Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20202022

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to_____________________to_____

Commission file number:  333-4028-LA

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

(Exact name of small business issuer in its charter)

CALIFORNIA

26-3959348

CALIFORNIA

(State or other jurisdiction of incorporation or organization)

26-3959348

(I.R.S. Employer Identification No.)

915 West Imperial Highway, Suite 120, Brea, California

92821

(Address of principal executive offices)

(Zip Code)

Issuer’s telephone number: 

(714) 671-5720

Issuer’s telephone number:

(714) 671-5720

Securities registered under 12(b) of the Exchange Act:

None

Securities registered under 12(g) of the Exchange Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No.

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐..

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes No ☐..

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated
filer

Accelerated
filer

Non-accelerated
filer

Emerging Growth
Company

Smaller reporting company
filer

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revise accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes No.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No.

As of May 4, 2017 (the last date any sale or exchange was made of our Class A Common Units), the aggregate market value of the registrant’s Class A Common Units held by non‑affiliatesnon-affiliates was estimated to have no value. As of June 29, 2018 (the last date any sale or exchange was made of our Series A Preferred Units), the market value of the Series A Preferred Units was estimated at $67.50 per share or $7,904,250. The registrant has sold no Class A Common Units within the past sixty days and there is no public market value for the registrant’s Class A Common Units. The number of Class A Common Units outstanding, as of December 31, 2020,2022, was 146,522.

DOCUMENTS INCORPORATED BY REFERENCE: None


Table of Contents

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

FORM 10-K

TABLE OF CONTENTS

    

Page No.

Page No.

Part I

Item 1.

Item 1.

Business

3

Item 1A.

Risk FactorsItem 1A.

19Risk Factors

16

Item 1B.

Item 1B.

Unresolved Staff Comments

31

Item 2.

Properties

32

Item 2.

PropertiesItem 3.

33Legal Proceedings

32

Item 3.

Legal ProceedingsItem 4.

34Mine Safety Disclosures

32

Item 4.

Mine Safety Disclosures

35

Part II

Part II

Item 5.

Item 5.

Market for our Common Equity, Related Member Matters and Issuer Purchases of Equity Securities

36

33

Item 6.

Item 6.

Selected Financial Data

38

34

Item 7.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

35

Item 7A.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

62

58

Item 8.

Item 8.

Financial Statements and Supplementary Data

63 - F-57

59 – F-63

Item 9.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

72

60

Item 9A.

Item 9A.

Controls and Procedures

72

60

Item 9B.

Other InformationItem 9B.

74Other Information

61

Part III

Item 10.

Item 10.

Managers and Executive Officers and Corporate Governance

75

62

Item 11.

Executive CompensationItem 11.

84Executive Compensation

69

Item 12.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Member Matters

85

71

Item 13.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

86

72

Item 14.

Item 14.

Principal Accounting Fees and Services

87

73

Part IV

Item 15.

Item 15.

Exhibits and Financial Statements Schedules

88

75

Item 16

Item 16

Form 10-K Summary

91

76

SIGNATURES

92

77


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.

2


OUR COMPANY

Our Identity and History

Contact Information

Location of principal office

915 West Imperial Highway, Suite 120,

Brea, California 92821

Telephone number

(800) 753-6772

Website address

www.ministrypartners.org

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on the Company’s website at www.ministrypartners.org as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission.

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-

3

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:

·

Ministry Partners Funding, LLC. (“MPF”),

·

MP Realty Services, Inc. (“MP Realty”),

·

Ministry Partners Securities, LLC. (“MP SecuritiesSecurities”), and

·

Ministry Partners for Christ, Inc. (“MPCMPC”).

,
Ministry Partners Funding, LLC. (“MPF”), and
MP Realty Services, Inc. (“MP Realty”).

3


MPF serves as the custodian of assets pledged to investorsMP Securities is a Delaware limited liability company we formed on April 26, 2010. We began conducting business operations through MP Securities in our secured investment notes.

We organized MP Realty to provide loan brokerage and other real estate services to churches and ministries, but it has conducted limited operations since its inception.

2012. MP Securities provides investment advisory, insurance, and financial planning solutions for individuals, business organizations, churches, charitable institutions,businesses, and faith-based organizations. MP Securities also serves as the selling agent for the Company’s public and private placement notes.

MPC is a not-for-profit corporation formed and organized under Delaware law. We founded MPC makesin order to make charitable grants to Christian educational organizations, and provides accounting,provide consulting, and financial expertise to aid evangelical Christian ministries. The Internal Revenue Service has granted MPC tax-exempt status as a private foundation under Section 501(c)(3) of the Internal Revenue Code. MPC made its first charitable grant

MPF serves as the custodian of assets pledged to investors in 2020 and expects to award further grants during the year endingour secured investment notes. As of December 31, 2021.2022 and 2021, we have no secured investment notes outstanding.

We organized MP Realty to provide loan brokerage and other real estate services to churches and ministries. MP Realty has conducted limited operations since its launch.

Our Competition

Investment advisory, broker-dealer, insurance, and financial planning services

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

4

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.

4


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

5

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:

·

interest income earned on our loan investments;

·

fee and/or commission income earned from the sale of securities, insurance, and investment products, by our wholly-owned broker-dealer firm and fees received by our registered advisers for handling assets under management;

and

·

fee income earned from originating and servicing our loan investments;

investments.

5


·

gains realized on the sale of loans and loan participation interests to financial institutions; and

·

successful efforts to manage, liquidate, or sell real estate assets and maximize loan recoveries on delinquent loans in our loan portfolio.

While we strive to generate consistent earnings from our loan investments, receipt of servicing income from originating loans, and fees earned from investment advisory services and broker-dealer commissions, from time to timethese primary revenue sources, we have been able to generate income from additional sources.non-recurring revenue generating activities. These include: the sale of loans, the sale of participation interests in loans that we originate,include recoveries realized on distressed assets we hold, and other non-recurring events. For example, for the yearyears ended December 31, 2020, for example,2022 and 2021, we benefitted from a non-recurring gains of $2.5 million and $2.4 million gain recognized on the extinguishment of a portion of our credit facility debt. See “Part II, Item 7. Management Discussion and Analysis of Financial Condition and Results of OperationsOperations” in this Annual Report for additionalmore information on that transaction. those transactions.

Investment Advisory, Broker-Dealer, Insurance, and Financial Planning Solutions Segment

We provide investment advisory, broker-dealer, insurance, and financial planning solutions for our clients. We serve individuals, and businesses, as well as faith-based organizations, churches, and educational institutions. We provide these investment products and servicesministries through our wholly-owned broker-dealer, MP Securities, which serves as an investment advisory and broker-dealer firm with access to mainstream investment platforms that offer high quality products and services. MP Securities also maintains a clearing firm relationship with Royal Bank of Canada Dain Rauscher (“RBC Dain”), which provides additional investment platform options for our clientele.

MP Securities serves its clienteleclients through a holisticcomprehensive approach based upon identifying the client’s needs and objectives. This financial planning process takes into accountconsiders all options available to our clients as we act in their best interest to meet our fiduciary duty of care.

MP Securities also offersFor individuals and businesses, our mission is to strengthen their stewardship of personal wealth through biblically based financial and legacy planning, ethically responsible investment and insurance productsadvice. For these clients the Company provides planning for retirement, college funding, insurance, inheritance, and services throughtax management.

For our California insurance agency to help protectchurch and ministry clients, from unexpected life events. As such, MP Securities offers life, disability, long-term care, fixed and variable annuities, and indexed annuities to its retail and institutional clients. With respect to the annuity products available through MP Securities, manywe strengthen their stewardship of our retailresources through prudent treasury management services, ethically responsible investments, sound employee benefits, and institutional clients use annuity products that mitigate risk through income guarantees. In all cases, MP Securities and its advisors must act in the best interest of its clients.planning.

MP Securities is a registered broker-dealer firm under Section 15 of the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). In addition, MP

6


Securities holds a resident license from the California Department of Insurance to act as an Insurance Producer under the name Ministry Partners Insurance Agency, LLC. MP

6

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.

7


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

7

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Funding Sources as of

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

December 31,

 

2020

% of Total

 

2019

% of Total

 

2018

% of Total

 

2017

% of Total

 

2016

% of Total

 

2015

% of Total

Balance Sheet Funding Sources as of

 

December 31,

December 31,

December 31,

December 31,

December 31,

December 31,

 

% of

% of

% of

% of

% of

% of

 

    

2022

    

Total

    

2021

    

Total

    

2020

    

Total

    

2019

    

Total

    

2018

    

Total

    

2017

    

Total

 

Investor notes payable, net of debt issuance costs

 

$

76,194 54% 

 

$

73,046 47% 

 

$

68,300 44% 

 

$

69,003 43% 

 

$

60,479 39% 

 

$

49,915 34% 

$

79,100

 

82

%  

$

76,732

 

60

%  

$

76,194

 

54

%  

$

73,046

 

47

%  

$

68,300

 

44

%  

$

69,003

 

43

%

Term-debt

 

 

51,516 37% 

 

 

71,427 46% 

 

 

76,515 50% 

 

 

81,492 51% 

 

 

86,326 55% 

 

 

90,237 61% 

Term-debt and Lines of Credit

 

3,007

 

3

%  

 

34,749

 

28

%  

 

51,516

 

37

%  

 

71,427

 

46

%  

 

76,515

 

50

%  

 

81,492

 

51

%

Total members' equity

 

 

12,908 9% 

 

 

11,071 7% 

 

 

9,531 6% 

 

 

9,429 6% 

 

 

8,807 6% 

 

 

8,158 6% 

 

14,626

 

15

%  

 

14,511

 

12

%  

 

12,908

 

9

%  

 

11,071

 

7

%  

 

9,531

 

6

%  

 

9,429

 

6

%

To accelerate

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

8


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.

9


Funding from Term-Debt

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



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nature of Borrowing

 

Interest Rate

 

Interest Rate Type

 

Amount Outstanding

 

Monthly Payment

 

Maturity Date

 

Amount of Loan Collateral Pledged

 

Amount of Cash Pledged

Term Loan

 

2.525%

 

Fixed

 

$

51,405 

 

$

450 

 

11/1/2026

 

$

61,319 

 

$

 —

PPP Loan

 

1.000%

 

Fixed

 

$

111 

 

$

 —

 

4/27/2022

 

$

 —

 

$

 —

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.

10


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.

8

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

 

 

 

 

 

 

 

 

 

 

 

 

 

For the years ended

 

December 31,

 

December 31,

 

2020

 

2019

As of and for the years ended

December 31,

December 31,

    

2022

    

2021

Participation loans interests sold by the Company during the year

 

$

17,106 

 

$

 —

$

3,716

$

14,053

Total participation interests sold and serviced by the company

 

 

37,962 

 

 

26,964 

Total participation interests sold and serviced by the Company

34,946

46,056

Servicing income

 

 

143 

 

 

100 

153

189

 

 

 

 

 

 

Servicing Assets

 

 

 

 

 

 

Balance, beginning of period

 

$

100 

 

$

212 

$

170

$

147

Additions:

 

 

 

 

 

 

Servicing obligations from sale of loan participations

 

 

99 

 

 

 —

19

81

Subtractions:

 

 

 

 

 

 

Amortization

 

 

(52)

 

 

(112)

(66)

(58)

Balance, end of period

 

$

147 

 

$

100 

$

123

$

170

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

11


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:

·

credit granting activities;

9

·

establishment of maximum interest rates;

·

data privacy standards;

·

disclosures to borrowers and investors in our equity securities;

·

secured transactions;

·

foreclosure, judicial sale, and creditor remedies that are available to a secured lender; and

·

the licensure requirements of mortgage lenders, finance lenders, securities brokers, and financial advisers.

As a CUSO, we aremay provide a limited in the scope of activities we may provide.activities. In addition, our federal credit union equity investors are permittedallowed to invest in or lend to a CUSO only if the CUSO primarily serves credit unions, its membership, or the membership of credit unions contracting with the CUSO. While the NCUA lacks direct supervisory authority over our operations, our federal credit union equity owners are subject to regulations which govern the rules and conditions of an investment or loan they make or sell to a CUSO. In addition, state-chartered credit unions must follow their respective state’s guidelines which govern investments by a state chartered credit union. California’s Department of Financial Protection and Innovation (formerly Department of Business Oversight) (“DFPI”), in particular, regulates several of our equity owners. These credit union owners must comply withfollow DFPI regulations that govern the investment in a loan they make to a CUSO.

12


Regulation of Mortgage Lenders

We conduct loan originating activities for churches and related ministryother for-profit business projects. Many states regulate the investment in or origination of mortgage loans. Under the California Finance Lender’s Law, no lender may engage in the business of providingdelivering services as a “finance lender” or “broker” without obtaining a license from the DFPI, unless otherwise exempt under the law. We conduct our commercial and business lending activities under a California finance lender license.

As a finance lender, we are licensed with the DFPI and file reports from time to time with the DFPI. Accordingly, theThe DFPI has enforcement authority over our operations as a finance lender, which includes, among other things, the ability to assess civil monetary penalties, issue cease and desist orders, and initiate injunctive actions. We also are subject to licensing requirements in other jurisdictions in connection with our mortgage and business lending activities. Various laws and judicial and administrative decisions may impose requirements and restrictions that govern secured transactions, require specific disclosure to our borrowers and customers, establish collection, foreclosure, and repossession standards, and regulate the use and reporting of certain borrower and customer financial information.

10

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.

13


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:

Arizona

Idaho

Minnesota

Oklahoma

Texas

ArizonaCalifornia

IdahoIllinois

MinnesotaMissouri

OklahomaOregon

TexasVirginia

CaliforniaColorado

IllinoisIndiana

MissouriNevada

OregonPennsylvania

VirginiaWashington

ColoradoFlorida

IndianaKansas

NevadaNew York

PennsylvaniaRhode Island

Washington

FloridaGeorgia

KansasMassachusetts

New YorkOhio

Rhode IslandSouth Carolina

West Virginia

Georgia

Massachusetts

Ohio

South Carolina

MP Securities is subject to rules and regulations regarding:

·

net capital;

·

sales practices;

·

public and private securities offerings;

·

capital adequacy;

·

record keeping and reporting;

·

conflicts of interest involving related parties;

·

conduct of officers;

·

directors and employees;

·

qualification and licensing of supervisory and sales personnel;

marketing practices; and

11

·

marketing practices; and

·

supervisory and oversight of personnel to ensure compliance with securities laws.

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

14


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:

·

in determining whether MP Securities meets its net capital requirements;

·

in whether the allocation of costs is fairly treated in any expense sharing arrangements, or management services agreements entered into with the Company;

·

with regard toregarding compensation paid to sales representatives in selling proprietary securities products offered by the Company; and

·

complying withfollowing the suitability, know your customer, and fair practices and dealings obligations under federal and state law and rules imposed by FINRA on broker-dealer firms.

12

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:

·

sales methods;

15


·

use of advertising materials;

·

arrangements with clearing firms or exchanges;

·

record keeping;

·

regulatory reporting; and

·

conduct of managers, officers, employees, and supervision.

To the extent MP Securities solicits orders from customers, it will be subject to additional rules and regulations governing sales practices and suitability rules imposed on member firms.

MP Securities acts as a selling agent for the Company’s public and private debt securities. Due to this role, MP Securities is required to comply withmust follow FINRA’s filing requirements for these offerings. We believe that MP Securities has fully complied withfollowed its filing obligations as required under applicable FINRA, SEC, and state securities laws.

MP Securities ismust also required to maintainhold minimum net capital pursuant to rules imposed by FINRA.per FINRA rules. In general, net capital is the net worth of the entity (assets minus liabilities) less any other imposed deductions or other charges. A member firm that fails to maintaindoes not keep the required net capital must cease conducting business. If it does not do so, it may be subject to suspension or revocation of registration by the SEC and suspension or expulsion by FINRA. Under its Membership Agreement entered into with FINRA, MP Securities is required to maintainmust keep minimum net capital of the greater of $5,000 or one fifteenth of its aggregate indebtedness. As required by the 2013 amendments adopted by the SEC, MP Securities is required tomust include any liabilities assumed by the Company unless the Company is able to demonstrateprove that it has adequate capital to pay such expenses.

Regulation of Investment Advisers

On July 11, 2013, the State of California granted its approval for MP Securities to providedeliver investment advisory services.services to its clients. As a California registered investment advisory firm, MP Securities is required tomust develop and maintainsustain compliance procedures, record keeping

13

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.

16


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:

·

incur additional compliance costs;

·

engage in further training initiatives;

·

undertake a thorough review of available transactional exemptions from the rule;

14

·

prepare agreements to comply withfollow such rule; and

·

implement information technology revisions to our policies and procedures to comply withfollow DOL’s fiduciary rule.

Regulation Best Interest Standard

The Regulation Best Interest standard was adopted by the U.S. Securities and Exchange Commission on June 5, 2019 and became effective on September 10, 2019 (“Reg BI”). Under Reg BI, a new standard of conduct has been establishedcreated for broker-dealer firms and their sales personnel when making a recommendation to purchase a security to a retail

17


investor. Under Reg BI, a broker-dealer firm must act in the best interest of the retail customer at the time the recommendation is made and comply withfollow the following component obligations:

(i)

(i)

furnish disclosures regarding the material fees and costs that apply to the investor’s account, type and scope of services provided by the broker-dealer firm, minimum account size, the general basis and investment approach of the broker-dealer firm, and disclosure of any material facts relating to a conflict of interest that may affect a broker-dealer’s recommendation;

(ii)

(ii)

exercise reasonable diligence, care, and skill in making the recommendation;

(iii)

(iii)

establish, maintain, and enforce written policies and procedures reasonably designed to address conflicts of interest; and

(iv)

(iv)

establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.

With the adoption of Reg BI, state securities regulators may impose or require more rigorous investor suitability standards than those, which are set forth above. In addition, there is inadequate administrative or case law which can give guidance as to how Reg BI will be interpreted. Finally, the Company may need to impose more rigorous quantitative suitability standards for investments made in our investor notes in the future if one or more state regulators adopt more stringent suitability regulations or policies pursuant toper Reg BI.

Privacy Standards

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (“GLBA”) modernized the financial services industry by establishingsetting up a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers. We are subject to regulations implementing the privacy protection provisions of the GLBA. These regulations require us to discloseshow our privacy policy, including identifying with whom we share “non-public personal information” to

15

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.

18ITEM 1A.RISK FACTORS


Item 1A.

RISK FACTORS

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:

·

quality of the mortgage loan assetsand business loan investments we own;

make;

·

the profitability of our operations; and

·

limitations imposed under our credit facility arrangements and trust indenture agreements that containhave restrictive and negative covenants that may limit our ability to borrow additional sums or sell our publicly and privately offered debt securities.

Unexpected large withdrawals by investors that hold our debt securities can negatively affect our overall liquidity.

We have expanded our methods of raising funds, including selling participations in our mortgage loan investments, and expanding the sales of our debt securities to Christian ministries, institutional, and retail investors, as well as faith-based organizations and ministries. If this strategy is not viable, we will need to find alternative sources of borrowing to finance our operations. If we are unable to raise the funds we need to implement our strategic objectives, we may have to sell assets, deleverage our balance sheet, and reduce operational expenses.

19


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 purchase our debt securities roll their matured note into a new note. Historically, we have been able to maintain 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 notes over the prior three years:



 

2020

60%

2019

75%

2018

62%

Our growth is dependent on leverage, which may create other risks.

We use responsible leverage, which means borrowing to invest in mortgage assets. This mechanism creates net interest income for the Company. Our Board of Managers has overall responsibility for our financing strategy. Our success is dependent, in part, upon our ability to manage our leverage effectively. Leverage creates an opportunity for

16

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:

·

changes in the economy;

·

events affecting specific assets;

·

events affecting specific borrowers;

·

mismanaged construction;

·

loss of a senior pastor;

·

rising interest rates;

20


·

failure to sell properties or assets;

·

epidemics or pandemics that may affect the local or global economy; or

·

events affecting the geographical regions in which our borrowers or their properties are located.

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:

·

We do not accrue interest on collateral-dependent, non-performing loans.

·

We are required to record allowances for probable losses as a current period charge on our income statement.

·

Non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values.

·

There are legal and other professional fees associated with the resolution of problem real estate owned assets. Other real estate owned assets also incur carrying costs, such as taxes, insurance, and maintenance fees.

·

The resolution of non-performing assets requires active involvement of our management team, which can divert them from focusing on the Company’s core strategic objectives.

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

21


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):

Recorded Loan Balance

Collateral pledged to term-debt

$

61,319 

Collateral pledged to Secured Investor Notes

9,090 

Collateral pledged to line of credit

7,213 

Loans not pledged

40,725 

Total loans

$

118,347 

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):

    

Recorded Loan Balance

Collateral pledged to line of credit

$

17,819

Loans not pledged

69,223

Total loans

$

87,042

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-

17

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,

22


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.

18

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

23


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:

·

unforeseen catastrophic events;

·

cyber attacks;

cyber-attacks;

·

human error;

·

change in operational practices of our system vendors; or

·

unforeseen problems encounteredmet while implementing major new computer systems or upgrades to existing systems.

These events could potentially result in data loss and adversely affect our ability to conduct our business. As of the date of this annual report,Report, to our knowledge, we have not experienced any material impacts relating to cyber attackscyber-attacks or information system security breaches.

From time to time, we have engaged in transactions with related parties and our policies and procedures regardingon these transactions may be insufficient to address any conflicts of interest that may arise.

Under our code of business conduct, we have establishedset up procedures regarding the review, approval, and ratification of transactions that may give rise to a conflict of interest between

19

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:

·

interest rates and credit spreads;

inflationary or deflationary economic cycles;

2420


·

the availability of credit, including the price, terms, and conditions under which it can be obtained;

·

loan balances relative to the value of the underlying real estate assets;

·

default rates on special purpose mortgage loans for churches and ministries, and the amount of the related losses;

·

the actual and perceived state of the real estate markets for church properties and special use facilities;

·

deterioration of local, global, and national economic conditions including epidemics or pandemics that may affect the local or global economy; or

·

unemployment rates.

Significant declines in the value of real estate related assets, impairment of our borrowers’ ability to repay their obligations, and illiquidity in the markets for real estate related assets can adversely affect our mortgage loan investments, financial condition, and income.

The long-term impact of various external factors such as the Covid-19COVID-19 pandemic, Russia’s invasion of Ukraine, increasing inflation, and continuing disruption of the global supply chains, and the impact of such factors on our church and ministry loans, cannot be determinedknown at this time.

The Covid-19COVID-19 pandemic has caused major disruptions in the U.S. economy and has caused churches, Christianprivate schools, and ministries to make significant changes in the conduct of their operations, programs and in-person meeting schedules. In addition, Russia’s invasion of Ukraine, increasing inflation, and the disruption of global supply chains are putting strain on the U.S economy and the U.S. consumer. Our business relies, to a significant degree, on the ability of our ministry borrowers to make loan payments on a timely basis. TheAt this time, we cannot know what the long-term impact of the pandemicthese economic stressors on our borrowers cannot be determined at this time.and their donors will be. A significant disruption in giving trends resulting from ongoing pandemic related causesthese factors could have a material impact on the timing of loan payments made by our borrowers, our liquidity, loan loss reserves, and our financial condition.

We have granted limited payment relief to certain borrowers adversely impacted by COVID-19.

For the year ended December 31, 2020, we offered loan payment relief to borrowers that have been materially impacted by the economic effects of the pandemic. For borrowers that we have granted payment relief to, we did not extend the maturity dates of the loans and we added any deferred payments to the principal balances due at maturity. Of the 145 loans held at December 31, 2020, we have granted short-term deferrals to 35 borrowers. As of December 31, 2020, only three loans remain on either a full or partial payment deferment while the remaining borrowers to which the Company granted payment relief have resumed making contractual payments on their loans. 

Declining real estate values could harm our operations.

We believe the risks associated with our business are more severe during periods in which an economic slowdown or recession is accompanied by declining real estate values.

25


Declining real estate values generallyoften reduce the level of new mortgage loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of, investment in, or renovation of their worship facilities. Borrowers may also have difficulty paying principal and interest on our loans if the real estate economy weakens. Further, declining real estate values significantly increase the likelihood that we

21

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

2622


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.

23

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:

27


·

changes in church leadership and church membership;

·

local unemployment rates, credit conditions and real estate markets; and

·

other local economic conditions, including epidemics or pandemics that may affect the local economy.

When a mortgage loan is made to a church, the senior pastor usually plays a critical role in determining whether the loan will be repaid.

The senior pastor of a church ministry usually performs a critical role in the leadership, management, effectiveness of the church’s governance and conflict of interest practices, and continued viability of the church. A leadership crisis faced by a church that loses its senior pastor due to death, disability, resignation, or retirement can negatively impactaffect the church’s ability to meet its debt service obligations on a mortgage loan we make.

The24

If we do not consistently apply sound underwriting standards the quality of our mortgage loans depends on consistent application of sound underwriting standards.could degrade, which could adversely affect our operations and financial condition.

The quality of the mortgage loans in which we invest depends largely on the adequacy and implementation of sound underwriting standards as described in our Board adopted loan policy. In order toTo achieve our desired loan risk levels we must properly observe and implement our underwriting standards, which may change depending on the state of the economy. There is no assurance that our credit underwriting and loan approval procedures are or will be adequate to address the inherent risks associated with lending. Any failure to manage such risks may materially adversely affect our financial condition and results of operations.

BecauseWe may suffer losses on loans due to not having all the material information relating to a potential borrower at the time that we investmake a credit decision with respect to that potential borrower or at the time we advance funds to the borrower.

There is typically no publicly available information about the churches and ministries to which we lend. Therefore, we must rely on our borrowers and the due diligence efforts of our staff to obtain the information that we consider when making our credit decisions. Our staff partially depends and relies upon the pastoral staff to supply full and correct disclosure of material information concerning their operations and financial condition. We may not have access to all the material information about a particular borrower’s operations, financial condition, and prospects. In addition, a borrower’s accounting records may become poorly kept or organized. The financial condition and prospects of a church may also change rapidly in the current economic environment. In such instances, we may not make a fully informed credit decision, which may lead to a failure or inability to recover our loan in its entirety.

Our loan portfolio is concentrated in specialized purpose mortgage loans our loanand may be more adversely impacted by external market forces than a portfolio is generally riskier than if it werethat was more diversified.

We are among a limited number of non-bank financial institutions specialized in providingsupplying loans to evangelical churches and church organizations. SpecializedChurch and ministry mortgage loans secured by real properties generally secure our loans and the secondary market for these loans remainsis regional and limited. Our mortgage loan agreements require that the borrower adequately insure the property. This requirement secures the loan against liability and casualty loss. However, certain types of losses, generally those of a catastrophic nature such as earthquakes, floods or storms, health emergencies such as the COVID-19 pandemic, and losses due to civil disobedience, are either uninsurable or are not economically insurable. If an uninsured loss destroys a property, we could suffer loss of all or a substantial part of our mortgage loan investment.

25

Our loan portfolio is concentrated geographically and focused on loans to churches and religious organizations.may be negatively impacted by downturns in markets that we operate.

TheAs of December 31, 2022, the Company has 14%12% and 23%27% of the balance of its loan portfolio located in the states of CaliforniaIllinois and Maryland, respectively. Economic conditions in each of these states could differ in a significant manner from the loan investments we have made in other states and the real estate values which serve as collateral in those two states will depend, to a substantial degree, on the real estate markets in those markets.

28


We may suffer losses on loans due to not having all of the material information relating to a potential borrower at the time that we make a credit decision with respect to that potential borrower or at the time we advance funds to the borrower.

There is generally no publicly available information about the churches and ministries to which we lend. Therefore, we must rely on our borrowers and the due diligence efforts of our staff to obtain the information that we consider when making our credit decisions. To some extent, our staff depends and relies upon the pastoral staff to provide full and accurate disclosure of material information concerning their operations and financial condition. We may not have access to all of the material information about a particular borrower’s operations, financial condition, and prospects. In addition, a borrower’s accounting records may become poorly maintained or organized. The financial condition and prospects of a church may also change rapidly in the current economic environment. In such instances, we may not make a fully informed credit decision, which may lead, ultimately, to a failure or inability to recover our loan in its entirety.

We may be unable to recognize or act upon an operational or financial problem with a church in a timely fashion to prevent a loss of our loan to that church.

Our borrowers may experience operational or financial problems that, if not timely addressed by us, could result in a substantial impairment or loss of the value of our loan to the borrower. We may fail to identify problems because our borrowers did not report them in a timely manner or, even if the borrower did report the problem, we may fail to address it quickly enough, or at all. We attempttry to minimize our credit risk through prudent loan approval and monitoring practices in all categories of our lending. However, we cannot assure you that such monitoring and approval procedures will reduce these lending risks. We also cannot assure you that our credit administration personnel, policies, and procedures will adequatelyproperly adapt to changes in economic or any other conditions affecting our borrowers and the quality of our loan portfolio. As a result, we could suffer loan losses that could have a material adverse effect on our revenues, net income, and results of operations.

We makeOur accounting estimates and impairment assumptions aboutmay require the collectability ofCompany to record loan impairments that may adversely impact our loan portfolio.operations and financial condition.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If we determinedecide that it is probable that we will not be able to collect all amounts due to us under the terms of a particular loan agreement, we could be requiredmay have to recognize an impairment charge or a loss on the loan unless the value of the collateral securing the loan exceeds the carrying value of the loan.

If our assumptions regarding, among other things, the present value of expected future cash flows or the value of the collateral securing our loans are incorrect or general economic and financial conditions cause one or more borrowers to become unable to make payments under their loans, we could be requiredmay have to recognize impairment

29


charges. These charges could result in a material reduction in earnings in the period in which the loans are determined to be impaired. The impairment may adversely affect, perhaps materially, our financial condition, liquidity, and ability to make debt service payments.

26

Our reserves for 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, 2022, our allowance for loan loss totaled $1.6 million, or 1.78%, 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:

significant negative changes in the economy;
events affecting specific assets;
events affecting specific borrowers;
mismanaged construction;
loss of a senior pastor;
rising interest rates;
failure to sell properties or assets;
epidemics or pandemics that may affect the local or global economy; or
events affecting the geographical regions in which our borrowers or their properties are located.

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. 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.

Some of our mortgage loan investments currently are, and in the future may be, non-performing loans or may be restructured, which are subject us to increased risks relativecompared to performing loans.

Some of the loans in our mortgage loan portfolio currently are, or in the future may be,become a non-performing loan. Such loans may become non-performing if the church falls upon financial distress, the community or congregation the church serves suffers financial hardship, or there is significantadverse change in leadership of the church. These circumstances could result in the borrower being unable to meet its debt service obligations to us. Non-performing loans may require our management team to devote a substantial amount of their resources to workout negotiations and restructuring efforts. These restructuring

27

efforts may involve modifications to the interest rate, extension, or deferral of payments to be made under the loan or other concessions. For restructured loans, a risk still exists that the borrower may not be able or willing to maintaincontinue the restructured payments or refinance the restructured mortgage at maturity. Our troubled assets could increase significantly if borrowers become delinquent and we are unsuccessful in managing our non-performing assets. This in turn could have a material, unfavorable effect on our results of operations and financial condition. As of December 31, 2022, $6.23 million, or 6.3%, of our total assets, were deemed to be non-performing, as compared to $10.0 million, or 7.8%, of our total assets at December 31, 2021

In the event a borrower defaults on one of our mortgage loan investments, we will generallymay need to recover our investment through the sale of the property securing the loan.loan, which may result in credit losses.

In that event, the value of the real property security may prove insufficient to recover the amount of our investment. Even though we may obtain an appraisal of the property at the time we originate the loan, the property’s value could decline because of a number of subsequent events, including:

·

uninsured casualty loss (such as an earthquake or flood);

·

a decline in the local real estate market;

·

undiscovered defects on the property;

·

waste or neglect of the property;

·

a downturn in demographic and residential trends;

·

epidemics or pandemics that may affect the local or global economy;

·

environmental hazards;

·

a decline in growth in the area in which the property is located; and

·

churches and church-related properties are generallytypically not as marketable as more common commercial, retail, or residential properties.

30


The occurrence of any of these events could severely impair the market value of the security for our mortgage loan investments. In the eventcase of a default under a mortgage loan held directly by us, we will bear the risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan. Foreclosure of a church mortgage can be an expensive and lengthy process, which could have a significant effect on our anticipatedexpected return on the foreclosed mortgage loan. Such delays can cause the value of the mortgaged property to deteriorate further. The properties also incur operating expenses pending their sale, including property insurance,

28

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.

3129


Risks Relating to Our Investor Notes

Item 1B.  

UNRESOLVED STAFF COMMENTS

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.

3230


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:

2022

    

63

%

2021

 

55

%

2020

 

60

%

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.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.

31

ITEM 2.

Item 2.

PROPERTIES

Corporate Offices

As of December 31, 2020,2022, the Company conducts most of its operations from its main corporate office at 915 West Imperial Highway, Suite 120, Brea, California. In addition, the Company has one primary branch office located in Fresno, California. The Brea corporate office and Fresno branch locations have operating leases. Ministry Partners Securities, LLC also maintainskeeps networking agreement office locations in Glendora, California, Elgin, Illinois, and Elgin, Illinois.Nampa, Idaho.

33


ITEM 3.

Item 3.

LEGAL PROCEEDINGS

Given the nature of our investments made in mortgage loans, we may from time to time have an interest in, or be involved in, litigation arising out of our loan portfolio. We consider litigation related to our loan portfolio to be routine to the conduct of our business. In October 2020, the Company settled a civil action filed against it for wrongful termination of employment and other claims by a former employee, and the suit was dismissed. The settlement amount had no material impact on the Company’s financial position or results of operations. As of December 31, 2020,2022, we are not involved in any litigation matters that could have a material adverse effect on our financial position, results of operations, or cash flows.

34


ITEM 4.

Item 4.

MINE SAFETY DISCLOSURES

Not applicable.

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Table of Contents

PART II

ITEM 5.MARKET FOR OUR COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Item 5.

MARKET FOR OUR COMMON EQUITY, RELATED MEMBER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Units

There is no public market for our Class A Units and Series A Preferred Units. As of December 31, 2020,2022, a total of 146,522 Class A Units were issued, with 11 holders of record, and a total of 117,100 Series A Preferred Units were issued, with 11 holders of record.

Sale of Equity Securities by Issuer

None.

Purchases of Equity Securities by Issuer

None.

Dividends and Distributions

The Series A Preferred Unit holders are entitleentitled to receive two types of dividend distributions. First, they are entitled to receive a quarterly cash dividend at the rate of one-year LIBOR plus 25 basis points (the “Series A Dividend”). Payment of the Series A Dividend will have priority over all other distributions to equity owners. In addition, the Company must pay any accrued and undistributed Series A Dividend before we can distribute other dividends.

Our Series A Preferred Unit holders are also entitled to receive 10% of our net profits after subtracting the amount of quarterly Series A Dividends paid earned for any fiscal year. This payment will be made to holders of the Series A Preferred Units on a pro rata basis. We accrued $183$13 thousand and $171$178 thousand in net profits to distribute to our Series A Preferred Units holders for the years ended December 31, 20202022 and 2019,2021, respectively. This increased the amount of distributions declared on our Series A Preferred Units for the fourth quarters of 20202022 and 20192021 by $1.565$0.018 per unit and $1.461$1.521 per unit, respectively.

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Table of Contents

The remaining balance of any profits will be allocated to all holders of our Class A Units based on their ownership percentage. For 2020,2022, we made no distributions to the holders of our Class A Units.

During December 31, 20202022 and 2019,2021, we declared distributions on our Series A Preferred Units as follows:



 

 

 

 

 

 



 

 

 

 

 

 

SERIES A UNITS



 

 

 

 

 

 



 

Distributions Declared per Unit

Quarter

 

2020

 

2019

First

 

$

0.311 

 

$

0.730 

Second

 

 

0.198 

 

 

0.605 

Third

 

 

0.154 

 

 

0.575 

Fourth

 

 

1.714 

 

 

2.027 

Total distributions per Unit

 

$

2.377 

 

$

3.937 

SERIESA UNITS

Distributions Declared per Unit

Quarter

    

2022

    

2021

First

$

0.580

$

0.131

Second

0.965

0.124

Third

1.268

0.123

Fourth

1.463

1.731

Total distributions per unit

$

4.276

$

2.109

In the event of a loss, our operating agreement provides that losses will be allocated first to the holders of common units and then to the Series A Preferred Units holders until their respective capital accounts have been reduced to zero. If the capital accounts of the members cannot offset the entire loss, the balance will be allocated, pro rata, to the holders of common units in proportion to their respective ownership interest in our common equity units.

Equity Compensation Plans

None.

37


ITEM 6.

Item 6.

SELECTED FINANCIAL DATA

We are a “smaller reporting company” as defined by Regulation S-K promulgatedissued by the SEC. As a result, we are not providingsupplying the information contained in this item pursuant toper Regulation S-K.

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7ITEM 7.

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion regardingon our financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in this Annual Report beginning at page F-1.

OVERVIEW

We generate our revenue primarily through our church lending portfolio and secondarily through fees generated from our investment and insurance products and services. While we generate the majoritymost of our revenue through interest income, our strategystrategic aim is to diversify our revenue sources so that non-interest income becomes a larger percentage of total income. While seeking to grow our non-interest income, we also strive to grow our loan portfolio to increase total income for the diversificationCompany. While we expect to generate most of our future growth through church lending, we intend to diversify our lending to mitigate concentration risk. Producing revenue sources. A diversified revenue streamfrom multiple sources as well as growing total income may reduce the risk to the Company if we experience adverse economic factors, such as changes in interest rates, decrease our interest income.or market conditions. We also focus on improving ourstrive to improve operating efficiency and capital position by increasing the revenue generated for each dollar of expense incurred to run the business.business, which helps us improve our capital position. Increased capital helps mitigate risk in economic down cycles. In addition, we are focusing on reducingreduce risk to our lending revenue by improving the quality of our loan portfolio, assessing the financial strength of our borrowers, and workingcollaborating with borrowers to restructure, refinance, and/or liquidate these investments when necessary.

