UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the period from _____ to _____
(Commission file No.)
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices)
(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 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).
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):
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Large accelerated filer ¨ | Accelerated filer ¨ | |
Smaller reporting company filer | Emerging growth company |
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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
At September 30, 2021, registrant had issued and outstanding
MINISTRY PARTNERS INVESTMENT COMPANY, LLC
FORM 10-Q
TABLE OF CONTENTS
9 |
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| PART I — FINANCIAL INFORMATION |
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Item 1: | F - 1 | |
| F - 2 | |
| F - 3 | |
| F - 4 | |
| F - 5 | |
Item 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | 3 |
Item 3: | 16 | |
Item 4: | 17 | |
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| PART II —OTHER INFORMATION |
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Item 1: | 18 | |
Item 1A: | 18 | |
Item 2: | 19 | |
Item 3: | 20 | |
Item 4: | 21 | |
Item 5: | 22 | |
Item 6: | 23 | |
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| 24 | |
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Exhibit 31.1: | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) |
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Exhibit 31.2: | Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a) |
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Exhibit 32.1: | Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 32.2: | Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
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PART I - FINANCIAL INFORMATION
Ministry Partners Investment Company, LLC and Subsidiaries
September 30, 2021 and December 31, 2020
(Dollars in thousands Except Unit Data)
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| September 30, |
| December 31, | ||
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| 2021 |
| 2020 | ||
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Assets: |
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Cash and cash equivalents |
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Restricted cash |
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Certificates of deposit |
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Loans receivable, net of allowance for loan losses of $ |
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Accrued interest receivable |
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Investment in joint venture |
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Property and equipment, net |
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Foreclosed assets, net |
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Servicing assets |
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Other assets |
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Total assets |
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| $ | |
Liabilities and members’ equity |
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Liabilities: |
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Lines of credit |
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Term-debt |
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Other secured borrowings |
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Investor notes payable, net of debt issuance costs of $ |
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Accrued interest payable |
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Other liabilities |
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Total liabilities |
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Members' Equity: |
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Series A preferred units, |
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Class A common units, |
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Accumulated equity (deficit) |
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Total members' equity |
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Total liabilities and members' equity |
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| $ | |
The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC and Subsidiaries
For the three and nine month periods ended September 30, 2021 and 2020
(Dollars in thousands)
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| Three months ended |
| Nine months ended | ||||||||
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| September 30, |
| September 30, | ||||||||
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| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest income: |
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Interest on loans |
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Interest on interest-bearing accounts |
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Total interest income |
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Interest expense: |
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Investor notes payable |
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Other debt |
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Total interest expense |
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Net interest income |
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Provision (credit) for loan losses |
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Net interest income after provision (credit) for loan losses |
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Non-interest income: |
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Broker-dealer commissions and fees |
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Other income |
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Gain on debt extinguishment |
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Total non-interest income |
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Non-interest expenses: |
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Salaries and benefits |
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Marketing and promotion |
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Office occupancy |
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Office operations and other expenses |
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Foreclosed assets, net |
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Legal and accounting |
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Total non-interest expenses |
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Income before provision for income taxes |
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Provision for income taxes and state LLC fees |
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Net income |
| $ | |
| $ | |
| $ | |
| $ | |
The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC and Subsidiaries
For the nine months ended September 30, 2021 and 2020
(Dollars in thousands)
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| Nine months ended | ||||
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| September 30, | ||||
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| 2021 |
| 2020 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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Adjustments to reconcile net income to net cash provided (used) by operating activities: |
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Depreciation |
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Amortization of deferred loan fees |
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Amortization of debt issuance costs |
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Provision for loan losses |
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Accretion of loan discount |
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Gain on sale of loans |
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Gain on sale of foreclosed assets |
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Loss on sale of fixed assets |
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Gain on extinguishment of debt |
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Changes in: |
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Accrued interest receivable |
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Other assets |
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Accrued interest payable |
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Other liabilities |
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Net cash provided (used) by operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Loan purchases |
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Loan originations |
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Loan sales |
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Loan principal collections |
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Redemption (purchase) of certificates of deposit |
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Foreclosed asset sales |
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Purchase of property and equipment |
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Sale of property and equipment |
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Net cash provided by investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Principal payments on term debt |
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Borrowings, net of repayments on lines of credit |
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Borrowings, net of repayments on secured borrowings |
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Net change in investor notes payable |
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Debt issuance costs |
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Dividends paid on preferred units |
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Net cash used by financing activities |
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Net (decrease) in cash and restricted cash |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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Supplemental disclosures of cash flow information |
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Interest paid |
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Income taxes paid |
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Supplemental disclosures of non-cash transactions |
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Servicing assets recorded |
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Leased assets obtained in exchange of new operating lease liabilities |
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Lease liabilities recorded |
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Dividends declared to preferred unit holders |
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The accompanying notes are an integral part of these consolidated financial statements.
Ministry Partners Investment Company, LLC
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 2020 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 at September 30, 2021 and for the nine months ended September 30, 2021 and 2020 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 September 30, 2021 and 2020 are not necessarily indicative of the results for the full year.
The Company was formed in California in 1991. The Company’s primary operations are financing commercial real property secured loans and providing investment advisory and insurance services and products for the benefit of evangelical churches, ministries, and individuals.
The Company’s wholly-owned subsidiaries are:
Ministry Partners Funding, LLC, a Delaware limited liability company (“MPF”);
MP Realty Services, Inc., a California corporation (“MP Realty”);
Ministry Partners Securities, LLC, a Delaware limited liability company (“MP Securities”); and
Ministry Partners for Christ, Inc., a not-for-profit Delaware corporation (“MPC”).
The Company formed MPF in 2007 and then deactivated the subsidiary on November 30, 2009. In December 2014, the Company reactivated MPF to enable it to serve as collateral agent for loans held as collateral for its Secured Investment Certificates.
The Company formed MP Realty in November 2009 and obtained a license to operate as a corporate real estate broker through the California Department of Real Estate on February 23, 2010. MP Realty has conducted limited operations to date.
The Company formed MP Securities on April 26, 2010 to provide investment and financial planning solutions for individuals, churches, charitable institutions, and faith-based organizations. MP Securities acts as the selling agent for the Company’s public and private placement 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. MPC is a not-for-profit corporation formed and organized as a private foundation under Delaware law that makes charitable grants to Christian education, and provides accounting, consulting, and financial expertise to aid evangelical Christian ministries. On August 23, 2019, the Internal Revenue Service granted MPC tax-exempt status as a private foundation under Section 501(c)(3) of the Internal Revenue Code. The MPC Board of Directors approved its first charitable grants during the year ended December 31, 2020.
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.
Effective as of December 31, 2008, the Company converted its form of organization from a corporation organized under California law to a limited liability company organized under the laws of the State of California. With the filing of Articles of Organization-Conversion with the California Secretary of State, the separate existence of Ministry Partners Investment Corporation ceased, and the entity continued by operation of law under the name Ministry Partners Investment Company, LLC.
Since the conversion became effective, a group of managers provides oversight of the Company’s affairs. The managers have full, exclusive, and complete discretion, power, and authority to oversee the management of Company affairs. As an LLC, the Company’s managers and members have entered into an Operating Agreement that governs the Company’s management structure and governance procedures.
COVID-19, a global pandemic, has adversely impacted the broad economy, affecting most industries, including businesses, schools, hospitality- and travel-based employers, and has disrupted the supply and distribution networks that deliver products to the consuming public. The process of recovery from the pandemic by U.S. churches, ministries, and faith-
based organizations that the Company serves could have a material financial impact on the Company. If declining in-person attendance at churches and faith-based organizations continues as churches and ministries adjust to the long-term effects of the pandemic, charitable gifts and contributions made to ministries and churches could be adversely affected. Furthermore, while there has been no material impact to the Company’s employees to date, COVID-19 could potentially create business continuity issues for the Company.
In accordance with Financial Accounting Standards Board (FASB) and interagency regulatory guidance issued in March 2020, loans that were modified under the terms of our COVID-19 Deferral Assistance Program were not considered troubled debt restructurings to the extent that they met the terms of such guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act guidance applies to modifications made between March 1, 2020 and the earlier of January 2, 2022 or sixty (60) days after the end of the COVID-19 national emergency, as stipulated by the Consolidated Appropriations Act signed into law on December 31, 2020. The Company has relied upon and applied this guidance to modifications it granted since the first quarter of 2020.
The Company’s operations are dependent upon the willingness and ability of its employees, borrowers, noteholders, and investment clients to conduct financial transactions. While the U.S. economy has reported gains as COVID-19 restrictions and curtailment of activities orders have been eased, modified or lifted, depending on the region of the country impacted, the discovery and spread of new variants of the coronavirus have raised concerns about the potential continuation of the pandemic. The uncertainty of the recovery and long-term effects of the pandemic could materially and adversely affect the Company’s business, operating results, financial condition or liquidity. While it is not possible to know the full extent of the impact of COVID-19, resulting measures to curtail its spread and recovery of the economy as the U.S. reopens and prepares for the variant strains of the pandemic, the Company is disclosing potentially material factors that could impact our business of which it is aware.
Cash equivalents include time deposits, certificates of deposit, 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 September 30, 2021 and December 31, 2020.
The National Credit Union 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 banks. The Company holds cash deposits that may exceed insured limits. Management does not expect to incur losses in these cash accounts.
The Company maintains cash accounts with Royal Bank of Canada Dain Rauscher (“RBC Dain”) as part of its clearing agreement for its securities-related activities, and with the Central Registration Depository (“CRD”) for regulatory purposes in connections with its investment advisory and securities-related business. The Company also maintains cash in an account with America’s Christian Credit Union (“ACCU”) as collateral for its secured borrowings.
The Company classifies these accounts as restricted cash on its balance sheet.
Certificates of deposit include investments in certificates of deposit held at financial institutions that carry original maturities of greater than three months.
