EDGAR 10-K Filing

Company CIK: 944130
Filing Year: 2024
Filename: 944130_10-K_2024_0000944130-24-000027.json

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ITEM 1. BUSINESS
Item 1.
Business

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ITEM 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. Other risks and uncertainties which are not identified below 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.
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 depends on our ability to raise funds from the sale of our debt certificates. Some of the factors that affect our ability to sell our debt certificates include:
● quality of the mortgage loan and business loan investments we make;
● the profitability of our operations; and
● limitations imposed under our credit facility arrangements and trust indenture agreements that have restrictive and negative covenants that may limit our ability to borrow additional sums or sell our publicly and privately offered debt certificates.
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
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 an 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 some or all those assets. Our management 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 servicing income.
We may be unable to successfully implement our strategy to grow our mortgage loan and non-interest generating segments of our business.
In recent years, we gradually decreased the total amount of mortgage loans on our balance sheet as part of an effort to reduce risk in the portfolio, dispose of or restructure non-performing loans and reduce our outstanding term-debt through discounted principal payments when a favorable opportunity has arisen. We also implemented a strategy of transitioning to a more diversified financial services company that is focused on Christian stewardship. To effectively implement this strategy, we will need to increase our investment in technology, streamline our loan origination and underwriting process, and become more efficient in carrying out the operations of the Company. We also intend to continue our strategy of offering our financial products and services to our equity owners, strategic partners, and clients. Continuing to grow our business and investment loan portfolio 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.
The loss of our management team or the ability to attract and keep 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 current and potential clients and 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 keep qualified senior managers that will enable us to achieve our core strategic aims 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 goals 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 from these products may decline.
The ability to attract and keep 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. If we are unable to recruit and keep qualified professionals, we could jeopardize our strategic goal of increasing non-interest income, thereby adversely affecting our net earnings and financial condition.
Our systems may experience an interruption or breach in security, which could subject us to increased operating costs as well as litigation and other liabilities.
We rely heavily on communications and information systems to conduct our business, process, send, and store electronic financial information. Any failure, interruption, or breach in the 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 keeping customer confidence in our services. Security breaches, computer viruses, acts of vandalism, and developments in computer capabilities could result in a breach or breakdown of the technology we use to protect customer and investor information and transaction data.
While we have policies and procedures designed to prevent or limit the effect of the possible failure, interruption, or security breach of our information systems, there can be no assurance that any such failure, interruption or security breach will not occur or, if they do occur, that they will be adequately addressed. We rely on third parties in processing our transactions. Any breakdown or failures of their systems or capacity constraints could adversely affect our operations. The occurrence of any failure, interruption, or security breach of our information systems could damage our reputation, result in a loss of a borrower, investor, or customer’s business, or expose us to civil litigation and possible financial liability.
Our critical business systems may fail due to events out of our control, such as:
● unforeseen catastrophic events;
● cyber-attacks;
● human error;
● change in operational practices of our system vendors; or
● unforeseen problems met 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 Report, to our knowledge, we have not experienced any material impacts relating to cyber-attacks or information system security breaches.
From time to time, we have engaged in transactions with related parties and our policies and procedures on these transactions may be insufficient to address any conflicts of interest that may arise.
Under our code of business conduct, we have set up procedures for the review, approval, and ratification of transactions that may give rise to a conflict of interest between 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 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 deterioration of market conditions could negatively affect our business.
Several factors that we cannot control affect the market in which we operate. These factors can have a potentially significant negative impact on our business. Some of these factors are:
● interest rates and credit spreads;
● 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.
External Risks and Uncertainties could harm our operations.
The long-term impact of external factors such as the COVID-19 pandemic, Russia’s invasion of Ukraine, increased inflation, and global supply chain disruptions on our loan investments is still uncertain. These factors have already caused significant disruptions in the U.S. economy, leading to operational changes in churches, Christian schools, ministries, and businesses. Other challenges including geopolitical conflicts and economic uncertainties pose further stress on the economy and consumers. As our business heavily relies on timely loan payments from ministry borrowers, any disruption in giving trends due to these factors could materially affect our liquidity, loan loss reserves, and financial condition.
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. Declining real estate values often 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 will incur losses on our foreclosed assets and on our loans in case 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 have a fixed interest rate with a five-year
interest rate adjustment or maturity date. However, some of the borrowing arrangements with our investors use variable interest rates 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 multiple 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 case 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 supply a positive net spread. We have used borrowing facilities obtained from institutional lenders and relied upon offerings of debt certificates in SEC registered offerings and private placement offerings to fund our mortgage loans 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 certificates as they mature. To mitigate our interest rate risks, we have previously and may in the future use interest rate hedging transactions such as interest rate caps and interest rate swaps. We cannot guarantee the results of using these types of instruments to mitigate interest rate risks, and as a result, the volatility of interest rates could result in reduced earnings or losses for us.
In addition, increases in interest rates during the term of a loan may adversely affect a borrower’s ability to repay a loan at maturity or to prepay a loan. Our mortgage loans typically have large balloon payments due at maturity. When the loan matures and the balloon payment is due, the borrower must either pay the loan balance or refinance the loan with us or another lender. If interest rates are higher when the loan matures, the borrower’s payment on new financing may be higher. The borrower may not be able to afford the higher debt service, hindering its 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. As a result, it could adversely affect our business and profitability.
Regulatory compliance failures could adversely affect our reputation, operating business, and core strategic goals.
We rely on publicly offered debt certificates to fund a substantial part 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 DFPI, 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 authority over the activities of our broker-dealer affiliated entity. MP Securities is also subject to the Regulation Best Interest standard adopted by the U.S. Securities and Exchange Commission on June 5, 2019, which imposes additional regulatory burdens on broker-dealer firms when making a recommendation to purchase a security to a retail customer. As a registered broker-dealer and FINRA member, MP Securities must maintain registrations under the securities laws in those states in which it conducts business. The failure to follow obligations imposed by any regulatory authority binding on our subsidiaries or us or to keep any of the required licenses or permits could result in investigations, sanctions, and reputation damage.
Risks Related to Our Mortgage Loan Investments
We may need, from time to time, to sell or pledge as security our mortgage loan investments.
The market for church mortgage loans is specialized and therefore not as liquid as for a residential or commercial loan portfolio. As a result, in the event we need additional liquidity we may have difficulty in disposing of our mortgage loan portfolio quickly or at all. The amount we would realize is dependent on several factors, including the quality and yield of similar mortgage loans and the prevailing financial market and economic conditions. It is possible that we could realize substantially less than the face amount of our mortgage loans, should we be required to sell the loans or pledge them as collateral for debt. Thus, the amount we could realize for the liquidation of our mortgage loan investments is uncertain and unpredictable.
We are subject to risks related to prepayment of mortgage loans held in our portfolio, which may negatively affect our business.
Our 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 case 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.
To pay their loans, churches depend on revenues from church member contributions. Donations typically fluctuate over time for multiple reasons, including, but not limited to:
● 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 affect the church’s ability to meet its debt service obligations on a mortgage loan we make.
The quality of our mortgage loans depends on consistent application of sound underwriting standards.
The quality of the mortgage loans in which we invest depends on the adequacy and implementation of sound underwriting standards as described in our Board adopted loan policy. To 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.
We may suffer losses on loans due to not having all 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 typically no publicly available information about the churches and ministries to whom 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.
Because we primarily invest in specialized purpose mortgage loans, our loan portfolio is riskier than if it were diversified.
We are among a limited number of non-bank financial institutions specialized in supplying loans to evangelical churches and church organizations. Most of our loans are secured by church and ministry real properties and the secondary market for these loans is regional and limited. Our mortgage loan agreements require that the borrower insure the property. This requirement secures the loan against liability and casualty loss. However, certain types of losses, 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.
Our loan portfolio is concentrated geographically and focused on loans to churches and religious organizations.
Our loans are concentrated geographically, as shown in the table below. 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.
(in thousands)
December 31, 2023
Unpaid Balance of Loans
Percent of Total Loans
Number of Loans
Percent of Total Loans
California
$
9,019
9.0
%
18.7
%
Maryland
19,531
19.5
%
5.2
%
Illinois
11,173
11.1
%
11.2
%
District of Columbia
9,574
9.5
%
3.0
%
December 31, 2022
Unpaid Balance of Loans
Percent of Total Loans
Number of Loans
Percent of Total Loans
California
$
8,124
9.3
%
19.0
%
Maryland
23,187
26.6
%
6.6
%
Illinois
10,462
12.0
%
12.4
%
District of Columbia
--
--
%
--
--
%
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 try 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 properly 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 make assumptions about the collectability of our loan portfolio.
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 our loans. If we decide 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 may 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 may have to recognize impairment charges. These impairment charges could result in a material reduction in earnings in the period in which the loans are determined to be impaired. The impairment may have a material negative impact on our financial condition, liquidity, and ability to make debt service payments.
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, 2023, our allowance for loan loss totaled $1.5 million, or 1.50%, 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, nonaccrual loans or may be restructured, which subject us to increased risks compared to performing loans.
Some of the loans in our mortgage loan portfolio currently are, or in the future may 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 an adverse 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 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 continue 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. For more information on our non-performing assets, see the caption titled “Nonaccrual, Past Due, Non-performing Modified Loans, and Foreclosed Assets” in the Management’s Discussion and Analysis of Financial Condition and Results of Operation section.
In the event a borrower defaults on one of our mortgage loan investments, we may need to recover our investment through the sale of the property securing the loan.
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 after the appraisal is performed because of various 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 typically not as marketable as more common commercial, retail, or residential properties.
The occurrence of any of these events could severely impair the market value of the security for our mortgage loan investments. In case 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 the 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 expected 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, management fees, security, repairs, and maintenance. Any added expenses incurred could adversely affect our ability to recover the full value of our collateral. In addition, if we foreclose on a mortgage loan and take legal title to the real property, we could become responsible for real estate taxes levied and assessed against the foreclosed property as well as other costs such as property maintenance and insurance costs. These costs would be our responsibility and could reduce our recovery on our investment.
The 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 the required standards 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, labor 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 face potential environmental liabilities related to properties we acquire.
As part of our business operations, we may acquire real estate through foreclosure on mortgage loan investments. If we take ownership of a property, we may be exposed to environmental liabilities concerning this property. This exposure could lead to liability claims from government entities or third parties for property damage, personal injury, and the costs associated with investigating and cleaning up environmental contamination. Furthermore, we might be obligated to address hazardous substances, toxic materials, or chemical releases at a property, with the possibility of incurring substantial costs for
investigation or remediation activities. If we were to encounter significant environmental liabilities, it could materially and adversely impact our business, financial condition, liquidity, and results of operations.
Risks Relating to Our Debt Certificates
Unexpected large withdrawals by investors that hold our debt certificates 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 certificates, 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 depend on repeat purchases by a significant number of investors in our debt certificates to finance our business.
A significant percentage of the investors who buy our debt certificates roll their matured debt certificate 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 certificates over the prior three years:
%
%
%
Some of our investors may be unable to purchase our public offered debt certificates due to FINRA’s investor suitability rule.
When handling sales of our investor debt certificates, we must comply with FINRA’s “know your customer” and “suitability” rule. Some investors may not qualify under our suitability criteria. These suitability eligibility standards help ensure that investors make appropriate investments given the:
● age;
● investment experience;
● net worth;
● need for liquidity; and
● the mix of the investor’s portfolio.
If MP Securities is unable to offer a potential investor a Class A Certificate that will enable such investor to meet the applicable suitability standards, we will need to find other qualified investors to implement our strategic objectives.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.UNRESOLVED STAFF COMMENTS
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2.
PROPERTIES
Corporate Offices
As of December 31, 2023, the Company conducted most of its operations from its main corporate office at 915 West Imperial Highway, Suite 120, Brea, California. However, on March 4, 2024, the Company moved its corporate office to 1 Pointe Drive, Suite 205, Brea, California. In addition, the Company has a branch office in Fresno, California. The Brea corporate office and Fresno branch locations have operating leases. Ministry Partners Securities, LLC also keeps networking agreement office locations in Glendora, California; Elgin, Illinois; and Nampa, Idaho.

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ITEM 3. LEGAL PROCEEDINGS
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. As of December 31, 2023, 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.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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, 2023, 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 entitled 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”). On July 1, 2023, the LIBOR index was replaced by the one-year Secured Overnight Financing Rate (“SOFR”). The Federal Reserve Bank of New York establishes the SOFR, with adjustments made as deemed appropriate. 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. The Company had a net loss in 2023, therefore no dividend was accrued. For the year ended December 31, 2022, $13 thousand in net profits were distributed to our Series A
Preferred Units holders. This increased the amount of distributions declared on our Series A Preferred Units for the fourth quarters 2022 by $0.018 per unit.
The remaining balance of any profits will be allocated to all holders of our Class A Units based on their ownership percentage. For 2023, we made no distributions to the holders of our Class A Units.
During the years ended December 31, 2023 and 2022, we declared distributions on our Series A Preferred Units as follows:
SERIES A UNITS
Distributions Declared per Unit
Quarter
First
$
1.370
$
0.580
Second
1.569
0.965
Third
1.444
1.268
Fourth
1.265
1.463
Total distributions per unit
$
5.648
$
4.276
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.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
SELECTED FINANCIAL DATA
We are a “smaller reporting company” as defined by Regulation S-K issued by the SEC. As a result, we are not supplying the information contained in this item per Regulation S-K.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion on our financial statements should be read in conjunction with the consolidated financial statements and notes thereto in this Report beginning at page.
OVERVIEW
We generate our revenue through our lending portfolio and through fees generated from our investment and insurance products and services. While we generate most of our revenue through interest income, our strategic aim is to diversify our revenue sources so that non-interest income becomes a larger percentage of total income. Producing revenue from multiple sources may reduce the risk to the Company if we experience a decrease in interest income. We also strive to improve operating efficiency by increasing the revenue generated for each dollar of expense incurred to run the business, which helps us improve our capital position. Increased capital helps mitigate risk in economic down cycles. In addition, we seek to grow our loan portfolio in order to grow our operating revenue.
To continue to achieve our goals, protect the investment made by our debt certificate holders, and maximize the value of our equity holders’ investment, we will continue to focus on:
● expand the distribution channels for the Company’s debt securities offerings with strategic partners that share the Company’s desire to enhance Christian stewardship through Biblically responsible investments;
● growing our non-interest income from our broker-dealer services and loan servicing and products;
● investing in technology to enhance our customer experience while creating operating efficiencies;
● growing our client base;
● expanding our broker-dealer sales staff;
● serving the needs of credit union and CUSO clients through revenue producing strategic partnerships;
● finding new strategic partnership opportunities with like-minded organizations that can help grow our client base and generate revenue;
● expanding 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;
● strengthening our capital through growth in earnings;
● growing our balance sheet size, by originating profitable new ministry and commercial loans as we seek to increase revenue from our loan investments;
● strengthening our loan portfolio through aggressive and proactive efforts to resolve problems in our non-performing assets;
● expanding the sale of our investor debt certificates to diversify our funding sources; and
● maintaining adequate liquidity levels.
