UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended

June 30, 2023

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

For the period from _____ to _____

333-4028-LA

(Commission file No.)

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

(Exact name of registrant as specified in its charter)

CALIFORNIA

26-3959348

(State or other jurisdiction of incorporation

or organization)

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

915 West Imperial Highway, Brea, Suite 120, California, 92821

(Address of principal executive offices)

(714) 671-5720

(Registrant’s telephone number, including area code)

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

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

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


Large accelerated filer ◻	Accelerated filer ☐	Non-accelerated filer ◻
Smaller reporting company filer ☑	Emerging growth company ☐

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

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

At June 30, 2023, registrant had issued and outstanding 146,522 units of its Class A common units. The information contained in this Form 10-Q should be read in conjunction with the registrant’s Annual Report on Form 10-K for the year ended December 31, 2022.

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

FORM 10-Q

TABLE OF CONTENTS

	PART I — FINANCIAL INFORMATION

Item 1:	Consolidated Financial Statements	F - 1
	Consolidated Balance Sheets	F - 2
	Consolidated Statements of Income	F - 3
	Consolidated Statements of Cash Flows	F - 4
	Notes to Consolidated Financial Statements	F - 5
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4:	Controls and Procedures	18

	PART II —OTHER INFORMATION

Item 1:	Legal Proceedings	19
Item 1A:	Risk Factors	19
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3:	Defaults Upon Senior Securities	19
Item 4:	Mine Safety Disclosures	19
Item 5:	Other Information	19
Item 6:	Exhibits	20

	SIGNATURES	21

Exhibit 31.1:	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 31.2:	Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
Exhibit 32.1:	Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32.2:	Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1: Financial Statements

F-1

Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Balance Sheets

June 30, 2023 and December 31, 2022

(Dollars in thousands Except Unit Data)


	June 30,		December 31,
	2023		2022
	(Unaudited)		(Audited)
Assets:
Cash and cash equivalents	$	13,271	$	9,504
Restricted cash		1,758		60
Certificates of deposit		1,250		1,250
Loans receivable, net of allowance for loan losses of $1,512 and $1,551 as of June 30, 2023 and December 31, 2022, respectively		90,467		85,076
Accrued interest receivable		406		477
Investment in joint venture		883		870
Other investments		1,049		1,018
Property and equipment, net		119		140
Foreclosed assets, net		301		301
Servicing assets		121		123
Other assets		570		544
Total assets	$	110,195	$	99,363
Liabilities and members’ equity
Liabilities:
Lines of credit	$	—	$	3,000
Other secured borrowings		7		7
Debt securities payable, net of debt issuance costs of $47 and $58 as of June 30, 2023 and December 31, 2022, respectively		93,033		79,100
Accrued interest payable		362		281
Other liabilities		1,797		2,349
Total liabilities		95,199		84,737
Members' Equity:
Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at June 30, 2023 and December 31, 2022 (liquidation preference of $100 per unit); See Note 13		11,715		11,715
Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at June 30, 2023 and December 31, 2022; See Note 13		1,509		1,509
Net assets of Ministry Partners for Christ, with donor restrictions		1,700		—
Accumulated earnings		72		1,402
Total members' equity		14,996		14,626
Total liabilities and members' equity	$	110,195	$	99,363

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

F-2

Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Income (Unaudited)

For the three and six months ended June 30, 2023, and 2022

(Dollars in thousands)


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Interest income:
Interest on loans	$	1,373	$	1,394	$	2,670	$	2,915
Interest on interest-bearing accounts		173		11		261		15
Total interest income		1,546		1,405		2,931		2,930
Interest expense:
Debt securities payable		1,080		699		1,940		1,421
Other debt		1		112		59		251
Total interest expense		1,081		811		1,999		1,672
Net interest income		465		594		932		1,258
Provision (credit) for loan losses		11		24		(151)		(63)
Net interest income after provision (credit) for loan losses		454		570		1,083		1,321
Non-interest income:
Broker-dealer commissions and fees		138		217		353		516
Other income		86		59		149		94
Gain on debt extinguishment		—		300		—		1,800
Charitable contributions, with donor restrictions		1,300		—		1,700		—
Total non-interest income		1,524		576		2,202		2,410
Non-interest expenses:
Salaries and benefits		567		678		1,329		2,180
Marketing and promotion		19		21		46		114
Office occupancy		47		45		94		88
Office operations and other expenses		370		299		782		746
Foreclosed assets, net		5		4		9		9
Legal and accounting		70		65		188		199
Total non-interest expenses		1,078		1,112		2,448		3,336
Income before provision for income taxes		900		34		837		395
Provision for income taxes and state LLC fees		5		5		10		10
Net income	$	895	$	29	$	827	$	385

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

F-3

Table of Contents

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2023 and 2022


	Six months ended
	June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	827	$	385
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		21		22
Amortization of deferred loan fees		(27)		(75)
Amortization of debt issuance costs		75		54
Credit for loan losses		(151)		(63)
Accretion of loan discount		(7)		(12)
Gain on sale of loans		(14)		(3)
Gain on extinguishment of debt		—		(1,800)
Gain on other investments		(31)		(15)
Adoption of new accounting standard		(112)		—
Changes in:
Accrued interest receivable		71		23
Other assets		(20)		(163)
Accrued interest payable		82		(25)
Other liabilities		(555)		375
Net cash provided (used) by operating activities		159		(1,297)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan purchases		(6,031)		(405)
Loan originations		(2,691)		(2,448)
Loan sales		502		1,216
Loan principal collections		3,010		10,869
Purchase of other investments		—		(1,000)
Purchase of property and equipment		—		(2)
Net cash provided (used) by investing activities		(5,210)		8,230
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term debt		—		(20,490)
Repayments on lines of credit		(3,000)		—
Net change in secured borrowings		—		(2)
Net change in investor notes payable		13,922		(2,730)
Debt issuance costs		(64)		(38)
Dividends paid on preferred units		(342)		(271)
Net cash provided (used) by financing activities		10,516		(23,531)
Net increase (decrease) in cash and restricted cash		5,465		(16,598)
Cash, cash equivalents, and restricted cash at beginning of period		9,564		28,149
Cash, cash equivalents, and restricted cash at end of period	$	15,029	$	11,551
Supplemental disclosures of cash flow information
Interest paid	$	1,918	$	1,697
Income taxes paid		8		20
Supplemental disclosures of non-cash transactions
Servicing assets recorded		18		3
Leased assets obtained in exchange of new operating lease liabilities		—		106
Lease liabilities recorded		—		101
Dividends declared to preferred unit holders		184		113

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

F-4

Table of Contents

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting and financial reporting policies of MINISTRY PARTNERS INVESTMENT COMPANY, LLC (the “Company”) and its wholly owned subsidiaries, Ministry Partners Funding, LLC, MP Realty Services, Inc., Ministry Partners Securities, LLC, and Ministry Partners for Christ, Inc. conform to accounting principles generally accepted in the United States and general financial industry practices. The accompanying interim consolidated financial statements have not been audited. A more detailed description of the Company’s accounting policies is included in its 2022 annual report filed on Form 10-K. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of June 30, 2023, and for the three and six months ended June 30, 2023, and 2022, have been made.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the periods ended June 30, 2023, and 2022 are not necessarily indicative of the results for the full year.

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 securities.

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”);

F-5

Table of Contents

●

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 notes.

The Company formed MPC on December 28, 2018 to be used exclusively for religious and charitable purposes within the meaning of Section 501(c)(3) of the U.S. Internal Revenue Code of 1986 (“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

F-6

Table of Contents

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, increasing inflation, the disruption of global supply chains, rising 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 June 30, 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.

F-7

Table of Contents

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 of greater than three months as of June 30, 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 investment in the joint venture was not impaired as of June 30, 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

F-8

Table of Contents

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 as of June 30, 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 income. This charge

F-9

Table of Contents

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, as well as 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.

F-10

Table of Contents

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:

F-11

Table of Contents

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.

F-12

Table of Contents

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.

F-13

Table of Contents

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.

F-14

Table of Contents

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

F-15

Table of Contents

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.

F-16

Table of Contents

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. 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.

F-17

Table of Contents

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.

F-18

Table of Contents

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

F-19

Table of Contents

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 services. Upon completion of the loan sale, the Company recognizes a gain based on certain factors including the maturity date of the loan, the percentage of the loan sold and retained, and the servicing rate charged to the participant on the sold portion.

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 third party 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 the six months ended June 30, 2023, were permanently restricted by the donor as part of a designated fund agreement that allows for

F-20

Table of Contents

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. 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.

F-21

Table of Contents

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 mortgage 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

F-22

Table of Contents

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 debt securities. 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 President and Chief Executive Officer, Joseph W. Turner, Jr. The Company records expenses related to the SERP based on the likelihood of the benefits vesting.

Leases

We recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases with lease terms longer than 12 months. The recognition, measurement and presentation of lease expenses and cash flows depend on the 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 one to three years. 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

F-23

Table of Contents

on our consideration of certain economic, strategic, and other factors that we evaluate at 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

F-24

Table of Contents

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 securities 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 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.