Details of certificates with original maturities of greater than three months owned by the Company are as follows (dollars in thousands):
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As of September 30, 2021 | ||||||||||||
Certificate |
| Open Date |
| Certificate Amount |
| Interest Rate |
| Maturity Date | ||||
CD 1 |
| 1/13/2020 |
| $ | |
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As of December 31, 2020 | ||||||||||||
Certificate |
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| Certificate Amount |
| Interest Rate |
| Maturity Date | ||||
CD 1 |
| 1/13/2020 |
| $ | |
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CD 2 |
| 4/1/2020 |
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Total |
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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 is accounting for its investment in joint venture under the equity method of accounting. Under this method, the Company records its proportionate share of the joint venture net income or loss in the Company's statement of operations. The Company
assesses its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. Any difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment change if the loss in value is deemed other than temporary. Management determined that investment in the joint venture was not impaired at September 30, 2021.
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.
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 are interest accrued and unpaid which the Company added to loan principal balances when it restructured 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 restructured loan. For loans purchased from third parties, loan discounts also are the 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 nonaccrual 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.
Management sets aside an allowance for loan losses by charging the provision for loan losses account on the consolidated statements of income. This charge decreases the Company’s earnings. Management charges off the part of loan balances it believes it will not collect against the allowance. The Company credits subsequent recoveries, if any, to the allowance.
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’s loan portfolio consists of
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Loan Class |
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Wholly-Owned First Collateral Position |
| Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a senior lien on the collateral underlying the loan. |
Wholly-Owned Junior Collateral Position |
| Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. This class also contains any loans that are not secured. These loans present higher credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan default. |
Participations First Collateral Position |
| Participated loans purchased from another financial entity for which the Company possesses a senior lien on the collateral underlying the loan. Loan participations purchased may present higher credit risk than wholly-owned loans because disposition and direction of actions regarding the management and collection of the loans must be coordinated and negotiated with the other participants, whose best interests regarding the loan may not align with those of the Company. |
Participations Junior Collateral Position |
| Participated loans purchased from another financial entity for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. Loan participations in the junior collateral position loans have higher credit risk than wholly-owned loans and participated loans purchased where the Company possesses a senior lien on the collateral. The increased risk is the result of the factors presented above relating to both junior lien positions and participations. |
Management evaluates the allowance for loan losses on a regular basis. The Company establishes the allowance for loan losses based upon its periodic review of several factors management believes influences the collectability of the loans, including:
the Company’s loss history;
the characteristics and volume of the loan portfolio;
adverse conditions that may affect the borrower’s ability to repay;
the estimated value of any secured collateral; and
the current economic conditions.
This evaluation is subjective, as it requires estimates that are subject to significant revision as more information becomes available.
The allowance consists of general and specific components. The general component covers non-classified loans. Management bases the general reserve on the Company’s loss history adjusted for qualitative factors. These qualitative factors are significant factors management considers likely to cause estimated credit losses associated with the Company’s existing portfolio to differ from its historical loss experience. Management adjusts these factors on an on-going basis, some of which include:
changes in lending policies and procedures, including changes in underwriting standards and collection;
changes in national, regional, and local economic and industry conditions that affect the collectability of the portfolio, including the effects of the pandemic, recovery efforts, and long term impact on our borrower’ ministries from the pandemic;
changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans;
changes in the value of the collateral for collateral-dependent loans; and
the effect of credit concentrations.
Loans that management has classified as impaired receive a specific reserve. For such loans, an allowance is established when the carrying value of that loan is higher than the amount management expects to collect. Management uses multiple approaches to determine the amount the Company expects to receive. 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.
Impaired loans include non-accrual loans, loans 90 days or more past due and still accruing, and restructured loans. Non-accrual loans are loans on which management has discontinued interest accruals. Restructured loans are loans in which the Company has granted the borrower a concession due to financial distress. Concessions are usually a reduction of the interest rate or a change in the original repayment terms.
The Company monitors impaired loans on an ongoing basis as part of management’s loan review and work out process. All loans in the loan portfolio are subject to impairment analysis. The Company reviews its loan portfolio monthly by examining several data points. These include reviewing delinquency reports, any new information related to the financial condition of its borrowers, and any new appraisal or other collateral valuation. Through this process, the Company identifies potential impaired loans. Management
generally deems a loan is impaired when current facts and circumstances indicate that it is probable that a borrower will be unable to make payments according to the loan agreement. If management has not already deemed a loan impaired, it will classify the loan as non-accrual when it becomes 90 days or more past due.
Management considers several factors when determining impairment status. These factors include the loan’s payment status, the value of any secured collateral, and the probability of collecting scheduled payments when due. Management generally does not classify loans that experience minor payment delays or shortfalls as impaired. Management determines 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.
A troubled debt restructuring is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to a borrower that the Company would not otherwise consider. A restructuring of a loan usually involves an interest rate modification, extension of the maturity date, payment reduction, or reduction of accrued interest owed on the loan on a contingent or absolute basis.
Management considers loans that it renews at below-market terms to be troubled debt restructurings if the below-market terms represent a concession due to the borrower’s troubled financial condition. The Company classifies troubled debt restructurings as impaired loans. For the loans that are not considered to be collateral-dependent, management measures troubled debt restructurings at the present value of estimated future cash flows using the loan's effective rate at origination of the loan. The Company reports the change in the present value of cash flows related to the passage of time as interest income. If the loan is 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 troubled debt restructuring. However, if a troubled debt restructuring meets certain performance conditions management may upgrade the loan to a non-classified loan rating (pass or watch) and begin accruing interest on the loan. Management classifies these loans as performing troubled debt restructurings. These loans
continue to be included in total impaired loans but not necessarily in non-accrual or collateral-dependent loans.
Section 403 of the CARES Act provides that a qualifying loan modification or extension is exempt by law from classification as a troubled debt restructuring pursuant to FASB ASC 340-10. On April 7, 2020, the Office of the Comptroller of the Currency and related financial agencies issued OCC Bulletin 2020-35, which provides further guidance regarding when a loan modification or extension is not subject to classification as a TDR pursuant to FASB ASC 340-10.
Under section 4013 of the CARES Act, financial institutions may elect not to categorize a loan modification as a troubled debt restructuring if it is
(1)related to COVID-19;
(2)executed on a loan that was not more than thirty (30) days past due as of December 31, 2019; and
(3)executed between March 31, 2020, and the earlier of (A) sixty (60) days after the termination of the National Emergency or (B) December 31, 2020.*
* Congress has extended the period to include the earlier of January 2, 2022 or sixty (60) days after the end of the COVID-19 national emergency pursuant to the Consolidated Appropriations Act signed on December 31, 2020.
For all other loan modifications, federal agencies that regulate financial institutions have confirmed with FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to relief being extended, would not be classified as a troubled debt restructuring. This treatment includes short-term modifications including payment deferrals, fee waivers, and extension of repayment terms. The Company has relied upon the CARES Act and guidance from banking regulators related to modifications granted since the first quarter of 2020.
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.
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:
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.
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. Potential for loss under adverse circumstances is elevated, but not foreseeable. Watch loans are considered pass loans.
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.
Loans and other credit extensions bearing this grade are considered 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.
This classification consists of loans that display the properties of substandard loans with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values. The probability of some loss is very high, but because of certain important and reasonably specific factors, the amount of loss cannot be exactly determined. Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.
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.
The Company recognizes
The Company’s principal source of revenue is interest income from loans, which is not within the scope of ASU 2014-09, Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, "ASC 606"). Refer to the discussion in “Loans Receivable” above to understand the Company’s recognition of interest income.
Non-interest income includes revenue from various types of transactions and services provided to customers. Contracts with customers can include multiple services, which are accounted for as separate “performance obligations” if they are determined to be distinct. Our performance obligations to our customers are generally satisfied when we transfer the promised good or service to our customer, either at a point in time or over time. Revenue from a performance obligation transferred at a point in time is recognized at the time that the customer obtains control over the promised good or service. Revenue from our performance obligations satisfied over time are recognized in a manner that depicts our performance in transferring control of the good or service, which is generally measured based on time elapsed, as our customers simultaneously receive and consume the benefit of our services as they are provided.
Payment for the majority of our services is considered to be variable consideration, as the amount of revenues we expect to receive is subject to factors outside of our control, including market conditions. Variable consideration is only included in revenue when amounts are not subject to significant reversal, which is generally when uncertainty around the amount of revenue to be received is resolved.
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 arise from the selling, distribution, and trade execution services. The Company’s execution of these services fulfills its related performance obligations.
The Company also offers sales and distribution services and earns commissions through the sale of annuity and mutual fund products. The Company acts as an agent in these transactions and recognizes revenue at a point in time when the customer executes a contract with a product carrier. The Company may also receive trailing commissions and 12b-1 fees related to mutual fund and annuity products. Management recognizes this revenue in the period when it is earned, estimating the revenue, if necessary, based on the balance of the investment and the commission rate on the product.
The Company earns and recognizes trade execution commissions on the trade date, which is when the Company fulfills its performance obligation. Payment for the trade execution is due on the settlement date.
Lending fees 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.
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 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.
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, whether collectability of the transaction price is probable, and the sufficiency of down
payment, 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 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.
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 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.
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. In order to recognize the transfer of a portion of a financial asset as a sale, the transferred portion, and any portion that the transferor continues to hold must
represent a participating interest. In addition, the transfer of the participating interest must meet the conditions for surrender of control. To qualify as a participating interest:
each portion of a financial asset must represent a proportionate ownership interest in an entire financial asset;
from the date of transfer, all cash flows received from the entire financial asset must be divided proportionately among the participating interest holders in an amount equal to their respective share of ownership;
the transfer must be made on a non-recourse basis (other than standard representations and warranties made under the loan participation sale agreement);
the transfer may not be subordinate to any other participating interest holder; and
no party has the right to pledge or exchange the entire financial asset.
If the transaction does not meet either the participating interest or surrender of control criteria, management accounts for it as a secured borrowing arrangement.
Under some circumstances, when the Company sells a participation in a wholly-owned loan receivable that it services, it retains loan-servicing rights, and records a servicing asset that is initially measured at fair value. As quoted market prices are generally not available for these assets, the Company estimates fair value based on the present value of future expected cash flows associated with the loan receivable. The Company amortizes servicing assets over the life of the associated receivable using the interest method. Any gain or loss recognized on the sale of a loan receivable depends in part on both the previous carrying amount of the financial asset involved in the sale, allocated between the asset sold and the interest that continues to be held by the Company based on its relative fair value at the date of transfer, and the proceeds received.
