, by and between the Company and the National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union (“NCUA”). On June 19, 2019, OSK VII, LLC, a Minnesota limited liability company, purchased the loan from the NCUA. No material terms have been changed with the transfer of ownership of the MU Term Debt Credit Facility. The Company cannot borrow additional funds on the facility and there are no prepayment penalties or restrictions.

Paycheck Protection Program Loan.

On April 27, 2020, MP Securities applied for and received a Paycheck Protection Program loan (“PPP Loan”) granted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). According to the terms of the program, as administered by the Small Business Association (“SBA”), payments on the loan are deferred for six months, deferred interest is capitalized into the principal balance of the loan, and qualifying amounts of the principal balance of the loan and deferred interest are eligible to be forgiven if the borrower is able to meet the program’s requirement for retention of employees and maintaining salary levels for its employees. Qualifying amounts include amounts equal to eligible payroll costs, certain rent payments, and utility payments as defined by the program. The CARES ACT does not require that the Company pledge collateral for the PPP Loan. 

On March 5, 2021, the Company was notified that its application for forgiveness of the PPP Loan was accepted by the SBA, and all principal and interest due on the loan was forgiven in full.  The Company no longer bears any liability related to the PPP Loan.

Funding from Short-Term Warehouse Line of Credit:

On September 30, 2020, we opened a $7.0 million warehouse line of credit with Kane County Teachers Credit Union (“KCT”), which will enable the Company to fund loans and warehouse them until sold without using long-term borrowing facilities or investor notes (the “KCT Facility”). The KCT Facility is a short-term demand credit facility with a one-year maturity date of September 30, 2021. We may draw funds on the KCT Facility at any time until the line is fully drawn. Repayment of each advance is due one hundred and twenty (120) days after the advance is made or earlier in the event that a collateral loan becomes more than sixty (60) days delinquent and the Company fails to cure such deficiency.

Off Balance Sheet Funding: Sale of Loan Participation Interestsextinguishment.

From time to time, we enter into loan participation purchase and sale agreements and we believe there is a robust demand for church and ministry loans in the credit union industry. WhenTypically, when we sell a loan participation interest, we generally enter into a loan participation interest purchase agreement, which includes standard representations and warranties that are typical for a transaction of this nature. With ourWe believe we have the processing systemsystems and loan servicing capabilities we believe we will be able to continue to expand our portfolio of loans serviced for others. We expect our loan sales to be minimal in 2023 as we seek to grow our loan portfolio.

The table below shows the activity in our participation sold portfolio (dollars in thousands).

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Human Capital Resources

The Company relies on the experience of its lending, financial services, underwriting, loan servicing skills, and experience of its management team. A substantial number of its employees have extensive experience in the credit unionfinancial services industry. Through MP Securities, it employs a teamWe have staff located in both itsour Brea, Glendora, and Fresno, California offices. The COVID-19 pandemic has caused major disruptions in the U.S. economy and the way businesses operate due to state and local government restrictions designed to limit social interaction in

an attempt to slow the spread of the virus. In order to protect the safety of its employees, the Company has permitted remote work environments and modified work schedules. As of the date of this report, the Company’s operations have not been materially impacted by the pandemic. As the Company expands the range of services, products, and investment services it offers, the Company will seeklook to identifyfind and recruit qualified personnel that will enable the Company to further diversify the services and products it offers and increase its revenues and profitability.

The COVID-19 pandemic has caused major disruptions in the U.S. economy and the way businesses run due to state and local government restrictions designed to limit social interaction to slow the spread of the virus. To protect its employees, the Company has allowed remote work environments and modified work schedules. As of the date of this Report, the U.S. recovery from the pandemic has not materially affected the Company’s operations.

Effect of Government Regulations on the Business

General

We are organized as a credit union service organizationCUSO and, as a result, are subject to the regulations promulgatedpublished by the National Credit Union Administration (“NCUA”) that apply to CUSOs. As a CUSO, we primarily serve the interests of our credit union equity investors and members of such credit unions.