In order toTo continue to achieve our objectives,goals, protect the investment made by our note holders, and maximize the value of our equity holders’ investment, we will continue to focus on:

·

maintaining adequate liquidity levels;

working with credit unions

expanding the sale of our investor debt securities;
growing our balance sheet by originating profitable new loans;
growing our non-interest income from our broker-dealer services and other CUSOsloan servicing and products;
investing in technology to serveenhance our customer experience while creating operating efficiencies;
outsource certain operations to allow for scalable growth and provide an enhanced customer experience;

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growing our client base;
expanding our broker-dealer sales staff;
serving the needs of their memberscredit union and owners, expandCUSO clients through revenue producing strategic partnerships;
finding new strategic partnership opportunities with like-minded organizations that can help grow our own client base and increase our income from broker-dealer services as well as loan servicing and origination fees;

generate revenue;

·

increasing our revenue from broker-dealer related services by expanding our sales staff;

·

increasing revenue through the sale of loan participation interests;

·

managing the size and cost structure of our business to match our operating environment and capital funding efforts;

·

increasingstrengthening our capital through growth in earnings;

and

·

optimizing our balance sheet size as we seek to improve the quality of our loan investments and originating profitable new loans;

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·

managing and strengthening our loan portfolio through aggressive and proactive efforts to resolve problems in our non-performing assets, and ultimately realizing the benefit of our investments;

assets;

·

increasing the sale of our investor debt securities with the objective of maintaining a stable balance sheet by replacing contractual pay downs on our credit facility borrowings; and

·

maintaining adequate liquidity levels.

COVID-19 Impactand inflation’s impact on the Company’s Business

Our borrowers are primarily churches, Christian schools, educational institutions, and faith-based ministries. To support our borrowers during COVID-19In 2022, the effects of the worldwide pandemic we granted various payment relief options to the borrowers impacted by the pandemic. Interest continued to accrue under loanslessen in severity and indicators of economic activity have continued to whichstrengthen as jobs, consumer spending, manufacturing, and other indicators rebound from their weakest levels. However, rising prices have become a concern and as a result, the Company granted payment relief. DuringFederal Reserve Board (“FRB”) raised the fed funds target rate up from 0.00% - 0.25% at the beginning of the year ended December 31, 2020, the Company granted deferral requests of various terms to 35 borrowers. The vast majority of these borrowers have resumed their contractual payment with three borrowers still under a COVID-19 related payment concession4.25% - 4.50% as of December 31, 2020.  2022. Additionally, the FRB’s median projection of the fed funds rate at the end of 2023 is 5.1%, indicating the committee expects to continue to increase rates as they attempt to curtail inflation. Due to these factors, we believe that economic uncertainty remains high and could negatively impact our borrowers and financial results.

In management’s view,Summary of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that influence amounts reported in the payment deferrals we madefinancial statements. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses generated during the year ended December 31, 2020 did notreporting period. Various elements of our accounting policies are inherently subject to estimation techniques, valuation assumptions, and other subjective assessments.

Management has identified certain accounting policies that rely on judgments, estimates, and assumptions and are critical to an understanding of our financial statements. These policies govern such areas as the allowance for credit losses and the fair value of financial instruments and foreclosed assets. Management believes the judgments, estimates, and assumptions used in the accounting policies governing these areas are appropriate based on

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the factual circumstances at the time they were made. However, given the sensitivity of the financial statements to these critical accounting policies, changes in management’s judgments, estimates, and assumptions could result in material differences in our results of operations or financial condition. Further, subsequent changes in economic or market conditions could have a materialsignificant impact on these estimates as well as on our financial condition and operating results in future periods.

The determination of the allowance for loan losses involves critical estimates made in accordance with GAAP. Further on in Management’s Discussion and Analysis, we provide additional details regarding the factors involved in determining the allowance, the nature of the uncertainty involved in the calculation, and the impact of the allowance on the Company’s cashfinancial position or its revenue. For payment deferral requests the Company granted, the maturity dateand results of the mortgage note was not extended. While deferred payments increased the principal amount due at maturity on these loans, the Company’s net income and liquidity have not been adversely affected.operations.

Many of the initial shutdown orders that began in March 2020 have been gradually lifted and some churches have begun holding worship services in their facilities. In addition, several vaccines have begun to be distributed that are expected to reduce to spread of COVID-19. However, if the vaccines are not effective in preventing the spread of COVID-19, some state governments may reinstate restrictions on church meetings. As of the date of this Report, the impact these new restrictions may have on our borrowers’ revenue and their ability to make their loan payments remains unknown.

The Company will continue to monitor the impact of COVID-19 on the borrowers it serves, taking into account regional differences in the adverse effects and impact of the pandemic throughout the U.S. As a result, the Company may need to work with churches that have been substantially impacted by the economic effects of the pandemic and may need to grant additional deferrals during 2021. At this time, there is no legislative relief that would permit the Company to classify COVID-19 related deferrals granted after December 31, 2020, as a non-troubled debt restructure.

40


Financial Performance Summary for the Two-Year Period ended December 31:  31, 2022:

(dollars in thousands)

2022

2021

Broker-dealer commissions and fees

$

838

$

878

Gain on debt extinguishment

2,537

2,398

Total income

9,427

10,641

Provision (credit) for loan losses

(296)

122

Total non-interest expenses

5,707

4,921

Net income

627

1,850

Cash, cash equivalents, and restricted cash

9,564

28,149

Certificates of deposit

1,250

Loans receivable, net of allowance for loan losses of $1,551 and $1,638 as of December 31, 2022 and 2021, respectively

85,076

97,243

Total assets

99,363

127,965

Lines of credit

3,000

2,000

Term-debt

32,749

Notes payable, net of debt issuance costs

79,100

76,732

Total equity

14,626

14,511



 

 

 

 

 

 



 

 

 

 

 

 



 

2020

 

2019

Broker-dealer commissions and fees

 

$

762 

 

$

1,415 

Total income

 

 

11,788 

 

 

11,724 

Provision (credit) for loan losses

 

 

188 

 

 

(544)

Total non-interest expenses

 

 

5,009 

 

 

5,185 

Net income

 

 

2,116 

 

 

2,001 

Cash, cash equivalents, and restricted cash

 

 

21,973 

 

 

26,045 

Loans receivable, net of allowance for loan losses of $1,516 and $1,393 as of December 31, 2020 and 2019, respectively

 

 

116,121 

 

 

128,843 

Total assets

 

 

143,093 

 

 

158,021 

Term-debt

 

 

51,516 

 

 

71,427 

Notes payable, net of debt issuance costs

 

 

76,194 

 

 

73,046 

Total equity

 

 

12,908 

 

 

11,071 

Summary of Financial Performance

For the year ended December 31, 2020,2022, we recognizedearned net income of $2,116 thousand and increased$627 thousand. While net income decreased by $1.2 million over the prior year, owners’ equity increased by $1,837 thousand. 2020 replaced 2019 as$115 thousand, resulting in the highest total amount of members’ equity in the Company’s most profitable year since inception due tohistory. The main driver of the net income in 2022, as well as in 2021, was a recognition of$2.5 million gain on debt extinguishment realized by using cash to pay down our remaining term debt at a discount. With the term-debt fully paid off we do not expect to receive revenue from debt extinguishment in the future.

Non-interest expense increased by $786 thousand as salaries and benefits increased by $726 thousand due to a one-time Supplemental Executive Retirement Plan (“SERP”) expense of $2,400$600 thousand. For more information on the SERP, please see Note 15,

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Retirement Plans in the Notes to the Consolidated Financial Statements. Conversely, net interest income after provision for loan loss decreased by $429 thousand during 2020. This gain helpeddue to a reduction in the size of our loan portfolio. Management evaluated the opportunity to retire our term debt facility at a discount and determined that the gains resulting from the payoff would be more beneficial than holding the cash used to make the pay down. By making those payments on our own term debt facility, the Company overcome a $653 thousand decreaserecognized $7.3 million in broker-dealer commissions and fees duringgains from debt extinguishment over the yearthree-year period ended December 31, 20202022. Cash used to make those payments was derived primarily from reducing our loan portfolio through loan participations sold as compared towell as proceeds received from the year ended December 31, 2019. This decrease was mainly due to reduced client investment activity related toearly payoff of some of our loans when borrowers refinanced a loan with another lender. By making those payments on our term debt facility using cash investments, the uncertainty caused by the COVID-19 pandemic. The gain on debt extinguishment also helped offsetCompany has a reduction insmaller loan portfolio that will produce less net interest income of $(1,204) thousand which was caused by the Company holding higher than normal cash positions. Interest income also decreasedgoing forward. With this strategy completed, in 2020 compared to 2019 because during 20192023 and going forward, the Company recovered interest income when non-accrual loans paid off. Management made a decisionplans to maintain substantial cash positions rather than invest in additional loans due to the economic uncertainty during 2020. We generated cash throughincrease our loan participation sales and sales of our notes payable.portfolio.

Progress on Strategic Objectives

In 2020,2022, we made continued making progress towards our strategic objectives of diversifying our revenue streams, improving the quality of our loan portfolio, maintaining our balance sheet size,strengthening capital, and improving operating efficiency.customer experience. The following discussion focuses on each of these strategic objectives.

41


Diversified revenue streams

The Company’s management team believes that it will be able to use its capabilities in lending, servicing, and providing investment advisory services to supplement its net interest income with fee income. Our primary sources of recurring non-interest income are:

·

Revenue from our broker-dealer, operations: As described above,investment advisory, and insurance product sales: While revenue from this source decreased slightly by $40 thousand in 2020. Management believes that if the economy returns to a more normal state in 2021,2022, the Company continues to develop new networking agreements and is building infrastructure it believes will be able to improvehelp grow this revenue streambusiness.

Loan participation sales: We sold $3.7 million in 2022 as compared to its results for$14.1 million in loan participation interests during the year ended December 31, 2020. We also will look to increase this revenue source by expanding our2021. The decrease in loan participation sales force.

·

Loan participation sales: We sold $17,106 thousand in participation loan interests and another $2,721 thousand in loans receivable for the year ended December 31, 2020, while we made no sales in the year ended December 31, 2019. This was a result of management’s focus on maintaining cash balances to improve liquidity in responsedue to the COVID-19 pandemic.

Company not needing to generate liquidity due to the high liquidity levels during the year. For 2023, we do not expect to sell participation loans other than for risk mitigation purposes, as our focus is on increasing our on-book loan portfolio.

·

Loan servicing fee income: As of December 31, 2020, we serviced $37,962 thousand in Our loan participations for investors, an increase of 10,998 thousand from December 31, 2019 due to the increase in participation sales as described above. The participation portfolio generated $143$153 thousand in servicing income in 2020 versus $1002022 as compared to $189 thousand in 2019.  

2021. We do not expect loan servicing income to be a material revenue source for the Company in the future due to the focus on growing our on-book portfolio.

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Loan portfolio quality

Historically, when the Company has reported a net loss for the year, the primary reason for the loss has been due to losses on our loan investments or from reserves taken on our allowance for loan losses. In subsequent years, the Company has benefited from recoveries when the loans paid off, the Company disposed of the collateral properties, or when the Company sold the promissory notes or loans. Therefore, the resolution of non-performing loans or assets may contribute either positively or negatively to the Company’s performance. In 2019, two non-accrual loans paid off, resultingfinancial results. During the year ended December 31, 2021, the Company sold a REO property which resulted in a collectiongain on sale of interest income of $511$44 thousand. During the year ended December 31, 2020,2022, the Company sold an impaired loan in orderdid not have any gains or losses related to recoup its recorded investment in the loan.nonperforming assets or loans sold.

We continue to monitorcarefully watch our loan portfolio very closely and work with borrowers to minimize losses on our mortgage loan investments. The Company can often find a solution for borrowers who are in distress, but who are willing and able to work out a compatible solution. Through these efforts, we sawDuring the year ended 2022 our classified loans decreasedecreased by $2,662 thousand$3.8 million during the year to $6,181 thousand$5.9 million at December 31, 2020 as compared2022. This decrease is primarily due to a $3.7 million loan that we restructured in 2021 and was returned to performing status during the year ended December 31, 2019.2022.

As part of our strategic decision to reposition our loan portfolio, we have continued to focus on originating lower principal balance loans made to ministriesborrowers where we can achieve yields that are more favorable. This allows us to avoid deteriorating our margins while reducing

42


overall risk exposure to any one borrower. However, we also have originated larger loans when we are able to find participants to purchasebuy a participation interest in the loan. Servicing loan participations sold generates servicing fee income while allowing us to minimizereduce our risk exposure on the loan. We believe we have found a good mix in loan size that allows us to take advantage of quality lending opportunities. Our average net loan balance (recorded balance) was $816$719 thousand aton December 31, 2020.2022. We believe the relationships we have establishedformed with credit unions throughout the United States will enable us to increase the amount ofsell loan participation interests we sell and service for others.as necessary to mitigate risk by selling larger loans.

Strengthening Capital

Maintaining balance sheet size

OurFor 2022, our strategy in 2019 and entering 2020 was to maintain our balance sheet size rather than increase it as we direct more resources into improving the quality of our existing loan portfolio. However, during the year ended December 31, 2020, we took advantage of an opportunity to pay off a term-debt credit facility with a $15.0 million outstanding principal balance. While paying off the loan reduced our balance sheet size, this opportunity benefited the Company by increasing capitalshifted from a $2.4 million gain on debt extinguishment, improving net interest margin, and eliminating the ongoing cash flow requirements to service the debt. While we intend to continue our general strategy of maintaining our balance sheet size we are willing to take advantagestrengthening capital through the gains on the discounted term debt payoff. With debt retirement completed in 2022, our strategy going forward will be to grow our balance sheet and our loan portfolio to increase our total revenue. We intend to rely on the sale of available opportunitiesour investor notes to fund the growth of our on-book loan portfolio.

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Table of Contents

Improving Customer Experience

In 2022, the Company planned to increase our investment in personnel, technology, and infrastructure to continue to expand our products and services and well as improve our overall financial position. To that end, on March 5, 2021customer’s digital experience. During the year we made a prepayment of $14.3 millionsome progress on our remaining term-debt credit facility. This facility had an outstanding balace of $51.4 millionthose objectives by investing in new technology and personnel. In 2023, we expect to make additional investments in those areas, as of December 31, 2020.

Improvedwell as improve our operating efficiency

In the last several years, by outsourcing a component of our loan servicing while growing our balance sheet. We believe these activities will give us a more efficient operation going forward while. More importantly, we have worked on improving our operating efficiency. In 2020, we had non-interest expense of $5,009 thousand,believe this will create a decrease of $(176) thousand from $5,185 thousand in 2019. The decrease for the year ended December 31, 2020 is attributable to reduced employee activity, such as limited travel due to the COVID-19 pandemic.better customer experience.

Financial Condition

The following discussion and analysis compares the results of operations for the twelve months ended December 31, 20202022, and 20192021 and should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

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Comparison of Financial Condition atas of December 31:31,:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comparison

 

2020

 

2019

 

$ Difference

 

% Difference

 

(dollars in thousands)

 

 

 

 

 

 

Comparison

    

2022

    

2021

    

$ Difference

    

% Difference

(dollars in thousands)

Assets:

 

 

 

 

 

 

 

 

Cash

 

$

21,922 

 

$

25,993 

 

$

(4,071)

 

(16%)

$

9,504

$

28,080

$

(18,576)

(66%)

Restricted cash

 

 

51 

 

52 

 

(1)

 

(2%)

60

69

(9)

(13%)

Certificates of deposit

 

 

1,761 

 

 —

 

1,761 

 

—%

1,250

1,250

—%

Loans receivable, net of allowance for loan losses of $1,516 and $1,393 as of December 31, 2020 and 2019, respectively

 

 

116,121 

 

128,843 

 

(12,722)

 

(10%)

Loans receivable, net of allowance for loan losses of $1,551 and $1,638 as of December 31, 2022 and 2021, respectively

85,076

97,243

(12,167)

(13%)

Accrued interest receivable

 

 

798 

 

635 

 

163 

 

26%

477

507

(30)

(6%)

Investments in joint venture

 

 

884 

 

891 

 

(7)

 

—%

870

882

(12)

—%

Other investments

1,018

1,018

100%

Property and equipment, net

 

 

219 

 

216 

 

 

1%

140

172

(32)

(19%)

Foreclosed assets, net

 

 

301 

 

301 

 

 —

 

—%

301

301

—%

Servicing assets

 

 

147 

 

100 

 

47 

 

47%

123

170

(47)

(28%)

Other assets

 

 

889 

 

 

990 

 

 

(101)

 

(10%)

544

541

3

1%

Total assets

 

$

143,093 

 

$

158,021 

 

$

(14,928)

 

(9%)

$

99,363

$

127,965

$

(28,602)

(22%)

Liabilities and members’ equity

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Lines of credit

$

3,000

$

2,000

$

1,000

—%

Term-debt

 

$

51,516 

 

$

71,427 

 

$

(19,911)

 

(28%)

32,749

(32,749)

(100%)

Notes payable, net of debt issuance costs of $33 and $55 as of December 31, 2020 and 2019, respectively

 

 

76,194 

 

73,046 

 

3,148 

 

4%

Other secured borrowings

7

17

(10)

—%

Notes payable, net of debt issuance costs of $58 and $88 as of December 31, 2022 and 2021, respectively

79,100

76,732

2,368

3%

Accrued interest payable

 

 

312 

 

266 

 

46 

 

17%

281

252

29

12%

Other liabilities

 

 

2,163 

 

 

2,211 

 

 

(48)

 

(2%)

2,349

1,704

645

38%

Total liabilities

 

 

130,185 

 

 

146,950 

 

 

(16,765)

 

(11%)

84,737

113,454

(28,717)

(25%)

Members' Equity:

 

 

 

 

 

 

 

 

 

 

 

Series A preferred units

 

 

11,715 

 

11,715 

 

 —

 

—%

11,715

11,715

—%

Class A common units

 

 

1,509 

 

1,509 

 

 —

 

—%

1,509

1,509

—%

Accumulated deficit

 

 

(316)

 

 

(2,153)

 

 

1,837 

 

(85%)

Accumulated earnings

1,402

1,287

115

9%

Total members' equity

 

 

12,908 

 

 

11,071 

 

 

1,837 

 

17%

14,626

14,511

115

1%

Total liabilities and members' equity

 

$

143,093 

 

$

158,021 

 

$

(14,928)

 

(9%)

$

99,363

$

127,965

$

(28,602)

(22%)

General

Total assets decreased 9%by 22% due to the paydown of the term-debt described earlier. Loans receivable decreased 10%13% due to management’s focus on selling participation interests as well as $12,413 thousandreceiving $15.9 million in principal collections on loans receivable. DespiteWe used the difficult economic environment caused by COVID-19 pandemic,funds received from the loans receivable as well as our net notes payable increased by $3,148 thousand. Therefore, despite the term-debtcash to payoff cash only decreased $4,071 thousand.our term-debt.

Loan Portfolio

Our loan portfolio provides the majority of our revenue,revenue; however, it also presents the most risk to future earnings through both interest rate risk and credit risk. Additional information regarding risk to our loans is included in Part“Part I, Item 1A, Risk FactorsFactors”.

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Our portfolio consists entirelymostly of loans made to evangelical churches and ministries with approximately 99.9% of these loans99.4% real estate secured by real estate.loans. The loans in our portfolio carried a weighted average interest rate of 6.55% at6.46% as of December 31, 20202022 and 6.59% at6.21% as of December 31, 2019.  2021.

Loan Types

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, (dollars in thousands)

 

2020

 

2019

Loans to evangelical churches and related organizations

 

Amount

 

% of Portfolio

 

Amount

 

% of Portfolio

Year Ended December 31, (dollars in thousands)

2022

2021

    

Amount

    

% of
Portfolio

  

  

Amount

    

% of
Portfolio

Loans to evangelical churches and related organizations:

Real estate secured

 

$

113,930 

 

96.3 

%

 

$

125,612 

 

95.9 

%

$

84,718

97.3

%

$

97,708

98.3

%

Construction

 

 

4,273 

 

3.6 

%

 

 

5,277 

 

4.0 

%

160

0.2

%

1,150

1.2

%

Other secured

225

0.3

%

425

0.4

%

Unsecured

 

 

144 

 

0.1 

%

 

 

160 

 

0.1 

%

99

0.1

%

122

0.1

%

Total

 

$

118,347 

 

100.0 

%

 

$

131,049 

 

100.0 

%

Total loans to evangelical churches and related organizations

$

85,202

97.9

%

$

99,405

100.0

%

Loans for other commercial purposes:

Real estate secured

$

1,035

1.2

%

%

Construction

805

0.9

%

%

Total loans for other commercial purposes

$

1,840

2.1

%

$

%

Total loans

$

87,042

100.0

%

$

99,405

100.0

%

Maturities and Sensitivities of Loans to Changes in Interest Rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dollar Amount of Loans Receivable Maturing (in thousands)

Dollar Amount of Loans Receivable Maturing (in thousands)

As of

 

Due 1 Yr or Less

 

 

Due 1yr to 5 Yrs

 

Due After 5 Yrs

 

Total

    

Due 1 Yr or Less

    

Due 1yr to 5 Yrs

    

Due After 5 Yrs

    

Total

December 31, 2020

 

$

19,242 

 

 

54,169 

 

 

44,936 

 

$

118,347 

December 31, 2022

$

6,162

61,203

19,677

$

87,042

Included in the table above are 93 adjustable rate63 adjustable-rate loans totaling $82.6$45.2 million in gross loans receivable, or 70%52% of the total balance. Adjustable rateAdjustable-rate loans reduce the interest rate risk compared to fixed rate loans with similar cash flow characteristics.

Non-performing Assets

Non-performing assets include:

·

non-accrual loans;

·

loans 90 days or more past due and still accruing;

·

restructured loans, except for loans modifiedchanged in a troubled debt restructuring that were subsequently classified as performing due to the borrowers demonstrated ability to perform on the restructured terms (typically a minimum of six months); and

·

foreclosed assets.

Non-accrual loans are loans on which we have stopped accruing interest. Restructured loans are loans in which we have granted the borrower a concession on the interest rate or

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the original repayment terms due to financial distress. Foreclosed assets are real properties for which we have taken title and possession upon the completion of foreclosure proceedings.

We closely monitorwatch these non-performing assets on an ongoing basis. Management evaluates the potential risk of loss on these loans and foreclosed assets by comparing the

45


book balance to the fair value of any underlying collateral or the present value of projected future cash flows, as applicable.

From time to time, we determine that certain non-accrual loans are collateral-dependent. WhenWe consider a loan is deemed to be collateral-dependent, when we believe the repayment of principal will involve the sale or operation of collateral securing the loan.loan collateral. For these loans, we record any interest payment we receive in one of two methods. If the Company deemsbelieves that the recorded investment of the loan is fully collectable, we will recognize income on the interest payment received on thea cash basis. If we deembelieve that the recorded investment is not fully collectable, we will record any interest payment we receive towards reduction of the principal balance.balance of the loan. For non-collateral-dependent loans that are on non-accrual status, we generally recognize income on a cash basis.basis, although may record interest payments against principal in certain situations.

We had four non-accrual loans as of December 31, 2020 and six as of December 31, 2019.  During 2020, the Company sold one of the non-accrual loans at approximately its recorded value. The other non-accrual loan is now a performing loan. As detailed in the table below, these activities decreased the balance of our non-performing loans at December 31, 2020 as compared to December 31, 2019.

At December 31, 2020 and December 31, 2019, we had three restructured loans that were on non-accrual status, and two of these loans were over 90 days delinquent at December 31, 2020. In addition, we have fiveseven performing restructured loans on accrual status as of December 31, 2020.2022. The Company restructured four loans during the year ended December 31, 2022, but all made payments according to the terms of the restructure and were deemed performing as of the end of the year. All of the loans that were considered non-performing as of December 31, 2022 had already been classified as non-performing at December 31, 2021. There were no new loans that the Company classified as non-performing during the year ended December 31, 2022.

43

Table of Contents

The following table presents our non-performing assets:

Non-performing Assets

($ in thousands)

December 31,

December 31,

    

2022

    

2021

Non-Performing Loans:1

Collateral-Dependent:

Delinquencies over 90-Days2

$

1,378

$

503

Troubled Debt Restructurings

4,555

8,295

Other Impaired Loans

890

Total Collateral-Dependent Loans

5,933

9,688

Non-Collateral-Dependent:

Delinquencies over 90-Days

Other Impaired loans

Troubled Debt Restructurings

Total Non-Collateral-Dependent Loans

Loans 90 Days past due and still accruing

Total Non-Performing Loans

5,933

9,688

Foreclosed Assets3

301

301

Total Non-performing Assets

$

6,234

$

9,989



 

 

 

 

 

 



 

 

 

 

 

 

Non-performing Assets

($ in thousands)



 

December 31,

 

December 31,



 

2020

 

2019

Non-Performing Loans:1

 

 

 

 

 

 

Collateral-Dependent:

 

 

 

 

 

 

Delinquencies over 90-Days2

 

$

4,185 

 

$

5,907 

Troubled Debt Restructurings

 

 

1,996 

 

 

1,451 

Other Impaired Loans

 

 

 —

 

 

1,485 

Total Collateral-Dependent Loans

 

 

6,181 

 

 

8,843 

Non-Collateral-Dependent:

 

 

 

 

 

 

Delinquencies over 90-Days

 

 

 —

 

 

 —

Other Impaired loans

 

 

 —

 

 

 —

Troubled Debt Restructurings

 

 

 —

 

 

 —

Total Non-Collateral-Dependent Loans

 

 

 —

 

 

 —

Loans 90 Days past due and still accruing

 

 

 —

 

 

 —

Total Non-Performing Loans

 

 

6,181 

 

 

8,843 

Foreclosed Assets3

 

 

301 

 

 

301 

Total Non-performing Assets

 

$

6,482 

 

$

9,144 

1 These loans are presented at the balance of unpaid principal less interest payments recorded against principal.

2 Includes $504$503 thousand of restructured loans that were over 90 days delinquent as of December 31, 2020.2022 and December 31, 2021.

3 Foreclosed assets are presented net of any valuation allowances taken against the assets.allowance.

46


Allowance for Loan Losses

We maintainkeep an allowance for loan losses that we consider adequate to cover both the inherent risk of loss associated with the loan portfolio as well as the risk associated with specific loans.

General reserves are allowances taken to address the inherent risk of loss in the loan portfolio. We includeanalyze several factors in our analysis.to figure out the amount of general reserve. We weigh these factors forbased on the level of risk represented and for the potential loss in our portfolio.potential. These factors include:include, among others:

·

changes in lending policies and procedures, including changes in underwriting standards and collection;

·

changes in national, regional, and local economic and industry conditions, including pandemics, that affect the collectability of the portfolio;

·

changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans;

·

changes in the value of the collateral;

·

the effect of credit concentrations; and

44

Table of Contents

·

the rate of defaults on loans modified as troubled debt restructurings within the previous twelve months.

In addition, we include additionaladded general reserves for our loans if the collateral for the loan is a junior lien or if a loan is unsecured.unsecured loan. We segregate our loans into pools based on risk rating when we perform our analysis in order to increase the accuracy when determiningdeciding the factors potential impact these factors have on our portfolio. We weigh the risk factors based upon the quality of the loans in the class. In general, we give risk factors a higher weight for lower quality loans, which results in greaterincreases the general reserves related toon these loans. We evaluate these factors on a quarterly basis to ensure that we have adequately addressed the inherent risks inherent inof our loan portfolio.loans.

We also examine our entire loan portfolio regularly to identifyfind individual loans that we believe have a greater risk of loss than is addresseddecided by the general reserves. These are identifiedfound by examining delinquency reports, both current and historic monitoringdelinquency reports, checking collateral value, and performing a periodic review of borrower financial statements. For loans that are collateral-dependent, management first determinesfigures out the amount of the loan investment at risk. We figure out the loan investment at risk defined asby calculating the difference between the unpaid principal balance net ofless any discounts lessand the collateral value net ofless any estimated costs associated with selling a foreclosed property. Thecosts. We then reserve for the total amount of the loan investment at risk is reserved.risk. For impaired loans that are not collateral-dependent, managementwe will record an impairment based on the present value of expected future cash flows. At a minimum, we review loans that carry a specific reserve

47


quarterly. However, we will adjust our reserves more frequentlyoften if we receive additional information regarding the loan’s status or its underlying collateral.

Finally, for non-collateral-dependent trouble debt restructurings we use a net present value method for the allowance calculation. Reserves forWe figure out these loans are determinedreserves by calculating the net present value of payment streams we expect to receive from a restructured loan compared to what we would have received from the loan according to its original terms. We then discount these expected cash flows at the original interest rate on the loan. Management records these reserves at the time of the restructuring. We report the change in the present value of cash flows attributable to the passage of time as interest income.

The process of providingestablishing an adequate allowance for loan losses involves judgement on the part of management. We striveOur aim is to maintainkeep the allowance at a level that compensates for losses that may arise from unknown conditions. AsHowever, the allowance is a critical accounting estimate that is based on several of management’s assumptions and as a result, realized losses may differ from current estimates made by management.

4845


Table of Contents

The following chart details our allowance for loan losses:

Allowance for Loan Losses

as of and for the

Twelve months ended

December 31,

    

2022

  

  

2021

($ in thousands)

Balances:

Average total loans outstanding during period

$

90,477

$

100,032

Total loans outstanding at end of the period

$

87,042

$

99,405

Allowance for loan losses:

Balance at the beginning of period

$

1,638

$

1,516

Provision (credit) charged to expense

(296)

122

Charge-offs

Wholly-Owned First

Wholly-Owned Junior

Participation First

Participation Junior

Total

Recoveries

Wholly-Owned First

209

Wholly-Owned Junior

Participation First

Participation Junior

Total

209

Net loan charge-offs

209

Accretion of allowance related to restructured loans

Balance

$

1,551

$

1,638

Ratios:

Net loan recoveries to average total loans

(0.23)

%

%

Provision (credit) for loan losses to average total loans

(0.33)

%

0.12

%

Allowance for loan losses to total loans at the end of the period

1.78

%

1.65

%

Allowance for loan losses to non-performing loans

26.14

%

16.91

%

Net loan recoveries to credit for allowance for loan losses at the end of the period

0.71

%

Net loan recoveries to credit for loan losses

70.61

%

%



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Allowance for Loan Losses

 



 

as of and for the

 



 

Twelve months ended

 



 

December 31,

 



 

2020

 

2019

 

Balances:

 

($ in thousands)

 

Average total loans outstanding during period

 

$

119,067 

 

 

$

135,222 

 

Total loans outstanding at end of the period

 

$

118,347 

 

 

$

131,049 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

Balance at the beginning of period

 

$

1,393 

 

 

$

2,480 

 

Provision (credit) charged to expense

 

 

188 

 

 

 

(544)

 

Charge-offs

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

(65)

 

 

 

(923)

 

Wholly-Owned Junior

 

 

 —

 

 

 

 —

 

Participation First

 

 

 —

 

 

 

 —

 

Participation Junior

 

 

 —

 

 

 

 —

 

Total

 

 

(65)

 

 

 

(923)

 

Recoveries

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

 —

 

 

 

380 

 

Wholly-Owned Junior

 

 

 —

 

 

 

 —

 

Participation First

 

 

 —

 

 

 

 —

 

Participation Junior

 

 

 —

 

 

 

 —

 

Total

 

 

 —

 

 

 

380 

 



 

 

 

 

 

 

 

 

Net loan charge-offs

 

 

(65)

 

 

 

(543)

 

Accretion of allowance related to restructured loans

 

 

 —

 

 

 

 —

 

Balance

 

$

1,516 

 

 

$

1,393 

 



 

 

 

 

 

 

 

 

Ratios:

 

 

 

 

 

 

 

 

Net loan charge-offs to average total loans

 

 

(0.05)

%

 

 

(0.40)

%

Provision (credit) for loan losses to average total loans

 

 

0.16 

%

 

 

(0.40)

%

Allowance for loan losses to total loans at the end of the period

 

 

1.28 

%

 

 

1.06 

%

Allowance for loan losses to non-performing loans

 

 

24.53 

%

 

 

15.75 

%

Net loan charge-offs to allowance for loan losses at the end of the period

 

 

(4.29)

%

 

 

(38.98)

%

Net loan charge-offs to provision (credit) for loan losses

 

 

(34.57)

%

 

 

99.82 

%

49


The following table shows the Company’s allocation of allowance for loan losslosses by loan categories as of December 31, 2020.2022.

Percent of loans

in each category

Loan Categories

    

Amount

    

to total loans

Commercial loans:

Wholly-Owned First

$

1,377

95%

Wholly-Owned Junior

163

4%

Participation First

13

1%

Participation Junior

Total

$

1,553

$

100%



 

 

 

 

 

 



 

 

 

Percent of loans



 

 

 

in each category

Loan Categories

 

Amount

 

to total loans

Church loans:

 

 

 

 

 

 

Wholly-Owned First

 

$

1,458 

 

 

96% 

Wholly-Owned Junior

 

 

51 

 

 

3% 

Participation First

 

 

 

 

0% 

Participation Junior

 

 

 —

 

 

 —

Total

 

$

1,516 

 

$

99% 

46

Table of Contents

Investor Notes Payable

Our investor notes payable consist of(“investor notes”) are debt securities sold under both publicly registered security offerings as well as notes sold inand private placement security offerings. Over the last several years, we have expanded the number of investors in our investor note sale programdebt securities, and we have broadened the type of investors we serve by building relationships with other faith-based organizations whereby we canwhich has allowed us to offer our various investor note productsnotes to these organizationorganizations and the ministries they serve.their clients. Concurrently, MP Securities and its staff of financial advisors have increased our customer base through marketing efforts made to individual investors. These efforts helped the Company grow its notes payable despite operating in the uncertain economy caused by the COVID-19 pandemic. Our net investor notes payable increased by $3,148 thousand$2.4 million during the year ended December 31, 2020.2022. The balance sheet presents our investor notes payable net of debt issuance costs. Debt issuance costs which have decreased from $55 thousand atas of December 31, 2019 to $33 thousand at December 31, 2020.2022 totaled $58 thousand.

50


At December 31, 2020, theThe balances of our outstanding investor debt securities werenotes are as follows (dollars in thousands):

As of

As of

December 31, 2022

December 31, 2021

SEC Registered Public Offerings

Offering Type

Amount

Weighted
Average
Interest
Rate

Amount

Weighted
Average
Interest
Rate

 

Class 1 Offering

Unsecured

$

%

$

3,654

4.45

%

Class 1A Offering

Unsecured

20,698

4.27

%

27,116

4.11

%

2021 Class A Offering

Unsecured

45,935

4.04

%

34,524

3.20

%

Public Offering Total

$

66,633

4.11

%

$

65,294

3.65

%

Private Offerings

Subordinated Notes

Unsecured

$

12,525

4.56

%

$

11,526

4.47

%

Secured Notes

Secured

%

%

Private Offering Total

$

12,525

4.56

%

$

11,526

4.47

%

Total Notes Payable

$

79,158

4.19

%

$

76,820

3.77

%

Notes Payable Totals by Security

Unsecured Total

Unsecured

$

79,158

4.19

%

$

76,820

3.77

%

Secured Total

Secured

$

%

$

%



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

As of

 

As of



 

 

December 31, 2020

 

December 31, 2019

SEC Registered Public Offerings

Offering Type

 

Amount

 

Weighted
Average
Interest
Rate

 

 

Amount

 

Weighted
Average
Interest
Rate

 

Class A Offering

Unsecured

 

$

 —

 

 —

%

 

$

487 

 

4.20 

%

Class 1 Offering

Unsecured

 

 

9,010 

 

3.94 

%

 

 

22,098 

 

4.02 

%

Class 1A Offering

Unsecured

 

 

48,982 

 

3.16 

%

 

 

32,732 

 

3.85 

%

Public Offering Total

 

 

$

57,992 

 

3.28 

%

 

$

55,317 

 

3.92 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

Private Offerings

 

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated Notes

Unsecured

 

 

11,655 

 

4.49 

%

 

 

11,317 

 

5.21 

%

Secured Notes

Secured

 

 

6,580 

 

3.99 

%

 

 

6,467 

 

3.92 

%

Private Offering Total

 

 

$

18,235 

 

4.31 

%

 

$

17,784 

 

4.74 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

Total Notes Payable

 

 

$

76,227 

 

3.53 

%

 

$

73,101 

 

4.12 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

Notes Payable Totals by Security

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Total

Unsecured

 

$

69,647 

 

3.48 

%

 

$

66,634 

 

4.14 

%

Secured Total

Secured

 

$

6,580 

 

3.99 

%

 

$

6,467 

 

3.92 

%

Members’ Equity

During the year ended December 31, 2020,2022, total members’ equity increased by $1,837$115 thousand attributable to net income of $2,116$627 thousand earned by the Company and offset by dividend distributions of $279$512 thousand. We did not repurchase or sell any membership equity units during the year ended December 31, 2020.2022.