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 to
The Company’s debt consists of borrowings from financial institutions and obligations to investors incurred through the sale of investor notes. Management presents debt net of debt issuance costs, and amortizes debt issuance costs into interest expense over the contractual terms of the debt using the straight-line method.
The Company records contributions to the qualified employee retirement plan as compensation cost in the period incurred.
The Company has elected to be treated as a partnership for income tax purposes. Therefore, the Company passes through its income and expenses to its members for tax reporting purposes.
Tesoro Hills, LLC, is a joint venture in which the Company has an investment. Tesoro Hills, according to its operating agreement, has elected to be treated as a partnership for income tax purposes.
The Company and MP Securities are subject to a California LLC fee.
The Company uses a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken in a tax return. The Company recognizes benefits from tax positions in the consolidated financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Management derecognizes previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold in the first subsequent financial reporting period in which that threshold is no longer met.
In March 2020, various regulatory agencies issued an interagency statement on loan modifications and reporting for financial institutions working with borrowers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee
waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The effects of the implementation of this guidance are disclosed in Note 4: Loans Receivable and Allowance for Loan Losses.
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.
Under the terms of its debt agreement, the Company has the ability to pledge cash as collateral for its borrowings. At December 31, 2020, the Company held
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):
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| September 30, |
| December 31, | |||||
| 2021 |
| 2020 |
| 2020 | |||
Cash and cash equivalents | $ | |
| $ | |
| $ | |
Restricted cash |
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Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | |
| $ | |
| $ | |
The tables below summarize transactions the Company conducts with ECCU, the Company’s largest equity owner.
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| September 30, |
| December 31, | ||
| 2021 |
| 2020 | ||
Total funds held on deposit at ECCU | $ | |
| $ | |
Loan participations purchased from and serviced by ECCU |
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| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest earned on funds held with ECCU | $ | — |
| $ | |
| $ | |
| $ | |
Interest income earned on loans purchased from ECCU |
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Loans sold to ECCU |
| — |
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| — |
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| — |
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Fees paid to ECCU from MP Securities Networking Agreement |
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Income from Successor Servicing Agreement with ECCU |
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Rent expense on lease agreement with ECCU |
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Management negotiated the pass-through interest rates on these loans on a loan-by-loan basis. Management believes these negotiated terms were equivalent to those that would prevail in an arm's length transaction. The Company did
From time to time, the Company may sell loans to ECCU. On January 23, 2020, the Company sold an impaired loan to ECCU in order to recoup its recorded investment in the loan. The Company sold
The Company leases its corporate offices and purchases other facility-related services from ECCU pursuant to a written lease and services agreement. Management believes these terms are equivalent to those that prevail in arm's length transactions.
MP Securities has entered into a Networking Agreement with ECCU pursuant to which MP Securities agreed to offer investment and insurance products and services to ECCU’s members that:
(1) ECCU 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 Financial Industry Regulation Authority (“FINRA”).
The agreement provides that MP Securities will pay ECCU a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ECCU members. Either ECCU or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice.
On October 5, 2016, the Company entered into a Successor Servicing Agreement with ECCU. This agreement obligates the Company to serve as the successor loan-servicing agent for certain mortgage loans designated by ECCU. The Company will service these loans in the event ECCU requests that the Company assume its obligation to act as the servicing agent for those loans. The original Agreement terminated in October 2019, and has converted to a month-to-month agreement.
The 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.
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| September 30, |
| December 31, | ||
| 2021 |
| 2020 | ||
Total funds held on deposit at ACCU | $ | |
| $ | |
Dollar amount of outstanding loan participations sold to ACCU and serviced by the Company |
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Amount owed on ACCU secured borrowings |
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Amount owed on ACCU line of credit |
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Loans pledged on ACCU line of credit |
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| September 30, |
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Interest earned on funds held with ACCU | $ | |
| $ | |
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Loans sold to ACCU |
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Dollar amount of secured borrowings made from ACCU |
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Dollar amount of draws on ACCU line of credit |
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Interest expense on ACCU borrowings |
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Interest income earned on loans purchased from ACCU |
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Income from broker services provided to ACCU by MPS |
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Fees paid based on MP Securities Networking Agreement with ACCU |
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The Company negotiates pass-through interest rates on loan participation interests purchased from ACCU on a loan-by-loan basis. Management believes these terms are equivalent to those that prevail in arm's length transactions. The Company did
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, one of its credit union owners. 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 will allow the Company to sell additional participations in the loan to other credit unions.
Sales made under the Master LP Agreement will be done on a recourse basis, requiring the Company to repurchase the participation interest in the event of default by the borrower. Under a separate Deposit Control Agreement reached in conjunction with the Master LP Agreement, the Company will deposit cash on a
As of September 30, 2021, $
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
On September 23, 2021, the Company entered into a Loan and Security Agreement with ACCU. The ACCU line of credit (“ACCU LOC”) is a $
Our Board Chairperson, R. Michael Lee, serves as the Chief Executive Officer and President of KCT.
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| September 30, |
| December 31, | ||
| 2021 |
| 2020 | ||
Total funds held on deposit at KCT | $ | |
| $ | |
Amount owed on KCT line of credit |
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Loans pledged on KCT line of credit |
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Outstanding loan participations sold to KCT and serviced by the Company |
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| September 30, |
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| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest earned on funds held with KCT | $ | |
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Loans sold to KCT |
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Dollar amount of draws on KCT line of credit |
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Interest expense on KCT line of credit |
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Fees paid based on MP Securities Networking Agreement with KCT |
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On January 13, 2020, the Company purchased $
On September 30, 2020, the Company entered into a Loan and Security Agreement with KCT Credit Union, an Illinois state chartered financial institution. The KCT line of credit (“KCT LOC”) is a $
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
(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
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 September 30, 2021, the Company services $
From time to time the Company will engage in transactions with other owners or related parties.
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| September 30, |
| December 31, | ||
| 2021 |
| 2020 | ||
Outstanding loan participations sold to UFCU and serviced by the Company | $ | |
| $ | |
Outstanding loan participations sold to NFCU and serviced by the Company |
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Outstanding notes payable to officers and mangers |
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The Company has 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 $
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 $
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.
From time to time, the Company’s Board and members of its executive management team have purchased investor notes from the Company or have purchased investment products through MP Securities. Investor notes payable owned by related parties totaled $
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
The Company also has entered into an Administrative Services Agreement with MP Securities. The Administrative Services Agreement provides services such as the use of office space, use of equipment, including computers and phones, and payroll and personnel services. The agreement stipulates that MP Securities will provide ministerial, compliance, marketing, operational, and investor relations-related services in relation to the Company’s investor note program. As stated above, the Company eliminates all intercompany transactions related to this agreement in its consolidated financial statements.
The Company’s subsidiary, MPF, serves as the collateral agent for the Company’s Secured Notes. The Company’s Prospectus for its 2021 Class A Notes and the private placement memorandum for the Company’s Secured Notes Offering describe the terms of these agreements. See Note 11: Investor Notes Payable to Part I, Item I “Financial Information” of this Report.
The Company’s loan portfolio comprises one segment – church loans. See “Note 1 – Loan Portfolio Segments and Classes” to Part I “Financial Information” of this Report. The loans fall into
wholly-owned loans for which the Company possesses the first collateral position;
wholly-owned loans that are either unsecured or for which the Company possesses a junior collateral position;
participated loans purchased for which the Company possesses the first collateral position; and
participated loans purchased for which the Company possesses a junior collateral position.