Impact of recent external events on our Business
The COVID-19 pandemic prompted adjustments to the operations of the individuals, businesses, churches, and the ministries we serve. Management, however, does not perceive any material adverse impact resulting from the pandemic on the Company’s financial position or its ability to conduct business. Despite this, the long-term effects of the pandemic remain uncertain for our borrowers, investors, and clients, leading to continuous monitoring by the Company.
Inflation became a concern for the Federal Reserve Board (“FRB”) beginning in 2021 as inflation outpaced the FRB’s target rate of 2%. In response, the FRB began increasing the fed funds rate in January 2022. Since that time, the fed funds rate has increased by 525 basis points, rising from 0.25% on January 1, 2022, to 5.50% as of December 31, 2023. In its press release for its December 13th, 2023, meeting, the Federal Reserve noted, “inflation has eased over the past year but remains elevated”. Looking ahead, the FRB's median projection for the fed funds rate at the end of 2024 is 4.6%, showing that some committee members anticipate reducing the fed funds rate as inflation approaches the FRB’s long run inflation target rate of 2%.
In the first quarter of 2023, the Federal Deposit Insurance Corporation (“FDIC”) closed two banks and facilitated the buyout of another significant bank in the second quarter of 2023. Two more bank failures occurred in the second half of the year, but their total combined assets were under $250 million. Due to these and other factors, we closely
monitor the impact of rising interest rates and their subsequent effects on the overall economy.
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion compares the results of operations for the twelve months ended December 31, 2023 and 2022, along with other financial information and statistical data we believe are important to understand our financial condition, cash flows and other changes in financial condition and results of operations. This analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Summary of our December 31, 2023, Financial Results
For the year ended December 31, 2023, the Company had a net loss of $757 thousand. For this period, Company management has identified the following key trends and strategic objectives that have been reported in its financial statements:
Ø Improve Net Interest Income on Loan Investments. During the years 2020 - 2023, our strategy of downsizing the Company’s balance sheet has resulted in lower interest income from our commercial loan portfolio (see Net Interest Income chart below).
As we incrementally paid off our term debt facility over the preceding three years (see Other Borrowings chart below), total assets declined, and our net interest income was subsequently reduced.
Company management anticipated that its debt reduction strategy would cause a short-term reduction in net interest income but believes that the long-term benefits of building capital, net equity, and eliminating debt at a discount far outweighed the costs of lower net interest income earned in 2023. We have begun to increase the amount of loan investments on our balance sheet, and we expect to see interest income on loans grow as well. Interest income on loans grew by $75 thousand in the second quarter compared to the first quarter of 2023. Interest income on loans grew an additional $113 thousand in the third quarter compared to the second quarter. Interest income then grew and additional $160 thousand in the fourth quarter compared to the third quarter of 2023. The increase in interest income was mostly due to a growth in net loans receivable of $13.5 million in 2023. In 2024, the Company intends to continue to grow its loan investments. Company management also intends to focus on improving net interest income on its loan investments by adjusting, as needed, the interest rates it offers on its loans as well as closely monitoring the rates it offers on its debt certificates.
Ø Building the Company’s Capital. As a result of implementing the Company’s debt reduction strategy, the Company’s capitalization and total members equity reached its highest point, up to that time, on December 31, 2022. When the Company commenced its debt reduction strategy in August 2020, its total net equity was $11.1 million. As of December 31, 2023, the Company’s total equity is $13.1 million. During the year ended December 31, 2023, the Company’s total assets increased by $17.3 million, representing an increase of 15%, compared to December 31, 2022. This increase was a result of an increase in the Company’s debt certificates of $17.9 million during this period. The Company also has $10.5 million in unused and available credit facilities we can use to expand our investment portfolio. As shown in the chart above, Company management’s purposeful strategy to eliminate the Company’s long-term debt strengthened our capitalization, our net equity, and has provided our investors with a stronger financial company that supports our debt certificates program.
Ø Improving Core Business Profitability. Over the past three years, the Company’s net income from operations has primarily relied upon income generated through gains reported from principal paydowns made on our term debt facility at a discount. The Company’s intentional strategy of using available cash resources to incrementally reduce our term debt resulted in having less cash resources available to make loan investments. As noted above, we have begun to rebuild our loan
portfolio and our loan interest income has grown in each quarter of 2023 due both to the increase in loans receivable and an increase in the interest rates of existing adjustable-rate loans. For the year ended December 31, 2023, we had a net loss of $757 thousand. In 2023, the Company incurred a one-time expense of $586 thousand under the terms of a separation agreement entered into with the Company’s former Chief Executive Officer, Joseph W. Turner, Jr. In addition, the Company had nonrecurring revenue in the form of charitable contributions of $1.7 million made to our wholly owned charitable foundation, MPC. As a charitable gift made pursuant to a gift agreement, MPC is required to set aside these funds to be used for designated charitable purposes. As a result, we cannot use the $1.7 million gift to fund the Company’s core business operations and investments. MPC serves as a key component in helping the Company fulfill our missional purpose and we plan to strategically position MPC to receive future charitable gifts that will further the charitable and religious objectives of MPC.
The chart below shows the Company’s net income (loss) figures for the years 2019-2023.
Ø Strategic Objectives. Now that the Company has paid off our term debt credit facility, we are focusing on improving the profitability of our core business operations through making profitable commercial loans and growing our non-interest generating sources of income from our faith-based investment advisory services. In 2024, the Company intends to focus on the following objectives:
(i) Investing in and growing our commercial loan investments through loan originations, purchase of loan participation interests, and cooperative efforts with our strategic partners to increase the commercial loans we make to non-profit organizations and faith-based businesses;
(ii)
Continuing our efforts to reduce non-interest expenses;
(iii)
Increasing the sale of our debt certificates to finance the growth in the Company’s balance sheet;
(iv)
Effectively managing pressures on the Company’s net interest margin on its loan investments in response to an inverted yield curve in financial markets that results in higher short-term costs on our debt certificates while the Company makes longer term investments with the commercial loans it originates; and
(v)
Continuously expanding the revenues earned by the investment advisory, broker-dealer, and insurance operations at Ministry Partners Securities, LLC.
Two Year Comparison of Financial Condition as of December 31,:
Comparison
$ Difference
% Difference
(dollars in thousands)
Assets:
Cash
$
10,854
$
9,504
$
1,350
14%
Restricted cash
1,757
1,697
2828%
Certificates of deposit
1,279
1,250
2%
Loans receivable, net of allowance for loan losses of $1,501 and $1,551 as of December 31, 2023 and 2022, respectively
98,573
85,076
13,497
16%
Accrued interest receivable
(45)
(9%)
Investments in joint venture
0%
Other investments
1,052
1,018
3%
Property and equipment, net
(84)
(60%)
Foreclosed assets, net
-
-%
Servicing assets
(25)
(20%)
Other assets
1,374
153%
Total assets
$
116,647
$
99,363
$
17,284
17%
Liabilities and members’ equity
Liabilities:
Lines of credit
$
4,500
$
3,000
$
1,500
50%
Other secured borrowings
-
-%
Debt certificates payable, net of debt issuance costs of $52 and $58 as of December 31, 2023 and 2022, respectively
96,979
79,100
17,879
23%
Accrued interest payable
36%
Other liabilities
1,683
2,349
(666)
(28%)
Total liabilities
103,552
84,737
18,815
22%
Members' Equity:
Series A preferred units
11,715
11,715
-
-%
Class A common units
1,509
1,509
-
-%
Accumulated earnings
(129)
1,402
(1,531)
(109%)
Total members' equity
13,095
14,626
(1,531)
(10%)
Total liabilities and members' equity
$
116,647
$
99,363
$
17,284
17%
Total assets increased by 17% due to the growth of $17.9 million in our debt certificates payable, the largest dollar growth in our Company’s history. We invested $13.5 million of these funds by growing our loans receivable portfolio as described above. Three million of the $17.9 million was retained in cash.
Loan Portfolio
Our loan portfolio provides the majority of our 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 I, Item 1A, Risk Factors”. Our portfolio consists mostly of loans made to evangelical churches and ministries with approximately 99.9% real estate secured loans.
Loan Types
Year Ended December 31, (dollars in thousands)
Amount
% of
Portfolio
Amount
% of
Portfolio
Non-profit commercial loans:
Real estate secured
$
87,517
87.2
%
$
84,718
97.3
%
Construction
0.0
%
0.2
%
Other secured
-
-
%
0.3
%
Unsecured
0.1
%
0.1
%
Total non-profit commercial loans:
$
87,598
87.3
%
$
85,202
97.9
%
For-profit commercial loans:
Real estate secured
$
12,783
12.7
%
1,035
1.2
%
Construction
-
-
%
0.9
%
Total for-profit commercial loans
$
12,783
12.7
%
$
1,840
2.1
%
Total loans
$
100,381
100.0
%
$
87,042
100.0
%
Maturities and Sensitivities of Loans to Changes in Interest Rates
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
December 31, 2023
$
20,391
67,762
12,228
$
100,381
Included in the table above are 59 adjustable-rate loans totaling 41% of the total balance. Adjustable-rate loans reduce the interest rate risk compared to fixed rate loans with similar cash flow characteristics.
Nonaccrual, Past Due, Non-performing Modified Loans, and Foreclosed Assets
● Non-accrual loans: loans on which management has discontinued interest accruals. Loans 90 days past due are placed on non-accrual status. In addition, management may place a loan on a non-accrual status at its discretion if other circumstances surrounding the loan and the borrower indicate it is prudent to do so.
● Past due loans: loans 90 days or more past due and still accruing.
● Non-performing modified loans: 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.
● Loans where the borrowers have defaulted on contractual terms of their loan agreement: this could include loans where the borrower has failed to provide required financial information, has violated a covenant, or has otherwise failed to comply with the terms of the loan agreement.
● Foreclosed assets: real properties for which we have taken title and possession upon the completion of foreclosure proceedings.
We closely watch these non-performing assets on an ongoing basis. Management evaluates the potential risk of loss on these loans and foreclosed assets in one of three ways:
● the present value of expected future cash flows discounted at the loan’s effective interest rate;
● the obtainable market price; or
● the fair value of the collateral if the loan is collateral-dependent.
The following table presents our non-performing assets:
Nonaccrual, Past Due, Non-performing Modified Loans, and Foreclosed Assets
($ in thousands)
December 31,
December 31,
December 31,
Total Recorded Balance
Total Recorded Balance
Interest Earned
Interest that Should have Been Earned*
Non-accrual loans
$
11,384
$
5,932
$
$
Accruing loans which are contractually past due 90 days or more as to principal or interest payments
-
-
-
-
Loans not included above which are non-performing modified loans
5,408
4,555
Foreclosed Assets, net of valuation allowance
-
-
Total
$
17,093
$
10,788
$
$
1,229
*the gross interest income that would have been recorded in the period if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination
Allowance for Loan Losses
For information on our allowance for loan losses and how it is calculated please see the header “Allowance for Loan Losses” in Note 2 as well as “Allowance for Loan Losses” in Note 4 in the consolidated financial statements and notes thereto in this Report beginning at page.
The following chart details our allowance for loan losses:
Allowance for Loan Losses
Twelve months ended
December 31,
($ in thousands)
Balances:
Average total loans outstanding during period
$
92,852
$
90,477
Total non-performing loans outstanding at end of the period
16,792
10,487
Total loans outstanding at end of the period
100,381
87,042
Allowance for loan losses:
Balance at the beginning of period
$
1,551
$
1,638
Adjustment related to implementation of CECL model
Provision credit to expense
(142)
(296)
Charge-offs
Non-profit, Wholly-Owned First Amortizing
(21)
-
Total
(21)
-
Recoveries
Non-profit, Wholly-Owned First Amortizing
-
Total
-
Net loan charge-offs
(21)
Accretion of allowance related to restructured loans
-
-
Balance
$
1,501
$
1,551
Ratios:
Net loan (charge-offs) / recoveries to average total loans
(0.02)
%
0.23
%
Provision credit for loan losses to average total loans
(0.15)
%
(0.33)
%
Allowance for loan losses to non-performing loans at the end of the period
8.94
%
14.31
%
Allowance for loan losses to total loans at the end of the period
1.50
%
1.78
%
Net loan recoveries to credit for allowance for loan losses at the end of the period
-
%
-
Net loan (charge-off) / recoveries to credit for loan losses
14.79
%
(70.61)
%
See the header “Provision” further on in the Management’s Discussion and Analysis in the section titled “Results of Operations” for information on factors which influenced the amount of the allowance credited to operating expense.
The following table shows the Company’s allocation of allowance for loan losses by loan categories as of December 31, 2023 (dollars in thousands).
Percent of loans
in each category
Loan Categories
Amount
to total loans
Non-profit commercial loans:
Real estate secured
$
1,470
87%
Construction
-
0%
Other secured
-
0%
Unsecured
0%
Total non-profit commercial loans:
$
1,471
87%
For-profit commercial loans:
Real estate secured
13%
Construction
-
0%
Total for-profit commercial loans
$
13%
Total loans
$
1,501
100%
At this time management is not able to approximate an anticipated amount of charge-offs in 2024.
Debt Certificates Payable
Our debt certificates payable (“debt certificates”) are debt certificates sold under both publicly registered and private placement security offerings. Over the last several years, we have expanded the number of investors in our debt certificates, and we have broadened the type of investors we serve by building relationships with other faith-based organizations which has allowed us to offer our debt certificates to these organizations and their clients. Concurrently, MP Securities and its staff of financial advisors have increased our customer base through marketing efforts made to individual investors.
Our 2021 Class A Offering expired December 31, 2023. We began selling our new offering, the 2024 Class A Debt Certificates, on February 6, 2024.
The balances of our outstanding debt certificates are as follows (dollars in thousands):
As of
As of
December 31, 2023
December 31, 2022
SEC Registered Public Offerings
Offering Type
Amount
Weighted
Average
Interest
Rate
Amount
Weighted
Average
Interest
Rate
Class 1A Offering
Unsecured
$
12,555
4.19
%
$
20,698
4.27
%
2021 Class A Offering
Unsecured
69,421
4.95
%
45,935
4.04
%
Public offering total
$
81,976
4.83
%
$
66,633
4.11
%
Private Offerings
Subordinated Notes
Unsecured
$
15,055
4.76
%
$
12,525
4.56
%
Private offering total
$
15,055
4.76
%
$
12,525
4.56
%
Total debt certificates payable
$
97,031
4.82
%
$
79,158
4.19
%
Members’ Equity
During the year ended December 31, 2023, total members’ equity decreased by $1.5 million attributable to a loss of $757 thousand, dividend distributions of $661 thousand, and an adjustment related to implementation of the Company’s adoption of FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL") on January 1, 2023 of $113 thousand. We did not repurchase or sell any membership equity units during the year ended December 31, 2023.
Liquidity and Capital Resources
Holding adequate liquidity requires that sufficient resources be always available to meet our cash flow needs. We use cash to obtain new mortgage loans, repay term-debt, make interest payments to our note investors, and pay general operating expenses. Our primary sources of liquidity are:
● cash;
● sales of debt certificates;
● cash flows from operations;
● maturing loans;
● payments of principal and interest on loans; and
● loan sales.