F-25

Table of Contents

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 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. On June 30, 2023 and December 31, 2022, the Company had cash of $7 thousand pledged as collateral for its secured borrowings. See “Note 3: Related Party Transactions” for additional details. This 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):


	June 30,				December 31,
	2023		2022		2022
Cash and cash equivalents	$	13,271	$	11,485	$	9,504
Restricted cash		1,758		66		60
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	15,029	$	11,551	$	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 cash maintained in an account with ACCU as collateral for the Company’s secured borrowings. 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.

F-26

Table of Contents

Note 3: Related Party Transactions

Transactions with Equity Owners

Transactions with AdelFi Credit Union, a California state chartered 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):

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


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Number of loans purchased from AdelFi		1		—		1		—
Amount of loans purchased from AdelFi	$	1,264	$	—	$	1,264	$	—
Interest earned on funds held with AdelFi*		25		—		26		—
Interest income earned on loans purchased from AdelFi		10		1		11		3
Fees paid to AdelFi from MP Securities Networking Agreement		2		2		4		4
Rent expense on lease agreement with AdelFi		36		36		73		73

*Note: Interest income earned in 2022 on loans purchased from AdelFi arose from loans purchased in years prior to 2022.

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.

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.

F-27

Table of Contents

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, a California state chartered 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):


	June 30,		December 31,
	2023		2022
Total funds held on deposit at ACCU	$	172	$	246
Dollar amount of outstanding loan participations sold to ACCU and serviced by the Company		952		964
Amount owed on ACCU secured borrowings		7		7
Amount owed on ACCU line of credit		—		3,000
Loans pledged on ACCU line of credit		6,720		6,823

F-28

Table of Contents

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


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Interest earned on funds held with ACCU	$	—	$	3	$	1	$	7
Dollar amount of secured borrowings made from ACCU		1		—		—		7
Interest expense on ACCU borrowings		1		20		59		40
Income from broker services provided to ACCU by MPS		7		10		14		23
Fees paid based on MP Securities Networking Agreement with ACCU		10		12		46		52

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 June 30, 2023 and December 31, 2022 $7 thousand in participation interests had been sold and were outstanding under this agreement. These have been classified as secured borrowings on our balance sheet. The Company has deposited equal amounts of cash in an account at ACCU as collateral for these borrowings. These funds are considered restricted cash.

F-29

Table of Contents

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, 2023. See “Note 10: Credit Facilities and Other Debt” for additional terms and conditions of the ACCU LOC. Management believes these terms are equivalent to those that prevail in arm’s length transactions. As of June 30, 2023, there were no 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, an Illinois state chartered financial institution.

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


	June 30,		December 31,
	2023		2022
Total funds held on deposit at KCT	$	1,281	$	1,261
Loans pledged on KCT lines of credit		10,771		10,962
Certificates of deposit pledged on KCT Warehouse LOC		1,250		1,250
Outstanding loan participations sold to KCT and serviced by the Company		3,425		3,455

F-30

Table of Contents

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


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Interest earned on funds held with KCT	$	10	$	—	$	20	$	—
Loans sold to KCT		—		56		7		56
Dollar amount of draws on KCT line of credit		—		—		—		2,000
Interest expense on KCT line of credit		—		—		—		15
Fees paid based on MP Securities Networking Agreement with KCT		11		3		20		44

Funds on deposit with KCT:

On January 13, 2020, the Company purchased $1.0 million of certificates of deposit from KCT. The certificates matured on October 13, 2021, and the funds were transferred to a savings account at KCT. On September 29, 2022, the Company purchased a $1.3 million certificate of deposit from KCT. The certificate matures on June 6, 2024, and carries an interest rate of 2.85%. This certificate is pledged as a compensating balance deposit on one of the lines of credit the Company holds with KCT.

Lines of credit:

On June 6, 2022, the Company terminated the existing $7.0 million Loan and Security Agreement with KCT. 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 June 30, 2023 and December 31, 2022, there were no outstanding balances 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 NCUA rules and regulations; and

F-31

Table of Contents

(4)

comply with its membership agreement with FINRA.

The agreement provides that MP Securities 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 charges KCT a customary fee for servicing the loan. As of June 30, 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 (dollars in thousands):


	June 30,		December 31,
	2023		2022
Outstanding loan participations sold to NFCU and serviced by the Company	$	4,809	$	4,872
Outstanding notes payable to officers and managers		2,628		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

F-32

Table of Contents

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 securities Sold

From time to time, the Company’s Board and members of its executive management team have purchased debt securities from the Company or have purchased investment products through MP Securities. Debt securities payable owned by related parties totaled $2.6 million and $2.3 million as of June 30, 2023 and December 31, 2022, respectively.

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.

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

F-33

Table of Contents

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.

F-34

Table of Contents

The Company primarily originates 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 purchases 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 interest rate of 6.38% and 6.46% as of June 30, 2023 and December 31, 2022, respectively.

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


	June 30,		December 31,
	2023		2022
Non-profit commercial loans:
Real estate secured	$	88,155	$	84,878
Other secured		—		225
Unsecured		87		99
Total non-profit commercial loans:		88,242		85,202
For-profit commercial loans:
Real estate secured		4,138		1,840
Total loans		92,380		87,042
Deferred loan fees, net		(198)		(208)
Loan discount		(203)		(207)
Allowance for loan losses		(1,512)		(1,551)
Loans, net	$	90,467	$	85,076

Allowance for Loan Losses

Management believes it has properly calculated the allowance for loan losses using CECL methodology as of June 30, 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.

F-35

Table of Contents

The following table shows the changes in the allowance for loan losses for the six months ended June 30, 2023 and the year ended December 31, 2022 (dollars in thousands):


	Six months ended
	June 30, 2023
Segment:	Non-profit Commercial		For-profit Commercial		Total
Balance, beginning of period	$	1,530	$	21	$	1,551
Adjustment related to implementation of CECL model		128		(16)		112
Provision (credit) for loan loss		(159)		8		(151)
Charge-offs		—		—		—
Recoveries		—		—		—
Balance, end of period	$	1,499	$	13	$	1,512


	Year ended
	December 31, 2022
Segment:	Commercial loans
Balance, beginning of period	$	1,638
for loan loss		(296)
Charge-offs		—
Recoveries		209
Balance, end of period	$	1,551

In the course of its lending operations, the Company has made loans that include commitments to fund additional amounts over the remaining term of the loan. These include construction loans and lines of credit, both revolving and non-revolving. The Company has established an allowance for losses on these unfunded commitments. See "Note 12: Commitments and Contingencies" for details on its allowance for credit losses on off-balance sheet commitments.

F-36

Table of Contents

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
	June 30, 2023		December 31, 2022
Non-profit Commercial Loans:
Individually evaluated for impairment	$	11,648	$	5,933
Collectively evaluated for impairment		76,594		79,269
Total Non-profit Commercial Loans		88,242		85,202
For-profit Commercial Loans:
Individually evaluated for impairment		—		—
Collectively evaluated for impairment		4,138		1,840
Total For-profit Commercial Loans		4,138		1,840
Balance	$	92,380	$	87,042

Allowance for loan losses:
Non-profit Commercial Loans:
Individually evaluated for impairment	$	616	$	597
Collectively evaluated for impairment		883		933
Total Non-profit Commercial Loan Allowance		1,499		1,530
For-profit Commercial Loans:
Individually evaluated for impairment		—		—
Collectively evaluated for impairment		13		21
Total For-profit Commercial Loan Allowance		13		21
Balance	$	1,512	$	1,551

F-37

Table of Contents

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 June 30, 2023
	Pass		Watch		Special Mention		Substandard		Doubtful		Loss		Total
Non-profit Commercial Loans
Wholly Owned First Amortizing	$	45,715	$	28,012	$	—	$	9,889	$	213	$	—	$	83,829
Wholly Owned Other Amortizing		1,425		—		—		1,546		—		—		2,971
Wholly Owned Unsecured Amortizing		28		29		—		—		—		—		57
Wholly Owned Unsecured LOC		58		—		—		—		—		—		58
Participation First		1,327		—		—		—		—		—		1,327
Total Non-profit Commercial Loans		48,553		28,041		—		11,435		213		—		88,242
For-profit Commercial Loans														—
Participation First		1,785		—		—		—		—		—		1,785
Participation Construction		2,353		—		—		—		—		—		2,353
Total For-profit Commercial Loans		4,138		—		—		—		—		—		4,138
Total Loans	$	52,691	$	28,041	$	—	$	11,435	$	213	$	—	$	92,380