The Company makes all of its loans to various evangelical churches and related organizations, primarily to purchase, construct, or improve facilities. Loan maturities extend through 2036. The loan portfolio had a weighted average interest rate of
The table below is a summary of the Company’s mortgage loans owned (dollars in thousands):
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| September 30, |
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| 2020 | ||
Loans to evangelical churches and related organizations: |
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Real estate secured |
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Unsecured |
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Total loans |
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Deferred loan fees, net |
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Loan discount |
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Allowance for loan losses |
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Loans, net |
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| $ | |
Management believes it has properly calculated the allowance for loan losses as of September 30, 2021 and December 31, 2020. The following table shows the changes in the allowance for loan losses for the nine months ended September 30, 2021 and the year ended December 31, 2020 (dollars in thousands):
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| December 31, | ||
Balance, beginning of period |
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Provision for loan loss |
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Charge-offs |
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Balance, end of period |
| $ | |
| $ | |
The table below presents loans by portfolio segment (church loans) and the related allowance for loan losses. In addition, the table segregates loans and the allowance for loan losses by impairment methodology (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans and Allowance | ||||
|
| As of | ||||
|
| September 30, |
| December 31, | ||
Loans: |
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | |
| $ | |
Collectively evaluated for impairment |
|
| |
|
| |
Balance |
| $ | |
| $ | |
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | |
| $ | |
Collectively evaluated for impairment |
|
| |
|
| |
Balance |
| $ | |
| $ | |
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 September 30, 2021 | |||||||||||||||
|
| Wholly-Owned First |
| Wholly-Owned Junior |
| Participation First |
| Participation Junior |
| Total | |||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | |
Watch |
|
| |
|
| |
|
| |
|
| — |
|
| |
Special mention |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Substandard |
|
| |
|
| |
|
| — |
|
| — |
|
| |
Doubtful |
|
| |
|
| — |
|
| — |
|
| — |
|
| |
Loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Quality Indicators (by class) | |||||||||||||||
As of December 31, 2020 | |||||||||||||||
|
| Wholly-Owned First |
| Wholly-Owned Junior |
| Participation First |
| Participation Junior |
| Total | |||||
Grade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | |
Watch |
|
| |
|
| |
|
| |
|
| — |
|
| |
Special mention |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Substandard |
|
| |
|
| — |
|
| — |
|
| — |
|
| |
Doubtful |
|
| |
|
| — |
|
| — |
|
| — |
|
| |
Loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
| $ | |
| $ | |
| $ | |
| $ | — |
| $ | |
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 September 30, 2021 | |||||||||||||||||||||
|
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| Greater Than 90 Days |
| Total Past Due |
| Current |
| Total Loans |
| Recorded Investment 90 Days or More and Still Accruing | |||||||
Church loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-Owned First |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | — |
Wholly-Owned Junior |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| |
|
| — |
Participation First |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| |
|
| — |
Participation Junior |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age Analysis of Past Due Loans (by class) | |||||||||||||||||||||
As of December 31, 2020 | |||||||||||||||||||||
|
| 30-59 Days Past Due |
| 60-89 Days Past Due |
| Greater Than 90 Days |
| Total Past Due |
| Current |
| Total Loans |
| Recorded Investment 90 Days or More and Still Accruing | |||||||
Church loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-Owned First |
| $ | |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | — |
Wholly-Owned Junior |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| |
|
| — |
Participation First |
|
| — |
|
| — |
|
| — |
|
| — |
|
| |
|
| |
|
| — |
Participation Junior |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
| $ | |
| $ | — |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | — |
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 troubled debt restructurings that have been performing 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 (dollars in thousands):
|
|
|
|
|
|
|
Impaired Loans (by class) |
| As of |
| As of | ||
|
| September 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
Wholly-Owned First |
|
|
|
|
|
|
Recorded Investment with allowance |
| $ | |
| $ | |
Recorded with no Allowance |
|
| |
|
| |
Total Recorded Investment |
| $ | |
| $ | |
Unpaid Principal Balance |
| $ | |
| $ | |
Wholly-Owned Junior |
|
|
|
|
|
|
Recorded Investment with allowance |
| $ | — |
| $ | — |
Recorded with no Allowance |
|
| |
|
| — |
Total Recorded Investment |
| $ | |
| $ | — |
Unpaid Principal Balance |
| $ | |
| $ | — |
Participation First |
|
|
|
|
|
|
Recorded Investment with allowance |
| $ | — |
| $ | — |
Recorded with no Allowance |
|
| — |
|
| — |
Total Recorded Investment |
| $ | — |
| $ | — |
Unpaid Principal Balance |
| $ | — |
| $ | — |
Participation Junior |
|
|
|
|
|
|
Recorded Investment with allowance |
| $ | — |
| $ | — |
Recorded with no Allowance |
|
| — |
|
| — |
Total Recorded Investment |
| $ | — |
| $ | — |
Unpaid Principal Balance |
| $ | — |
| $ | — |
Total Impaired Loans |
|
|
|
|
|
|
Recorded Investment with allowance |
| $ | |
| $ | |
Recorded with no Allowance |
|
| |
|
| |
Total Recorded Investment |
| $ | |
| $ | |
Unpaid Principal Balance |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans (by class) |
| For the three months ended |
| For the nine months ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Wholly-Owned First |
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Investment | $ |
| |
| $ | |
| $ | |
| $ | |
Interest Income Recognized |
|
| |
|
| |
|
| |
|
| |
Wholly-Owned Junior |
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Investment |
|
| |
|
| — |
|
| |
|
| — |
Interest Income Recognized |
|
| — |
|
| — |
|
| — |
|
| — |
Participation First |
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Investment |
|
| — |
|
| — |
|
| — |
|
| |
Interest Income Recognized |
|
| — |
|
| — |
|
| — |
|
| |
Participation Junior |
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Investment |
|
| — |
|
| — |
|
| — |
|
| — |
Interest Income Recognized |
|
| — |
|
| — |
|
| — |
|
| — |
Total Impaired Loans |
|
|
|
|
|
|
|
|
|
|
|
|
Average Recorded Investment |
| $ | |
| $ | |
| $ | |
| $ | |
Interest Income Recognized |
|
| |
|
| |
|
| |
|
| |
A summary of nonaccrual loans by loan class is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on Nonaccrual Status (by class) | ||||||
|
| as of | ||||
|
| September 30, 2021 |
| December 31, 2020 | ||
Church loans: |
|
|
|
|
|
|
Wholly-Owned First |
| $ | |
| $ | |
Wholly-Owned Junior |
|
| |
|
| — |
Participation First |
|
| — |
|
| — |
Participation Junior |
|
| — |
|
| — |
Total |
| $ | |
| $ | |
Beginning in April 2020, the Company has taken measures to assist borrowers adversely affected by COVID-19 by deferring principal and/or interest payments. The concessions granted meet the qualifications under Section 4013 of the CARES Act. As a result, the Company has elected not to account for these modifications as troubled debt restructurings. The Company granted concessions to
There were
A summary of loans the Company restructured during the three and nine month periods ended September 30, 2021 and 2020 is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings (by class) | ||||||||||||
|
| For the three months ended |
| For the nine months ended | ||||||||
|
| September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 | ||||
Church loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Wholly-Owned First |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
|
|
|
| — |
|
| |
|
| |
Pre-Modification Outstanding Recorded Investment |
| $ |
|
| $ | — |
| $ | |
| $ | |
Post-Modification Outstanding Recorded Investment |
|
|
|
|
| — |
|
| |
|
| |
Recorded Investment At Period End |
|
|
|
|
| — |
|
| |
|
| |
Wholly-Owned Junior |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
| — |
|
| — |
|
| — |
|
| — |
Pre-Modification Outstanding Recorded Investment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Post-Modification Outstanding Recorded Investment |
|
| — |
|
| — |
|
| — |
|
| — |
Recorded Investment At Period End |
|
| — |
|
| — |
|
| — |
|
| — |
Participation First |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
| — |
|
| — |
|
| — |
|
| — |
Pre-Modification Outstanding Recorded Investment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Post-Modification Outstanding Recorded Investment |
|
| — |
|
| — |
|
| — |
|
| — |
Recorded Investment At Period End |
|
| — |
|
| — |
|
| — |
|
| — |
Participation Junior |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
| — |
|
| — |
|
| — |
|
| — |
Pre-Modification Outstanding Recorded Investment |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Post-Modification Outstanding Recorded Investment |
|
| — |
|
| — |
|
| — |
|
| — |
Recorded Investment At Period End |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
| — |
|
| — |
|
| |
|
| |
Pre-Modification Outstanding Recorded Investment |
| $ | — |
| $ | — |
| $ | |
| $ | |
Post-Modification Outstanding Recorded Investment |
|
| — |
|
| — |
|
| |
|
| |
Recorded Investment At Period End |
|
| — |
|
| — |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings Defaulted (by class) | ||||||
For the three months ended September 30, 2021 | ||||||
|
| Number of Loans |
| Recorded Investment | ||
Troubled debt restructurings that subsequently defaulted: |
|
|
|
|
|
|
Church loans: |
|
|
|
|
|
|
Wholly-Owned First |
|
| |
| $ | |
Wholly-Owned Junior |
|
| — |
|
| — |
Participation First |
|
| — |
|
| — |
Participation Junior |
|
| — |
|
| — |
Total: |
|
|
|
|
|
|
Church loans |
|
| |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled Debt Restructurings Defaulted (by class) | ||||||
For the nine months ended September 30, 2021 | ||||||
|
| Number of Loans |
| Recorded Investment | ||
Troubled debt restructurings that subsequently defaulted: |
|
|
|
|
|
|
Church loans: |
|
|
|
|
|
|
Wholly-Owned First |
|
| |
| $ | |
Wholly-Owned Junior |
|
| — |
|
| — |
Participation First |
|
| — |
|
| — |
Participation Junior |
|
| — |
|
| — |
Total: |
|
|
|
|
|
|
Church loans |
|
| |
| $ | |
The Company has
For loans modified in a troubled debt restructuring, the Company monitors borrower performance according to the terms of the restructure to determine whether there are any early indicators for future default. Management regularly evaluates loans modified in a troubled debt restructuring for potential further impairment and will make adjustments to the risk ratings and specific reserves associated with troubled debt restructurings as deemed necessary.
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”). The Valencia Hills Project is a joint venture that will develop and market property formerly classified by the Company as a foreclosed asset. In January 2016, the Company transferred ownership in the foreclosed asset to the Valencia Hills Project. In addition, the Company reclassified the carrying value of the property from foreclosed assets to an investment in a joint venture. The Company’s initial investment in the joint venture was $
As of September 30, 2021 and December 31, 2020, the value of the Company’s investment in the joint venture was $
The Company recognizes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Non-interest income, in scope of ASC 606 |
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer fees and commissions |
| $ | |
| $ | |
| $ | |
| $ | |
Gains on loan sales |
|
| |
|
| |
|
| |
|
| |
Gain on sale of foreclosed assets |
|
| |
|
| — |
|
| |
|
| — |
Lease income |
|
| — |
|
| |
|
| — |
|
| |
Other non-interest income |
|
| |
|
| |
|
| |
|
| |
Non-interest income, out of scope, ASC 606 |
|
|
|
|
|
|
|
|
|
|
|
|
Lending fees |
|
| |
|
| |
|
| |
|
| |
Gain on debt extinguishment |
|
| — |
|
| |
|
| |
|
| |
Total non-interest income |
| $ | |
| $ | |
| $ | |
| $ | |
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”).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
| Three months ended |
| For the nine months ended | ||||||||
|
| September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 | ||||
Broker-dealer revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Securities commissions |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional |
| $ | |
| $ | |
| $ | |
| $ | |
AUM |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Sale of investment company shares |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional |
|
| |
|
| |
|
| |
|
| |
AUM |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Other insurance product revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional |
|
| — |
|
| |
|
| |
|
| |
AUM |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Advisory fee income |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional |
|
| — |
|
| |
|
| — |
|
| |
AUM |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
Total broker-dealer revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Transactional |
|
| |
|
| |
|
| |
|
| |
AUM |
|
| |
|
| |
|
| |
|
| |
|
| $ | |
| $ | |
| $ | |
| $ | |
A summary of loan participation sales and servicing assets are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the | |||||||
|
| Nine months ended |
| Year ended | |||||
|
| September 30, |
| December 31, | |||||
|
| 2021 |
| 2020 |
| 2020 | |||
Loan participation interests sold by the Company |
| $ | |
| $ | |
| $ | |
Total participation interests sold and serviced by the Company |
|
| |
|
| |
|
| |
Servicing income |
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| |
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| |
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| |
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Servicing Assets |
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Balance, beginning of period |
| $ | |
| $ | |
| $ | |
Additions: |
|
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|
|
|
Servicing obligations from sale of loan participations |
|
| |
|
| |
|
| |
Subtractions: |
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|
|
|
|
|
|
Amortization |
|
| ( |
|
| ( |
|
| ( |
Balance, end of period |
| $ | |
| $ | |
| $ | |
During the year ended December 31, 2020, the Company sold to ACCU
in loans it had previously purchased from ACCU. These participations totaled $
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 will be done on a recourse basis, requiring the Company to repurchase the participation interest in the event of default by the borrower.