We are also subject to various laws and regulations that govern:

As we offer and originate loans outside of the State of California, we need to comply withfollow the laws and regulations of those states. The statutes which govern mortgage lending and origination activities vary from state toby state. Because these laws are constantly changing due in part to the challenge facing the real estate industry and financial institutions from residential lending activities, it is difficult to comprehensively identify, accurately interpret, and effectively train our staff with respect to all of these laws and regulations. We intend to comply withfollow all applicable laws and regulations wherever we do business and will undertake a best effortsbest-efforts program to do so, including the engagement of professional consultants, legal counsel, and other experts as deemedbelieved necessary by our management.

Broker-Dealer Registration

U.S. broker-dealers are subject to rules and regulations imposed by the United States Securities and Exchange Commission (“SEC,”), FINRA, other self-regulatory organizations, and state securities administrators covering all aspects of the securities business. MP Securities, commenced operations in 2012. As a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”), MP Securities is subject to regulation by the SEC and regulation by state securities administrators in the states in which it conducts its activities. We have registered MP Securities in the following states:

MP Securities is subject to rules and regulations regarding:

MP Securities is also subject to the financial responsibility, net capital, customer protection, record keeping, and notification rule amendments adopted by the SEC on July 30, 2013. Because MP Securities does not carry or hold customer funds or securities and relies upon a clearing firm to conduct these transactions, Rule 17a-5 requires that it filefiles an exemption report as well as review reports prepared by an independent public accountant

confirming that it meets the exemption provisions. As amended, the net capital rule requires that MP Securities take into accountconsider in its computation of regulatory net capital any liabilities the Company assumes asof its parent entity.

MP Securities is also subject to routine inspections and examinations by the SEC staff under Rule 17(b) of the Exchange Act and the SEC is authorized tomay review, if requested,asked, the work papers of the broker-dealer’s independent public accounting firm that conducts the audit. As required by amendments to Rule 17a-5 of the Exchange Act, MP Securities files an annual report with the SEC and FINRA that includes its audited financial statements, supplementary schedules, and its exemption report as a non-carrying broker-dealer. MP Securities is a member of the Securities Investor Protection Corporation (“SIPC”) andalso files a copy of its annual report with the SIPC.

Much of the regulation of broker-dealers in the U.S. has been delegated to self-regulatory organizations, principally FINRA and the securities exchanges. FINRA adopts and amends rules (which are subject to approval by the SEC) for regulating the industry and conducts periodic examinations of member firms. The SEC, FINRA, and state securities administrators may conduct administrative proceedings that can result in censure, fine, suspension, or expulsion of a broker-dealer, its officers, or employees.

Due to our close affiliation with MP Securities, we are subject to related party transaction disclosure issues under federal and state securities laws and rules adopted by FINRA. In particular, relatedRelated party transactions can raise regulatory concerns:

MP Securities is also subject to FINRA’s review and policies governing disclosure practices when offering proprietary securities products, training its staff to identify and manage conflicts of interest, and reporting on significant conflict issues, including the firm’s adopted measures to identify and manage conflicts, to the MP Securities Board of Managers and its Chief Executive Officer.

As a broker-dealer firm, MP Securities is subject to regulation regarding:

procedures, comply withfollow custody rules, marketing and disclosure obligations. MP Securities is also subject to the Investment Advisers Act of 1940, as amended, and related regulations. The SEC is authorized tomay institute proceedings and impose fines and sanctions for violation of the Investment Advisers Act. In addition to ensuring MP Securities’ compliance with federal and state laws governing its activities as a California registered investment advisory firm, the California DFPI requires that representatives hired by MP Securities meet certain qualification requirements, including complying with testing requirements and examinations.