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	$	503	$	—	$	83,202
Wholly Owned Other Amortizing		1,448		—		—		—		—		—		1,448
Wholly Owned Unsecured Amortizing		—		29		—		—		—		—		29
Wholly Owned Unsecured LOC		295		—		—		—		—		—		295
Wholly Owned Construction		160		—		—		—		—		—		160
Participation First		—		68		—		—		—		—		68
Total Non-profit Commercial Loans		47,092		32,177		—		5,430		503		—		85,202
For-profit Commercial Loans														—
Participation First		1,035		—		—		—		—		—		1,035
Participation Construction		805		—		—		—		—		—		805
Total For-profit Commercial Loans		1,840		—		—		—		—		—		1,840
Total Loans	$	48,932	$	32,177	$	—	$	5,430	$	503	$	—	$	87,042

F-38

Table of Contents

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 June 30, 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 Still Accruing
Non-profit Commercial Loans
Wholly Owned First Amortizing	$	5,334	$	6,063	$	1,088	$	12,485	$	71,344	$	83,829	$	—
Wholly Owned Other Amortizing		—		—		—		—		2,971		2,971		—
Wholly Owned Unsecured Amortizing		—		—		—		—		57		57		—
Wholly Owned Unsecured LOC		—		—		—		—		58		58		—
Participation First		67		—		—		67		1,260		1,327		—
Total Non-profit Commercial Loans		5,401		6,063		1,088		12,552		75,690		88,242		—
For-profit Commercial Loans
Participation First		—		—		—		—		1,785		1,785		—
Participation Construction		—		—		—		—		2,353		2,353		—
Total For-profit Commercial Loans		—		—		—		—		4,138		4,138		—
Total Loans	$	5,401	$	6,063	$	1,088	$	12,552	$	79,828	$	92,380	$	—

F-39

Table of Contents


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 Still 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		—		—		—		—		29		29		—
Wholly Owned Unsecured LOC		—		—		—		—		295		295		—
Wholly Owned Construction		—		—		—		—		160		160		—
Participation First		—		—		—		—		68		68		—
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		—		—		—		—		805		805		—
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. 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, non-accrual, or loan modifications as of June 30, 2023. The tables below represent the breakdown by class of the non-profit loan portfolio segment only (dollars in thousands):

F-40

Table of Contents


	As of		As of
	June 30,		December 31,
Impaired Non-profit commercial Loans (by class)	2023		2022
Wholly Owned First Amortizing
Recorded investment with specific allowance	$	3,080	$	15,569
Recorded with no specific allowance		20,808		4,598
Total recorded investment	$	23,888	$	20,167
Unpaid principal balance	$	24,253	$	20,419
Wholly Owned Other Amortizing
Recorded investment with specific allowance	$	1,546	$	—
Recorded with no specific allowance		—		—
Total recorded investment	$	1,546	$	—
Unpaid principal balance	$	1,685	$	—
Total Impaired Loans
Recorded investment with specific allowance	$	4,626	$	15,569
Recorded with no specific allowance		20,808		4,598
Total recorded investment	$	25,434	$	20,167
Unpaid principal balance	$	25,938	$	20,419


	For the three months ended				For the six months ended
	June 30,		June 30,		June 30,		June 30,
Impaired Non-profit Commercial Loans (by class)	2023		2022		2023		2022
Wholly Owned First Amortizing
Average recorded investment	$	24,793	$	13,173	$	22,028	$	11,540
Interest income recognized		439		161		737		331
Wholly Owned Other Amortizing
Average recorded investment		1,568		1,635		773		1,635
Interest income recognized		—		—		—		—
Total Impaired Loans
Average recorded investment	$	26,361	$	14,808	$	22,801	$	13,175
Interest income recognized		439		161		737		331

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


Loans on Nonaccrual Status (by class)
	as of
	June 30, 2023		December 31, 2022
Non-profit Commercial Loans:
Wholly Owned First Amortizing	$	10,102	$	5,933
Wholly Owned Other Amortizing		1,546		—
Total	$	11,648	$	5,933

F-41

Table of Contents

The Company modified two loans during the three-month period ended June 30, 2023. A summary of loans the Company modified during the three- and six-month periods ended June 30, 2023 and 2022 is as follows (dollars in thousands):


Loan modifications (by class)
	For the three months ended				For the six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Non-profit Commercial Loans:
Wholly Owned First Amortizing
Number of Loans		2		1		2		2
Pre-Modification Outstanding Recorded Investment	$	6,253	$	1,196	$	6,253	$	2,192
Post-Modification Outstanding Recorded Investment		6,253		1,196		6,253		2,192
Recorded Investment At Period End		6,247		1,196		6,247		2,192
Total
Number of Loans		2		1		2		2
Pre-Modification Outstanding Recorded Investment	$	6,253	$	1,196	$	6,253	$	2,192
Post-Modification Outstanding Recorded Investment		6,253		1,196		6,253		2,192
Recorded Investment At Period End		6,247		1,196		6,247		2,192

One of the non-profit commercial loans the Company modified during the three months ended June 30, 2023 subsequently defaulted during the period. The recorded investment in this loan was $6.1 million as of June 30, 2023. No loans modified during the three- or six-month periods ended June 30, 2022 subsequently defaults during those periods.

The Company has one modified loan that is past maturity as of June 30, 2023. This loan has been completely written off as of June 30, 2023.

When loans are modified, the Company monitors borrower performance according to the terms of the modifications to determine whether there are any early indicators for future default. Management regularly evaluates loan modifications for potential further impairment and will adjust the risk ratings and specific reserves associated with loan modifications as deemed necessary.

As of June 30, 2023, the Company has made no commitments to advance additional funds in connection with loan modifications.

Note 5: Investments in Joint Venture

In December 2015, the Company finalized an agreement with Intertex Property Management, Inc., a California corporation, to enter into a joint venture to form Tesoro Hills, LLC (the “Valencia Hills Project”). Intertex is a managing member of the LLC, with authority to direct operations. The Company is a non-managing member with no authority beyond limited rights granted to the Company by the operating agreement. The

F-42

Table of Contents

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 74% as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, the value of the Company’s investment in the joint venture was $883 thousand. Management’s impairment analysis of the investment as of June 30, 2023, has determined that the investment is not impaired.

Certificates of Deposit

The Company held an investment in certificates of deposit with an original maturity greater than three months on June 30, 2023 and December 31, 2022.

Details of certificates with original maturities of greater than three months owned by the Company as of June 30, 2023 and December 31, 2022, are as follows (dollars in thousands):

As of June 30, 2023

Certificate

Open Date

Certificate Amount

Interest Rate

Maturity Date

CD 1

9/29/2022

1,250

2.85%

6/6/2024

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

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 $31 thousand in income on these investments during the six months ended June 30, 2023.

F-43

Table of Contents

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


						Income for the three months ended				Income for the six months ended
Investment Type	Maturity Date	Original Cost		Net Carrying Amount		June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Fixed annuity	June 2032	$	1,000	$	1,049	$	30	$	15	$	31	$	15

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 the scope of ASC 606 are noted as such (dollars in thousands):


	Three months ended				Six months ended
	June 30,				June 30,
	2023		2022		2023		2022
Non-interest income, in scope of ASC 606
Broker-dealer fees and commissions	$	138	$	217	$	353	$	516
Gains on loan sales		7		—		14		3
Other investment income		30		15		31		15
Other non-interest income		4		—		9		—
Non-interest income, out of scope, ASC 606
Lending fees		45		44		95		76
Gain on debt extinguishment		—		300		—		1,800
Charitable contributions, with donor restrictions		1,300		—		1,700		—
Total non-interest income	$	1,524	$	576	$	2,202	$	2,410

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”).

F-44

Table of Contents


	For the three months ended				For the six months ended
(dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Broker-dealer revenue
Securities commissions
Transactional	$	2	$	13	$	16	$	102
AUM		13		12		26		23
		15		25		42		125
Sale of investment company products
Transactional		5		1		8		16
AUM		18		20		35		45
		23		21		43		61
Other insurance product revenue
Transactional		9		71		87		127
AUM		12		10		24		20
		21		81		111		147
Advisory fee income
Transactional		—		—		—		3
AUM		79		90		157		180
		79		90		157		183
Total broker-dealer revenue
Transactional		16		85		111		248
AUM		122		132		242		268
	$	138	$	217	$	353	$	516

Note 7: Loan Sales

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


	As of and for the
	Six months ended				Year ended
	June 30,				December 31,
	2023		2022		2022
Loan participation interests sold by the Company	$	502	$	1,216	$	3,716
Total participation interests sold and serviced by the Company		32,248		39,671		34,946
Servicing income		71		69		153

Servicing Assets
Balance, beginning of period	$	123	$	170	$	170
Additions:
Servicing obligations from sale of loan participations		18		3		19
Subtractions:
Amortization		(20)		(45)		(66)
Balance, end of period	$	121	$	128	$	123

F-45

Table of Contents

ACCU Loan Participation Agreement

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

During the six months ended June 30, 2022, the Company sold two loan participations for $7 thousand to ACCU under the provisions of the Master LP Agreement. Due to the recourse provisions of the agreement, the participation sales are classified as secured borrowings and are presented as part of other secured borrowings on the Company’s balance sheet. The Company did not sell any loan participations to ACCU under the provisions of the Master LP Agreement during the three and six months ended June 30, 2023.

