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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2022

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

For the transition period from _____to_____

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Commission file number:  333-4028-LA

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MINISTRY PARTNERS INVESTMENT COMPANY, LLC

(Exact name of small business issuer in its charter)

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

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

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

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

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

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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 revise accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

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

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MINISTRY PARTNERS INVESTMENT COMPANY, LLC

FORM 10-K

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

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

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OUR COMPANY

Our Identity and History

Contact Information

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

Purpose and Mission

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

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

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

Organization

We are a credit union service organization (CUSO) owned by 11 credit unions and organized as a California limited liability company. We commenced operations in 1991. We have four wholly owned subsidiaries through which we conduct various aspects of our business:

MP Securities is a Delaware limited liability company we formed on April 26, 2010. We began conducting business operations through MP Securities in 2012. MP Securities provides investment advisory, insurance, and financial planning solutions for individuals, businesses, and faith-based organizations. MP Securities also serves as the selling agent for the Company’s public and private placement notes.

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

MPF serves as the custodian of assets pledged to investors in our secured investment notes. As of December 31, 2022 and 2021, we have no secured investment notes outstanding.

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

Our Competition

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

There are many mainstream financial services organizations that serve the faith-based market segment throughout the United States. Most of the competitors in this institutional market segment are banks, credit unions, denominational investment funds, as well as larger investment and insurance organizations. However, the overall size of the market segment provides ample opportunities for quality firms with specialized knowledge of the

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

The religious loan market segment

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

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

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

Our Principal Business and Markets

Overview

We serve individuals, businesses, churches, ministries, and financial institutions through two primary business segments. One is our investment advisory practice, broker-dealer firm, and insurance agency and the other consists of our ministry and business lending

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financing group. Within these segments, we offer a wide range of products and services for our customers and clients.

We generate our revenue primarily from the following sources:

While we strive to generate consistent earnings from these primary revenue sources, we have been able to generate income from non-recurring revenue generating activities. These include recoveries realized on distressed assets we hold, and other non-recurring events. For example, for the years ended December 31, 2022 and 2021, we benefitted from non-recurring gains of $2.5 million and $2.4 million on the extinguishment of debt. See “Part II, Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations” in this Report for more information on those transactions.

Investment Solutions Segment

We provide investment advisory, broker-dealer, insurance, and financial planning solutions for our clients. We serve individuals, businesses, churches, and ministries through our wholly-owned broker-dealer, MP Securities, which serves as an investment advisory and broker-dealer firm with access to mainstream investment platforms that offer high quality products and services. MP Securities serves its clients through a comprehensive approach based upon identifying the client’s needs and objectives. This financial planning process considers all options available to our clients as we act in their best interest to meet our fiduciary duty of care.

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

For our church and ministry clients, through MP Securities, we strengthen their stewardship of resources through prudent treasury management services, ethically responsible investments, sound employee benefits, and risk planning.

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

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

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

MP Securities also serves financial institutions by providing securities brokerage services to credit unions, CUSOs, and the customers and institutions it serves. It also acts as a selling agent for the Company’s debt securities offered through both public and private note offerings.

Loan Financing Segment

Overview

We help Christian churches and organizations by providing financing for the acquisition, development, and/or renovation of churches or church-related properties, and provide investors the opportunity to participate in funding those projects. We typically secure these loans by real property owned by churches or church-related organizations such as Christian schools and ministries. As of December 31, 2022, real estate secured 99.4% of the loans in our portfolio. We also invest in for-profit commercial and business loans to entities run by Christian principals. Currently, we conduct all our business operations in California. However, we own loan interests in 28 different states.

We acquire loans either through originating loans internally or buying loans or loan participation interests from other financial institutions. When we originate a loan, we rely on our own underwriting capabilities and standards. For loans that we buy, we apply our internally developed underwriting criteria and loan acquisition policies and review the underwriting procedures carried out by the financial institution that is selling the loan or participation interest.

Funding Our Operations

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

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

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

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Over the past three years, we took advantage of opportunities to make discounted early payoffs on our term-debt credit facilities. During 2022, the Company paid off the remaining $32.8 million that was outstanding as of December 31, 2021, resulting in a gain on debt extinguishment of $2.5 million in 2022. Our gain on debt extinguishment over the last three years totaled $7.3 million with $71.4 million in term-debt paid off. With our term-debt fully paid off, going forward we do not expect any future income from gains on debt extinguishment.