Liquidity and Capital Resources

Maintenance ofHolding adequate liquidity requires that sufficient resources arebe always available to meet our cash flow needs. We needuse cash to obtain new mortgage loans, repay term-debt, make interest payments to

47

Table of Contents

our note investors, make payments on our credit facilities, and pay general operating expenses. Our primary sources of liquidity are:

·

cash;

·

net income from operations;

lines of credit;

·

maturing loans;

sales of investor notes;

·

payments of principal and interest on loans;

·

loan sales;net income from operations; and

51


Table of Contents

·

sales of investor notes.

loan sales.

Our management team regularly prepares cash flow forecasts that we rely upon to ensure that we have adequatesufficient liquidity to conduct our business. While we believe that these expected cash inflows and outflows are reasonable, we can give no assurances that our forecasts or assumptions will prove to be accurate. correct. Management believes that we hold adequate sources of liquidity to meet our liquidity needs and have the means to generate more liquidity if necessary.

While our liquidity sources that include cash, reserves,lines of credit, and net cash from operations are generally available on an immediate basis, our ability to sell mortgage loan assets and raise additional debt or equity capital is less certain and less immediate. Material liquidity events that would adversely affect our business include, but are not limited to, the following:

we become unable to continue offering our investor notes in public and private offerings for any reason;
we incur sudden withdrawals by multiple investors in our investor notes;
a substantial portion of our investor notes that mature during the next twelve months is not renewed; or
we are unable to obtain capital from sales of our mortgage loan assets or other sources.

Withdrawal requests made by holders of high valuedollar notes can also adversely affect our liquidity. We believe that our available cash, operating lines of credit, cash flow from operations, net interest income, and other fee income will be sufficient to meet our cash needs. Should our liquidity needs exceed our available sources of liquidity, we believe we could sell a portionpart of our mortgage loan investments at par as well as sell investor notes to

48

Table of Contents

raise additional cash; however,more cash. However, we also must maintainkeep adequate collateral, consisting of loans receivable and cash, to secure our term-debtlines of credit and any secured notes. We have reduced this risk in the last three years due to the term-debt paydowns described in this Report. The Company now has more loans available to sell that are not encumbered by being pledged as collateral on the borrowing facilities.

Our Board of Managers approves our liquidity policy. The policy sets a minimum liquidity ratio and containshas a contingency protocol if our liquidity falls below the minimum. Our liquidity ratio was 26%11% at December 31, 2020,2022, which is above the minimum set by our policy. This was  a decrease from 32% at December 31, 2019 primarily due to the paydown of the term loan.  

We review our liquidity position on a regular basis to analyze our current position and expected trends of loan closings and sales of investor notes. Management believes that we maintain adequate sources of liquidity to meet our liquidity needs. Some of the material liquidity events that would adversely affect our business are listed below:

·

we become unable to continue offering our investor notes in public and private offerings for any reason;

·

we incur sudden withdrawals by multiple investors in our investor notes;

·

a substantial portion of our investor notes that mature during the next twelve months is not renewed; or

·

we are unable to obtain capital from sales of our mortgage loan assets or other sources.

COVID-19 Impact on the Company’sGrowing Liquidity Sources

In response to the economic uncertainty created from the COVID-19 pandemic, management began to generate liquidity from its loans receivable portfolio by selling participation interests in its loans receivable.receivable during 2020 and throughout 2021. In 2022, the Company moderated this strategy based on its current and expected near term liquidity needs. During the yearperiod ended December 31, 2020, the Company2022, we generated $3.7 million in cash from loan sales of $19,827thousand, including $17,106 thousand related to the sale of

52


loan participation interests. We planWhen we sell a loan participation interest, this strategy will allow the Company to continue to raise additional cash through loan and investor note sales, if necessary,fund loans that are larger than the amount management prefers to keep sufficient levelson our balance sheet. We limit the size of cash availableloans we hold on the balance sheet to meetlimit the risk in event the loan becomes non-performing. An additional liquidity tool we use in conjunction with our debt obligations to investors as well as obligations under our term-debtloan participation sales is a $5.0 million warehouse line of credit facilities.

Cash, restricted cash, and certificates of deposit were $23,734 thousand ($23.7 million) as(“KCT LOC”) with Kane County Teachers Credit Union (“KCT”). We must repay each advance within one hundred twenty (120) days after receiving the funds. As of December 31, 2020 and our liquidity ratio was 26%. These liquidity levels are significantly higher than2022, we had no outstanding balance on the cash amounts theKCT LOC.

The Company also has two other revolving lines of credit. The Company has historically carried.

Due to management’s desire to provide liquidity and safety for our investors amid the general uncertainty during the initial stage of the pandemic, MP Securities applied for and received a Paycheck Protection Program Loanrevolving $5.0 million short-term demand credit facility (“PPP loan”ACCU LOC) for $111 thousand.with America’s Christian Credit Union. The ACCU LOC has a one-year term with a maturity date of the loan is April 27, 2022.September 23, 2023. As of March 5, 2021,December 31, 2022, we had an outstanding balance of $3.0 million on this loan was forgiven by the SBA under the provisions of the CARES Act.facility. The Company does not have any restrictions on how the funds may be used for this facility. We also have a $5.0 million short-term demand credit facility with KCT. The Company can use this operating line as needed and it has a one-year term with a maturity date of June 6, 2023. As of December 31, 2022, we had no longer bears any liability for principal or interest dueoutstanding balance on the loan.this operating line of credit.

Debt Securities

The sale of our debt securities is a significant component in financingcontributes significantly to funding our mortgage loan investments. Through sales of our publicallypublicly offered notesdebt securities and privately placed investor notes, we expect to fund new loans, which we can hold either to receive interest income or to sell to participants to generate servicing income and gains on loan sales.loans. We also use the cash we receive from investor noteour debt securities sales to fund general operating activities.

At49

Table of Contents

As of December 31, 2020,2022, our investor notesdebt securities had future maturities during the following twelve-month periods ending December 3031, (dollars in thousands):

 

 

 

 

2021

 

$

27,514 

2022

 

 

11,764 

2023

 

 

6,517 

$

23,682

2024

 

 

10,294 

17,574

2025

 

 

20,138 

15,211

 

$

76,227 

2026

13,990

2027

8,701

79,158

Debt Issuance Costs

58

Notes payable, net of debt issuance costs

$

79,100

Historically, we have been successful in generating reinvestments by our debt security holders when the notes they hold mature. Our note renewal rate has been stable over the last several years.

The table below shows the renewal rates of our maturing notes over the last three years.



 



 

2020

60%

2019

75%

2018

62%

2022

63

%

2021

 

55

%

2020

 

60

%

53


Short-term Credit Facilities

Warehouse Line of Credit Short-Term Funding: KCT CU Warehouse line of credit

On September 30, 2020,During the years ended December 31, 2021, and December 31, 2022, we opened a $7.0 million warehouse line of creditworked with KCT, which will enable the Companyour investors to fund loans and warehouse them until sold without using long-term borrowing facilities orreduce larger investor notes (the “KCT Facility”). The KCT Facility isthat were maturing to reduce the concentration risk of any one investor not renewing a short-term demand credit facilitynote. We were able to replace these notes with funds from a one-year maturity datelarger number of September 30, 2021. The KCT Facility will automatically renew for another one-year term unless either party furnishes written notice at least thirty (30) days prior toinvestors. This intentional reduction of concentration risk reduced the termination date that it does not intend to renewrenewal rates in 2021 and 2022. However, as discussed, our investor debt securities increased by $2.4 million during the agreement. 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. To secure our obligations under the KCT Facility, we have agreed to grant a priority first lien and security interest in certain of our mortgage loan investments and maintain a minimum collateralization ratio measured by taking outstanding balance of mortgage notes pledged under the facility as compared to the total amount of principal owed on the KCT Facility. The minimum ratio must equal at least 120%. The KCT Facility contains typical affirmative covenants for a credit facility of this nature. The Company was in compliance with these covenants atyear ended December 31, 2020. As of December 31, 2020 the KCT warehouse line of credit had no outstanding balance.2022.

Term-debt Credit Facilities

We have funded a significant portion of our balance sheet through our term-debt. Because the term-debt has a fixed rate until the facilities mature in 2026, it provides a stable cost of funds. and Other Borrowings

The table below is a summary of the Company’s credit facilities$3 million in outstanding debt payable as of December 31, 2022 (dollars in thousands):

Nature of
Borrowing

Interest
Rate

Interest Rate
Type

Amount
Outstanding

Monthly
Payment

Maturity
Date

Loan Collateral
Pledged

Cash
Pledged

KCT Warehouse LOC

5.250%

Variable

$

$

6/6/2023

$

6,160

$

KCT Operating LOC

5.250%

Variable

6/6/2023

4,835

ACCU LOC

4.000%

Variable

3,000

9/23/2023

6,823

ACCU Secured

Various

Fixed

7

Various

7



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nature of Borrowing

 

Interest Rate

 

Interest Rate Type

 

Amount Outstanding

 

Monthly Payment

 

Maturity Date

 

Amount of Loan Collateral Pledged

 

Amount of Cash Pledged

Term Loan

 

2.525%

 

Fixed

 

$

51,405 

 

$

450 

 

11/1/2026

 

$

61,319 

 

$

 —

PPP Loan

 

1.000%

 

Fixed

 

$

111 

 

$

 —

 

4/27/2022

 

$

 —

 

$

 —

We cannot borrow additional funds on these facilities; therefore, we will need to find a new funding source when the facility matures. If we cannot find an alternative source of funding, we will have to shrink our balance sheet, which may reduce our net interest income. However, management reduced this risk on September 25, 2020 by paying off the remaining balance of $15 million on one of the term-debt credit facilities. In addition, on

54


March 5, 2021,On November 4, 2022, the Company paid down another $14.3used a portion of its liquidity sources to make a final payment of $5.4 million on the remaining term-debtto payoff our term loan credit facility, further reducing the need to replace this term-debt in the future.

As of the date of this Report, our only source of funds to pay down our term-debt credit facilities are our earnings, the debt securities we sell, and net cash flow from our loans receivable portfolio. Our warehouse line of credit from KCT cannot be used to pay down our term-debt,facility. The ACCU secured borrowing is a loan participation sold with recourse that is classified as it is only available to warehouse new loan originations.

The following table shows the maturity schedule on our credit facilities for the next five years and thereafter as of December 31, 2020 (dollars in thousands):



 

 

 



 

 

 

2021

 

$

4,156 

2022

 

 

4,372 

2023

 

 

4,370 

2024

 

 

4,479 

2025

 

 

4,596 

Thereafter

 

 

29,543 



 

$

51,516 

a secured borrowing.

Debt Covenants

Under our line of credit facility agreements and our investor note documents, we are obligatedbound to comply withfollow certain affirmative and negative covenants, including maintaining a minimum collateralization ratio of at least 120% for the Term-Loan Credit Facility.covenants. Failure to comply withfollow our covenants could

50

Table of Contents

require all interest and principal to become due. As of December 31, 2020,2022, we are in compliance with ourthe covenants on our notes payable and term debt.lines of credit.

·

For additionalmore information regarding our investor notes payable, refer to “Note 11. Investor Notes Payable of Part II, Item 8. of this Report.

·

For additionalmore information on our credit facilities, refer to “Note 10. Credit Facilities”, to Part II, Item 8. of this Report.

51

Table of Contents

Results of Operations:

For the year ended December 31, 20202022

Net Interest Income and Net Interest Margin

Historically, our earnings have primarily depended upon our net interest income.

Net interest income is the difference between the interest income we receive from our loans and cash on deposit (“interest-earning assets”assets) and the interest paid on our debt securities and term debt.

55


Net interest margin is net interest income expressed as a percentage of average total interest-earning assets.

The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest bearinginterest-bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:

Average Balances and Rates/Yields

For the Twelve Months Ended December 31,

(Dollars in Thousands)

2022

2021

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Average
Balance

Interest
Income/
Expense

Average
Yield/
Rate

Assets:

Interest-earning accounts with other financial institutions

$

15,312

$

129

0.84

%

$

19,795

$

43

0.22

%

Interest-earning loans[1][2]

83,524

5,706

6.83

%

101,476

6,998

6.90

%

Total interest-earning assets

98,836

5,835

5.90

%

121,271

7,041

5.81

%

Non-interest-earning assets

7,817

%

8,231

%

Total Assets

$

106,653

$

5,835

5.47

%

$

129,502

$

7,041

5.44

%

Liabilities:

Notes payable gross of debt issuance costs

$

76,111

$

2,882

3.79

%

$

73,897

$

2,657

3.60

%

Other debt

13,655

387

2.83

%

39,149

1,007

2.52

%

Total interest-bearing liabilities

$

89,766

$

3,269

3.64

%

$

113,046

$

3,664

3.24

%

Debt issuance cost

100

64

Total interest-bearing liabilities net of debt issuance cost

$

89,766

3,369

3.75

%

$

113,046

3,728

3.30

%

Net interest income

$

2,466

$

3,313

Net interest margin

2.50

%

2.73

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Average Balances and Rates/Yields



 

For the Twelve Months Ended December 31,



 

(Dollars in Thousands)



 

2020

 

2019



 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning accounts with other financial institutions

 

$

26,929 

 

 

$

161 

 

 

 

0.60 

%

 

$

20,200 

 

 

$

343 

 

 

 

1.70 

%

Interest-earning loans [1]

 

 

118,124 

 

 

 

8,182 

 

 

 

6.91 

%

 

 

135,202 

 

 

 

9,812 

 

 

 

7.28 

%

Total interest-earning assets

 

 

145,053 

 

 

 

8,343 

 

 

 

5.74 

%

 

 

155,402 

 

 

 

10,155 

 

 

 

6.55 

%

Non-interest-earning assets

 

 

7,995 

 

 

 

 —

 

 

 

 —

%

 

 

7,149 

 

 

 

 —

 

 

 

 —

%

Total Assets

 

 

153,048 

 

 

 

8,343 

 

 

 

5.44 

%

 

 

162,551 

 

 

 

10,155 

 

 

 

6.26 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable gross of debt issuance costs

 

 

74,443 

 

 

 

2,717 

 

 

 

3.64 

%

 

 

75,485 

 

 

 

3,110 

 

 

 

4.13 

%

Term-debt

 

 

64,906 

 

 

 

1,639 

 

 

 

2.52 

%

 

 

74,131 

 

 

 

1,867 

 

 

 

2.52 

%

Total interest-bearing liabilities

 

$

139,349 

 

 

 

4,356 

 

 

 

3.12 

%

 

$

149,616 

 

 

 

4,977 

 

 

 

3.34 

%

Debt issuance cost

 

 

 

 

 

 

99 

 

 

 

 

 

 

 

 

 

 

 

86 

 

 

 

 

 

Total interest-bearing liabilities net of debt issuance cost

 

$

139,349 

 

 

 

4,455 

 

 

 

3.19 

%

 

$

149,616 

 

 

 

5,063 

 

 

 

3.39 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

3,888 

 

 

 

 

 

 

 

 

 

 

$

5,092 

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

2.67 

%

 

 

 

 

 

 

 

 

 

 

3.29 

%

[1] Loans are net of deferred fees and before the allowance for loan losses. Non-accrual loans are considered non-interest earning assets for this analysis.

[2] Interest income on loans includes deferred fee amortization of $127 thousand and $231 thousand for the years ended years ended December 31, 2022 and 2021, respectively.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Rate/Volume Analysis of Net Interest Income



 

 

Twelve Months Ended



 

December 31, 2020 vs. 2019



 

Increase (Decrease) Due to Change in:



 

Volume

 

Rate

 

Total



 

(Dollars in Thousands)

Increase (Decrease) in Interest Income:

 

 

 

 

 

 

 

 

 

Interest-earning accounts with other financial institutions

 

$

89 

 

$

(271)

 

$

(182)

Interest-earning loans

 

 

(1,148)

 

 

(482)

 

 

(1,630)

Total interest-earning assets

 

 

(1,059)

 

 

(753)

 

 

(1,812)

Increase (Decrease) in Interest Expense:

 

 

 

 

 

 

 

 

 

Notes payable gross of debt issuance costs

 

 

(310)

 

 

(83)

 

 

(393)

Term-debt

 

 

(228)

 

 

 —

 

 

(228)

Debt issuance cost

 

 

 —

 

 

13 

 

 

13 

Total interest-bearing liabilities

 

 

(538)

 

 

(70)

 

 

(608)

Change in net interest income

 

$

(521)

 

$

(683)

 

$

(1,204)

52

Table of Contents

Rate/Volume Analysis of Net Interest Income

Twelve Months Ended

December 31, 2022 vs. 2021

Increase (Decrease) Due to Change in:

Volume

Rate

Total

(Dollars in Thousands)

Increase (Decrease) in Interest Income:

Interest-earning accounts with other financial institutions

$

(11)

$

97

$

86

Interest-earning loans

(1,222)

(70)

(1,292)

Total interest-earning assets

(1,233)

27

(1,206)

Increase (Decrease) in Interest Expense:

Notes payable gross of debt issuance costs

180

45

225

Other debt

(729)

109

(620)

Debt issuance cost

36

36

Total interest-bearing liabilities

(549)

190

(359)

Change in net interest income

$

(684)

$

(163)

$

(847)

Net interest income decreased 24%26% during the year ended December 31, 2020. Net interest margin decreased 62 basis points to 2.67% for the year ended December 31, 2020.2022. This decrease in net interest income was primarily due to reduced interest incomethe lower average balance on both of our primary sources of interest

56


income: interest-earning accounts with other financial institutions and interest-earning loans. Reduced interest-expenseLower interest expense on notes payable and term-debtdebt partially offset the decreaseddecrease in earnings somewhat as explained below.  on total interest-earning assets.

The decrease in yield on interest-earning loansinterest income was due to botha volume and rate variance.variance on interest-earning loans. The volume variance was due to the lower average loan balances as the Company sold participationreceived loan interests to increase cash balances due to the uncertainty of the economy caused by COVID-19. The rate variance on the interest-earning loans was due to the Company collecting and recognizing interest when two non-accrual loans paid off during 2019. On payoff, the Company was able to collect $511 thousand of interest incomeprincipal payments as described previously allocated to principal when the loans were on non-accrual basis.in this Report. The weighted average rateyield on the loan portfolio decreased slightly7 basis points from 6.59%6.90% to 6.55%6.83% during the year ended December 31, 2020. The rate variance decrease on interest-earning accounts with other financial was due to the decrease in average yield on these accounts of 110 basis points. The decrease was due to overall market2022.

Total interest rates declining over the last twelve months caused by the Federal Reserve’s monetary response to the COVID-19 pandemic. The volume variance was due to the Company holding higher cash balances as described previously.

Offsettingexpense offset the decrease in interest income totalby $359 thousand. $729 thousand of this decrease in interest expense was due to a decrease in average balance on term-debt as described previously in this Report. This was offset by an increase of $190 thousand due to a rate variance. The rate variance was due to higher offering rates on new note sales as US Treasury rates increased during the year.

The Company’s net interest margin decreased by $608due to the changes described above. The Company intends to grow its loan portfolio in 2023 and beyond in order to increase net interest income.

53

Table of Contents

Provision and non-interest income and expense

Twelve months ended

December 31,

Comparison

(dollars in thousands)

2022

2021

$ Change

% Change

Net interest income

$

2,466

$

3,313

$

(847)

(26%)

Provision (credit) for loan losses

(296)

122

(418)

(343%)

Net interest income after provision (credit) for loan losses

2,762

3,191

(429)

(13%)

Total non-interest income

3,592

3,600

(8)

(0%)

Total non-interest expenses

5,707

4,921

786

16%

Income before provision for income taxes

647

1,870

(1,223)

(65%)

Provision for income taxes and state LLC fees

20

20

—%

Net income

$

627

$

1,850

$

(1,223)

(66%)

Provision

In 2022, the Company recorded a credit to provision for loan losses due to lower average loan balances and recovery on a non-performing loan.

Non-interest income

Non-interest income was mostly unchanged in 2022 compared to 2021. The Company recorded a $2.5 million and a $2.4 million gain on debt extinguishment for the years ended December 31, 2022, and 2021, respectively. With our term-loan fully paid off we do not expect to receive revenue from this source going forward. Therefore, we intend to grow our loan portfolio to increase our net interest income in 2023.

Non-interest expenses

The increase in non-interest expenses was due primarily to a one-time SERP expense of $600 thousand for the year ended December 31, 2020. This was mostly due2022, compared to both a decreaseDecember 31, 2021. For more information on the SERP, please see Note 15, Retirement Plans in average balance on investor notes payable and a decrease in average balance on term-debt. The decrease in average balance on term-debt was duethe Notes to the $15 million payoff of a portion of term debt in September 2020, as well as contractual monthly principal payments made on the term-debt.Consolidated Financial Statements.

5754


Table of Contents

Provision and non-interest income and expense



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Twelve months ended

 

 

 

 

 

 



 

December 31,

 

Comparison



 

(dollars in thousands)

 

 

 

 

 

 



 

2020

 

2019

 

$ Change

 

% Change

Net interest income

 

$

3,888 

 

$

5,092 

 

$

(1,204)

 

 

(24%)

Provision (credit) for loan losses

 

 

188 

 

 

(544)

 

 

732 

 

 

100%

Net interest income after provision (credit) for loan losses

 

 

3,700 

 

 

5,636 

 

 

(1,936)

 

 

(34%)

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer commissions and fees

 

 

762 

 

 

1,415 

 

 

(653)

 

 

(46%)

Other lending income

 

 

283 

 

 

154 

 

 

129 

 

 

84%

Gain on debt extinguishment

 

 

2,400 

 

 

 —

 

 

2,400 

 

 

—%

Total non-interest income

 

 

3,445 

 

 

1,415 

 

 

2,030 

 

 

143%

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,868 

 

 

2,810 

 

 

58 

 

 

2%

Marketing and promotion

 

 

238 

 

 

275 

 

 

(37)

 

 

(13%)

Office occupancy

 

 

179 

 

 

177 

 

 

 

 

1%

Office operations and other expenses

 

 

1,353 

 

 

1,483 

 

 

(130)

 

 

(9%)

Foreclosed assets, net

 

 

11 

 

 

97 

 

 

(86)

 

 

(89%)

Legal and accounting

 

 

360 

 

 

343 

 

 

17 

 

 

5%

Total non-interest expenses

 

 

5,009 

 

 

5,185 

 

 

(176)

 

 

(3%)

Income before provision for income taxes

 

 

2,136 

 

 

2,020 

 

 

116 

 

 

6%

Provision for income taxes and state LLC fees

 

 

20 

 

 

19 

 

 

 

 

5%

Net income

 

$

2,116 

 

$

2,001 

 

$

115 

 

 

6%

Provision

Net interest income after provision for loan losses decreased by $1,936 thousand for the year ended December 31, 2020. This decrease was primarily due to a credit for loan losses recorded during 2019 but not in the year ended December 31, 2020.

Non-interest income

The increase in non-interest income shown above was the result of the gain on debt extinguishment of $2.4 million as described above. Revenue from broker-dealer commissions and fees decreased by $653 thousand during the year ended December 31, 2020 compared to the year ended December 31, 2019. This decrease was the result of reduced investment activity due to the COVID-19 pandemic during the year ended December 31, 2020 compared to the year ended December 31, 2019. Other lending income increased by $129 thousand during the year ended December 31, 2020. This was due to the Company selling  $17,106 thousand in loan participations in 2020 as compared to no loan sales during 2019. 

Non-interest expenses

The decrease in non-interest expenses of $176 thousand was due primarily to decreased business activity, such as reduced travel, because of the COVID-19 pandemic.

58


Table of Contents

Results of Operations:

For the year ended December 31, 20192021:

Net Interest Income and Net Interest Margin:

The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest bearinginterest-bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:

Average Balances and Rates/Yields

 

For the Twelve Months Ended December 31,

 

(Dollars in Thousands)

 

2021

2020

 

    

    

Interest

    

Average

    

    

Interest

    

Average 

 

Average

Income/

Yield/

Average

Income/

Yield/

 

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

Interest-earning accounts with other financial institutions

$

19,795

$

43

 

0.22

%  

$

26,929

$

161

 

0.60

%

Interest-earning loans [1][2]

 

101,476

 

6,998

 

6.90

%  

 

118,124

 

8,182

 

6.91

%

Total interest-earning assets

 

121,271

 

7,041

 

5.81

%  

 

145,053

 

8,343

 

5.74

%

Non-interest-earning assets

 

8,231

 

 

%  

 

7,995

 

 

%

Total Assets

 

129,502

 

7,041

 

5.44

%  

 

153,048

 

8,343

 

5.44

%

Liabilities:

 

  

 

  

 

 

 

 

Notes payable gross of debt issuance costs

 

73,897

 

2,657

 

3.60

%  

 

74,443

 

2,717

 

3.64

%

Other debt

 

39,149

 

1,007

 

2.57

%  

 

64,906

 

1,639

 

2.52

%

Total interest-bearing liabilities

$

113,046

$

3,664

 

3.24

%  

$

139,349

$

4,356

 

3.12

%

Debt issuance cost

 

 

64

 

 

 

99

 

Total interest-bearing liabilities net of debt issuance cost

$

113,046

 

3,728

 

3.30

%  

$

139,349

 

4,455

 

3.19

%

Net interest income

$

3,313

 

 

  

$

3,888

 

Net interest margin

 

 

2.73

%  

 

  

 

  

 

2.67

%  



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Average Balances and Rates/Yields



 

For the Twelve Months Ended December 31,



 

(Dollars in Thousands)



 

2019

 

2018



 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

 

Average
Balance

 

Interest
Income/
Expense

 

Average
Yield/
Rate

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning accounts with other financial institutions

 

$

20,200 

 

 

$

343 

 

 

 

1.70 

%

 

$

12,956 

 

 

$

96 

 

 

 

0.74 

%

Interest-earning loans [1]

 

 

135,202 

 

 

 

9,812 

 

 

 

7.28 

%

 

 

136,814 

 

 

 

9,112 

 

 

 

6.66 

%

Total interest-earning assets

 

 

155,402 

 

 

 

10,155 

 

 

 

6.55 

%

 

 

149,770 

 

 

 

9,208 

 

 

 

6.15 

%

Non-interest-earning assets

 

 

7,149 

 

 

 

 —

 

 

 

 —

%

 

 

8,726 

 

 

 

 —

 

 

 

 —

%

Total Assets

 

 

162,551 

 

 

 

10,155 

 

 

 

6.26 

%

 

 

158,496 

 

 

 

9,208 

 

 

 

5.81 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable gross of debt issuance costs

 

 

75,485 

 

 

 

3,110 

 

 

 

4.13 

%

 

 

68,879 

 

 

 

2,760 

 

 

 

4.01 

%

Term-debt

 

 

74,131 

 

 

 

1,867 

 

 

 

2.52 

%

 

 

79,199 

 

 

 

2,000 

 

 

 

2.52 

%

Total interest-bearing liabilities

 

$

149,616 

 

 

 

4,977 

 

 

 

3.34 

%

 

$

148,078 

 

 

 

4,760 

 

 

 

3.21 

%

Debt issuance cost

 

 

 

 

 

 

86 

 

 

 

 

 

 

 

 

 

 

 

76 

 

 

 

 

 

Total interest-bearing liabilities net of debt issuance cost

 

$

149,616 

 

 

 

5,063 

 

 

 

3.39 

%

 

$

148,078 

 

 

 

4,836 

 

 

 

3.27 

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

5,092 

 

 

 

 

 

 

 

 

 

 

$

4,372 

 

 

 

 

 

Net interest margin

 

 

 

 

 

 

 

 

 

 

3.29 

%

 

 

 

 

 

 

 

 

 

 

2.92 

%

[1] Loans are net of deferred fees and before the allowance for loan losses. Non accrualNon-accrual loans are considered non-interest earning assets for this analysis.

[2] Interest income on loans includes deferred fee amortization of $231 thousand and $257 thousand for the years ended December 31, 2021 and 2020, respectively.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Rate/Volume Analysis of Net Interest Income



 

 

Twelve Months Ended



 

December 31, 2019 vs. 2018



 

Increase (Decrease) Due to Change in:



 

Volume

 

Rate

 

Total



 

(Dollars in Thousands)

Increase (Decrease) in Interest Income:

 

 

 

 

 

 

 

 

 

Interest-earning accounts with other financial institutions

 

$

74 

 

$

173 

 

$

247 

Interest-earning loans

 

 

(139)

 

 

839 

 

 

700 

Total interest-earning assets

 

 

(65)

 

 

1,012 

 

 

947 

Increase (Decrease) in Interest Expense:

 

 

 

 

 

 

 

 

 

Notes payable gross of debt issuance costs

 

 

320 

 

 

30 

 

 

350 

Term-debt

 

 

(133)

 

 

 —

 

 

(133)

Debt issuance cost

 

 

 —

 

 

10 

 

 

10 

Total interest-bearing liabilities

 

 

187 

 

 

40 

 

 

227 

Change in net interest income

 

$

(252)

 

$

972 

 

$

720 

Twelve Months Ended

December 31, 2021 vs. 2020

Increase (Decrease) Due to Change in:

    

Volume

    

Rate

    

Total

(Dollars in Thousands)

Increase (Decrease) in Interest Income:

 

  

 

  

 

  

Interest-earning accounts with other financial institutions

$

(35)

$

(83)

$

(118)

Interest-earning loans

 

(1,172)

(12)

(1,184)

Total interest-earning assets

 

(1,207)

(95)

(1,302)

Increase (Decrease) in Interest Expense:

 

Notes payable gross of debt issuance costs

 

(77)

17

(60)

Term-debt

 

(664)

32

(632)

Debt issuance cost

 

(35)

(35)

Total interest-bearing liabilities

 

(741)

14

(727)

Change in net interest income

$

(466)

$

(109)

$

(575)

5955


Table of Contents

Net interest income increased 16%decreased 15% during the year ended December 31, 2019. Net2021. This decrease in net interest margin increased 37 basis points to 3.29% for the year ended December 31, 2019. These improvements were mainlyincome was due primarily due to an increase in incomelower average balance on interest-earning assets.loans. Lower interest expense on notes payable and term-debt partially offset the decreased earnings as explained below.

The increase on total interest-earning assetsOf the $1.3 million decrease in interest income, $1.2 million was due to mainly to an increase in yielda volume variance on interest-earning loans. The majority of this increasevolume variance was due to the payoff of two previously non-performing loans. On payoff,lower average loan balances as the Company was able to collect $511 thousand of interest incomesold loan participation interests and received loan principal payments as described previously allocated to principal when the loans were on non-accrual basis.in this Report. The weighted average rate on the loan portfolio increaseddecreased 34 basis points from 6.43%6.55% to 6.59%6.21% during the year ended December 31, 2019.2021. The portfolio rate variance increase on interest-earning accounts with other financial institutionsdecreased as new lower rate loans replaced higher rate loans that paid off.

Total interest expense offset the decrease in interest income by $727 thousand. $664 thousand of this decrease in interest expense was due to an increase in average yield on these accounts of 96 basis points. The increase was due to two factors. First, overall market interest rates have increased over the last twelve months. Second, we have allocated a higher percentage of our funds to higher interest-earning accounts.

Offsetting the increase in interest income somewhat, total interest expense increased by $227 thousand for the year ended December 31, 2019. This was mostly due to an increase in average balance on investor notes payable offset slightly by a decrease in average balance on term-debt. term-debt as described previously in this Report.

The average balance of our investor notes payableCompany's net interest margin increased by $6,606 thousand due todespite the expanded efforts to market our investor notes to faith-based organizations, institutions, and ministries. The decrease in averageoverall net interest income because the Company’s balance on term-debt was due to contractual monthly principal payments made on the term-debt.

60


Tablesheet had a higher percentage of Contentsits interest-earning assets invested in higher yielding interest-earning loans.

Provision and non-interest income and expense

Twelve months ended

 

December 31,

Comparison

 

(dollars in thousands)

 

    

2021

    

2020

    

$Change

    

% Change

 

Net interest income

$

3,313

$

3,888

$

(575)

 

(15)

%

Provision for loan losses

 

122

 

188

 

(66)

 

(35)

%

Net interest income after provision for loan losses

 

3,191

 

3,700

 

(509)

 

(14)

%

Non-interest income

 

 

 

 

Broker-dealer commissions and fees

 

878

 

762

 

116

 

15

%

Other lending income

 

324

 

283

 

41

 

14

%

Gain on debt extinguishment

 

2,398

 

2,400

 

(2)

 

%

Total non-interest income

 

3,600

 

3,445

 

155

 

4

%

Non-interest expenses:

 

 

 

 

Total non-interest expenses

 

4,921

 

5,009

 

(88)

 

(2)

%

Income before provision for income taxes

 

1,870

 

2,136

 

(266)

 

(12)

%

Provision for income taxes and state LLC fees

 

20

 

20

 

 

%

Net income

$

1,850

$

2,116

$

(266)

 

(13)

%



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Twelve months ended

 

 



 

December 31,

 

Comparison



 

(dollars in thousands)

 

 

 

 

 

 



 

2019

 

2018

 

$ Change

 

% Change

Net interest income

 

$

5,092 

 

$

4,372 

 

$

720 

 

 

16%

Provision (credit) for loan losses

 

 

(544)

 

 

666 

 

 

(1,210)

 

 

100%

Net interest income after provision (credit) for loan losses

 

 

5,636 

 

 

3,706 

 

 

1,930 

 

 

52%

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer commissions and fees

 

 

1,415 

 

 

523 

 

 

892 

 

 

171%

Other lending income

 

 

154 

 

 

921 

 

 

(767)

 

 

(83%)

Total non-interest income

 

 

1,569 

 

 

1,444 

 

 

125 

 

 

9%

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

2,810 

 

 

2,695 

 

 

115 

 

 

4%

Marketing and promotion

 

 

275 

 

 

140 

 

 

135 

 

 

96%

Office occupancy

 

 

177 

 

 

153 

 

 

24 

 

 

16%

Office operations and other expenses

 

 

1,483 

 

 

1,224 

 

 

259 

 

 

21%

Foreclosed assets, net

 

 

97 

 

 

 —

 

 

97 

 

 

N/A

Legal and accounting

 

 

343 

 

 

441 

 

 

(98)

 

 

(22%)

Total non-interest expenses

 

 

5,185 

 

 

4,653 

 

 

532 

 

 

11%

Income before provision for income taxes

 

 

2,020 

 

 

497 

 

 

1,523 

 

 

306%

Provision for income taxes and state LLC fees

 

 

19 

 

 

20 

 

 

(1)

 

 

(5%)

Net income

 

$

2,001 

 

$

477 

 

$

1,524 

 

 

319%

Provision

Net interest income after provision for loan losses increaseddecreased by $1,929$509 thousand for the year ended December 31, 2019. This increase was primarily2021. The provision expense decreased by $66 thousand for the year ended December 31, 2021, as compared to December 31, 2020. The decrease in the

56

Table of Contents

provision is due to a creditthe lower general reserve needed on the smaller average loan balance in provision expense related2021 compared to loan loss recoveries on loan payoffs.2020.

Non-interest income

The increase in non-interest income shown above was the result of a robust increase inprimarily due to higher income on broker-dealer commissions and fees offsetin 2021 compared to 2020. By expanding relationships with other credit unions and strategic partners that share an interest in providing investment, retirement, insurance and wealth planning options that align with Christian stewardship principles, we were able to expand the number of clients that we serve and increase the income generated from assets under management and non-interest income bearing sources. This higher income was due to stock market valuation growth as well as expanding our client base and increasing the volume of our revenue producing transactions. Other lending income increased by a decrease in other lending income. Revenue from broker-dealer commissions and fees increase by $892$41 thousand during the year ended December 31, 2019 compared2021, due to the growing our total participation interests sold and serviced by $8.1 million during the year.

Non-interest expenses

The decrease in non-interest expenses of $88 thousand was due primarily to a decrease in staff for the year ended December 31, 2018. This increase was the result of an increase in institutional business during the year ended2021, compared to December 31, 2019 compared to the year ended December 31, 2018. Offsetting the increase in broker-dealer commissions and fees, other lending income decreased by $767 thousand during the year ended December 31, 2019. This was mostly due to recording a gain on loan sale during the year ended December 31, 2018 while we did not record any gains on loan sales during 2019.2020.

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Table of Contents

Non-interest expenses

The increase in non-interest expenses of $532 thousand was due primarily to an increase in variable expenses directly related to the increase in non-interest income described above. Additionally, office operations expenses increased as we outsourced some credit management functions to outside contractors.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not providing the information contained in this item pursuant to Regulation S-K

6258


Table of Contents

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Included herewith are the following financial statements:

Table of Contents

6359


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Members

Ministry Partners Investment Company, LLC

Brea, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Ministry Partners Investment Company, LLC and its subsidiaries (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of income, member’smembers’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

F-1F-1


Table of Contents

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As more fully described in Notes 1 and 4 to the Company’s consolidated financial statements, the allowance for loan losses represents losses that are estimated to have occurred. The allowance for loan losses is based on collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. The allowance consists of allocated and general components. The allocated component relates to specific allowances on loans that are classified as impaired. The general component relates to loans that are not classified as impaired and is based on historical charge-off experience and the qualitative factors for each class of loans with similar risk characteristics. Qualitative factors include general conditions in economy; loan portfolio composition; delinquencies; changes in underwriting policies; credit administration practices; and experience, ability and depth of lending management, among other factors. Management discloses that this evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

We identified the valuation of the allowance for loan losses as a critical audit matter. Auditing the allowance for loan losses involves a high degree of subjectivity in evaluating management’s estimates, such as evaluating management’s assessment of economic conditions and other qualitative or environmental factors, evaluating the adequacy of specific allowances associated with impaired loans, and assessing the appropriateness of loan grades.