Note 8: Foreclosed Assets

The Company’s investment in foreclosed assets consisted of one property that management valued at $301 thousand at June 30, 2023 and December 31, 2022. There was no allowance for losses on foreclosed assets at June 30, 2023 and December 31, 2022. The Company did not record any provision for losses on foreclosed assets during the three and six months ended June 30, 2023 and 2022.

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


	For the three months ended June 30,				For the six months ended June 30,
Foreclosed Asset Expenses	2023		2022		2023		2022
Provision for losses	$	—	$	—	$	—	$	—
Operating expenses		5		4		9		9
Total foreclosed asset expenses	$	5	$	4	$	9	$	9

F-46

Table of Contents

Note 9: Premises and Equipment

The table below summarizes our premises and equipment (dollars in thousands):


	As of
	June 30,		December 31,
	2023		2022

Furniture and office equipment	$	528	$	528
Computer system		220		220
Leasehold improvements		43		43
Total premises and equipment		791		791
Less accumulated depreciation and amortization		(672)		(651)
Premises and equipment, net	$	119	$	140


	For the three months ended				For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2023		2022		2023		2022

Depreciation and amortization expense	$	11	$	11	$	21	$	22

Note 10: Credit Facilities and Other Debt

Details of the Company’s debt facilities as of June 30, 2023, are as follows (dollars in thousands):


Nature of Borrowing	Interest Rate	Interest Rate Type	Amount Outstanding		Monthly Payment		Maturity Date	Amount of Loan Collateral Pledged		Other Assets Pledged*
KCT Warehouse LOC	8.500%	Variable	$	—	$	—	6/6/2024	$	5,975	$	1,250
KCT Operating LOC	8.500%	Variable		—		—	6/6/2024		4,797		—
ACCU LOC	8.250%	Variable		—		—	9/23/2024		6,720		—
ACCU Secured	Various	Fixed		7		—	Various		—		7
*Represents cash or certificates of deposit

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

F-47

Table of Contents

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 June 30, 2023, the interest rate on the KCT Warehouse LOC was 8.50%. 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 June 30, 2023. At June 30, 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, 2023. The KCT Operating LOC will automatically renew for another one-year term unless either party furnishes written notice at least 30 days prior to the termination date that it does not intend to renew the agreement. The Company must secure a minimum of 25% of the line with cash while the remaining portion of the KCT Operating LOC may be secured by certain of its mortgage loan investments.

The Company may draw funds on the KCT Operating LOC at any time until the line is fully drawn. Repayment by the termination date or earlier if a collateral loan becomes more than 60 days delinquent, and the Company fails to cure such deficiency. The interest rate on the KCT Warehouse LOC is equal to the prime rate at the time of the draw plus 0.50%. At June 30, 2023, the interest rate on the KCT Warehouse LOC was 8.50%. 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

F-48

Table of Contents

least 120%. A total of $4.8 million in loans were pledged on this facility as of June 30, 2023. At June 30, 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. The ACCU LOC is a revolving $5.0 million short-term demand credit facility with an initial one-year maturity date of September 23, 2022. The facility was automatically renewed for an additional one-year term that matures on September 23, 2023. The ACCU LOC will automatically renew for one additional one-year term unless either party furnishes written notice at least ninety (90) days prior to the termination date that it does not intend to renew the agreement. As the date to terminate the facility had passed as of June 30, 2023 without either party furnishing written notice, the facility will renew at September 23, 2023 and carry a maturity date of September 23, 2024. The facility carried an outstanding balance of $3.0 million at December 31, 2022. There was no outstanding balance on the facility as of June 30, 2023. The interest rate on the facility is equal to the prime rate as published in the Wall Street Journal plus 0.75%. This rate is 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 June 30, 2023.

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 always equals or exceeds $10.0 million during the term of the loan. The

F-49

Table of Contents

ACCU LOC contains typical affirmative covenants for a credit facility of this nature. The Company was in compliance with these covenants at June 30, 2023. A total of $6.7 million in loans were pledged on this facility as of June 30, 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 June 30, 2023 and December 31, 2022. These borrowings have various contractual maturities ranging from 2028 to 2032.

Note 11: Debt Securities Payable

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


		As of				As of
		June 30, 2023				December 31, 2022
SEC Registered Public Offerings	Offering Type	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Class 1A Offering	Unsecured	$	17,867	4.26	%	$	20,698	4.27	%
2021 Class A Offering	Unsecured		61,553	4.60	%		45,935	4.04	%
Public Offering Total		$	79,420	4.52	%	$	66,633	4.11	%

Private Offerings	Offering Type
Subordinated Notes	Unsecured	$	13,660	4.66	%	$	12,525	4.56	%
Private Offering Total		$	13,660	4.66	%	$	12,525	4.56	%

Total Debt Securities Payable		$	93,080	4.54	%	$	79,158	4.19	%

Future maturities for the Company’s debt securities during the twelve-month periods ending June 30, are as follows (dollars in thousands):


2024	$	43,711
2025		14,120
2026		17,678
2027		14,168
2028		3,403
Total	$	93,080
Debt issuance costs		47
Debt securities payable, net of debt issuance costs	$	93,033

F-50

Table of Contents

Debt issuance costs related to the Company’s debt securities payable, net of amortization, were $47 thousand and $58 thousand at June 30, 2023 and December 31, 2022, respectively.

The notes are payable to investors who have purchased the securities. Notes pay interest at stated spreads over an index rate. At their option, the investor may reinvest the interest or have the interest paid to them. The Company may repurchase all or a portion of an outstanding note at any time at its sole discretion. In addition, the Company may permit an investor to redeem all or a portion of a note 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 notes. The Class 1A Notes are unsecured. The interest rate paid on the Fixed Series Notes is determined in reference to a Constant Maturity Treasury Index published by the U.S. Department of Treasury (“CMT Index”) in effect on the date that the note is issued plus a rate spread as described in the Company’s Class 1A Prospectus. The variable index in effect on the date the interest rate is set determines the interest rate paid on a Variable Series Note. The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of Treasury for actively traded Treasury securities. The variable index is equal to the 3-month LIBOR rate. The Class 1A Notes contain restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing, or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company is in compliance with these covenants as of June 30, 2023 and December 31, 2022. The Company issued the Class 1A Notes under a Trust Indenture entered into by and between the Company and U.S. Bank. The Class 1A Offering expired on December 31, 2020.

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 notes. The 2021 Class A Notes are unsecured. Like the Class 1A Notes Offering, the interest rate paid on the Fixed Series Notes is determined in reference to a CMT Index published by the U.S. Department of Treasury in effect on the date that the note is issued plus a rate spread as described in the Company’s 2021 Class A Prospectus. The variable index in effect on the

F-51

Table of Contents

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 but will be replaced by the Secured Overnight Financing Rate (“SOFR”) effective as of July 1, 2023. The Federal Reserve Bank of New York establishes the SOFR, with adjustments made as deemed appropriate. The 2021 Class A Notes contain restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing, or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes, and incurring of indebtedness. The Company is in compliance with these covenants as of June 30, 2023 and December 31, 2022. The Company issued the 2021 Class A Notes under a Trust Indenture entered into by and between the Company and U.S. Bank.

Private Offerings

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

In July 2022, the Company renewed the offer and sale of its Subordinated Notes initially launched in February 2013. The Company offers the notes pursuant to a limited private offering to qualified investors that meet the requirements of Rule 506 of Regulation D. The Company offers the Subordinated Notes with maturity terms from 12 to 60 months at an interest rate fixed on the date of issuance, as determined by the then current seven-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 dollar amount of notes that it can sell, restrictions on mergers and acquisitions, and proper maintenance of books and records. The Company was in compliance with these covenants as of June 30, 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 un-advanced lines of credit and standby letters of credit. Such commitments involve elements of credit and interest rate risk that is greater than the amount stated on the balance sheet.

F-52

Table of Contents

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):

Undisbursed loans are commitments for potential 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.

Upon the adoption of CECL on January 1, 2023, the Company made an adjustment to retained earnings of $1 thousand based on its calculation of the estimated losses in its undisbursed loan commitments. This calculation includes an analysis of the risk presented by the loans on which there exist unfunded commitments as well as the probability that those funds will be disbursed. This estimate is subject to change as the commitments mature or are drawn upon. The balance of the allowance for credit losses on off-balance sheet commitments is recorded in other liabilities on the Company’s consolidated balance sheet.

The following table details activity in the allowance for credit losses on off-balance sheet commitments (dollars in thousands):


	Six months ended		Year ended
	June 30, 2023		December 31, 2022
Balance, beginning of period	$	—	$	—
Adjustment related to implementation of CECL model		1		—
Provision for losses on unfunded commitments		—		—
Balance, end of period	$	1	$	—

Operating Leases

The Company has a lease agreement for its offices in Brea, California and a vehicle used by executive management. The Company renewed its Brea office lease in January 2019 for an additional five-year term. The lease does not contain any additional options to renew. The Company has determined that both leases are operating leases. The Company used its incremental borrowing rates to determine the discount rates used in the asset calculations.