Our failure to comply withfollow the requirements of the Investment Advisers Act, related SEC rules or regulations, and provisions of the California Corporations Code and Code of Regulations could have a material negative effect on us. We believe we are in full compliance infollowing all material aspects with SEC requirements and California laws and regulations. As MP Securities hires new registered investment advisers, it will be required to monitormust check its compliance with SEC and DFPI regulations.

Fiduciary Standards

The Dodd-Frank Act authorized the SEC to consider whether broker-dealer firms should be held to a standard of care similar to the fiduciary standard applied to registered investment advisors. Although the SEC has not adopted the fiduciary rule for broker-dealer firms, the DOL issued final regulations in April 2016 which expanded the definition as to who will be deemedconsidered to be an “investment advice fiduciary” under the Employment Retirement Income Security Act of 1974 (“ERISA”). DOL also issued a new prohibited transaction exemption generally known as the best interest contract exemption designed to address conflicts that may arise when a person provides advice to a retail investor that may be vulnerable to conflicts of interest involving the advisory firm.

With the issuance of the DOL fiduciary rule under ERISA, fiduciary status would be extended to investment advisors and investment professionals that have previously not been considered fiduciaries. If deemedconsidered a fiduciary, the representative is held to a strict standard requiring the representative to act solely in the interests of plan participants and beneficiaries. With the adoption of the fiduciary standard, the representative is subject to personal liability to the ERISA plan for breaches of its actions under the rule. Implementation of the DOL fiduciary rule, especially in the context of a MP Securities adviser or sales representative rolling over an individual retirement account (“IRA”) into our proprietary debt securities, will require that we:

our investors and borrowers at the time of establishing the customer relationship and annually thereafter. The State of California’s Financial Information Privacy Act also regulates consumer’s rights under California law to restrict the sharing of financial data. In recent years, there has been a heightened legislative and regulatory focus on data security, including requiring customer notification in the event ofif a data breach. Congress has held several hearings in the subject and legislation has been introduced which would impose more rigorous requirements for data security and response to data breaches.breach occurs. As MP Securities expands its investment advisory business operations, it will also need to monitor legislative and regulatory initiatives promulgated under Dodd-Frank that affect investment advisers.

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Any of the following identified risks, along with other unidentified risks, or risks we believe are immaterial or unlikely, could harm the Company. The risks and uncertainties described below are not the only risks that may have a material, adverse effect on us. Additional risks and uncertainties also could adversely affect our business, financial condition, and results of operations. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. Investors should carefully consider the risks described below in conjunction with the other information in this Form 10-K and the information incorporated by reference in this Form 10-K.

Risks Related to the Company

We may be unable to obtain sufficient capital to meet the financing requirements of our business.

Our ability to finance our operations and repay maturing obligations to our investors and credit facility lenders substantiallyprimarily depends on our ability to raise funds from the sale of our debt securities. Several factorsFactors that affect our ability to sell our debt securities including:include, but are not limited to:

increased net income, but at the same time creates risks. For example, leveraging magnifies changes in our net worth. We will incur leverage only when we expect that it will enhance our investment returns. To generate a quick sell on a non-cashan asset, the asset often sells at a discount. There can be no assurance that we will be able to meet our debt service obligations; and, if we must quickly sell assets to meet our debt service obligations, we risk incurring a loss on of some or all of those assets.

Our reserves formanagement has been working on reducing the Company’s reliance on leverage by increasing revenue from non-balance sheet sources that do not require leverage, such as our broker-dealer commissions and loan losses may prove inadequate, which could have a material, adverse effect on us.

Although we regularly evaluate our financial reserves to protect against future losses based on the probability and severity of the losses, there is no guarantee that our assessment of this risk will be adequate to cover any future potential losses. As of December 31, 2020, our allowance for loan loss totaled $1,516 thousand or 1.28% of our total loans.