The primary procedures we performed to address this critical audit matter included:

·

Testing of completeness and accuracy of the information utilized in the calculation of the allowance for loan losses;

·

Evaluating the qualitative adjustments to historical loss rates, including assessing the basis for the adjustments and the reasonableness of the significant assumptions;

F-2

Table of Contents

·

Testing the allowance model for computational accuracy;

F-2


Table of Contents

·

Assessing the reasonableness of specific allowances on certain impaired loans;

·

Evaluating the overall reasonableness of significant assumptions used by management;

·

Testing the assignment of loan risk ratings;

·

Evaluating the accuracy and completeness of disclosures in the consolidated financial statements.

/s/ Hutchinson and Bloodgood LLP

We have served as the Company'sCompany’s auditor since 2005.

Glendale, California

March 25, 202124, 2023

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Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Balance Sheets

As of December 31, 20202022 and 20192021

(Dollarsdollars in thousands except unit data)

    

2022

    

2021

Assets:

Cash and cash equivalents

$

9,504

$

28,080

Restricted cash

60

69

Certificates of deposit

1,250

Loans receivable, net of allowance for loan losses of $1,551 and $1,638 as of December 31, 2022 and 2021, respectively

85,076

97,243

Accrued interest receivable

477

507

Investments in joint venture

870

882

Other investments

1,018

Property and equipment, net

140

172

Foreclosed assets, net

301

301

Servicing assets

123

170

Other assets

544

541

Total assets

$

99,363

$

127,965

Liabilities and members’ equity

Liabilities:

Lines of credit

$

3,000

$

2,000

Term-debt

32,749

Other secured borrowings

7

17

Notes payable, net of debt issuance costs of $58 and $88 as of December 31, 2022 and 2021, respectively

79,100

76,732

Accrued interest payable

281

252

Other liabilities

2,349

1,704

Total liabilities

84,737

113,454

Members' Equity:

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at December 31, 2022 and 2021 (liquidation preference of $100 per unit); See Note 14

11,715

11,715

Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at December 31, 2022 and 2021; See Note 14

1,509

1,509

Accumulated earnings

1,402

1,287

Total members' equity

14,626

14,511

Total liabilities and members' equity

$

99,363

$

127,965



 

 

 

 

 

 



 

 

 

 

 

 



 

2020

 

2019

Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,922 

 

$

25,993 

Restricted cash

 

 

51 

 

 

52 

Certificates of deposit

 

 

1,761 

 

 

 —

Loans receivable, net of allowance for loan losses of $1,516 and $1,393 as of December 31, 2020 and 2019, respectively

 

 

116,121 

 

 

128,843 

Accrued interest receivable

 

 

798 

 

 

635 

Investments in joint venture

 

 

884 

 

 

891 

Property and equipment, net

 

 

219 

 

 

216 

Foreclosed assets, net

 

 

301 

 

 

301 

Servicing assets

 

 

147 

 

 

100 

Other assets

 

 

889 

 

 

990 

Total assets

 

$

143,093 

 

$

158,021 

Liabilities and members’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Term-debt

 

$

51,516 

 

$

71,427 

Notes payable, net of debt issuance costs of $33 and $55 as of December 31, 2020 and 2019, respectively

 

 

76,194 

 

 

73,046 

Accrued interest payable

 

 

312 

 

 

266 

Other liabilities

 

 

2,163 

 

 

2,211 

Total liabilities

 

 

130,185 

 

 

146,950 

Members' Equity:

 

 

 

 

 

 

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at December 31, 2020 and 2019 (liquidation preference of $100 per unit); See Note 14

 

 

11,715 

 

 

11,715 

Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at December 31, 2020 and 2019; See Note 14

 

 

1,509 

 

 

1,509 

Accumulated deficit

 

 

(316)

 

 

(2,153)

Total members' equity

 

 

12,908 

 

 

11,071 

Total liabilities and members' equity

 

$

143,093 

 

$

158,021 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 20202022 and 20192021

(Dollarsdollars in thousands)

      

2022

    

2021

Interest income:

Interest on loans

$

5,706

$

6,998

Interest on interest-bearing accounts

129

43

Total interest income

5,835

7,041

Interest expense:

Other debt

387

1,007

Notes payable

2,982

2,721

Total interest expense

3,369

3,728

Net interest income

2,466

3,313

Provision (credit) for loan losses

(296)

122

Net interest income after provision (credit) for loan losses

2,762

3,191

Non-interest income:

Broker-dealer commissions and fees

838

878

Other income

217

324

Gain on debt extinguishment

2,537

2,398

Total non-interest income

3,592

3,600

Non-interest expenses:

Salaries and benefits

3,504

2,778

Marketing and promotion

174

214

Office occupancy

178

178

Office operations and other expenses

1,491

1,315

Foreclosed assets, net

10

22

Legal and accounting

350

414

Total non-interest expenses

5,707

4,921

Income before provision for income taxes and state LLC fees

647

1,870

Provision for income taxes and state LLC fees

20

20

Net income

$

627

$

1,850



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

2020

 

2019

Interest income:

 

 

 

 

 

 

 

Interest on loans

 

 

$

8,182 

 

$

9,812 

Interest on interest-bearing accounts

 

 

 

161 

 

 

343 

Total interest income

 

 

 

8,343 

 

 

10,155 

Interest expense:

 

 

 

 

 

 

 

Term-debt

 

 

 

1,639 

 

 

1,867 

Notes payable

 

 

 

2,816 

 

 

3,196 

Total interest expense

 

 

 

4,455 

 

 

5,063 

Net interest income

 

 

 

3,888 

 

 

5,092 

Provision (credit) for loan losses

 

 

 

188 

 

 

(544)

Net interest income after provision (credit) for loan losses

 

 

 

3,700 

 

 

5,636 

Non-interest income:

 

 

 

 

 

 

 

Broker-dealer commissions and fees

 

 

 

762 

 

 

1,415 

Other income

 

 

 

283 

 

 

154 

Gain on debt extinguishment

 

 

 

2,400 

 

 

 —

Total non-interest income

 

 

 

3,445 

 

 

1,569 

Non-interest expenses:

 

 

 

 

 

 

 

Salaries and benefits

 

 

 

2,868 

 

 

2,810 

Marketing and promotion

 

 

 

238 

 

 

275 

Office occupancy

 

 

 

179 

 

 

177 

Office operations and other expenses

 

 

 

1,353 

 

 

1,483 

Foreclosed assets, net

 

 

 

11 

 

 

97 

Legal and accounting

 

 

 

360 

 

 

343 

Total non-interest expenses

 

 

 

5,009 

 

 

5,185 

Income before provision for income taxes and state LLC fees

 

 

 

2,136 

 

 

2,020 

Provision for income taxes and state LLC fees

 

 

 

20 

 

 

19 

Net income

 

 

$

2,116 

 

$

2,001 

The accompanying notes are an integral part of these consolidated financial statements.

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Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Equity

For the years ended December 31, 20202022 and 20192021

(Dollarsdollars in thousands)

Series A Preferred Units

Class A Common Units

    

Number of
Units

    

Amount

    

Number of
Units

    

Amount

    

Accumulated
Deficit

    

Total

Balance, December 31, 2020

117,100

$

11,715

146,522

$

1,509

$

(316)

$

12,908

Net income

1,850

1,850

Dividends on preferred units

(247)

(247)

Balance, December 31, 2021

117,100

$

11,715

146,522

$

1,509

$

1,287

$

14,511

Net income

627

627

Dividends on preferred units

(512)

(512)

Balance, December 31, 2022

117,100

$

11,715

146,522

$

1,509

$

1,402

$

14,626



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Series A Preferred Units

 

Class A Common Units



 

Number of Units

 

Amount

 

Number of Units

 

Amount

 

Accumulated Deficit

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

 

117,100 

 

$

11,715 

 

 

146,522 

 

$

1,509 

 

$

(3,693)

 

$

9,531 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,001 

 

 

2,001 

Dividends on preferred units

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(461)

 

 

(461)

Balance, December 31, 2019

 

 

117,100 

 

$

11,715 

 

 

146,522 

 

$

1,509 

 

$

(2,153)

 

$

11,071 

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,116 

 

 

2,116 

Dividends on preferred units

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(279)

 

 

(279)

Balance, December 31, 2020

 

 

117,100 

 

$

11,715 

 

 

146,522 

 

$

1,509 

 

$

(316)

 

$

12,908 

The accompanying notes are an integral part of these consolidated financial statements.

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Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 20202022 and 20192021

(Dollarsdollars in thousands)



 

 

 

 

 

 



 

 



 

2020

 

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

2,116��

 

$

2,001 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

Depreciation

 

 

52 

 

 

43 

Amortization of deferred loan fees, net

 

 

(257)

 

 

(269)

Amortization of debt issuance costs

 

 

97 

 

 

86 

Provision (credit) for loan losses

 

 

188 

 

 

(544)

Accretion of loan discount

 

 

(31)

 

 

(247)

Gain on sale of loans

 

 

(69)

 

 

 —

Loss on sale of fixed assets

 

 

 

 

 —

Gain on debt extinguishment

 

 

(2,400)

 

 

 —

Changes in:

 

 

 

 

 

 

Accrued interest receivable

 

 

(163)

 

 

76 

Other assets

 

 

161 

 

 

(469)

Accrued interest payable

 

 

46 

 

 

17 

Other liabilities

 

 

(12)

 

 

1,236 

Net cash provided (used) by operating activities

 

 

(264)

 

 

1,930 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Loan purchases

 

 

 —

 

 

(2,255)

Loan originations

 

 

(19,449)

 

 

(7,951)

Loan sales

 

 

19,827 

 

 

 —

Loan principal collections

 

 

12,413 

 

 

25,324 

Purchase of certificates of deposit

 

 

(1,761)

 

 

 —

Purchase of property and equipment

 

 

(87)

 

 

(176)

Sale of property and equipment

 

 

24 

 

 

Net cash provided by investing activities

 

 

10,967 

 

 

14,946 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Repayment of term debt

 

 

(17,622)

 

 

(5,088)

Borrowings from financial institutions

 

 

111 

 

 

 —

Net change in notes payable

 

 

3,126 

 

 

4,709 

Debt issuance costs

 

 

(75)

 

 

(49)

Dividends paid on preferred units

 

 

(315)

 

 

(331)

Net cash used by financing activities

 

 

(14,775)

 

 

(759)

Net increase (decrease) in cash and restricted cash

 

 

(4,072)

 

 

16,117 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

26,045 

 

 

9,928 

Cash, cash equivalents, and restricted cash at end of period

 

$

21,973 

 

$

26,045 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Interest paid

 

$

4,409 

 

$

5,046 

Income taxes paid

 

 

15 

 

 

20 

Leased assets obtained in exchange of new operating lease liabilities

 

 

53 

 

 

680 

Lease liabilities recorded

 

 

53 

 

 

680 

Transfer of loans to foreclosed assets

 

 

 —

 

 

479 

Transfer of foreclosed assets to other assets

 

 

 —

 

 

178 

Dividends declared to preferred unit holders

 

 

201 

 

 

237 

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

627

$

1,850

Adjustments to reconcile net income to net cash used by operating activities:

Depreciation

44

48

Amortization of deferred loan fees, net

(127)

(231)

Amortization of debt issuance costs

100

64

Provision (credit) for loan losses

(296)

122

Accretion of loan discount

(20)

(26)

Gain on sale of loans

(13)

(64)

Gain on sale of foreclosed assets

(44)

Gain on debt extinguishment

(2,537)

(2,398)

Gain on other investments

(18)

Changes in:

Accrued interest receivable

30

292

Other assets

75

407

Accrued interest payable

28

(60)

Other liabilities

667

(461)

Net cash used by operating activities

(1,440)

(501)

CASH FLOWS FROM INVESTING ACTIVITIES:

Loan purchases

(2,760)

(842)

Loan originations

(4,267)

(14,319)

Loan sales

3,716

14,053

Loan principal collections

15,915

20,104

Purchase of other investments

(1,000)

Redemption (purchase) of certificates of deposit

(1,250)

1,761

Sale of foreclosed assets

44

Purchase of property and equipment

(12)

(1)

Net cash provided by investing activities

10,342

20,800

CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on term debt

(30,212)

(16,369)

Borrowings, net of repayments on lines of credit

1,000

2,000

Net change in secured borrowings

(10)

17

Net change in investor notes payable

2,338

593

Debt issuance costs

(70)

(119)

Dividends paid on preferred units

(533)

(245)

Net cash used by financing activities

(27,487)

(14,123)

Net increase (decrease) in cash and restricted cash

(18,585)

6,176

Cash, cash equivalents, and restricted cash at beginning of period

28,149

21,973

Cash, cash equivalents, and restricted cash at end of period

$

9,564

$

28,149

Supplemental disclosures of cash flow information

Interest paid

$

3,341

$

3,788

Income taxes paid

20

20

Leased assets obtained in exchange of new operating lease liabilities

106

Lease liabilities recorded

101

Dividends declared to preferred unit holders

182

203

The accompanying notes are an integral part of these consolidated financial statements.

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MINISTRY PARTNERS INVESTMENT COMPANY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Throughout these notes to consolidated financial statements, we refer to Ministry Partners Investment Company, LLC and its subsidiaries as “the Company.” The Company was formed in California in 1991. The Company’s primary operations are financing commercial real property secured loans and providing investment services for the benefit of evangelical churches, ministries, and individuals. The Company funds its operations primarily through the sale of debt securities.

The Company’s wholly-owned subsidiaries are:

·

Ministry Partners Funding, LLC, a Delaware limited liability company (“MPF”MPF);

·

MP Realty Services, Inc., a California corporation (“MP Realty”Realty);

·

Ministry Partners Securities, LLC, a Delaware limited liability company (“MP Securities”Securities); and

·

Ministry Partners for Christ, Inc., a not-for-profit Delaware corporation (“MPC”MPC).

The Company formed MPF in 2007 and then deactivated the subsidiary on November 30, 2009. In December 2014, the Company reactivated MPF to enable it to serve as collateral agent for loans held as collateral for its Secured Investment Certificates.

The Company formed MP Realty in November 2009, and obtained a license to operate as a corporate real estate broker through the California Department of Real Estate on February 23, 2010. MP Realty has conducted limited operations to date.

The Company formed MP Securities on April 26, 2010 to provide investment and financial planning solutions for individuals, churches, charitable institutions, and faith-based organizations. MP Securities acts as the selling agent for the Company’s public and private placement notes.

The Company formed MPC on December 28, 2018 to be used exclusively for religious and charitable purposes within the meaning of Section 501(c)(3) of the U.S. Internal Revenue Code of 1986.1986 (“IRC”). MPC is a not-for-profit corporation formed and organized as a private foundation under Delaware law. MPC makes charitable grants to Christian educational organizations, and provides accounting, consulting,

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and financial expertise to aid

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evangelical Christian ministries. On August 23, 2019, the Internal Revenue Service granted MPC tax-exempt status as a private foundation under Section 501(c)(3) of the Internal Revenue Code.IRC. The MPC Board of Directors approved its first charitable grants during the year ended December 31, 2020.

Principles of Consolidation

The consolidated financial statements include the accounts of Ministry Partners Investment Company, LLC and its wholly-owned subsidiaries. Management eliminates all significant inter‑companyinter-company balances and transactions in consolidation.

Conversion to LLC

Effective as of December 31, 2008, the Company converted its form of organization from a corporation organized under California law to a California limited liability company organized under the laws of the State of California. With the filing of Articles of Organization-Conversion with the California Secretary of State,company. After this conversation, the separate existence of Ministry Partners Investment Corporation ceased and the entity continued by operation of law under the name Ministry Partners Investment Company, LLC.

Since the conversion became effective, As an LLC, a group of managers provides oversight of the Company’s affairs. The managers have full, exclusive, and complete discretion, power, and authority to oversee the management of Company affairs. As an LLC, the Company’s managers and members have entered into anAn Operating Agreement that governs the Company’s management structure and governance procedures.

Risks and Uncertainties

COVID-19,COVID 19, a global pandemic, has adversely impacted the broad economy, includingaffecting most industries, including businesses, schools, hospitality-, and sectors.travel-based employers, and disrupted the supply and distribution networks that deliver products to the consuming public. The length and depthprocess of recovery from the pandemic will ultimately determineby U.S. churches, ministries, and faith-based organizations that the overallCompany serves could have a material financial impact on the Company, but it could impair our borrowers' ability to meet their financial obligations to us. Furthermore, while there has been no material impactCompany. If declining in-person attendance at churches and faith-based organizations continues as churches and ministries adjust to the Company’s employeeslong-term effects of the pandemic, charitable gifts and contributions made to date, COVID-19ministries and churches could potentially create business continuity issues for the Company. be adversely affected.

In accordance with the Financial Accounting Standards Board (FASB) and interagency regulatory guidance issued in March 2020, loans that arewere modified under the terms of our COVID-19COVID 19 Deferral Assistance Program willwere not be considered as troubled debt restructurings to the extent that they meetmet the terms of such guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act”). In addition, in response guidance applies to COVID-19,modifications made between March 1, 2020, and the Federal Reserve reducedearlier of January 2, 2022, or sixty (60) days after the Federal Funds rate to zeroend of the COVID 19 national emergency, as stipulated by the Consolidated Appropriations Act signed into law on March 16,December 31, 2020. The reductionCompany has not restructured a loan under the COVID 19 Deferral Assistance Program since the year ended December 31, 2021 and does not expect to use the program in interest rates and other effects of the COVID-19 pandemic raise uncertainties that could negatively affect the Company’s net interest income and non-interest income.future.

The Company’s operations are dependent upon the willingness and ability of its employees, borrowers, noteholders, and investment clients to conduct financial transactions. If the global response to contain COVID-19 results in reinstatement of lock-

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down or curtailmentIn addition, Russia’s invasion of activities orders,Ukraine, increasing inflation, and the Company could experience a material adverse effectdisruption of global supply chains are putting strain on its business, financial condition, results of operations,the U.S economy and cash flows.the U.S. consumer. While it is not possible to know the full extent thatof the long-term impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations,COVID 19 or these other current events, the Company is disclosing potentially material itemsfactors that could impact our business of which it is aware.

Cash and Cash Equivalents

Cash equivalents include time deposits and all highly liquid debt instruments with original maturities of three months or less. The Company had demand deposits and money market deposit accounts as of December 31, 20202022 and December 31, 2019.2021.

The National Credit Union Share Insurance Fund insures a portion of the Company’s cash held at credit unions and the Federal Deposit Insurance Corporation insures a portion of cash held by the Company at other financial institutions. The Company holds cash deposits that may exceed insured limits. Management does not expect to incur losses in these cash accounts.

The Company maintains cash accounts with Royal Bank of Canada Dain Rauscher (“RBC Dain”) Dain as part of its clearing agreement for its securities-related activities, and with the Central Registration Depository (“CRD”) for regulatory purposes.purposes in connections with its investment advisory and securities-related business. The Company also maintains cash in an account with America’s Christian Credit Union (“ACCU”) as collateral for its secured borrowings. The Company classifies these accounts is consideredas restricted cash and is classified as such on ourits balance sheet.

Certificates of Deposit

Certificates of deposit include investments in certificates of deposit held at financial institutions that carry original maturities of greater than three months. The Company had $1,757 thousand$1.3 million in certificates of variouswith terms greater than three months as of December 31, 2020.2022. The Company had no certificates of deposit with original maturities of greater than three months at December 31, 2019.

Details of certificates owned by the Company are as follows (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Certificate

 

Open Date

 

Certificate Amount

 

Interest Rate

 

Maturity Date

CD 1

 

1/13/2020

 

$

1,000 

 

2.25%

 

10/13/2021

CD 2

 

4/1/2020

 

$

761 

 

1.95%

 

1/1/2021

CD2 was not renewed on January 1, 2021 when it matured.2021.

Use of Estimates

The Company’s creation of consolidated financial statements that conform to United States Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates govern areas such as

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the allowance for credit losses and the fair value of financial instruments.instruments and foreclosed assets. Actual results could differ from these estimates.

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Investments in Joint Venture

In 2016, the Company entered into a joint venture agreement to develop and sell property we acquired as part of a Deed in Lieu of Foreclosure agreement reached with one of our borrowers. The joint venture owns a property located in Santa Clarita, California.

The Company accounts for its investment in the joint venture using the equity method of accounting. Under this method, the Company records its proportionate share of the joint venture’s net income or loss in the statement of operations.

On a periodic basis, or whenever events or circumstances arise that would necessitate analysis, management analyzes the Company’s investment in the joint venture for impairment. In this analysis, management compares the carrying value of the investment to the estimated value of the underlying real property. The Company records any impairment charges as a valuation allowance against the value of the asset. The Company’s share of income and expenses of the joint venture will increase or decrease the Company’s investment in the joint venture. Management records these valuation changes as realized gains or losses on investment on the Company’s consolidated statements of operations. The Company determined that the investment in the joint venture was not impaired as of December 31, 2022.

Other Investments

In June 2022, MP Securities purchased two ten-year fixed annuities from insurance companies. These annuities each carry unique features, including guaranteed fixed income components, variable income components, premium bonuses, and potential withdrawal charges. The Company carries these investments at cost and adjusts for guaranteed income when such income is realized. The principal balances of these annuities are guaranteed but are not insured; however, management determined that the annuities were not impaired at December 31, 2022 and does not anticipate losses.

Loans Receivable

The Company reports loans that management has the intent and ability to hold for the foreseeable future at their outstanding unpaid principal balance adjusted for an allowance for loan losses, deferred loan fees and costs, and loan discounts.

Interest Accrual on Loans Receivable

The Company accrues loan interest income daily. Management defers loan origination fees and costs generated in making a loan. The Company amortizes these fees and costs as an adjustment to the related loan yield using the interest method.

Loan discounts arecan arise from interest accrued and unpaid which the Company addedadds to loan principal balances when it restructuredrestructures the loan. The Company does not accrete discounts to income

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on impaired loans. However, when management determines that a previously impaired loan is no longer impaired, the Company begins accreting loan discounts to interest income over the term of the restructured loan. For loans purchased from third parties, loan discounts also are theinclude differences between the purchase price and the recorded principal balance of the loan. The Company accretes these discounts to interest income over the term of the loan using the interest method.

Management considers a loan impaired if it concludes that the collection of principal or interest according to the terms of the loan agreement is doubtful. The Company stops the accrual of interest when management determines the loan is impaired.

For loans that the Company places on non-accrual status, management reverses all uncollected accrued interest against interest income. Management accounts for the interest on these loans on the cash basis or cost-recovery method until the loan qualifies for return

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to accrual status. It is not until all the principal and interest amounts contractually due are brought current and future payments are reasonably assured that the Company returns a loan to accrual status.

Allowance for Loan Losses

The Company sets aside an allowance for loan losses by charging the provision for loan losses account on the Company’s consolidated statements of income. This charge decreases the Company’s earnings. Management charges off the part of loan balances it believes it will not collect against the allowance. The Company credits subsequent recoveries, if any, to the allowance.

Loan Portfolio Segments and Classes

Management separates the loan portfolio into portfolio segments for purposes of evaluating the allowance for loan losses. A portfolio segment is defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses. The Company segments the loan portfolio based on loan types and the underlying risk factors present in each loan type. Management periodically reviews and revises such risk factors, as it considers appropriate.

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The Company’s loan portfolio consists of one segment – churchcommercial loans. Management has segregated the loan portfolio into the following portfolio classes:

Loan Class

Class Description

Loan Class

Class Description

Wholly-Owned First Collateral Position

Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a senior lien on the collateral underlying the loan.

Wholly-Owned Junior Collateral Position

Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. This class also contains any loans that are not secured. These loans present higher credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan default.

Participations First Collateral Position

Participated loans purchased from another financial entity for which the Company possesses a senior lien on the collateral underlying the loan. Loan participations purchased may present higher credit risk than wholly-ownedwholly owned loans because disposition and direction of actions regarding the management and collection of the loans must be coordinated and negotiated with the other participants, whose best interests regarding the loan may not align with those of the Company.

Participations Junior Collateral Position

Participated loans purchased from another financial entity for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. Loan participations in the junior collateral position loans have higher credit risk than wholly-ownedwholly owned loans and participated loans purchased where the Company possesses a senior lien on the collateral. The increased risk is the result of the factors presented above relating to both junior lien positions and participations.

Allowance for Loan Loss Evaluation

Management evaluates the allowance for loan losses on a regular basis. The Company establishes the allowance for loan losses based upon its periodic review of several factors management believes influences the collectability of the loans, including:

·

the Company’s loss history;

·

the characteristics and volume of the loan portfolio;

·

adverse conditions that may affect the borrower’s ability to repay;

·

the estimated value of any secured collateral; and

·

the current economic conditions.

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This evaluation is subjective, as it requires estimates that are subject to significant revision as more information becomes available.

The allowance consists of general and specific components. The general component covers non-classified loans. Management bases the general reserve on the Company’s loss history adjusted for qualitative factors. These qualitative factors are significant factors management considers likely to cause estimated credit losses associated with the

F-13


Company’s existing portfolio to differ from its historical loss experience. Management adjusts these factors on an on-going basis, some of which include:

·

changes in lending policies and procedures, including changes in underwriting standards and collection;

·

changes in national, regional, and local economic and industry conditions that affect the collectability of the portfolio, including the effects of the pandemic;

·

changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans;

·

changes in the value of the collateral for collateral-dependent loans; and

·

the effect of credit concentrations.

Loans that management has classified as impaired receive a specific reserve. For such loans, an allowance is established when the carrying value of that loan is higher than the amount management expects to collect. Management uses multiple approaches to determine the amount the Company expects to collect. These include the discounted cash flow method, using the loan’s underlying collateral value reduced by expected selling costs, or using the observable market price of the impaired loan.

Impairment Analysis

Impaired loans include non-accrual loans, loans 90 days or more past due and still accruing, and restructured loans. Non-accrual loans are loans on which management has discontinued interest accruals. Restructured loans are loans in which the Company has granted the borrower a concession due to financial distress. Concessions are usually a reduction of the interest rate or a change in the original repayment terms.

The Company monitors impaired loans on an ongoing basis as part of management’s loan review and work out process. All loans in the loan portfolio are subject to impairment analysis. The Company reviews its loan portfolio monthly by examining several data points. These include

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reviewing delinquency reports, any new information related to the financial condition of its borrowers, and any new appraisal or other collateral valuation. Through this process, the Company identifies potential impaired loans. Management generally deems a loan is impaired when current facts and circumstances indicate that it is probable a borrower will be unable to make payments according to the loan agreement. If management has not already deemed a loan impaired, it will classify the loan as non-accrual when it becomes 90 days or more past due.

Management considers several factors when determining impairment status. These factors include the loan’s payment status, the value of any secured collateral, and the probability of collecting scheduled payments when due. Management generally does not classify loans that experience minor payment delays or shortfalls as impaired. Management determines

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the significance of payment delays or shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower. These circumstances include the length and reasons for the delay, the borrower'sborrower’s payment history, and the amount of the shortfall in relation to the principal and interest owed.

Management measures impairment on a loan-by-loan basis using one of three methods:

·

the present value of expected future cash flows discounted at the loan'sloan’s effective interest rate;

·

the obtainable market price; or

·

the fair value of the collateral if the loan is collateral-dependent.

Troubled Debt Restructurings

A troubled debt restructuring is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to a borrower that the Company would not otherwise consider. A restructuring of a loan usually involves an interest rate modification, extension of the maturity date, payment reduction, or reduction of accrued interest owed on the loan on a contingent or absolute basis.

Management considers loans that it renews at below-market terms to be troubled debt restructurings if the below-market terms represent a concession due to the borrower’s troubled financial condition. The Company classifies troubled debt restructurings as impaired loans. For the loans that are not considered to be collateral-dependent, management measures troubled debt restructurings at the present value of estimated future cash flows using the loan'sloan’s effective rate at start of the loan. The Company reports the change in the present value of cash flows related to the passage of time as interest income. If the loan is considered to be collateral-dependent, impairment is measured based on the fair value of the collateral.

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In accordance with industry standards, the Company classifies a loan as impaired if management has modified it as part of a troubled debt restructuring. However, troubled debt restructures, upon meeting certain performance conditions, are eligible to receive non-classified loan ratings (pass or watch) and to be moved out of non-accrual status. These loans continue to be included in total impaired loans but not necessarily in non-accrual or collateral-dependent loans.

Section 403The “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” was issued by banking regulators on March 22, 2020. This guidance encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of the CARES Act provides that a qualifying loan modification or extension is exempt by law from classification as a troubled debt restructuring pursuant to FASB ASC 340-10. On April 7, 2020, the Office of the Comptroller of the Currency and related financial agencies issued OCC Bulletin 2020-35, which provides further guidance regarding when a loan modification or extension is not subject to classification as a TDR pursuant to FASB ASC 340-10.COVID-19.

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Under sectionAdditionally, Section 4013 of the CARES Act financial institutions may electfurther provided that loans modified due to the impact of COVID-19 that would otherwise be classified as TDRs under GAAP are not required to categorize a loan modification as a troubled debt restructuring if it is: 

(1)

related to COVID-19;

(2)

executed on a loan that was not more than thirty (30) days past due as of December 31, 2019; and

(3)

executed between March 31, 2020, and the earlier of (A) sixty (60) days after the termination of the National Emergency* or (B) December 31, 2020.

* Asbe so classified. Modifications within the scope of this relief were in effect from the date of filing, the National Emergency has been continued beyondperiod beginning March 1, 2021.2020 until January 1, 2022.

For all other loanIn accordance with this guidance, we offered modifications federal agencies that regulate financial institutions have confirmed with FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were both impacted by COVID-19 and current prior to relief being extended, would not beon all principal and interest payments. As of December 31, 2022, the Company had no loans classified as a troubled debt restructuring. This treatment includes short-termnon-TDR loan modifications including payment deferrals, fee waivers, and extension of repayment terms.due to COVID-19.

Loan Charge-offs

Management charges off loans or portions thereof when it determines the loans or portions of the loans are uncollectible. The Company evaluates collectability periodically on all loans classified as “Loans of Lesser Quality.” Key factors management uses in assessing a loan’s collectability are the financial condition of the borrower, the value of any secured collateral, and the terms of any workout agreement between the Company and the borrower. In workout situations, the Company charges off the amount deemed uncollectible due to the terms of the workout, the inability of the borrower to make agreed upon payments, and the value of the collateral securing the loan.

Credit Quality Indicators

The Company has established a loan grading system to assist its management in analyzing and monitoring the loan portfolio. The Company classifies loans it considers lesser quality (“classified loans”loans) as watch, special mention, substandard, doubtful, or loss assets. The loan grading system is as follows:

Pass:

The borrower has sufficient cash to fund debt services. The borrower may be able to obtain similar financing from other lenders with comparable terms. The risk of default is considered low.

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Watch:

These loans exhibit potential or developing weaknesses that deserve extra attention from credit management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the debt in the future. Loans graded Watch must be reported to executive management and the Board of Managers. Potential for loss under adverse circumstances is elevated, but not foreseeable. Watch loans are considered pass loans.

Special mention:

These credit facilities exhibit potential or actual weaknesses that present a higher potential for loss under adverse circumstances, and deserve management’s close attention. If uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan at some future date.

Substandard:

Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, ministry, or environmental conditions which have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that some future loss will be sustained if such weaknesses are not corrected.

Doubtful:

This classification consists of loans that display the properties of substandard loans with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is very high, but because of certain important and reasonably specific factors, the amount of loss cannot be exactly determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.

Loss:

Loans in this classification are considered uncollectible and cannot be justified as a viable asset. This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.

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Revenue Recognition

The Company recognizes two primary types of revenue: interest income and non-interest income.

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Interest Income

The Company’s principal source of revenue is interest income from loans, which is not within the scope of ASU 2014-09, Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, "ASC 606"). Refer to the discussion in “Loans Receivable” above to understand the Company’s recognition of interest income.

Non-interest Income

Non-interest income includes revenue from various types of transactions and services provided to customers. Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct. Our performance obligations to our customers are generally satisfied when we transfer the promised good or service to our customer, either at a point in time or over time. Revenue from a performance obligation transferred at a point in time is recognized at the time that the customer obtains control over the promised good or service. Revenue from our performance obligations satisfied over time are recognized in a manner that depicts our performance in transferring control of the good or service, which is generally measured based on time elapsed, as our customers simultaneously receive and consume the benefit of our services as they are provided.

Payment for the majority of our services is considered to be variable consideration, as the amount of revenues we expect to receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in revenue when amounts are not subject to significant reversal, which is generally when uncertainty around the amount of revenue to be received is resolved.

Wealth advisory fees

Generally, management recognizes wealth advisory fees over time as the Company renders services to its clients. The Company receives these fees either based on a percentage of the market value of the assets under management, or as a fixed fee based on the services the Company provides to the client. The Company’s delivery of these services represents its related performance obligations. The Company typically collects the wealth advisory fees at the beginning of each quarter from the client’s account. Management recognizes these fees ratably over the related billing period as the Company fulfills its performance obligation. In addition, management recognizes any commissions or referral fees paid related to this revenue ratably over the related billing period as the Company fulfills its performance obligation.

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Investment brokerage fees

Investment brokerage fees arise from the selling, distribution, and trade execution services. The Company’s execution of these services fulfills its related performance obligations.

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The Company also offers sales and distribution services, and earns commissions through the sale of annuity and mutual fund products. The Company acts as an agent in these transactions and recognizes revenue at a point in time when the customer executes a contract with a product carrier. The Company may also receive trailing commissions and 12b-1 fees related to mutual fund and annuity products. Management recognizes this revenue in the period when it is earned, estimating the revenue if necessary based on the balance of the investment and the commission rate on the product.

The Company earns and recognizes trade execution commissions on the trade date, which is when the Company fulfills its performance obligation. Payment for the trade execution is due on the settlement date.

Lending Feesfees

Lending fees represent charges earned for services we provide as part of the lending process, such as late charges, servicing fees, and documentation fees. The Company recognizes late charges as earned when they are paid. The Company recognizes revenue on other lending fees in the period in which the Company has performed the service.

Gains on sales of loans receivable

From time to time, the Company sells participation interests in loans receivable that it services. Upon completion of the loan sale, the Company recognizes a gain based on certain factors including the maturity date of the loan, the percentage of the loan sold and retained, and the servicing rate charged to the participant on the sold portion.

Other non-interest incomeGains on debt extinguishment

Other non-interest income includes fees earned basedGains on service contractsdebt extinguishment arise from agreements reached with the Company has entered into with credit unions.Company’s lenders to reduce the principal amount on outstanding debt. The Company recognizes the revenue monthly based on the termsamount of the contracts, which require monthly payments for servicesgain is determined by the Company performs.difference between the cash paid and the amount of principal and interest that is relieved as stipulated by the agreement.

Gains/losses on sales of foreclosed assets

The Company records a gain or loss from the sale of foreclosed assets when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company

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finances the sale of a foreclosed asset to the buyer, the Company assesses whether the buyer is committed to perform their obligation under the contract and whether collectability of the transaction price is probable, among other factors. Once these criteria are met, the foreclosed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

Other non-interest income

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TableOther non-interest income includes fees earned based on service contracts the Company has entered into with credit unions. The Company recognizes the revenue monthly based on the terms of Contentsthe contracts, which require monthly payments for services the Company performs. Other non-interest income also includes realized income and gains on other investments.

Foreclosed Assets

Management records assets acquired through foreclosure or other proceedings at fair market value less estimated costs of disposal. Management determines the fair value at the date of foreclosure, which establishes a new cost for the asset. After foreclosure, the Company carries the asset at the lower of cost or fair value, less estimated costs of disposal. Management evaluates these real estate assets regularly to ensure that the recorded amount is supported by the current fair value and, if necessary, ensuring that valuation allowances reduce the carrying amount to fair value less estimated costs of disposal. Revenue and expense from the operation of the Company’s foreclosed assets and changes in the valuation allowance are included in net expenses from foreclosed assets. When the Company sells the foreclosed property, it recognizes a gain or loss on the sale equal to the difference between the net sales proceeds received and the carrying amount of the property.

Transfers of Financial Assets

Management accounts for transfers of financial assets as sales when the Company has surrendered control over the asset. Management deems the Company has surrendered control over transferred assets when:

·

the assets have been isolated from the Company;

·

the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred asset; and

·

the Company does not maintain effective control over the transferred asset through an agreement to repurchase it before its maturity.

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The Company, from time to time, sells participation interests in mortgage loans it has originated or acquired. In order to recognize the transfer of a portion of a financial asset as a sale, the transferred portion, and any portion that continues to be held by the transferor must represent a participating interest, and the transfer of the participating interest must meet the conditions for surrender of control. To qualify as a participating interest:

·

each portion of a financial asset must represent a proportionate ownership interest in an entire financial asset;

·

from the date of transfer, all cash flows received from the entire financial asset must be divided proportionately among the participating interest holders in an amount equal to their respective share of ownership;

·

the transfer must be made on a non-recourse basis (other than standard representations and warranties made under the loan participation sale agreement);

·

the transfer may not be subordinate to any other participating interest holder; and

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·

no party has the right to pledge or exchange the entire financial asset.

If the transaction does not meet either the participating interest or surrender of control criteria, management accounts for it as a secured borrowing arrangement.

Under some circumstances, when the Company sells a participation in a wholly-owned loan receivable that it services, it retains loan-servicing rights, and records a servicing asset that is initially measured at fair value. As quoted market prices are generally not available for these assets, the Company estimates fair value based on the present value of future expected cash flows associated with the loan receivable. The Company amortizes servicing assets over the life of the associated receivable using the interest method. Any gain or loss recognized on the sale of a loan receivable depends in part on both the previous carrying amount of the financial asset involved in the sale, allocated between the asset sold and the interest that continues to be held by the Company based on its relative fair value at the date of transfer, and the proceeds received.