Our management team regularly prepares cash flow forecasts that we rely upon to ensure that we have sufficient 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 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, and cash flows 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 debt certificates in public and private offerings for any reason;
● we incur sudden withdrawals by multiple investors in our debt certificates;
● a substantial portion of our debt certificates 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 dollar securities can also adversely affect our liquidity. We believe that our available cash, cash flows 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 part of our mortgage-loan investments at par as well as sell debt certificates to raise more cash. However, we also must keep adequate collateral, consisting of loans receivable and cash, to secure our lines of credit. We have substantially reduced this risk in the last two years by retiring our term-debt as the Company now has more unencumbered loans available to sell.
Our Board of Managers approves our liquidity policy. The policy sets a minimum liquidity ratio and has a contingency protocol if our liquidity falls below the minimum. Our liquidity ratio was 13% at December 31, 2023, which is above the minimum set by our policy.
Liquidity Sources
In response to the economic uncertainty created from the COVID-19 pandemic, management began to generate liquidity by selling participation interests in its loans receivable during 2020 and throughout 2021. In 2022 and 2023, the Company moderated
this strategy based on its current and expected near term liquidity needs. During the periods ended December 31, 2023 and December 31, 2022, we generated $502 thousand and $3.7 million in cash from the sale of loan participation interests, respectively.
An additional liquidity tool we use in conjunction with our loan participation sales is a $5.0 million warehouse line of credit (“KCT LOC”) with Kane County Teachers Credit Union (“KCT”). This line of credit was established for the specific purpose of funding loan originations, and we intend to offer participation interests in these loans to repay the credit facility while generating servicing fee revenue. We are required to repay each advance within one hundred twenty (120) days after receiving the funds. As of December 31, 2023, and at each month end during 2023, we had no outstanding balance on the KCT LOC.
The Company has two other revolving lines of credit. The Company has a revolving $5.0 million short-term demand credit facility (“ACCU LOC”) with America’s Christian Credit Union. The ACCU LOC has a one-year term with a maturity date of September 30, 2024. As of December 31, 2023, we had a $4.5 million outstanding balance due on this facility, and the highest month-end balance outstanding was $5 million. The Company made $5.0 million in principal payments during the year. $244.2 thousand in interest expense was incurred on the ACCU LOC for the year ended December 31, 2023. 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, 2024. As of December 31, 2023, and at each month end during 2023, we had no outstanding balance on this operating line of credit.
Management believes, if necessary, we will be able to raise additional cash through loan and debt certificate sales to keep sufficient levels of cash available to meet our debt obligations to investors. Because the Company was successful in raising cash from loan repayments, sales of loan participations, and its use of short-term credit facilities, we were able to take advantage of the opportunity to pay down our term debt facility at a discount, as described above. Despite this paydown, the Company is still operating with cash levels above its Board-approved policy. Cash, restricted cash, and certificates of deposit were $13.9 million as of December 31, 2023.
Debt Certificates
The sale of our debt certificates contributes significantly to funding our mortgage loan investments. Through sales of our publicly offered debt certificates and privately placed debt certificates, we expect to fund new loans. We also use the cash we receive from our debt certificates sales to fund general operating activities.
As of December 31, 2023, our investor debt certificates had future maturities during the following twelve-month periods ending December 31, (dollars in thousands):
$
47,792
20,316
16,563
9,515
2,845
97,031
Debt issuance costs
Debt certificates payable, net of debt issuance costs
$
96,979
Historically, we have been successful in generating reinvestments by our debt certificate holders when the securities they hold mature. The table below shows the renewal rates of our maturing securities over the last three years.
%
%
%
During the years ended December 31, 2021, and 2022, we worked with our investors to reduce larger debt certificates that were maturing to reduce the concentration risk of any one investor not renewing a note. We were able to replace these securities with funds from a larger number of investors. This intentional reduction of concentration risk reduced the renewal rates in 2021 and 2022. Due to the Company’s intentional strategy of serving the Christian stewardship principles of our investors, our investor debt certificates increased by $17.9 million and $2.4 million during the years ended December 31, 2023 and December 31, 2022, respectively.
Credit Facilities and Other Borrowings
The table below is a summary of the Company’s $4.5 million in outstanding debt payable as of December 31, 2023 (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
9.000%
Variable
$
-
$
-
6/6/2024
$
6,032
$
-
KCT Operating LOC
9.000%
Variable
-
-
6/6/2024
4,560
1,250
ACCU LOC
8.250%
Variable
4,500
-
9/23/2024
7,167
-
ACCU Secured
Various
Fixed
-
Various
-
Note: Disclosed cash pledged and collateral balances will get pledged once and if the LOC is drawn on.
The ACCU secured borrowing is a loan participation sold with recourse that is classified as a secured borrowing.
Debt Covenants
Under our line of credit agreements and our debt certificate documents, we are bound to follow certain affirmative and negative covenants. Failure to follow our covenants could
require all interest and principal to become due. As of December 31, 2023, we are in compliance with the covenants on our securities payable and lines of credit.
● For more information regarding our debt certificates payable, refer to “Note 11. Debt Certificates Payable of Part II, Item 8. of this Report.
● For more information on our credit facilities, refer to “Note 10. Credit Facilities”, to Part II, Item 8. of this Report.
Results of Operations:
For the year ended December 31, 2023
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”) and the interest paid on our debt certificates and term debt.
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-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)
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Assets:
Interest-earning accounts with other financial institutions
$
15,492
$
4.02
%
$
15,312
$
0.84
%
Interest-earning loans[1][2]
91,536
5,800
6.35
%
83,524
5,706
6.83
%
Total interest-earning assets
107,028
6,421
6.02
%
98,836
5,835
5.90
%
Non-interest-earning assets
2,801
-
-
%
7,817
-
-
%
Total Assets
$
109,829
$
6,421
5.86
%
$
106,653
$
5,835
5.47
%
Liabilities:
Debt certificates payable gross of debt issuance costs
$
90,553
$
4,111
4.55
%
$
76,111
$
2,882
3.79
%
Other debt
3,016
8.18
%
13,655
2.83
%
Total interest-bearing liabilities
$
93,569
$
4,357
4.67
%
$
89,766
$
3,269
3.64
%
Debt issuance cost
Total interest-bearing liabilities net of debt issuance cost
$
93,569
4,485
4.81
%
$
89,766
3,369
3.75
%
Net interest income
$
1,936
$
2,466
Net interest margin
1.81
%
2.50
%
[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 $73 thousand and $231 thousand for the years ended years ended December 31, 2023 and 2022, respectively.
Rate/Volume Analysis of Net Interest Income
Twelve Months Ended
December 31, 2023 vs. 2022
Increase (Decrease) Due to Change in:
Volume
Rate
Total
(Dollars in Thousands)
Increase (Decrease) in Interest Income:
Interest-earning accounts with other financial institutions
$
(1)
$
$
Interest-earning loans
(417)
Total interest-earning assets
Increase (Decrease) in Interest Expense:
Debt certificates payable gross of debt issuance costs
1,077
1,229
Other debt
(468)
(141)
Debt issuance cost
-
Total interest-bearing liabilities
1,116
Change in net interest income
$
(99)
$
(431)
$
(530)
Net interest income decreased 21% during the year ended December 31, 2023. This decrease in net interest income was primarily due to higher interest expense on debt certificates payable, due to the $17.9 million in net growth in the debt certificates payable portfolio. The increase in interest expense was partially offset by an increase in interest income on our interest-earning accounts with other financial institutions and to a lesser degree our interest-earning loans.
The increase in our income on interest-earning accounts with other financial institutions was due to higher overall short-term yields. The higher yields are due to the increase in rates on fed funds described earlier. Interest on our interest-earning loans increased by $94 thousand due to both a volume and a rate variance. The volume variance is due to some loans that were non-interest earning in 2022 becoming interest earning in 2023. In addition, the loan portfolio grew as described earlier. The rate variance is due to some non-accrual loans that are making partial instead of full interest payments therefore reducing overall yield. The weighted average rate on the loan portfolio increased 7 basis points from 6.46% to 6.53% during the year ended December 31, 2023.
Total interest expense increased mostly due to a volume variance on debt certificates payable. This variance was due to the increase in debt certificates payable as previously described. In addition, interest expense increased due to a rate variance on both debt certificates payable and other debt. The rate variances were due to higher offering rates on new note sales as well as our lines of credit as U.S. Treasury rates increased during the year.
The Company’s net interest margin decreased due to the changes described above. The Company intends to grow its loan portfolio in 2024 and beyond in order to increase net interest income.
Provision and non-interest income and expense
Twelve months ended
December 31,
Comparison
(dollars in thousands)
$ Change
% Change
Net interest income
$
1,936
$
2,466
$
(530)
(21%)
Provision (credit) for loan losses
(142)
(296)
(52%)
Net interest income after provision (credit) for loan losses
2,078
2,762
(684)
(25%)
Total non-interest income
2,584
3,592
(1,008)
(28%)
Total non-interest expenses
5,399
5,707
(308)
(5%)
Income (loss) before provision for income taxes
(737)
(1,384)
(214%)
Provision for income taxes and state LLC fees
-
-%
Net income (loss)
$
(757)
$
$
(1,384)
(221%)
Provision
In 2023, the Company recorded a credit to provision for loan losses due to transfers from collectively reviewed loans to individually reviewed loans which were either fully covered by collateral or did not require additional provision for using a discounted cash flow analysis. In addition, we recorded a credit on our provision when a collateral dependent loan paid off where the cash received was higher than the book value.
Non-interest income
Non-interest income was lower in 2023 mostly due to a decrease in other income of $821 thousand. This was due to the Company not receiving a gain on debt extinguishment in 2023 while the Company recorded a $2.5 million gain on debt extinguishment for the year ended December 31, 2022. This was offset by $1.7 million in income from a charitable gift to our nonprofit foundation MPC as described earlier. We expect the gift to be non-recurring revenue and do not anticipate any revenue in 2024 from this source. In addition, our broker-dealer commissions and fees were down $187 thousand in 2023 due to lower sales of fixed and variable annuity products.
Non-interest expenses
Non-interest expense was lower in 2023 due to lower salaries and benefits of $372 thousand. This was due to a reduction in force at the beginning of 2023 related to the Company outsourcing its loan servicing function. The lower salaries and benefits were offset somewhat by $586 thousand in compensation related to the separation agreement of the Company’s CEO that was described earlier.
For the year ended December 31, 2022
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”) and the interest paid on our debt certificates and term debt.
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-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)
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
$
0.84
%
$
19,795
$
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:
Debt certificates payable gross of debt issuance costs
$
76,111
$
2,882
3.79
%
$
73,897
$
2,657
3.60
%
Other debt
13,655
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
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
%
[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, 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)
$
$
Interest-earning loans
(1,222)
(70)
(1,292)
Total interest-earning assets
(1,233)
(1,206)
Increase (Decrease) in Interest Expense:
Debt certificates payable gross of debt issuance costs
Other debt
(729)
(620)
Debt issuance cost
-
Total interest-bearing liabilities
(549)
(359)
Change in net interest income
$
(684)
$
(163)
$
(847)
Net interest income decreased 26% during the year ended December 31, 2022. This decrease in net interest income was primarily due to the lower average balance on interest-earning loans. Lower interest expense on debt partially offset the decrease in earnings on total interest-earning assets.
The decrease in interest income was due to a volume variance on interest-earning loans. The volume variance was due to the lower average loan balances as the Company received loan principal payments for loans that were refinanced or paid off. The weighted average yield on the loan portfolio decreased 7 basis points from 6.90% to 6.83% during the year ended December 31, 2022.
Total interest expense offset the decrease in interest income by $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 U.S. Treasury rates increased during the year.
The Company’s net interest margin decreased due to the changes described above.
Provision and non-interest income and expense
Twelve months ended
December 31,
Comparison
(dollars in thousands)
$ Change
% Change
Net interest income
$
2,466
$
3,313
$
(847)
(26%)
Provision (credit) for loan losses
(296)
(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
16%
Income before provision for income taxes
1,870
(1,223)
(65%)
Provision for income taxes and state LLC fees
-
-%
Net income
$
$
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.
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, 2022, compared to December 31, 2021. For more information on the SERP, please see Note 15, Retirement Plans in the Notes to the Consolidated Financial Statements.
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 financial 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 reporting 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 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 significant 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 financial position and results of operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE 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

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included herewith are the following financial statements:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID: 261)
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
-
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, 2023 and 2022, the related consolidated statements of operations, members’ 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, 2023 and 2022, 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's management. Our responsibility is to express an opinion on the Company'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.
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.
Assessment of the Allowance for Credit Losses Related to the Loan Portfolio
As discussed in Note 1 and Note 4 to the consolidated financial statements, the Company’s allowance for credit losses on loans was $1.5 million as of December 31, 2023, a portion of which related to the allowance for credit losses (ACL) on loans evaluated on a collective basis (the “Collective ACL”), while the other portion related to loans evaluated individually.
The Company estimates the Collective ACL using a current expected credit losses methodology which is based on relevant information about historical losses, current conditions, and reasonable and supportable forecasts of economic conditions that affect the collectability of loan balances.
The Collective ACL is a product of multiplying the Company’s estimates of probability of default to the estimated amount of loss that the Company would incur in a default scenario. The Company uses historical information combined with macroeconomic variables to estimate the probability of default. The Company utilizes assumptions that incorporate a reasonable forecast of various macroeconomic variables over the remaining life of the assets. Adjustments are made to the Collective ACL to reflect certain qualitative factors that are not incorporated into the quantitative models and related estimate.
We identified the assessment of the December 31, 2023 ACL on the Company’s loans as a critical audit matter. A high degree of audit effort, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, the assessment encompassed the evaluation of the December 31, 2023 Collective ACL methodology, including the significant assumptions used to estimate the probability of default. Such significant assumptions included portfolio segmentation, risk ratings, and macroeconomic variables. The assessment also included the evaluation of the qualitative factors by portfolio class. Further, the assessment required evaluation of a specific reserve for the loans evaluated individually. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address this critical audit matter.
We evaluated the Company’s process to develop the December 2023 Collective ACL on the Company’s loans by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we:
● Evaluated the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles;
● Evaluated the selection of the underlying macroeconomic variables by comparing them to the Company’s business environment and relevant industry practices;
● Determined whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment;
● Performed credit file reviews on a selection of loans to assess loan characteristics or risk ratings by evaluating the financial performance of the borrower, sources of repayment, and underlying collateral;
● Evaluated the qualitative factors and the effect of those factors on the allowance for credit losses on the Company’s loans compared with relevant credit risk factors and consistency with credit trends;
● Assessed the reasonableness of specific allowances on certain impaired loans;
● Evaluated the accuracy and completeness of disclosures in the consolidated financial statements.
/s/ Hutchinson and Bloodgood LLP
We have served as the Company’s auditor since 2005.