F-53

Table of Contents

The Company’s lease agreement for its Fresno office expired in March 2022. In April 2022, the Company signed a three-year lease renewal agreement beginning May 1, 2022, and terminating April 30, 2025. The agreement does not contain any options to renew. The lease payments associated with the renewal have been included in the future minimum lease payments table below.

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


	For the
	Three months ended						Six months ended						Year ended
	June 30,						June 30,						December 31,
	2023			2022			2023			2022			2022
Lease cost
Operating lease cost	$	44		$	42		$	88		$	87		$	175
Other information
Cash paid for operating leases		44			46			95			96			185
Right-of-use assets obtained in exchange for operating lease liabilities		—			84			—			106			106
Lease liabilities recorded		—			84			—			101			101
Weighted average remaining lease term (in years)		1.02			1.91			1.02			1.91			1.46
Weighted-average discount rate		4.28	%		4.38	%		4.28	%		4.38	%		4.33	%

Future minimum lease payments and lease costs for the twelve months ending June 30, are as follows (dollars in thousands):


	Lease Payments		Lease Costs
2024	$	113	$	110
2025		28		28
Total	$	141	$	138

Note 13: 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 UK Financial Conduct Authority announced on December 4, 2020, that the USD LIBOR for 1, 3, 6, and 12 months will no longer be published after June 30, 2023. Effective as of July 1, 2023, the Company will use the SOFR as established by the Federal Reserve Bank of New York. In addition to the quarterly cash dividend, 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.

F-54

Table of Contents

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 the Company’s Board of Managers.

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

Note 14: Retirement Plans

401(k)

All 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 six months ended June 30, 2023 and 2022 were $50 thousand and $51 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 for the six months ended June 30, 2023 and 2022.

F-55

Table of Contents

Supplemental Executive Retirement Plan

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

For purposes of the SERP, Mr. Turner’s accrued benefit is subject to a maximum sum of $600,000, with payments made annually in equal monthly installments over a ten-year period. The Company is liable for the entire amount of this benefit unless Mr. Turner incurs a separation of service prior to August 2024, at which point the benefit will be fully vested. As of August 2022, Mr. Turner’s benefit was 70% vested and increases by 15% each August until it is fully vested. The Company’s management has determined that such a separation is unlikely to occur prior to the vesting date and had accrued the entire benefit as of June 30, 2023.

Note 15: 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 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

F-56

Table of Contents

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 of an asset or liability may fall into multiple levels of the fair value hierarchy. However, in these cases, the asset or liability is classified to only one level of the hierarchy. To determine which level of the hierarchy the asset or liability is classified as a whole, the Company uses the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

F-57

Table of Contents

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 June 30, 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	$	15,029	$	15,029	$	—	$	—	$	15,029
Certificates of deposit		1,250		—		1,248		—		1,248
Loans, net		90,467		—		—		87,890		87,890
Investment in joint venture		883		—		—		883		883
Other investments		1,049		—		—		1,049		1,049
Accrued interest receivable		406		—		—		406		406
Servicing assets		121		—		—		121		121
FINANCIAL LIABILITIES:
Other secured borrowings		7		—		—		7		7
Debt securities payable		93,033		—		—		92,932		92,932
Other financial liabilities		546		—		—		546		546


			Fair Value Measurements at December 31, 2022 using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
FINANCIAL ASSETS:
Cash and restricted cash	$	9,564	$	9,564	$	—	$	—	$	9,564
Certificates of deposit		1,250		—		1,243		—		1,243
Loans, net		85,076		—		—		83,525		83,525
Investments in joint venture		870		—		—		870		870
Other investments		1,018		—		—		1,018		1,018
Accrued interest receivable		477		—		—		477		477
Servicing assets		123						123		123
FINANCIAL LIABILITIES:
Lines of credit	$	3,000	$	—	$	—	$	3,026	$	3,026
Other secured borrowings		7		—		—		7		7
Debt securities payable		79,100		—		—		78,330		78,330
Other financial liabilities		462		—		—		462		462

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

F-58

Table of Contents

herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at June 30, 2023 and December 31, 2022.

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

Cash and restricted 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.

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 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.

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.

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

F-59

Table of Contents

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 June 30, 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 June 30, 2023:
Collateral-dependent impaired loans (net of allowance and discount)	$	—	$	—	$	5,495	$	5,495
Investment in joint venture		—		—		883		883
Other investments		—		—		1,049		1,049
Foreclosed assets (net of allowance)		—		—		301		301
Total	$	—	$	—	$	7,728	$	7,728

Assets at December 31, 2022:
Collateral-dependent loans (net of allowance and discount)	$	—	$	—	$	5,259	$	5,259
Investments in joint venture		—		—		870		870
Other investments		—		—		1,018		1,018
Foreclosed assets (net of allowance)		—		—		301		301
Total	$	—	$	—	$	7,448	$	7,448

Impaired Loans

The Company measures impaired loans at fair value on a nonrecurring basis. Once a loan is considered impaired, the fair value is measured using one of several methods, including

F-60

Table of Contents

collateral liquidation value, the market value of similar debt, or discounted cash flows. Most often management uses the fair value of the underlying real estate collateral to value impaired loans. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. The range of these discounts is shown in the table below.

Foreclosed Assets

The Company initially records real estate acquired through foreclosure or other proceedings (foreclosed assets) at fair value at the date of foreclosure 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. Management may adjust the appraised values for a range of 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 June 30, 2023 and December 31, 2022. As such, the Company has determined that the carrying value of its other investments equals its fair value at June 30, 2023 and December 31, 2022.

F-61

Table of Contents

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):


June 30, 2023
Assets	Fair Value (in thousands)		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired Loans	$	5,495	Discounted appraised value	Selling cost / Estimated market decrease	10% - 81% (18%)
Investment in joint venture		883	Internal evaluations	Estimated future market value	0% (0%)
Other investments		1,049	Internal evaluations	Indications of non-performance by insurance companies	0% (0%)
Foreclosed Assets		301	Internal evaluations	Selling cost	6% (6%)


December 31, 2022
Assets	Fair Value (in thousands)		Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired loans	$	5,259	Discounted appraised value	Selling cost / Estimated market decrease	21% - 81% (28%)
Investments in joint venture		870	Internal evaluations	Estimated future market value	0% (0%)
Other investments		1,018	Internal evaluations	Indications of non-performance by insurance companies	0% (0%)
Foreclosed assets		301	Internal evaluations	Selling cost	6% (6%)

Note 16: 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, 2022, and 2021, and recorded a provision of $800 per year for the state minimum franchise tax. For the years ended December 31, 2022, and 2021, MP Realty had 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 as of June 30, 2023 and December 31, 2022.

MPC is a private foundation that is subject to a federal excise tax on net investment income. It may reduce its federal excise tax rate from 2% to 1% by exceeding a certain payout target for the year. MPC’s provision for current federal excise tax is based on a 1%

F-62

Table of Contents

rate on net investment income. Each year the current federal excise tax is levied on interest and dividend income and net realized gains (if any). In addition, MPC may become subject to current federal and state unrelated business income (“UBI”) tax in connection with certain activities. MPC is currently not subject to UBI. Management believes that MPC has appropriate support for the excise and other tax positions taken and, as such, does not have any uncertain tax positions that have a material impact on MPC’s financial position or change in total net assets.

Tax years ended December 31, 2019 through December 31, 2022, remain subject to examination by the Internal Revenue Service and the tax years ended December 31, 2018 through December 31, 2022, remain subject to examination by the California Franchise Tax Board and various other state jurisdictions.

Note 17: Segment Information

The Company’s reportable segments are strategic business units that each offer a unique set of products and services that differ from each other. The Company manages the segments separately because each business requires different management, personnel skills, and marketing strategies.

The Company has three reportable segments that represent the primary businesses reported in the consolidated financial statements: the finance company (the parent company), the broker-dealer (MP Securities), and the charitable organization (Ministry Partners for Christ). The finance company segment uses funds from the sale of debt securities, income from operations, and the sale of loan participations to originate or purchase mortgage loans. The finance company also services loans. MP Securities generates fee income by selling debt securities and other investment and insurance products, as well as providing investment advisory and financial planning services. The charitable organization, MPC, accepts contributions and makes charitable grants to Christian educational organizations.