Property and Equipment

The Company states its furniture, fixtures, equipment, and leasehold improvements at cost, less accumulated depreciation and amortization. Management computes depreciation on a straight-line basis over the estimated useful lives of the assets. The useful lives of the Company’s assets range from three to seven years.

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Debt Issuance Costs

The Company’s debt consists of borrowings from financial institutions and obligations to investors incurred through the sale of investor notes. Management presents debt net of debt issuance costs, and amortizes debt issuance costs into interest expense over the contractual terms of the debt using the straight-line method.

Employee Benefit PlanPlans

The Company records contributions to the qualified employee retirement plan as compensation cost in the period incurred. The Company has also entered into a Supplemental Executive Retirement Plan (the “SERP”) with its President and Chief Executive Officer, Joseph W. Turner, Jr. The Company records expenses related to the SERP based on the likelihood of the benefits vesting.

Leases

We recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases with lease terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows depend on the classification by the lessee as a finance or operating lease.

The Company has operating leases for real estate. Its leases have remaining lease terms of 3 months to 2 years. Its lease agreements may include renewal or termination options for varying periods that are generally at our discretion. In lease term, the Company only includes those periods related to renewal options we are reasonably certain to exercise. However, the Company generally does not include these renewal options as it is not reasonably certain to renew at the lease commencement date. This determination is based on management’s consideration of certain economic, strategic, and other factors that are evaluated at lease commencement date and reevaluate throughout the lease term. Some leases also include options to terminate the leases and the Company only includes those periods beyond the termination date if management is reasonably certain not to exercise the termination option.

Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments. The variable part of lease payments is not included in our ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses recorded in selling and administrative expenses on the Consolidated Statements of Operations.

If any of the lease agreements have both lease and non-lease components, the Company treats those as a single lease component for all underlying asset classes. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

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Leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term.

Income Taxes

The Company has elected to be treated as a partnership for income tax purposes. Therefore, the Company passes through its income and expenses to its members for tax reporting purposes.

Tesoro Hills, LLC, is a joint venture in which the Company has an investment. Tesoro Hills, according to its operating agreement, has elected to be treated as a partnership for income tax purposes.

The Company and MP Securities are subject to a California LLC fee.

F-21


The Company uses a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken in a tax return. The Company recognizes benefits from tax positions in the consolidated financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Management derecognizes previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold in the first subsequent financial reporting period in which that threshold is no longer met.

New accounting guidance

Adoption of New Accounting Standards:

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

In March 2020, various regulatory agencies issued an interagency statement on loan modifications and reporting for financial institutions working with borrowers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The effects of the

F-22


implementation of this guidance are disclosed in Note 4. Loans Receivable and Allowance for Loan Losses.

Accounting Standards Pending Adoption

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance requires companies to apply the requirements in the year of adoption through cumulative adjustment with some aspects of the update requiring a prospective transition approach.

In October 2019, the FASB adopted a two-bucket approach to stagger the effective date for the credit losses standard for the fiscal years beginning after December 31, 2022 for certain entities,

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including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Company is eligible for delayed implementation of the standard. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to affect the level of the allowance for loan losses on the Company’s consolidated financial statements. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. The Company will use a third-party software solution to assist with the adoption of the standard. Management is currently

The ASU allows for several different methods of calculating sample expected loss computationsthe Allowance for Credit Losses (“ACL”) and developingbased on its analysis of observable data, the Company determined the probability of default method to be the most appropriate for all its loans.

The Company expects to record a one-time cumulative effect adjustment to the allowance for credit losses in retained earnings on the consolidated balance sheet as of the beginning of 2023, as is required in the guidance. The Company believes there will be an adjustment to the allowance of up to $300 thousand. In addition, the Company expects the allowance for unfunded commitments to be immaterial.

The qualitative impact of the new accounting standard will still be directed by many of the same factors that impacted the previous methodology for calculating the allowance, including but not limited to, quality and assumptions thatexperience of staff, changes in the value of collateral, concentrations of credit in loan types and changes to lending policies. In addition, the Company will also use underreasonable and supportable forecasts.

The actual impact from adopting this guidance may be subject to change based upon refinement and finalization of the new standard.model and associated assumptions, the implementation and testing of certain internal controls ensuring model effectiveness and management’s judgment.

In October 2019,March 2022, the FASB adoptedissued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors in Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while adding disclosures for certain loan restructurings by creditors when a two-bucket approachborrower is experiencing financial difficulty. This guidance requires an entity to staggerdetermine whether the modification results in a new loan or a continuation of an existing loan. Additionally, the ASU requires disclosure of current period gross write-offs by year of origination for financing receivables. This ASU is effective date for the credit losses standardCompany for the fiscal years beginning after December 31, 2022 for certain entities, including certain Securities15, 2022. The Company adopted this guidance on January 1, 2023 and Exchange Commission filers, public business entities, and private companies. Asit did not have a smaller reporting company,material impact on the Company is eligible for delayed implementation of the standard. Management is currently evaluating the impact of the delay on its implementation project plan.condensed consolidated financial statements.

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Note 2. Pledged Cash and Restricted Cash

Under the terms of its debt agreements, the Company has the ability to pledge cash as collateral for its borrowings. At December 31, 20202022 and December 31, 2019,2021, the Company held nodid not pledge cash for its term-debt or lines of credit. At December 31, 2022 and December 31, 2021, the Company had $7 thousand and $17 thousand, respectively, in cash pledged cash.as collateral for its secured borrowings. See Note 3: Related Party Transactions for additional details. This amount is included in restricted cash in the table below.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position to the amounts reported in the statements of cash flows (dollars in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

 



 

December 31,



 

2020

 

2019

Cash and cash equivalents

 

$

21,922 

 

$

25,993 

Restricted cash

 

 

51 

 

 

52 

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows

 

$

21,973 

 

$

26,045 

Amounts

December 31,

    

2022

    

2021

Cash and cash equivalents

$

9,504

$

28,080

Restricted cash

60

69

Total cash, cash equivalents, and restricted cash shown in the statements of cash flows

$

9,564

$

28,149

Other amounts included in restricted cash represent those required to be set aside with the Central Registration Depository ("(“CRD") account with FINRA, as well as funds the Company has deposited with RBC Dain as clearing deposits. The Company may only use the CRD funds for certain fees charged by FINRA. These fees are paid to maintain the membership status of the Company or are related to the licensing of registered and associated persons of the Company.

Note 3. Related Party Transactions

Transactions with Equity Owners

Transactions with Evangelical ChristianAdelFi Credit Union (“ECCU”AdelFi”)

The tables below summarize transactions the Company conducts with ECCU,AdelFi (formerly Evangelical Christian Credit Union), the Company’s largest equity owner.

ECCU related parties who serve on the Company’s Board of Managers:

ECCU Role

MPIC Role

Chairman of the Board

Board of Managers

Related party balances pertaining to the assets of the Company (dollars in thousands):



 

 

 

 

 



December 31,

 

December 31,



2020

 

2019

Total funds held on deposit at ECCU

$

7,414 

 

$

365 

Loan participations purchased from and serviced by ECCU

 

256 

 

 

1,495 

December 31,

December 31,

    

2022

    

2021

Total funds held on deposit at AdelFi

$

443

$

3,797

Loan participations purchased from and serviced by AdelFi

68

256

F-24F-25


Related party transactions of the Company (dollars in thousands):



 

 

 

 

 



Year ended



December 31,



2020

 

2019

Dollar amount of loans sold to ECCU

 

1,164 

 

 

 —

Interest earned on funds held with ECCU

$

18 

 

$

 —

Interest income earned on loans purchased from ECCU

 

15 

 

 

161 

Fees paid to ECCU from MP Securities Networking Agreement

 

 

 

Income from Master Services Agreement with ECCU

 

 —

 

 

14 

Income from Successor Servicing Agreement with ECCU

 

 

 

Rent expense on lease agreement with ECCU

 

146 

 

 

138 

Years ended

December 31,

    

2022

    

2021

Interest earned on funds held with AdelFi

$

1

$

2

Interest income earned on loans purchased from AdelFi

5

15

Fees paid to AdelFi from MP Securities Networking Agreement

9

8

Income from Successor Servicing Agreement with AdelFi

9

Rent expense on lease agreement with AdelFi

146

146

Loan participation interests purchased:

In the past, the Company purchased loan participation interests from ECCU.AdelFi. Management negotiated the pass-through interest rates on these loans on a loan-by-loan basis. Management believes these negotiated terms were equivalent to those that would prevail in an arm'sarm’s length transaction. The Company did not purchase any loans from ECCUAdelFi during the years ended December 31, 20202022 and 2019.2021.

Loans sold:

From time to time, the Company may sell loans to AdelFi. The Company sold no loans to AdelFi during the years ended December 31, 2022 and 2021.

Lease and Services Agreement:

The Company leases its corporate offices and purchases other facility-related services from ECCUAdelFi pursuant to a written lease and services agreement. Management believes these terms are equivalent to those that prevail in arm'sarm’s length transactions.

MP Securities Networking Agreement with ECCU:AdelFi:

MP Securities, the Company’s wholly-owned subsidiary, has entered into a Networking Agreement with ECCUAdelFi pursuant to which MP Securities agreed to offer investment and insurance products and services to ECCU’sAdelFi’s members that:

(1) ECCU

(1)AdelFi or its Board of Directors has approved;
(2)comply with applicable investor suitability standards required by federal and state securities laws and regulations;
(3)are offered in accordance with National Credit Union Administration (“NCUA”) rules and regulations; and

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Table of Directors has approved;Contents

(2) comply with applicable investor suitability standards required by federal and state securities laws and regulations;

(3) are offered in accordance with National Credit Union Administration (“NCUA”) rules and regulations; and

(4) comply with its membership agreement with Financial Industry Regulation Authority (“FINRA”).

(4)comply with its membership agreement with Financial Industry Regulation Authority (“FINRA”).

The agreement entitles MP Securities to pay ECCUAdelFi a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ECCUAdelFi members. Either

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ECCU AdelFi or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.

Master Services Agreement (the “Services Agreement”) with ECCU:

The Company and ECCU had entered into the Services Agreement, pursuant to which the Company was to provide relationship management services to ECCU’s members and business development services to new leads in the southeast region of the United States. On March 1, 2018, the Company and ECCU amended the agreement to include referral fees to be paid by either party on the successful closing of a referred loan. The terms of the agreement allowed either party to terminate the Services Agreement for any reason by providing thirty days written notice. On April 4, 2019, the Company received written notice from ECCU requesting termination of the agreement. The agreement terminated on May 4, 2019.

Successor Servicing Agreement with ECCU:AdelFi:

On October 5, 2016, the Company entered into a Successor Servicing Agreement with ECCU.AdelFi. This agreement obligates the Company to serve as the successor loan servicing agent for certain mortgage loans designated by ECCU.AdelFi. The Company will service these loans in the event ECCUAdelFi requests that the Company assume its obligation to act as the servicing agent for those loans. The original Agreement terminated in October 2019 and has converted to a month-to-month agreement. The agreement was terminated at the request of AdelFi in January 2022.

Transactions with America’s Christian Credit Union (“ACCU”)

The Company has several related party agreements with ACCU, one of the Company’s equity owners. The following describes the nature and dollar amounts of the material related party transactions with ACCU.

Related party balances pertaining to the assets of the Company (dollars in thousands):

December 31,

December 31,

    

2022

    

2021

Total funds held on deposit at ACCU

$

246

$

4,083

Dollar amount of outstanding loan participations sold to ACCU and serviced by the Company

964

1,830

Amount owed on ACCU secured borrowings

7

17

Amount owed on ACCU line of credit

3,000

2,000

Loans pledged on ACCU line of credit

6,823

6,768



 

 

 

 

 



 

 

 

 

 



December 31,

 

December 31,



2020

 

2019

Total funds held on deposit at ACCU

$

7,846 

 

$

10,343 

Dollar amount of outstanding loan participations sold to ACCU and serviced by the Company

 

861 

 

 

 —

Loan participations purchased from and serviced by ACCU

 

 —

 

 

1,603 

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Related party transactions of the Company (dollars in thousands):

Years ended

December 31,

    

2022

    

2021

Interest earned on funds held with ACCU

$

8

$

21

Loans sold to ACCU

1,000

Dollar amount of secured borrowings made from ACCU

7

17

Dollar amount of draws on ACCU line of credit

3,000

2,000

Interest expense on ACCU borrowings

100

22

Income from broker services provided to ACCU by MPS

39

46

Fees paid based on MP Securities Networking Agreement with ACCU

94

84



 

 

 

 

 



 

 

 

 

 



Year ended



December 31,



2020

 

2019

Dollar amount of loans purchased from ACCU

$

 —

 

$

1,435 

Dollar amount of loans sold to ACCU

 

2,423 

 

 

 —

Interest earned on funds held with ACCU

 

76 

 

 

140 

Interest income earned on loans purchased from ACCU

 

61 

 

 

84 

Fees paid based on MP Securities Networking Agreement with ACCU

 

101 

 

 

45 

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Loan participation interests purchased:

Occasionally,The Company negotiates pass-through interest rates on loan participation interests purchased from ACCU on a loan-by-loan basis. Management believes these terms are equivalent to those that prevail in arm’s length transactions. The Company did not purchase any loans from ACCU during the years ended December 31, 2022 and 2021.

Loan participation interests sold:

From time to time, the Company sells or purchases loan participation interests fromin loans it originates and services to ACCU. The Company negotiates pass-through interest rates on loan participation interests purchased or sold from and to ACCU on a loan-by-loan basis. Management believes these terms are equivalent to those that prevail in arm'sarm’s length transactions.

From time to time,Effective August 9, 2021, the Company may purchaseentered into a Master Loan Participation Purchase and Sale Agreement (“the Master LP Agreement”) with ACCU. The Master LP Agreement is intended to facilitate the sale to ACCU of small participation interests in the Company’s originated loans. As a part of any transaction conducted under the Master LP Agreement, the borrower of the loan being sold would become a member of ACCU, thereby meeting the requirements of NCUA regulations that govern loan participation purchases by credit unions. This allows the Company to sell additional participations in the loan to other credit unions.

Sales made under the Master LP Agreement are done on a recourse basis, requiring the Company to repurchase the participation interest fromin the event of default by the borrower. Under a related party.separate Deposit Control Agreement reached in conjunction with the Master LP Agreement, the Company deposits cash on a one-to-one basis as collateral to secure the participation interest sold to ACCU. This cash is considered restricted cash. The Company and its related party will negotiate in good faithretains the terms and conditions of such a purchase and in accordance with the Company’s related party procedures and governance practices. Each party must approve such a purchase after full disclosureability to sell loan participation interests to ACCU outside of the related party transactionMaster LP Agreement.

As of December 31, 2022 and must include termsDecember 31, 2021, respectively, $7 thousand and conditions that would normally be included$17 thousand had been sold and was outstanding under this agreement. This has been classified on the balance sheet as secured borrowings. The Company has deposited equal amounts of cash in arm’s length transactions conducted by independent parties.an account at ACCU as collateral for these borrowings. These funds are considered restricted cash.

MP Securities networking agreement with ACCU:

MP Securities has entered into a Networking Agreement with ACCU pursuant to which MP Securities has agreed to offer investment and insurance products and services to ACCU’s members that:

(1)

(1)ACCU or its Board of Directors has approved;

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Table of Directors has approved;Contents

(2) comply with applicable investor suitability standards required by federal and state securities laws and regulations;

(3) are offered in accordance with NCUA rules and regulations; and

(4) comply with its membership agreement with FINRA.

(2)comply with applicable investor suitability standards required by federal and state securities laws and regulations;
(3)are offered in accordance with NCUA rules and regulations; and
(4)comply with its membership agreement with FINRA.

The agreement entitles MP Securities to pay ACCU a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ACCU members. Either ACCU or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.

Line of Credit:

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TableOn September 23, 2021, the Company entered into a Loan and Security Agreement with ACCU. The ACCU line of Contentscredit (“ACCU LOC”) is a $5.0 million short-term demand facility with a maturity date of September 23, 2023. See Note 10: Credit Facilities and Other Debt for additional terms and conditions. Management believes these terms are equivalent to those that prevail in arm’s length transactions. As of December 31, 2022 and December 31, 2021, respectively, there were $3.0 million and $2.0 million in borrowings outstanding on the ACCU line of credit.

Transactions with Kane County Teachers Credit Union (“KCT”)

Our Board Chairperson, R. Michael Lee, serves as the Chief Executive Officer and President of KCT. The following describes the nature and dollar amounts of the material related party transactions with KCTCU.

Related party balances pertaining to the assets of the Company (dollars in thousands):

December 31,

December 31,

    

2022

    

2021

Total funds held on deposit at KCT

$

1,261

$

1,018

Loans pledged on KCT line of credit

10,962

8,492

Outstanding loan participations sold to KCT and serviced by the Company

3,455

4,598

Related party transactions of the Company (dollars in thousands):

Years ended

December 31,

    

2022

    

2021

Interest earned on funds held with KCT

$

10

$

18

Loans sold to KCT

56

2,847

Dollar amount of draws on KCT line of credit

2,000

3,825

Interest expense on KCT line of credit

15

40

Fees paid based on MP Securities Networking Agreement with KCT

69

35

F-29

Funds on deposit with KCT:

On January 13, 2020, the Company purchased $1.0 million of certificates of deposit from KCT. The certificates maturematured on October 13, 2021, and bearthe funds were transferred to a savings account at KCT. On September 29, 2022, the Company purchased a $1.3 million certificate of deposit from KCT. The certificate matures on June 6, 2023 and carries an interest at a rate of 2.25%3.25%.

In addition,This certificate is pledged as a compensating balance deposit on September 30, 2020,one of the lines of credit the Company entered into aholds with KCT.

Line of Credit:

On June 6, 2022, the Company terminated the existing $7.0 million Loan and Security Agreement with KCT Credit Union, an Illinois state chartered financial institution (“KCT”). The KCTinstitution. It replaced this agreement with two short-term demand credit facilities, a $5.0 million warehouse line of credit is(“KCT Warehouse LOC”) and a $7.0$5.0 million short-term demand facility with a maturity date ending September 30, 2021. Theoperating line of credit will automatically renew(“KCT Operating LOC”). See “Note 10: Credit Facilities and Other Debt” for a one-year term unless either party furnishes written notice at least thirty (30) days prioradditional terms and conditions of these credit facilities. Management believes these terms are equivalent to the maturity datethose that it does not intend to renew the agreement. The KCT line of credit is secured by certain mortgage loans held as collateral and the Company is required to maintain a minimum collateralization ratio of 120% measured by the outstanding balance of mortgage notes pledged as compared to the total amount owed on the line of credit.prevail in arm’s length transactions. As of and December 31, 2020, the Company did not have an2022 and December 31, 2021, there was no outstanding balance on either of the line. The KCT linelines of credit is evidenced by a promissory note, is payable one hundred twenty (120) days after each advance made or earlier in the event that collateral loan becomes more than sixty (60) days delinquent and the Company fails to cure such delinquency. The interest rate on the Note is set at prime plus 0.50%. At December 31, 2020, the prime rate was 3.25%. The Company approved the KCT line of credit in accordance with its Related Party Transaction Policy, concluded that the terms of the KCT line of credit were in the best interests of the Company, and entered into on terms no less favorable to the Company than could be obtained from an independent third party.KCT.

MP Securities Networking AgreementAgreement:

MP Securities, the Company’s wholly-owned subsidiary, has entered into a Networking Agreement with KCT pursuant to which MP Securities agreed to offer investment and insurance products and services to KCT’s members that:

(1)

KCT or its Board of Directors has approved;

(2)

comply with applicable investor suitability standards required by federal and state securities laws and regulations;

(3)

are offered in accordance with National Credit Union Administration (“NCUANCUA”) rules and regulations; and

(4)

comply with its membership agreement with Financial Industry Regulation Authority (“FINRA”).

FINRA.

The agreement entitles MP Securities to pay KCT a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of KCT members. Either

F-28


KCT or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.

F-30

Loan Participation Interests SoldSold:

Occasionally the Company sells loan participation interests to KCT in the normal course of business. The Company retains the right to service these participation loans sold to KCT, and it charges KCT a customary fee for servicing the loan. As of December 31, 2022 and December 31, 2021, respectively, the Company serviced $3.5 million and $4.6 million in loan participations that it has sold to KCT.

Transactions with Other Equity Owners

From time to time the Company will engage in transactions with other owners or related parties. Related party balances pertaining to the assets of the Company are as follows (dollars in thousands):

December 31,

December 31,

    

2022

    

2021

Outstanding loan participations sold to UFCU and serviced by the Company

$

$

4,275

Outstanding loan participations sold to NFCU and serviced by the Company

4,872

4,991

Outstanding notes payable to officers and managers

2,266

261

Loan Participations Sold:

The Company hashad a Loan Participation Agreement with UNIFY Financial Credit Union (“UFCU”), an owner of both the Company’s Class A Common Units and Series A Preferred Units. Under this agreement, the Company sold UFCU a $5.0 million loan participation interest in one of its mortgage loan interests on August 14, 2013. As part of this agreement, the Company retained the right to service the loan, and it chargescharged UFCU a fee for servicing the loan. Management believes the terms of theThe loan related to this agreement are equivalent to those that prevailpaid off in arm's length transactions.2022.

The Company has also entered into a Loan Participation Agreement with Navy Federal Credit Union (“NFCU”), an owner of both the Company’s Class A Common Units and Series A Preferred Units. Under this agreement, the Company sold NFCU a $5.0 million loan participation interest in one of its construction loans on March 20, 2020. As of December 31, 2020, NFCU’s outstanding balance of the drawn portion of the loan was $1.9 million. As part of this agreement, the Company retained the right to service the loan, and it charges NFCU a fee for servicing the loan. Management believes the terms of the agreement are equivalent to those that prevail in arm'sarm’s length transactions.transactions for similar agreements entered into by other credit unions.

From time to time, the Company may purchase a loan participation interest from a related party. The Company and its related party will negotiate in good faith the terms and conditions of such a purchase and in accordance with the Company’s related party procedures and governance practices. Each party must approve such a purchase after full disclosure of the related party transaction and must include terms and conditions that would normally be included in arm’s length transactions conducted by independent parties.

F-31

Investor Notes Sold:

From time to time, the Company’s Board and members of its executive management team have purchased investor notes from the Company or have purchased investment products through MP Securities. Investor notes payable owned by related parties totaled $2.3 million and $261 thousand at December 31, 2022 and December 31, 2021.

Transactions with Subsidiaries

The Company has entered into several agreements with its subsidiary, MP Securities. The Company eliminates the income and expense related to these agreements in the consolidated financial statements. MP Securities serves as the managing broker for the Company’s public and private placement note offerings. MP Securities receives compensation related to these broker-dealer services ranging from 0.25% to 5.50% over the life of a note. The amount of the compensation depends on the length of the note and the terms of the offering under which MP Securities sold the note.

The Company also has entered into an Administrative Services Agreement with MP Securities. The Administrative Services Agreement provides services such as the use of office space, use of equipment, including computers and phones, and payroll and personnel services. The agreement stipulates that MP Securities will provide ministerial, compliance, marketing, operational, and investor relations-related services in relation to the Company’s investor note program. As stated above, the Company eliminates all intercompany transactions related to this agreement in its consolidated financial statements.

F-29


The Company’s subsidiary, MPF, serves as the collateral agent for the Company’s Secured Notes. The Company’s Prospectus for its Class 1A Notes and the private placement memorandum for the Company’s Secured Notes Offering describe the terms of these agreements.

Related Party Transaction Policy

The Board has adopted a Related Party Transaction Policy to assist in evaluating transactions the Company may enter into with a related party. Under this policy, a majority of the members of the Company’s Board and majority of its independent Board members must approve a material transaction that it enters into with a related party. As a result, all transactions that the Company undertakes with an affiliate or a related party are entered into on terms believed by management to be no less favorable than are available from unaffiliated third parties. In addition, a majority of the Company’s independent Board members must approve these transactions.

From time to time, the Company’s Board and members

F-32

Note 4. Loans Receivable and Allowance for Loan Losses

The Company’s loan portfolio is comprised of one segment – churchcommercial loans. See Note“Note 1 – Loan Portfolio Segments and ClassesClasses” to the Financial Statements. The loans fall into four classes:

·

wholly-owned loans for which the Company possesses the first collateral position;

·

wholly-owned loans that are either unsecured or for which the Company possesses a junior collateral position;

·

participated loans purchased for which the Company possesses the first collateral position; and

·

participated loans purchased for which the Company possesses a junior collateral position.

The Company primarily makes all of itsor purchases participations in loans that are made to various evangelical churches and related organizations, primarilyorganizations. The purpose of these loans is to purchase, construct, or improve facilities. Occasionally the company purchases conventional commercial loans to meet the Company’s liquidity and yield goals as well as to diversify the Company’s loan portfolio. Loan maturities extend through 2033.2037. The loan portfolio had a weighted average rate of 6.55%6.46% and 6.59%6.21% as of December 31, 20202022 and December 31, 2019,2021, respectively. Loans receivable at December 31, 2022 and December 31, 2021, respectively include $7 thousand and $17 thousand in loan participations transferred under a recourse agreement.

F-30F-33


The table below is a summary of the Company’s mortgage loans owned (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

2020

 

2019

Loans to evangelical churches and related organizations:

 

 

 

 

 

 

December 31,

December 31,

    

2022

    

2021

Commercial loans:

Real estate secured

 

$

118,203 

 

$

130,889 

$

86,718

$

98,858

Other secured

225

425

Unsecured

 

 

144 

 

 

160 

99

122

Total loans

 

 

118,347 

 

 

131,049 

87,042

99,405

Deferred loan fees, net

 

 

(481)

 

 

(631)

(208)

(304)

Loan discount

 

 

(229)

 

 

(182)

(207)

(220)

Allowance for loan losses

 

 

(1,516)

 

 

(1,393)

(1,551)

(1,638)

Loans, net

 

$

116,121 

 

$

128,843 

$

85,076

$

97,243

Allowance for Loan Losses

Management believes it has properly calculated the allowance for loan losses as of December 31, 20202022 and December 31, 2019.2021. The following table shows the changes in the allowance for loan losses for the years ended years ended December 31, 20202022 and 20192021 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

2020

 

2019

December 31,

December 31,

    

2022

    

2021

Balance, beginning of period

 

$

1,393 

 

$

2,480 

$

1,638

$

1,516

Provision (credit) for loan loss

 

 

188 

 

 

(544)

(296)

122

Chargeoffs

 

 

(65)

 

 

(923)

Recoveries

 

 

 —

 

 

380 

209

Balance, end of period

 

$

1,516 

 

$

1,393 

$

1,551

$

1,638

F-31


The table below presents loans by portfolio segment (church(commercial loans) and the related allowance for loan losses. In addition, the table segregates loans and the allowance for loan losses by impairment methodology (dollars in thousands):

Loans and Allowance
for Loan Losses (by segment)

As of 

December 31,

December 31,

    

2022

    

2021

Loans:

Individually evaluated for impairment

$

5,933

$

9,688

Collectively evaluated for impairment

81,109

89,717

Balance

$

87,042

$

99,405

Allowance for loan losses:

Individually evaluated for impairment

$

597

$

290

Collectively evaluated for impairment

954

1,348

Balance

$

1,551

$

1,638



 

 

 

 

 

 



 

 

 

 

 

 



 

Loans and Allowance
for Loan Losses (by segment)



 

As of



 

December 31,

 

December 31,



 

2020

 

2019

Loans:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

6,181 

 

$

8,843 

Collectively evaluated for impairment 

 

 

112,166 

 

 

122,206 

Balance

 

$

118,347 

 

$

131,049 



 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

290 

 

$

175 

Collectively evaluated for impairment 

 

 

1,226 

 

 

1,218 

Balance

 

$

1,516 

 

$

1,393 

F-34

The Company has established a loan grading system to assist management in their analysis and supervision of the loan portfolio. The following tables summarize the credit quality indicators by loan class (dollars in thousands):

Credit Quality Indicators (by class)

As of December 31, 2022

    

Wholly-Owned First

    

Wholly-Owned Junior

    

Participation First

    

Participation Junior

    

Total

Grade:

Pass

$

46,155

$

1,742

$

1,035

$

$

48,932

Watch

32,080

29

68

32,177

Special mention

Substandard

3,840

1,590

5,430

Doubtful

503

503

Loss

Total

$

82,578

$

3,361

$

1,103

$

$

87,042

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

Credit Quality Indicators (by class)

Credit Quality Indicators (by class)

As of December 31, 2020

 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

As of December 31, 2021

As of December 31, 2021

    

Wholly-Owned First

    

Wholly-Owned Junior

    

Participation First

    

Participation Junior

    

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

83,494 

 

$

1,789 

 

$

201 

 

$

 —

 

$

85,484 

$

67,580

$

2,007

$

172

$

$

69,759

Watch

 

 

24,710 

 

1,716 

 

256 

 

 —

 

26,682 

19,858

30

70

19,958

Special mention

 

 

 —

 

 —

 

 —

 

 —

 

 —

Substandard

 

 

5,677 

 

 —

 

 —

 

 —

 

5,677 

7,535

1,650

9,185

Doubtful

 

 

504 

 

 —

 

 —

 

 —

 

504 

503

503

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

114,385 

 

$

3,505 

 

$

457 

 

$

 —

 

$

118,347 

$

95,476

$

3,687

$

242

$

$

99,405



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

As of December 31, 2019



 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

96,674 

 

$

3,557 

 

$

1,882 

 

$

 —

 

$

102,113 

Watch

 

 

19,870 

 

 

32 

 

 

191 

 

 

 —

 

 

20,093 

Special mention

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Substandard

 

 

7,103 

 

 

 —

 

 

1,230 

 

 

 —

 

 

8,333 

Doubtful

 

 

510 

 

 

 —

 

 

 —

 

 

 —

 

 

510 

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

124,157 

 

$

3,589 

 

$

3,303 

 

$

 —

 

$

131,049 

F-32F-35


The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

Age Analysis of Past Due Loans (by class)

Age Analysis of Past Due Loans (by class)

As of December 31, 2020

 

30-59 Days Past Due

 

60-89 Days Past Due

 

Greater Than 90 Days

 

Total Past Due

 

Current

 

Total Loans

 

Recorded Investment 90 Days or more and Accruing

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2022

As of December 31, 2022

    

30-59 Days Past Due

    

60-89 Days Past Due

    

Greater Than 90 Days

    

Total Past
Due

    

Current

    

Total Loans

    

Recorded
Investment 90
Days or more
and Accruing 

Commercial loans:

Wholly-Owned First

 

$

2,704 

 

$

 —

 

$

4,185 

 

$

6,889 

 

$

107,496 

 

$

114,385 

 

$

 —

$

6,068

$

$

1,378

$

7,446

$

75,132

$

82,578

$

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,505 

 

 

3,505 

 

 

 —

3,361

3,361

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

457 

 

 

457 

 

 

 —

1,103

1,103

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

2,704 

 

$

 —

 

$

4,185 

 

$

6,889 

 

$

111,458 

 

$

118,347 

 

$

 —

$

6,068

$

$

1,378

$

7,446

$

79,596

$

87,042

$

Age Analysis of Past Due Loans (by class)

As of December 31, 2021

    

30-59
Days
Past Due

    

60-89
Days Past Due

    

Greater
Than 90
Days

    

Total Past
Due

    

Current

    

Total Loans

    

Recorded
Investment 90
Days or more
and Accruing 

Commercial loans:

Wholly-Owned First

$

$

$

503

$

503

$

94,973

$

95,476

$

Wholly-Owned Junior

3,687

3,687

Participation First

242

242

Participation Junior

Total

$

$

$

503

$

503

$

98,902

$

99,405

$



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

As of December 31, 2019



 

30-59 Days Past Due

 

60-89 Days Past Due

 

Greater Than 90 Days

 

Total Past Due

 

Current

 

Total Loans

 

Recorded Investment 90 Days or more and Accruing

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

 —

 

$

 —

 

$

5,907 

 

$

5,907 

 

$

118,250 

 

$

124,157 

 

$

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,589 

 

 

3,589 

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,303 

 

 

3,303 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

 —

 

$

 —

 

$

5,907 

 

$

5,907 

 

$

125,142 

 

$

131,049 

 

$

 —

Impaired Loans

The following tables are summaries of impaired loans by loan class as of and for the years ended years ended December 31, 20202022 and 2019,2021, respectively. The unpaid principal balance reflects the contractual principal outstanding on the loan. Included in the balance of impaired loans are troubled debt restructurings that have been performing and have been upgraded to pass or watch since the date of the modification.modification date. The recorded balance reflects the unpaid principal balance less any interest payments that have been recorded against principal. The recorded investment reflects the recorded balance, plus accrued interest, less discounts taken. The related allowance reflects specific reserves taken on the impaired loans (dollars in thousands):

F-33F-36




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)
As of December 31, 2020

 

For the year ended
December 31, 2020



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

9,856 

 

$

9,791 

 

$

9,632 

 

$

 —

 

$

9,674 

 

$

357 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

290 

 

 

290 

 

 

290 

 

 

290 

 

 

290 

 

 

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

296 

 

 

11 

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

10,146 

 

$

10,081 

 

$

9,922 

 

$

290 

 

$

10,260 

 

$

368 

Impaired Loans (by class)

For the years ended

December 31,

December 31,

2022

2021

Wholly-Owned First

Average Recorded Investment

$

14,644

$

10,772

Interest Income Recognized

1,026

582

Wholly-Owned Junior

Average Recorded Investment

1,620

1,668

Interest Income Recognized

Participation First

Average Recorded Investment

Interest Income Recognized

Participation Junior

Average Recorded Investment

Interest Income Recognized

Total Impaired Loans

Average Recorded Investment

$

16,264

$

11,310

Interest Income Recognized

1,026

582

Impaired Loans (by class)

As of

As of

December 31,

December 31,

2022

2021

Wholly-Owned First

Recorded Investment with allowance

$

3,008

$

1,371

Recorded Investment with no Allowance

15,569

9,339

Total Recorded Investment

$

18,577

$

10,710

Related Allowance on Impaired Loans with Allowance

457

631

Unpaid Principal Balance

$

18,734

$

10,905

Wholly-Owned Junior

Recorded Investment with allowance

$

1,590

$

Recorded Investment with no Allowance

1,650

Total Recorded Investment

$

1,590

$

1,650

Related Allowance on Impaired Loans with Allowance

139

Unpaid Principal Balance

$

1,685

$

1,685

Participation First

Recorded Investment with allowance

$

$

Recorded Investment with no Allowance

Total Recorded Investment

$

$

Related Allowance on Impaired Loans with Allowance

Unpaid Principal Balance

$

$

Participation Junior

Recorded Investment with allowance

$

$

Recorded Investment with no Allowance

Total Recorded Investment

$

$

Related Allowance on Impaired Loans with Allowance

Unpaid Principal Balance

$

$

Total Impaired Loans

Recorded Investment with allowance

$

4,598

$

1,371

Recorded Investment with no Allowance

15,569

10,989

Total Recorded Investment

$

20,167

$

12,360

Related Allowance on Impaired Loans with Allowance

596

631

Unpaid Principal Balance

$

20,419

$

12,590

F-37



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)
As of December 31, 2019

 

For the year ended
December 31, 2019



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

12,497 

 

$

12,404 

 

$

12,304 

 

$

 —

 

$

12,343 

 

$

1,202 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

290 

 

 

290 

 

 

290 

 

 

110 

 

 

973 

 

 

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

1,294 

 

 

1,230 

 

 

1,230 

 

 

65 

 

 

1,263 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

14,081 

 

$

13,924 

 

$

13,824 

 

$

175 

 

$

14,579 

 

$

1,202 

A summary of non-accrual loans by loan class is as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

Loans on Non-accrual Status (by class)

Loans on Non-accrual Status (by class)

Loans on Non-accrual Status (by class)

 

December 31, 2020

 

December 31, 2019

Church loans:

 

 

 

 

 

 

    

December 31, 2022

    

December 31, 2021

Commercial loans:

Wholly-Owned First

 

$

6,181 

 

$

6,405 

$

4,342

$

6,162

Wholly-Owned Junior

 

 —

 

 

 —

1,590

1,650

Participation First

 

 —

 

 

1,230 

Participation Junior

 

 

 —

 

 

 —

Total

 

$

6,181 

 

$

7,635 

$

5,932

$

7,812

F-34


Beginning in April, 2020, the Company has taken measures to assist borrowers adversely affected by COVID-19 by deferring principal and/or interest payments. The concessions granted meetmet the qualifications under Section 4013 of the CARES Act, and, as a result, the Company has elected not to account for these modifications as troubled debt restructurings. The Company granted these concessions to 35 borrowers, representing an outstanding loan principal balance of $47.8 million. As of December 31, 2020, three loans with a total outstanding principal balance of $13.2 million were still in the deferral period.

In addition, the Company restructured one loan during the year ended December 31, 20202021 that qualified as a CARES Act modification and was not accounted for as a troubled debt restructuring. This loan had an outstanding balance of $1.3 million at the time of the modification. The borrower resumed making contractual payment prior to December 31, 2021. As of December 31, 2021, no loans were under CARES Act deferrals. The Company did not qualify for COVID-19 accounting treatment.  restructure any loans that qualified as CARES Act modifications during the year ended December 31, 2022.