The Company’s investment in foreclosed assets consisted of
During the nine months ended September 30, 2021, the Company sold a residential property it had acquired in a foreclosure action that had previously been completely written off. The Company realized a gain of $
Expenses and income applicable to foreclosed assets include the following (dollars in thousands):
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Foreclosed Asset Expenses (Income) |
| For the three months ended |
| For the nine months ended | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Provision for losses |
|
| — |
|
| — |
|
| — |
|
| — |
Operating expenses, net of income |
|
| — |
|
| — |
|
| |
|
| |
|
| $ | — |
| $ | — |
| $ | |
| $ | |
The table below summarizes our premises and equipment (dollars in thousands):
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| As of | ||||
|
| September 30, |
| December 31, | ||
|
| 2021 |
| 2020 | ||
|
|
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|
|
|
|
Furniture and office equipment |
| $ | |
| $ | |
Computer system |
|
| |
|
| |
Leasehold improvements |
|
| |
|
| |
Total premises and equipment |
|
| |
|
| |
Less accumulated depreciation and amortization |
|
| ( |
|
| ( |
Premises and equipment, net |
| $ | |
| $ | |
|
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|
| For the three months ended |
| For the nine months ended | ||||||||
|
| September 30, |
| September 30, |
| September 30, |
| September 30, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
|
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|
|
|
|
|
|
|
Depreciation and amortization expense |
| $ | |
| $ | |
| $ | |
| $ | |
Details of the Company’s debt facilities as of September 30, 2021 are as follows (dollars in thousands):
|
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Nature of Borrowing |
| Interest Rate |
| Interest Rate Type |
| Amount Outstanding |
| Monthly Payment |
| Maturity Date |
| Amount of Loan Collateral Pledged |
| Amount of Cash Pledged | |||||
Term Loan |
|
| Fixed |
| $ | |
| $ | |
|
| $ | |
| $ | — | |||
KCT LOC |
|
| Variable |
|
| — |
|
| — |
|
|
| |
|
| — | |||
ACCU LOC |
|
| Variable |
|
| |
|
| — |
|
|
| |
|
| — | |||
ACCU Secured |
|
|
| Fixed |
|
| |
|
| — |
|
|
| — |
|
| | ||
The Company has
September 30, 2021 and December 31, 2020. On March 5, 2021, the Company made a $
Previously, the Company had another term-debt credit facility that carried the same terms as the term-debt credit facility it currently has. On September 25, 2020, the Company reached an agreement with the holder of the credit facility to pay off the entire outstanding contractual principal balance of $
Future principal contractual payments of the Company’s term-debt during the twelve-month periods ending September 30, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
2022 |
| $ | |
2023 |
|
| |
2024 |
|
| |
2025 |
|
| |
2026 |
|
| |
Thereafter |
|
| |
|
| $ | |
On April 27, 2020, MP Securities applied for and received a Paycheck Protection Program loan (“PPP Loan”) granted under the CARES Act in the amount of $
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 (“KCT LOC”). The KCT LOC is a revolving $
to the termination date, the KCT LOC was renewed for another -year term. Its new maturity date is
The Company may draw funds on the KCT LOC at any time until the line is fully drawn. However, the Company may only use the KCT LOC to warehouse loans until they are sold. Repayment of each advance is due one hundred and twenty (
On September 23, 2021, Ministry Partners Investment Company, LLC, entered into a Loan and Security Agreement with ACCU (“ACCU LOC”). The ACCU LOC is a revolving $
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
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. $
The table below provides information on the Company’s investor notes payable (dollars in thousands):
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| As of |
| As of | ||||||||
|
|
|
| September 30, 2021 |
| December 31, 2020 | ||||||||
SEC Registered Public Offerings |
| Offering Type |
| Amount |
| Weighted |
|
| Amount |
| Weighted |
| ||
Class 1 Offering |
| Unsecured |
| $ | |
| | % |
| $ | |
| | % |
Class 1A Offering |
| Unsecured |
|
| |
| | % |
|
| |
| | % |
2021 Class A Offering |
| Unsecured |
|
| |
| | % |
|
| — |
| — | % |
Public Offering Total |
|
|
| $ | |
| | % |
| $ | |
| | % |
|
|
|
|
|
|
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|
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|
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|
|
|
|
Private Offerings |
| Offering Type |
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated Notes |
| Unsecured |
| $ | |
| | % |
| $ | |
| | % |
Secured Notes |
| Secured |
|
| |
| | % |
|
| |
| | % |
Private Offering Total |
|
|
| $ | |
| | % |
| $ | |
| | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investor Notes Payable |
|
|
| $ | |
| | % |
| $ | |
| | % |
Investor Notes Payable Totals by Security |
| Offering Type |
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured Total |
| Unsecured |
| $ | |
| | % |
| $ | |
| | % |
Secured Total |
| Secured |
|
| |
| | % |
|
| |
| | % |
Future maturities for the Company’s investor notes during the twelve-month periods ending September 30, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
2022 |
| $ | |
2023 |
|
| |
2024 |
|
| |
2025 |
|
| |
2026 |
|
| |
|
| $ | |
Debt issuance costs related to the Company’s investor notes payable, net of amortization, were $
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.
In January 2015, the Company registered its Class 1 Notes with the SEC. The Company discontinued the sale of its Class 1 Note Offering when it expired on December 31, 2017. The offering included
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 $
LIBOR rate. The Company issued the Class 1A Notes under a Trust Indenture entered into by and between the Company and U.S. Bank.
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 $
In June 2018, the Company renewed the offer and sale of its Subordinated Notes initially launched in February 2013. The Company offers the notes pursuant to a limited private offering to qualified investors that meet the requirements of Rule 506 of Regulation D. The Company offers the Subordinated Notes with maturity terms from
Under the Subordinated Notes offering, the Company is subject to certain covenants, including limitations on restricted payments, limitations on the amount of notes that it can sell, restrictions on mergers and acquisitions, and proper maintenance of books and records. The Company was in compliance with these covenants at September 30, 2021 and December 31, 2020.
In January 2015, the Company began offering Secured Notes under a private placement memorandum pursuant to the requirements of Rule 506 of Regulation D. Under this offering, the Company is authorized to offer up to $
Effective as of April 30, 2018, the Company launched a new $
forth in its 2015 Secured Note offering. The 2018 Secured Note offering terminated on April 30, 2020.
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, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The contractual amount of these commitments represents the Company’s exposure to credit loss. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
The table below shows the outstanding financial instruments whose contract amounts represent credit risk (dollars in thousands):
|
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|
|
|
|
| Contract Amount at: | ||||
|
| September 30, |
| December 31, | ||
Undisbursed loans |
| $ | |
| $ | |
Undisbursed loans are commitments for possible future extensions of credit to existing customers. These loans are sometimes unsecured and the borrower may not necessarily draw upon the line the total amount of the commitment. Commitments to extend credit are generally at variable rates.
The Company has lease agreements for its offices in Brea and Fresno, California. The Company renewed its Brea office lease in January 2019 for an additional -year term. The lease does
determined that both leases are operating leases. The Company used its incremental borrowing rates to determine the discount rates used in the asset calculations.
The table below presents information regarding our existing operating leases (dollars in thousands):
|
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| For the | ||||||||||||||||||
| Three months ended |
| Nine months ended |
| Year ended | ||||||||||||||
| September 30, |
| September 30, |
| December 31, | ||||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| 2020 | ||||||||||
Lease cost |
|
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Operating lease cost | $ | |
|
| $ | |
|
| $ | |
|
| $ | |
|
| $ | |
|
Other information |
|
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Cash paid for operating leases |
| |
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| |
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| |
|
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| |
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|
| |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
| — |
|
|
| — |
|
|
| — |
|
|
| |
|
|
| |
|
Weighted average remaining lease term (in years) |
| |
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
Weighted-average discount rate |
| | % |
|
| | % |
|
| | % |
|
| | % |
|
| | % |
Future minimum lease payments and lease costs for the twelve months ending September 30, are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lease Payments |
| Lease Costs | ||
2022 |
| $ | |
| $ | |
2023 |
|
| |
|
| |
2024 |
|
| |
|
| |
Total |
| $ | |
| $ | |
Holders of the Series A Preferred Units are entitled to receive a quarterly cash dividend that is
The Series A Preferred Units have a liquidation preference of $
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
All of the Company’s employees are eligible to participate in the Automated Data Processing, Inc. (“ADP”) 401(k) plan effective as of the date their employment commences. No minimum service is required and the minimum age is
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,
oquoted prices for identical assets and liabilities in inactive markets,
oinputs that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.);
oor inputs that are derived principally from or corroborated by observable market data by correlation or by other means.
Level 3 inputs are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The following tables show the carrying amounts and estimated fair values of the Company’s financial instruments (dollars in thousands):
|
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|
|
| Fair Value Measurements at September 30, 2021 using | ||||||||||
|
| Carrying |
| Quoted Prices |
| Significant |
| Significant |
| Fair Value | |||||
FINANCIAL ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash |
| $ | |
| $ | |
| $ | — |
| $ | — |
| $ | |
Certificates of deposit |
|
| |
|
| — |
|
| |
|
| — |
|
| |
Loans, net |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Investment in joint venture |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Accrued interest receivable |
|
| |
|
| — |
|
| — |
|
| |
|
| |
FINANCIAL LIABILITIES: |
|
|
|
|
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|
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|
|
|
|
|
|
|
|
Lines of credit |
| $ | |
| $ | — |
| $ | — |
| $ | |
| $ | |
Term-debt |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Secured borrowings |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Investor notes payable |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Other financial liabilities |
|
| |
|
| — |
|
| — |
|
| |
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| |
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|
| Fair Value Measurements at December 31, 2020 using | ||||||||||
|
| Carrying |
| Quoted Prices |
| Significant |
| Significant |
| Fair Value | |||||
FINANCIAL ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash |
| $ | |
| $ | |
| $ | — |
| $ | — |
| $ | |
Certificates of deposit |
|
| |
|
| — |
|
| |
|
| — |
|
| |
Loans, net |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Investment in joint venture |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Accrued interest receivable |
|
| |
|
| — |
|
| — |
|
| |
|
| |
FINANCIAL LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term-debt |
| $ | |
| $ | — |
| $ | — |
| $ | |
| $ | |
Investor notes payable |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Other financial liabilities |
|
| |
|
| — |
|
| — |
|
| |
|
| |
Management uses judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2021 and December 31, 2020.