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

F-63

Table of Contents

Financial information with respect to the reportable segments is as follows (dollars in thousands):


	Three months ended				Six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Revenue from external sources
Finance Company*	$	1,546	$	1,748	$	2,962	$	4,808
Broker-Dealer		218		233		465		532
Charitable Organization		1,306		—		1,706		—
Adjustments / Eliminations		—		—		—		—
Total	$	3,070	$	1,981	$	5,133	$	5,340

Revenue from internal sources
Finance Company	$	—	$	—	$	—	$	—
Broker-Dealer		329		209		790		494
Charitable Organization		—		—		—		—
Adjustments / Eliminations		(329)		(209)		(790)		(494)
Total	$	—	$	—	$	—	$	—

Interest expense
Finance Company	$	1,467	$	1,089	$	2,719	$	2,240
Broker-Dealer		—		—		—		—
Charitable Organization		—		—		—		—
Adjustments / Eliminations		(386)		(278)		(720)		(568)
Total	$	1,081	$	811	$	1,999	$	1,672

Total non-interest expense and provision for tax
Finance Company	$	745	$	801	$	1,706	$	2,448
Broker-Dealer		333		325		747		897
Charitable Organization		5		41		5		51
Adjustments / Eliminations		—		(50)		—		(50)
Total	$	1,083	$	1,117	$	2,458	$	3,346

Net profit (loss)
Finance Company	$	(676)	$	(166)	$	(1,312)	$	184
Broker-Dealer		214		118		509		130
Charitable Organization		1,301		(41)		1,701		(52)
Adjustments / Eliminations		56		118		(71)		123
Total	$	895	$	29	$	827	$	385

*Note: Finance Company revenue includes gains on debt extinguishment of $300 thousand for the quarter ended June 30, 2022 and $1.8 million for the six months ended June 30, 2022.


	June 30,		December 31,
	2023		2022
	(Unaudited)		(Audited)
Total assets
Finance Company	$	103,182	$	94,523
Broker-Dealer		5,002		4,553
Charitable Organization		2,069		368
Other Segments		56		55
Adjustments / Eliminations		(114)		(136)
Total	$	110,195	$	99,363

F-64

Table of Contents

Note 18: Not-for-profit Disclosures

The following represent required disclosures of MPC, the Company’s wholly owned, not-for-profit organization.

At June 30, 2023, and December 31, 2022, the Company had $303 thousand 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 reserve requirements as of June 30, 2023, and December 31, 2022. Management believes the cash available for use by MPC is sufficient to cover its expenses.

At June 30, 2023, MPC had $2.1 million in net assets, $1.7 million of which is permanently restricted by donors. At December 31, 2022, MPC had $368 thousand in net assets, none of which was permanently restricted by donors.

A breakdown of expenses for MPC for the three- and six-month periods ended June 30, 2023 and 2022, is as follows:


	Three months ended				Six months ended
	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Expenses
Charitable grants	$	—	$	40	$	—	$	50
General and administrative expenses		5		1		5		1
Total	$	5	$	41	$	5	$	51

The change in net assets for MPC for the three- and six-month periods ended June 30, 2023 and 2022 is as follows:

Three months ended

Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Change in net assets

1,301

(41)

1,701

(52)

F-65

Table of Contents

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion compares the results of operations for the three- and six-month periods ended June 30, 2023, and 2022. It should be read in conjunction with our December 31, 2022, Annual Report on Form 10-K and the accompanying unaudited financial statements and Notes set forth in this report.

SAFE HARBOR CAUTIONARY STATEMENT

This Form 10-Q contains forward-looking statements regarding Ministry Partners Investment Company, LLC and our wholly owned subsidiaries, MPF, MP Realty, MPC, and MP Securities, including, without limitation, statements regarding our expectations with respect to revenue, credit losses, levels of non-performing assets, expenses, earnings, and other measures of financial performance. Statements that are not statements of historical facts may be deemed to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate”, “believe”, “estimate”, “expect”, “plan”, “intend”, “should”, “seek”, “will”, and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management.

These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are subject to change based upon numerous factors (many of which are beyond our control). Such risks, uncertainties, and other factors that could cause our financial performance to differ materially from the expectations expressed in such forward-looking statements include, but are not limited to, the risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2022.

As used in this quarterly report, the terms “we”, “us”, “our” or the “Company” means Ministry Partners Investment Company, LLC and our wholly owned subsidiaries, MPF, MP Realty, MP Securities, and MPC.

Table of Contents

OVERVIEW

The effects of the worldwide pandemic have continued to lessen in severity and indicators of economic activity have rebounded from their weakest levels. However, rising prices have become a concern and as a result, the Federal Reserve Board (“FRB”) raised the fed funds target rate up from 0.00% - 0.25% at the beginning of 2022 to 4.25% - 4.50% as of December 31, 2022. Furthermore, the FRB raised the fed funds target by a total of 0.75% to 5.00% - 5.25% during the first half of 2023 as they attempt to reduce inflation. The FRB’s median projection of the fed funds rate at the end of 2023 is 5.6%. In addition to these factors, in the first quarter of 2023, the Federal Deposit Insurance Corporation (“FDIC”) closed two banks and facilitated the buyout of another large bank in the second quarter of 2023. Due to these factors, among others, we continue to watch the impact of rising interest rates and the subsequent impact on the overall economy.

Trends and Strategic Objectives

For the three- and six-month periods ended June 30, 2023, and for the year ended December 31, 2023, Company management has identified the following key trends and strategic objectives:

●

Debt Reduction Strategy. Total assets on the balance sheet have decreased from $153 million as of December 31, 2020, to $110 million as of June 30, 2023. Over the past three years, the Company evaluated the opportunity to make principal debt reductions on its term debt facility at discounts that would net the Company significant gains. These discounts resulted in a $1.8 million gain on debt extinguishment for the year ended December 31, 2022. The Company was able to make these payments using proceeds received from the sale of loan participations, proceeds from principal payments received when borrowers refinanced their loans, and from cash resources the Company had accumulated.

●

Increase Loan Investments. Now that the Company’s debt reduction strategy has been successfully implemented, the Company intends to focus its resources on growing its on-book portfolio of commercial real estate loans to both ministry related borrowers as well as faith-based entrepreneurs. We also intend to expand our investment in business loans made to Christian businesses for commercial purposes. For the six months ended June 30, 2023, the Company increased its net loans receivable by $5.4 million (6.3%), from $85.1 million to $90.5 million.

●

Improve Net Interest Income on Loan Investments. Our strategy of downsizing the Company’s balance sheet has resulted in lower interest income from our commercial loan portfolio. As we incrementally paid off our term debt facility over the preceding three years, 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

Table of Contents

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 we expected to earn in the first two quarters of 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. For the remainder of 2023, Company management 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 securities.

●

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 June 30, 2023, the Company’s total equity is $15.0 million. During the six-month period ended June 30, 2023, the Company’s total assets increased by $10.8 million, representing an increase of 11%, compared to December 31, 2022. This increase resulted from the net growth of $13.9 million of the Company’s debt securities during this period. The Company also has $15.0 million in credit facilities that we can use to expand our investment portfolio. Company management’s purposeful strategy to eliminate the Company’s long-term debt has strengthened our capitalization, our net equity and has provided our investors with a stronger financial company that supports our debt securities program.

●

Improving Core Business Profitability. Over the past three years, the Company’s net income has primarily relied upon on income generated through gains reported from principal payments 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 expected, for the six-month period ended June 30, 2023, we have generated less interest income through our smaller loan portfolio, and we have relied primarily upon other income sources for our earnings. For the six months ended June 30, 2023, we had net income of $895 thousand. However, we would have had a net loss of $805 thousand, but we received charitable contributions of $1.7 million made to our wholly owned charitable foundation, Ministry Partners for Christ (“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, the $1.7 million gift cannot be used 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.

Table of Contents

Now that the Company has paid off our term debt credit facility, we are focused 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. For the remainder of 2023, 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 by outsourcing certain loan administration services;

(iii)

Increasing the sale of our debt securities 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 securities 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.

Table of Contents

Financial Condition

Comparison of Financial Condition on June 30, 2023, and December 31, 2022


					Comparison
	2023		2022		$ Difference		% Difference
	(Unaudited)		(Audited)
	(dollars in thousands)
Assets:
Cash	$	13,271	$	9,504	$	3,767	40%
Restricted cash		1,758		60		1,698	2830%
Certificates of deposit		1,250		1,250		—	—%
Loans receivable, net of allowance for loan losses of $1,512 and $1,551 as of June 30, 2023 and December 31, 2022, respectively		90,467		85,076		5,391	6%
Accrued interest receivable		406		477		(71)	(15%)
Investment in joint venture		883		870		13	1%
Other investments		1,049		1,018		31	3%
Property and equipment, net		119		140		(21)	(15%)
Foreclosed assets, net		301		301		—	—%
Servicing assets		121		123		(2)	(2%)
Other assets		570		544		26	5%
Total assets	$	110,195	$	99,363	$	10,832	11%
Liabilities and members’ equity
Liabilities:
Lines of credit	$	—	$	3,000	$	(3,000)	100%
Other secured borrowings		7		7		—	100%
Debt securities payable, net of debt issuance costs of $47 and $58 as of June 30, 2023 and December 31, 2022, respectively		93,033		79,100		13,933	18%
Accrued interest payable		362		281		81	29%
Other liabilities		1,797		2,349		(552)	(23%)
Total liabilities		95,199		84,737		10,462	12%
Members' Equity:
Series A preferred units		11,715		11,715		—	—%
Class A common units		1,509		1,509		—	—%
Net assets of Ministry Partners for Christ, with donor restrictions		1,700		—		1,700	—%
Accumulated equity		72		1,402		(1,330)	(95%)
Total members' equity		14,996		14,626		370	3%
Total liabilities and members' equity	$	110,195	$	99,363	$	10,832	11%

Cash and Loans

For 2022, our strategy shifted from maintaining our balance sheet size to strengthening capital through the gains on the discounted term debt payoff. With the debt retirement completed in 2022, our strategy going forward will be to grow our balance sheet and our loan portfolio to increase our net interest income. We plan to rely on the sale of our debt securities to fund the growth of our on-book loan portfolio. For the six months ended June 30, 2023, assets grew 11% due to our sale of an additional $13.9 million of debt securities payable. As of June 30, 2023, these funds were invested in both cash and our loan portfolio. Our cash balances grew by $3.8 million, and our net loans

Table of Contents

receivable grew by $5.4 million. Our loans receivable portfolio grew due to loan purchases of $6.0 million and loan originations of $2.7 million. For the remainder of the year, we expect to invest in our loan receivable portfolio by originating new loans as well as purchasing loans from other financial institutions. Because we plan to grow our loan portfolio, we do not anticipate selling participation loans other than facilitating large origination transactions or for other operational needs.