Glendale, California
March 28, 2024
Ministry Partners Investment Company, LLC and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2023 and 2022
(dollars in thousands except unit data)
Assets:
Cash and cash equivalents
$
10,854
$
9,504
Restricted cash
1,757
Certificates of deposit
1,279
1,250
Loans receivable, net of allowance for loan losses of $1,501 and $1,551 as of December 31, 2023 and 2022, respectively
98,573
85,076
Accrued interest receivable
Investments in joint venture
Other investments
1,052
1,018
Property and equipment, net
Foreclosed assets, net
Servicing assets
Other assets
1,374
Total assets
$
116,647
$
99,363
Liabilities and members’ equity
Liabilities:
Lines of credit
$
4,500
$
3,000
Other secured borrowings
Debt certificates payable, net of debt issuance costs of $52 and $58 as of December 31, 2023 and 2022, respectively
96,979
79,100
Accrued interest payable
Other liabilities
1,683
2,349
Total liabilities
103,552
84,737
Members' Equity:
Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at December 31, 2023 and 2022 (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, 2023 and 2022; See Note 14
1,509
1,509
Accumulated earnings
(129)
1,402
Total members' equity
13,095
14,626
Total liabilities and members' equity
$
116,647
$
99,363
The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC and Subsidiaries
Consolidated Statements of Operations
For the years ended December 31, 2023 and 2022
(dollars in thousands)
Interest income:
Interest on loans
$
5,800
$
5,706
Interest on interest-bearing accounts
Total interest income
6,421
5,835
Interest expense:
Other debt
Debt certificates
4,239
2,982
Total interest expense
4,485
3,369
Net interest income
1,936
2,466
Credit for loan losses
(142)
(296)
Net interest income after credit for loan losses
2,078
2,762
Non-interest income:
Broker-dealer commissions and fees
Other income
1,933
Gain on debt extinguishment
-
2,537
Total non-interest income
2,584
3,592
Non-interest expenses:
Salaries and benefits
3,132
3,504
Marketing and promotion
Office occupancy
Office operations and other expenses
1,628
1,491
Foreclosed assets, net
Legal and accounting
Total non-interest expenses
5,399
5,707
Income (loss) before provision for income taxes and state LLC fees
(737)
Provision for income taxes and state LLC fees
Net income (loss)
$
(757)
$
The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC and Subsidiaries
Consolidated Statements of Equity
For the years ended December 31, 2023 and 2022
(dollars in thousands)
Series A Preferred Units
Class A Common Units
Number of
Units
Amount
Number of
Units
Amount
Accumulated
Deficit
Total
Balance, December 31, 2021
117,100
$
11,715
146,522
$
1,509
$
1,287
$
12,908
Net income
-
-
-
-
Dividends on preferred units
-
-
-
-
(512)
(512)
Balance, December 31, 2022
117,100
$
11,715
146,522
$
1,509
$
1,402
$
14,626
Adjustment related to implementation of CECL model
-
-
-
-
(113)
(113)
Net loss
-
-
-
-
(757)
(757)
Dividends on preferred units
-
-
-
-
(661)
(661)
Balance, December 31, 2023
117,100
$
11,715
146,522
$
1,509
$
(129)
$
13,095
The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2023 and 2022
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(757)
$
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation
Amortization of deferred loan fees, net
(73)
(127)
Amortization of debt issuance costs
Credit for loan losses
(142)
(296)
Adoption of new accounting standard
(113)
-
Accretion of loan discount
(15)
(20)
Gain on sale of loans
(14)
(13)
Gain on debt extinguishment
-
(2,537)
Gain on other investments
(34)
(18)
Changes in:
Accrued interest receivable
Other assets
(790)
Accrued interest payable
Other liabilities
(632)
Net cash used by operating activities
(2,248)
(1,440)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan purchases
(6,099)
(2,760)
Loan originations
(17,112)
(4,267)
Loan sales
3,716
Loan principal collections
9,440
15,915
Purchase of other investments
-
(1,000)
Redemption (purchase) of certificates of deposit
(29)
(1,250)
Purchase of property and equipment
-
(12)
Retirement of property and equipment
-
Net cash provided (used) by investing activities
(13,261)
10,342
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term debt
-
(30,212)
Borrowings, net of repayments on lines of credit
1,500
1,000
Net change in secured borrowings
-
(10)
Net change in debt certificates payable
17,873
2,338
Debt issuance costs
(122)
(70)
Dividends paid on preferred units
(695)
(533)
Net cash provided (used) by financing activities
18,556
(27,487)
Net increase (decrease) in cash and restricted cash
3,047
(18,585)
Cash, cash equivalents, and restricted cash at beginning of period
9,564
28,149
Cash, cash equivalents, and restricted cash at end of period
$
12,611
$
9,564
Supplemental disclosures of cash flow information
Interest paid
$
4,383
$
3,341
Income taxes paid
Leased assets obtained in exchange of new operating lease liabilities
-
Lease liabilities recorded
-
Dividends declared to preferred unit holders
The accompanying notes are an integral part of these consolidated financial statements.
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 Christian churches, ministries, and individuals. The Company funds its operations primarily through the sale of debt certificates.
The Company’s wholly-owned subsidiaries are:
● Ministry Partners Funding, LLC, a Delaware limited liability company (“MPF”);
● MP Realty Services, Inc., a California corporation (“MP Realty”);
● Ministry Partners Securities, LLC, a Delaware limited liability company (“MP Securities”); and
● Ministry Partners for Christ, Inc., a not-for-profit Delaware corporation (“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 debt certificates.
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 (“IRC”). MPC is a not-for-profit corporation formed and organized under Delaware law. MPC
makes charitable grants to Christian educational organizations, and provides accounting, consulting, and financial expertise to aid 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 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-company balances and transactions in consolidation.
Conversion to LLC
Effective December 31, 2008, the Company converted from a corporation organized under California law to a California limited liability 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. 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. An Operating Agreement governs the Company’s management structure and governance procedures.
Risks and Uncertainties
COVID-19, a global pandemic, adversely impacted the broad economy, affecting most industries, including businesses, schools, hospitality-, and travel-based employers, and disrupted the supply and distribution networks that deliver products to the consuming public. While the pandemic has ended, we cannot know at this time if there will be any negative long-term effects to in-person attendance and giving trends at faith-based organizations and churches. Negative attendance and giving trends impacting the organizations that the Company serves could have a material financial impact on the Company.
In addition, Russia’s invasion of Ukraine, increased levels of inflation, the disruption of global supply chains, higher interest rates, and recent bank failures are putting strain on the U.S. economy and the U.S. consumer. While it is not possible to know the full extent of the long-term impact of these current events, the Company is disclosing potentially material factors 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, 2023 and December 31, 2022.
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”) as part of its clearing agreement for its securities-related activities, and with the Central Registration Depository (“CRD”) for regulatory 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 as restricted cash on its 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 $1.3 million in certificates with terms greater than three months as of December 31, 2023 and December 31, 2022.
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 the allowance for credit losses and the fair value of financial instruments and foreclosed assets. Actual results could differ from these estimates.
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. Management records these valuation changes as realized gains or losses on investment on the Company’s consolidated statements of operations. Management determined that the investment in the joint venture was not impaired as of December 31, 2023.
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, 2023 and 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 can arise from interest accrued and unpaid which the Company adds to loan principal balances when it modifies the loan. The Company does not accrete discounts to income 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 modified loan. For loans purchased from third parties, loan discounts include 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 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 operations. 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.
The Company adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL") on January 1, 2023. As part of the conversion to the CECL model of estimating the allowance for loan losses, which is described in detail under “Allowance for Loan Loss Evaluation’ below, the Company altered the way it segments and classifies its loan portfolio for purposes of analyzing the risks associated with the loans it originates and purchases. Through December 31, 2022, the Company had one segment - commercial loans. This segment primarily comprised loans to Christian ministries and ministry-related organizations. The commercial loan segment comprised four classes, segregated by collateral position and whether the Company originated the loan or if it was purchased from and serviced by a third party.
In addition to implementing CECL, the Company has also continued to purchase for-profit commercial loans that possess different risk profiles and require different methods of analysis and underwriting than non-profit church and ministry commercial real estate loans. Therefore, as of January 1, 2023, the Company’s loan portfolio comprises two segments: ministry-related non-profit
loans and commercial loans. The risk characteristics of the Company’s portfolio segments are as follows:
Non-profit Commercial Loans: Loans made to Christian ministries are underwritten based on the cash flows and other key financial performance indicators of the borrower, other qualitative aspects of the borrower, and the value of the collateral securing the loan. Unlike for-profit commercial borrowers, the cash flows generated by these borrowers often depend on contributions rather than cash flows generated by the operation of a business. In addition, collateral values can fluctuate as many church properties have limited commercial use outside of the ministry sector.
For-profit Commercial Loans: Loans made to for-profit commercial borrowers are underwritten based on the cash flows and other key financial performance indicators of the borrower, as well as the value of the collateral securing the loan. Repayment of these loans is generally dependent on the success of the business operated on the property being used to secure the loan.
The Company has also altered the way it segregates its segments into classes to more accurately apply the quantitative assumptions and qualitative risk factors necessary to properly calculate the allowance under the expected credit loss methodology required by CECL. As of January 1, 2023, the Company has segregated its portfolio into the following classes:
Management has segregated the loan portfolio into the following portfolio classes:
Loan Class
Class Description
Wholly Owned First Collateral Position, Amortizing
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. This class contains only those loans that amortize based on an agreed upon contractual principal and interest payments.
Wholly Owned Other Collateral Position, Amortizing
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 or that is secured by collateral other than real property. This class contains only those loans that amortize based on an agreed upon contractual principal and interest payments. 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.
Wholly Owned Unsecured, Amortizing
Wholly owned loans and the retained portion of loans originated by the Company and sold for which the Company does not possess an interest in collateral securing the loan. This class contains only those loans that amortize based on an agreed upon contractual principal and interest payments. These loans present higher credit risk than loans for which the Company possesses a lien due to the increased risk of loss should the loan default.
Wholly Owned Other Collateral Position, Lines of Credit
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 or that is secured by collateral other than real property. This class contains only line of credit agreements.
Wholly Owned Unsecured, Lines of Credit
Wholly owned loans and the retained portion of loans originated by the Company and sold for which the Company does not possess an interest in collateral securing the loan. This class contains only line of credit agreements.
Wholly Owned, Construction
Wholly owned loans and the retained portion of loans originated by the Company and sold which have been made for the purpose of constructing real property to be used for the borrower’s ministry. These loans present different risks due to the nature of construction projects and the underlying collateral.
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 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 Construction
Loan participations purchased in loans made for the purpose of constructing commercial real property and where the collateral securing the property comprises the construction project. These loans present different risks due to the nature of construction projects and the underlying collateral.
Finally, the company segregates each class by risk rating, as loans determined to have lower credit quality present different and greater risk than those of higher credit quality. The Company’s credit quality grading system is described in detail below in the section titled “Credit Quality Indicators.”
Allowance for Loan Loss Evaluation
The Company adopted CECL on January 1, 2023. CECL replaces the previous methodology for measuring credit losses, which involved estimated allowances for current known and inherent losses within the portfolio. The CECL methodology requires the Company to implement an expected loss model for measuring credit losses, which encompasses allowances for losses expected to be incurred over the life of the borrowings in its portfolio. The allowance for loan loss model used under CECL requires the measurement of all expected credit losses for financial assets at amortized cost, as well as certain off-balance sheet credit exposures based on historical experiences, current conditions, and reasonable and supportable forecasts.
Upon the adoption of the CECL model on January 1, 2023, the Company recorded a one-time cumulative-effect adjustment to retained earnings on its consolidated balance sheet of $113 thousand. This includes a reduction in retained earnings of $112 thousand to increase the allowance for loan losses based on the additional expected credit losses in the Company’s portfolio on day one of its implementation of the standards as required by ASU 2016-13. It also includes a reduction in retained earnings of $1 thousand to establish an allowance for expected losses on unfunded commitments, which is recorded on the balance sheet in other liabilities.
In accordance with FASB Accounting Standards Update (ASU) No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, the Company has made the accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts. This is allowable if the Company writes off uncollectible accrued interest receivable when a loan is 90 days past due or interest is otherwise considered uncollectible, which is its current policy and practice. The Company has also elected to continue to present accrued interest on its loans receivable separately on its consolidated balance sheet.
CECL Model
The CECL methodology does not prescribe any specific model for determining expected losses. Management has determined that, due to the nature of the borrowings in its portfolio and the nature of the collateral securing a significant portion of its borrowings, it would use a “probability of default” calculation as the basis for estimating expected losses. This methodology uses information about the borrower, the loan, and the collateral securing the loan to determine a borrower’s ability to meet the contractual requirements of the loan agreement. It then applies a calculated probability that the borrower will default to the estimated amount of loss the Company would incur in a default scenario. To perform this calculation, the methodology requires management to collect and analyze certain data for the loans in its portfolio including:
● the value of collateral securing the loan, as supported by third-party appraisals or other valuations;
● adjustments to the collateral value related to geographical and economic trends, and estimated costs to sell; and
● the borrower’s ability to meet its contractual obligations as determined by financial information collected regularly from borrowers.
As under the previous methodology, the allowance consists of collectively reviewed and specifically reviewed components. The collectively reviewed component covers non-classified loans. All loans included in the collectively reviewed pool are subject to the probability of default calculation described above. In addition, management has determined that there are qualitative factors affecting expected credit losses for which the probability of default model cannot account. These qualitative factors represent significant issues that management considers likely to cause estimated credit losses associated with the Company’s existing portfolio to differ from the probability of default calculation. These factors are applied in varying degrees depending on a loan’s segment, class, and credit quality. Management adjusts these factors on an on-going basis, some of which include:
● changes in national, regional, and local economic and industry conditions 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 collateral, including the limitations of using commercial price indices to adjust collateral value;
● the inherent risk in borrowings with high loan-to-value figures; and
● broad trends in the Christian church industry in which the Company primarily lends.
Loans that management has classified as non-performing and 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.
Specifically Reviewed
The Company reviews its loan portfolio monthly by examining several data points. This process includes reviewing delinquency reports, any new information related to the financial condition of its borrowers, and any new appraisal or other collateral valuation. Throughout 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. All loans in the loan portfolio are subject to impairment analysis. The Company monitors impaired loans on an ongoing basis as part of management’s loan review and work out process.
Any loans that management has determined are non-performing and impaired are individually analyzed for potential losses. These loans include non-accrual loans, loans 90 days or more past due and still accruing, non-performing modified loans, and loans where the borrowers have defaulted on contractual terms of their loan agreement.
● Non-accrual loans are loans on which management has discontinued interest accruals.
● Modified 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.
● Loans that have defaulted on other contractual terms could include loans where the borrower has failed to provide required financial information, has violated a covenant, or has otherwise failed to comply with the terms of the loan agreement.
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 the significance of payment delays or shortfalls on a case-by-case basis, taking into consideration all the circumstances surrounding the loan and the borrower. These circumstances include the length and reasons for the delay, the borrower’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’s effective interest rate;
● the obtainable market price; or
● the fair value of the collateral if the loan is collateral-dependent.
Loan Modifications
A loan modification 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 modification of a loan usually involves an interest rate reduction, 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 loan modifications if the below-market terms represent a concession due to the borrower’s troubled financial condition. The Company classifies loan modifications as impaired loans. For the loans that are not considered to be collateral-dependent, management measures loan modifications at the present value of estimated future cash flows using the loan’s effective rate prior to the loan’s initial modification. The Company reports the change in the present value of cash flows related to the passage of time as interest income. If management considers the loan to be collateral-dependent, impairment is measured based on the fair value of the collateral.