Unanticipated adverse events may result in reserves that will be inadequate over time to protect against potential future losses. Examples of these adverse events are:

Maintaining the adequacy of our allowance for loan losses may require that we make significant and unanticipated increases in our provisions for loan losses, which would materially affect our results of operations and capital levels. Given the total amount of our allowance for loan losses, an adverse collection experience in a small number of loans could require an increase in our allowance. See the section captioned “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report for further discussion related to our process for determining the appropriate level for the allowance for loan losses.

An increase in our non-performing assets will adversely affect our earnings.

Nonperforming assets adversely affect our net income in the following ways:

Our troubled assets could increase significantly if additional borrowers become delinquent and we are unsuccessful in managing our non-performing assets. This in turn could have a material, adverse effect on our results of operations and financial condition. At December 31, 2020, $6,482 thousand, or 4.5%, of our total assets, were deemed to be non-performing, as compared to $13,601 thousand, or 8.8%, at December 31, 2019.servicing income.

A portion of our mortgage loans collateralizes our credit facilities; therefore, these pledged assets will be unavailable to meet our unsecured debt obligations.

Our term-debt credit facility and our linelines of credit requires that we secure them with mortgage loans, maintainingkeeping a minimum collateralization ratio (“MCR”) of at least 120% on each credit facility. Loans pledged as collateral to the term-debt credit facility or linelines of

credit will be unavailable for other cash flow purposes, including meeting our unsecured debt obligations. AsA default on one of the date of this Report, we are in compliance with our MCR covenants as required by our credit facilities.

The following table shows the recorded balance of loans pledged and not pledged as collateral as of December 31, 2020 (dollars in thousands):

The loans pledged to satisfy collateral requirements for debt facilities and secured investor notes will not be available to meet our unsecured debt obligations. Therefore, a default on this credit facility could reduce the availability of other assets on our balance sheet, and adversely affect our liquidity and ability to repay our investor notes.

We mayThe following table shows the recorded balance of loans pledged and not be able to refinance our existing credit facility with an institutional lender on attractive terms.

Our term-debt credit facility matures with a balloon payment due on November 1, 2026. Aspledged as collateral as of December 31, 2020, the outstanding balance on our credit facility is $51.4 million. While we expect that we will be able to retire, pay-off or refinance the facility on or before November 1, 2026, no assurances can be given that we will be able to find a replacement credit facility on attractive terms.2022 (dollars in thousands):

Our financing arrangements containhave covenants that restrict our operations and any default under these arrangements would inhibit our ability to grow our business, increase revenue, and make distributions to our equity investors.

Our financing arrangements containhave restrictions, covenants, and events of default. Failure to meet or satisfy any of these covenants could result in an event of default under these agreements. Our default under any of our financing arrangements could have a material, adverse effect on our business, financial condition, liquidity, results of operations, and our ability to make distributions to our equity investors. These restrictions also may interfere with our ability to obtain financing or engage in other business activities.

We may be unable to successfully implement our strategy to grow our mortgage loan and non-interest generating segments of our business.

Over the past decade, we have gradually decreased the total amount of mortgage loans on our balance sheet as part of an effort to reduce risk in the portfolio and pay off our long-

term debt. Having completed those objectives the Company intends to enter a growth phase and increase our loan portfolio. We have also implemented a strategic objective of transitioning to a more diversified financial services. We also intend to continue our strategy of offering additional financial products and services to our equity owners, strategic partners, and clients. Continuing to grow our business will depend, in part, on our ability to address the needs of our clients, borrowers, investors and strategic partners by effectively using technology to provide products and services that will enable us to create additional efficiencies in our business and expand the scope of and volume of financial transactions we are able to complete. If we cannot effectively grow our business our operations and financial condition may be adversely impacted.

Loss of our management team or the ability to attract and retainkeep key employees could harm our business.