The Company restructured sixfour loans during the year ended December 31, 2022. The Company restructured two loans during the year ended December 31, 2019. 2021.

F-38

Table of Contents

A summary of troubled debt restructures by loan class during the years ended December 31, 20202022 and 20192021 is as follows (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Troubled Debt Restructurings (by class)

For the year ended December 31, 2020



 

Number of Loans

 

Pre-Modification Outstanding Recorded Investment

 

Post-Modification Outstanding Recorded Investment

 

Recorded Investment At Period End

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

 

$

1,936 

 

$

1,955 

 

$

1,947 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

 

 

$

1,936 

 

$

1,955 

 

$

1,947 

Troubled Debt Restructurings (by class)

For the year ended December 31, 2022

    

Number of
Loans

    

Pre-
Modification
Outstanding
Recorded
Investment

    

Post-
Modification
Outstanding
Recorded
Investment

    

Recorded
Investment At
Period End

Commercial loans:

Wholly-Owned First

4

$

8,385

$

8,385

$

8,464

Wholly-Owned Junior

Participation First

Participation Junior

Total

4

$

8,385

$

8,385

$

8,464

Troubled Debt Restructurings (by class)

For the year ended December 31, 2021

    

Number of
Loans

    

Pre-
Modification
Outstanding
Recorded
Investment

    

Post-
Modification
Outstanding
Recorded
Investment

    

Recorded
Investment At
Period End

Commercial loans:

Wholly-Owned First

2

$

5,387

$

5,387

$

5,313

Wholly-Owned Junior

Participation First

Participation Junior

Total

2

$

5,387

$

5,387

$

5,313

Of the four loans the Company restructured in 2022, two were granted extended maturity dates when the borrower’s financial condition could not support a full renewal. One of these loans was a construction loan that still had amounts remaining to be drawn. Two months after the restructure, the borrower met the appropriate conditions, and the Company funded the remainder of the approved amount of the construction draws. The Company then renewed and converted the loan to an amortizing commercial real estate loan. One restructured loan was granted a period of six months of interest-only payments; the borrower had returned to making principal and interest payments prior to December 31, 2022. Finally, the Company reached a forbearance agreement with a borrower to restructure a loan, granting a reduced interest rate and interest-only payments for one year. None of the loans restructured during the year ended December 31, 2022 subsequently defaulted.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Troubled Debt Restructurings (by class)

For the year ended December 31, 2019



 

Number of Loans

 

Pre-Modification Outstanding Recorded Investment

 

Post-Modification Outstanding Recorded Investment

 

Recorded Investment At Period End

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

 

$

6,270 

 

$

6,458 

 

$

6,167 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 

 

166 

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

 

 

$

6,436 

 

$

6,458 

 

$

6,167 

The Company had onetwo previously restructured loanloans that waswere past maturity as of December 31, 2020.2022. The Company has entered into a forbearance agreementagreements with the borrowerborrowers and is evaluating what actions it should undertake to protect its investment on this loan.these loans. These forbearance agreements include reduced monthly payment amounts and additional reporting requirements.

F-35F-39


Table of Contents

The Company closely monitors delinquency inFor loans modified in a troubled debt restructuring, as anthe Company monitors borrower performance according to the terms of the restructure to determine whether there are any early indicatorindicators for future default. Management regularly evaluates loans modified in a troubled debt restructuring for potential further impairment and will make adjustments to the risk ratings and specific reserves associated with troubled debt restructurings as deemed necessary.

No loans that were restructured during the years ended December 31, 2020 and 2019 subsequently defaulted during those respective years.

As of December 31, 2020,2022, no additional funds were committed to be advanced in connection with loans modified as troubled debt restructurings.

Note 5. Investments in

Joint Venture

In December 2015, the Company finalized an agreement with Intertex Property Management, Inc., a California corporation, to enter into a joint venture to form Tesoro Hills, LLC (the “Valencia Hills Project”). Intertex is a managing member of the LLC, with authority to direct operations. The Company is a non-managing member with no authority beyond limited rights granted to the Company by the operating agreement. The Valencia Hills Project is a joint venture that will develop and market property formerly classified by the Company as a foreclosed asset. In January 2016, the Company transferred ownership in the foreclosed asset to the Valencia Hills Project as part of the agreement.Project. In addition, the Company reclassified the carrying value of the property from foreclosed assets to an investment in a joint venture. The Company’s initial investment in the joint venture was $900 thousand. This amount wasthousand and represented 100% of the carrying valueownership of the joint venture. The Company’s ownership percentage in the foreclosed asset atjoint venture was 74% as of December 31, 2015.2022 and 2021.

The value of the Company’s investment in the joint venture was $884$870 thousand and $891$882 thousand, as of December 31, 20202022 and 20192021, respectively. Management’s impairment analysis of the investment as of December 31, 20202022 has determined that the investment is not impaired.

Certificates of Deposit

The Company held an investment in a certificate of deposit with an original maturity greater than three months at December 31, 2022.

F-36F-40


Table of Contents

Details of certificates with original maturities of greater than three months owned by the Company as of December 31, 2022, are as follows (dollars in thousands):

Certificate

Open Date

Certificate Amount

Interest Rate

Maturity Date

CD 1

9/29/2022

$

1,250

3.25%

6/6/2023

The certificate identified above was purchased from KCT and is pledged as a compensating balance under the terms of the KCT Warehouse LOC. See “Note 10: Credit Facilities and Other Debt” for additional terms and conditions of these credit facilities.

The Company owned no certificates of deposit with an original maturity greater than three months at December 31, 2021.

Other Investments

In June 2022, the Company entered into two indexed annuity insurance contracts whereby an insurance company guarantees a fixed rate of return in exchange for holding a deposit from the Company for the contracted period of ten years. The Company recognized $18 thousand in income on these investments during the year ended December 31, 2022.

Additional information related to these investments is as follows (dollars in thousands):

Income for the year ended

Investment Type

    

Maturity Date

    

Original Cost

    

Net Carrying Amount

    

December 31, 2022

    

December 31, 2021

Fixed annuity

June 2032

$

1,000

$

1,018

$

18

$

F-41

Table of Contents

Note 6. Revenue Recognition

The Company recognizes two primary types of revenue: interest income and non-interest income. The following tables reflect the Company’s non-interest income disaggregated by financial statement line item. Items outside of scope of ASC 606 are noted as such (dollars in thousands):

December 31,

    

2022

    

2021

Non-interest income, in scope of ASC 606

Broker-dealer fees and commissions

$

838

$

878

Gains on loan sales

13

64

Gain on sale of foreclosed assets

44

Other investment income

18

Other non-interest income

9

Non-interest income, out of scope, ASC 606

Lending fees

186

207

Gain on debt extinguishment

2,537

2,398

Total non-interest income

$

3,592

$

3,600



 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,



 

2020

 

2019

Non-interest income

 

 

 

 

 

 

Broker-dealer fees and commissions

 

 

762 

 

 

1,415 

Lending fees (1)

 

 

223 

 

 

124 

Lease income

 

 

51 

 

 

Gain on debt extinguishment (1)

 

 

2,400 

 

 

 —

Other non-interest income

 

 

 

 

22 

Total non-interest income

 

$

3,445 

 

$

1,569 

(1) Not within scope of ASC 606

 

 

 

 

 

 

In accordance with our accounting policies as governed by ASC 606, Revenue from Contracts with Customers, the following table separates revenue from contracts with customers into categories that are based on the nature, amount, timing, and uncertainty of revenue and cash flows associated with each product and distribution channel. Non-interest revenue earned by the Company’s broker-dealer subsidiary, MP Securities, comprises security commissions, sale of investment company shares, insurance product revenue, and advisory fee income. Security commission revenue represents the sale of over-the-counter stock, unit investment trusts, and variable annuities. The revenue earned from the sale of these products is recognized upon satisfaction of performance obligations, which occurs on the trade date and is considered transactional revenue. The Company also earns revenue from the management of invested assets, which is recognized monthly, as earned, based on the average asset value, and is referred to as Assets Under Management revenue (“AUM”).



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Year ended



 

December 31, 2020



 

Transactional

 

AUM

 

Total

Broker-dealer revenue

 

 

 

 

 

 

 

 

 

Security commissions

 

$

188 

 

$

33 

 

$

221 

Sale of investment company shares

 

 

57 

 

 

73 

 

 

130 

Other insurance product revenue

 

 

49 

 

 

48 

 

 

97 

Advisory fee income

 

 

 

 

310 

 

 

314 

Total broker-dealer revenue

 

$

298 

 

$

464 

 

$

762 

F-37F-42




 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Year ended



 

December 31, 2019



 

Transactional

 

AUM

 

Total

Broker-dealer revenue

 

 

 

 

 

 

 

 

 

Security commissions

 

$

871 

 

$

23 

 

$

894 

Sale of investment company shares

 

 

30 

 

 

70 

 

 

100 

Other insurance product revenue

 

 

29 

 

 

53 

 

 

82 

Advisory fee income

 

 

 

 

336 

 

 

339 

Total broker-dealer revenue

 

$

933 

 

$

482 

 

$

1,415 

For the twelve months ended

(dollars in thousands)

    

December 31,
2022

    

December 31,
2021

Broker-dealer revenue

Securities commissions

Transactional

$

109

$

131

AUM

61

40

Total

170

171

Sale of investment company shares

Transactional

22

34

AUM

80

98

Total

102

132

Other insurance product revenue

Transactional

179

187

AUM

48

48

Total

227

235

Advisory fee income

Transactional

1

3

AUM

338

337

Total

339

340

Total broker-dealer revenue

Transactional

311

355

AUM

527

523

Total broker-dealer revenue

$

838

$

878

Note 7. Loan SalesTransfers and Servicing

A summary of loan participation sales and servicing assets are as follows (dollars(dollars in thousands):

As of and for the years ended

December 31,

December 31,

    

2022

    

2021

Participation loans interests sold by the Company during the year

$

3,716

$

14,053

Total participation interests sold and serviced by the Company

34,946

46,056

Servicing income

153

189

Servicing Assets

Balance, beginning of period

$

170

$

147

Additions:

Servicing obligations from sale of loan participations

19

81

Subtractions:

Amortization

(66)

(58)

Balance, end of period

$

123

$

170

ACCU Loan Participation Agreement

As detailed in Note 3: Related Party Transactions, effective August 9, 2021, the Company entered into a Master Loan Participation Purchase and Sale Agreement with ACCU. Sales made under the



 

 

 

 

 

 



 

 

 

 

 

 



 

For the years ended



 

December 31,

 

December 31,



 

2020

 

2019

Participation loans interests sold by the Company during the year

 

$

17,106 

 

$

 —

Total participation interests sold and serviced by the Company

 

 

37,962 

 

 

26,964 

Servicing income

 

 

143 

 

 

100 



 

 

 

 

 

 

Servicing Assets

 

 

 

 

 

 

Balance, beginning of period

 

$

100 

 

$

212 

Additions:

 

 

 

 

 

 

Servicing obligations from sale of loan participations

 

 

99 

 

 

 —

Subtractions:

 

 

 

 

 

 

Amortization

 

 

(52)

 

 

(112)

Balance, end of period

 

$

147 

 

$

100 

F-43

Table of Contents

Master LP Agreement will be done on a recourse basis, requiring the Company to repurchase the participation interest in the event of default by the borrower.

During the year ended years ended December 31, 2020,2022 and 2021, the Company sold loan participations to ACCU two participations in loans it had previously purchased from ACCU. These participationsunder the provisions of the Master LP Agreement that totaled $1.6 million. During$7 thousand and $17 thousand, respectively. Due to the year ended December 31, 2020,recourse provisions of the Company sold back to ECCU oneagreement, the participation in a loan it had previously purchased from ECCU. This participation totaled $1.2 million.sales made under the agreement are classified as secured borrowings and are presented separately on the Company’s balance sheet.

F-38


Note 8: Foreclosed Assets

The Company’s investment in foreclosed assets consisted of one property that was valued at $301 thousand at December 31, 20202022 and 2019.2021. There was no allowance for losses on foreclosed assets at December 31, 20202022 and 2019.2021. The Company did not record any loss provisions on foreclosed assets during the years ended December 31, 20202022 and 2019.2021.

During the year ended December 31, 2021, the Company sold a residential property it had acquired in a foreclosure action that had previously been completely written off. The Company realized a gain of $44 thousand on this sale.

Expenses and income applicable to foreclosed assets include the following (dollars in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

Foreclosed Asset
Expenses (Income)
for the years ended
December 31,



 

2020

 

2019

Net loss (gain) on sale of real estate

 

$

 —

 

$

 —

Provision for losses

 

 

 —

 

 

 —

Operating expenses, net of rental income

 

 

11 

 

 

97 

Net expense

 

$

11 

 

$

97 

Foreclosed Asset Expenses
for the years ended
December 31,

    

2022

    

2021

Operating expenses

10

22

Total expenses

$

10

$

22

F-44

Table of Contents

Note 9. Premises and Equipment

The tables below summarize our premises and equipment (dollars in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

As of



 

December 31,

 

December 31,



 

2020

 

2019



 

 

 

 

 

 

Furniture and office equipment

 

$

521 

 

$

503 

Computer system

 

 

214 

 

 

214 

Leasehold improvements

 

 

43 

 

 

43 

Total premises and equipment

 

 

778 

 

 

760 

Less accumulated depreciation and amortization

 

 

(559)

 

 

(544)

Premises and equipment, net

 

$

219 

 

$

216 

As of

December 31,

December 31,

    

2022

    

2021

Furniture and office equipment

$

528

$

522

Computer system

220

214

Leasehold improvements

43

43

Total premises and equipment

791

779

Less accumulated depreciation and amortization

(651)

(607)

Premises and equipment, net

$

140

$

172

    

2022

    

2021

Depreciation and amortization expense for the years ended December 31,

$

44

$

48



 

 

 

 

 

 



 

2020

 

2019



 

 

 

 

 

 

Depreciation and amortization expense for the years ended December 31,

 

$

52 

 

$

43 

Note 10. Credit Facilities and Other Debt

Details of the Company’s debt facilities as of December 31, 2022 are as follows (dollars in thousands):

Nature of
Borrowing

Interest
Rate

Interest Rate
Type

Amount
Outstanding

Monthly
Payment

Maturity
Date

Loan Collateral
Pledged

Cash
Pledged

KCT Warehouse LOC

5.250%

Variable

$

$

6/6/2023

$

6,160

$

KCT Operating LOC

5.250%

Variable

6/6/2023

4,835

ACCU LOC

4.000%

Variable

3,000

9/23/2023

6,823

ACCU Secured

Various

Fixed

7

Various

7

Term-Debt Credit Facility

The Company has onehad a secured term-debt credit facility.facility with OSK VII, LLC, an investment fund (“OSK”). The original obligation on this debt was an $87.3 million credit facility refinancing transaction, which was entered into on November 4, 2011, with the National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union. On June 28, 2019, NCUA assigned all its rights, title, and interest under the credit facility to OSK. The facility iswas non-revolving and doesdid not haveinclude an option to renew or extend additional credit. Additionally, the facility does not contain a prepayment penalty. Under the terms of the credit facility, the Company mustwas required to maintain a minimum collateralization ratio of at least 120%. If at any time the Company failshad failed to maintain its required minimum collateralization ratio, it will be

F-45

Table of Contents

would have been required to deliver cash or qualifying mortgage loans in an amount sufficient to enable us to meet its obligation to maintain a minimum collateralization ratio. The facility’s interest rate was 2.525%. The collateral securing the

F-39


facility at December 31, 2020 and December 31, 20192021 satisfied the 120% minimum. As of December 31, 2020, the Company has only pledged qualifying mortgage loans as collateral on the credit facility.minimum ratio. In addition, the credit facility includes a number ofincluded several borrower covenants. The Company iswas in compliance with these covenants as of December 31, 2020 and December 31, 2019, respectively.2021. On March 5, 2021, the Company made a large$14.3 million principal paymentprepayment on this facility. See Note 20. Subsequent Events for additional information concerning the transaction.

Previously, the Company had an additional term-debt credit facility that carried the same terms as the facility it currently has. On September 25, 2020, the Company reached an agreement with the note holder to pay off the entire outstanding contractual principal balance of $15.0 million. The Companyand realized $2.4a $2.3 million in gainsgain on the extinguishment of debt because of this agreement.payment. On January 6, 2022, the Company made a $16.5 million principal prepayment on this facility and realized a $1.5 million gain on the extinguishment of debt. On June 29, 2022, and September 29, 2022, the Company made $3.3 million principal prepayments on this facility and realized $300 thousand gains on the extinguishment of debt on of each of these payments. The Company was in compliance with its covenants and its minimum collateralization ratio onunder the facility at December 31, 2019 and at the time of these payments.

On November 4, 2022, the payoff.Company paid off the remaining $5.4 million in outstanding principal on the term-debt credit facility. The term-debt credit facility is now terminated and satisfied in whole. The Company negotiated to settle the remaining $5.4 million in principal outstanding at a discount resulting in a gain on debt extinguishment of $437 thousand.

Paycheck Protection Program Loan

On April 27, 2020, MP Securities applied for and received a Paycheck Protection Program loan (“PPP Loan”) granted under the CARES Act.Act in the amount of $111 thousand. According to the terms of the program, as administered by the Small Business Association (“SBA(“SBA”), payments on the loan arewere deferred and deferred interest iswas capitalized into the principal balance of the loan, andloan. In addition, qualifying amounts of the principal balance of the loan and deferred interest arewere eligible to be forgiven if MP Securities retainsretained employees and maintainsmaintained salary levels for its existing employees. Qualifying amounts include amounts equal to eligible payroll costs, certain rent payments, and utility payments as defined by the program. No collateral is required to be pledged for the PPP Loan. Based on the criteria provided by the CARES Act, management believes MP Securities will qualify for forgiveness of the amount outstanding under the borrowing.  On March 5, 2021, the SBA forgave all principal and accrued interest due on the PPP loan was forgiven.  See Note 20. Subsequent Events for additional information concerning the transaction.this loan.

The following table summarizes the principal terms the Company’s credit facilities asKCT Lines of December 31, 2020 (dollars in thousands):Credit



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nature of Borrowing

 

Interest Rate

 

Interest Rate Type

 

Amount Outstanding

 

Monthly Payment

 

Maturity Date

 

Loans Pledged

 

Cash Pledged

Term Loan

 

2.525%

 

Fixed

 

$

51,405 

 

$

450 

 

11/1/2026

 

$

61,319 

 

$

 —

PPP Loan

 

1.000%

 

Fixed

 

$

111 

 

$

 —

 

4/27/2022

 

$

 —

 

$

 —

F-40


Future principal contractual payments of the Company’s borrowings from financial institutions during the twelve-month periods ending December 31, are as follows (dollars in thousands):



 

 

 



 

 

 

2021

 

$

4,156 

2022

 

 

4,372 

2023

 

 

4,370 

2024

 

 

4,479 

2025

 

 

4,596 

Thereafter

 

 

29,543 



 

$

51,516 

On September 30, 2020, Ministry Partners Investment Company, LLC, entered into a Loan and Security Agreement with KCT Credit Union, an Illinois state-charteredstate chartered financial institution (“CUSO LOC”).institution. On June 6, 2022, the Company and KCT mutually agreed to terminate this facility and entered into two new facilities. The CUSOfirst facility, the KCT Warehouse LOC, is a $7.0$5.0 million short-term demand credit facility with a one-year maturity date of September 30, 2021.ending on June 6, 2023. The interest rate on the facility is equal to the United States Prime Rate plus 0.50%. The interest rate was 3.75% on December 31, 2020. The CUSOKCT Warehouse LOC will automatically renew for another one-year term unless either party furnishes written notice at least thirty (30)30 days prior to the termination date that it does not intend to renew the agreement. The Company has secured the KCT Warehouse LOC with certain of its mortgage loan investments.

F-46

Table of Contents

The Company may draw funds on the CUSOKCT Warehouse LOC at any time until the line is fully drawn. However, the CUSO LOC may only be used to warehouse loans until they are sold to participants. Repayment of each advance is due one hundred and twenty (120)120 days after the advance is made or earlier in the event thatif a collateral loan becomes more than sixty (60)60 days delinquent, and the Company fails to cure such deficiency. The interest rate on the KCT Warehouse LOC is equal to the prime rate at the time of the draw plus 0.50%. At December 31, 2022, the interest rate on the KCT Warehouse LOC was 5.25%. To secure its obligations under the CUSOKCT Warehouse LOC, the Company has agreed to grant a priority first lien and security interest in certain of its mortgage loan investments and maintain a minimum collateralization ratio measured by taking outstanding balance of mortgage notes pledged under the facility as compared to the total amount of principal owed on the CUSOKCT Warehouse LOC. The collateralizationminimum ratio must equal at least 120%. The CUSOKCT Warehouse LOC also requires the Company to maintain a deposit of 25% of the total line limit to borrow on the facility. In September 2022, the Company purchased a $1.25 million certificate of deposit from KCT that satisfies this requirement. A total of $6.2 million in loans were pledged on this facility as of December 31, 2022. At December 31, 2022, there were no outstanding borrowings on the KCT Warehouse LOC.

In addition, on June 6, 2022, the Company entered into an Operating Line of Credit Loan and Security Agreement with the KCT, the KCT Operating LOC. The KCT Operating LOC is a $5.0 million short-term demand credit facility with a one-year maturity date ending on June 6, 2023. The KCT Operating LOC will automatically renew for another one-year term unless either party furnishes written notice at least 30 days prior to the termination date that it does not intend to renew the agreement. The Company must secure a minimum of 25% of the line with cash while the remaining portion of the KCT Operating LOC may be secured by certain of its mortgage loan investments.

The Company may draw funds on the KCT Operating LOC at any time until the line is fully drawn. Repayment by the termination date or earlier if a collateral loan becomes more than 60 days delinquent, and the Company fails to cure such deficiency. The interest rate on the KCT Warehouse LOC is equal to the prime rate at the time of the draw plus 0.50%. At December 31, 2022, the interest rate on the KCT Warehouse LOC was 5.25%. To secure its obligations under the KCT Operating LOC, the Company has agreed to grant a priority first lien and security interest in certain of its mortgage loan investments and maintain a minimum collateralization ratio measured by taking the outstanding balance of mortgage notes pledged under the facility as compared to the total amount of principal owed less the secured cash on the KCT Operating LOC. The minimum ratio must equal at least 120%. A total of $4.8 million in loans were pledged on this facility as of December 31, 2022. At December 31, 2022, there were no outstanding borrowings on the KCT Operating LOC.

The KCT Operating LOC and the KCT Warehouse LOC both contain typical affirmative covenants for a credit facility of this nature, including requiring that the Company maintain the pledged

F-47

Table of Contents

collateral free of liens and encumbrances, timely pay the amounts due under the facility and provide KCT with current financial statements and monthly reports. The Company will also be required to comply with certain financial covenants including maintaining a net worth of at least $5.0 million dollars, ensuring that its net worth is equal to at least 5% of its total liabilities and that it will maintain minimum liquidity that equals or exceeds 120% of the outstanding amount owed under the KCT Operating LOC and the KCT Warehouse LOC at the end of each calendar month.

ACCU Line of Credit

On September 23, 2021, Ministry Partners Investment Company, LLC, entered into a Loan and Security Agreement with ACCU (“ACCU LOC”). The ACCU LOC is a revolving $5.0 million short-term demand credit facility with a one-year maturity date of September 23, 2023. The facility carried an outstanding balance of $3.0 million and $2.0 million at December 31, 2022 and December 31, 2021, respectively. The interest rate on the facility is equal to the Prime Rate as published in the Wall Street Journal plus 0.75%. This rate will be adjusted on January 10th each year to account for the current Prime Rate but cannot be adjusted below 4.00%. The interest rate on the ACCU LOC was 4.00% on December 31, 2022. The ACCU LOC will automatically renew for one additional one-year term unless either party furnishes written notice at least thirty (30) days prior to the termination date that it does not intend to renew the agreement.

The Company may draw funds on the ACCU LOC at any time until the line is fully drawn. All outstanding principal and interest amounts are due on the maturity date. To secure its obligations under the ACCU LOC, the Company has agreed to grant a priority first lien and security interest in certain of its mortgage loan investments and maintain a minimum collateralization ratio measured by taking outstanding balance of mortgage notes pledged under the facility as compared to the total amount of principal owed on the ACCU LOC. The minimum ratio must equal at least 120%. The Company must also maintain minimum liquidity that equals or exceeds $10.0 million at all times during the term of the loan. The ACCU LOC contains typical affirmative covenants for a credit facility of this nature. The Company was in compliance with these covenants at years ended December 31, 2020. As2022 and 2021. A total of December 31, 2020, the Company did not have an outstanding balance on the CUSO LOC. $7.2$6.8 million in loans were pledged on this facility as of December 31, 2020.2022 and December 31, 2021.

ACCU Secured Borrowings

As detailed in Note 3: Related Party Transactions, on August 9, 2021, the Company entered into a Master Loan Participation Purchase and Sale Agreement with ACCU. The participations sold under the Master LP Agreement are considered secured borrowings and are presented as such on the Company’s balance sheet. $7 thousand and $17 thousand in secured borrowings were outstanding under the Master LP Agreement as of December 31, 2022 and December 31, 2021, respectively.

F-41F-48


Table of Contents

Note 11. Investor Notes Payable

The table below provides information on the Company’s investor notes payable (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

 

December 31, 2020

 

December 31, 2019

As of

As of

December 31, 2022

December 31, 2021

SEC Registered Public Offerings

Offering Type

 

Amount

 

Weighted
Average
Interest
Rate

 

 

Amount

 

Weighted
Average
Interest
Rate

 

    

Offering Type

    

Amount

    

Weighted
Average
Interest
Rate

  

  

Amount

    

Weighted
Average
Interest
Rate

 

Class A Offering

Unsecured

 

$

 —

 

 —

%

 

$

487 

 

4.20 

%

Class 1 Offering

Unsecured

 

 

9,010 

 

3.94 

%

 

 

22,098 

 

4.02 

%

Unsecured

$

%

$

3,654

4.45

%

Class 1A Offering

Unsecured

 

 

48,982 

 

3.16 

%

 

 

32,732 

 

3.85 

%

Unsecured

20,698

4.27

%

27,116

4.11

%

2021 Class A Offering

Unsecured

45,935

4.04

%

34,524

3.20

%

Public Offering Total

 

 

$

57,992 

 

3.28 

%

 

$

55,317 

 

3.92 

%

$

66,633

4.11

%

$

65,294

3.65

%

 

 

 

 

 

 

 

 

 

 

 

 

Private Offerings

 

 

 

 

 

 

 

 

 

 

 

 

Subordinated Notes

Unsecured

 

 

11,655 

 

4.49 

%

 

 

11,317 

 

5.21 

%

Unsecured

$

12,525

4.56

%

$

11,526

4.47

%

Secured Notes

Secured

 

 

6,580 

 

3.99 

%

 

 

6,467 

 

3.92 

%

Secured

%

%

Private Offering Total

 

 

$

18,235 

 

4.31 

%

 

$

17,784 

 

4.74 

%

$

12,525

4.56

%

$

11,526

4.47

%

 

 

 

 

 

 

 

 

 

 

 

 

Total Notes Payable

 

 

$

76,227 

 

3.53 

%

 

$

73,101 

 

4.12 

%

$

79,158

4.19

%

$

76,820

3.77

%

 

 

 

 

 

 

 

 

 

 

 

 

Notes Payable Totals by Security

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured Total

Unsecured

 

$

69,647 

 

3.48 

%

 

$

66,634 

 

4.14 

%

Unsecured

$

79,158

4.19

%

$

76,820

3.77

%

Secured Total

Secured

 

$

6,580 

 

3.99 

%

 

$

6,467 

 

3.92 

%

Secured

$

%

$

%

Future maturities for the Company’s investor notes during the twelve monthtwelve-month periods ending December 31, are as follows (dollars in thousands):



 

 

 



 

 

 

2021

 

$

27,514 

2022

 

 

11,764 

2023

 

 

6,517 

2024

 

 

10,294 

2025

 

 

20,138 



 

 

76,227 

Debt Issuance Costs

 

 

33 

Notes payable, net of debt issuance costs

 

$

76,194 

2023

$

23,682

2024

17,574

2025

15,211

2026

13,990

2027

8,701

79,158

Debt issuance costs

58

Notes payable, net of debt issuance costs

$

79,100

Debt issuance costs related to the Company’s notes payable were $33$58 thousand and $55$88 thousand at December 31, 20202022 and December 31, 2019,2021, respectively.

The notes are payable to investors who have purchased the securities. 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. In addition, the Company may allow investors to redeem their notes prior to maturity at its sole discretion.

F-42F-49


Table of Contents

SEC Registered Public Offerings

Class A Offering.

In April 2008, the Company registered its Class A Notes with the SEC. The Company discontinued the sale of its Class A Note Offering when the offering expired on December 31, 2015. The offering included three categories of notes, including a fixed interest note, a variable interest note, and a flex note that allows borrowers to increase their interest rate once a year with certain limitations. The Class A Notes contained restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company is in compliance with these covenants as of December 31, 2020 and December 31, 2019. The Company issued the Class A Notes under a Trust Indenture entered into between the Company and U.S. Bank National Association (“US Bank”).

Class 1 Offering.Offering

In January 2015, the Company registered its Class 1 Notes with the SEC. The Company discontinued the sale of its Class 1 Note Offering when it expired on December 31, 2017. The offering included two categories of notes, including a fixed interest note and a variable interest note. The Class 1 Notes contain restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing, or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company iswas in compliance with these covenants as of December 31, 2020 and December 31, 2019.2021. The Company issued Thethe Class 1 Notes under a Trust Indenture between the Company and U.S. Bank. There were no outstanding Class 1 Notes as of December 31, 2022.

Class 1A Offering.Offering

In February 2018, the Company launched its Class 1A Notes Offering. Pursuant to a Registration Statement declared effective on February 27, 2018, the Company registered $90 million of its Class 1A Notes in two series – fixed and variable notes. The Class 1A Notes are unsecured. The interest rate paid on the Fixed Series Notes is determined in reference to a Constant Maturity Treasury Index published by the U.S. Department of Treasury (“CMT Index”) in effect on the date that the note is issued plus a rate spread as described in the Company’s Class 1A Prospectus. The variable index in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Note. The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of Treasury for actively traded Treasury securities. The variable index is equal to the 3-month LIBOR rate. The Company issued the Class 1A Notes under a Trust Indenture entered into between the Company and U.S. Bank.

2021 Class A Offering

In January 2021, the Company registeredlaunched its 2021 Class A Notes withOffering. Pursuant to a Registration Statement declared effective on January 8, 2021, the SEC. See Note 20. Subsequent EventsCompany registered $125 million of its 2021 Class A Notes in two series – fixed and variable notes. The 2021 Class A Notes are unsecured. Like the Class 1A Notes Offering, the interest rate paid on the Fixed Series Notes is determined in reference to a CMT Index published by the U.S. Department of Treasury in effect on the date that the note is issued plus a rate spread as described in the Company’s 2021 Class A Prospectus. The variable index in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Note. The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of Treasury for additional information.actively traded Treasury securities. The variable index is equal to the 3-month LIBOR rate. The Company issued the 2021 Class A Notes under a Trust Indenture entered into by and between the Company and U.S. Bank.

F-43F-50


Table of Contents

Private Offerings

Series 1 Subordinated Capital Notes (“Subordinated Notes”).

In June 2018, the Company renewed the offer and sale of its Subordinated Notes initially launched in February 2013. The Company offers the notes pursuant to a limited private offering to qualified investors that meet the requirements of Rule 506 of Regulation D. The Company offers the Subordinated Notes with maturity terms from 12 to 60 months at an interest rate fixed on the date of issuance, as determined by the then current seven-dayseven-day average rate reported by the U.S. Federal Reserve Board for interest rate swaps.

Under the Subordinated Notes offering, the Company is subject to certain covenants, including limitations on restricted payments, limitations on the amount of notes that it can sell, restrictions on mergers and acquisitions, and proper maintenance of books and records. The Company was in compliance with these covenants at December 31, 20202022 and December 31, 2019.2021.

Secured Investment Certificates (“Secured Notes”).

In January 2015, the Company began offering Secured Notes under a private placement memorandum pursuant to the requirements of Rule 506 of Regulation D. Under this offering, the Company may sell up to $80.0 million in Secured Notes to qualified investors. On December 31, 2017, the Company terminated its 2015 Secured Note offering.

Effective as of April 30, 2018, the Company launched a new $80 million secured note offering. The Company issued the 2018 Secured Note offering pursuant to a Loan and Security Agreement. This agreement includes the same terms and conditions previously set forth in its 2015 Secured Note offering. The 2018 Secured Note offering terminated on April 30, 2020.

The Company secures these notes by pledging either cash or loans receivable as collateral. The required collateralization ratio is 100% on the pledged cash and 105% on the pledged loans receivable. Said another way, every dollar of cash collateralizes one dollar of secured notes and every $1.05 of loans receivable collateralizes one dollar of secured notes. At December 31, 2020 and December 31, 2019, the loans receivable collateral securing the Secured Notes had an outstanding balance of $9.1 million and $10.9 million, respectively. The December 31, 2020 and December 31, 2019 collateral balance was sufficient to satisfy the minimum collateral requirement of the Secured Notes offering. As of December 31, 2020 and December 31, 2019, the Company did not have cash pledged for the benefit of the Secured Notes.

F-44


Note 12. Commitments and Contingencies

Unfunded Commitments

The Company is a party to credit-related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include undisbursed loans, un-advanced lines of credit, and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contractual amount of these commitments represents the Company’s exposure to credit loss. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

The table below shows the outstanding financial instruments whose contract amounts represent credit risk (dollars in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

Contract Amount at:



 

December 31, 2020

 

December 31, 2019

Undisbursed loans

 

$

2,774 

 

$

1,999 

Contract Amount at:

    

December 31, 2022

    

December 31, 2021

Undisbursed loans

$

355

$

270

Undisbursed loans are commitments for possible future extensions of credit to existing customers. These loans are sometimes unsecured and the borrower may not necessarily draw upon the line the total amount of the commitment. Commitments to extend credit are generally at variable rates.

F-51

Table of Contents

Operating Leases

The Company has lease agreements for its offices in Brea and Fresno, California. The Company renewed its Brea office lease expires in January 2019 for an additional five-year term.December 2023. The lease does not contain any additional options to renew. The Fresno office lease expires in March 2022.April 2025. There are no options to renew in the lease agreement. The Company also has a lease agreement for a vehicle used by management. The lease for the vehicle terminates in December 2024. The Company has determined that boththese leases are operating leases.

Beginning on January 1, 2019, the Company has recorded right-of-use assets and lease liabilities in accordance with ASU 2016-02. The Company has elected not to reassess expired or existing leases for changes in classification. The Company has elected not to use hindsight to determine the term of existing leases and is using the term of the current lease agreements in its right-of-use asset calculations. As the interest rates implicit in the leases were not readily available, the Company used its incremental borrowing rates to determine the discount rates used in the asset calculations.

F-45


The table below presents information regarding our existing operating leases (dollars in thousands):

 

 

 

 

 

 

 

 

For the Year Ended

2020

 

2019

 

For the Year Ended

    

2022

  

  

2021

Lease cost

 

 

 

 

 

 

 

Operating lease cost

$

174 

 

$

174 

 

$

175

$

174

Other information

 

 

 

 

 

 

Cash paid for operating leases

 

169 

 

 

164 

 

$

185

$

174

Right-of-use assets obtained in exchange for operating lease liabilities

 

53 

 

 

680 

 

$

106

$

Lease liabilities recorded

$

101

$

Weighted average remaining lease term (in years)

 

2.87 

 

 

3.96 

 

1.46

1.96

Weighted-average discount rate

 

4.64 

%

 

 

4.77 

%

4.33

%

4.71

%

Future minimum lease payments and lease costs for the twelve months ending December 31 are as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

Lease Payments

 

Lease Costs

2021

 

$

174 

 

$

174 

2022

 

 

157 

 

 

153 

    

Lease Payments

    

Lease Costs

2023

 

 

155 

 

 

146 

$

191

$

176

2024

36

29

2025

10

10

Total

 

$

486 

 

$

473 

$

237

$

215

Note 13. Office Operations and Other Expenses

Office operations and other expenses comprise the following (dollars in thousands):

    

December 31, 2022

   

December 31, 2021

Technology and communication expenses

$

396

$

357

Insurance

382

350

Lease and occupancy expense

211

192

Outsourced operations

160

131

Staff and travel expense

109

71

Loan expenses

42

53

Clearing firm fees

60

63

Other

131

98

Total

$

1,491

$

1,315

F-52



 

 

 

 

 

 



 

 

 

 

 

 



 

December 31, 2020

 

December 31, 2019

Technology and communication expenses

 

$

411 

 

$

428 

Insurance

 

 

295 

 

 

282 

Lease and occupancy expense

 

 

194 

 

 

206 

Outsourced operations

 

 

157 

 

 

190 

Staff and travel expense

 

 

65 

 

 

140 

Loan Expenses

 

 

87 

 

 

110 

Clearing firm Fees

 

 

60 

 

 

60 

Other

 

 

84 

 

 

67 

Total

 

$

1,353 

 

$

1,483 

Table of Contents

Note 14. Preferred and Common Units Under LLC Structure

Holders of the Series A Preferred Units are entitled to receive a quarterly cash dividend that is 25 basis points higher than the one-yearone-year LIBOR rate in effect on the last day of the calendar month for which the preferred return is approved. The Company has also agreed to set aside an annual amount equal to 10% of its net profits earned for any year, after

F-46


subtracting from profits the quarterly Series A Preferred Unit dividends paid, for distribution to its Series A Preferred Unit holders.