The Company used the following methods and assumptions to estimate the fair value of financial instruments:
Cash – The carrying amounts reported in the balance sheets approximate fair value for cash.
Certificates of deposit – Management estimates fair value by using a present value discounted cash flow with a discount rate approximating the current market rate for similar assets. Management classifies certificates of deposits as Level 2 of the fair value hierarchy.
Loans – 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 – Management estimates fair value by analyzing the operations and marketability of the underlying investment to determine if the investment is other-than-temporarily impaired.
Investor Notes Payable – Management estimates the fair value of fixed maturity notes by discounting the future cash flows of the notes. The discount rate the Company uses is the rates currently offered for investor notes payable of similar remaining maturities. Company management estimates the discount rate by using market rates that reflect the interest rate risk inherent in the notes.
Term-debt – 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 rates 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 September 30, 2021 and December 31, 2020.
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):
|
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|
|
| Fair Value Measurements Using: |
|
|
| |||||||
|
| Quoted Prices |
| Significant |
| Significant |
| Total | ||||
Assets at September 30, 2021: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans (net of allowance and discount) |
| $ | — |
| $ | — |
| $ | |
| $ | |
Investment in joint venture |
|
| — |
|
| — |
|
| |
|
| |
Foreclosed assets (net of allowance) |
|
| — |
|
| — |
|
| |
|
| |
Total |
| $ | — |
| $ | — |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent impaired loans (net of allowance and discount) |
| $ | — |
| $ | — |
| $ | |
| $ | |
Investments in joint venture |
|
| — |
|
| — |
|
| |
|
| |
Foreclosed assets (net of allowance) |
|
| — |
|
| — |
|
| |
|
| |
Total |
| $ | — |
| $ | — |
| $ | |
| $ | |
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 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 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. In some cases, management adjusts the appraised values for various factors including age of the appraisal, age of comparable properties included in the appraisal, and known changes in the market or in the collateral. The Company makes subsequent valuations of the real properties based either
on management estimates or on updated appraisals. If management makes significant adjustments to appraised values based on unobservable inputs, the Company categorizes foreclosed assets under Level 3. Otherwise, if management bases the foreclosed assets’ value on recent appraisals and the only adjustments made are for known contractual selling costs, the Company will categorize the foreclosed assets under Level 2.
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):
|
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|
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|
September 30, 2021 | |||||||||
Assets |
| Fair Value |
| Valuation |
| Unobservable |
| Range | |
Impaired Loans |
| $ | |
| Discounted appraised value |
| Selling cost / Estimated market decrease |
| |
Investment in joint venture |
|
| |
| Internal evaluations |
| Estimated future market value |
| |
Foreclosed Assets |
|
|
| Internal evaluations |
| Selling cost |
| ||
|
|
|
|
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|
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|
|
|
|
|
|
|
December 31, 2020 | |||||||||
Assets |
| Fair Value |
| Valuation |
| Unobservable |
| Range | |
Impaired loans |
| $ | |
| Discounted appraised value |
| Selling cost / Estimated market decrease |
| |
Investments in joint venture |
|
| |
| Internal evaluations |
| Estimated future market value |
| |
Foreclosed assets |
|
| |
| Internal evaluations |
| Selling cost |
| |
MPIC is subject to a California gross receipts LLC fee of approximately $
MP Realty incurred a tax loss for the years ended December 31, 2020 and 2019, and recorded a provision of $
The Company's reportable segments are strategic business units that offer different products and services. The Company manages the segments separately because each business requires different management, personnel proficiencies, and marketing strategies.
The Company has
The accounting policies applied to determine the segment information are the same as those described in the summary of significant accounting policies. Management accounts for intersegment revenues and expenses at amounts that assume the Company entered into the transaction with unrelated third parties at the current market prices at the time of the transaction. Management evaluates the performance of each segment based on net income or loss before provision for income taxes and LLC fees.
Financial information with respect to the reportable segments is as follows (dollars in thousands):
|
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|
|
|
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|
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|
|
|
|
| Three months ended |
| Nine months ended |
| ||||||||
|
| September 30, 2021 |
| September 30, 2020 |
| September 30, 2021 |
| September 30, 2020 |
| ||||
Revenue from external sources |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance |
| $ | |
| $ | |
| $ | |
| $ | |
|
Broker Dealer |
|
| |
|
| |
|
| |
|
| |
|
Adjustments / Eliminations |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from internal sources |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Company |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Broker Dealer |
|
| |
|
| |
|
| |
|
| |
|
Adjustments / Eliminations |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
|
Total |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense and provision for tax |
|
|
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|
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|
|
|
|
|
|
Finance Company |
| $ | |
| $ | |
| $ | |
| $ | |
|
Broker Dealer |
|
| |
|
| |
|
| |
|
| |
|
Other Segments |
|
| |
|
| |
|
| |
|
| |
|
Adjustments / Eliminations |
|
| ( |
|
| — |
|
| ( |
|
| — |
|
Total |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Company |
| $ | ( |
| $ | |
| $ | |
| $ | |
|
Broker Dealer |
|
| |
|
| |
|
| |
|
| |
|
Other Segments |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
|
Adjustments / Eliminations |
|
| |
|
| |
|
| |
|
| |
|
Total |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
|
|
|
|
|
| ||
|
|
| 2021 |
| 2020 |
|
|
|
|
|
| ||
|
|
| (Unaudited) |
| (Audited) |
|
|
|
|
|
| ||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Company |
| $ | |
| $ | |
|
|
|
|
|
|
|
Broker Dealer |
|
| |
|
| |
|
|
|
|
|
|
|
Other Segments |
|
| |
|
| |
|
|
|
|
|
|
|
Adjustments / Eliminations |
|
| ( |
|
| ( |
|
|
|
|
|
|
|
Total |
| $ | |
| $ | |
|
|
|
|
|
|
|
The following discussion compares the results of operations for the three and nine month periods ended September 30, 2021 and 2020. It should be read in conjunction with our December 31, 2020 Annual Report on Form 10-K and the accompanying unaudited financial statements and Notes set forth in this report.
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 various 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, 2020.
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.
As the effects of the worldwide pandemic begin to lessen in severity, we continue to observe signs of an economic recovery in the United States, with jobs, consumer spending, manufacturing, and other indicators rebounding from their weakest levels. However, there have been concerns about the emergence of resistant or more contagious strains of the virus. It is unknown if these additional strains will slow or reverse the economic recovery. Due to these factors, we believe that economic uncertainty remains that could impact our ministry borrowers and financial results.
For the nine months ended September 30, 2021, the Company generated $2 million in net income. During this period the most significant factor in generating net income was a $2.4 million gain on debt extinguishment resulting from an early paydown of a credit facility. For the three-month period ended September 30, 2021, we had net income of $73 thousand.
This discussion focuses on the overall performance of our consolidated balance sheet.
Comparison of Financial Condition on September 30, 2021 and December 31, 2020
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comparison | ||||
|
| 2021 |
| 2020 |
| $ Difference |
| % Difference | ||||
|
| (Unaudited) |
| (Audited) |
|
|
|
|
|
| ||
|
| (dollars in thousands) |
|
|
|
|
|
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 16,515 |
| $ | 21,922 |
| $ | (5,407) |
|
| (25%) |
Restricted cash |
|
| 62 |
|
| 51 |
|
| 11 |
|
| 22% |
Certificates of deposit |
|
| 1,000 |
|
| 1,761 |
|
| (761) |
|
| (43%) |
Loans receivable, net of allowance for loan losses of $1,579 and $1,516 as of September 30, 2021 and December 31, 2020, respectively |
|
| 103,415 |
|
| 116,121 |
|
| (12,706) |
|
| (11%) |
Accrued interest receivable |
|
| 635 |
|
| 798 |
|
| (163) |
|
| (20%) |
Investment in joint venture |
|
| 884 |
|
| 884 |
|
| — |
|
| —% |
Property and equipment, net |
|
| 184 |
|
| 219 |
|
| (35) |
|
| (16%) |
Foreclosed assets, net |
|
| 301 |
|
| 301 |
|
| — |
|
| —% |
Servicing assets |
|
| 139 |
|
| 147 |
|
| (8) |
|
| (5%) |
Other assets |
|
| 651 |
|
| 889 |
|
| (238) |
|
| (27%) |
Total assets |
| $ | 123,786 |
| $ | 143,093 |
| $ | (19,307) |
|
| (13%) |
Liabilities and members’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Lines of credit |
| $ | 2,000 |
| $ | — |
| $ | 2,000 |
|
| 100% |
Term-debt |
|
| 33,898 |
|
| 51,516 |
|
| (17,618) |
|
| (34%) |
Other secured borrowings |
|
| 10 |
|
| — |
|
| 10 |
|
| 100% |
Investor notes payable, net of debt issuance costs of $76 and $33 as of September 30, 2021 and December 31, 2020, respectively |
|
| 69,387 |
|
| 76,194 |
|
| (6,807) |
|
| (9%) |
Accrued interest payable |
|
| 213 |
|
| 312 |
|
| (99) |
|
| (32%) |
Other liabilities |
|
| 3,639 |
|
| 2,163 |
|
| 1,476 |
|
| 68% |
Total liabilities |
|
| 109,147 |
|
| 130,185 |
|
| (21,038) |
|
| (16%) |
Members' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred units |
|
| 11,715 |
|
| 11,715 |
|
| — |
|
| —% |
Class A common units |
|
| 1,509 |
|
| 1,509 |
|
| — |
|
| —% |
Accumulated equity (deficit) |
|
| 1,415 |
|
| (316) |
|
| 1,731 |
|
| (548%) |
Total members' equity |
|
| 14,639 |
|
| 12,908 |
|
| 1,731 |
|
| 13% |
Total liabilities and members' equity |
| $ | 123,786 |
| $ | 143,093 |
| $ | (19,307) |
|
| (13%) |
On March 5, 2021, the Company negotiated a discounted partial paydown of principal of $14.3 million on our term loan. This resulted in a gain on debt extinguishment of $2.3 million. In addition, the Company received debt forgiveness of $112 thousand on the entire unpaid balance and accrued interest on its PPP Loan granted under the CARES Act. The discounted partial paydown was the primary cause of a 13% decrease in our total assets, and the two transactions extinguished a combined $14.4 million in term-debt. We funded the debt payoff through existing cash we set aside in previous periods for this type
of opportunity, as well as raising cash from our loans receivable portfolio. Despite the debt extinguishment described above, cash only decreased $5.4 million as detailed further below.