We are dependent on the industry knowledge, professional skillsets, institutional contacts, and overall financial services experience of our senior management team. We rely on our management team to develop relationships with institutionalcurrent and faith-based ministry investors, lenders, financial institutions, broker-dealerpotential clients and investment advisory firms,

ministries, and individual investors.strategic business partners. We also rely on our management team to develop new products and services for our clientele, as well as the continued expansion of complimentary lines of business to diversify the Company’s value proposition further. We can give no assurances that we will be able to recruit and retainkeep qualified senior managers that will enable us to achieve our core strategic objectivesaims and continue to grow our business profitably.

Our broker-dealer and investment advisory business depends on fees generated from the distribution of financial products and advisory fees.

One of our strategic objectivesgoals is to increase non-interest revenues from fees generated from the distribution of financial products, such as managed accounts, mutual funds, and annuity products. Changes in the structure or amount of fees paid by sponsors of these products could directly affect our non-interest revenue. In addition, if these products experience losses or increased investor redemptions, the revenue we earn on these products may decline.

The ability to attract and retainkeep qualified financial advisors and associates is critical to MP Securities’ continued success.

As we continue to expand our non-interest revenue sources, we will need to expand our team of qualified investment and financial advisors that complement the services we provide to our clients. Turnover in the financial services industry with broker-dealer and advisory firms is high. If we are unable to recruit and retainkeep qualified professionals, we could jeopardize our strategic goal of increasing non-interest income, thereby adversely affecting our net earnings and financial condition.

Our systems may experience an interruption or breach in security, which could subject us to increased operating costs as well as litigation and other liabilities.

We rely heavily on communications and information systems to conduct our business, process, transmit,send, and store electronic financial information. Any failure, interruption, or breach in security of these systems could result in failures or disruptions in our critical business systems. The secure transmission of confidential information over the Internet and other electronic transmission and communication systems is essential to maintainingkeeping customer confidence in our services. Security breaches, computer viruses, acts of vandalism, and developments in computer capabilities could result in a breach or breakdown of the technology we use to protect customer and investor information and transaction data.

While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption, or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. We rely on third parties in processing our transactions. Any breakdown or failures of their systems or capacity constraints could adversely affect our operations. The occurrence of any failure, interruption, or security breach of our information systems could damage our reputation, result in a loss of a

borrower, investor, or customer’s business, or expose us to civil litigation and possible financial liability.

Our critical business systems may fail due to events out of our control, such as:

us and a related party. A related party is any employee, officer, board member, equity owner, trustee, their immediate family members, other businesses under their control, and other related persons. In the ordinary course of our business operations, we have ongoing relationships and engage in transactions with several related entities. This includes transactions with our equity owners. Conflicts of interest are inherent in any transactions involving credit facilities, funds on deposit with, mortgage loans purchased,bought, sold, participated, or serviced in our dealings with our equity owners. While the Company believes that it has taken reasonable measures to mitigate any risks, these procedures may not be sufficient to address conflicts of interest that may arise.

Risks Related to the Financial Services Industry and Financial Markets

The failure of a financial institution in which we deposit our funds could have an adverse impact on our ability to access our short-term source of funds.

In response to recent bank closures by the Federal Deposit Insurance Corporation (“FDIC”), the Company is monitoring its cash investments with various financial institutions and adjusting its short-term liquidity policies to respond to changes in the financial markets. The Company has no funds invested with the banks that the FDIC has closed. The National Credit Union Share Insurance Fund (“NCUSIF”) insures a portion of the Company’s cash held at credit unions and the FDIC insures a portion of cash held by the Company at other financial institutions. Currently, the NCUSIF and FDIC generally insures amounts up to $250,000 per depositor per insured credit union or bank. As of the date of this report, depositors of the banks that have been closed by the FDIC in 2023, have not taken a loss on deposits over the insured limit. To the extent the Company has deposited funds with a credit union or banking institution, then if any of such financial institutions ultimately fail, the Company could lose the amount of deposits over the then current insurance limit. The loss of such funds could reduce the amount cash needed for short term liquidity purposes. See, Note 1 in the Notes to the Consolidated Financial Statements on page F-10 of this Report.