In accordance with industry standards, the Company classifies a loan as impaired if management has modified it as part of a loan modification. However, loan modifications, 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 classified as impaired loans but not necessarily as non-accrual or collateral-dependent loans. Modified loans can be included in the collectively reviewed pool of loans if they return to performing status.
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”) 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.
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. Management must report loans graded Watch to executive management and the Board of Managers (“Board”). The 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:
Management considers loans and other credit extensions bearing this grade to be inadequately protected by the current net 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 a 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.
Revenue Recognition
The Company recognizes two primary types of revenue: interest income and non-interest income.
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 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.
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.
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 fees
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 originates. 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.
Gains on debt extinguishment
Gains on debt extinguishment arise from agreements reached with the Company’s lenders to reduce the principal amount on outstanding debt. The amount of the gain is determined by the difference between the cash paid and the amount of principal and interest that is relieved as stipulated by the agreement.
Charitable contributions
Charitable contributions include amounts that were donated by a not-for-profit charitable ministry to the Company’s not-for-profit subsidiary, MPC. This revenue comprises donations analyzed by management and determined to be unconditional, non-exchange transactions. Contributions are measured at their fair value at the date of contribution. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as carrying donor restrictions. The $1.7 million in charitable contributions recognized during 2023 were permanently restricted by the donor as part of a designated fund agreement that allows for limited annual distributions. These funds are included in the restricted net assets of MPC and are presented on the balance sheet as part of retained earnings.
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 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
Other 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 the 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 asset’s fair value supports the recorded amount is. If necessary, management also ensures 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.
The Company, from time to time, sells participation interests in loans it has originated or acquired. To recognize the transfer of a portion of a financial asset as a sale, the transferred portion, and any portion that the transferor continues to hold must represent a participating interest. In addition, 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
● 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.
Debt Issuance Costs
The Company’s debt consists of borrowings from financial institutions and obligations to investors incurred through the sale of investor debt certificates. 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 Plans
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 former President and Chief Executive Officer, Joseph W. Turner, Jr. All the payments associated with the SERP vested prior to Mr. Turner’s retirement in December 2023 and are recognized as payable on the balance sheet.
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 lease classification as a finance or operating lease.
The Company has operating leases for real estate and a vehicle. Its leases have remaining lease terms of up to five years, including the lease agreement entered into in February 2024 (see Note 21, Subsequent Events). Our real estate lease agreements may include renewal or termination options for varying periods that are generally at our discretion. In our lease term, we only include those periods related to renewal options we are reasonably certain to exercise. However, we generally do not include these renewal options as we are not reasonably certain to renew at the lease commencement date. This determination is based on our consideration of certain economic, strategic, and other factors that we evaluate at the lease commencement date and reevaluate throughout the lease term. Some leases also include options to terminate the leases and we only include those periods beyond the termination date if we are 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, we treat 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.
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.
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
Recently Adopted Accounting Standards
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 certificates and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. 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, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Company was eligible for delayed implementation of the standard. Management has gathered all necessary data and reviewed potential methods to calculate the expected credit losses. The Company uses a third-party software solution to assist with the adoption and implementation of the standard.
The ASU allows for several different methods of calculating the Allowance for Credit Losses and based on its analysis of observable data, the Company determined the probability of default method to be the most appropriate for all its loans.
Under the modified-retrospective method of adoption, on January 1, 2023, the Company recorded a one-time cumulative effect adjustment to the allowance for credit losses that reduced retained earnings on the consolidated balance sheet by $113 thousand, as is required in the guidance. This
included a $1 thousand adjustment related to the allowance for credit losses on unfunded commitments.
The qualitative impact of the new accounting standard is directed by many of the same factors that impacted the previous methodology for calculating the allowance, including but not limited to, quality and experience of staff, changes in the value of collateral, concentrations of credit in loan types and changes to lending policies. The Company uses reasonable and supportable forecasts.
In March 2022, the FASB issued 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 borrower is experiencing financial difficulty. This guidance requires an entity to determine whether the modification results in a new loan or a continuation of an existing loan. Additionally, ASU 2022-02 requires disclosure of current period gross write-offs by year of origination for financing receivables. This ASU was effective for the Company for fiscal years beginning after December 15, 2022. The Company adopted this guidance on January 1, 2023. The implementation of this guidance did not have a material impact on the Company’s consolidated financial statements.
Note 2. Pledged Cash and Restricted Cash
Under the terms of its debt agreements, the Company can pledge cash as collateral for its borrowings. At December 31, 2023 and December 31, 2022, the Company did not pledge cash for its term-debt or lines of credit. At December 31, 2023 and December 31, 2022, the Company had $7 thousand in cash pledged 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,
Cash and cash equivalents
$
10,854
$
9,504
Restricted cash
1,757
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows
$
12,611
$
9,564
Restricted cash includes $1.7 million donated to MPC as permanently restricted funds under a designated fund agreement. The agreement allows for limited annual distributions of the funds.
Other amounts included in restricted cash represent those required to be set aside in the CRD account with Financial Industry Regulation Authority (“FINRA”), funds the Company has deposited with RBC Dain as clearing deposits, and the $7 thousand in cash maintained in an account with ACCU as collateral for the Company’s secured borrowings as described above. The Company may only use the CRD funds for certain fees charged by FINRA. These fees are 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 AdelFi Credit Union (“AdelFi”)
The tables below summarize transactions the Company conducts with AdelFi (formerly Evangelical Christian Credit Union), the Company’s largest equity owner.
Related party balances pertaining to the assets of the Company (dollars in thousands):
December 31,
December 31,
Total funds held on deposit at AdelFi
$
3,457
$
Loan participations purchased from and serviced by AdelFi
1,298
Related party transactions of the Company (dollars in thousands):
Years ended
December 31,
Interest earned on funds held with AdelFi
$
$
Interest income earned on loans purchased from AdelFi
Fees paid to AdelFi from MP Securities Networking Agreement
Income from Successor Servicing Agreement with AdelFi
-
-
Rent expense on lease agreement with AdelFi
Loan participation interests purchased:
The tables above show the number of loans purchased from AdelFi and the balance of loans serviced by AdelFi. For these loans Management negotiated the pass-through interest rates on a loan-by-loan basis and believes these negotiated terms were equivalent to those that would prevail in an arm’s length transaction. During the year ended December 31, 2023, the Company purchased $1.3 million in loans from AdelFi. The Company did not purchase any loans from AdelFi during the year ended December 31, 2022.
Lease and Services Agreement:
The Company entered into an agreement to lease its corporate offices and obtain other facility-related services from AdelFi. Management believes the terms of the agreement are equivalent to those that prevail in arm’s length transactions. In 2023, AdelFi sold its interest in the offices to a third party, who assumed the obligations of the lease agreement.
MP Securities Networking Agreement with AdelFi:
MP Securities has entered into a Networking Agreement with AdelFi pursuant to which MP Securities agreed to offer investment and insurance products and services to AdelFi’s members that:
(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
(4) comply with its membership agreement with FINRA.
The agreement provides that MP Securities will pay AdelFi a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of AdelFi members. Either AdelFi or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.
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,
Total funds held on deposit at ACCU
$
$
Dollar amount of outstanding loan participations sold to ACCU and serviced by the Company
Amount owed on ACCU secured borrowings
Amount owed on ACCU line of credit
4,500
3,000
Loans pledged on ACCU line of credit
7,167
6,823
Related party transactions of the Company (dollars in thousands):
Years ended
December 31,
Interest earned on funds held with ACCU
$
$
Dollar amount of secured borrowings made from ACCU
-
Dollar amount of draws on ACCU line of credit
6,500
3,000
Interest expense on ACCU borrowings
Income from broker services provided to ACCU by MPS
Fees paid based on MP Securities Networking Agreement with ACCU
Loan participation interests sold:
From time to time, the Company sells loan participation interests in loans it originates and services to ACCU. The Company negotiates pass-through interest rates on loan participation interests sold to ACCU on a loan-by-loan basis. Management believes these terms are equivalent to those that prevail in arm’s length transactions.
Effective August 9, 2021, the Company entered 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 in the event of default by the borrower. Under a separate Deposit Control Agreement reached in conjunction with the Master LP Agreement, the Company deposited 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 retains the ability to sell loan participation interests to ACCU outside of the Master LP Agreement.
As of December 31, 2023 and December 31, 2022, respectively, $7 thousand in participation interests had been sold and were outstanding under this agreement. These have been classified as secured borrowings. The Company has deposited equal amounts of cash in 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) ACCU 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 NCUA rules and regulations; and
(4) comply with its membership agreement with FINRA.
The agreement provides that MP Securities will 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:
On September 23, 2021, the Company entered into a Loan and Security Agreement with ACCU. The ACCU line of credit (“ACCU LOC”) is a $5.0 million short-term demand facility with a maturity date of September 23, 2024. 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, 2023 and December 31, 2022, respectively, there were $4.5 million and $3.0 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, an Illinois state chartered financial institution.
Related party balances pertaining to the assets of the Company (dollars in thousands):
December 31,
December 31,
Total funds held on deposit at KCT
$
1,308
$
1,261
Loans pledged on KCT line of credit
10,558
10,962
Outstanding loan participations sold to KCT and serviced by the Company
3,386
3,455
Related party transactions of the Company (dollars in thousands):
Years ended
December 31,
Interest earned on funds held with KCT
$
$
Loans sold to KCT
Dollar amount of draws on KCT line of credit
2,000
Interest expense on KCT line of credit
Fees paid based on MP Securities Networking Agreement with KCT
Funds on deposit with KCT:
On July 11, 2023, the Company purchased a $1.3 million certificate of deposit from KCT. The certificate matures on February 11, 2024, and carries an interest rate of 4.75%. This certificate is pledged as a compensating balance deposit on one of the lines of credit the Company holds with KCT. See “Note 5. Investments” for additional details.
Lines of Credit:
On June 6, 2022, the Company terminated the existing $7.0 million Loan and Security Agreement with KCT Credit Union. It replaced this agreement with two short-term demand credit facilities, a $5.0 million warehouse line of credit (“KCT Warehouse LOC”) and a $5.0 million operating line of credit (“KCT Operating LOC”). See “Note 10: Credit Facilities and Other Debt” for additional terms and conditions of these credit facilities. Management believes these terms are equivalent to those that prevail in arm’s length transactions. As of December 31, 2023 and December 31, 2022, there was no outstanding balance on either of the lines of credit with KCT.
MP Securities Networking Agreement:
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 (“NCUA”) rules and regulations; and
(4) comply with its membership agreement with FINRA.
The agreement provides that MP Securities will pay KCT a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of KCT members. Either KCT or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.
Loan Participation Interests Sold:
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, 2023 and December 31, 2022, respectively, the Company serviced $3.4 million and $3.5 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,
Outstanding loan participations sold to NFCU and serviced by the Company
$
4,745
$
4,872
Outstanding debt certificates payable to officers and managers
2,821
2,266
Loan Participation Interests:
The Company had 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 charged UFCU a fee for servicing the loan. The loan related to this agreement paid off in 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 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’s length 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.
Debt certificates Sold:
From time to time, the Company’s Board and members of its executive management team have purchased debt certificates from the Company or have purchased investment products through MP Securities. Debt certificates payable owned by related parties totaled $2.9 million and $2.3 million at December 31, 2023 and December 31, 2022.
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 has also 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 debt securities program. As stated above, the Company eliminates all intercompany transactions related to this agreement in its consolidated financial statements.
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.
Note 4. Loans Receivable and Allowance for Loan Losses
The Company’s loan portfolio comprises two segments, Non-profit commercial loans to Christian churches and ministries, and for-profit commercial loans. See “Note 1 - Loan Portfolio Segments and Classes” to Part I “Financial Information” of this Report. The loans fall into eight classes:
● wholly owned amortizing loans for which the Company possesses the first collateral position;
● wholly owned amortizing loans for which the Company possesses security other than a first collateral position on real property;
● wholly owned amortizing loans that are unsecured;
● wholly owned lines of credit for which the Company possesses security other than a first collateral position on real property;
● wholly owned lines of credit that are unsecured;
● wholly owned construction loans
● participated amortizing loans purchased for which the Company possesses the first collateral position; and
● participated construction loans purchased.
Prior to January 1, 2023, the Company’s loan portfolio comprised one segment - commercial loans - and four classes. Prior period data has been reclassified in the following tables to conform to current period presentation.
The Company primarily makes or purchases participations in loans that are made to Christian non-profit organizations and churches. The purpose of these loans is to purchase, construct, or improve facilities. Occasionally the company for-profit commercial loans to meet the Company’s revenue and yield goals, as well as to diversify the Company’s loan portfolio. Maturities on the loan portfolio extend through 2038. The loan portfolio had a weighted average rate of 6.53% and 6.46% as of December 31, 2023 and December 31, 2022, respectively. Loans receivable at December 31, 2023 and December 31, 2022, include $7 thousand in loan participations transferred under a recourse agreement.
The table below is a summary of the Company’s mortgage loans owned (dollars in thousands):
December 31,
December 31,
Non-profit commercial loans:
Real estate secured
$
87,524
$
84,878
Other secured
-
Unsecured
Total non-profit commercial loans:
87,598
85,202
For-profit commercial loans:
Real estate secured
12,783
1,840
Total loans
100,381
87,042
Deferred loan fees, net
(139)
(208)
Loan discount
(168)
(207)
Allowance for loan losses
(1,501)
(1,551)
Loans, net
$
98,573
$
85,076
Allowance for Loan Losses
Management believes it has properly calculated the allowance for loan losses using CECL methodology as of December 31, 2023. Management also believes that the allowance for loan losses was properly calculated as of December 31, 2022, using previously accepted methodology. Upon the adoption of the CECL model on January 1, 2023, the Company recorded a one-time cumulative-effect adjustment to retained earnings on its consolidated balance sheet of $113 thousand. This includes a reduction in retained earnings of $112 thousand to increase the allowance for loan losses based on the additional expected credit losses in the Company’s portfolio on day one of its implementation of the expected loss methodology required by ASU 2016-13.