To maintain a liquid balance sheet, we intend to sell participation interests in the majority of our new loan originations. For the nine months ended September 30, 2021, we funded $12.0 million in loans receivable and sold participation interests in loans receivable of $13.4 million during the same period. We also received $11.4 million in loan principal collections during the year, mostly due to early loan payoffs from borrowers who refinanced elsewhere. Therefore, our loan portfolio provided $12.8 million in cash during the nine months ended September 30, 2021.
Our investor notes payable consist of debt securities sold under publicly registered security offerings as well as notes sold in private placement offerings. For the nine months ended September 30, 2021, net investor notes payable decreased $6.8 million. This decrease was primarily due to planned withdrawals or non-renewals from a few institutional clients. Over the last several years, we have expanded our investor note sale program by building relationships with other faith-based organizations whereby we can offer our various investor note products to these organizations and the ministries they serve. Concurrently, MP Securities continues to increase its retail customer base through client referrals and its networking agreements with key strategic partners.
For the nine months ended September 30, 2021, we had net income of $2 million. Our total members’ equity increased 13% to $14.6 million for the nine months ended September 30, 2021, which resulted in a capital to asset ratio of 11.8%.
In response to the economic uncertainty created from the COVID-19 pandemic, management began to generate liquidity by selling participation interests in its loans receivable during 2020. In 2021, the Company has continued to pursue this strategy and generated $13.4 million in cash from loan sales for the nine months ended September 30, 2021. This model allows us to acquire loans with little liquidity deployment while still allowing the Company to fulfill one of its key missional objectives of providing financing to Christian churches and ministries. An additional liquidity tool we use in conjunction with our loan participation sales is a $7.0 million warehouse line of credit (“KCT LOC”) with KCT Credit Union, an Elgin, Illinois credit union, for the specific purpose of funding loan originations, and offering participation interests in these loans through a short-term credit facility. This facility allows us to warehouse loan originations until we sell participations in these loans. We must repay each advance within one hundred twenty (120) days after receiving the advance. As of September 30, 2021, we had no outstanding balance on the KCT LOC.
To provide further liquidity, on September 23, 2021, the Company entered into a Loan and Security Agreement with ACCU (“ACCU LOC”). The ACCU LOC is a revolving $5.0 million short-term demand credit facility with a one-year maturity date of September 23, 2022. As of September 30, 2021, we had an outstanding balance of $2.0 million on this facility. The Company does not have any restrictions on how the funds may be used for this facility.
If necessary, we will raise additional cash through loan and investor note sales to keep sufficient levels of cash available to meet our debt obligations to investors. Because the Company was successful in raising cash from loan repayments, sales of loan participations, and its use of short-term credit facilities, we were able to take advantage of the opportunity to pay down term debt at a discount, as described above. Despite this paydown, the Company is still operating with cash levels above its Board-approved policy. Cash, restricted cash, and certificates of deposit were $17.6 million as of September 30, 2021 and our liquidity ratio was 21%. Our liquidity policy, established by our Board of Managers, sets a minimum liquidity ratio and provides contingency protocols if our liquidity falls below the minimum. Our liquidity ratio was above the minimum set by our policy as of September 30, 2021.
Due to management’s desire to maintain staff levels during the beginning of the pandemic, we applied for and received a PPP loan of $111 thousand. During the nine months ended September 30, 2021, the Company received the SBA’s forgiveness of the entire principal balance and accrued interest on the PPP loan.
The paydown of the term-debt had a significant impact on our net income for the nine months ended September 30, 2021. Combined with the forgiveness of the PPP loan, the Company reported $2.4 million in gains on the extinguishment of debt. In addition to
producing income, the early paydown of the term-debt significantly reduces the size of the balloon payment required to pay off the facility in November 2026. The current estimated balloon payment is approximately $9.7 million.
Historically, we have been successful in generating reinvestments by our debt security holders when the notes they hold mature. Our note renewal rate decreased from 66% in the second quarter 2021 to 54% in the third quarter 2021. This was due to planned withdrawals from two institutional investors. Other than these expected withdrawals, our note renewals remain strong, and our advisory team continues to expand their clientele, which has also increased new note sales.
The table below shows the renewal rates of our maturing notes over the last three years ended December 31:
|
|
|
|
2020 | 60% |
2019 | 75% |
2018 | 62% |
The renewal rate for the quarter ended September 30, 2021 as compared to September 30, 2020 is as follows:
Three-month period ended September 30, 2021: 54%
Three-month period ended September 30, 2020: 64%
Credit Facilities and Other Borrowings
Historically, we have funded a significant portion of our balance sheet through term-debt. However, due to recent debt reductions described above, the portion of our balance sheet funded through term-debt has been reduced significantly over the last nine months. Because the term loan has a fixed rate until maturity in 2026, it provides a stable cost of funds. The table below is a summary of the Company’s $35.9 million in outstanding debt payable as of September 30, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nature of Borrowing |
| Interest Rate |
| Interest Rate Type |
| Amount Outstanding |
| Monthly Payment |
| Maturity Date |
| Amount of Loan Collateral Pledged |
| Amount of Cash Pledged | |||||
Term Loan |
| 2.525% |
| Fixed |
| $ | 33,898 |
| $ | 450 |
| 11/1/2026 |
| $ | 41,112 |
| $ | — | |
KCT LOC |
| 3.750% |
| Variable |
|
| — |
|
| — |
| 9/30/2022 |
|
| 8,542 |
|
| — | |
ACCU LOC |
| 4.000% |
| Variable |
|
| 2,000 |
|
| — |
| 9/23/2022 |
|
| 6,817 |
|
| — | |
ACCU Secured |
| 4.750% |
|
| Fixed |
|
| 10 |
|
| — |
| 7/1/2026 |
|
| — |
|
| 10 |
We cannot borrow additional funds on the term loan; therefore, we will need to replace any principal paid on the facility through another source. To pay down our term loan, we intend to rely on the Company’s earnings, the debt securities we sell, net cash flow from
our loans receivable portfolio, and the $5 million revolving ACCU LOC. We can also utilize the KCT LOC from which we can draw up to $7 million to facilitate warehousing new loan originations until we can sell loan participations in those loans. Each draw on the KCT LOC has a term of 120 days. The ACCU secured borrowing is a loan participation sale that is classified as a secured borrowing and will pay down as the loan amortizes.
The following table shows the maturity schedule of our term-debt for the next five years and thereafter as of September 30, 2021 (dollars in thousands):
|
|
|
|
|
|
|
|
2022 |
| $ | 4,595 |
2023 |
|
| 4,720 |
2024 |
|
| 4,839 |
2025 |
|
| 4,964 |
2026 |
|
| 5,091 |
Thereafter |
|
| 9,689 |
|
| $ | 33,898 |
Under our credit facility agreements and our investor note 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 September 30, 2021, we are following our covenants on our investor notes payable, term-debt credit facility, KCT LOC, and ACCU LOC.
For additional information regarding our investor notes payable, refer to “Note 11. Investor Notes 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.
The analysis below describes the Company’s results of operations for the three and nine month periods ended September 30, 2021 compared to the three and nine month periods ended September 30, 2020.
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 term debt.
Net interest margin is net interest income expressed as a percentage of average total interest-earning assets.