Deterioration of market conditions could negatively affect our business, results of operations, financial condition, and liquidity.

A number of factors that we cannot control affect the market in which we operate. These factors can have a potentially significant, negative impact on our business. These factors include, among other things:

will incur losses on our foreclosed assets and on our loans in the eventcase of default because the value of our collateral may be insufficient to cover our investment in such assets.

Any sustained period of increased payment delinquencies, foreclosures, or losses could adversely affect both our net interest income from loans as well as our ability to originate, sell, and securitize loans. These events would significantly harm our revenues, results of operations, financial condition, liquidity, and business prospects.

The Company is subject to interest rate risk.

Interest rate fluctuations and shifts in the yield curve may cause losses. Our primary interest rate exposures relate to our mortgage loan investments and floating rate debt obligations. Typically, our loan investments provide forhave a fixed interest rate with a five-year interest rate adjustment or maturity date. Our term-debt borrowings are also at a fixed interest rate, providing a stable cost of funds at 2.52%. A significant portion of our borrowing arrangements with our note investors, however, provides for variable rates of interest that are indexed to short-term borrowing rates or fixed rates on short-term maturities.

Changes in interest rates, including changes in expected interest rates or “yield curves,” affect our business in a number ofmultiple ways. Changes in the general level of interest rates can affect our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. Changes in the level of interest rates also can affect, among other things, our ability to originate and acquire mortgages, and the market value of our mortgage investments. In the eventcase of a significant rising interest rate environment, default by our mortgage loan obligors could increase our losses and negatively affect our liquidity and operating results.

Our ability to expand the size of our loan portfolio is dependent on our ability to obtain debt financing at rates that providesupply a positive net spread. We have used borrowing facilities obtained from institutional lenders and relied upon offerings of debt securities in SEC registered offerings and private placement offerings to fund our mortgage loansloan investments. Our ability to fund future investments will be severely restricted if spreads on debt financing widen or if availability of credit facilities ceases to exist. In addition, an increase in our borrowing costs could decrease the spread we receive on our mortgage loan investments, which could adversely affect our ability to pay interest and redeem the outstanding debt securities as they mature. To mitigate our interest rate risks, we have previously and may in the future enter into interest rate hedging transactions that include, but are not limited to, interest rate caps and interest rate swaps. We cannot guarantee the results of using these types of instruments to mitigate interest rate risks, and as a result, the volatility of interest rates could result in reduced earnings or losses for us.

In addition, increases in interest rates during the term of a loan may adversely affect a borrower’s ability to repay a loan at maturity or to prepay a loan. Our mortgage loans

typically have large balloon payments due at maturity. When the loan matures and the balloon payment is due, the borrower must either pay the loan balance or refinance the loan with us or another lender. If interest rates are higher when the loan matures, the borrower’s payment on new financing may be higher. The borrower may not be able to afford the higher debt service hindering their ability to refinance our loan. In addition, the borrower may not be able to refinance the loan because the value of the property has decreased. If a borrower is unable to repay our loan at maturity, we could suffer a loss and we would not be able to reinvest proceeds in assets with higher interest rates, which could adversely affect our business and profitability.

Regulatory compliance failures could adversely affect our reputation, operating business, and core strategic objectives.goals.

We rely on publicly offered debt securities to fund a substantial portionpart of our operations. As a result, we are subject to U.S. securities laws, rules, and regulations publicized by the SEC and applicable state securities statutes. Our subsidiary, MP Securities, is subject to oversight from the SEC, FINRA, the Department of Insurance, California’s Department of Financial Protection and Innovation, (formerly Department of Business Oversight), and securities regulators in the states where MP Securities conducts business. To the extent MP Securities engages in securities and insurance-related activities in a particular state, state securities and insurance administrators will have jurisdictionauthority over the activities of our broker-dealer affiliated entity. As a registered broker-dealer and FINRA member, MP Securities is required tomust maintain registrations under the securities laws in those states in which it conducts business. The failure to comply withfollow obligations imposed by any regulatory authority binding on our subsidiaries or us or to maintainkeep any of the required licenses or permits could result in investigations, sanctions, and reputation damage.