The Series A Preferred Units have a liquidation preference of $100 per unit and have no voting rights. They are also subject to redemption in whole or in part at the Company’s election on December 31 of any year for an amount equal to the liquidation preference of each unit, plus any accrued and declared but unpaid quarterly dividends and preferred distributions on such units. The Series A Preferred Units have priority as to earnings and distributions over the Common Units. The resale of the Company’s Series A Preferred Units and Common Units are subject to the Company’s first right of refusal to purchase units proposed to be transferred. Upon the Company’s failure to pay quarterly dividends for four consecutive quarters, the holders of the Series A Preferred Units have the right to appoint two managers to its Board of Managers.

The Class A Common Units have voting rights, but have no liquidation preference or rights to dividends, unless declared.

Note 15. Retirement Plans

401(k)

All of the Company’s employees are eligible to participate in the Automated Data Processing, Inc. (“ADP”) 401(k) plan effective as of the date their employment commences. No minimum service is required and the minimum age is 21.21. Each employee may elect voluntary contributions not to exceed 86% of salary, subject to certain limits based on U.S. tax law. The plan has a matching program, which qualifies as a Safe Harbor 401(k) plan. As a Safe Harbor Section 401(k) plan, the Company matches each eligible employee’s contribution, dollar for dollar, up to 3% of the employee’s compensation, and 50% of the employee’s contribution that exceeds 3% of their compensation, up to a maximum contribution of 5% of the employee’s compensation. Company matching contributions for the years ended December 31, 20202022 and 20192021 were $86$80 thousand and $66$67 thousand, respectively.

F-53

Table of Contents

Profit Sharing

The profit sharing plan is for all employees who, at the end of the calendar year, are at least 21 years old, still employed, and have at least 900 hours of service during the plan year. The Company’s Board of Managers determines the amount annually contributed on behalf of each qualified employee. The Company determines the amount by calculating it as a percentage of the eligible employee'semployee’s annual earnings. Plan forfeitures are used to reduce the Company’s annual contribution. The Company did not make or approve a profit sharing contribution to the plan during the years ended December 31, 20202022 and 2019.2021.

Supplemental Executive Retirement Plan

On March 30, 2022, the Company entered into a Supplemental Executive Retirement Plan (the “SERP”) with its President and Chief Executive Officer, Joseph W. Turner, Jr. The SERP is an unfunded non-qualified plan that is intended to provide Mr. Turner with a fixed benefit over a ten-year period after Mr. Turner incurs a separation from service with the Company. The SERP has been established as a supplemental retirement and death benefits arrangement that conforms with the provisions of Section 409(A) of the Internal Revenue Code. If Mr. Turner retires on or after his expected retirement date, he will be entitled to receive $60,000 per year over a ten-year period, payable in equal monthly installments commencing the first day of the month following his separation from service.

For purposes of the SERP, Mr. Turner’s accrued benefit is subject to a maximum sum of $600,000, with payments made annually in equal monthly installments over a ten-year period. The Company is liable for the entire amount of this benefit unless Mr. Turner incurs a separation of service prior to the vesting date in August 2024. The Company’s management has determined that such a separation is unlikely to occur prior to the vesting date and has accrued the entire benefit as of December 31, 2022.

F-47


Note 16. Fair Value Measurements

Fair Value Measurements Using Fair Value Hierarchy

The Company classifies measurements of fair value within a hierarchy based upon inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company did not change its methodology in measuring fair value during the year ended December 31, 2022. The fair value hierarchy is as follows:

F-54

Table of Contents

·

Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·

Level 2 inputs include:

o

quoted prices for similar assets and liabilities in active markets,

o

quoted prices for identical assets and liabilities in inactive markets,

o

inputs that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.); or

o

inputs that are derived principally from or corroborated by observable market data by correlation or by other means.

·

Level 3 inputs are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

F-48


Fair Value of Financial Instruments

The following tables show the carrying amounts and estimated fair values of the Company’s financial instruments (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Fair Value Measurements at December 31, 2020 using



 

Carrying
Value

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Fair Value

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash 

 

$

21,922 

 

$

21,922 

 

$

 —

 

$

 —

 

$

21,922 

Certificates of deposit

 

 

1,761 

 

 

 —

 

 

1,779 

 

 

 —

 

 

1,779 

Loans, net

 

 

116,121 

 

 

 —

 

 

 —

 

 

115,477 

 

 

115,477 

Investments in joint venture

 

 

884 

 

 

 —

 

 

 —

 

 

884 

 

 

884 

Accrued interest receivable

 

 

798 

 

 

 —

 

 

 —

 

 

798 

 

 

798 

FINANCIAL LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term-debt

 

$

51,516 

 

$

 —

 

$

 —

 

$

43,832 

 

$

43,832 

Notes payable

 

 

76,194 

 

 

 —

 

 

 —

 

 

78,262 

 

 

78,262 

Other financial liabilities

 

 

513 

 

 

 —

 

 

 —

 

 

513 

 

 

513 

F-55

Fair Value Measurements at December 31, 2022 using

    

Carrying
Value

    

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs
(Level 3)

    

Fair Value

FINANCIAL ASSETS:

Cash and restricted cash

$

9,564

$

9,564

$

$

$

9,564

Certificates of deposit

1,250

1,243

1,243

Loans, net

85,076

83,525

83,525

Investments in joint venture

870

870

870

Other investments

1,018

1,018

1,018

Accrued interest receivable

477

477

477

FINANCIAL LIABILITIES:

Lines of credit

$

3,000

$

$

$

3,026

$

3,026

Other secured borrowings

7

7

7

Notes payable

79,100

78,330

78,330

Other financial liabilities

462

462

462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019 using

 

Carrying
Value

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Fair Value

Fair Value Measurements at December 31, 2021 using

    

Carrying
Value

    

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs
(Level 3)

    

Fair Value

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

25,993 

 

$

25,993 

 

$

 —

 

$

 —

 

$

25,993 

Cash and restricted cash

$

28,149

$

28,149

$

$

$

28,149

Loans, net

 

 

128,843 

 

 

 —

 

 

 —

 

 

126,438 

 

126,438 

97,243

97,913

97,913

Investments in joint venture

 

 

891 

 

 

 —

 

 

 —

 

 

891 

 

891 

882

882

882

Accrued interest receivable

 

 

635 

 

 

 —

 

 

 —

 

 

635 

 

635 

507

507

507

FINANCIAL LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lines of credit

$

2,000

$

$

$

2,000

$

2,000

Term-debt

 

$

71,427 

 

$

 —

 

$

 —

 

$

55,072 

 

$

55,072 

32,749

31,489

31,489

Other secured borrowings

17

18

18

Notes payable

 

 

73,046 

 

 

 —

 

 

 —

 

 

74,592 

 

74,592 

76,732

76,871

76,871

Other financial liabilities

 

 

503 

 

 

 —

 

 

 —

 

 

503 

 

503 

455

455

455

Management uses judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at December 31, 20202022 and December 31, 2019.  2021.

F-49


The Company used the following methods and assumptions to estimate the fair value of financial instruments:

·

Cash – The carrying amounts reported in the balance sheets approximate fair value for cash.

F-56

·

Certificates of deposit – Management estimates fair value by using a present value discounted cash flow with a discount rate approximating the current market rate for similar assets. Management classifies certificates of deposits as Level 2 of the fair value hierarchy.

·

Loans (other than collateral-dependent impaired loans) – Management estimates fair value by discounting the future cash flows of the loans. The discount rate the Company uses is the current average rates at which it would make loans to borrowers with similar credit ratings and for the same remaining maturities.

Also included is $7 thousand of loan participations transferred under a recourse agreement.

·

Investments in joint venture – Management estimates fair value by analyzing the operations and marketability of the underlying investment to determine if the investment is other-than-temporarily impaired.

·

Other investments – Management estimates fair value by determining the whether there is an indication of potential lack of performance on the part of the insurance companies in which the investments are made, and whether those indications would impair the investments.

Investor Notes Payable – Management estimates the fair value of fixed maturity notes by discounting the future cash flows of the notes. The discount rate the Company uses is the rate currently offered for investor notes payable of similar remaining maturities. Company management estimates the discount rate by using market rates that reflect the interest rate risk inherent in the notes.

·

Lines of Credit, Term-debt, Other Secured Borrowings – Management estimates the fair value of borrowings from financial institutions discounting the future cash flows of the borrowings. The discount rate the Company uses is the current incremental borrowing rate for similar types of borrowing arrangements.

·

Off-Balance Sheet Instruments – Management determines the fair value of loan commitments on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements and the counterparties'counterparties’ credit standing. The fair value of loan commitments is insignificant at December 31, 20202022 and December 31, 2019.

2021.

F-50


Fair Value Measured on a Nonrecurring Basis

The Company measures certain assets at fair value on a nonrecurring basis. On these assets, the Company only makes fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the fair value of assets measured on a nonrecurring basis (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Fair Value Measurements Using:

 

 

 

   

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

Assets at December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral-dependent loans (net of allowance and discount)

 

$

 —

 

$

 —

 

$

5,815 

 

$

5,815 

Investments in joint venture

 

 

 —

 

 

 —

 

 

884 

 

 

884 

Foreclosed assets (net of allowance)

 

 

 —

 

 

 —

 

 

301 

 

 

301 

Total

 

$

 —

 

$

 —

 

$

6,699 

 

$

6,699 

   

 

 

 

 

 

 

 

 

 

 

 

 

Assets at December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Collateral-dependent loans (net of allowance and discount)

 

$

 —

 

$

 —

 

$

8,640 

 

$

8,640 

Investments in joint venture

 

 

 —

 

 

 —

 

 

891 

 

 

891 

Foreclosed assets (net of allowance)

 

 

 —

 

 

 —

 

 

301 

 

 

 

Total

 

$

 —

 

$

 —

 

$

9,531 

 

$

9,531 

F-57

Fair Value Measurements Using:

 

    

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs
(Level 3)

    

Total

Assets at December 31, 2022:

Collateral-dependent loans (net of allowance and discount)

$

$

$

5,259

$

5,259

Investments in joint venture

870

870

Other investments

1,018

1,018

Foreclosed assets (net of allowance)

301

301

Total

$

$

$

7,448

$

7,448

 

Assets at December 31, 2021:

Collateral-dependent loans (net of allowance and discount)

$

$

$

5,815

$

5,815

Investments in joint venture

884

884

Foreclosed assets (net of allowance)

301

301

Total

$

$

$

7,000

$

7,000

The following table presents activity in Level 3 assets for those assets in which there were purchases or sales, or in which assets were transferred between levels. The only assets to have such activity during the year ended December 31, 2022 were other investments (dollars in thousands): 

Other investments

Balance, December 31, 2021

$

--

Purchase of other investments

1,000

Realized income on other investments

18

Balance, December 31, 2022

$

1,018

Impaired Loans

The Company records impaired loans at fair value on a nonrecurring basis. Once a loan is considered impaired, the fair value is measured using one of several methods, including collateral liquidation value, the market value of similar debt, or discounted cash flows. Most often, management uses the fair value of collateral-dependent impaired loans with specific allocations of the underlyingallowance for loan losses is generally based on recent real estate collateral to value impaired loans.appraisals. Such fair values are obtained using independent appraisals, which the Company may discount due to age or other factors, which the Company considers to be Level 3 inputs. The range of these discounts is shown in the table below.

Foreclosed Assets

At the date of foreclosure, the Company initially records real estate acquired through foreclosure or other proceedings (foreclosed assets) at fair value less estimated costs of disposal, which establishes a new cost. After foreclosure, management periodically performs valuations on foreclosed assets. The company carries foreclosed assets held for sale at the lower of cost or fair value, less estimated costs of disposal. The fair values of real properties initially are determined based on appraisals. In some cases, management adjusts the appraised values for various factors including age of the appraisal, age of comparable properties included in the appraisal, and known changes in the market or in the collateral. The Company makes subsequent valuations of the real properties based either on

F-51F-58


on management estimates or on updated appraisals. If management makes significant adjustments to appraised values based on unobservable inputs, the Company categorizes foreclosed assets under Level 3. Otherwise, if management bases the foreclosed assets’ value on recent appraisals and the only adjustments made are for known contractual selling costs, the Company will categorize the foreclosed assets under Level 2.

Other Investments

Other investments comprise two indexed annuity insurance contracts. The Company measures fair value on its annuity investments on a nonrecurring basis. On these assets, the Company only makes fair value adjustments when there is evidence of impairment. As the principal amounts and recognized income on the annuities is guaranteed, only impairment of the assets would indicate a degradation in their fair value. The Company concluded that no impairment of the annuity investments existed at December 31, 2022. As such, the Company has determined that the carrying value of its other investments equals its fair value at December 31, 2022.

The table below summarizes the valuation methodologies used to measure the fair value adjustments for Level 3 assets recorded at fair value on a nonrecurring basis (dollars in thousands):

December 31, 2020

Assets

Fair Value
(in thousands)

Valuation
Techniques

Unobservable
Input

Range
(Weighted Average)

Impaired loans

$

5,815 

Discounted appraised value

Selling cost / Estimated market decrease

21% - 81% (23%)

Investments in joint venture

$

884 

Internal evaluations

Estimated future market value

0% (0%)

Foreclosed assets

$

301 

Internal evaluations

Selling cost

6% (6%)

December 31, 2022

Assets

    

Fair Value
(in thousands)

    

Valuation
Techniques

    

Unobservable
Input

    

Range
(Weighted Average)

Impaired loans

$

5,259

Discounted appraised value

Selling cost / Estimated market decrease

21% - 81% (28%)

Investments in joint venture

870

Internal evaluations

Estimated future market value

0% (0%)

Other investments

1,018

Internal evaluations

Indications of non-performance by insurance companies

0% (0%)

Foreclosed assets

301

Internal evaluations

Selling cost

6% (6%)

December 31, 2021

Assets

    

Fair Value
(in thousands)

    

Valuation
Techniques

    

Unobservable
Input

    

Range
(Weighted Average)

Impaired loans

$

5,815

Discounted appraised value

Selling cost / Estimated market decrease

21% - 81% (23%)

Investments in joint venture

884

Internal evaluations

Estimated future market value

0% (0%)

Foreclosed assets

301

Internal evaluations

Selling cost

6% (6%)

December 31, 2019

Assets

Fair Value
(in thousands)

Valuation
Techniques

Unobservable
Input

Range
(Weighted Average)

Impaired loans

$

8,640 

Discounted appraised value

Selling cost / Estimated market decrease

21% - 81% (23%)

Investments in joint venture

$

891 

Internal evaluations

Estimated future market value

0% (0%)

Foreclosed assets

$

301 

Internal evaluations

Selling cost

6% (6%)

F-59

Note 17. Income Taxes and State LLC Fees

MPIC is subject to a California gross receipts LLC fee of approximately $12,000 per year, and the state minimum franchise tax of $800 per year. MP Securities is subject to a California gross receipts LLC fee of approximately $6,000 and the state minimum franchise tax of $800 per year.

MP Realty incurred a tax loss for the years ended December 31, 20202022 and 2019,2021, and recorded a provision of $800 per year for the state minimum franchise tax. For the years ended December 31, 20202022 and 2019,2021, MP Realty has federal and state net operating loss carryforwards of approximately $407$432 thousand and $402$422 thousand, respectively, which begin to expire in the year 2030.2032. Management assessed the realizability of the deferred tax asset and determined that a 100% valuation against the deferred tax asset was appropriate at years ended December 31, 20202022 and 2019.2021.

F-52


Tax years ended December 31, 20172019 through December 31, 20202022 remain subject to examination by the Internal Revenue Service and the tax years ended December 31, 20162018 through December 31, 20202022 remain subject to examination by the California Franchise Tax Board.

Note 18. Segment Information

The Company'sCompany’s reportable segments are strategic business units that offer different products and services. The Company manages the segments separately because each business requires different management, personnel proficiencies, and marketing strategies.

The Company has two reportable segments that represent the primary businesses reported in the consolidated financial statements: the finance company (the parent company), and the investment advisor and insurance firm (MP Securities). The finance company segment uses funds from the sale of debt securities, income from operations, and the sale of loan participations to originate or purchase mortgage loans. The finance company also services loans. MP Securities generates fee income by selling debt securities and other investment and insurance products, as well as providing investment advisory and financial planning services.

The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management accounts for intersegment revenues and expenses at amounts that assume the Company entered into the transaction with unrelated third parties at the current market prices at the time of the transaction. Management evaluates the performance of each segment based on net income or loss before provision for income taxes and LLC fees.

F-60

Financial information with respect to the reportable segments for the yearyears ended December 31, 20202022 and 2021 is as follows (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Finance
Company

 

Broker
Dealer

 

Other Segments

 

Adjustments / Eliminations

 

Total

Revenue from external sources

 

$

11,019 

 

$

769 

 

$

 —

 

$

 —

 

$

11,788 

Revenue from internal sources

 

 

 —

 

 

1,000 

 

 

216 

 

 

(1,216)

 

 

 —

Total non interest expense and provision for tax

 

 

3,789 

 

 

1,238 

 

 

 

 

 —

 

 

5,029 

Net profit

 

 

1,477 

 

 

530 

 

 

215 

 

 

(106)

 

 

2,116 

Total assets

 

 

139,410 

 

 

3,187 

 

 

576 

 

 

(80)

 

 

143,093 

Twelve months ended

    

December 31,
2022

    

December 31,
2021

Revenue from external sources

Finance Company

$

8,562

$

9,651

Broker Dealer

865

990

Adjustments / Eliminations

Total

$

9,427

$

10,641

Revenue from internal sources

Finance Company

$

$

Broker Dealer

1,128

1,244

Other Segments

65

193

Adjustments / Eliminations

(1,193)

(1,437)

Total

$

$

Total non-interest expense and provision for tax

Finance Company

$

4,125

$

3,605

Broker Dealer

1,598

1,334

Other Segments

4

2

Adjustments / Eliminations

Total

$

5,727

$

4,941

Net profit

Finance Company

$

188

$

1,108

Broker Dealer

395

900

Other Segments

61

192

Adjustments / Eliminations

(17)

(350)

Total

$

627

$

1,850

December 31,

December 31,

2022

2021

    

(Unaudited)

    

(Audited) 

Total assets

Finance Company

$

94,523

$

123,753

Broker Dealer

4,553

3,946

Other Segments

423

559

Adjustments / Eliminations

(136)

(293)

Total

$

99,363

$

127,965

F-53F-61


Financial information with respect to the reportable segments for the year ended December 31, 2019 is as follows (dollars in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Finance
Company

 

Broker
Dealer

 

Other Segments

 

Adjustments / Eliminations

 

Total

Revenue from external sources

 

$

10,289 

 

$

1,426 

 

$

 —

 

$

 —

 

$

11,715 

Revenue from internal sources

 

 

 —

 

 

878 

 

 

316 

 

 

(1,194)

 

 

 —

Total non interest expense and provision for tax

 

 

4,020 

 

 

1,177 

 

 

(2)

 

 

 —

 

 

5,195 

Net profit

 

 

811 

 

 

1,126 

 

 

318 

 

 

(254)

 

 

2,001 

Total assets

 

 

155,180 

 

 

2,506 

 

 

371 

 

 

(36)

 

 

158,021 

Note 19. Condensed Financial Statements of Parent Company

Financial information pertaining only to the parent company, Ministry Partners Investment Company, LLC, is as follows (dollars in thousands):

Ministry Partners Investment Company, LLC Balance Sheet



 

 

 

 

 

 



 

 

 

 

 

 



 

As of December 31,



 

2020

 

2019

Assets:

 

 

 

 

 

 

Cash

 

$

18,408 

 

$

23,297 

Certificates of deposit

 

 

1,761 

 

 

 —

Loans receivable, net of allowance for loan losses

 

 

116,121 

 

 

128,843 

Investment in subsidiaries

 

 

2,564 

 

 

1,926 

Other assets

 

 

3,588 

 

 

3,600 

Total assets

 

$

142,442 

 

$

157,666 

Liabilities and members’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Term-debt

 

$

51,405 

 

$

71,427 

Notes payable, net of debt issuance costs

 

 

76,194 

 

 

73,046 

Other liabilities

 

 

1,935 

 

 

2,121 

Total liabilities

 

 

129,534 

 

 

146,594 

Equity

 

 

12,908 

 

 

11,072 

Total liabilities and members' equity

 

$

142,442 

 

$

157,666 

As of December 31,

    

2022

    

2021

Assets:

Cash

$

5,875

$

24,030

Certificates of deposit

1,250

Loans receivable, net of allowance for loan losses

85,076

97,243

Investment in subsidiaries

3,084

2,645

Other assets

2,922

3,045

Total assets

$

98,207

$

126,963

Liabilities and members’ equity

Liabilities:

Other borrowings

$

3,007

$

34,766

Notes payable, net of debt issuance costs

78,441

76,025

Other liabilities

2,133

1,661

Total liabilities

83,581

112,452

Equity

14,626

14,511

Total liabilities and members' equity

$

98,207

$

126,963

F-54


Ministry Partners Investment Company, LLC Statement of Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the years ended

 

 

December 31,

 

 

2020

 

2019

For the years ended

December 31,

    

2022

    

2021

Income:

 

 

 

 

 

 

 

Interest Income

 

 

$

8,335 

 

$

10,144 

$

5,825

$

7,040

Other income

 

 

 

2,683 

 

 

154 

2,737

2,566

Total income

 

 

 

11,018 

 

 

10,298 

8,562

9,606

Interest expense:

 

 

 

 

 

 

 

Term-debt

 

 

 

1,638 

 

 

1,867 

Other borrowings

387

1,007

Notes payable

 

 

 

3,926 

 

 

4,135 

4,158

3,808

Total interest expense

 

 

 

5,564 

 

 

6,002 

4,545

4,815

Provision for loan losses

 

 

 

188 

 

 

(544)

Provision (credit) for loan losses

(296)

122

Other operating expenses

 

 

 

3,776 

 

 

4,017 

4,112

3,548

Income before provision for income taxes

 

 

 

1,490 

 

 

823 

201

1,121

Provision for income taxes and state LLC fees

 

 

 

13 

 

 

12 

13

13

Income before equity in undistributed net income of subsidiaries

 

 

 

1,477 

 

 

811 

188

1,108

Equity in undistributed net income of subsidiaries

 

 

 

639 

 

 

1,190 

439

742

Net income

 

 

$

2,116 

 

$

2,001 

$

627

$

1,850

F-55F-62


Ministry Partners Investment Company, LLC Statement of Cash Flows

 

 

 

 

 

 

 

 

 

For the years ended

 

December 31,

 

2020

 

2019

For the years ended

December 31,

    

2022

    

2021

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

2,116 

 

$

2,001 

$

627

$

1,850

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

Equity in undistributed net income of subsidiaries

 

 

(639)

 

 

(1,190)

(439)

(742)

Depreciation

 

 

50 

 

 

40 

43

47

Amortization of deferred loan fees

 

 

(257)

 

 

(269)

(127)

(231)

Amortization of debt issuance costs

 

 

97 

 

 

86 

651

616

Provision (credit) for loan losses

 

 

188 

 

 

(544)

Provision for loan losses

(296)

122

Accretion of loan discount

 

 

(31)

 

 

(247)

(20)

(27)

Gain on sale of loans

 

 

(69)

 

 

 —

(13)

(64)

Loss on sale of fixed assets

 

 

 

 

 —

Gain on sale of foreclosed assets

(44)

Gain on debt extinguishment

 

 

(2,400)

 

 

 —

(2,537)

(2,287)

Changes in:

 

 

 

 

 

 

Other assets

 

 

190 

 

 

(342)

110

689

Other liabilities

 

 

(223)

 

 

957 

493

(275)

Net cash (used) provided by operating activities

 

 

(970)

 

 

492 

Net cash (used) by operating activities

(1,508)

(346)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Loan purchases

 

 

 —

 

 

(2,255)

(2,760)

(842)

Loan originations

 

 

(19,449)

 

 

(7,951)

(4,267)

(14,319)

Loan sales

 

 

19,827 

 

 

 —

3,716

14,053

Loan principal collections

 

 

12,413 

 

 

25,324 

15,915

20,105

Purchase of certificates of deposit

 

 

(1,761)

 

 

 —

Sale of property and equipment

 

 

24 

 

 

Redemption (purchase) of certificates of deposit

(1,250)

1,761

Foreclosed property sales

44

Purchase of property and equipment

 

 

(88)

 

 

(170)

(11)

(1)

Net cash provided by investing activities

 

 

10,966 

 

 

14,952 

11,343

20,801

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net change in term-debt

 

 

(17,621)

 

 

(5,088)

(30,212)

(16,370)

Borrowings, net of repayments on lines of credit

1,000

2,000

Net change in secured borrowings

(10)

17

Net change in notes payable

 

 

3,126 

 

 

4,709 

2,338

593

Debt issuance costs

 

 

(75)

 

 

(49)

(573)

(828)

Dividends paid on preferred units

 

 

(315)

 

 

(331)

(533)

(245)

Net cash (used) by financing activities

 

 

(14,885)

 

 

(759)

(27,990)

(14,833)

Net (decrease) increase in cash and restricted cash

 

 

(4,889)

 

 

14,685 

(18,155)

5,622

Cash, cash equivalents, and restricted cash at beginning of period

 

 

23,297 

 

 

8,612 

24,030

18,408

Cash, cash equivalents, and restricted cash at end of period

 

$

18,408 

 

$

23,297 

$

5,875

$

24,030

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Interest paid

 

$

4,409 

 

$

5,046 

$

3,341

$

3,788

Income taxes paid

 

$

15 

 

$

20 

20

20

Transfer of loans to foreclosed assets

 

$

 —

 

$

479 

Leased assets obtained in exchange of new operating lease liabilities

22

Lease liabilities recorded

17

Dividends declared to preferred unit holders

 

$

201 

 

$

237 

182

203

F-56F-63


Note 20. Subsequent Events

In January 2021, the Company launched its 2021 Class A Notes Offering. Pursuant to a Registration Statement declared effective on January 8, 2021, the Company registered $125 million of its 2021 Class A Notes in two series – fixed and variable notes. The 2021 Class A Notes are unsecured. Like the Class 1A Notes Offering, the interest rate paid on the Fixed Series Notes is determined in reference to a CMT Index published by the U.S. Department of Treasury in effect on the date that the note is issued plus a rate spread as described in the Company’s 2021 Class A Prospectus. The variable index in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Note. The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of Treasury for actively traded Treasury securities. The variable index is equal to the 3-month LIBOR rate. The Company issued the 2021 Class A Notes under a Trust Indenture entered into between the Company and U.S. Bank.

On March 5, 2021, the Company entered into a credit facility refinancing transaction with its lender. The Company paid cash in exchange for a reduction of $14.3 million of the outstanding contractual principal balance, and recognized a $2.3 million gain on debt extinguishment.

On March 5, 2021, the Company received notification that its application for forgiveness of its PPP Loan had been accepted by the SBA. All principal and interest was forgiven in full and the Company no longer has any liability related to the PPP Loan.  The Company recognized a  gain on debt extinguishment for the total amount of principal and interest that was forgiven.

F-57


ITEM 9.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Item 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Principal Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of the fiscal period ending December 31, 20202022 covered by this Annual Report on Form 10-K. The officers performed this evaluation as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. From this evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of and for the year ended December 31, 2020.2022. This conclusion by our Principal Executive Officer and Principal Financial Officer does not relate to reporting periods after December 31, 2020.

Changes in Internal Control Over Financial Reporting

We made a change in controls in the review of our loan documentation processes during the year ended December 31, 2020. Management believes that this change is sufficient to ensure that all information regarding our loans receivable is properly recorded on our balance sheet. No other changes in internal controls were made during the year ended December 31, 2020.2022.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal controls over financial reporting include those policies and procedures that:

72


·

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of management and the Board; and

60

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of and for the year ended December 31, 2020.2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control‑IntegratedControl-Integrated Framework. Based on this assessment, management believes that, as of and for the year ended December 31, 2020,2022, our internal control over financial reporting is effective.

This annual reportReport does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

ITEM 9B.OTHER INFORMATION

None.

7361


Item 9B.

OTHER INFORMATION

None.

74


PART III

ITEM 10.MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Item 10.

MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Summary of the business experience of our executive officers and managers

Set forth below are the members of our Board of Managers and executive officers as of December 31, 2020:officers:

Name

    

Age

    

Name

Age

Managers/Executive Officers

R. Michael Lee

6264

Chairman of the Board, Chairman of Ministry Partners Securities, Manager

Van C. Elliott

8385

Corporate Secretary, Audit Committee Chairperson, Manager

Joseph W. Turner, Jr.

5355

Chief Executive Officer and President, Manager

Brian S. Barbre

4749

Senior Vice President, Chief Financial Officer and Principal Accounting Officer

Michael R. Boblit

63

Vice President, Corporate Lending Services

MendellDarren Thompson

6642

Board Credit Committee Chairman, ManagerExecutive Vice President, Chief Operating Officer

Juli Anne Lawrence

6870

ALCO Committee Chairperson, Credit Committee Chairperson, Manager

Jerrod Foresman

5254

Manager

Guy A. Messick

6870

Manager

Jeffrey T. Lauridsen

71

Audit Committee Chairman, Manager

With our conversion from a corporation to a limited liability company on December 31, 2008, we are governed by a Board of Managers that supervises our affairs (hereinafter referred to as the “Board”).

R. MICHAEL LEE

Mr. Lee has served as a member of our Board since January 2009. He was appointed Chairman of the Board in May 2015. Mr. Lee currently serves as Chief Executive Officer and President for KCT Credit Union, anin Elgin, Illinois credit union.Illinois. Previously, Mr. Lee served as Vice President Member Relations for Alloya Corporate Federal Credit Union, President of Midwest Region for Members United Federal Credit Union, Chief Membership Officer for Mid-States Corporate Federal Credit Union, Senior Vice President US Central Federal Credit Union, SVP Corporate Network eCom, SVP Corporate One Federal Credit Union and Vice President of Sales for a national insurance agency. In the insurance industry, Mr. Lee spent 15 years in different positions that led him to managing a national sales force that served the needs of business owners. Mr. Lee currently serves on multiple boards of organizations and foundations. Most recently he was nominated through the boardsOffice of the Comptroller of Illinois to serve on the commission of Bank On Illinois that is part of a national program that focuses on serving the unbanked/underbanked. From that affiliation, Mr. Lee was asked to be the Chairman of the Illinois Credit Union Foundation, Illinois Bank On Commission,Governor’s Financial Empowerment Task Force to produce a report with recommendation on how to bring financial education to both K-12 and the Gail Borden Library Foundation. He attended Southern Illinois University, CUNA’s Financial Management School, and completed numerous industry training sessions

75


throughout his career.higher education. Mr. Lee adds special expertise to our Board with his

62

years of experienceservice as an executive of a number of large financial institutions and with his deep knowledge of the financial industry.institutions. Mr. Lee currently serves as Chairman of the Board, memberChairman of our Executive Committee and Executive/Governance Committee, and serves as the Chairman of the Board for MP Securities.

VAN C. ELLIOTT

Mr. Elliott has served as a member of our Board since 1991. He has served as a director for ECCUAdelFi Credit union from April 1988 until the presentApril, 2022. (except for the periods from March 1997 to March 1998 and March 2004 to March 2005). For multiple years he served as the Board Chair. Mr. Elliott served as associate directorAssociate Director of the Conservative Baptist Association of Southern California from 1980 to 1994, where he was responsible for the general administrative oversight of the association’s activities. Since that time, he has been self-employed as a consultant providing organizational, financial, and fund-raising consultation services to church and church-related organizations. He received his Bachelor’s and Master’s degrees in mathematics and speechcommunications from Purdue University and spent seven years in the computer industry. Mr. Elliott, an ordained minister, holds a Master of Divinity degree from Denver Seminary and has spent fourteen years in local church ministries serving in the area of Christian education and administration. He has completed post-graduate instruction at the College for Financial Planning. Mr. Elliott is a member of the Financial Planning Association and holds the professional designationcredential of Certified Financial Planner.® Mr. Elliott brings to our Board his extensive experience as a credit union board member and intimate knowledge of church and ministry financial operations. He serves on our Executive Committee and onCredit Committee and is our Audit Committee.Committee Chair.

JOSEPH W. TURNER, JR.

Mr. Turner has served as Chief Executive Officer and President since December 3, 2015.2015 and a non-compensated member of our Board since November 10, 2022. Mr. Turner has also served as the Chief Executive Officer and President for Ministry Partners Securities LLC, the wholly-owned subsidiary of Ministry Partners Investment Company, since February of 2013. Mr. Turner also held the position as Chief Compliance Officer of Ministry Partners Securities LLC until December 14, 2015. During his tenure with the Company, Mr. Turner has led the Company’s efforts in transitioning its wholly-owned broker-dealer to a more robust and diverse financial services firm, launching its investment advisory and insurance company activities in addition to overseeing the capital raising efforts related to the Company’s proprietary products. Mr. Turner was also instrumental in formalizing strategic partnerships with Evangelical ChristianAdelFi Credit Union (the Company’s largest equity owner), America’s Christian Credit Union (2nd largest equity owner), and Kane County Teachers Credit Union to provide complimentary financial products and services to their collective members. Prior to joining the Company in 2011, Mr. Turner served in various roles; including Regional Vice President, Chief Operating Officer, Chief Executive Officer and President for Strongtower Financial, Inc., a Fresno, California based broker-dealer and advisory firm which

63

specialized in providing investment banking services, mortgage financing for churches and ministries, and

76


investment and insurance products and services. Prior to joining Strongtower in 2007, Mr. Turner served as Managing Director of Principal Financial Group where he led a financial advisory and insurance group. Mr. Turner began his career with Prudential Preferred as an investment advisor in 1990. Mr. Turner received his Bachelor of Science in Business Administration – Finance degree from California State University, Fresno. Mr. Turner has completed industry leadership training both at Drake University and the Wharton School of Business. Mr. Turner holds the FINRA Series 6, 7, 24, 63, 65, and 51 as well as life, health and disability licenses in over 23 states. Mr. Turner also serves as Chairman of the Board for Christian Care Ministries, Inc., a Melbourne, Florida based public charity (“CCM”CCM), with nearly 800 employees and $900 million$1.1 billion in total revenue, a ministry that encourages and enables Christians to connect with, share their lives, faith, talents, and financial resources with one another through its Medi-Share health care sharing ministry. CCM has current investments in the Company’s publicly and privately offered debt securities as well as other products offered by the Company’s wholly-owned subsidiary, MP Securities.

MICHAEL R. BOBLIT

Mr. Boblit has previously served as an independent consultant for the Company since September 14, 2018, working with the Company’s Executive and lending services team. Mr. Boblit served as a commercial loan officer, asset manager, and director for business development at Evangelical Christian Credit Union, a Brea, California credit union (“ECCU”), from August 2000 to July 2018. Prior to joining ECCU, Mr. Boblit had a successful career in managing sales operations for both public and private business consulting firms, high technology companies, enterprise software services, document management solutions and optical storage products. Given Mr. Boblit’s extensive experience in developing sales teams, marketing strategies, and his eighteen years of service with ECCU in its commercial lending operations while working with Christian organizations and churches, Mr. Boblit has the responsibility of enhancing the Company’s loan origination and commercial lending operation. Mr. Boblit holds a Bachelor of Science in Business Administration, from University of San Diego. On January 3, 2020, Mr. Boblit was appointed as the Company’s Vice President, Corporate Lending Services.

BRIAN S. BARBRE

Mr. Barbre has served as the Company’s Senior Vice President, Chief Financial Officer, and Principal Accounting Officer since September 25, 2017. Since December 28, 2018, Mr. Barbre has served as the Treasurer of Ministry Partners for Christ; a private foundation that makes charitable grants to Christian organizations, and looks to provide accounting, consulting, and financial expertise to aid evangelical Christian ministries. Ministry Partners for Christ is a wholly-owned subsidiary of the Company. Mr. Barbre has previously served as Vice President Finance and Treasurer of ECCU,AdelFi, the Company’s largest equity owner where he led the finance, credit analytics, and participations groups. OverAt AdelFi, Mr. Barbre developed and managed a bond portfolio with over $100 million in assets under management. In addition, Mr. Barbre oversaw the coursebudgeting, liquidity management, and asset liability management of the credit union when it had over one billion in assets. At AdelFi, Mr. Barbre’s seventeen years working with ECCU, he has served as Vice President Finance / Treasurer, DirectorBarbre was a member of Finance, Finance Managerthe Asset Liability Management Committee, Pricing Committee, and Sr. Financial Analyst.attended monthly meetings of the Board of Directors. Mr. Barbre is a Certified Public Accountant and has served as an Adjunct professor at Biola University where he has taught cost accounting and accounting information systems courses. Mr. Barbre also serves as the Treasurer of Ministry Partners for Christ; a private

77


foundation that will makes charitable grants to Christian organizations, and provide accounting, consulting, and financial expertise to aid evangelical Christian ministries. Mr. Barbre holds a Bachelor of Science in Business Administration, Magna Cum Laude, from Biola University. In addition, Mr. Barbre holds a Master of Business Administration degree with a finance emphasis from California State University Fullerton where the dean awarded him the Award for Academic Excellence upon graduation. Mr. Barbre holds the FINRA Series 28 license.