The following table shows the changes in the allowance for loan losses for the years ended years ended December 31, 2023 and 2022 (dollars in thousands):
December 31,
December 31,
Segment:
Non-profit Commercial
For-profit Commercial
Total
Commercial loans
Balance, beginning of period
$
1,530
$
$
1,551
$
1,638
Adjustment related to implementation of CECL model
(16)
Provision (credit) for loan loss
(167)
(142)
(296)
Charge-offs
(21)
-
(21)
-
Recoveries
-
-
-
Balance, end of period
$
1,471
$
$
1,501
$
1,551
The table below presents loans by portfolio segment 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,
Non-profit Commercial Loans:
Individually evaluated for impairment
$
16,792
$
5,933
Collectively evaluated for impairment
70,806
79,269
Total Non-profit Commercial Loans
87,598
85,202
For-profit Commercial Loans:
Individually evaluated for impairment
-
-
Collectively evaluated for impairment
12,783
1,840
Total For-profit Commercial Loans
12,783
1,840
Total Balance
$
100,381
$
87,042
Allowance for loan losses:
Non-profit Commercial Loans:
Individually evaluated for impairment
$
$
Collectively evaluated for impairment
Total Non-profit Commercial Loan Allowance
1,471
1,530
For-profit Commercial Loans:
Individually evaluated for impairment
-
-
Collectively evaluated for impairment
Total For-profit Commercial Loan Allowance
Balance
$
1,501
$
1,551
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, 2023
Pass
Watch
Special Mention
Substandard
Doubtful
Loss
Total
Non-profit Commercial Loans
Wholly Owned First Amortizing
$
35,106
$
32,891
$
5,408
$
9,882
$
-
$
-
$
83,287
Wholly Owned Other Amortizing
1,405
-
-
1,502
-
-
2,907
Wholly Owned Unsecured Amortizing
-
-
-
-
Wholly Owned Unsecured LOC
-
-
-
-
-
Participation First
1,298
-
-
-
-
-
1,298
Participation Construction
-
-
-
-
-
-
-
Total Non-profit Commercial Loans
37,887
32,919
5,408
11,384
-
-
87,598
For-profit Commercial Loans
Wholly Owned First Amortizing
9,574
-
-
-
-
-
9,574
Participation First
1,776
-
-
-
-
-
1,776
Participation Construction
1,433
-
-
-
-
-
1,433
Total For-profit Commercial Loans
12,783
-
-
-
-
-
12,783
Total Loans
$
50,670
$
32,919
$
5,408
$
11,384
$
-
$
-
$
100,381
Credit Quality Indicators (by class)
As of December 31, 2022
Pass
Watch
Special Mention
Substandard
Doubtful
Loss
Total
Non-profit Commercial Loans
Wholly Owned First Amortizing
$
45,189
$
32,080
$
-
$
5,430
$
$
-
$
83,202
Wholly Owned Other Amortizing
1,448
-
-
-
-
-
1,448
Wholly Owned Unsecured Amortizing
-
-
-
-
-
Wholly Owned Unsecured LOC
-
-
-
-
-
Wholly Owned Construction
-
-
-
-
-
Participation First
-
-
-
-
-
Total Non-profit Commercial Loans
47,092
32,177
-
5,430
-
85,202
For-profit Commercial Loans
-
Participation First
1,035
-
-
-
-
-
1,035
Participation Construction
-
-
-
-
-
Total For-profit Commercial Loans
1,840
-
-
-
-
-
1,840
Total Loans
$
48,932
$
32,177
$
-
$
5,430
$
$
-
$
87,042
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)
As of December 31, 2023
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
Non-profit Commercial Loans
Wholly Owned First Amortizing
$
7,020
$
$
$
8,038
$
75,249
$
83,287
$
-
Wholly Owned Other Amortizing
-
-
-
-
2,907
2,907
-
Wholly Owned Unsecured Amortizing
-
-
-
-
-
Wholly Owned Unsecured LOC
-
-
-
-
-
Participation First
-
-
-
-
1,298
1,298
-
Participation Construction
-
-
-
-
-
-
-
Total Non-profit Commercial Loans
7,020
8,038
79,560
87,598
-
For-profit Commercial Loans
Wholly Owned First Amortizing
-
-
-
-
9,574
9,574
-
Participation First
-
-
-
-
1,776
1,776
-
Participation Construction
-
-
-
-
1,433
1,433
-
Total For-profit Commercial Loans
-
-
-
-
12,783
12,783
-
Total Loans
$
7,020
$
$
$
8,038
$
92,343
$
100,381
$
-
Age Analysis of Past Due Loans (by class)
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
Non-profit Commercial Loans
Wholly Owned First Amortizing
$
6,068
$
-
$
1,378
$
7,446
$
75,756
$
83,202
$
-
Wholly Owned Other Amortizing
-
-
-
-
1,448
1,448
-
Wholly Owned Unsecured Amortizing
-
-
-
-
-
Wholly Owned Unsecured LOC
-
-
-
-
-
Wholly Owned Construction
-
-
-
-
-
Participation First
-
-
-
-
-
Total Non-profit Commercial Loans
6,068
-
1,378
7,446
77,756
85,202
-
For-profit Commercial Loans
Participation First
-
-
-
-
1,035
1,035
-
Participation Construction
-
-
-
-
-
Total For-profit Commercial Loans
-
-
-
-
1,840
1,840
-
Total Loans
$
6,068
$
-
$
1,378
$
7,446
$
79,596
$
87,042
$
-
Impaired Loans
The following tables are summaries of impaired loans by loan class as of and for the years ended years ended December 31, 2023 and 2022, respectively. The unpaid principal balance reflects the contractual principal outstanding on the loan. Included in the balance of impaired loans are loan
modifications that performed according to contractual terms and that the Company has upgraded to pass or watch since the date of the modification. The recorded investment reflects the unpaid principal balance less any interest payments that management has recorded against principal and less discounts taken. No loans in the Company’s commercial loan segment were classified as impaired or non-accrual at December 31, 2023 or at December 31, 2022. The tables below represent the breakdown by class of the non-profit loan portfolio segment only (dollars in thousands):
For the years ended
Impaired Non-profit Commercial Loans (by class)
December 31,
December 31,
Wholly Owned First Amortizing
Average recorded investment
$
21,786
$
10,772
Interest income recognized
1,487
Wholly Owned Other Amortizing
Average recorded investment
1,668
Interest income recognized
-
-
Total Impaired Loans
Average recorded investment
$
22,537
$
12,440
Interest income recognized
1,487
Impaired Non-profit Commercial Loans (by class)
As of
As of
December 31,
December 31,
Wholly Owned First Amortizing
Recorded investment with specific allowance
$
8,238
$
15,569
Recorded with no specific allowance
15,166
4,598
Total recorded investment
$
23,404
$
20,167
Unpaid principal balance
$
23,870
$
20,419
Wholly Owned Other Amortizing
Recorded investment with specific allowance
$
1,502
$
-
Recorded with no specific allowance
-
-
Total recorded investment
$
1,502
$
-
Unpaid principal balance
$
1,685
$
-
Total Impaired Loans
Recorded investment with specific allowance
$
9,740
$
15,569
Recorded with no specific allowance
15,166
4,598
Total recorded investment
$
24,906
$
20,167
Unpaid principal balance
$
25,555
$
20,419
A summary of nonaccrual loans by loan class is as follows (dollars in thousands):
Loans on Nonaccrual Status (by class)
December 31, 2023
December 31, 2022
Non-profit Commercial Loans:
Wholly Owned First Amortizing
$
9,882
$
5,933
Wholly Owned Other Amortizing
1,502
-
Total
$
11,384
$
5,932
The Company modified two loans during the year ended December 31, 2023. The Company modified four loans during the year ended December 31, 2022.
A summary of loans the Company modified during the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
Troubled Debt Restructurings (by class)
For the twelve months ended
December 31, 2023
December 31, 2022
Non-profit Commercial Loans:
Wholly Owned First Amortizing
Number of Loans
Pre-Modification Outstanding Recorded Investment
$
6,253
$
8,385
Post-Modification Outstanding Recorded Investment
6,253
8,385
Recorded Investment At Period End
6,248
8,464
Wholly Owned Junior
Total
Number of Loans
Pre-Modification Outstanding Recorded Investment
$
6,253
$
8,385
Post-Modification Outstanding Recorded Investment
6,253
8,385
Recorded Investment At Period End
6,248
8,464
For one of the loan modifications, the Company entered into a forbearance agreement with the borrower that altered the terms of the loan to require interest-only payments, as well as extending the maturity of the loan. The other modification changed the payment terms to temporarily require interest-only payments. One of the non-profit commercial loans the Company modified during the year ended December 31, 2023, subsequently defaulted during the period. The recorded investment in this loan was $6.1 million as of December 31, 2023.
The Company had one previously restructured loans that was past maturity as of December 31, 2023. The Company has entered into a forbearance agreement with the borrower and is evaluating what actions it should undertake to protect its investment on the loan. The forbearance agreement includes reduced monthly payment amounts and additional reporting requirements.
As of December 31, 2023, no additional funds were committed to be advanced in connection with loans modified as troubled debt restructurings.
Note 5. Investments
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. 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 and represented 100% of the ownership of the joint venture. Under the terms of the operating agreement, the members of the joint venture are entitled to receive their respective capital contributions until the balance is reduced to zero. After these payments are made, the Company is entitled to receive 30% of the profits generated by the operation of the joint venture or disposition of the property. The Company’s ownership percentage in the joint venture was 73% as of December 31, 2023, and 74% as of December 31, 2022.
The value of the Company’s investment in the joint venture was $871 thousand and $870 thousand, as of December 31, 2023 and 2022, respectively. Management’s impairment analysis of the investment as of December 31, 2023, 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, 2023 and 2022.
Details of certificates with original maturities of greater than three months owned by the Company as of December 31, 2023 and 2022, are as follows (dollars in thousands):
December 31, 2023
Certificate
Open Date
Certificate Amount
Interest Rate
Maturity Date
CD 1
7/11/2023
$
1,279
4.75%
2/11/2024
December 31, 2022
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. This certificate was renewed at maturity for a twelve-month term. See “Note 10: Credit Facilities and Other Debt” for additional terms and conditions of these credit facilities.
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 $34 thousand and $18 thousand, respectively, in income on these investments during the years ended December 31, 2023 and 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, 2023
December 31, 2022
Fixed annuity
June 2032
$
1,000
$
1,052
$
$
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,
Non-interest income, in scope of ASC 606
Broker-dealer fees and commissions
$
$
Gains on loan sales
Other investment income
Other non-interest income
-
Non-interest income, out of scope, ASC 606
Lending fees
Charitable contributions, with donor restrictions
1,700
-
Gain on debt extinguishment
-
2,537
Total non-interest income
$
2,584
$
3,592
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 securities commissions, sale of investment company shares, insurance product revenue, and advisory fee income. Securities 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”).
For the twelve months ended
(dollars in thousands)
December 31,
December 31,
Broker-dealer revenue
Securities commissions
Transactional
$
$
AUM
Total
Sale of investment company shares
Transactional
AUM
Total
Other insurance product revenue
Transactional
AUM
Total
Advisory fee income
Transactional
-
AUM
Total
Total broker-dealer revenue
Transactional
AUM
Total broker-dealer revenue
$
$
Note 7. Loan Sales
A summary of loan participation sales and servicing assets are as follows (dollars in thousands):
As of and for the years ended
December 31,
December 31,
Participation loans interests sold by the Company during the year
$
$
3,716
Total participation interests sold and serviced by the Company
31,466
34,946
Servicing income
Servicing Assets
Balance, beginning of period
$
$
Additions:
Servicing obligations from sale of loan participations
Subtractions:
Amortization
(43)
(66)
Balance, end of period
$
$
ACCU Loan Participation Agreement (Secured Borrowings)
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 Master LP Agreement are on a recourse basis, requiring the Company to repurchase the participation interest in the event of default by the borrower.
During the year ended December 31, 2022, the Company sold loan participations to ACCU under the provisions of the Master LP Agreement that totaled $7 thousand. Due to the recourse provisions of the agreement, the participation sales made under the agreement are classified as secured borrowings and are presented as part of other secured borrowings on the Company’s consolidated balance sheets. The Company did not sell any loan participations to ACCU under the provisions of the Master LP Agreement during the year ended December 31, 2023.
Note 8: Foreclosed Assets
The Company’s investment in foreclosed assets consisted of one property that was valued at $301 thousand at December 31, 2023 and 2022. There was no allowance for losses on foreclosed assets at December 31, 2023 and 2022. The Company did not record any loss provisions on foreclosed assets during the years ended December 31, 2023 and 2022.
Expenses applicable to foreclosed assets include the following (dollars in thousands):
Foreclosed Asset Expenses
for the years ended
December 31,
Operating expenses
Total expenses
$
$
Note 9. Premises and Equipment
The tables below summarize our premises and equipment (dollars in thousands):
As of
December 31,
December 31,
Furniture and office equipment
$
$
Computer system
Leasehold improvements
Total premises and equipment
Less accumulated depreciation and amortization
(648)
(651)
Premises and equipment, net
$
$
Depreciation and amortization expense for the years ended December 31,
$
$
Note 10. Credit Facilities and Other Debt
Details of the Company’s debt facilities as of December 31, 2023, 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
9.000%
Variable
$
-
$
-
6/6/2024
$
6,032
$
-
KCT Operating LOC
9.000%
Variable
-
-
6/6/2024
4,560
1,250
ACCU LOC
8.250%
Variable
4,500
-
9/23/2024
7,167
-
ACCU Secured
Various
Fixed
-
Various
-
Note: Disclosed cash pledged and collateral balances will get pledged once and if the LOC is drawn on.
KCT Lines of Credit
On September 30, 2020, Ministry Partners Investment Company, LLC, entered into a Loan and Security Agreement with KCT Credit Union, an Illinois state chartered financial institution. 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 ending on June 6, 2024. The KCT Warehouse 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 has secured the KCT Warehouse LOC with certain of its mortgage loan investments.
The Company may draw funds on the KCT Warehouse LOC at any time until the line is fully drawn. Repayment of each advance is due 120 days after the advance is made 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, 2023, the interest rate on the KCT Warehouse LOC was 9.00%. To secure its obligations under the KCT 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 KCT Warehouse LOC. The minimum ratio must equal at least 120%. The KCT 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 $6.0 million in loans were pledged on this facility as of December 31, 2023. At December 31, 2023, 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, 2024. 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, 2023, the interest rate on the KCT Warehouse LOC was 9.00%. 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 $4.6 million in loans were pledged on this facility as of December 31, 2023. At December 31, 2023, 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
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, 2024. The facility carried an outstanding balance of $4.5 million and $3.0 million at December 31, 2023 and December 31, 2022. 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 8.25% on December 31, 2023. 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, 2023 and 2022. A total of $7.2 million in loans were pledged on this facility as of December 31, 2023 and December 31, 2022.
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 in secured borrowings were outstanding under the Master LP Agreement as of December 31, 2023 and December 31, 2022.
Note 11. Debt Certificates Payable
The table below provides information on the Company’s debt certificates payable (dollars in thousands):
As of
As of
December 31, 2023
December 31, 2022
SEC Registered Public Offerings
Offering Type
Amount
Weighted
Average
Interest
Rate
Amount
Weighted
Average
Interest
Rate
Class 1A Offering
Unsecured
$
12,555
4.19
%
$
20,698
4.27
%
2021 Class A Offering
Unsecured
69,421
4.95
%
45,935
4.04
%
Public offering total
$
81,976
4.83
%
$
66,633
4.11
%
Private Offerings
Subordinated Notes
Unsecured
$
15,055
4.76
%
$
12,525
4.56
%
Private offering total
$
15,055
4.76
%
$
12,525
4.56
%
Total debt certificates payable
$
97,031
4.82
%
$
79,158
4.19
%
Future maturities for the Company’s debt certificates during the twelve-month periods ending December 31, are as follows (dollars in thousands):
$
47,792
20,316
16,563
9,515
2,845
97,031
Debt issuance costs
Debt certificates payable, net of debt issuance costs
$
96,979
Debt issuance costs related to the Company’s debt certificates payable were $52 thousand and $58 thousand at December 31, 2023 and December 31, 2022, respectively.
The debt certificates are payable to investors who have purchased the securities. Debt certificates 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 debt certificates at any time at its sole discretion. In addition, the Company may allow investors to redeem their debt certificates prior to maturity at its sole discretion.