Allowance for Loan Losses

On January 1, 2023, 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 replaces the previous model for measuring credit losses, which involved estimating allowances for current known and inherent losses within the portfolio, with an expected loss model for measuring credit losses. An expected loss model considers allowances for losses expected to be incurred over the life of the assets in the portfolio. The CECL model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures based on historical experiences, current conditions, and reasonable and supportable forecasts. On adoption of the CECL model the Company recorded a one-time cumulative-effect adjustment of $113 thousand that reduced retained earnings on its consolidated balance sheet.

In accordance with ASU No. 2019-04, 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. The Company has also elected to continue to present accrued interest on its loans receivable separately on its consolidated balance sheet. See “Note 1” in the “Notes to Consolidated Financial Statements” in the section titled “Allowance for Loan Losses” for additional information.

Debt securities Payable

Our debt securities payable consist of securities sold under publicly registered security offerings as well as notes sold in private placement offerings. For the six months ended June 30, 2023, net debt securities payable increased by $13.9 million. This is attributable to additional marketing and relationship-building efforts we have made to accomplish our growth goals. Over the last several years, we have expanded our debt securities program by building relationships with other faith-based organizations whereby we can offer our various debt securities products to these organizations and the ministries they serve. Concurrently, MP Securities has continued to increase its retail customer base through client referrals and its networking agreements with key strategic partners.

Table of Contents

Members’ Equity

Our total members’ equity increased 3% to $15.0 million for the six months ended June 30, 2023, which resulted in a capital to asset ratio of 13.6%. During the six-month period ended June 30, 2023, the Company’s wholly owned charitable foundation, Ministry Partners for Christ, received a $1.7 million charitable contribution. Pursuant to a gift agreement entered into with the donor, the gift has been set aside as a restricted gift that must be used to further the donor’s religious and charitable purposes.

The increase in members’ equity was attributable to net income of $827 thousand and the one-time cumulative-effect adjustment to retained earnings of $113 thousand upon the adoption of the CECL model on January 1, 2023, offset by dividends to members of $344 thousand.

Table of Contents

Liquidity and Capital Resources

Liquidity Management

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 17% at June 30, 2023, which is above the minimum set by our policy. 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.

During the quarter ended March 31, 2023, the banking sector experienced volatility because of disruptions to the banking system resulting from multiple bank failures. We did not maintain accounts at these failed banks. However, a significant portion of our cash currently on deposit with financial institutions exceeds insured limits. We limit exposure relating to our short-term financial instruments by diversifying these financial instruments among various counterparties. Generally, deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore we believe bear minimal credit risk. However, if necessary, in addition to these risk mitigation measures we have access to full government-insured banking products into which we could place up to $30 million the same day.

Growing Liquidity Sources

In 2022, the Company expanded its lines of credit available at financial institutions to three lines with a total of $15 million in credit available. As of June 30, 2023, we had no outstanding balance on our lines of credit and had all $15 million available to borrow. More information on our lines of credit is available below under the section titled “Credit Facilities and Other Borrowings.”

The Company is also expanding its sale of its investor debt securities through additional marketing and relationship-building activities. As described earlier, we increased our investor debt securities by $13.9 million during the six months ended June 30, 2023. We expect to continue to grow our investor debt securities portfolio throughout the remainder of the year.

We have also sold loan participations to generate liquidity and believe we can generate additional funding from this source in the future. Because our current strategy is to grow our loan portfolio and increase the amount of interest earning assets on our balance sheet, we expect that we will not sell loan participation in 2023 other than to facilitate the origination of loans that are larger than the amount management prefers to keep on our balance sheet or for other operational reasons. We limit

Table of Contents

the size of loans we keep on the balance sheet to limit the risk of being over concentrated on any one loan. For the six months ended June 30, 2023, we sold $502 thousand in loan participations.

Debt Securities

The table below presents a schedule of our maturing debt securities over three-month increments during the next year, as well as those that are immediately redeemable by investors (dollars in thousands):


Redeemable debt securities	$	6,740
Debt securities maturing in the next 12 months		50,351
Debt securities maturing after 12 months		42,729
Total	$	93,080
Debt issuance costs		47
Debt securities, net of debt issuance costs	$	93,033

Historically, we have been successful in generating reinvestments by our debt security holders when the notes they hold mature. Our note renewal rate remains stable, and our advisory team continues to expand their clientele, which has also increased new debt securities sales.

The table below shows the renewal rates of our maturing notes over the last three years ended December 31:


2022		63%
2021		55%
2020		60%

The renewal rates for the periods ended June 30, 2023, as compared to June 30, 2022, are as follows:

●

Three-month period ended June 30, 2023: 66%

●

Six-month period ended June 30, 2023: 67%

●

Three-month period ended June 30, 2022: 49%

●

Six-month period ended June 30, 2022: 55%

Table of Contents

Credit Facilities and Other Borrowings

The table below is a summary of the Company’s outstanding debt payable as of June 30, 2023 (dollars in thousands):


Nature of Borrowing	Interest Rate	Interest Rate Type	Amount Outstanding		Monthly Payment		Maturity Date	Amount of Loan Collateral Pledged		Other Assets Pledged*
KCT Warehouse LOC	8.500%	Variable	$	—	$	—	6/6/2024	$	5,975	$	1,250
KCT Operating LOC	8.500%	Variable		—		—	6/6/2024		4,797		—
ACCU LOC	8.250%	Variable		—		—	9/23/2024		6,720		—
ACCU Secured	Various	Fixed		7		—	Various		—		7
*Represents cash or certificates of deposit

We can draw up to $10 million on the revolving lines of credit. In addition, we can draw up to $5 million on the KCT Warehouse LOC to facilitate warehousing new loan originations. Each draw on the KCT Warehouse LOC needs to be paid down after 120 days. The ACCU secured borrowings comprise loan participation sales that are classified as secured borrowings and will pay down as the loans amortize.

Debt Covenants

Under our credit facility agreements and our debt securities documents, we are obligated to comply with certain affirmative and negative covenants. Failure to comply with our covenants could require all interest and principal to become due. As of June 30, 2023, we are in compliance with our covenants on our debt securities payable, KCT Warehouse LOC, KCT Operating LOC, and ACCU LOC.

●

For additional information regarding our debt securities payable, refer to “Note 11. Debt Securities Payable” to Part I “Financial Information” of this Report.

●

For additional information on our credit facilities, refer to “Note 10. Credit Facilities” to Part I “Financial Information” of this Report.

Table of Contents

Results of Operations: June 30, 2023

The analysis below compares the Company’s results of operations for the three- and six-month periods ended June 30, 2023 and 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 securities and borrowings.

●

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

Table of Contents

The following tables provide 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 Three Months Ended June 30,
	(Dollars in Thousands)
	2023						2022
	Average Balance		Interest Income/ Expense		Average Yield/ Rate		Average Balance		Interest Income/ Expense		Average Yield/ Rate
Assets:
Interest-earning accounts with other financial institutions	$	16,644	$	173	4.18	%	$	16,511	$	11	0.27	%
Interest-earning loans [1]		77,748		1,373	7.10	%		83,150		1,394	6.72	%
Total interest-earning assets		94,392		1,546	6.59	%		99,661		1,405	5.65	%
Non-interest-earning assets		12,952		—	—	%		7,021		—	—	%
Total Assets	$	107,344	$	1,546	5.79	%	$	106,682	$	1,405	5.28	%

Liabilities:
Debt securities payable gross of debt issuance costs		91,041		1,025	4.53	%		73,687		679	3.70	%
Other debt		73		1	5.51	%		16,481		112	2.73	%
Total interest-bearing liabilities		91,114		1,026	4.53	%		90,168		791	3.52	%
Debt issuance cost				55						20
Total interest-bearing liabilities net of debt issuance cost	$	91,114	$	1,081	4.77	%	$	90,168	$	811	3.61	%

Net interest income			$	465					$	594
Net interest margin					1.98	%					2.39	%

[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.