Risks Related to Our Mortgage Loan Investments

Our Church mortgage loans are not as liquid as other financial instruments and therefore we may not be able to generate adequate liquidity, or we may have to take a material loss on sale if we needed to liquidate a portion or all of our loan portfolio.

The market for church mortgage loans is specialized and therefore not as liquid as for a residential or commercial loan portfolio. As a result, in the event we need additional liquidity we may have difficulty in disposing of our mortgage loan portfolio quickly or at all. The amount we would realize is dependent on several factors, including the quality and yield of similar mortgage loans and the prevailing financial market and economic conditions. It is possible that we could realize substantially less than the face amount of our mortgage loans, should we be required to sell the loans or pledge them as collateral for debt. Thus, the amount we could realize for the liquidation of our mortgage loan investments is uncertain and unpredictable.

We are subject to risks related to prepayment of mortgage loans held in our portfolio, which may negatively affect our business.

Generally, ourOur borrowers may prepay the principal amount of their mortgage loans at any time. There is intense competition from financial institutions that are looking to make commercial loans at competitive rates to qualified borrowers. If a significant number of borrowers refinance their loans with other lenders, our profitability could be adversely affected.

We are subject to the risks associated with loan participations, such as less than full control rights.

We have sold participation interests in loans we have originated and service. We may need the consent of the parties to which we have sold the participation interest to exercise our rights under such loans, including rights with respect to amendment of loan documentation, enforcement proceedings in the eventcase of default, and the institution of, and control over, foreclosure proceedings. Similarly, a majority of the participants may be able to take actions to which we object but must comply with if our participation interest represents a minority interest. The lack of full control on participation interests sold may adversely affect our business.

Church revenues fluctuate and may substantially decrease during times of economic hardship and global pandemics.pandemics, which could adversely affect our operations and financial condition.

Generally, toTo pay their loans, churches depend largely on revenues from church member contributions. Donations typically fluctuate over time for a number ofmultiple reasons, including, but not limited to:

management fees, security, repairs, and maintenance. Any additionaladded expenses incurred could adversely affect our ability to recover the full value of our collateral.

There is riskFrom time to time, we may incurhave recorded additional provisions for losses whenrelated to real estate assets acquired after we acquire properties through thecarry out loan foreclosure of one of our mortgage loan investments.

Whenproceedings. If we acquiretake ownership of a property throughas part of a foreclosure action, we valuecould be required to write down the property and its related assets and liabilities. For these foreclosed properties, we base the initial real estate owned value on the estimated collateral value, obtained through an appraisal, net of estimated selling costs. We may recognize a loss if the fair value of the property internally determined upon acquisition is less thanif the previous carrying amountvalue of the foreclosed loan.

In addition, ifproperty declines after we foreclose on a mortgage loan and take legal title to the real property, weproperty. Further deterioration could become responsible for real estate taxes leviedlead to an increase in non-performing assets and assessed against the foreclosed property as well as other costs such as property maintenance and insurance costs. These costs would be our financial responsibility and could reduce our recovery on our investment.reduced earnings.

Risks of cost overruns and non-completion of the construction or renovation of the mortgage properties securing construction loans we invest in may have a material and adverse effect on our investment.

The renovations, refurbishment, or expansion by a borrower of a mortgage property involves risks of cost overruns and non-completion. Costs of construction or improvements to bring a mortgage property up to standards established for the market position intended for that property might exceed original estimates, possibly making a project uneconomical. Such delays and cost overruns are often the result of events outside both our and the borrower’s control such as material shortages, labor shortages, andlabor strikes, pandemics, and unexpected delays caused by weather and other acts of nature. In addition, environmental risks and construction defects may cause cost overruns, and completion delays. If the borrower does not complete such construction or renovation in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of the borrower’s revenues impacting their ability to make their payments on our loan.