MENDELL64

DARREN THOMPSON

Mr. Thompson joinedbegan serving as the Board when Arthur Black, whom servedCompany’s Executive Vice President and Chief Operating Officer on the Board from 1997 through April 2016, retired from the Board. In May of 2020, Mr. Thompson was re-elected for a three term ending May of 2023.February 28, 2022. Mr. Thompson previously served as President/CEOthe Chief Lending Officer at ACCU and had been with the credit union since 2011. In his role as Chief Lending Officer, Darren oversaw all of America’s Christian Credit Union in Glendora, California, a position he held since 1986. In early 2020,lending, including origination, servicing, collection, and loan participations for both consumer and business loans. At ACCU, Mr. Thompson retired as President/CEOwas a member of ACCU.the Chief Officer Group and the Asset-Liability Committee. He also led the Loan Review Committee and attended monthly meetings of the Board of Directors. Prior to his promotion to President/CEO at age 32 in 1986, Mr. Thompson held a variety of other positionswork at ACCU, between 1977 and 1986. Among his many accomplishments, Mr. Thompson was influential in taking ACCU through a charter change in 1993 that opened the door to making church loans. Currently, America's Christian Credit Union serves more than 135,000 members, has over $460 million in assets, and manages assets of over $505 million. Mr. Thompson was elected to the Glendora City Council in 2015 and served one term as Mayor from April 2018-2019. He now serves as Councilman having just been re-elected to another 4-year term. He is a trustee on the Point Loma Nazarene University (PLNU) Board and a director on the PLNU Foundation Board. Mr. Thompson hashe served as a director of the National Association of StateTreasury & Funding Trader for Western Corporate Federal Credit Union, Supervisors (NASCUS) Executive Council, asassisting in the management of a director on the Board of WesCorp FCU, Chairman of WesCorp’s Supervisory Committee, and on the Glendora Church of the Nazarene Board. He has been a director of the CU Deposit Network, the Financial Marketing Association, and the Southern California CU Executives Society Council. Mr. Thompson graduated cum laude in 1976 with a bachelor’s degree in History/Business from Point Loma Nazarene University, and is also a graduate of the Western CUNA Management School and Stanford University’s Executive Development Program. Mr. Thompson serves on our Asset-Liability Committee and as the Chairman of our Board Credit Committee.$32 billion portfolio.

JULI ANNE LAWRENCE

Mrs. Lawrence has served as a member of our Board since 2007. She is currently thea Chief Judge Chatham County Board of Elections and an independent Strategy Consultant. Prior to her current engagement, Mrs. Lawrence served as the Chief Strategy Officer of Raoust + Partners, a Hampton, Virginia based strategic planning and marketing firm for credit unions. Mrs. Lawrence previously also served as Senior Vice President of Research and Development for Western Bancorp in San Jose, California. Prior to that engagement, she served as President and Chief Executive Officer of the National Institute of Health Federal Credit Union, a Rockville, Maryland credit union. Prior to that, she was Executive Vice President and Chief Operating Officer of KeyPoint Credit Union, a Silicon Valley

78


California credit union and the President of its subsidiary, KeyPoint Financial Services. Before joining KeyPoint Credit Union, Mrs. Lawrence served as Vice President for Business Development, Marketing and Legislative Affairs from 1988-1995 at Langley Federal Credit Union, a Hampton Roads, Virginia credit union. Prior to joining the credit union industry, Mrs. Lawrence served as the Director of Sales for the US Navy Mid-Atlantic Region, which included the direct responsibility for public relations and sales for all Navy Exchange and Commissary Operations in the Mid-Atlantic States, Europe, Iceland, and Bermuda. Mrs. Lawrence received her Bachelor of Science degree in Community Health and Education from East Carolina University and received a Master’s degree in Organizational Development from the University of San Francisco, where she is pursuing a Ph.D.Francisco. Mrs. Lawrence currently servesserved as the Chairwoman on the Board of Directors for the George Washington Institute of Health and Women in BIO. She also previously served as Chair for the Executive Committee of the Open Solutions Client Association and serves currently as a Trustee and Chair of the Finance Committee for the International Mission Board of the Southern Baptist Convention. Mrs. Lawrence provides our Board with the benefit of her extensive experience in financial institution operations and technology and especially, her asset-liability management expertise. Mrs. Lawrence serves on the Company’s Executive Committee, and Board Credit Committee, and as the Chair of our Asset-LiabilityAsset-

65

Liability Committee and our Credit Committee. Mrs. Lawrence also serves as the President of Ministry Partners for Christ, a subsidiary of the company.

JERROD FORESMAN

Mr. Foresman has served as a Company Board Member since May 2012 and MP Securities since November 2018. He is Co-Owner and President of Virtue Financial Advisors, LLC and the Office of Supervisory Jurisdiction (OSJ) Principal for Infinex Investments, Inc., managing bank and credit union investment programs for over 7060 branch locations in the mid-west. Formerly serving as President, Chief Compliance Officer and FINOP of Bankers & Investors Company Inc., a Registered Broker/Dealer, Investment Advisor and Insurance Agency in Kansas City, Mr. Foresman ran the compliance and operations for 11 years. Bankers & Investors Co. provided investment services for seven banks and four credit unions in Missouri and Kansas. Mr. Foresman had been serving as a financial advisor since 1990 and has managed and owned financial advisory/marketing firms specializing in working with credit unions and community banks since 1993. Mr. Foresman attended Missouri State University and is currently studying for additional financial designations from the American College in Bryn Mawr, PA. He also serves as a board member for Angel Flight Air Support, OASIS Refuge and is a contributing member of the Wealth Management RIA Board of Advisors, Advisor Confidence Index (ACI) from Rydex. Mr. Foresman holds the FINRA Series 7, 24, 27, 63, 65 and 66 licenses as well as life, health, property & casualty insurance licenses. Mr. Foresman serves on the Company’s Audit Committee, and on the Board of MP Securities.

JEFFREY T. LAURIDSEN

Mr. Lauridsen has served as a member of our Board since October 2007. He is an attorney in private practice with the Law Offices of Jeffrey T. Lauridsen in Garden Grove,

79


California. Before establishing his current practice, Mr. Lauridsen served with several other law firms in the Orange County area, as partner and senior associate. Mr. Lauridsen’s 29 years of law practice have focused on corporate law and encompassed both trial and appellate work in diverse areas of law, including business litigation, construction defects, general liability, premises liability, products, medical malpractice, ERISA, insurance coverage, automobile liability, insurance bad faith, employment and labor law, sexual harassment, sexual molestation and others. Prior to entering into the practice of law, Mr. Lauridsen worked as a claim representative in the insurance industry for 19 years. Mr. Lauridsen received his Associate of Arts degree in Political Science from Fullerton College. He received his Bachelor of Science in Law and Juris Doctorate degrees from California Southern Law School. He has served as Elder at Grace Church in Orange, California for 18 years. Mr. Lauridsen brings to our Board the perspective of an experienced attorney, as well as intimate knowledge of ministry governance. In addition to being a member of the Board’s Executive Committee, Mr. Lauridsen serves on our Executive Committee and Board Credit Committee, and serves as Chairman of our Audit Committee.

GUY MESSICK

Mr. Messick is retired from the active practice of law as of January 1, 2021. He is Of Counsel toand the law firm of Messick Lauer & Smith P.C. on January 1, 2021. Mr. Messick has provided legal and strategic planning services to credit unions and credit union service organizations nationwide for over 30 years. From 1987 to 2020, he served as General Counsel to the National Association of Credit Union Service Organizations. His duties included being NACUSO’s liaison with the National Credit Union Administration. Mr. Messick is a nationally known speaker on a wide range of credit union topics. He has presented at conferences sponsored by NACUSO, NCUA, NAFCU, NASCUS, CUNA, CUES, ACUMA, AICPA and various State Leagues. At the request ofMr. Messick has lectured on CUSOs at the University of Cork Mr. Messick has shared the CUSO experience in the United States with Irish credit unions.Ireland and at Pepperdine University. Mr. Messick served on the CUNA Task Force on Investment Services which was the credit union industry’s liaison with the Securities and Exchange Commission. He is the author of the Guide for Credit Unions Providing Investment and Insurance Services and Credit Union Collaborations – Lessons Learned. Mr. Messick is recognized as a CUSO Pioneer in America’s Credit Union Museum in Manchester, New Hampshire. Mr. Messick’s legal practice included (a) assisting credit unions to plan and implement CUSO solutions;collaborative business model solutions that provide financial services and operational services; (b) advising clients providing a wide range of services including investment, insurance, technology and business lending services; (c) advocating for clients before regulatory agencies; and (d)(c) facilitating planning sessions. Through Mr. Messick's many contacts within the credit union industry, he has helped clients network and connect with like-minded colleagues which has contributed to the formation of many successful and innovative CUSOs. Mr. Messick’s board experience includes the Credit Union Network for Financial Literacy (a CUSO teaching elementary children about credit unions and managing money)providing financial literacy education to children),

66

United Solutions Company (a CUSO providing IT related services),

80


AKUVO (a CUSO providing software and data analysis for lending and collection services), Tyler Arboretum, Media Historic Preservation and the Media Presbyterian Church. Mr. Messick is a graduate of Bucknell University and the University of Miami School of Law. He served as a law clerk to U.S. District Court Judge Morell E. Sharp (Seattle, Washington) from 1977-78.1977 78. Prior to exclusively serving the credit union industry, Mr. Messick represented local municipalities, a chamber of commerce, economic development agencies, and many small businesses. He was also an assistant district attorney in Delaware County in the appellate division. He is admitted to practice law in Pennsylvania. Mr. Messick serves on our Audit Committee, Asset-Liability Committee and on the Board of MP Securities.

Our Board of Managers

The Operating Agreement charges our Board and officers with governing and conducting our business and affairs. The Operating Agreement charges our Board with essentially the same duties, obligations, and responsibilities as a board of directors of a corporation. The Board establishes our policies and periodically reviews them and has authorized designated officers and our President the authority to carry out those policies. As of the date of this Prospectus, our Board consists of seven managers, a majority of which are independent managers.

Board Committees

Our Board may from time to time establish and empower board committees to perform various functions on its behalf. Each committee consists of at least three persons. Currently, the Board has established the following committees:

·

Our Executive Committee is charged with responsibility for determining the President’s compensation and undertaking other matters of an executive and strategic oversight nature;

·

Our Audit Committee is chartered to oversee the annual audit of our financial reports, oversee the establishment and maintenance of internal controls and oversee compliance with our Ethics Policy;

·

Our Board Credit Committee is authorized to oversee compliance with our Loan Policy and to review the performance and management of our loan portfolio and to approve loan originations over a certain dollar amount or loans that have fallen outside of the parameters of the Loan Policy;

·

Our Credit Review Committee reviews and implements our Loan Policy and reviews most of the loan applications we receive;

67

·

Our Asset-Liability Committee is chartered to oversee the maintenance of our asset liability strategy and process, as well as our asset liability, liquidity and other policies relating to the mitigation of risks to our earnings and capital; and

81


·

Our Governance Committee is charged with responsibility for the Board Governance Policies, including our Related Parties Transaction Policy, and with the periodic task of nominating persons for election to the Board.

Our Board Chairman

On May 14, 2015, the Board of Managers appointed R. Michael Lee, to serve as Chairman of the Board of Managers. Prior to Mr. Lee’s appointment, Mark Holbrook served as our Board Chairman since the Company’s inception. Mr. Holbrook also served as our Chief Executive Officer from inception of the Company until February 17, 2011.

Code of Ethics

On November 6, 2009, our Board adopted a Code of Ethics for our principal officers and members of the Board. On February 26, 2018, the Company’s President and Chief Executive Officer, Joseph Turner, was appointed to the Board of Directors for Christian Care Ministry, Inc., headquartered in Melbourne, Florida (“CCM”).CCM. CCM currently maintains a business relationship with MP Securities and the Company, holds investments in the Company’s debt securities and has purchased other investment products made available through MP Securities. Mr. Turner currently serves as Chairman of the CCM Board of Directors.

The Company’s Board of Managers reviewed Mr. Turner’s appointment to the CCM Board of Directors as Chair of the Board and concluded that the appointment was made in compliance with the Company’s Code of Ethics.

Audit Committee

As authorized within the operating agreement for Ministry Partners Investment Company LLC, the Board of Managers established the Audit Committee in 2005 with the adoption of its formal charter. The primary purpose of the Audit Committee, as designated in its formal charter, is to oversee the Company’s accounting policies and practice, financial reporting procedures and audits of the Company’s financial statements. For the year ended December 31, 2020,2022, the Audit Committee is comprised ofcomprises three members, including Jeffrey T. Lauridsen,Guy Messick, Van Elliott, and Jerrod Foresman. Mr. Lauridsen, a corporate attorney in Southern California for over 30 years,Elliott, Certified Financial Planner and church leadership consultant, is Chairman of the Audit Committee and Vice ChairmanCorporate Secretary of the overall Board of Managers. Mr. Van Elliott a Certified Financial Planner and church leadership consultant, brings extensive experience as a credit union board member and has intimate knowledge of the Company’s financial operations as he has served as the Company’s Interim Chief Executive Officer on several occasions over the last

68

29 years since the Company’s inception. Mr. Elliott also serves as the Company’s Corporate Secretary. Mr. Foresman has nearly 29 years of experience in the financial services industry as an Executive, Compliance Officer, and Operations Principal. His knowledge of the financial operations of broker-dealers, advisory firms, and insurance

82


agencies benefits the Audit Committee in its role of overseeing the operations of both the Company and MP Securities, the Company’s wholly-owned subsidiary. Mr. Messick, retired from the practice of law and the law firm of Messick Lauer & Smith P.C., and has provided legal and strategic planning services to credit unions and credit union service organizations nationwide for over 30 years. His extensive experience in helping create and consult with CUSOs benefits the Audit Committee.

83


ITEM 11.EXECUTIVE AND BOARD OF MANAGER COMPENSATION

Item 11.

EXECUTIVE and board of manager COMPENSATION

Executive Compensation

The following table sets forth certain information regarding compensation we paid for services rendered to us during the years ended December 31, 20202022 and 20192021 by our senior executive officers.

Summary Annual Compensation Table

2022

2021

Name

    

Principal Position

    

Salary

    

Bonus

    

All Other
Compensation (1)

    

Salary

    

Bonus

    

All Other
Compensation (1)

Joseph W. Turner

President and Chief Executive Officer

312,741

140,466

36,862

302,527

133,825

34,892

Brian S. Barbre

Sr. Vice President, Chief Financial Officer and Principal Accounting Officer

195,463

40,000

56,769

199,506

39,500

47,174

Darren M. Thompson

Executive Vice President, Chief Operating Officer

165,385

1,000

26,365

Michael R. Boblit(2)

Vice-President, Corporate Lending

132,563

31,256



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

2020

 

 

2019

 

Name

 

Principal Position

 

Salary

 

Bonus

 

All Other Compensation (1)

 

Salary

 

Bonus

 

All Other Compensation (1)

 

Joseph Turner

 

President and Chief Executive Officer

 

 

292,164 

 

 

127,500 

 

 

33,774 

 

 

270,985 

 

 

1,000 

 

 

52,199 

 

Brian S. Barbre

 

Sr. Vice President, Chief Financial Officer and Principal Accounting Officer

 

 

189,141 

 

 

3,000 

 

 

43,039 

 

 

176,209 

 

 

51,000 

 

 

53,709 

 

Michael R. Boblit

 

Vice-President, Corporate Lending

 

 

155,769 

 

 

31,000 

 

 

34,287 

 

 

 

 

 

 

 

 

 

 

William M. Crammer, III,

 

Assistant Vice President, Lending

 

 

119,759 

 

 

56,915 

 

 

32,377 

 

 

172,028 

 

 

16,000 

 

 

48,891 

 

(1)This includes the aggregate amount we contributed to the Company’s 401(k) retirement plan, for medical benefits, and life and disability insurance for the Company’s officers in each year.
(2)Mr. Boblit resigned from his position effective November 5, 2021.

(1) This includes the aggregate amount we contributed to the Company’s 401(k) retirement plan, for medical benefits, and life and disability insurance for the Company’s officers in each year.69

Board of Managers Compensation

The following table provides a summary of the compensation paid to our Managers for the year ended December 31, 2020:2022:

Summary Annual Compensation Table

Name

    

Principal Position

    

Compensation(1)

Michael Lee

Chairman of the Board of Managers

$

22,750

Van Elliott

Secretary and Manager

17,500

Juli Anne Lawrence

Manager

17,500

Jerrod Foresman

Manager

12,750

Mendell Thompson (Retired on June 22, 2022)

Manager

6,750

Guy Messick

Manager

16,250



 

 

 

 

 



 

 

 

 

 

Name

 

Principal Position

 

Compensation (1)

Michael Lee

 

Chairman of the Board of Managers

 

$

12,850 

Van Elliott

 

Secretary and Manager

 

 

8,350 

Juli Anne Lawrence

 

Manager

 

 

9,950 

Jeffrey Lauridsen

 

Manager

 

 

10,450 

Jerrod Foresman

 

Manager

 

 

8,850 

Mendell Thompson

 

Manager

 

 

7,950 

Guy Messick

(2)

Manager

 

 

6,000 

(1) During each year, we accrued amounts for each Manager’s service on the Board. In February 2014, the Board approved the payment of compensation grants to Managers of the Board for rendering services to the Company. Under the grants approved by the Board, each Manager will receive a cash grant for serving on the Board, and will receive additional amounts for attendance at each Board meeting and for serving as a Chairperson of one of our Board Committees. In addition, we reimburse each Manager for expenses incurred in performing duties on our behalf. Compensation awards for our Managers for the years ended December 31, 2020 and 2019, were $64 thousand and $63

(1)During each year, we accrue amounts for each Manager’s service on the Board. In February 2014, the Board approved the payment of compensation grants to Managers of the Board for rendering services to the Company. Under the grants approved by the Board, each Manager will receive a cash grant for serving on the Board, and will receive additional amounts for attendance at each Board meeting and for serving as a Chairperson or member of one of our Board Committees. In addition, we reimburse each Manager for expenses incurred in performing duties on our behalf. Compensation awards for our Managers for the years ended December 31, 2022 and 2021, were $94 thousand and $69 thousand, respectively.

(2) Mr. Messick was elected to his position as Manager effective as of May 7, 2020.

8470


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED MEMBER MATTERS

The following table sets forth information available to us, as of December 31, 2020,2022, with respect to our Class A Units owned by each of our executive officers and our managers, and by our managers and executive officers as a group, and by each person who is known to us to be the beneficial owner of more than 5.0% of our Class A Units.

Name

Address

Beneficial
Ownership

Percentage
Owned(1)

Name

Address

Beneficial Ownership

Percentage Owned(1)

R. Michael Lee

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

$

%

Van C. Elliott

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Mendell ThompsonJuli Anne Lawrence

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Juli Anne LawrenceJerrod L. Foresman

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Jeffrey T. LauridsenGuy A. Messick

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Jerrod L. ForesmanJoseph W. Turner, Jr.

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Guy A. MessickBrian S. Barbre

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Joseph W. Turner, Jr.Darren M. Thompson

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

%

Brian S. Barbre

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

 —

 —

%

Michael R. Boblit

915 W. Imperial Hwy., Suite 120 Brea, CA 92821

 —

 —

%

All officers and members of the Board as a group

$

%



 

 

Other 5% or greater beneficial owners (seven):

 

 

Name

Beneficial Ownership

Percentage Owned(1)

Evangelical Christian Credit Union

62,000 42.31% 

America’s Christian Credit Union

12,000 8.19% 

Navy Federal Credit Union (2)

11,905 8.13% 

UNIFY Financial Credit Union

11,905 8.13% 

Wescom Credit Union

11,905 8.13% 

Credit Union of Southern California

11,900 8.12% 

Keypoint Credit Union

8,000 5.46% 

(1) Based on 146,522 Class A Units outstanding.Other 5% or greater beneficial owners (seven):

(2) Navy Federal Credit Union is a non-voting equity member in the Company, but holds a beneficial interest in 11,905 Class A Common Units. As the holder of an economic interest in the Company, Navy Federal Credit Union

Beneficial

Percentage

 

Name

    

Ownership

    

Owned(1)

 

AdelFi Credit Union

 

62,000

 

42.31

%

America’s Christian Credit Union

 

12,000

 

8.19

%

Navy Federal Credit Union (2) (“NFCU”)

 

11,905

 

8.13

%

UNIFY Financial Credit Union (“UFCU”)

 

11,905

 

8.13

%

Wescom Credit Union

 

11,905

 

8.13

%

Credit Union of Southern California

 

11,900

 

8.12

%

Keypoint Credit Union

 

8,000

 

5.46

%

(1)Based on 146,522 Class A Units outstanding.
(2)NFCU is a non-voting equity member in the Company, but holds a beneficial interest in 11,905 Class A Common Units. As the holder of an economic interest in the Company, NFCU holds a beneficial interest in the Company.

8571


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The following table lists our transactionprovides disclosures required by Regulation S-K Item 404 and Item 407(a), “Certain Relationships and Related Transactions.”

Transactions by related parties in the amount that exceeds $120,000 (dollars in thousands)

Amount of
transaction

Related Party Name

    

Related Interest

    

Transaction description

    

2022

    

2021

Mendell Thompson

Former Manager of the Company

Purchase of the company's notes

$

1,121

$

Mike Lee

Chairman of the Board of Managers

Purchase of the company's notes

673

Brian Barbre

Officer of the Company

Purchase of the company's notes

145

AdelFi

43.1% equity owner

Total funds held on deposit at AdelFi

443

3,797

AdelFi

43.1% equity owner

Rent expense on lease agreement with AdelFi

146

146

ACCU

8.19% equity owner

Total funds held on deposit at ACCU

246

4,083

ACCU

8.19% equity owner

Loan participations sold to ACCU and serviced by the Company

1,000

ACCU

8.19% equity owner

Draws on ACCU line of credit

3,000

2,000

KCTCU

The Company's Board Chair serves as the Chief Executive Officer and President of KCTCU

Loan participations sold to KCTCU and serviced by the Company

56

2,847

KCTCU

The Company's Board Chair serves as the Chief Executive Officer and President of KCTCU

Draws on KCTCU line of credit

2,000

3,825

UFCU

8.13% equity owner

Loan participations sold to UFCU and serviced by the Company

4,275

NFCU

8.13% equity owner

Loan participations sold to NFCU and serviced by the Company

4,872

4,991

ACCU Line of Credit

On September 23, 2021, the Company entered into a Loan and Security Agreement with ACCU for a $5.0 million short-term demand credit facility. The line of credit facility has maturity date of September 23, 2023. The interest rate on the facility is equal to the prime rate as published in the Wall Street Journal plus 75 basis points. As of December 31, 2022 the interest rate was 4.00%. The highest amount outstanding was $5.0 million and the current amount outstanding as of and for the year ended December 31, 2022 was $3.0 million. The Company made $2.0 million in principal payments during the year. $99.7 thousand in interest expense was incurred on the ACCU LOC for the year ended December 31, 2022.

72

KCTCU Line of Credit

On September 30, 2020, the Company entered into a Loan and Security Agreement with KCT. The KCT LOC is a $7.0 million short-term demand facility with a maturity date ending September 30, 2022. The highest outstanding balance during the year ended December 31, 2022 was $2.0 million. The balance had been paid off by June 6, 2022. The Company incurred interest expense of $14.6 thousand on the KCT LOC for the year ended December 31, 2022.

On June 6, 2022, the Company and KCT mutually agreed to terminate this facility and entered into two new facilities. The first facility, the KCT Warehouse LOC, is a $5.0 million short-term demand credit facility with a one-year maturity date of June 6, 2023. The second facility, the KCT Operating LOC, is also a $5.0 million short-term demand credit facility with a one-year maturity date of June 6, 2023. The interest rate on both facilities is equal to the United States Prime Rate plus 0.50% at the time of the draw. The interest rate was 8.00% on December 31, 2022. The Company did not draw on either line between June 6, 2022 and December 31, 2022.

Related Party Transaction Policy

The Board has adopted a Related Party Transaction Policy to assist in evaluating transactions the Company may enter into with a related persons that exceed $120,000, and in which any related person had or will haveparty. Under this policy, a direct material interest. For additional information includingmajority of the members of the Company’s policiesBoard and procedures relatingmajority of its independent Board members must approve a material transaction that it enters into with a related party. As a result, all transactions that the Company undertakes with an affiliate or a related party are entered into on terms believed by management to related parties, see “Part II, Item 8 Note 3. Related Party Transactions.be no less favorable than are available from unaffiliated third parties.



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Transactions by related parties in the amount that exceeds $120,000



 

 

 

 

 

 

Amount of transaction
(dollars in thousands)

Related Party Name

 

Basis of related party

 

Transaction description

 

2020

 

2019

Joseph Turner

 

Officer of the Company

 

Purchase of the company's notes

 

$

136 

 

$

263 

ECCU

 

5% or greater owner

 

Total funds held on deposit at ECCU

 

 

7,414 

 

 

365 

ECCU

 

5% or greater owner

 

Rent expense on lease agreement with ECCU

 

 

146 

 

 

138 

ECCU

 

5% or greater owner

 

Loan participations sold to ECCU not serviced by the Company

 

 

1,164 

 

 

 —

ACCU

 

5% or greater owner

 

Fees paid based on MP Securities Networking Agreement with ACCU

 

 

101 

 

 

45 

ACCU

 

5% or greater owner

 

Total funds held on deposit at ACCU

 

 

7,846 

 

 

10,343 

ACCU

 

5% or greater owner

 

Loan participations sold to ACCU and serviced by the Company

 

 

867 

 

 

 —

ACCU

 

5% or greater owner

 

Loan participations sold to ACCU not serviced by the Company

 

 

1,556 

 

 

 —

ACCU

 

5% or greater owner

 

Loan participations purchased from and serviced by ACCU

 

 

 —

 

 

1,603 

NFCU

 

5% or greater owner

 

Loan participations sold to NFCU and serviced by the Company

 

 

1,863 

 

 

 —

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

86


Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Before we engage our principal accountant to render audit or non-audit services, our Audit Committee approves the engagement if SEC rules and regulations require it.

73

The aggregate fees billed by our accounting firm, Hutchinson and Bloodgood LLP, for the years ended December 31 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2019

    

2022

    

2021

Audit and audit-related fees

 

$

113,000 

 

$

97,000 

$

122,000

$

122,000

Tax Fees

 

 

12,500 

 

 

12,500 

Tax fees

15,050

12,500

All other fees

 

 

7,600 

 

 

4,000 

2,600

Total

 

$

133,100 

 

$

113,500 

$

139,650

$

134,500

Our Audit Committee has considered whether the provision of the non-audit services described above is compatible with maintaining our auditors’ independence and determined that such services are appropriate.

8774


ITEM 15.EXHIBITS

Exhibit No.

Description

Item 15.

EXHIBITS

Exhibit No.

Description

3.1

Articles of Organization - Conversion of Ministry Partners Investment Company, LLC, dated as of December 31, 2008 (1)

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 22, 2008.)

3.2

Operating Agreement of Ministry Partners Investment Company, LLC, dated as of December 31, 2008 (1)

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 22, 2008.)

3.3

Plan of Conversion of Ministry Partners Investment Corporation, dated September 18, 2008 (1)

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 22, 2008.)

3.4

Series A Preferred Unit Certificate of Ministry Partners Investment Company, LLC, dated as of December 31, 2008 (1)

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 22, 2008.)

3.5

First Amendment to the Operating Agreement of Ministry Partners Investment Company, LLC, effective as of February 11, 2010 (2)

(Incorporated by reference to the Report on Form 10-K filed by the Company on March 31, 2010.)

3.6

Amended and Restated Certificate of Designation of the Powers, Designations, Preferences and Rights of Series A Preferred Units, effective as of May 22, 2013

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on May 23, 2013 (3)2013.)

10.110.6

$10 Million Committed Line of Credit Facility and Security Agreement, dated October 8, 2007 (4)

10.2

$50 Million CUSO Committed Line of Credit Facility and Security Agreement, dated October 8, 2007 (4)

10.4

Loan and Security Agreement dated November 4, 2011, by and between Ministry Partners Investment Company, LLC and The National Credit Union Administration Board as Liquidating Agent of Members United Corporate Federal Credit Union (5)

10.5

CUSO Line of Credit Facility Note and Security Agreement, dated May 14, 2008, executed by Ministry Partners Investment Corporation in favor of Members United Corporate Federal Credit Union (6)

10.6

Office Lease, dated November 4, 2008, by and between Ministry Partners Investment Corporation and Evangelical Christian Credit Union (7)

(Incorporated by reference to the Report on Form 10-K filed by the Company on April 14, 2009)

10.710.9

Equipment Lease, dated as of January 1, 2009, by and between Ministry Partners Investment Company, LLC and Evangelical Christian Credit Union (7)

10.8

Professional Services Agreement, dated as of January 1, 2009, by and between Ministry Partners Investment Company, LLC and Evangelical Christian Credit Union (7)

10.9

Form of Individual Manager Indemnification Agreement (8)

(Incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 filed by the Company on June 24, 2011.)

10.1310.19

Loan and Security Agreement by and between Ministry Partners Investment Company, LLC and Ministry Partners Funding, LLC dated December 15, 2014 (9)

10.15

Amendment to Loan and Security Agreement by and between The National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union and Ministry Partners Investment Company, LLC dated March 30, 2015. (10)

10.17

Employment Agreement by and between Ministry Partners Securities, LLC and Joseph Turner dated May 27, 2015. (11)

10.19

Employment Agreement by and between Ministry Partners Securities, LLC and Joseph Turner dated May 5, 2016.

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on May 11, 2016. (12))

10.2110.23

Amendment and Modification of Promissory Note by and between The National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union and Ministry Partners Investment Company, LLC dated November 30, 2016. (13)

10.23

Networking Agreement by and between Ministry Partners Securities, LLC and America’s Christian Credit Union dated July 30, 2014 and Addendum related thereto dated December 1, 2016. (14)

(Incorporated by reference to Exhibit 10.23 on Form S-1 filed by the Company on December 8, 2017.)

10.2910.33

Administrative Services Agreement by and between Ministry Partners Investment Company, LLC and Ministry Partners Securities, LLC dated January 30, 2018 (15)

10.31

(Amended) Master Services Agreement by and between Ministry Partners Investment Company, LLC and Evangelical Christian Credit Union, dated March 1, 2018. (16)

10.32

Master Services Agreement by and between Ministry Partners Investment Company, LLC and America’s Christian Credit Union, dated August 17, 2017. (16)

10.33

Settlement Agreement and Mutual Release of All Claims by and between Ministry Partners Investment Company, LLC and OSK VII, LLC dated September 24, 2020 (17)

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on September 30, 2020.)

10.3410.35

Loan and Security Agreement by and Between Ministry Partners Investment Company, LLC and KCT Credit Union, dated September 30, 2020 (18)

88


10.35

Trust Indenture by and between Ministry Partners Investment Company, LLC and U.S. Bank National Association, as Trustee dated January 6, 2021 (19)

(Incorporated by reference to Pre-Effective Amendment No. 1, Exhibit A to Form S-1/A filed by the Company on January 6, 2021.)

10.36

Managing Broker Dealer Agreement by and between Ministry Partners Investment Company, LLC and Ministry Partners Securities, LLC, dated ______ (19)January 8, 2021

(Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-1/A filed by the Company on January 6, 2021.)

14.110.38

Master Loan Participation Purchase and Sale Agreement by and between Ministry Partners Investment Company, LLC and America’s Christian Credit Union, dated August 9, 2021

75

(Incorporated by reference to the Current Report on Form 10-Q filed by the Company on August 12. 2021.)

10.39

Loan Agreement by and between Ministry Partners Investment Company, LLC and America’s Christian Credit Union, dated September 23, 2021

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on September 28, 2021.)

10.40

Supplemental Executive Retirement Plan

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on April 6, 2022.)

10.41

Warehouse Line of Credit Loan and Security Agreement by and between Ministry Partners Investment Company, LLC and Kane County Teacher’s Credit Union dated June 6, 2022.

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on June 9, 2022.)

10.42

Operating Line of Credit Loan and Security Agreement by and between Ministry Partners Investment Company, LLC and Kane County Teacher’s Credit Union dated June 6, 2022.

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on June 9, 2022.)

10.44

Amendment No. 1 to 2021 Class A Notes Trust Indenture Dated January 6, 2021

(Incorporated by reference to Exhibit A filed in Post-Effective Amendment No. 1 to Form POS AM filed by the Company on October 28, 2022.)

10.45

Servicing Agreement between the Company and AmeriNational Community Services, LLC effective as of February 14, 2023.

(Incorporated by reference to the Current Report on Form 8-K filed by the Company on February 21, 2023.)

10.46

Administrative Services Agreement by and between Ministry Partners Investment Company, LLC and Ministry Partners Securities, LLC dated February 8, 2023

14.1

Code of Ethics for Ministry Partners Investment Company, LLC, effective as of February 11, 2010 (2)

(Incorporated by reference to the Report on Form 10-K filed by the Company on March 31, 2010)

21.1

List of Subsidiaries (*)

23.1

Consent of Hutchinson and Bloodgood LLP (*)

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (*)

31.2

Certification of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (*)

32.1

Certification of Principal Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)

101.ins

XBRL Taxonomy Extension Definition Linkbase Document **

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XBRL Taxonomy Extension Schema Document **

101.def

XBRL Taxonomy Extension Definition Linkbase Document **

101.cal

XBRL Taxonomy Extension Calculation Linkbase Document **

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XBRL Taxonomy Extension Label Linkbase Document **

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XBRL Taxonomy Extension Presentation Linkbase Document **

89


 _____________________________

(1)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 22, 2008.

(2)

Incorporated by reference to the Report on Form 10-K filed by the Company on March 31, 2010.

(3)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on May 23, 2013.

(4)

Incorporated by reference to the Report on Form 8-K filed by the Company on October 15, 2007, as amended.

(5) 

Incorporated by reference to the Report on Form 8-K filed by the Company on November 11, 2011.

(6)

Incorporated by reference to the Report on Form 8-K filed by the Company on May 20, 2008.

(7)

Incorporated by reference to the Report on Form 10-K filed by the Company on April 14, 2009.

(8)

Incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-1 filed by the Company on June 24, 2011.

(9)

Incorporated by reference to the Report on Form 10-K filed by the Company on March 31, 2015

(10)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on April 9, 2015.

(11)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on June 3, 2015.

(12)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on May 11, 2016.

(13)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on December 5, 2016.

(14)

Incorporated by reference to Exhibit 10.23 on Form S-1 filed by the Company on December 8, 2017.

(15)

Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-1 filed by the Company on January 30, 2018.

(16)

Incorporated by reference to the Report on Form 10-K filed by the Company on March 29, 2018

(17)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on September 30, 2020.

(18)

Incorporated by reference to the Current Report on Form 8-K filed by the Company on October 7, 2020.

(19)

Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-1 filed by the Company on January 6, 2021.

*

Filed herewith.

**

Furnished, not filed, herewith.

90


ITEM 16.

Item 16.

FORM 10-K SUMMARY

Not applicable.

9176


SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.

MINISTRY PARTNERS INVESTMENT

COMPANY, LLC

Dated: March 25, 202124, 2023

By:

/s/ Joseph W. Turner

Joseph W. Turner,

Chief Executive Officer

(Principal Executive Officer)

MINISTRY PARTNERS INVESTMENT

COMPANY, LLC

Dated: March 25, 202124, 2023

By:

/s/ Brian. S. Barbre

Brian S. Barbre,

Senior Vice President and Chief Financial Officer

Chief Executive Officer

(Principal Accounting Officer)

9277


Each person whose signature appears below on this Form 10-K hereby constitutes and appoints Joseph W. Turner, Jr., as his true and lawful attorney-in-fact and agent, with full power of substitution for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign this Report of Ministry Partners Investment Company, LLC and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature

Title

Date

 Signature

Title

Date

/s/ R. Michael Lee

R. Michael Lee

by Joseph W. Turner, Jr, his attorney-in-fact

Chairman of the Board of Managers

March 25, 202124, 2023

R. Michael Lee
by Joseph W. Turner, Jr, his attorney-in-fact

/s/ Joseph W. Turner, Jr

Joseph W. Turner, Jr

Chief Executive Officer, President

March 25, 202124, 2023

Joseph W. Turner, Jr

/s/ Brian S. Barbre

Brian S. Barbre

Senior Vice President, Chief Financial Officer, Principal

March 24, 2023

Brian S. Barbre

Accounting Officer

March 25, 2021

/s/ Van C. Elliott

Secretary, Manager

March 24, 2023

Van C. Elliott


by Joseph W. Turner, Jr, his attorney-in-fact

Secretary, Manager

March 25, 2021

/s/ MendellJuli Anne S. Lawrence

Manager

March 24, 2023

Juli Anne S. Lawrence
by Joseph W. Turner, Jr, her attorney-in-fact

/s/ Jerrod L. ThompsonForesman

MendellManager

March 24, 2023

Jerrod L. Thompson

Foresman
by Joseph W. Turner, Jr, his attorney-in-fact

Manager

March 25, 2021

/s/ Juli Anne S. LawrenceJeffrey T. Lauridsen

Juli Anne S. Lawrence

by Joseph W. Turner, Jr, her attorney-in-fact

Manager

March 25, 202124, 2023

/s/ Jerrod L. Foresman

Jerrod L. Foresman

Jeffrey T. Lauridsen
by Joseph W. Turner, Jr, his attorney-in-fact

Manager

March 25, 2021

/s/ Jeffrey T. LauridsenGuy A. Messick

Jeffrey T. LauridsenManager

March 24, 2023

Guy A. Messick
by Joseph W. Turner, Jr, his attorney-in-fact

Manager

March 25, 2021

/s/ Guy A. Messick

Guy A. Messick 

by Joseph W. Turner, Jr, his attorney-in-fact

Manager

March 25, 2021

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