SEC Registered Public Offerings
Class 1A 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 debt certificates. 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 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 debt certificates. 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 Secured Overnight Financing Rate (“SOFR”) for three-month financial obligations. The Company issued the 2021 Class A Notes under a Trust Indenture entered into by and between the Company and U.S. Bank.
In February 2024, the Company registered its 2024 Class A Debt Certificates with the SEC. See “Note 21. Subsequent Events” for additional details.
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 debt certificates 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-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 debt certificates 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, 2023 and December 31, 2022.
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, 2023
December 31, 2022
Undisbursed loans
$
$
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.
Operating Leases
The Company has lease agreements for its offices in Brea and Fresno, California. The Brea office lease expires in December 2023. The lease does not contain any additional options to renew. The Fresno office lease expires in 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 these leases are operating leases.
The table below presents information regarding our existing operating leases (dollars in thousands):
For the Year Ended
Lease cost
Operating lease cost
$
$
Other information
Cash paid for operating leases
$
$
Right-of-use assets obtained in exchange for operating lease liabilities
$
-
$
Lease liabilities recorded
$
-
$
Weighted average remaining lease term (in years)
1.24
1.46
Weighted-average discount rate
3.64
%
4.33
%
Future minimum lease payments and lease costs for the twelve months ending December 31 are as follows (dollars in thousands). Note that amounts include the provisions of the lease agreement signed January 2024, as described in Note 21. Subsequent Events.
Lease Payments
Lease Costs
$
$
Thereafter
Total
$
$
Note 13. Office Operations and Other Expenses
Office operations and other expenses comprise the following (dollars in thousands):
December 31, 2023
December 31, 2022
Technology and communication expenses
$
$
Insurance
Lease and occupancy expense
Outsourced operations
Staff and travel expense
Loan expenses
Clearing firm fees
Other
Total
$
1,628
$
1,491
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-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 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. 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, 2023 and 2022 were $77 thousand and $80 thousand, respectively.
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’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, 2023 and 2022.
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 in August 2024.
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 agreement was amended in 2023 to change the vesting date of the benefits to December 2023. When Mr. Turner retired on December 15, 2023, the entire amount of this benefit had vested.
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, 2023. The fair value hierarchy is as follows:
● 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.
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, 2023 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
$
12,611
$
12,611
$
-
$
-
$
12,611
Certificates of deposit
1,279
-
1,275
-
1,275
Loans, net
98,573
-
-
95,913
95,913
Investments in joint venture
-
-
Other investments
1,052
-
-
1,052
1,052
Accrued interest receivable
-
-
Servicing assets
-
-
FINANCIAL LIABILITIES:
Lines of credit
$
4,500
$
-
$
-
$
4,501
$
4,501
Other secured borrowings
-
-
Debt certificates payable
96,979
-
-
97,399
97,399
Other financial liabilities
-
-
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
Loans, net
85,076
-
-
83,525
83,525
Investments in joint venture
-
-
Other investments
1,018
-
-
1,018
1,018
Accrued interest receivable
-
-
Servicing assets
-
-
FINANCIAL LIABILITIES:
Lines of credit
$
3,000
$
-
$
-
$
3,026
$
3,026
Other secured borrowings
-
-
debt certificates payable
79,100
-
-
78,330
78,330
Other financial liabilities
-
-
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, 2023 and December 31, 2022.
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.
● 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.
● Debt certificates payable - Management estimates the fair value of fixed maturity debt certificates by discounting the future cash flows of the debt certificates. The discount rate the Company uses is the rate currently offered for debt certificates payable of similar remaining maturities. Company management estimates the discount rate by using market rates that reflect the interest rate risk inherent in the debt certificates.
● Accrued interest receivable - The carrying amounts reported in the balance sheets approximate fair value for accrued interest receivable. The Company has made the accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts as the Company writes off accrued interest receivable when a loan is 90 days past due or interest is otherwise considered uncollectible.
● Servicing assets - Servicing assets are included in other assets on the balance sheets. The carrying amounts reported in the balance sheets approximate fair value for servicing assets.
● 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’ credit standing. The fair value of loan commitments is insignificant at December 31, 2023 and December 31, 2022.
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, 2023:
Collateral-dependent loans (net of allowance and discount)
$
-
$
-
$
2,896
$
2,896
Investments in joint venture
-
-
Other investments
-
-
1,052
1,052
Foreclosed assets (net of allowance)
-
-
Total
$
-
$
-
$
5,120
$
5,120
Assets at December 31, 2022:
Collateral-dependent loans (net of allowance and discount)
$
-
$
-
$
5,259
$
5,259
Investments in joint venture
-
-
Other investments
-
-
1,018
1,018
Foreclosed assets (net of allowance)
-
-
Total
$
-
$
-
$
7,448
$
7,448
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. There was no such activity during the year ended December 31, 2023. 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
Balance, December 31, 2022
$
1,018
Impaired Loans
The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate 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.
The Company also estimates the fair value of non-collateral-dependent impaired loans using the discounted cash flow method. This method uses estimates of the future cash flows of the loan and discounts those cash flows using the loan’s interest rate.
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 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, 2023. As such, the Company has determined that the carrying value of its other investments equals its fair value at December 31, 2023.
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, 2023
Assets
Fair Value
(in thousands)
Valuation
Techniques
Unobservable
Input
Range
(Weighted Average)
Impaired loans
$
2,896
Discounted appraised value
Selling cost / Estimated market decrease
10% (10%)
Investments in joint venture
Internal evaluations
Estimated future market value
0% (0%)
Other investments
1,052
Internal evaluations
Indications of non-performance by insurance companies
0% (0%)
Foreclosed assets
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
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
Internal evaluations
Selling cost
6% (6%)
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, 2023 and 2022, and recorded a provision of $800 per year for the state minimum franchise tax. For the years ended December 31, 2023 and 2022, MP Realty has federal and state net operating loss carryforwards of approximately $432 thousand and $422 thousand, respectively, which begin to expire in the year 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, 2023 and 2022.
Tax years ended December 31, 2019, through December 31, 2023 remain subject to examination by the Internal Revenue Service and the tax years ended December 31, 2018 through December 31, 2023 remain subject to examination by the California Franchise Tax Board.
Note 18. Segment Information
The Company’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 certificates, 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 certificates and other investment and insurance products, as well as providing investment advisory and financial planning services. Although charitable activities of MPC are not considered primary business activities, due to the amount of revenue recognized during 2023, the Company has disclosed its activities separately in the tables below.
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.
Financial information with respect to the reportable segments is as follows (dollars in thousands):
Twelve months ended
December 31,
December 31,
Revenue from external sources
Finance Company
$
6,387
$
8,562
Broker Dealer
Charitable Organization
1,747
-
Other Segments
-
Adjustments / Eliminations
-
-
Total
$
9,005
$
9,427
Revenue from internal sources
Finance Company
$
-
$
-
Broker Dealer
1,653
1,128
Charitable Organization
-
Other Segments
-
-
Adjustments / Eliminations
(1,653)
(1,193)
Total
$
-
$
-
Interest expense
Finance Company
$
6,045
$
4,545
Broker-Dealer
-
-
Charitable Organization
-
-
Other Segments
-
-
Adjustments / Eliminations
(1,560)
(1,176)
Total
$
4,485
$
3,369
Total non-interest expense and provision for tax
Finance Company
$
3,332
$
4,125
Broker Dealer
2,043
1,598
Charitable Organization
Other Segments
-
-
Adjustments / Eliminations
-
(50)
Total
$
5,419
$
5,727
Net profit (loss)
Finance Company
$
(2,847)
$
Broker Dealer
Charitable Organization
1,703
Other Segments
-
Adjustments / Eliminations
(94)
Total
$
(757)
$
December 31,
December 31,
(Unaudited)
(Audited)
Total assets
Finance Company
$
109,724
$
94,523
Broker Dealer
4,977
4,553
Charitable Organization
2,108
Other Segments
Adjustments / Eliminations
(218)
(136)
Total
$
116,647
$
99,363
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,
Assets:
Cash
$
6,852
$
5,875
Certificates of deposit
1,279
1,250
Loans receivable, net of allowance for loan losses
98,573
85,076
Investment in subsidiaries
5,174
3,084
Other assets
3,599
2,922
Total assets
$
115,477
$
98,207
Liabilities and members’ equity
Liabilities:
Other borrowings
$
4,507
$
3,007
Debt certificates, net of debt issuance costs
96,226
78,441
Other liabilities
1,649
2,133
Total liabilities
102,382
83,581
Equity
13,095
14,626
Total liabilities and members' equity
$
115,477
$
98,207
Ministry Partners Investment Company, LLC Statement of Operations
For the years ended
December 31,
Income:
Interest Income
$
6,200
$
5,825
Other income
2,737
Total income
6,387
8,562
Interest expense:
Other borrowings
Debt certificates
5,799
4,158
Total interest expense
6,045
4,545
Credit for loan losses
(142)
(296)
Other operating expenses
3,318
4,112
Income (loss) before provision for income taxes
(2,834)
Provision for income taxes and state LLC fees
Income (loss) before equity in undistributed net income of subsidiaries
(2,847)
Equity in undistributed net income of subsidiaries
2,090
Net income (loss)
$
(757)
$
Ministry Partners Investment Company, LLC Statement of Cash Flows
For the years ended
December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
(757)
$
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Equity in undistributed net income of subsidiaries
(2,090)
(439)
Depreciation
Amortization of deferred loan fees, net
(73)
(127)
Amortization of debt issuance costs
Provision for loan losses
(142)
(296)
Accretion of loan discount
(15)
(20)
Gain on sale of loans
(14)
(13)
Gain on debt extinguishment
-
(2,537)
Adoption of new accounting standard
(113)
-
Changes in:
Other assets
(677)
Other liabilities
(517)
Net cash used by operating activities
(3,422)
(1,508)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan purchases
(6,099)
(2,760)
Loan originations
(17,112)
(4,267)
Loan sales
3,716
Loan principal collections
9,440
15,915
Purchase of certificates of deposit
(29)
(1,250)
Retirement of property and equipment
-
Purchase of property and equipment
-
(11)
Net cash provided (used) by investing activities
(13,261)
11,343
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in term-debt
-
(30,212)
Borrowings, net of repayments on lines of credit
1,500
1,000
Net change in secured borrowings
-
(10)
Net change in debt certificates
17,873
2,338
Debt issuance costs
(1,018)
(573)
Dividends paid on preferred units
(696)
(533)
Net cash provided (used) by financing activities
17,659
(27,990)
Net increase (decrease) in cash and restricted cash
(18,155)
Cash, cash equivalents, and restricted cash at beginning of period
5,875
24,030
Cash, cash equivalents, and restricted cash at end of period
$
6,851
$
5,875
Supplemental disclosures of cash flow information
Interest paid
$
4,383
$
3,341
Income taxes paid
Leased assets obtained in exchange of new operating lease liabilities
-
Lease liabilities recorded
-
Dividends declared to preferred unit holders
Note 20. Not-for-Profit Subsidiary Activities
The following represent required disclosures related to the activities of MPC, the Company’s wholly owned, not-for-profit organization.
At December 31, 2023 and December 31, 2022, the Company had $304 thousand and $303 thousand, respectively, in cash held in a checking account available to meet general expenditure needs for the next twelve months. This does not include $1.7 million in cash that carries permanent donor restrictions. There were no board-designated funds as of December 31, 2022. At December 31, 2023, there were $38 thousand in funds accrued to distribute related to the designated fund agreement reached between MPC and a donor. Management believes the cash available for use by MPC is sufficient to cover its expenses.
At December 31, 2023 and December 31, 2022, MPC had $2.1 million and $367 thousand in net assets, respectively. At December 31, 2023, $1.7 million of those net assets was permanently restricted by donors. There were no restricted net assets as of December 31, 2022. MPC earned interest income of $47 thousand during the year ended December 31, 2023. MPC earned less than $1 thousand in interest income during the year ended December 31, 2022.
A breakdown of expenses for MPC for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
Year ended December 31,
Expenses
Charitable grants
$
$
General and administrative expenses
Total
$
$
The change in net assets for MPC for the years ended December 31, 2023 and 2022 is as follows (dollars in thousands):
Year ended December 31,
Change in net assets
$
1,703
$
Note 21. Subsequent Events
In February 2024, the Company launched its 2024 Class A Debt Certificates Offering. Pursuant to a Registration Statement declared effective on February 5, 2024, the Company registered $200 million of its 2024 Class A Debt Certificates in two series - fixed and variable debt certificates. The 2024 Class A Debt Certificates are unsecured. The interest rate paid on the Fixed Series Debt Certificates is determined in reference to a CMT Index published by the U.S. Department of Treasury in effect as of the first business day of the month in which the note is issued plus a rate spread as described in the Company’s 2024 Class A Prospectus. 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 in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Debt Certificate. The variable index is equal to the SOFR for three-month financial obligations. The Company issued the 2024 Class A Debt Certificates under a Trust Indenture entered into between the Company and U.S. Bank.
On December 31, 2023, the Company’s lease agreement with Imperial Mariner to lease facilities in Brea expired. In February 2024, the Company reached an agreement with Olen Pointe Brea Corp. to lease new office space in Brea. The lease agreement begins on March 15, 2024, with a provision for early possession of the premises effective February 29, 2024. The agreement expires on July 31, 2029. The agreement provides for rent payments beginning at $6,790 per month with annual increases, as well as provisions for proportional share of operating costs. The agreement also includes one option to extend the lease for an additional five-year term.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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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, 2023, covered by this 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, 2023. This conclusion by our Principal Executive Officer and Principal Financial Officer does not relate to reporting periods after December 31, 2023.
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:
● 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
● 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, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission Internal Control-Integrated Framework. Based on this assessment, management believes that, as of and for the year ended December 31, 2023, our internal control over financial reporting is effective.
This Report 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 Report on Form 10-K.

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ITEM 9B. OTHER INFORMATION
ITEM 9B.OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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:
Name
Age
Managers/Executive Officers
R. Michael Lee
Chairman of the Board, Manager
Van C. Elliott
Corporate Secretary, Audit Committee Chairperson, Manager
Nicolette Harms**
Manager
Brian S. Barbre
Senior Vice President, Chief Financial Officer and Principal Accounting Officer
Darren Thompson*
Chief Executive Officer and President
Juli Anne Lawrence
ALCO Committee Chairperson, Credit Committee Chairperson, Manager
Jerrod Foresman
Manager
Guy A. Messick
Vice Chairman of the Board, Manager
*Joseph W. Turner, Jr. stepped down as Chief Executive Officer and Manager effective as of December 15, 2023. Mr. Thompson was appointed Chief Executive Officer effective as of December 15, 2023. See the section titled “Chief Executive Officer and President Succession Plan” below for more details.
**Mrs. Harms was appointed to the Company’s Board of Managers on November 9, 2023, but effective as of December 15, 2023, taking the board seat vacated by Mr. Turner.