Rate/Volume Analysis of Net Interest Income

	Three Months Ended June 30, 2023 vs. 2022
	Increase (Decrease) Due to Change in
	Volume		Rate		Total

	(Dollars in Thousands)
Increase in Interest Income:
Interest-earning accounts with other financial institutions	$	1	$	161	$	162
Interest-earning loans		(96)		75		(21)
Total interest-earning assets		(95)		236		141
Increase (Decrease) in Interest Expense:
Debt securities payable gross of debt issuance costs		177		169		346
Other debt		(167)		56		(111)
Debt issuance cost		—		35		35
Total interest-bearing liabilities		10		260		270
Change in net interest income	$	(105)	$	(24)	$	(129)

Table of Contents



	Average Balances and Rates/Yields
	For the Six Months Ended June 30,
	(Dollars in Thousands)
	2023							2022
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate
Assets:
Interest-earning accounts with other financial institutions	$	14,010	$	261		3.77	%	$	16,946	$	15		0.18	%
Interest-earning loans [1]		79,371		2,670		6.80	%		85,732		2,915		6.86	%
Total interest-earning assets		93,381		2,931		6.35	%		102,678		2,930		5.75	%
Non-interest-earning assets		10,144		—		—	%		7,963		—		—	%
Total Assets		103,525		2,931		5.72	%		110,641		2,930		5.34	%

Liabilities:
Debt securities payable gross of debt issuance costs		85,664		1,865		4.40	%		75,397		1,367		3.66	%
Other debt		1,532		59		7.79	%		18,368		251		2.76	%
Total interest-bearing liabilities	$	87,196		1,924		4.46	%	$	93,765		1,618		3.48	%
Debt issuance cost				75							54
Total interest-bearing liabilities net of debt issuance cost	$	87,196		1,999		4.64	%	$	93,765		1,672		3.60	%

Net interest income			$	932						$	1,258
Net interest margin						2.02	%						2.47	%



Rate/Volume Analysis of Net Interest Income

	Six Months Ended June 30, 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	$	(4)	$	250	$	246
Interest-earning loans		(220)		(25)		(245)
Total interest-earning assets		(224)		225		1
Increase (Decrease) in Interest Expense:
Investor notes payable gross of debt issuance costs		199		299		498
Other debt		(371)		179		(192)
Debt issuance cost		—		21		21
Total interest-bearing liabilities		(172)		499		327
Change in net interest income	$	(52)	$	(274)	$	(326)

Total interest income for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, increased due to a rate variance on our interest-earning investment accounts due to an overall market rate increase in banking products. The average yield on our investments increased from 0.27% at June 30, 2022 to 4.18% at June 30, 2023. This was offset by a $21 thousand decrease in interest income from interest-earning loans. This decrease was due to a lower average balance on interest earning loans offset by higher average rates on the loans. The higher loan yields are also due to increased market rates. The volume variance on loans was due to loan participation sales and

Table of Contents

early payoffs on our loan portfolio that occurred in 2022 to fund the retirement of our term-debt. We intend to continue to grow our loan portfolio during the remainder of 2023. These are the same reasons for the variances on the six months ended June 30, 2023. In addition, to the items above, the rate variance on interest earning loans is due to management writing off $102 thousand of accrued interest in the first quarter of 2023 on one loan when the loan became impaired. The weighted average rate of our loan portfolio was 6.38% as of June 30, 2023, an increase from 6.16% as of June 30, 2022, due to higher rates being offered on our loans. Offering rates are higher due to the Fed Funds Rate increases described earlier.

For the three months ended June 30, 2023, total interest expense increased due both to a volume and rate variance on debt securities payable. This was due to the growth in debt securities we described earlier as well as the overall market increase in rates. Interest expense was offset somewhat by the term-debt extinguishment we also described earlier. These were also the same reasons for the variances for the six months ended June 30, 2023, and 2022.

Overall net interest income decreased by $129 thousand for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, due to the items described above. Net interest income decreased by $326 thousand for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, for the same reason. For the three months ended June 30, 2023, compared to the three months ended June 30, 2022, net interest margin decreased 41 basis points. This is a result of the items described above. A smaller net interest margin is to be expected when market interest rates such as treasuries have an inverted yield curve, which means shorter term rates are higher than longer term rates. This is because the company lends its funds out at longer term rates (typically five years) and funds the loan with debt securities with maturities typically less than five years. Most financial institutions will see smaller net interest margins with inverted yield curves. In addition, our margin is also lower due to the extinguishment of the term debt. The term debt had a fixed 2.52% rate, which has been replaced with debt securities payable. For the quarter ended June 30, 2023, the average rate on our debt securities payable was 4.53%. For the six months ended June 30, 2023, compared to the six months ended June 30, 2022, net interest margin decreased 45 basis points for the same reasons.

Table of Contents

Provision and non-interest income and expense


	Three months ended							Six months ended
	June 30,				Comparison			June 30,				Comparison
	(in thousands)							(in thousands)
	2023		2022		$ Diff		% Diff	2023		2022		$ Diff		% Diff
Net interest income	$	465	$	594	$	(129)	(22%)	$	932	$	1,258	$	(326)	(26%)
Provision (credit) for loan losses		11		24		(13)	(54%)		(151)		(63)		(88)	140%
Net interest income after provision (credit) for loan losses		454		570		(116)	(20%)		1,083		1,321		(238)	(18%)
Total non-interest income		1,524		576		948	165%		2,202		2,410		(208)	(9%)
Total non-interest expenses		1,078		1,112		(34)	(3%)		2,448		3,336		(888)	(27%)
Income before provision for income taxes		900		34		866	2547%		837		395		442	112%
Provision for income taxes and state LLC fees		5		5		—	—%		10		10		—	—%
Net income	$	895	$	29	$	866	2986%	$	827	$	385	$	442	115%

Net interest income after provision for loan losses decreased by $116 thousand for the quarter ended June 30, 2023, over the quarter ended June 30, 2022. This decrease was primarily due to the increase in net interest expense related to the volume and rate variance on debt securities described above. For the six months ended June 30, 2023, a credit for loan losses increased by $88 thousand over the prior year due to a loan moving to collateral dependent status. This loan is fully covered by collateral so the collectively reviewed charge was removed and no additional provision added, which resulted in a credit for loan loss for the six months ended June 30, 2023.

The increase in total non-interest income for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022, as shown in the table above, was due mostly to a $1.3 million gift to our private foundation, MPC. Offsetting the increase somewhat was a gain on debt extinguishment of $300 thousand for the quarter ended June 30, 2022, whereas there is no gain on debt extinguishment in 2023 as the debt was retired at the end of 2022. For the six months ended June 30, 2023, we recognized $1.7 million in charitable contributions to our private foundation. For the six months ended June 30, 2022, we recognized $1.8 million in gain on debt extinguishment. Also, our broker dealer commissions and fees were lower by $163 thousand for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. This was due to fewer sales of securities products during the six months ended June 30, 2023.

Non-interest expense decreased by $34 thousand for the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022. For the six months ended June 30, 2023, non-interest expenses decreased by $888 thousand. This decrease was mostly due to $600 thousand expense taken during the six months ended June 30, 2022, in connection with the establishment of a SERP for our President and Chief Executive Officer. This was a non-recurring expense. In addition, salaries and benefits are lower due to staff reductions in the first quarter of this year.

Table of Contents

Item 3: Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Financial Officer, supervised and participated in an evaluation of our disclosure controls and procedures as of June 30, 2023. After evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) as of the end of the period covered by this quarterly report, our Chief Financial Officer has concluded that as of the evaluation date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this quarterly report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports filed under the Exchange Act is accumulated and communicated to our management, including the President and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

The Company made no changes in internal controls during the three- and six-month periods ended June 30, 2023, and 2022.

Table of Contents

PART II - OTHER INFORMATION

Item 1: 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 June 30, 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.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds:

None

Item 3: Defaults upon Senior Securities:

None

Item 4: Mine Safety Disclosure:

None

Item 5: Other Information:

None

Table of Contents

Item 6. Exhibits


Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (**)
31.2	Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) (**)
32.1	Certification of President and Chief Executive Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (**)
32.2	Certification of Principal Accounting Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (**)
101*	The following information from Ministry Partners Investment Company, LLC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the three-month periods ended June 30, 2023 and 2022; (ii) Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022; (iii) Consolidated Statements of Cash Flows for the three and six months ended June 30, 2023 and 2022; and (iv) Notes to Consolidated Financial Statements.

*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

**Filed herewith

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 10, 2023


	MINISTRY PARTNERS INVESTMENT COMPANY, LLC

(Registrant)	By:	/s/ Joseph W. Turner, Jr.
	Joseph W. Turner, Jr.,
	Chief Executive Officer

June 30,

December 31,

Total funds held on deposit at AdelFi

Loan participations purchased from and serviced by AdelFi