The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest-bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Average Balances and Rates/Yields | ||||||||||||||||||
|
| For the Three Months Ended September 30, | ||||||||||||||||||
|
| (Dollars in Thousands) | ||||||||||||||||||
|
| 2021 |
| 2020 | ||||||||||||||||
|
| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average | ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning accounts with other financial institutions |
| $ | 14,361 |
| $ | 10 |
|
| 0.28 | % |
| $ | 28,353 |
| $ | 26 |
|
| 0.36 | % |
Interest-earning loans [1] |
|
| 99,647 |
|
| 1,739 |
|
| 6.92 | % |
|
| 116,796 |
|
| 2,004 |
|
| 6.81 | % |
Total interest-earning assets |
|
| 114,008 |
|
| 1,749 |
|
| 6.09 | % |
|
| 145,149 |
|
| 2,030 |
|
| 5.55 | % |
Non-interest-earning assets |
|
| 8,988 |
|
| — |
|
| — | % |
|
| 8,088 |
|
| — |
|
| — | % |
Total Assets |
|
| 122,996 |
|
| 1,749 |
|
| 5.64 | % |
|
| 153,237 |
|
| 2,030 |
|
| 5.26 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor notes payable gross of debt issuance costs |
|
| 70,371 |
|
| 649 |
|
| 3.66 | % |
|
| 73,074 |
|
| 642 |
|
| 3.49 | % |
Other debt |
|
| 35,767 |
|
| 229 |
|
| 2.54 | % |
|
| 67,209 |
|
| 427 |
|
| 2.53 | % |
Total interest-bearing liabilities |
|
| 106,138 |
|
| 878 |
|
| 3.28 | % |
|
| 140,283 |
|
| 1,069 |
|
| 3.02 | % |
Debt issuance cost |
|
|
|
|
| 13 |
|
|
|
|
|
|
|
|
| 28 |
|
|
|
|
Total interest-bearing liabilities net of debt issuance cost |
| $ | 106,138 |
|
| 891 |
|
| 3.33 | % |
| $ | 140,283 |
|
| 1,097 |
|
| 3.10 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
| $ | 858 |
|
|
|
|
|
|
|
| $ | 933 |
|
|
|
|
Net interest margin |
|
|
|
|
|
|
|
| 2.99 | % |
|
|
|
|
|
|
|
| 2.55 | % |
[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 September 30, 2021 vs. 2020 | |||||||
|
| Increase (Decrease) Due to Change in | |||||||
|
| Volume |
| Rate |
| Total | |||
|
| (Dollars in Thousands) | |||||||
Increase in Interest Income: |
|
|
|
|
|
|
|
|
|
Interest-earning accounts with other financial institutions |
| $ | (11) |
| $ | (5) |
| $ | (16) |
Interest-earning loans |
|
| (298) |
|
| 33 |
|
| (265) |
Total interest-earning assets |
|
| (309) |
|
| 28 |
|
| (281) |
Increase (Decrease) in Interest Expense: |
|
|
|
|
|
|
|
|
|
Investor notes payable gross of debt issuance costs |
|
| (24) |
|
| 31 |
|
| 7 |
Other debt |
|
| (200) |
|
| 2 |
|
| (198) |
Debt issuance cost |
|
| — |
|
| (15) |
|
| (15) |
Total interest-bearing liabilities |
|
| (224) |
|
| 18 |
|
| (206) |
Change in net interest income |
| $ | (85) |
| $ | 10 |
| $ | (75) |
The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:
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| Average Balances and Rates/Yields | ||||||||||||||||||
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| For the Nine Months Ended September 30, | ||||||||||||||||||
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| (Dollars in Thousands) | ||||||||||||||||||
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| 2021 |
| 2020 | ||||||||||||||||
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| Average |
| Interest |
| Average |
| Average |
| Interest |
| Average | ||||||||
Assets: |
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|
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|
|
|
|
|
|
|
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|
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|
|
|
|
Interest-earning accounts with other financial institutions |
| $ | 17,763 |
| $ | 35 |
|
| 0.26 | % |
| $ | 28,137 |
| $ | 142 |
|
| 0.67 | % |
Interest-earning loans [1] |
|
| 104,776 |
|
| 5,360 |
|
| 6.84 | % |
|
| 120,117 |
|
| 6,238 |
|
| 6.92 | % |
Total interest-earning assets |
|
| 122,539 |
|
| 5,395 |
|
| 5.89 | % |
|
| 148,254 |
|
| 6,380 |
|
| 5.73 | % |
Non-interest-earning assets |
|
| 8,062 |
|
| — |
|
| — | % |
|
| 8,075 |
|
| — |
|
| — | % |
Total Assets |
|
| 130,601 |
|
| 5,395 |
|
| 5.52 | % |
|
| 156,329 |
|
| 6,380 |
|
| 5.44 | % |
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|
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Liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor notes payable gross of debt issuance costs |
|
| 73,816 |
|
| 1,980 |
|
| 3.59 | % |
|
| 73,867 |
|
| 2,046 |
|
| 3.69 | % |
Other Debt |
|
| 40,389 |
|
| 774 |
|
| 2.56 | % |
|
| 69,286 |
|
| 1,310 |
|
| 2.52 | % |
Total interest-bearing liabilities |
| $ | 114,205 |
|
| 2,754 |
|
| 3.22 | % |
| $ | 143,153 |
|
| 3,356 |
|
| 3.12 | % |
Debt issuance cost |
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|
|
|
| 37 |
|
|
|
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|
|
|
| 73 |
|
|
|
|
Total interest-bearing liabilities net of debt issuance cost |
| $ | 114,205 |
|
| 2,791 |
|
| 3.27 | % |
| $ | 143,153 |
|
| 3,429 |
|
| 3.19 | % |
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|
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|
|
|
|
|
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|
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|
|
|
|
|
|
Net interest income |
|
|
|
| $ | 2,604 |
|
|
|
|
|
|
|
| $ | 2,951 |
|
|
|
|
Net interest margin |
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|
|
|
|
|
|
| 2.84 | % |
|
|
|
|
|
|
|
| 2.65 | % |
[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.
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Rate/Volume Analysis of Net Interest Income | |||||||||
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| ||||||
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| Nine Months Ended September 30, 2021 vs. 2020 | |||||||
|
| Increase (Decrease) Due to Change in | |||||||
|
| Volume |
| Rate |
| Total | |||
|
| (Dollars in Thousands) | |||||||
Increase (Decrease) in Interest Income: |
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|
|
|
|
|
|
|
|
Interest-earning accounts with other financial institutions |
| $ | (40) |
| $ | (67) |
| $ | (107) |
Interest-earning loans |
|
| (807) |
|
| (71) |
|
| (878) |
Total interest-earning assets |
|
| (847) |
|
| (138) |
|
| (985) |
Increase (Decrease) in Interest Expense: |
|
|
|
|
|
|
|
|
|
Investor notes payable gross of debt issuance costs |
|
| (66) |
|
| — |
|
| (66) |
Other debt |
|
| (556) |
|
| 20 |
|
| (536) |
Debt issuance cost |
|
| — |
|
| (36) |
|
| (36) |
Total interest-bearing liabilities |
|
| (622) |
|
| (16) |
|
| (638) |
Change in net interest income |
| $ | (225) |
| $ | (122) |
| $ | (347) |
Total interest income for the three months ended September 30, 2021, compared to the three months ended September 30, 2020 decreased mostly due to a volume variance on interest-earning loans. The volume variance on loans was due to the loan participation sales and early payoffs as described above. This was also the reason for the volume variance on interest-earning loans for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. While the weighted average rate of our loan portfolio is 6.31%, our interest-bearing loans have yielded much higher than that due to the recognition of net deferred fees in interest income. When we sell loan participations and when loans pay off early, deferred fee amortization is accelerated, which causes higher than expected interest income yields.
The decrease in total interest expense shown above for the three months ended September 30, 2021, compared to September 30, 2020, is primarily due to a volume variance on other debt. The volume variance was due to the debt paydown as described above as well as an additional early payoff of a term loan in September 2020. These early paydowns reduced the average balance of other debt by $31.4 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the average balance on other debt decreased by $28.9 million.
Overall net interest income decreased by $75 thousand for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, due to a greater decrease in interest income due to volume variance on loans than the decrease in interest expense due to the volume variance on other debt. Net interest income decreased by $347 thousand for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, for the same reason.
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| Three months ended |
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| Nine months ended |
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| ||||||||
|
| September 30, |
| Comparison |
| September 30, |
| Comparison | ||||||||||||||
|
| (in thousands) |
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|
| (in thousands) |
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| ||||||||
|
| 2021 |
| 2020 |
| $ Diff |
| % Diff |
| 2021 |
| 2020 |
| $ Diff |
| % Diff | ||||||
Net interest income |
| $ | 858 |
| $ | 933 |
| $ | (75) |
| (8%) |
| $ | 2,604 |
| $ | 2,951 |
| $ | (347) |
| (12%) |
Provision (credit) for loan losses |
|
| (41) |
|
| 132 |
|
| (173) |
| (131%) |
|
| 63 |
|
| 195 |
|
| (132) |
| (68%) |
Net interest income after provision (credit) for loan losses |
|
| 899 |
|
| 801 |
|
| 98 |
| 12% |
|
| 2,541 |
|
| 2,756 |
|
| (215) |
| (8%) |
Total non-interest income |
|
| 273 |
|
| 2,666 |
|
| (2,393) |
| (90%) |
|
| 3,303 |
|
| 3,098 |
|
| 205 |
| 7% |
Total non-interest expenses |
|
| 1,094 |
|
| 1,471 |
|
| (377) |
| (26%) |
|
| 3,861 |
|
| 3,804 |
|
| 57 |
| 1% |
Income before provision for income taxes |
|
| 78 |
|
| 1,996 |
|
| (1,918) |
| (96%) |
|
| 1,983 |
|
| 2,050 |
|
| (67) |
| (3%) |
Provision for income taxes and state LLC fees |
|
| 5 |
|
| 4 |
|
| 1 |
| 25% |
|
| 15 |
|
| 15 |
|
| — |
| —% |
Net income |
| $ | 73 |
| $ | 1,992 |
| $ | (1,919) |
| (96%) |
| $ | 1,968 |
| $ | 2,035 |
| $ | (67) |
| (3%) |
Net interest income decreased during the quarter and nine months ended September 30, 2021 as compared to the quarter and nine months ended September 30, 2020, respectively. This is primarily due to the payoff and sale of loans in our loan portfolio throughout the year. As discussed in the liquidity section above, we have sold $13.4 million in loans and received $11.4 million in principal payments during 2021.
Net interest income after provision for loan losses increased by $98 thousand for the quarter ended September 30, 2021, over the quarter ended September 30, 2020. This increase was primarily due to a decrease in provision for loan losses of $173 thousand due to the lower average loan balance described above and offset somewhat by the decrease in net interest income also described above. The decrease in net interest income after provision for loan losses for the nine months ended September 30, 2021, over the nine months ended September 30, 2020 was primarily due to the decrease in interest income described above offset somewhat by a decrease in provision for loan loss. The provision decreased due to the lower loan balance described above.
The decrease in non-interest income for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily due to income on debt extinguishment of $2.4 million recognized during the three month period ended September 30, 2020. The increase in non-interest income for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to a 44% increase in broker-dealer commissions and fees. For the nine months ended September 30, 2021, the Company generated $677 thousand in broker-dealer commissions and fees compared to $470 thousand for the nine months ended September 30, 2020.
Total non-interest expense decreased 26% during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This was due to $240 thousand in non-recurring variable expenses related to the gain on debt extinguishment recognized during the three months ended September 30, 2020. For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, total non-interest expense increased by $57 thousand. An increase in legal fees related to the management of impaired loan in our loan portfolio is the largest source of the increase in non-interest expense.
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.
Our management, including our Chief Financial Officer, supervised and participated in an evaluation of our disclosure controls and procedures as of September 30, 2021. 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.
The Company made no changes in internal controls during the nine months ended September 30, 2021.
PART II - OTHER INFORMATION
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 September 30, 2021, 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.
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.
|
|
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 | |
32.2 | |
101* | The following information from Ministry Partners Investment Company, LLC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income for the three and nine-month periods ended September 30, 2021 and 2020; (ii) Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020; (iii) Consolidated Statements of Cash Flows for the six months ended September 30, 2021 and 2020; 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
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: November 12, 2021
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| MINISTRY PARTNERS INVESTMENT |
|
| COMPANY, LLC |
|
|
|
(Registrant) |
| By: /s/ Joseph W. Turner, Jr. |
|
| Joseph W. Turner, Jr., |
|
| Chief Executive Officer |