As a limited liability company, 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, an Elgin, Illinois credit union. 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 the boards of the Illinois Credit Union Foundation, Illinois Bank On Commission, and the Gail Borden Library Foundation. He attended Southern Illinois University, CUNA’s Financial
Management School, and completed numerous industry training sessions throughout his career. Mr. Lee adds special expertise to our Board with his years of experience as an executive of a number of large financial institutions and with his deep knowledge of the financial industry. Mr. Lee currently serves as Chairman of the Board, member of our Executive Committee and 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 AdelFi from 1988 until 2022 (except for the periods from March 1997 to March 1998 and March 2004 to March 2005). Mr. Elliott served as associate 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 speech from Purdue University and spent seven years in the computer industry. Mr. Elliott holds a Master of Divinity 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 designation 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 Board Credit Committee and is our Audit Committee Chair.
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 AdelFi, the Company’s largest equity owner where he led the finance, credit analytics, and participations groups. At AdelFi, Mr. Barbre developed and managed a bond portfolio with over $100 million in assets under management. In addition, Mr. Barbre oversaw the budgeting, liquidity management, and asset liability management of the credit union when it had over one billion in assets. At AdelFi, Mr. Barbre was a member of the Asset Liability Management Committee, Pricing Committee, and 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 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.
DARREN THOMPSON
Effective as of December 15, 2023, Mr. Thompson was appointed as the Company’s Chief Executive Officer and President. Mr. Thompson previously served as the Company’s Executive Vice President and Chief Operating Officer. The Board appointed Mr. Thompson to the position of Chief Executive Officer and President of both the Company and Ministry Partners Securities, LLC, effective December 15, 2023, as detailed in the section titled “Chief Executive Officer and President Succession Plan” below. Mr. Thompson previously served as the Chief Lending Officer at America’s Christian Credit Union (“ACCU”) and had been with the credit union since 2011. In his role as Chief Lending Officer, Mr. Thompson oversaw all of lending, including origination, servicing, collection, and loan participations for both consumer and business loans. At ACCU, Mr. Thompson was a member of 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 work at ACCU, he served as a Treasury & Funding Trader for Western Corporate Federal Credit Union, assisting in the management of a $32 billion portfolio. Mr. Thompson holds the FINRA Series 7 and 66 licenses.
JULI ANNE LAWRENCE
Mrs. Lawrence has served as a member of our Board since 2007. She is currently a 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 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. Mrs. Lawrence served 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 of 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-Liability Committee. Mrs. Lawrence is also 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 70 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.
GUY MESSICK
Mr. Messick retired from the practice of law and the law firm of Messick Lauer & Smith P.C. on January 1, 2021. Mr. Messick 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. Mr. Messick has lectured on CUSOs at the University of Cork in 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 collaborative business model solutions that provide financial services and operational services; (b) advocating for clients before regulatory agencies; and (c) facilitating planning sessions. Mr. Messick’s board experience includes the Credit Union Network for Financial Literacy (a CUSO providing financial literacy education to children), United Solutions Company (a CUSO providing IT related services), 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. 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 the Company’s Executive Committee, the Audit Committee, the Asset-Liability Committee, and on the Board of MP Securities.
Nicolette Harms
Mrs. Harms was appointed to serve as a member of the Company’s Board of Managers on November 9, 2023, effective December 15, 2023. Ms. Harms currently serves as Senior Vice President and Chief Financial Officer of AdelFi Credit Union, a Brea, California state-chartered credit union (“AdelFi”). The Company was formed by AdelFi as a wholly-owned credit union service organization and was spun off and recapitalized as an independent credit union service organization in 2006. AdelFi remains, however, the Company’s largest equity owner. Ms. Harms is responsible for AdelFi’s financial strategy and reporting, investment and liquidity management, asset liability management, budgeting and forecasting, and regulatory reporting and exams. She also leads AdelFi’s Asset Liability Management Committee and is a member of the Enterprise Risk, Pricing, and Credit Review Committees. Previously, Ms. Harms served in various management and executive roles for 28 years in ACCU’s finance and accounting department, including serving as Senior Vice President and Chief Financial Officer from 2008 - 2023. Ms. Harms has a bachelor’s degree in accounting from Azusa Pacific University and is also a Certified Public Accountant. Ms. Harms has also served in various roles including as a Finance Committee member and Treasurer for faith-based ministries located in southern California.
Chief Executive Officer and President Succession Plan
On November 9, 2023, the Company announced that Joseph W. Turner, Jr., the Company’s Chief Executive Officer, and President will retire from his position as President and Chief Executive Officer of the Company effective as December 15, 2023. In an effort to retain Mr. Turner’s institutional knowledge of the Company, its strategic partner relationships and ensure a seamless leadership transition, Mr. Turner will serve as an independent adviser to the Board of Managers through December 31, 2024. The Company also announced that Darren Thompson, the Company’s Executive Vice-President and Chief Operating Officer, has been appointed to succeed Mr. Turner as President and Chief Executive Officer of the Company. Mr. Thompson will also serve as President and Chief Executive Officer of the Company’s wholly-owned subsidiary, Ministry Partners Securities, LLC. The Company’s Board of Managers has been carefully undertaking a successful transition plan for its Chief Executive Officer and President position since early 2021 as part of a long-term succession planning effort. Since then, Mr. Turner and the Board have methodically searched for a highly competent and mission aligned candidate to eventually take the helm as the Company’s Chief Executive Officer and President.
Mr. Thompson began serving as the Company’s Executive Vice President and Chief Operating Officer on February 28, 2022. Mr. Thompson previously served as the Chief Lending Officer at ACCU and had been with the credit union since 2011. ACCU is an equity owner of the Company and a strategic partner of the Company in its lending and financial services business.
Since joining the Company, Mr. Thompson has consistently exhibited a relentless pursuit to provide meaningful value to the Company’s clients, strategic partners, and its equity owners. He has also led the Company’s efforts to expand the Company’s commercial faith-based loan business to include commercial loans made to small businesses and entrepreneurs whom share the Company’s missional purpose of Strengthening Christian Stewardship. Mr. Thompson has also led the Company’s efforts to transition its core operations and lending programs to a leaner, more cost-efficient and scalable business model.
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 December 31, 2023, our Board consists of six 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;
● 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
● 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.
Code of Ethics
On November 6, 2009, our Board adopted a Code of Ethics for our principal officers and members of the Board.
Indemnification of Our Managers and Officers
We may indemnify any of our Managers, officers, Members, employees or agents, provided the agent seeking indemnification acted in good faith and in a manner that the person reasonably believed to be in our best interests and provided that the acts do not constitute gross negligence, intentional misconduct or a knowing violation of law. To the extent we are successful on the merits
in defense of our agent’s actions, the agent will be indemnified for all reasonable expenses incurred. In all other instances, a majority of the Members must approve indemnification. We can advance our agent’s defense costs if approved by Managers who are not seeking indemnification or, if there are none, by a majority of our Members. Our Managers who are not otherwise involved in the action can approve the advancement of our agent’s defense costs if they receive an undertaking from the person to repay such amount in the event that it is ultimately determined that the person is not entitled to indemnification.
It is the position of some federal and state agencies, including the Pennsylvania Department of Banking and Securities, that indemnification with violations of Securities Law is against public policy and void.
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, 2023, the Audit Committee comprises four members, including Guy Messick, Van Elliott, Nicolette Harms, and Jerrod Foresman. Mr. Elliott, Certified Financial Planner and church leadership consultant, is Chairman of the Audit Committee and Corporate Secretary of the overall Board of Managers. Mr. Elliott 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 30 plus years since the Company’s inception. Mr. Foresman has over 30 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 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. Mrs. Harms is a CPA and the Chief Financial Officer of AdelFi and brings 30 plus years of experience in finance and accounting practices to the Audit Committee.

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ITEM 11. EXECUTIVE 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, 2023 and 2022 by our senior executive officers.
Summary Annual Compensation Table
Name
Principal Position
Salary
Bonus
All Other
Compensation (1)
Salary
Bonus
All Other
Compensation (1)
Joseph W. Turner (2)
Former President and Chief Executive Officer
$
349,767
$
733,205
$
39,591
$
312,741
$
140,466
$
36,862
Brian S. Barbre
Sr. Vice President, Chief Financial Officer and Principal Accounting Officer
191,420
28,500
54,383
195,463
40,000
56,769
Darren M. Thompson (3)
Chief Executive Officer and President
201,154
34,500
35,101
165,385
1,000
26,365
(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. Turner stepped down as Chief Executive Officer and Manager effective as of December 15, 2023.
(3) Mr. Thompson was hired as the Chief Operating Officer in February 2022. Mr. Thompson was appointed Chief Executive Officer effective as of December 15, 2023.
Board of Managers Compensation
The following table provides a summary of the compensation paid to our Managers for the year ended December 31, 2023:
Summary Annual Compensation Table
Name
Principal Position
Compensation(1)
Michael Lee
Chairman of the Board of Managers
$
23,250
Van Elliott
Secretary and Manager
20,000
Juli Anne Lawrence
Manager
19,500
Jerrod Foresman
Manager
15,250
Joseph Turner
(2)
Manager
-
Nicolette Harms
(3)
Manager
-
Guy Messick
Manager
21,750
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, 2023 and 2022, were $100 thousand and $94 thousand, respectively.
2. Mr. Turner stepped down as Chief Executive Officer and Manager effective as of December 15, 2023. The Company did not pay Mr. Turner any compensation for his role as a Manager of the Company.
3. Mrs. Harms was appointed to the Company’s Board of Managers on November 9, 2023, but effective as of December 15, 2023, taking the board seat vacated by Mr. Turner. Mrs. Harms elected to not receive compensation for the year ended December 31, 2023.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
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, 2023, 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)
R. Michael Lee
(1)
$
-
-
%
Van C. Elliott
(1)
-
-
%
Juli Anne Lawrence
(1)
-
-
%
Jerrod L. Foresman
(1)
-
-
%
Guy A. Messick
(1)
-
-
%
Nicolette Harms
(1)
-
-
%
Brian S. Barbre
(1)
-
-
%
Darren M. Thompson
(1)
-
-
%
All officers and members of the Board as a group
$
-
-
%
(1) 915 W. Imperial Hwy., Suite 120 Brea, CA 92821. As of March 4, 2024 the address is: 1 Pointe Dr, Ste 205, Brea, CA, 92821
Other 5% or greater beneficial owners (seven):
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.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The following table provides 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
Mendell Thompson
Relative of executive officer
Purchase of the Company's debt certificates
$
1,018
$
1,121
Van Elliott
Secretary
Purchase of the Company's debt certificates
Brian Barbre
Officer of the Company
Purchase of the Company's debt certificates
-
AdelFi
43.1% equity owner
Total funds held on deposit at AdelFi
3,457
AdelFi
43.1% equity owner
Rent expense on lease agreement with AdelFi
-
AdelFi
43.1% equity owner
Loans purchased from AdelFi
1,264
-
ACCU
8.19% equity owner
Fees paid based on MP Securities Networking Agreement with ACCU
ACCU
8.19% equity owner
Total funds held on deposit at ACCU
ACCU
8.19% equity owner
Draws on ACCU line of credit
6,500
3,000
KCTCU
The Company's Board Chair serves as the Chief Executive Officer and President of KCT
Draws on KCT line of credit
2,000
NFCU
8.13% equity owner
Loan participations sold to NFCU and serviced by the Company
-
4,872
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 which is further detailed in the Management’s Discussion and Analysis under the section “Liquidity Sources” and “Note 3” In the notes to the Consolidated Financial Statements on page 29. ACCU is an owner of the Company.
KCT Line of Credit
The Company has two lines of credit facilities with KCT Credit Union. The Chief Executive Officer of KCT is the Company’s Board of Directors Chairman. These facilities and the relationship of KCT to the Company are detailed further in the Management’s Discussion and Analysis under the section “Liquidity Sources” and “Note 3” In the notes to the Consolidated Financial Statements on page 32.
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.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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.
The aggregate fees billed by our accounting firm, Hutchinson and Bloodgood LLP, for the years ended December 31 were as follows:
Audit and audit-related fees
$
114,000
$
122,000
Tax fees
14,000
15,050
All other fees
29,000
2,600
Total
$
157,000
$
139,650
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.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.EXHIBITS
Incorporated by Reference
Exhibit No.
Description
Form
Exhibit
Filing Date
Filed herewith
3.1
Articles of Organization - Conversion, dated as of December 31, 2008
8-K
2.2
12/22/2008
3.2
Operating Agreement, dated as of December 31, 2008
8-K
2.3
12/22/2008
3.3
Plan of Conversion, dated September 18, 2008
8-K
2.1
12/22/2008
3.4
Series A Preferred Unit Certificate, dated as of December 31, 2008
8-K
2.4
12/22/2008
3.5
First Amendment to the Operating Agreement, effective as of February 11, 2010
10-K
3.16
3/31/2010
3.6
Amended and Restated, Series A Preferred Unit Certificate, effective as of May 22, 2013
8-K
3.7
5/23/2013
10.9
Form of Individual Manager Indemnification Agreement
S-1
10.20
6/24/2011
10.23
Networking Agreement by and between MP Securities and ACCU dated July 30, 2014 and Addendum related thereto dated December 1, 2016.
S-1
10.23
12/8/2017
10.35
Trust Indenture by and between the Company and U.S. Bank National Association, as Trustee dated January 6, 2021
S-1/A
A
1/6/2021
10.38
Master Loan Participation Purchase and Sale Agreement by and between the Company and ACCU, dated August 9, 2021
10-Q
10.38
8/12/2021
10.39
Loan Agreement by and between the Company and ACCU, dated September 23, 2021
8-K
10.39
9/28/2021
10.40
Supplemental Executive Retirement Plan
8-K
10.40
4/6/2022
10.41
Warehouse LOC Loan and Security Agreement by and between the Company and KCT dated June 6, 2022.
8-K
10.41
6/9/2022
10.42
Operating LOC Loan and Security Agreement by and between the Company and KCT dated June 6, 2022.
8-K
10.42
6/9/2022
10.44
Amendment No. 1 to 2021 Class A Notes Trust Indenture Dated January 6, 2021
POS AM
No. 1
A
10/28/2022
10.45
Servicing Agreement between the Company and AmeriNational Community Services, LLC effective as of February 14, 2023.
8-K
10.45
2/21/2023
10.48
Client Referrals Agreement
S-1/A
10.48
12/12/2023
10.49
Trust Indenture by and between the Company and U.S. Bank Trust Company, National Association, as Trustee dated December 28, 2023
S-1/A
A
1/24/2024
10.50
Managing Broker Dealer Agreement by and between the Company and MP Securities, dated January 23, 2024
S-1/A
10.50
1/24/2024
10.51
Executive Separation Agreement, dated as of November 9, 2023, between the Company and Mr. Turner
8-K
10.1
11/14/2023
10.52
Consulting and Retainer Agreement, dated as of November 9, 2023, between the Company and Mr. Turner
8-K
10.2
11/14/2023
10.53
Admin. Services Agreement by and between the Company and MP Securities dated January 23, 2024
S-1/A
10.53
1/24/2024
14.1
Code of Ethics, effective as of February 11, 2010
10-K
3.17
3/31/2010
21.1
List of Subsidiaries
X
23.1
Consent of Hutchinson and Bloodgood LLP
X
31.1
Cert. of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
X
31.2
Cert. of Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
X
32.1
Cert. 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
X
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Furnished, not filed, herewith.