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

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

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Human Capital Resources

The Company relies on the experience of its lending, financial services, underwriting, loan servicing skills, and experience of its management team. A substantial number of its employees have extensive experience in the financial services industry. We have staff located in our Brea, Glendora, and Fresno, California offices. As the Company expands the range of services, products, and investment services it offers, the Company will look to find and recruit qualified personnel that will enable the Company to further diversify the services and products it offers and increase its revenues and profitability.

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

Effect of Government Regulations on the Business

General

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

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

Regulation of Mortgage Lenders

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

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

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As we offer and originate loans outside of the State of California, we need to follow the laws and regulations of those states. The statutes which govern mortgage lending and origination activities vary by state. Because these laws are constantly changing it is difficult to comprehensively identify, accurately interpret, and effectively train our staff with respect to all of these laws and regulations. We intend to follow all applicable laws and regulations wherever we do business and will undertake a best-efforts program to do so, including the engagement of professional consultants, legal counsel, and other experts as believed necessary by our management.

Broker-Dealer Registration

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

MP Securities is subject to rules and regulations regarding:

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MP Securities is also subject to the financial responsibility, net capital, customer protection, record keeping, and notification rule amendments adopted by the SEC on July 30, 2013. Because MP Securities does not carry or hold customer funds or securities and relies upon a clearing firm to conduct these transactions, Rule 17a-5 requires that it files an exemption report as well as review reports prepared by an independent public accountant confirming that it meets the exemption provisions. As amended, the net capital rule requires that MP Securities consider in its computation of regulatory net capital any liabilities the Company assumes of its parent entity.

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

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

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

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

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

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

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

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

Regulation of Investment Advisers

On July 11, 2013, the State of California granted its approval for MP Securities to deliver investment advisory services to its clients. As a California registered investment advisory firm, MP Securities must develop and sustain compliance procedures, record keeping

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

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

Fiduciary Standards

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

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

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Regulation Best Interest Standard

The Regulation Best Interest standard was adopted by the U.S. Securities and Exchange Commission on June 5, 2019 and became effective on September 10, 2019 (“Reg BI”). Under Reg BI, a new standard of conduct has been created for broker-dealer firms and their sales personnel when making a recommendation to purchase a security to a retail investor. Under Reg BI, a broker-dealer firm must act in the best interest of the retail customer at the time the recommendation is made and follow the following component obligations:

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

Privacy Standards

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

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our investors and borrowers at the time of establishing the customer relationship and annually thereafter. The State of California’s Financial Information Privacy Act also regulates consumer’s rights under California law to restrict the sharing of financial data. In recent years, there has been a heightened legislative and regulatory focus on data security, including requiring customer notification if a data breach occurs. As MP Securities expands its investment advisory business operations, it will also need to monitor legislative and regulatory initiatives that affect investment advisers.

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ITEM 1A.RISK FACTORS

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

Risks Related to the Company

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

Our ability to finance our operations and repay maturing obligations to our investors primarily depends on our ability to raise funds from the sale of our debt securities. Factors that affect our ability to sell our debt securities include, but are not limited to:

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

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

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increased net income, but at the same time creates risks. For example, leveraging magnifies changes in our net worth. We will incur leverage only when we expect that it will enhance our investment returns. To generate a quick sell on an asset, the asset often sells at a discount. There can be no assurance that we will be able to meet our debt service obligations; and, if we must quickly sell assets to meet our debt service obligations, we risk incurring a loss on some or all those assets. Our management has been working on reducing the Company’s reliance on leverage by increasing revenue from non-balance sheet sources that do not require leverage, such as our broker-dealer commissions and loan servicing income.

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

Our lines of credit requires that we secure them with mortgage loans, keeping a minimum collateralization ratio on each credit facility. Loans pledged as collateral to the lines of credit will be unavailable for other cash flow purposes, including meeting our unsecured debt obligations. A default on one of our credit facilities could reduce the availability of other assets on our balance sheet, and adversely affect our liquidity and ability to repay our investor notes.

The following table shows the recorded balance of loans pledged and not pledged as collateral as of December 31, 2022 (dollars in thousands):

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

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

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

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

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

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

We are dependent on the industry knowledge, professional skillsets, institutional contacts, and overall financial services experience of our senior management team. We rely on our management team to develop relationships with current and potential clients and strategic business partners. We also rely on our management team to develop new products and services for our clientele, as well as the continued expansion of complimentary lines of business to diversify the Company’s value proposition further. We can give no assurances that we will be able to recruit and keep qualified senior managers that will enable us to achieve our core strategic aims and continue to grow our business profitably.