We are exposed to environmental liabilities with respect to properties to which we take title, which could have an adverse impact on our operations and financial condition.

In the course of our business, we may take title to real estate through foreclosure on one of our mortgage loan investments or otherwise. If we do take title to a property, we could be subject to environmental liabilities with respect to these properties. In such a circumstance, we may be held liable to a governmental entity or to third parties for property damage, personal injury, and investigation and clean-up costs incurred by these parties in connection with environmental contamination. In addition, we may be required to investigate or clean up hazardous or toxic substances, or chemical releases, at a property. The costs associated with investigation or remediation activities could be substantial. If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity, and results of operations could be materially and adversely affected.

Risks Relating to Our Investor Notes

None.Unexpected large withdrawals by investors that hold our debt securities can reduce our overall liquidity.

We continue to expand our methods of raising funds, including selling participations in our mortgage loan investments, expanding the sales of our debt securities, and maintaining lines of credit at financial institutions. If this strategy becomes less effective, we will need to find alternative sources of borrowing to finance our operations. Alternative solutions may be selling assets, deleveraging our balance sheet, and reducing operational expenses.

We may face potential claims from certain holders of our 2021 Class A Notes requesting a rescission of their investment made in our Notes.

Under Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”), when a prospectus is used more than nine months after the effective date of the registration statement, audited financial statements included in the prospectus must be as of a date not more than sixteen months prior to such use. When the Company filed its Registration Statement on Form S-1, which was declared effective on January 8, 2021, and subsequently filed Supplements to its Prospectus with the SEC, it included language in its Prospectus which was intended to serve as an election made to incorporate future filings of its audited and unaudited financial statements filed on Form 10-K and Form 10-Q as part of its Prospectus.

If the Company failed to make a proper election and include necessary language permitting it to use forward incorporation by reference of subsequently filed Exchange Act reports, certain investors that purchased our 2021 Class A Notes during the period commencing on October 9, 2021 and ending on the date the Company filed a post-effective amendment to its Registration Statement may have a claim for rescission of their investment under Section 5 of the Securities Act based upon a claim that the Prospectus failed to include updated financial statements.

The Company believes that the potential liability for such recission claims is $26.9 million. To the extent that rescission claims arising in connection with the sale of our 2021 Class A Notes during the period commencing October 9, 2021, and ending on the date the Company filed a post-effective amendment to its Registration Statement are initiated and judgments entered, the Company’s liquidity, balance sheet, and statement of cash flows could be materially impacted. In that event, the Company would be required to use its available cash, borrowing capacities, or raise funds from the sale of participation interests and its mortgage loan assets to satisfy these claims.

We depend on repeat purchases by a significant number of investors in our debt securities to finance our business.

A significant percentage of the investors who buy our debt securities roll their matured debt security into a new one. Historically, we have been able to sustain a high rate of renewal investments. If the rate of repeat investments declines, our ability to maintain or grow our asset base could be impaired.

The table below shows the renewal rates of our maturing debt securities over the prior three years:

Some of our investors may be unable to purchase our public offered debt securities due to FINRA’s investor suitability rule.

When handling sales of our investor debt securities, we must comply with FINRA’s “know your customer” and “suitability” rule. Some investors may not qualify under suitability criteria we have established for investors. These suitability eligibility standards help ensure that investors make appropriate investments given the age, investment experience, net worth, need for liquidity; and the mix of the investor’s portfolio.

If MP Securities is unable to offer a potential investor a Class A Certificate that will enable such investor to meet the applicable suitability standards, we will need to find other qualified investors to implement our strategic objectives.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

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Not applicable.

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