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

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

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

As we continue to expand our non-interest revenue sources, we will need to expand our team of qualified investment and financial advisors that complement the services we provide to our clients. If we are unable to recruit and keep qualified professionals, we could jeopardize our strategic goal of increasing non-interest income, thereby adversely affecting our net earnings and financial condition.

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

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

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

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

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

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

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

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

Risks Related to the Financial Services Industry and Financial Markets

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

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

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

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

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

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

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

Declining real estate values could harm our operations.

We believe the risks associated with our business are more severe during periods in which an economic slowdown or recession is accompanied by declining real estate values. Declining real estate values often reduce the level of new mortgage loan originations, since borrowers often use increases in the value of their existing properties to support the purchase of, investment in, or renovation of their worship facilities. Borrowers may also have difficulty paying principal and interest on our loans if the real estate economy weakens. Further, declining real estate values significantly increase the likelihood that we

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

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

The Company is subject to interest rate risk.

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

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

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

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

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

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

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

Risks Related to Our Mortgage Loan Investments

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

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

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

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

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

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

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

To pay their loans, churches depend on revenues from church member contributions. Donations typically fluctuate over time for multiple reasons, including, but not limited to:

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

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

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

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

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

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

Our loan portfolio is concentrated in specialized purpose mortgage loans and may be more adversely impacted by external market forces than a portfolio that was more diversified.

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

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Our loan portfolio is concentrated geographically and may be negatively impacted by downturns in markets that we operate.

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

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

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

Our accounting estimates and impairment assumptions may require the Company to record loan impairments that may adversely impact our operations and financial condition.

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

If our assumptions regarding, among other things, the present value of expected future cash flows or the value of the collateral securing our loans are incorrect or general economic and financial conditions cause one or more borrowers to become unable to make payments under their loans, we may have to recognize impairment charges. These charges could result in a material reduction in earnings in the period in which the loans are determined to be impaired. The impairment may adversely affect, perhaps materially, our financial condition, liquidity, and ability to make debt service payments.

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Our reserves for loan losses may prove inadequate, which could have a material, adverse effect on us.

Although we regularly evaluate our financial reserves to protect against future losses based on the probability and severity of the losses, there is no guarantee that our assessment of this risk will be adequate to cover any future potential losses. As of December 31, 2022, our allowance for loan loss totaled $1.6 million, or 1.78%, of our total loans.

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

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

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

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

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

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

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

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

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

From time to time, we have recorded additional provisions for losses related to real estate assets acquired after we carry out loan foreclosure proceedings. If we take ownership of a property as part of a foreclosure action, we could be required to write down the value of the property if the value of the property declines after we take title to the property. Further deterioration could lead to an increase in non-performing assets and reduced earnings.

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

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

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

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

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Risks Relating to Our Investor Notes

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

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

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

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

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

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

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

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

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

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

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

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

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ITEM 1B.UNRESOLVED STAFF COMMENTS

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Not applicable.

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Corporate Offices

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

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Given the nature of our investments made in mortgage loans, we may from time to time have an interest in, or be involved in, litigation arising out of our loan portfolio. We consider litigation related to our loan portfolio to be routine to the conduct of our business. As of December 31, 2022, we are not involved in any litigation matters that could have a material adverse effect on our financial position, results of operations, or cash flows.

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Not applicable.

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PART II

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

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Price Range of Common Units

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

Sale of Equity Securities by Issuer

None.

Purchases of Equity Securities by Issuer

None.

Dividends and Distributions

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

Our Series A Preferred Unit holders are also entitled to receive 10% of our net profits after subtracting the amount of quarterly Series A Dividends paid earned for any fiscal year. This payment will be made to holders of the Series A Preferred Units on a pro rata basis. We accrued $13 thousand and $178 thousand in net profits to distribute to our Series A Preferred Units holders for the years ended December 31, 2022 and 2021, respectively. This increased the amount of distributions declared on our Series A Preferred Units for the fourth quarters of 2022 and 2021 by $0.018 per unit and $1.521 per unit, respectively.

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

During December 31, 2022 and 2021, we declared distributions on our Series A Preferred Units as follows:

SERIES A UNITS

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

Equity Compensation Plans

None.

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

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

OVERVIEW

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

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

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

In 2022, the effects of the worldwide pandemic continued to lessen in severity and indicators of economic activity have continued to strengthen as jobs, consumer spending, manufacturing, and other indicators rebound from their weakest levels. However, rising prices have become a concern and as a result, the Federal Reserve Board (“FRB”) raised the fed funds target rate up from 0.00% - 0.25% at the beginning of the year to 4.25% - 4.50% as of December 31, 2022. Additionally, the FRB’s median projection of the fed funds rate at the end of 2023 is 5.1%, indicating the committee expects to continue to increase rates as they attempt to curtail inflation. Due to these factors, we believe that economic uncertainty remains high and could negatively impact our borrowers and financial results.

Summary of Critical Accounting Policies and Estimates

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

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

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

The determination of the allowance for loan losses involves critical estimates made in accordance with GAAP. Further on in Management’s Discussion and Analysis, we provide additional details regarding the factors involved in determining the allowance, the nature of the uncertainty involved in the calculation, and the impact of the allowance on the Company’s financial position and results of operations.

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

(dollars in thousands)

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Summary of Financial Performance

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

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

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Retirement Plans in the Notes to the Consolidated Financial Statements. Conversely, net interest income after provision for loan loss decreased by $429 thousand due to a reduction in the size of our loan portfolio. Management evaluated the opportunity to retire our term debt facility at a discount and determined that the gains resulting from the payoff would be more beneficial than holding the cash used to make the pay down. By making those payments on our own term debt facility, the Company recognized $7.3 million in gains from debt extinguishment over the three-year period ended December 31, 2022. Cash used to make those payments was derived primarily from reducing our loan portfolio through loan participations sold as well as proceeds received from the early payoff of some of our loans when borrowers refinanced a loan with another lender. By making those payments on our term debt facility using cash investments, the Company has a smaller loan portfolio that will produce less net interest income going forward. With this strategy completed, in 2023 and going forward, the Company plans to increase our loan portfolio.

Progress on Strategic Objectives

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

Diversified revenue streams

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

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Loan portfolio quality

Historically, when the Company has reported a net loss for the year, the primary reason for the loss has been due to losses on our loan investments or from reserves taken on our allowance for loan losses. In subsequent years, the Company has benefited from recoveries when the loans paid off, the Company disposed of the collateral properties, or when the Company sold the promissory notes or loans. Therefore, the resolution of non-performing loans or assets may contribute either positively or negatively to the Company’s financial results. During the year ended December 31, 2021, the Company sold a REO property which resulted in a gain on sale of $44 thousand. During the year ended December 31, 2022, the Company did not have any gains or losses related to nonperforming assets or loans sold.

We continue to carefully watch our loan portfolio and work with borrowers to minimize losses on our mortgage loan investments. The Company can often find a solution for borrowers who are in distress, but who are willing and able to work out a compatible solution. During the year ended 2022 our classified loans decreased by $3.8 million during the year to $5.9 million at December 31, 2022. This decrease is primarily due to a $3.7 million loan that we restructured in 2021 and was returned to performing status during the year ended December 31, 2022.

As part of our strategic decision to reposition our loan portfolio, we have continued to focus on originating lower principal balance loans made to borrowers where we can achieve yields that are more favorable. This allows us to avoid deteriorating our margins while reducing overall risk exposure to any one borrower. However, we also have originated larger loans when we are able to find participants to buy a participation interest in the loan. Servicing loan participations sold generates servicing fee income while allowing us to reduce our risk exposure on the loan. We believe we have found a good mix in loan size that allows us to take advantage of quality lending opportunities. Our average net loan balance (recorded balance) was $719 thousand on December 31, 2022. We believe the relationships we have formed with credit unions throughout the United States will enable us to sell loan participation interests as necessary to mitigate risk by selling larger loans.

Strengthening Capital

For 2022, our strategy shifted from maintaining our balance sheet size to strengthening capital through the gains on the discounted term debt payoff. With debt retirement completed in 2022, our strategy going forward will be to grow our balance sheet and our loan portfolio to increase our total revenue. We intend to rely on the sale of our investor notes to fund the growth of our on-book loan portfolio.

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Improving Customer Experience

In 2022, the Company planned to increase our investment in personnel, technology, and infrastructure to continue to expand our products and services and well as improve our customer’s digital experience. During the year we made some progress on those objectives by investing in new technology and personnel. In 2023, we expect to make additional investments in those areas, as well as improve our operating efficiency by outsourcing a component of our loan servicing while growing our balance sheet. We believe these activities will give us a more efficient operation going forward while. More importantly, we believe this will create a better customer experience.

Financial Condition

The following discussion compares the results of operations for the twelve months ended December 31, 2022, and 2021 and should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

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Comparison of Financial Condition as of December 31,: