January 6, 2021 

Registration File No. 333-250027

united states

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



PRE-EFFECTIVE AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Ministry Partners Investment Company, LLC

________________________________________________________________________________________________________________________________________________________________________________________________________________

 (Exact name of registrant as specified in its charter)





915 West Imperial Highway, Suite 120

Brea, California 92821

(714) 671-5720

_____________________________________________________________________________________________________________________________________________________

(Address, including zip code, and telephone number,including area code, of registrant’s principal executive offices)



JOSEPH W. TURNER, JR.

Chief Executive Officer, President

915 West Imperial Highway, Suite 120

Brea, California 92821

(714) 671-5720

______________________________________________________________________________________________________________________________________________________________________________________________________________

(Name, address and telephone number of agent for service)



With copies to:

RANDY K. STERNS, ESQ.

BUSH ROSS, P.A.

1801 N. Highland Avenue

Tampa, Florida 33602

(813) 224-9255



As soon as practicable after the Registration Statement becomes effective.

_______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

(Approximate date of commencement of proposed sale to the public)



If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☑



If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ☐



If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐



If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐



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

Large accelerated filer ☐Accelerated filer ☐

Non-accelerated filer ☐Smaller reporting company ☑

Emerging growth company ☐



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

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(1) The notes will be sold at their face amount.

(2) A total of $125,000,000 of the 2021 Class A Notes is being registered, consisting of a combination of the Fixed Series and/or Variable Series.

(3) The fee is based on the total of $125,000,000 of 2021 Class A Notes being registered hereby. As discussed below, pursuant to Rule 415(a)(6) under the Securities Act, this Registration Statement includes $7,197,498 of unsold securities that have been previously registered. The securities being carried forward to this Registration Statement reduce the amount of fees currently due to $12,852.  



The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said section 8(a) may determine.



Pursuant to Rule 415(a)(6) under the Securities Act of 1933, as amended, the securities registered pursuant to this Registration Statement include unsold securities previously registered for sale pursuant to the Registrant’s Registration Statement on Form S-1 (File No. 333-221954) initially filed by the Registrant on December 8, 2017 (the “Prior Registration Statement”). The Prior Registration Statement registered securities with a maximum offering price of $90 million for sale pursuant to the Registrant’s offering. Of the amount being registered by this Registration Statement, approximately $18,003,190 of offering securities remain unsold from the Prior Registration Statement. This unsold amount is being carried forward to this Registration Statement and the filing fees paid with respect to the prior registration of the unsold securities is being used to offset filing fees that would otherwise be due in connection with the filing of this Registration Statement. Pursuant to Rule 415(a)(6), the offering of unsold securities under the Prior Registration Statement will be deemed terminated as of the date of effectiveness of this Registration Statement. As of September 30, 2020, we have issued Notes with an aggregate principal amount of approximately $72.0 million under the Prior Registration Statement.



Explanatory Note



This Registration Statement is being filed to register the sale of the Company’s unsecured promissory notes as the Company’s Registration Statement for its continuous offering of its Class 1A Notes under Rule 415 expired on December 31, 2020. The 2021 Class A Notes issued under this Registration Statement will replace the Company’s current offering of Class 1A Notes, the Registration Statement for which will be withdrawn when the subject Registration Statement is declared effective.

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Subject to Completion

PRELIMINARY PROSPECTUS

DATED JANUARY 6, 2021

$125,000,000

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

2021 Class A Promissory Notes

We are offering our 2021 Class A Notes in two Series: the Fixed Series and the Variable Series in several Categories, each of which has a minimum required investment. The 2021 Class A Notes, which we sometimes refer to as the “Notes”, are our unsecured and unsubordinated obligations and, except as described herein, rank equal in right to payment with our existing and future unsecured creditors. Each Note Series bears interest at a rate equal to the sum of the Spread for the respective Series Category plus the applicable index rate. The Fixed Series Notes are offered with maturities of 12, 18, 24, 30, 36, 42, 48, 54 and 60 months and the Variable Series Notes are offered with a maturity of 60 months. The interest rates for each Note series will vary within the pre-determined interest rate and Spread as described in the Prospectus. Unless otherwise indicated, the words “we”, “us”, “our” or the “Company” refer to Ministry Partners Investment Company, LLC, together with four wholly owned subsidiaries.

We are offering the Notes on a best efforts basis through our wholly-owned subsidiary, Ministry Partners Securities, LLC (“MP Securities”). At any time, you may contact us or visit our website at www.ministrypartners.org to obtain our current interest rates for each Note Series. However, the information on our website is not part of this Prospectus. If there is a change in terms of the Notes that does not constitute a material and fundamental change in the offering of such Notes, this information will be included in a Rule 424(b)(3) prospectus supplement.

INVESTING IN THE NOTES INVOLVES RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. SEE “RISK FACTORS” BEGINNING ON PAGE 19. THERE WILL BE NO PUBLIC MARKET FOR THE NOTES.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH STATE.





The Notes are part of up to $300 million of 2021 Class A Notes we are authorized to issue under the 2021 Class A Note Trust Indenture, which we refer to as the “Indenture.” U.S. Bank National Association, whom we refer to as “Trustee,” serves as the Trustee under the Indenture.

You should read this Prospectus and any applicable Prospectus supplement carefully before you invest in the Notes. The Notes are our general unsecured obligations and are subordinated in right of payment to all of our present and future senior debt. As of September 30, 2020, we had approximately $116.5 million in debt outstanding that ranks equal or senior to the Notes, including approximately $64.0 million in Notes issued pursuant to our prior offerings. We expect to incur additional debt in the future, including, without limitation, the Notes offered pursuant to this Prospectus and senior debt.

The Notes and other securities we offer are not deposits of, obligations of, or guaranteed by any of these credit unions. They are not insured or guaranteed by the National Credit Union Share Insurance Fund (“NCUSIF”), the Federal Deposit Insurance Corporation (“FDIC”), or any other government agency or private insurer.

We are a “smaller reporting company” under the federal securities laws and subject to reduced public company reporting requirements.

The current Rate Schedule and any other supplements to this Prospectus are placed inside this front cover.

The date of this Prospectus is January 6, 2021

Ministry Partners Securities, LLC





 

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Table of Contents



YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY NOTES ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME THE PROSPECTUS MAY BE DELIVERED OR OF ANY SALE OF THE NOTES.







 

INTRODUCTION

We have prepared this Prospectus so that you will have the information necessary to make your investment decision. Please read this Prospectus carefully. It describes the Notes, the risks involved in investing in the Notes, our Company and our business, and our financial condition. We refer to the registered owner of a Note as a  “Noteholder” or “Holder”.



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FREQUENTLY ASKED QUESTIONS ABOUT THE NOTES









 







 













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SUITABILITY STANDARDS

An investment in our Notes is only suitable for persons who have adequate financial means and desire an investment in unsecured debt obligations for a term of the Note selected, from 12-months up to 60-months for the Fixed Series Notes. All of the Variable Series Notes have a term of 60-months. In addition, an investment has limited liquidity, which means that it may be difficult for you to sell your Note. Persons who may require liquidity prior to the maturity of their Note or seek a guaranteed stream of income should not invest in our Notes.

In consideration of these factors, we have established minimum suitability standards for purchasers of Notes. These minimum suitability standards require that a purchaser of Notes satisfy the following:

In the case of sales to fiduciary accounts, one of the following must meet the suitability standards:

Our selling agent, MP Securities, and we are responsible for determining if the Note purchasers meet these suitability standards for investing in our Notes. In making this determination, the selling agent and

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we will rely on information provided by prospective Note purchasers. In addition to the minimum suitability standards described above, we and each authorized representative or any other person selling Notes on our behalf, are required to make every reasonable effort to determine that the purchase of Notes is a suitable and appropriate investment for each Note purchaser.

In making this determination, your authorized representative or other person selling Notes on our behalf will, based on a review of the information provided by you, including your age, investment objectives, income, net worth, financial situation and other investments held by you, consider whether you:

Such persons must maintain records for at least six years of the information used to determine that an investment in the Notes is suitable and appropriate for each investor.

Restriction Imposed by the USA PATRIOT Act and Related Acts

In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), the Notes offered by this Prospectus may not be offered, sold, transferred or delivered, directly or indirectly, to any “Unacceptable Investor,” which means anyone who is:

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PROSPECTUS SUMMARY

The following summary highlights selected information we have included in this Prospectus. It does not contain all of the information that may be important to you. Additional details about the Notes, the Indenture, our business, and our operating data is contained elsewhere in this Prospectus. See also the section, “Frequently Asked Questions About The Notes” on page 1. This section does not contain all of the information that is important to your decision whether to invest in the Notes. We encourage you to read this Prospectus, including the section entitled “Risk Factors”  on page 19 and our Financial Statements starting at page F-1 of this Prospectus in their entirety before making an investment decision.

About Our Company

We are a California limited liability company. Our principal executive offices are located at 915 West Imperial Highway, Suite 120, Brea, California, 92821 and our telephone number is 800-753-6742. Our website is located at www.ministrypartners.org. The information on our website is not part of this Prospectus.

One of our core missional purposes involves providing financial services, investment products and financing solutions for churches, colleges, schools, ministry organizations, individuals and businesses. We also make and invest in loans made to evangelical Christian churches, ministries, and related organizations. We generally secure our loan investments by a first lien on church properties and/or ministry related properties. We use the proceeds from the sale of the Notes and our other borrowings primarily to fund our mortgage loan investments. We also intend to use a portion of the proceeds received in this Offering to enhance the financial services platform of our wholly-owned subsidiary, Ministry Partners Securities, LLC. More specifically, we may invest in and/or acquire distribution partners to assist in the offering of property insurance and casualty solutions to churches, schools, and Christian ministries. We may also use some of the proceeds from the sale of the Notes to repay outstanding Notes and/or other borrowings. We refer to the Notes and other Notes we sell to investors as our debt securities.

The Offering













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The Indexes





Note Terms in General







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Plan of Distribution



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WARNING CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus, 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, business 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” or otherwise accompany the forward-looking statements contained in this Prospectus. 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 Prospectus.

[Remainder of this page intentionally left blank.]

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RISK FACTORS

Carefully consider the risks described below before making your investment decision. Refer to the other information in this Prospectus, including our financial statements and the related Notes.

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 Prospectus and the information incorporated by reference in this Prospectus. 

Risks Related to the Offering and Company

Payment of the Notes is not secured or guaranteed by any person.

Repayment of the Notes is our exclusive obligation, and the Notes are our sole responsibility and are not the obligation or responsibility of any other person. See “Description of the Notes”  on page 42. In general, as a Noteholder, you will have no greater right to payment than that of our other general creditors. At September 30, 2020, we had $127.8 million of total debt obligations of which $75.3 million consisted of various types of investor debt.  

The Trustee may resign in the event we are in default on the Notes.

The Trustee may resign as Trustee under the Indenture at any time upon notice, thereby requiring the appointment of a successor trustee in accordance with the Indenture. In such event, delays may result in the appointment of a successor trustee, which may, delay the Noteholders’ ability to pursue one or more remedies in the event we are declared in default under the Indenture.

The Indenture governs and restricts your rights as a Noteholder.

The Notes are subject to the Indenture, which restricts and regulates your rights as a Noteholder. For example, in the event of our default, the Indenture allows you to seek remedies against us only through action by the Trustee. The Indenture requires a vote of the Holders to take certain acts on behalf of the Holders and that vote will bind all Holders. For example, the Indenture provides that in the event of our default, the Holders of 25% of the unpaid principal amount of the outstanding Notes may declare the entire unpaid balance of the Notes immediately due and payable. The Indenture requires a Majority in Interest Vote of the Holders to pursue collection of the Notes and other remedies. The Indenture also provides that a Majority Vote of the Holders is required to adopt certain amendments and supplements to the Indenture and the Notes, and to waive certain defaults, events of default, and/or to remove and replace the Trustee. The Indenture contains cross-default provisions whereby our default on one Series of the Notes will constitute a

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default with respect to each other Series of Notes. Thus, Holders suffering an actual default may be more inclined to take action against us than Holders who suffer only a technical default on their Notes because of these cross-default provisions. Accordingly, where there is an actual default on one or more Series of Notes constituting less than a majority of the unpaid principal balance of the outstanding Notes, such Holders may not be able to obtain the approval of the Holders required to appoint a Trustee and pursue a remedy under the Indenture. In such event, you may have no practical recourse against us. See the description of the Indenture on page 48.

BY EXECUTING YOUR PURCHASE APPLICATION, YOU AGREE TO BE BOUND BY THE TERMS AND CONDITIONS OF THE INDENTURE. YOU SHOULD CAREFULLY REVIEW THE INDENTURE WHICH IS ATTACHED AS EXHIBIT A TO THIS PROSPECTUS. YOU MAY NOT INSTITUTE OR CONTINUE ANY PROCEEDING, JUDICIAL OR OTHERWISE, WITH RESPECT TO YOUR NOTE, THE INDENTURE, OR THE APPOINTMENT OF A RECEIVER OR OTHER TRUSTEE OR FOR ANY OTHER REMEDY IN CONNECTION THEREWITH DURING THE PERIOD OF OPERATION OF THE INDENTURE, UNLESS CERTAIN CONDITIONS, AS SET FORTH IN THE INDENTURE, ARE SATISFIED.

We offer no  assurance of granting a hardship prepayment if requested.

In general, the Notes are redeemable prior to maturity upon request, but only in our sole discretion. Thus, Holders may not be able to redeem their Notes prior to maturity, particularly during times when there are a significant number of early redemption requests.

The Notes are non-negotiable and the Noteholder may not transfer the Note ownership without the Company’s prior written consent.

The Notes are non-negotiable and are payable only to the person shown as the registered Holder on the records of the Company. The Holder, or any subsequent registered Holder, may transfer his or her Note, or any interest in that Note, only upon the prior written consent of the Company, which consent will not be unreasonably withheld.

There will be no market for your Note and you must depend solely on our ability to repay your Note for liquidity of your investment.

You should be prepared to hold your Note to maturity, subject to any redemption right you may have under your particular Note. You have the right to tender your Note for prepayment at any time, for which we may charge an administrative fee of not more than three months of interest payable on the principal amount of the Note. However, our prepayment of your Note is voluntary and you should not rely on our willingness or ability to do so.

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An independent rating agency has not rated the Notes and there will be no sinking fund for repayment of the Notes.

We have not obtained a rating for your Notes from an independent rating agency and we do not intend to request such a rating. Also, there will not be a sinking fund established for the repayment of the Notes and we must rely on our available cash resources to repay your Note when due. There is no assurance that we will have adequate cash resources available at the time the Notes are due.

The Holders may need to appoint a successor or substitute trustee before they can pursue their remedies under the Indenture.

Under the Indenture, you and the other Holders may pursue your remedies in the event of our default or otherwise exercise your rights under the Indenture only through the Trustee. U.S. Bank is the Trustee. In the event the Trustee resigns or should the Holders desire to appoint a different Trustee, they may do so only with a Majority Vote. In addition, finding a suitable Trustee and obtaining the Majority Vote of the Holders could be time consuming and completion of this appointment process could significantly delay the Holders’ ability to exercise your rights under the Indenture. See the description of the Indenture on page 48.

Under certain circumstances, a Majority Vote of the Holders may amend or supplement your Note or the Indenture without your consent.

In addition, by a Majority Vote, the Holders may approve the waiver of any default, event of default or breach of a covenant or other condition under the Note. Moreover, the Trustee has the power under the Indenture to compromise or settle any claims against us by the Holders and, if a Majority Vote of the Holders approves such compromise or settlement, the settlement or compromise would be binding on all Holders. IN ANY OF THESE EVENTS, YOU MAY BE WITHOUT PRACTICAL RECOURSE AGAINST US.

We have the right to repay your Note.

We have the right to prepay all or a portion of the Notes if we give you at least thirty (30) days but not more than sixty (60) days prior notice. If we choose to redeem less than all of the Notes, we will redeem the Notes on a pro-rata basis.

No independent appraisal or evaluation company has determined the offering price for the Notes.

We are issuing the Notes at their face amount, i.e., at par. We have not determined the price of the Notes based on any single or group of objective factors. We have not consulted an independent appraisal or evaluation company, or other expert or advisor, concerning the pricing of our Notes. Therefore, there is no assurance that the yield you will receive from your Note is not lower than that which could be obtained from similar investments from other issuers.

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There is no minimum amount of Notes that we must sell before the Company uses the Offering proceeds.

Once an investor completes a Purchase Agreement and the subscription is accepted, the Company may immediately begin to use the funds for the purposes described in the Prospectus.  

The impact of the COVID-19 pandemic could adversely affect our financial condition and results of operations.

We face risks related to an epidemic, pandemic, or health crisis. The COVID-19 pandemic has spread globally and has caused major disruptions in the U.S. economy. A key portion of our business depends on the ability of our ministry related borrowers to make loan payments. In response to the pandemic’s spread, state and local governments ordered non-essential businesses to close, public gatherings to be discontinued, and residents to shelter at home. Churches, schools, daycare centers, and other organizations that rely on public gatherings to conduct their operations were forced to discontinue the gatherings that are essential to their operations and revenue generation. Churches that typically receive weekly offerings of tithes and cash contributions have been relying on online giving options and contributions sent by mail. Church revenues are also dependent on general economic conditions, including unemployment rates and economic disruption to businesses, schools, and financial markets. While state and local restrictions in the U.S. on holding worship services have been eased, churches have been carefully reviewing and preparing new worship service guidelines that will enable them to continue to serve the needs of the communities they serve. The long-term impact of the COVID-19 virus cannot be determined at this time and could have an adverse impact on the timing of loan repayments, liquidity, cash flow, loan defaults, collateral values, loan loss reserves, compliance with loan covenants, and our financial condition. The impact of the virus on economic activity could also vary significantly throughout the U.S. With the geographic concentration of our loans in California and Maryland, our financial condition, liquidity, and results of operations could be impacted by the regional effects of the virus. Due to rapidly changing events surrounding the re-opening of businesses, schools, daycare centers, and religious gatherings, no assurances or predictions can be given with confidence as to the severity of, duration and long-term effect, if any, of the pandemic.

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

As of September 30, 2020, we have offered a three-month deferral of loan payments to borrowers that have been significantly and materially impacted by the economic effects of the pandemic. For borrowers that have been granted this relief, the maturity date of the loan will not be extended and any deferred payments will be added to the principal balance due at maturity. Of the 148 mortgage loans held at September 30, 2020, we have granted short-term deferrals to 35 borrowers. As of September 30, 2020, many of these borrowers have already resumed contractual payments on their loans. However, if any or all of the remaining borrowers are unable to resume their payments, our profitability and liquidity could be materially impacted.

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

Our ability to finance our operations and repay maturing obligations to our investors and credit facility lenders substantially depends on our ability to borrow money and raise funds from the sale of our debt securities. Several factors affect our ability to borrow money and sell our debt securities including:

An event of default, lack of liquidity, or a general deterioration in the economy that affects the availability of credit may increase our cost of funding, make it difficult for us to renew or restructure our credit facilities, and obtain new lines of credit. Unexpected large withdrawals by investors that hold our debt securities can negatively affect our overall liquidity.

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

Our ability to raise funds and attract new investors in our debt securities depends on our ability to attract an effective sales force in our wholly-owned licensed broker-dealer firm.

Our wholly-owned subsidiary, MP Securities, a FINRA member broker-dealer, acts as a selling agent for our notes offerings, insurance products, and investment advisory services. Our ability to attract new investors in our debt securities and increase the sale of our debt securities will substantially depend on our ability to assemble an effective advisory team. If we are unable to recruit, retain, and successfully equip a qualified group of advisors at MP Securities, we may not be able to increase sales of the Company’s debt securities, strengthen our balance sheet, and effectively utilize the investment in our core data processing and information systems we have implemented.

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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 purchase our debt securities roll their matured note into a new note. There is no assurance we will maintain our historical rate of reinvestments of maturing investor notes into new investor notes. If the rate of repeat investments declines, our ability to maintain or grow our asset base could be impaired. The table below shows the renewal rates of our maturing notes over the last two full years and the first nine months of 2020:

Some of our debt securities investors may be unable to purchase our public offering notes due to FINRA’s investor suitability standards.

When handling sales of our investor notes, we must comply with FINRA’s “know your customer” and “suitability” guidelines. Some investors may not qualify under suitability guidelines. These guidelines help ensure that investors make appropriate investments given the:

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

The Company may experience losses or lower earnings if there is a drop in the real estate values that secure our mortgage loan investments.

From time to time, we have recorded additional provisions for losses related to real estate assets acquired after we initiated 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.

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

We use leverage, which means borrowing to invest in mortgage assets. This mechanism creates net interest income for the Company. Our success is dependent, in part, upon our ability to manage our leverage

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effectively. We pledge a significant amount of our assets as collateral for our credit lines and term debt. Our Board of Managers has overall responsibility for our financing strategy. Leverage creates an opportunity for increased net income, but at the same time creates risks. For example, leveraging magnifies changes in our net worth. We will incur leverage only when we expect that it will enhance our investment returns. To generate a quick sell on a non-cash asset, the asset often sells at a discount. There can be no assurance that we will be able to meet our debt service obligations; and, if we must quickly sell assets to meet our debt service obligations, we risk incurring a loss on of some or all of those assets.

Our reserves 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 September 30, 2020, our allowance for loan loss totaled $1.52 million representing 1.25% 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 adequacy. Given the total amount of our allowance for loan losses, an adverse collection experience in a small number of loans could require an increase in our allowance. See the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations”  on page 98 for further discussion related to our process for determining the appropriate level for the allowance for loan losses.

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An increase in our non-performing assets will adversely affect our earnings.

Nonperforming assets adversely affect our net income in the following ways:

Our losses and troubled assets could increase significantly if additional borrowers become delinquent and we are not successful in managing our non-performing assets. This in turn could have a material adverse effect on our results of operations and financial condition. At September 30, 2020, $6.5 million of our assets, or 4.5% of our total assets, were considered non-performing assets. At December 31, 2019 and 2018, 5.8% and 8.8% of our total assets, respectively, were considered non-performing assets.

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

Our term-debt credit facility and our line of credit requires that we secure them with mortgage loans, maintaining a minimum collateralization ratio (“MCR”) of at least 120% on each credit facility. Loans pledged as collateral to the term-debt credit facility or line of credit will be unavailable for other cash flow purposes, including meeting our unsecured debt obligations. If at any time we fail to maintain the MCR requirement, we will be required to deliver cash or qualifying mortgage loans in an amount sufficient to meet the MCR requirement. If the Company has exceeded the MCR, we may request and receive a release of collateral up to the dollar amount sufficient for the Company to maintain the MCR requirement.  

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The following table shows the recorded balance of loans pledged and not pledged as collateral as of September 30, 2020 (dollars in thousands): 

The loans pledged to satisfy  collateral requirements for debt facilities and secured investor notes will not be available to meet our unsecured debt obligations.

Default under one credit facility will result in a default under our other credit facilities.

Our credit facilities and debt securities generally provide for cross-default provisions. A default under one agreement will trigger an event of default under the other agreements. This gives our lenders the right to declare all amounts outstanding under their particular credit agreement to be immediately due and payable. In this case, if not immediately paid, the lender may exercise its right to foreclose on or liquidate the collateral pledged to their credit facility.

Our credit facility debt requires us to maintain excess collateral, which potentially decreases our assets available to pay the Notes and our other unsecured debt.

In the event of a default under our term-debt credit facilities, the lender has the right to foreclose on its collateral pursuant to the respective credit facility agreement and applicable commercial law. In the event of default, the lender may reduce its claim to a judgment, foreclose on the collateral, or exercise any other remedies available to the lender. A default on this credit facility, therefore, could reduce the availability of other assets on our balance sheet, adversely affect our liquidity and ability to repay our investor notes.

We may not be able to finance our investments on a long-term basis with an institutional lender on attractive terms.

Since 2007, we have relied on credit facilities to finance a substantial portion of our mortgage loan investments. When we acquire mortgage loans that have a maturity term that exceeds the term of our institutional credit facilities, we bear the risk of being unable to refinance, extend, replace, or otherwise finance them on a long-term basis at attractive terms or in a timely manner, or at all. If it is not possible or economical for us to finance such investments on attractive terms, we may be unable to pay-down our credit facilities or be required to liquidate the assets at a loss in order to do so.

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Our reliance on financing provided by institutional credit facility lenders will require that we payoff our term-debt credit facility on November 1, 2026. If we are unable to replace our credit facilities on attractive terms at maturity, we may have to rely upon less efficient forms of financing new investments or may need to liquidate assets at a loss in order to pay off the credit facility. This in turn could result in fewer loan acquisitions or fewer originations of profitable mortgages, which would reduce the size of our balance sheet. A smaller balance sheet would lower the amount of earnings available to us. This would reduce funds available for debt payments, business expenses, and distributions to our equity investors.

Our financing arrangements contain 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 contain 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 rely on the use of borrowed funds and sale of debt securities to finance a substantial part of our business.

We have used borrowing facilities obtained from institutional lenders and relied upon offerings of debt securities in SEC registered and private placement offerings to fund our mortgage loans investments. Lending borrowed funds subjects us to interest rate risk. The difference, or “spread,” between the interest rates we pay on the borrowed funds and the interest rates our borrowers pay on our mortgage loan investments largely determines our interest rate risk. 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 on our balance sheet as they mature.

Loss of our management team or the ability to attract and retain 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 institutional and faith-based ministry investors, lenders, financial institutions, broker-dealer and investment advisory firms, ministries, and individual investors. 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 retain qualified senior managers that will enable us to achieve our core strategic objectives and continue to grow our business profitably.



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

One of our strategic objectives is to increase non-interest revenues from fees generated from the distribution of financial products, such as 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 retain 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 attract, recruit, and retain qualified investment and financial advisors that complement the services we provide to our credit union equity owners and their members. Turnover in the financial services industry with broker dealer and advisory firms is high. If we are unable to recruit, attract, and retain qualified professionals, we could jeopardize our strategic goal of increasing non-interest income, thereby adversely affecting our net earnings and financial condition.

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

We rely heavily on communications and information systems to conduct our business, process, transmit, 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 maintaining 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:

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These events could potentially result in data loss and adversely affect our ability to conduct our business. As of the date of this Prospectus, 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 regarding these transactions may be insufficient to address any conflicts of interest that may arise.

Under our code of business conduct, we have established procedures regarding the review, approval, and ratification of transactions that may give rise to a conflict of interest between us and 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, mortgage loans purchased, 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

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.

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

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. Changes in interest rates, including changes in expected interest rates or “yield curves,” affect our business in a number of 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 in connection with 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 event 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. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control.

Our ability to grow our mortgage loan investments portfolio depends to a significant degree on our ability to obtain additional funds. Our funding strategy is dependent on our ability to obtain debt financing at rates that provide 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

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our mortgage loans investments. Our ability to fund future investments will be severely restricted if spreads on debt financing widen or if availability of credit facilities ceases to exist.

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

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

Risks Related to Our Mortgage Loan Investments

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

Generally, 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 another lender, it could adversely affect our business and profitability.

Increases in interest rates during the term of a loan may adversely affect a borrower’s ability to repay a loan at maturity or to prepay a loan.

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

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Although we seek to create a favorable spread between the interest rate return on our mortgage loan investments and our debt financing commitments, we are subject to significant interest rate risk.

Our investment and business strategy depends on our ability to finance our investments in mortgage loans that provide a positive spread as compared to our cost of borrowing. A substantial portion of our loan investments provide for a fixed interest rate with a typical five-year interest rate adjustment or maturity date. Our term-debt borrowings are also at a fixed interest rate, providing a stable cost of funds from that source at 2.52%. A significant portion of our borrowing arrangements with our note investors, however, provides for variable rates of interest that are indexed to short-term borrowing rates or fixed rates on short-term maturities. 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.

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

Some of our assets are participation interests in loans or co-lender arrangements in which we share the rights, obligations, and benefits of the loan with other lenders. In addition to purchasing participation interests, we have sold participation interests in loans we have originated and service. We may need the consent of these parties to exercise our rights under such loans, including rights with respect to amendment of loan documentation, enforcement proceedings in the event 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 purchased or sold may adversely affect our business.

Church revenues fluctuate and may substantially decrease during times of economic hardship and global pandemics.

Generally, to pay their loans, churches depend largely on revenues from church member contributions. Donations typically fluctuate over time for a number of reasons, including, but not limited to:

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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 impact the church’s ability to meet its debt service obligations on a mortgage loan we make.

The quality of our mortgage loans depends on consistent application of sound underwriting standards.

The quality of the mortgage loans in which we invest depends largely on the adequacy and implementation of sound underwriting standards as described in our Board adopted loan policy. In order 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.

Because we invest in specialized purpose mortgage loans, our loan portfolio is generally riskier than if it were diversified.

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

Our loan portfolio is concentrated geographically and focused on loans to churches and religious organizations.

Specialized properties secure our loans and the secondary market for these loans remains regional and limited. As a result, if we must sell the properties securing such mortgages, there may be a limited number of buyers available for such properties. Nevertheless, we believe that there is a great deal of diversity in the types of not-for-profit organizations and entities that could be potential acquirers of properties of this nature, including, but not limited to, other churches, schools, clinics, community development agencies, universities, other educational institutions, day care, social services, assisted living facilities, and relief organizations. 

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The following table shows the two states with our highest concentration in loans.





We may need, from time to time, to sell or pledge as security our mortgage loan investments.

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

We may not have all of the material information relating to a potential borrower at the time that we make a credit decision with respect to that potential borrower or at the time we advance funds to the borrower. As a result, we may suffer losses on loans or make advances that we would not have made if we had all of the material information.

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

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

Our borrowers may experience operational or financial problems that, if not timely addressed by us, could result in a substantial impairment or loss of the value of our loan to the church. 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 attempt to minimize our credit risk through prudent loan approval and monitoring practices in all categories of our lending. However, we cannot

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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 adequately adapt to changes in economic or any other conditions affecting our borrowers and the quality of our loan portfolio. As a result, we could suffer loan losses that could have a material adverse effect on our revenues, net income, and results of operations.

We make assumptions about the collectability of our loan portfolio.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If we determine that it is probable that we will not be able to collect all amounts due to us under the terms of a particular loan agreement, we could be required to recognize an impairment charge or a loss on the loan unless the value of the collateral securing the loan exceeds the carrying value of the loan. If our assumptions regarding, among other things, the present value of expected future cash flows or the value of the collateral securing our loans are incorrect or general economic and financial conditions cause one or more borrowers to become unable to make payments under their loans, we could be required 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. 

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

Some of the loans in our mortgage loan portfolio currently are, or in the future may be, 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 significant 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 their resources to workout negotiations and restructuring efforts. These restructuring efforts may involve modifications to the interest rate, extension, or deferral of payments to be made under the loan or other concessions. For restructured loans, a risk still exists that the borrower may not be able or willing to maintain the restructured payments or refinance the restructured mortgage at maturity.

In the event a borrower defaults on one of our mortgage loan investments, we will generally need to recover our investment through the sale of the property securing the loan.

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

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The occurrence of any of these factors could severely impair the market value of the security for our mortgage loan investments. In the event 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 anticipated return on the foreclosed mortgage loan. Such delays can cause the value of the mortgaged property to deteriorate further. The properties also incur operating expenses pending their sale, including property insurance, management fees, security, repairs, and maintenance. Any additional expenses incurred could adversely affect our ability to recover the full value of our collateral.

There is a possibility that we could incur foreclosures and losses in connection with our mortgage loan investments during recessionary or depressed economic periods.

Recessionary periods typically occur on a cyclic basis by an unpredictable time and with uncertain lengths. In addition, terrorist acts, war, large-scale economic dislocations, epidemics, pandemics, or widespread and large corporate bankruptcies can trigger such events. Management cannot predict the effects of these events. We could incur losses because of borrower defaults and foreclosures on our mortgage loan investments. In addition, during times of recession, the demand for our mortgage loans is likely to decline. In connection with any sale or hypothecation of a mortgage loan, we would likely have to agree to be responsible in whole or in part for a limited period of time for any delinquencies or default. If we should experience significant delinquency rates, our revenues would materially decrease and, subject to our other available cash resources at the time, our ability to pay our debt securities obligations or our other indebtedness when due may be substantially impaired. When we acquire properties through the foreclosure of one of our mortgage loan investments, we may recognize losses if the fair value of the real property internally determined upon such acquisition is less than the previous carrying amount of the foreclosed loan.

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When we acquire properties through the foreclosure of one of our mortgage loan investments, we may recognize losses if the fair value of the real property initially determined upon acquisition is less than the previous carrying amount of the foreclosed loan.

When we acquire a property through foreclosure, we value the property and its related assets and liabilities. We determine fair value based primarily upon discounted cash flow or capitalization rate assumptions, the use of which requires assumptions including discount rates, capitalization rates, and other third party data. We may recognize a loss if the fair value of the property internally determined upon acquisition is less than the previous carrying amount of the foreclosed loan.

Real estate taxes resulting from a foreclosure could adversely affect our operating expenses.

If we foreclose on a mortgage loan and take legal title to the real property, we could become responsible for real estate taxes levied and assessed against the foreclosed upon real property. While churches are normally exempt from real estate assessments on their worship and ministry related properties, once we acquire the real property after a foreclosure, any real estate taxes assessed would be our financial responsibility and could reduce our recovery on our investment.

We are exposed to environmental liabilities with respect to properties to which we take title.

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.

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 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 and strikes, and unexpected delays caused by weather and other acts of nature. In addition, environmental risks and construction defects

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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. 

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ESTIMATED USE OF PROCEEDS

The following table sets forth information about how we intend to use the proceeds raised in the Offering. It assumes that we sell the maximum offering of $125,000,000 of the Notes we are offering. Many of the amounts set forth below represent our management’s best estimate since they cannot be precisely calculated at this time. Assuming the Company sells all $125 million of the Notes in the Offering, we expect that approximately 94.27% of the funds we receive from the Offering will be available for reinvestment. The remaining approximately 5.73% will be used to pay underwriting compensation and issuance and distribution expenses. 

As the Notes are sold we will receive cash proceeds in varying amounts. No specific allocation of proceeds received from the Offering may be made given the timing of the sale of Notes, loan payments made by our borrowers, redemption payments for maturing investor notes, and funding of new mortgage loans. For these reasons, we cannot provide a specific allocation of proceeds we will use for any specific purpose. However,

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we expect to use substantially all of the net proceeds of the Offering as follows and in the following order of priority:

There is no minimum amount of Notes that must be sold to receive and use the proceeds from the sale of the Notes, and we cannot assure you that all or any portion of the Notes will be sold. Pending use of the net proceeds, we intend to invest them in a short-term, interest bearing commercial account with a financial institution, which may be with one or more of our equity owners. There is no sinking fund to ensure repayment of the Notes at maturity. As a result, investors will be dependent upon our ability to generate adequate cash flows from our business operations. For further discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” on page 113.

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DESCRIPTION OF THE NOTES

Following is a summary of the material terms of the Notes and the Indenture. It does not purport to be complete. This summary is subject to, and is qualified by reference in its entirety to, all of the provisions of the Notes and the Indenture. A copy of the Indenture is set forth in Exhibit A to this Prospectus. Copies of the Fixed Series Note and the Variable Series Note are set forth in Exhibit B and Exhibit C, respectively, to this Prospectus. We urge you to read the forms of the Notes and the Indenture because they, and not this description, define your rights as a Noteholder.

General

The Notes are our general unsecured and unsubordinated obligations (except as described below). The Notes rank equal in right of payment with our existing and future unsecured and unsubordinated indebtedness. Accrued interest and principal are payable on the Notes at maturity.

The Notes are issued subject to the Indenture, which is intended to constitute an indenture agreement as that term is defined under the Trust Indenture Act of 1939, which we refer to as the 1939 Act. The Notes have been registered under the 1939 Act, and the Indenture contains certain required protective provisions benefiting the Holders, as required by the 1939 Act. In addition, the Indenture contains certain financial covenants and restrictions on the payment of distributions to our Members and on our ability to incur other debt. Including the Notes sold in this Offering, the Company is authorized to issue a total of $300 million of the Notes under the Indenture.

The interest rates we pay on the Fixed Series Notes are determined by reference to the CMT Index in effect on the date the interest rate is set. The interest rate we pay on the Variable Series Notes is determined by reference to the Variable Index in effect on the date the interest rate is set. Descriptions of the CMT Index and the Variable Index are set forth under “The Indexes” below.

We reserve the right to prospectively adjust the applicable Fixed or Variable Spread or applicable index as required to ensure our financial stability and access to capital at competitive rates; provided, however, that the spread adjustment is not more than 200 basis points or 2.00% on the Fixed Series Notes and is not more than 100 basis points or 1.00% on the Variable Series Notes. Any change in the applicable Fixed or Variable Spread or applicable index will apply only to Notes we sell at least 10 days after we give notice of the change to prospective investors. We will provide notice of any change in the Fixed or Variable Spread or applicable index by supplement to this Prospectus.

The Fixed Series Notes

Category and Required Minimum Purchase. The Fixed Series Notes are offered in six Categories, each requiring a stated minimum purchase.

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Interest Rate. The Fixed Series Notes pay an interest rate equal to the sum of the Fixed Spread for the respective Fixed Series Note Category shown in the table below plus the CMT Index then in effect.

Maturities. All Fixed Series Notes are offered with maturities of 12, 18, 24, 30, 36, 42, 48, 54, and 60 months.

The Categories, the corresponding required minimum purchase amounts, and the respective Fixed Spreads are set forth below.

The spreads displayed above are effective as of the date of the Prospectus. We reserve the right to change the spreads either up or down, by a maximum of 200 basis points (or 2.0%, one basis point equals 0.01%). We will disclose any change in spreads in a supplement to this Prospectus. Because the economic environment is constantly changing occasionally, we need to be able to adjust our spreads to remain competitive in the marketplace. As an example, recently the one year CMT rate went from 1.45% on January 31, 2020 to 0.17% on March 31, 2020 due to the Federal Reserve Board and the market’s response to the COVID-19 pandemic.

The Form of the Fixed Series Notes is included as Exhibit B to this Prospectus.

The Variable Series Notes

Category and Minimum Required Purchase. The Variable Notes are offered in five Categories, each requiring a stated minimum purchase.

Interest Rate. The Variable Series Notes pay interest that is adjusted monthly in an amount equal to the sum of the Variable Index in effect on the adjustment date, plus the amount of the Variable Spread for the respective Category shown on the Variable Spread Grid set forth in the table below. We refer to this as the “Effective Variable Spread Grid”. The interest rate on the Variable Series Notes will be adjusted monthly on a specified day each month, commencing the month following the date the Variable Series Note is issued.

Maturities. Variable Series Notes have a maturity of 60 months.

Prepayment. We will prepay your Variable Series Note in whole or in part upon delivery to us of your written request, provided your Note had an unpaid principal balance of at least $10,000 during the immediately preceding 90 days.

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The Categories, the corresponding required minimum purchase amounts, and respective Variable Series Spreads are set forth in the following Variable Spread Grid.

The Variable Spread Grid displayed above is effective as of the date of the Prospectus. The Variable Series Notes pay interest that is adjusted monthly in an amount equal to the sum of the Variable Index in effect on the adjustment date, plus the amount of the Variable Spread for the respective Category on the Effective Variable Spread Grid. We refer to this as the “Effective Variable Spread Grid”. The Effective Variable Spread Grid on a Note that has been purchased cannot change; however, we reserve the right to change the spreads either up or down, by a maximum of 100 basis points (or 1.0%, one basis point equals 0.01%) for future investments. We will disclose any change in spreads in a supplement to this Prospectus. Because the economic environment is constantly changing occasionally, we need to be able to adjust our spreads to remain competitive in the marketplace. As an example, recently the three month LIBOR rate went from 1.75% on January 31, 2020 to 0.56% on April 30, 2020 due to the economic distress caused by the COVID-19 pandemic.

The Form of the Variable Series Notes is included as Exhibit C to this Prospectus.

The Indexes

General. We reference the most recently published CMT Index in effect on the date the interest rate is set to determine the interest rates we pay on the Fixed Series Notes.  We determine the interest rate we pay on the Variable Series Notes by reference to the most recently published Variable Index in effect on the date the interest rate is set. The interest rate for both the Fixed Series Notes and the Variable Series Notes is set on the first business day of the month unless that day is a holiday, at which time the rate will be set the next business day. 

The CMT Index.    The CMT Index refers to the Constant Maturity Treasury rates published by the U.S. Department of the Treasury for actively traded Treasury securities in over the counter trading transactions. The CMT Index is not reported for partial year obligations for Treasury securities with a maturity term that is greater than one year. The CMT Index applied to Fixed Notes with a partial year term will be the CMT Index corresponding to the term equal to or not exceeding the term of the Fixed Note, or if there is none, the obligation having the longest term not exceeding the term of the Fixed Note. For example, for an 18-month Fixed Note, the one year CMT Index will be used. The current CMT Index rates can be reviewed at www.treasury.gov. 

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At September 30, 2020, the CMT Index rates published by the U.S. Department of Treasury provided:

The Variable Index. The Variable Index in effect when we issue a Variable Series Note is the LIBOR rate for three month financial obligations in effect on the date the Variable Note is issued. The Wall Street Journal regularly reports the LIBOR rate. The Wall Street Journal can be accessed on the internet at www.wallstreetjournal.com. In the event reporting of a current three month LIBOR rate is suspended or ended, we have the right to substitute the successor index, if any, or if there is none, the regularly reported interest rate we determine, in our sole discretion, to most likely track the three month LIBOR rate. For the 52-week period ended November 2, 2020 and as reported in The Wall Street Journal, the three month LIBOR rate ranged from a low of 0.21% to a high of 1.96%.

Common Provisions of the Notes

Priority of Right to Payment. The Notes are generally equal in rank of payment with our other current and future unsecured debt, except debt which is expressly subordinated to the Notes. Currently, we have an insignificant amount of such subordinated debt outstanding, but we intend to issue more in the future. While not expressly junior to our term-debt credit facilities or our $6.5 million in outstanding Secured Notes, the Notes are essentially junior in right to payment to these secured obligations with respect to payment from our assets securing them.

Payment of Interest. Unless you select the Interest Deferral Election option or other payment option, interest is payable on all Notes in arrears, monthly. The interest rates offered on the day of purchase will be confirmed by us upon request. You may change the way interest is paid on your Note by written notice to us. Interest is payable in arrears, on or before the 5th business day of the month immediately following the month in which payment is due. Interest will be prorated for the first partial payment period. Interest will be computed on the basis of a 365- or 366-day year. Interest will be deemed paid when mailed via the United States Postal Service addressed to the address the investor provides, subject to the check or instrument mailed being drawn on good and sufficient funds. You may change from one method of payment to another by giving us written notice by the 21st day of the month in which you want the change to be effective.

To be entitled to receive the interest effective on any day, an investor’s purchase of the Note must be confirmed and accepted by us on that day. An investor may elect to receive interest payable monthly, quarterly, semi-annually or annually or to reinvest interest, as described below.

Interest Deferral Election. Under this election, any Noteholder may choose to have the payment of accrued interest on their Note deferred and added to their Note’s principal balance. From the date this election is made, all interest payments on the Note will be deferred and the interest added to the Note’s principal

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balance will accrue interest under the terms of the Note. Interest so deferred will not be kept in a separate account, but will be treated by us in the same manner as the unpaid principal amount of the Notes.

Investors who are subject to taxation who make the Interest Deferral Election option should be aware that they will continue to have tax liability for all accrued interest in the year it is accrued and added to the Note’s principal balance. See “Certain U.S. Federal Income Tax Considerations” beginning on page 132 of the Prospectus.

Our Right to Prepay the Notes. We may elect at any time to prepay all or a portion of the Notes upon at least thirty (30) days and not more than sixty (60) days’ written notice. The redemption price will be the unpaid principal balance of the Note, plus accrued and unpaid interest thereon, through the redemption date. If less than all of the Notes can be redeemed, we will redeem the Notes on a pro rata basis. We will mail a notice of our election to prepay the Note by first class mail to each Holder to be redeemed at the most recent address the Holder has provided us in writing. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof shall be issued in the name of the Holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. Our obligation to make partial or total redemptions on a pro rata basis will not limit our right to repurchase any Note on a voluntary basis, including any prepayment of a Note upon an investor’s request as described below.

Presentment of Notes for Early Payment. A Noteholder may request that we voluntarily prepay his or her Note at any time by delivering a written request for early payment of the Note to us at our business offices. We may grant or deny the request in our sole discretion. Our current policy is to grant a reasonable request by reason of a demonstrated bona fide hardship, subject to availability of funds, but there is no assurance we will continue this policy. We must determine whether to purchase a Note so presented within ten (10) business days of our receipt of the request to do so and will, in such event, promptly pay to the requesting Holder the purchase price. In the event we agree to prepay the Note as requested, we may deduct an administrative charge equal to up to 3 months’ interest on the amount of the principal prepaid. If the Noteholder holds the Note in an individual retirement account (an “IRA”), the investor may incur additional withdrawal penalties, fees, and/or taxes.

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Payment History of Our Investor Debt Securities Programs

We have sold our investor debt securities in numerous offerings in our more than twenty-nine years of operations. Since inception, the Company has offered 14 prior debt investment programs, 13 of which were public offerings. Each of these programs has been liquidated. That is, each investor received timely payment of all interest and principal payments on the debt security we sold them within the time period set forth in their offering materials.



 

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DESCRIPTION OF THE INDENTURE

General

We may issue up to an aggregate of $300 million of the Notes under the Indenture. However, we may not issue any Note if, after giving effect to such issuance, the Notes then outstanding would have an aggregate unpaid balance exceeding $175 million.

As a condition to your purchase of a Note, you agree to adopt and become a party to the Indenture. The Indenture is a contract between the Holders, ourselves, and the Trustee. As required by U.S. federal law, the Notes are governed by the Indenture, which we intend to constitute an indenture under the 1939 Act. We have therefore registered the Indenture and the Notes under the 1939 Act.

The Trustee

The Indenture appoints U.S. Bank as Trustee. The Trustee has two main roles under the Indenture:

In general, the Holders may direct the Trustee to act or abstain from acting by a Majority Vote. Again, as used in this Prospectus, “Majority Vote” means the vote or consent of a Majority in Interest of the Holders as defined in the Indenture.

Successor Trustee, Trustee Eligibility

The Trustee may not be an affiliate of the Company and must at all times meet the requirements of a trustee under the 1939 Act. Among other things, the 1939 Act requires a trustee to have a combined capital and surplus of not less than $150,000.

Compensation of the Trustee

The Trustee is entitled to base compensation, plus additional compensation for services it may perform at the direction of the Holders under the Indenture. Also, the Trustee has the right to be reimbursed for its costs and expenses. Pursuant to the Indenture, the Trustee agrees to look only to us for payment of its compensation and expenses.

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The Trustee’s Rights, Duties and Responsibilities

The Trustee represents the interests of all the Holders pursuant to the Indenture. As described in the following sections, the Trustee may not take specified actions without the direction, authorization or approval of a representative (the “Holder Representative”) who is to be appointed by a Majority Vote of the Holders. If no Holder Representative is appointed, the Trustee must act as directed by a Majority Vote of the Holders. Thus, the Indenture requires Holders who suffer an actual default on their Notes to obtain the consent of a Majority Vote of the Holders, regardless of Series or maturity or default status, or whether they have suffered an actual default, to require the Trustee to take action against us. THIS REQUIREMENT, IN EFFECT, MAY LEAVE MANY HOLDERS WITHOUT PRACTICAL RECOURSE.

NO HOLDER SHALL HAVE THE RIGHT TO INSTITUTE OR CONTINUE ANY PROCEEDING, JUDICIAL OR OTHERWISE, WITH RESPECT TO THE INDENTURE, THE NOTES, OR FOR THE APPOINTMENT OF A RECEIVER OR TRUSTEE OR FOR ANY OTHER REMEDY HEREUNDER, DURING THE PERIOD OF THE OPERATION OF THE INDENTURE, UNLESS CERTAIN CONDITIONS, AS SET FORTH IN THE INDENTURE, ARE SATISFIED.

BY EXECUTING THE APPLICABLE PURCHASE APPLICATION, EACH HOLDER IS AGREEING TO BE BOUND BY THE TERMS OF THE INDENTURE SHOULD IT COME INTO FORCE BY THE APPOINTMENT OF A TRUSTEE PURSUANT TO ITS TERMS. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY REVIEW THE INDENTURE (ATTACHED AS EXHIBIT A). THE FOREGOING IS ONLY A SUMMARY OF THE PROVISIONS OF THE INDENTURE.

In general, the Indenture requires the Trustee to exercise its rights and powers vested in the Indenture using the same degree of care and skill as a prudent person would exercise or use acting in like capacity in the conduct of an enterprise of like character with like aims to accomplish the purposes of the trust as determined by the Indenture. However, no provision of the Indenture may be construed as to relieve the Trustee from liability for its own grossly negligent action or grossly negligent failure to act or its own willful misconduct.

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The Trustee will not be liable for exercising its rights and powers under the Indenture in certain circumstances including, but not limited to:

















The Trustee may refuse to take any action if it is required to advance, expend, or risk its own funds or otherwise incur financial liability in connection with any such action or in the exercise of any of its powers under the Indenture. The Trustee shall have no duty to take any action whatsoever if it believes in good faith that taking such action may expose it to personal liability. The Trustee assumes no responsibility for the legal enforcement of the Notes or the Indenture.

Under the Indenture, the Trustee does not authenticate the Notes. The Trustee does not collect interest or principal of the Notes on behalf of the Holders, except in the event of a default where the Trustee is directed to do so by a Majority Vote of the Holders.

Our Continuing Covenants Under the Indenture

Limits on Our Payment of Distributions to Members

While any Note is outstanding, we may not make, and will not permit any subsidiary to make, a restricted payment unless no default or event of default has occurred and is continuing, or would occur as a consequence of making the restricted payment, and certain other conditions are met. For this purpose, a restricted payment means: (i) a declaration or payment of any distribution to our equity owners (other than distributions payable in our membership interests to us or to our wholly-owned subsidiary); (ii) any payment for the acquisition, redemption or retirement of our membership interests or that of any wholly-owned subsidiary; or (iii) any voluntarily purchase, redemption or repayment, prior to its scheduled maturity of any of our indebtedness that is subordinated in right of payment to the Notes. 

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In addition, any such restricted payment, together with the aggregate of all other restricted payments we might make, may not exceed the sum of:









However, under the Indenture the following are not defined as restricted payments:





For the purposes of the Indenture, our “net income” means the aggregate of our net income for the applicable period, on a consolidated basis, determined in accordance with accounting principles generally accepted in the United States of America.

Limits on Our Ability to Incur Debt

While any Note remains outstanding, we may not, and may not permit any subsidiary to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise become, directly or indirectly, liable with respect to (collectively, “incur”) any indebtedness, unless our fixed charge coverage ratio for our most recently ended four full fiscal quarters immediately preceding the date on which such additional indebtedness is incurred would have been at least 1.20 to 1.0. We calculate the fixed coverage ratio as if the additional indebtedness had been incurred at the beginning of the period. Notwithstanding this restriction, we may incur indebtedness that: (i) is evidenced by the Notes; (ii) existing on the last day of the calendar quarter

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last ending before the Effective Date, as such Indebtedness may be later extended or modified; (iii) is incurred in the ordinary course of business for the funding of mortgage loans which includes warehouse lines of credit and/or repurchase facilities; (iv) is in respect of performance, completion, guaranty, surety and similar bonds, banker’s acceptances or letters of credit provided by us in the ordinary course of business; and/or (v) when incurred does not result in other indebtedness, other than amounts we owe on the Notes,  Class 1A Notes and Class 1 Notes, to exceed $20.0 million immediately after we incur the indebtedness.

Under the Indenture:















The Effect of Our Merger, Consolidation or Sale of Assets

While any Note is outstanding, we may not consolidate or merge with or into any other person or entity (whether or not we are the surviving entity) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our properties or assets (excepting sales of our loans we hold for sale in our normal course of business), in one or a series of transactions for the same purpose, unless (i) we are the surviving entity of such transaction; or (ii) if we are not the surviving entity, the surviving entity assumes our obligations under the Notes by agreement or operation of law.

Requirements That We Maintain a Minimum Tangible Adjusted Net Worth

In the event that our tangible adjusted net worth is less than the minimum tangible adjusted net worth, within 55 days after the end of any fiscal quarter we must notify the Holders. We must within sixty (60) days thereafter restore our tangible adjusted net worth to an amount greater than the minimum tangible adjusted net worth. For the purposes of this covenant, tangible adjusted net worth includes the amount of our credit facilities to the extent it is subordinated in right to payment on a current basis to the Notes.

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Under the Indenture, our “tangible adjusted net worth” means our adjusted net worth less our intangible assets, if any. Our “adjusted net worth” means the sum of (i) our Members’ consolidated equity and of the equity interests of any consolidated subsidiary, plus (ii) the amount of any credit line, whether or not then funded, to the extent such loan amount is expressly subordinated in right to payment on a current basis to the Notes.

Requirements That We Keep Certain Books and Records

We must keep proper books of record and account, in which full and correct entries shall be made of all dealings or transactions of or in relation to the Notes and our business and affairs in accordance with accounting principles generally accepted in the United States of America. We must furnish to the Trustee any and all information related to the Notes as the Trustee may reasonably request and which is in our possession.

Other than the foregoing, there are no covenants or other provisions (except those contained under the California limited liability company law which apply to corporations generally) restricting our ability to enter into transactions with our Affiliates including, but not limited to, transactions involving the sale, lease, transfer or other disposal of any of our assets to, or purchase any assets from, or any contract, agreement, understanding, loan, advance of guarantee with, or for the benefit of, any such Affiliate.

Under California law, our independent Managers’ fiduciary obligations require that they act in good faith under the duties of due care and loyalty in a manner which they believe to be in our best interests and those of our Members, which is not, in most circumstances, the same as the obligation they owe to the Holders.

Remedies in the Event of Our Default

Each of the following constitutes an event of default under the Notes:















The Indenture provides that a default by reason of any of the foregoing Events of Default is a default with respect to all of the Notes.

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In order to cure payment in default, we must mail to the Noteholder, direct deposit or credit, if that option is selected, the amount of the nonpayment plus a late payment penalty equal to simple interest on the amount unpaid at the rate of 10% per annum, measured from the date the payment should have been mailed, deposited or credited pursuant to the terms of the Notes until the date it actually is mailed, deposited or credited.

If any event of default occurs and is continuing, the Holders holding at least 25% of the principal amount of the Notes may instruct the Trustee to declare the outstanding Notes to be immediately due and payable and to take any action allowed by law to collect such amounts. Notwithstanding the foregoing, in the case of an event of default arising from our bankruptcy or insolvency, all outstanding Notes will become due and payable without further action or notice. If an event of default has occurred and is continuing, we must, upon written request of the Trustee, cure such default and pay for the benefit of the Noteholder the whole amount then due, any penalties which may be due and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee. If we fail to cure such defaults and pay such amounts forthwith upon such demand, the Trustee, in its own name and as Trustee of an express trust, shall be entitled to sue for and recover judgment against us and any other obligor on the Notes for the amount so due and unpaid pursuant to the terms of the Notes.

Compromise or Settlement of Claims

The Trustee may not settle or compromise any rights or claims of the Holders, including any right to payment of principal or interest, unless the settlement or compromise is approved by a Majority Vote of the Holders. Any settlement or compromise so approved would be binding upon all the Holders.

The Trustee may withhold from the Holders notice of any default or event of default if it believes that withholding notice is in their interest, except a default or event of default relating to the payment of principal, interest or penalties.

Amendment, Supplement and/or Waiver of the Indenture

The Indenture and/or the Notes may be amended or supplemented by a Majority Vote of the Holders. Also, by a Majority Vote, the Holders may consent to waive any default, event of default, compliance or noncompliance with any provision of the Notes. However, any such amendment, supplement or waiver affecting the term, interest rate and other terms of the Notes must be ratable and proportionate in effect on all Holders based on the aggregate amount of principal and interest and penalty payments due them.

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OUR COMPANY



Our Identity and History

Contact Information



Purpose

Ministry Partners Investment Company’s missional purpose is to “enhance Christian stewardship.” We implement our missional purpose by assisting evangelical ministries with Biblically-based, value-driven financial services. 

Organization

We were incorporated under California law on October 22, 1991 under the name Ministry Partners Investment Corporation and established as a non-bank credit union service organization, or ("CUSO"), by the Evangelical Christian Credit Union (“ECCU”).  Effective as of December 31, 2008, we converted our form of organization from a California corporation to a California limited liability company. On conversion, our name changed to "Ministry Partners Investment Company, LLC.” A group of managers who have full, exclusive, and complete discretion, power, and authority to oversee the management of our affairs manages us. We have 11 equity owners, all of whom are federal or state chartered credit unions.

We also have four wholly owned subsidiaries through which we conduct various aspects of our business: 

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MPF serves as the custodian of assets pledged to investors in our secured investment notes. We organized MP Realty to provide loan brokerage and other real estate services to churches and ministries, but have conducted limited operations since its inception.

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

The Company formed MPC on December 28, 2018 for religious and charitable purposes. MPC is a not-for-profit corporation formed and organized under Delaware law that will make charitable grants to Christian education, and provide 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. MPC made its first charitable grant in 2020 and expects to award further grants for the year ended December 31, 2020.

Our Competition

The religious loan market segment has grown since our inception and we believe that the demand for ministry loans originated and serviced by niche lenders to churches and ministries will continue to exceed available lending and financing sources for this sector. We believe that the availability of lenders serving this market has been somewhat unpredictable as larger financial institutions expand, contract, or vacate this niche market during periods of expansion or contraction. We have specialized in assisting these organizations since we commenced 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.  We also believe that the secondary market for church and ministry loans, including the sale of loan participation interests in loan investments we underwrite and originate, can be a source of new business. 

Although the demand for church financing is both broad and fragmented, no one firm 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 and locations, larger staffs and lower cost of operations due to their size. We believe, however, we have developed an efficient, effective and economical operation that (i) specializes in identifying and creating a diversified portfolio of church mortgage loans that we or other credit unions originate and (ii) preserves our capital base and generates consistent income for payments on our debt obligations and distribution to our equity investors.

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

With respect to the investment advisory, broker-dealer and insurance services provided through MP Securities, there are many mainstream financial services organizations that serve the faith-based market

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segment throughout the United States. Most of the competitors in this institutional market segment are banks, credit unions, denominational investment funds as well as larger investment and insurance organizations. However, the overall size of the market segment provides ample opportunities for quality firms with specialized knowledge of the governance surrounding churches and ministries to effectively provide and expand the services we offer. In addition, MP Securities also serves the retail marketplace throughout the United States. While the retail market segment has large national competitors that offer alternative options, MP Securities’ holistic approach to providing investment and insurance advice enables us to provide services and products to an expanding market of potential clients.

Human Capital Resources

The Company relies on the experience of its lending, financial services, underwriting, and loan servicing skills and experience of its management team. A substantial number of its employees have extensive experience in the credit union industry. Through its wholly-owned subsidiary, MP Securities, it employs a team located in both its Brea and Fresno, California offices. The Company has not been materially adversely impacted by the pandemic and it has adjusted its operating policies to protect the safety of its employees by permitting remote work environments and modified work schedules. As the Company expands the range of services, products and investment services it offers, the Company will seek to identify and recruit qualified personnel that will enable the Company to further diversify the services and products it offers, increase its revenues and profitability.

Our Properties

As of September 30, 2020, 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. MP Securities also maintains networking agreement office locations in Glendora, California and Elgin, Illinois. As of September 30, 2020, the Company had one investment in a joint venture that owns raw land held for potential sale or development in Santa Clarita, California. As of September 30, 2020, we hold two properties acquired through foreclosure proceedings with a net value of $301 thousand. 

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Our Principal Business and Markets

Overview

We provide our financial services through two business segments consisting of our church loan financing group and our investment advisory, broker dealer firm, and insurance agency. Within these segments, we offer a wide range of products and services for the investors, borrowers, ministries, business, and individuals we serve.

When initially founded, the Company was a wholly-owned subsidiary of ECCU with the objective of serving as a  CUSO that would focus solely on investing in church and ministry loans originated by ECCU. As a result, the Company relied solely on interest income generated from its mortgage loan investments. Since inception, the Company has expanded its equity ownership and ability to originate, service, and sell participation interests in the loans it originates. We also made substantial investments to broaden the sources of income producing revenue opportunities by forming a broker dealer and investment advisory firm. In management’s view, creating multiple revenue sources enabled to operate as a more resilient and diversified business that is able to respond more effectively to economic cycles. To that end, the Company has substantially diversified the source of its revenues by generating investment services revenue through MP Securities and generating fee income from selling and servicing participation loans. We plan to continue to invest in financial services products and services that will provide fee income and diversify the Company’s revenue and expansion opportunities.  

We generate our net earnings primarily from the following sources:

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

We provide investment advisory, broker-dealer, insurance, and financial planning solutions for individuals and businesses, as well as faith-based organizations, churches, and educational institutions. We provide these investment products and services 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

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high quality products and services. MP Securities also maintains a clearing firm relationship with RBC Dain, which provides additional investment platform options for our clientele.

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

MP Securities also offers insurance products and services through our California insurance agency to help protect clients form unexpected life events. As such, MP Securities offers life, disability, long-term care, fixed and variable annuities, and indexed annuities to our retail and institutional clientele. With respect to the annuity products available through MP Securities, many of our retail and church and ministry clients use annuity products that mitigate risk through income guarantees.

In all cases, MP Securities and its advisors must act in the best interest of our clients.

The Company is a registered broker dealer firm under Section 15 of the Securities Exchange Act of 1934 and a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). In addition, the Company holds a resident license from the California Department of Insurance to act as an Insurance Producer under the name Ministry Partners Insurance Agency, LLC.

The Company provides securities brokerage services to credit unions, credit union service organizations, and the customers and institutions it serves. The Company also acts as a selling agent for the Company’s debt securities offered through both public and private note offerings. The Company is a non-carrying broker, and opens brokerage accounts for its customers through its clearing firm agreement with Royal Bank of Canada Dain Rauscher (RBC Dain).

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), California’s Department of Financial Protection and Innovation (formerly Department of Business Oversight), and the California Department of Insurance all directly regulate MP Securities due to its broad offering of products and professional services. In addition, the state insurance or securities divisions have granted MP securities a license to do business in every state in which we conduct business. As of September 30, 2020, the Company was licensed to serve as an insurance broker in 15 states and offers investments in 24 states.

Church Loan Financing Segment

Overview

We assist evangelical Christian churches and organizations by providing financing for the acquisition, development, and/or renovation of churches or church-related properties, and provide investors the opportunity to participate in funding those projects. We typically secure these loans by real property owned by evangelical churches or church-related organizations such as Christian schools and ministries. As of September 30, 2020,  99.9% of the loans in our portfolio were secured by real estate. Currently, we conduct

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substantially all of our business operations in California. However, while we have more loan investments in California than in any other state, we own loan interests in 30 different states.  

To fund a substantial portion of our loan investments we rely on sales of our debt securities to new investors, and the purchase of our debt securities by repeat investors.  We market our debt securities primarily to investors who are in or associated with the Christian community, including individuals, ministries, and other organizations and associations. We also have funded substantial portions of our loan investments through term-debt from financial institutions. Additionally, to raise funds, we sell loan participation interests in our loan investments to other financial institutions. In addition, the Company’s owners have made significant capital investment into the Company that is available to funds the balance sheet along with the Company’s ongoing retained earnings. Going forward, we plan to continue to use all of these methods to fund our loan investments.

Our Loan Investment Portfolio

Our loan investments are set forth below:







At September 30, 2020, we had no loans that were considered individually material (10% of net assets or greater) to our financial operations.

Loan Maturities

The following table sets forth the future maturities of our mortgage loan portfolio at December 31, 2019: 



Included in the table above are 107 adjustable rate loans totaling $97.8 million, or 74.6% of the total balance. Adjustable rate loans reduce the interest rate risk compared to fixed rate loans with similar cash flow characteristics.

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Diversification of Our Mortgage Loan Portfolio

The following table sets forth, each state in which the unpaid balance of our mortgage loans was 10% or more of the total unpaid balance of our loan portfolio:



Lending Activities

Loan Acquisition

We acquire loans either through originating the loans internally or purchasing the loan from another financial institution. When we originate a loan, we rely entirely on our own underwriting capabilities and standards. For loans that we purchase, we apply our internally developed underwriting criteria and loan acquisition policies and review the underwriting procedures carried out by the financial institution that is selling the loan or participation interest.  We originated $16.2 million in loans during the nine months ended September 30, 2020 as compared to $8.0 million during the year ended December 31, 2019 and $15.5 million for the year ended December 31, 2018. 

Participation Interests Purchased

From time to time, we also invest in participation interests in secured mortgage loans, whereby we own a participation interest in a mortgage with a credit union or other lender. By investing in a participation interest, we can participate in a larger loan investment and diversify our mortgage loans investment portfolio while minimizing our exposure to the aggregate amount of the loan. In most instances, the originator retains all rights with respect to enforcement, collection, and administration of the loan. Therefore, we may have more limited access to the borrower and the lead lender is generally entitled to exercise discretionary power in administering performing loans and undertaking collection efforts in connection with any of its non-performing loans. 

As of September 30, 2020,  approximately $1.6 million, or 1% of our total loan portfolio, consisted of loan participations we purchased from other financial institutions. As of December 31, 2019, approximately $3.3 million, or 3% of our total loan portfolio, consisted of loan participations we purchased from other financial institutions. For the year ended December 31, 2018, approximately $5.8 million, or 4% of our total loan portfolio, consisted of loan participations we purchased from other financial institutions.

Loan Servicing

Our servicing capability represents the operational foundation of our loan participation strategy, which enables us to produce recurring servicing revenue from loan participations sold. Our technology platform enables us to process, record, transmit, and account for all financial and operational data for the benefit of other credit unions, finance lenders, churches, financial institutions, and investors. As of September 30,

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2020, we were servicing 144 loans, totaling approximately $159.3 million in gross loan principal balance outstanding. 

Types of Loans

We invest primarily in mortgage loans secured by liens on churches or ministry related properties. Generally, we secure our loans with first mortgage liens. However, from time to time we invest in loans secured by second liens, or which are guaranteed junior secured obligations, or in unsecured loans, if such loans meet our loan criteria. 

Set forth below are the recorded loan amounts we have invested in each loan category (dollars in thousands):





Real Estate Secured Permanent Loans

We acquire or originate mortgage loans that may have an adjustable interest rate or fixed rate. Our loan maturities are typically ten-year or less and the amortization term is typically 25 years or less.  The maximum loan to value ratio may not exceed 80% without approval from our Board of Managers.

Construction Loans

We make construction loans to finance the construction or restoration of facilities used for ministry related purposes. Normally, these loans will have a constructions draw period that is no longer than 12 months and will carry a provision to convert to permanent loans with a final maturity of ten years or less.  Construction loans typically require interest-only payments on the outstanding balance drawn for construction. The maximum loan to value ratio may not exceed 75% without approval from our Board of Managers.

Unsecured Loan Types:

Lines of Credit

Occasionally we make lines of credit available to borrowers to meet their temporary working capital needs. The term typically will not exceed one year and borrowers make interest only payments during the term of the loan. We limit the maximum loan to value to 80% if we secure the loan by real property, accounts receivable, or inventory.

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Letters of Credit

Sometimes we issue letters of credit granting a named organization the right to demand a specified payment amount from us if the stated conditions are met. We require that funds on deposit or restricted funds under a Company line of credit fully secure the letter of credit.

Our Loan Policies

Our Board of Managers has the ultimate responsibility for our loan portfolio and establishes the Company’s loan policies. The Board of Managers has created two key committees to carry out the policies and monitor the portfolio, consisting of the Credit Review Committee (“CRC”) and the Board Credit Committee. The Board Credit Committee consists of selected members of the Company’s Board of Managers. The Board of Managers, through the loan policy, gives CRC the authority to grant loans up to limits established in the loan policy. The Board Credit Committee appoints the CRC members from the Company’s management team. In addition, the Board Credit Committee gives authority to individual loan officers to make loan decisions regarding loans that are in an amount within their established maximum limits. If the loan exceeds the officer’s limit, the CRC has the authority to approve loans up to 25% of our tangible net worth or 5% of our aggregate loan portfolio, whichever is less. The Board of Managers has granted authority to the Board Credit Committee to approve any loan that exceeds these limits.

Aggregate Loan Portfolio Limits

The CRC can approve loans up to the following limits and the Board Credit Committee must approve loans over these limits:

While the Board Credit Committee has approved all of the loans that exceed the CRC’s approval limits, our strategy and general practice going forward is to acquire loans that fall within the CRC limits. We believe this will improve the overall credit strength of the portfolio so our exposure to any one credit is limited. If we acquire any loan over the CRC’s limits, our practice is to sell participation interests in that loan until the

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portion retained by the Company is below the described limits. If we are able to successfully implement this practice, we expect that over time the average outstanding balance per loan will decrease. The average outstanding balance per loan has decreased from $877 thousand at December 31, 2018 to $868 thousand at December 31, 2019 to $825 thousand at September 30, 2020. 

Our Loan Renewal Policies

We offer to renew, re-underwrite, or otherwise continue (i.e. renew) a maturing loan on a case-by-case basis. Prior to maturity, each loan is analyzed and re-underwritten to determine if it is a possible rollover candidate. Management then reviews our liquidity needs in determining whether to recommend that CRC renew the loan.

Our Mortgage Loan Investment Standards

Our loan underwriting process involves a review and analysis of the church or ministry’s financial operation, the strength of the organization’s leadership team, prior history, financial capability, collateral value, and general creditworthiness. We perform an analysis of all available pertinent documentation for new loan applications and on a periodic basis for loans outstanding. Through our analysis, we ascertain the ability of the applicant or borrower to repay the loan fully and promptly.

Our policy is to require each of our mortgage loan investments to meet the following criteria: 

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Performance and Monitoring of Our Loan Portfolio

The Board of Managers have adopted our loan policy, our loan risk rating policy, and our collection policy to give management a framework within which to monitor the performance and mitigate risk in our loan portfolio. Our credit, underwriting, and servicing teams are responsible for reviewing and monitoring the performance of the loans in our portfolio. This involves regular communication with our borrowers, along with the collection of financial statements and other pertinent data. The review of financial data is done on at least an annual basis and is often done more frequently as warranted. Based on the review of this information as well as the performance of the loan as compared to its terms, we will take additional action to ensure that that loan is properly classified.  We monitor payment receipts and delinquency and produce regular status reports on these loans.  These status reports are included in monthly and quarterly reports management prepares for our Board of Managers. 

Loan Grading / Classification

We grade our loans throughout the lifecycle of the loan:

We assign risk grades on a scale of 1 to 8, with 1 being the highest quality and 8 being the lowest quality grade. We only make new loans to borrowers rated in the top three “Pass” categories. We consider loans rated in Grade 5 – Grade 8 as a “classified” loan.

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We review loans that are grade 3 or higher on a semi-annual basis. We may put loans with a classified grade on a quarterly review cycle. To determine the grade assigned to the loan we assess the reliability of the primary source of repayment and the past, present, and projected financial condition of the borrower. We also assess the current economic and industry conditions that are likely to affect the borrower.

Monitored Loans

Loans with a risk grade between 5 and 7 are considered monitored loans and are subject to the following activities:

Delinquent Loans

We report a mortgage loan as delinquent if it is 90 days or more in arrears. We have adopted a proactive approach in responding to delinquencies in our loan portfolio. On loans for which we act as the lead lender, we make direct contact with the borrower within ten (10) days of an initial late payment. If the situation progresses to 30 days or more, we follow up with an onsite visit to discuss the borrower’s circumstances and how the borrower can bring the loan current. In the event that an acceptable workout of a delinquent mortgage cannot be reached, we, or the lead lender of any of the loans being serviced for us, will generally proceed with a foreclosure proceeding on any collateral securing the loan. 

Workout Loans

From time to time, we have restructured a mortgage loan in light of the borrower's circumstances and capabilities. We review each of these cases on an individual basis, and approve any restructure based on the guidance stipulated in our Collections policy. If we decide to accept a loan restructure, we generally will not forgive or reduce the principal amount owed on the loan; in addition, the typical maturity term for a restructured loan does not exceed five years. We classify a loan as a restructured loan when we make

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concessions we would not otherwise consider when making  a new loan to a borrower. A restructuring of a loan usually involves an interest rate modification, extension of the maturity date, or reduction of accrued interest owed on the loan on a contingent or absolute basis.

Loan “Charge Offs”

We charge-off an uncollectible portion of a  loan against our allowance or reserve for loan losses when we believe we may not be able to collect the balance of a loan.

Foreclosed Assets

The payment of our mortgage loan investments is not insured and, in general, no person or any government agency or instrumentality guarantees their payments. Therefore, we must look to foreclosure on the property securing the loan as the primary source of recovery in the event the borrower is unable to repay their loan. As of September 30, 2020, we held two properties acquired through foreclosure proceedings. 

Allowance for Loan Losses

We establish provisions for loan losses, which are charged to earnings, at a level reflecting estimated credit losses on our loan portfolio. In evaluating the level of the allowance for loan losses, we consider the type of loan, amount of loans in our portfolio, adverse situations that may affect our borrowers’ ability to pay and estimated value of underlying collateral and credit quality trends (including trends in non-performing loans expected to result from existing conditions).

The allowance for loan loss is monitored by our senior management on an ongoing basis. We examine the performance characteristics of our portfolio loans, including charge-offs, delinquency ratios, loan restructurings, modifications, and other significant factors that, in management’s judgment, may affect our ability to collect loans in the portfolio as of the evaluation date. Our senior executive team monitors these factors on a regular basis and reviews are conducted quarterly with our managers. We determine general reserves by segregating our loan portfolio into pools based on the risk rating of the loan, the position of the underlying collateral, and if we are the servicer on the loan.  Loans with higher risk ratings (lower assessed credit quality) have higher reserves allocated to the loans.

Our senior executive team also evaluates our allowance for loan losses based upon a review of individual loans in our loan portfolio. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows we expect to receive on an impaired loan that may be susceptible to significant change. Once a loan becomes delinquent or non-performing, the borrower reports a material adverse financial condition, or we determine that the value of the collateral underlying an impaired loan has substantially declined, we assess all information available to us to determine the estimated loss for a particular loan. We monitor these individual impaired loans on a regular basis.

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The following represents a breakdown of the components of our allowance for loan loss at September 30, 2020,  December 31, 2019, and December 31, 2018 (in thousands):



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Funding Our Operations

Overview

We use three primary sources to fund our church and ministry loan investments. These include (i) our investor notes; (ii) credit facility borrowings from financial institutions; and (iii) capital investments of our equity members. In the past several years, we have reduced our funding reliance on credit facility term-debt, shifting the funding focus on investor notes 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):  

To accelerate the shift in funding strategy, the Company has taken advantage of opportunities to deleverage its term-debt when there is a financial advantage to do so. On September 25, 2020, we took advantage of an opportunity to make an early payoff of one of our term-debt credit facilities, which paid off $15.0 million in debt and resulted in a $2.4 million gain on debt extinguishment. Besides the gain on debt extinguishment, there are several benefits of the debt extinguishment to the Company’s cash flow and liquidity going forward. The monthly payment of $129 thousand will no longer be required on this facility, thus reducing the monthly cash flow needed to service this debt. In addition, the loan had a balloon payment due on November 1, 2026 of approximately $7.5 million. Retiring the debt early eliminated the future requirement to make the large balloon payment. Paying off the debt also released approximately $22.0 million of loans pledged as collateral on the extinguished debt. These loans are now available to secure other credit facilities or may be sold if additional liquidity is needed. The Company will continue to evaluate opportunities to further deleverage and re-evaluate its use of term-debt facilities as may be presented in the future.

One of the strategies we have employed in making this funding source shift is to sell participation interests in our mortgage loans. This enables the Company to fund loan acquisitions while conserving cash and increasing our non-interest income. This model will allow 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. To facilitate the implementation of this model, on September 30, 2020 we entered into a $7.0 million warehouse line of credit with KCT Credit Union, an Elgin, Illinois credit union, which will enable the Company to fund loans and warehouse them until sold without using long-term borrowing facilities or investor notes. We believe these developments create a stronger financial model for our investors and equity owners. We implemented this loan participation model in 2020 and as a result, the Company sold $16.5 million in loans during the nine months ended September 30, 2020 compared to no loan sales in the nine months ended September 30, 2019. $9.9 million of the loan sales were from new loans funded in 2020 while the remainder was from loans funded in previous years.

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Capital investments made by our equity members along with the Company’s retained earnings also provide funds for our church and ministry loan investments. Members’ equity provides investors with protection against losses and provides investment capital for the Company. Equity comes in the form of cash invested in the Company by its equity owners and retained earnings of the Company. As detailed in the chart above, the Company has increased its members’ equity from $8.2 million to $12.8 million over the most recent five year period providing an additional $4.6 million in equity protection against losses for its investors.

Funding from Our Investor Notes

Our investor debt consists of various series of notes sold under several registered public offerings as well as in private offerings. We sell these debt securities to faith-based ministries, institutions, and individual investors. Notes pay interest at stated spreads over an index rate. The investor may reinvest the interest or have the interest paid to them at their option. The Company may repurchase all or a portion of notes at any time at its sole discretion by providing at least thirty (30) but not more than sixty (60) days prior written notice. In addition, the Company may allow investors to redeem their notes prior to maturity at its sole discretion. 

Private Offerings.

Subordinated Notes: The Series 1 Subordinated Capital Notes have been offered with maturity terms from 12 to 60 months at an interest rate fixed on the date of issuance. We may continue to sell these debt securities to eligible investors on an individual, negotiated basis as we deem appropriate and in compliance with exemptions from registration or qualifications under federal and applicable state securities laws. We offer these notes from time to time to accredited investors. Payments made to these investors are subordinated to all of our other current and future debt.

Secured Notes: In January 2015, the Company began offering its secured notes (“Secured Notes”) under a private placement memorandum pursuant to the requirements of Rule 506 of Regulation D. The certificates require as collateral either cash pledged in the amount of 100% of the outstanding balance of the certificates or loans receivable pledged in the amount of 105% of the outstanding balance of the certificates. The collateral securing the Secured Notes satisfied the minimum collateral requirement of the Loan and Security Agreement, which governs the issuance of such notes. The payment of these obligations is secured by a pool of our mortgage loans or cash. We terminated the Secured Note offering on April 30, 2020.

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At September 30, 2020, the balances of our outstanding investor debt securities were as follows:







At September 30, 2020, our investor notes had future maturities during the following twelve-month periods ending June 30 (dollars in thousands):



Funding from Term-Debt

At September 30, 2020, our borrowings from institutional lenders consisted of the following term-debt borrowings (dollars in thousands):  



We cannot borrow additional funds on these debt obligations; therefore, we will need to replace any principal paid on these debt obligations through another source.

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The following table shows the maturity schedule on our term-debt for the next five years and thereafter as of September 30, 2020 (dollars in thousands):

MU Term-Debt Credit Facility.  

This facility replaced the original $100 million credit facility entered into by and between the Company and Members United Corporate Federal Credit Union on May 7, 2008. The $87.3 million facility was entered into on November 4, 2011, by and between the Company and the National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union (“NCUA”). On June 19, 2019, OSK VII, LLC., a Minnesota limited liability company,  purchased the loan from the NCUA. No material terms have been changed with the transfer of ownership of the MU Term Debt Credit Facility. The Company cannot borrow additional funds on the facility and there are no prepayment penalties or restrictions.

The MU Term-Debt Credit Facility includes a number of borrower covenants, including maintaining a minimum collateralization ratio of at least 120% for the MU Term-Debt Credit Facility. If at any time the Company fails to maintain its required minimum collateralization ratio, it will be required to deliver cash or qualifying mortgage loans in an amount sufficient to enable us to meet its obligation to maintain a minimum collateralization ratio. We were in compliance with our minimum collateralization under this facility at September 30, 2020, December 31, 2019, and December 31, 2018.

The Company’s obligation to repay the outstanding balance on this facility may be accelerated upon the occurrence of an “event of default” as defined in the MU Term-Debt Credit Facility. Such events of default include, among others, failure to make timely payments due under the MU Term-Debt Credit Facility and the Company's breach of any of its covenants. As of September 30, 2020, December 31, 2019, and December 31, 2018, the Company was in compliance with its covenants under the MU Term-Debt Credit Facility. 

Paycheck Protection Program Loan.

On April 27, 2020, MP Securities applied for and received a Paycheck Protection Program loan (“PPP Loan”) granted under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). According to the terms of the program, as administered by the Small Business Association, payments on the loan are deferred for six months, deferred interest is capitalized into the principal balance of the loan, and qualifying amounts of the principal balance of the loan and deferred interest are eligible to be forgiven if the borrower is able to meet the program’s requirement for retention of employees and maintaining salary levels for its employees. Qualifying amounts include amounts equal to eligible payroll costs, certain rent payments, and

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utility payments as defined by the program. The CARES ACT does not require that the Company pledge collateral for the PPP Loan.

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

On September 30, 2020, we opened a $7.0 million warehouse line of credit with KCT Credit Union, an Elgin Illinois credit union, which will enable the Company to fund loans and warehouse them until sold without using long-term borrowing facilities or investor notes (the “KCT Facility”). The KCT Facility is a short-term demand credit facility with a one-year maturity date of September 30, 2021. The KCT Facility will automatically renew for another one-year term unless either party furnishes written notice at least thirty (30) days prior to the termination date that it does not intend to renew the agreement. We may draw funds on the KCT Facility at any time until the line is fully drawn. Repayment of each advance is due one hundred and twenty (120) days after the advance is made or earlier in the event that a collateral loan becomes more than sixty (60) days delinquent and the Company fails to cure such deficiency. To secure our obligations under the KCT Facility, we have agreed to grant a priority first lien and security interest in certain of our mortgage loan investments and maintain a minimum collateralization ratio measured by taking outstanding balance of mortgage notes pledged under the facility as compared to the total amount of principal owed on the KCT Facility. The minimum ratio must equal at least 120%. The KCT Facility contains typical affirmative covenants for a credit facility of this nature. The Company was in compliance with these covenants at September 30, 2020.

Off Balance Sheet Funding: Sale of Loan Participation Interests

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. When we sell a loan participation interest, we generally enter into a loan participation interest purchase agreement, which includes standard representations and warranties that are typical for a transaction of this nature. With our processing system and loan servicing capabilities, we believe we will be able to continue to expand our portfolio of loans serviced for others. 

The table below shows the activity in our participation sold portfolio.





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Effect of Government Regulations on the Business

General

We are organized as a credit union service organization and, as a result, are subject to the regulations promulgated 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:

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

Tax Status

Effective with our conversion from a corporate form of organization to a limited liability company organized under the laws of the State of California on December 31, 2008, we have chosen to be treated as a partnership rather than a corporation for U.S. tax law purposes. As a result, profits and losses will flow directly to our equity investors under the provisions of our governing documents. If we fail to qualify as a partnership in any taxable year, we will be subject to federal income tax on our net taxable income at regular corporate tax rates. As a limited liability company organized under California law, we are also subject to an

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annual franchise fee plus a gross receipts tax on our gross revenues from our California based activities if our gross revenues are in excess of $250 thousand per year.

Regulation of Mortgage Lenders

We conduct loan originating activities for churches and related ministry 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 providing services as a “finance lender” or “broker” without obtaining a license from the DFPI, unless otherwise exempt under the law. We conduct our commercial lending activities under a  California finance lender license.

As a finance lender, we are licensed with the DFPI and file reports from time to time with the DFPI. Accordingly, 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 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.

As we offer and originate loans outside of the State of California, we need to comply with laws and regulations of those states. The statutes which govern mortgage lending and origination activities vary from state to state. Because these laws are constantly changing, due in part, to the challenge facing the real estate industry and financial institutions from residential lending activities, it is difficult to comprehensively identify, accurately interpret and effectively train our staff with respect to all of these laws and regulations. We intend to comply with 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 deemed necessary by our management.

Loan Brokerage Services

In 2009, we created a subsidiary, MP Realty, which provides loan brokerage and other real estate services to churches and ministries in connection with our mortgage financing activities. The California Bureau of Real Estate issued MP Realty Services, Inc. a license to operate as a corporate real estate broker on February 23, 2010. If we expand our loan brokerage activities to other states, we may be required to register with these states as a commercial mortgage broker if we are directly or indirectly marketing, negotiating or offering to make or negotiate a mortgage loan. We intend to monitor these regulatory requirements as necessary in the event MP Realty provides services to a borrower, lender, broker or agent outside the State of California.

Environmental Issues Associated with Real Estate Lending

The Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), a federal statute, generally imposes strict liability on all prior and current “owners and operators” of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term “owner

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and operator” excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for clean-up costs on contaminated property that they hold as collateral for a loan. To the extent that legal uncertainty exists in this area, all creditors that have made loans secured by properties with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for clean-up costs, which costs often substantially exceed the value of the collateral property. In addition, state and local environmental laws, ordinances and regulations can also impact the properties underlying our mortgage loan investments. An owner or control party of a site may also be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.

Regulation of Financial Services

The financial services industry in the U.S. is subject to extensive regulation under federal and state laws. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) was enacted on July 21, 2010. The Dodd-Frank Act resulted in sweeping changes in the regulation of financial institutions and created a new Consumer Financial Protection Bureau and Financial Stability Oversight Council with authority to identify institutions and practices that might pose a systemic risk. We believe that the Dodd-Frank Act and regulations adopted thereunder have not had a material impact on our business and operations. Certain provisions that have not been implemented, however, could affect our business and include, but are not limited to the implementation of more stringent fiduciary standards for broker dealers and potential establishment of a new self-regulatory organization for investment advisors.

Broker Dealer Registration

U.S. broker dealers are subject to rules and regulations imposed by the United States Securities and Exchange Commission (“SEC”), FINRA, other self-regulatory organization, and state securities administrators covering all aspects of the securities business. Our wholly owned broker-dealer firm, MP Securities, commenced operations in 2012. As a registered broker-dealer under Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”), MP Securities is subject to regulation by the SEC and regulation by state securities administrators in the states in which it conducts its activities. We have registered MP Securities in the following states:

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 file an exemption report as well as reports prepared by an independent public accountant confirming that it meets the exemption provisions. As amended, the net capital rule requires that MP Securities take into account in its computation of regulatory net capital any liabilities the Company assumes as its parent entity.

MP Securities is also subject to routine inspections and examinations by the SEC staff under Rule 17(b) of the Exchange Act and the SEC is authorized to review, if requested, 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, supporting schedules and its exemption report as a non-carrying broker-dealer. MP Securities is a member of the Securities Investor Protection Corporation (“SIPC”) and files a copy of its annual report with SIPC.

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

Due to our close affiliation with MP Securities, we are subject to related party transaction disclosure issues under federal and state securities laws and rules adopted by FINRA. In particular, 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 is required to comply with FINRA’s filing requirements for these offerings. We believe that MP Securities has fully complied with its filing obligations as required under applicable FINRA, SEC, and state securities laws.

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

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Regulation of Investment Advisers

On July 11, 2013, the State of California granted its approval for MP Securities to provide investment advisory services. As a California registered investment advisory firm, MP Securities is required to develop and maintain compliance procedures, record keeping procedures, comply with custody rules, marketing and disclosure obligations. MP Securities is also subject to the Investment Advisers Act of 1940, as amended, and related regulations. The SEC is authorized to 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 certain testing requirements and examinations.

Our failure to comply with 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 effect on us. We believe we are in full compliance in all material aspects with SEC requirements and California laws and regulations. As MP Securities hires new registered investment advisers, it will be required to monitor 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 deemed to be an “investment advice fiduciary” under the Employment Retirement Income Security Act of 1974 (“ERISA”). DOL also issued a new prohibited transaction exemption generally known as the best interest contract exemption designed to address conflicts that may arise when a person provides advice to a retail investor that may be vulnerable to conflicts of interest involving the advisory firm.

With the issuance of the DOL fiduciary rule under ERISA, fiduciary status would be extended to investment advisors and investment professionals that have previously not been considered fiduciaries. If deemed 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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On March 15, 2018, the 5th U.S. Circuit Court of Appeals nullified the DOL’s fiduciary rule and upheld a sweeping challenge to DOL’s authority to enforce its fiduciary rule. Other courts, however, have reached a different conclusion. Individual states, in addition, may take a different approach and apply the fiduciary standard to transactions subject to that state’s regulatory authority. Because of the Court’s decision, the DOL has announced that it would be working with the SEC to implement the rule. On June 5, 2019, the SEC also issued its Final Interpretations to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships With Financial Professionals. Under the SEC interpretation, the investment adviser has a duty to provide advice that is in the best interests of the client and requires a reasonable inquiry into the client’s objectives. The SEC interpretation permits the advisor to apply his or her judgment; provided, however, that there is fair disclosure and informed consent. We continue to monitor developments with the DOL fiduciary rule and SEC’s interpretations of the standard of conduct for investment advisors and have adopted an assets under management fee compensation model that is applied to sales of our debt securities made by MP Security’s representatives. With this change, we believe that we will be able to:

Privacy Standards

The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (“GLBA”) modernized the financial services industry by establishing 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 disclose our privacy policy, including identifying with whom we share “non-public personal information” to our investors and borrowers at the time of establishing the customer relationship and annually thereafter. The State of California’s Financial Information Privacy Act also regulates consumer’s rights under California law to restrict the sharing of financial data. In recent years, there has been a heightened legislative and regulatory focus on data security, including requiring customer notification in the event of a data breach. Congress has held several hearings in the subject and legislation has been introduced which would impose more rigorous requirements for data security and response to data breaches. As MP Securities expands its investment advisory business operations, it will also need to monitor regulatory initiatives promulgated under Dodd-Frank that affect investment advisers.

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Certain Legal Aspects of Our Mortgage Loan Investments

Description of Legal Aspects

The mortgage loans are in the form of promissory notes secured by deeds of trust or mortgages on real property or other assets. In general, these notes require the borrower to pay principal and interest on specified dates. The deed of trust or mortgage securing the mortgage loan generally provides that in the event the borrower fails to timely pay principal or interest on the note or fails to satisfy any other obligations under the note, such as the failure to maintain the property in good repair, we may declare the entire balance of principal and interest under the note then due and payable.

Debtor Protection Statutes 

In the event the principal and interest is not paid within a specified period, we must first attempt to collect on the mortgage loan by foreclosing on the real property or other asset securing the loan. In general, California law will not allow us to disregard the security and to proceed directly against the maker on the mortgage loan note. We must foreclose on the property under the deed of trust. Our ability to recover the value of the mortgage loan under such circumstances is affected by certain legal procedures and rights. Mortgage loans secured by real property are subject to the laws of the state in which the property is located and as applicable, federal law, including federal bankruptcy laws.

California, as most states, imposes statutory prohibitions which limit the remedies of a secured lender. A secured lender is limited in its right to receive a deficiency judgment against the borrower following foreclosure on the secured real property. In addition, California law prevents any deficiency judgment against a borrower by a mortgage lender where the loan either represents a portion of the purchase price of the property payable to the lender by that borrower (a “purchase money loan”) or the loan is secured by the borrower’s residence. Where a deficiency judgment is permissible, it can only be obtained after a judicial foreclosure on the property and then only for the excess of the outstanding debt over the fair market value of the property at the time of the foreclosure sale (as determined under statutory provisions). The net result of these statutes is to offer substantial protections to borrowers and to effectively require a mortgage lender to look only to the value of the property securing the mortgage loan through a private sale foreclosure.

In addition to the California state laws restricting actions against borrowers, numerous other statutory provisions, including the federal bankruptcy laws, afford additional relief to debtors which may interface with or affect the ability of a secured lender to realize the value of its mortgage loan in the event of a default.

Under the Internal Revenue Code of 1986, as amended, certain liens in favor of the Internal Revenue Service for tax payments are provided priority over existing mortgage loans. Also, mortgage lenders are subject to other statutory and administrative requirements under various laws and regulations regarding the origination and servicing of mortgage loans, including laws and regulations governing federal and state consumer protection, truth-in-lending laws, the Federal Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, and related statutes and regulations.

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As a result of these debtor protection laws, we could sustain a loss as a result of any of the foregoing federal or state laws and regulations restricting and/or regulating the origination and servicing of mortgage loans. Also, these laws and regulations are subject to continual change and evolution and it is always possible that inadvertent violations or liabilities may be incurred by reason of one or more of these provisions.

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BOARD OF MANAGERS AND EXECUTIVE OFFICERS 

Set forth below are the members of our Board of Managers and our Executive Officers: 

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

R. MICHAEL LEE

Mr. Lee has served as a member of our Board since January 2009. He was appointed Chairman of the Board in May 2015. Mr. Lee currently serves as Chief Executive Officer and President for KCT Credit Union, an Elgin, Illinois credit union. Previously, Mr. Lee served as Vice President Member Relations for Alloya Corporate Federal Credit Union, President of Midwest Region for Members United Federal Credit Union, Chief Membership Officer for Mid-States Corporate Federal Credit Union, Senior Vice President US Central Federal Credit Union, SVP Corporate Network eCom, SVP Corporate One Federal Credit Union and Vice President of Sales for a national insurance agency. In the insurance industry, Mr. Lee spent 15 years in different positions that lead him to managing a national sales force that served the needs of business owners. Mr. Lee currently serves on the boards of the Illinois Credit Union Foundation, Elgin Community College Foundation, Gail Borden Library Foundation, CULIANCE and Illinois Chapter of the Credit Union Executive Society. He attended Southern Illinois University; CUNA’s Financial Management School and completed numerous industries training sessions throughout his career. Mr. Lee adds special expertise to our Board with his years of experience as an executive of a number of large financial institutions and with his deep knowledge of the financial industry. Mr. Lee currently serves as Chairman of the Board, member of our Executive Committee, Governance Committee, Asset-Liability Management Committee and serves as the Chairman of the Board for MP Securities.

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VAN C. ELLIOTT

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

JOSEPH W. TURNER, JR.

Mr. Turner has served as Chief Executive Officer and President since December 3, 2015. Mr. Turner has also served as the Chief Executive Officer and President for Ministry Partners Securities LLC, the wholly-owned subsidiary of Ministry Partners Investment Company, since February of 2013. Mr. Turner also held the position as Chief Compliance Officer of Ministry Partners Securities LLC until December 14, 2015. During his tenure with the Company, Mr. Turner has led the Company’s efforts in transitioning its wholly-owned broker dealer to a more robust and diverse financial services firm, launching its investment advisory and insurance company activities in addition to overseeing the capital raising efforts related to the Company’s proprietary products. Mr. Turner was also instrumental in formalizing strategic partnerships with Evangelical Christian Credit Union (the Company’s largest equity owner) and America’s Christian Credit Union (2nd largest equity owner) to provide complimentary financial products and services to their collective members. Prior to joining the Company in 2011, Mr. Turner served in various roles; including Regional Vice President, Chief Operating Officer, Chief Executive Officer and President for Strongtower Financial, Inc., a Fresno, California based broker dealer and advisory firm which specialized in providing investment banking services, mortgage financing for churches and ministries, and investment and insurance products and services. Prior to joining Strongtower in 2007, Mr. Turner served as Managing Director of Principal Financial Group where he led a financial advisory and insurance group. Mr. Turner began his career with Prudential Preferred as an investment advisor in 1990. Mr. Turner received his Bachelor of Science in Business Administration – Finance degree from California State University, Fresno. Mr. Turner has completed industry leadership training both at Drake University and the Wharton School of Business. Mr. Turner holds the FINRA Series 6, 7, 24, 63, 65, and 51 as well as life, health and disability licenses in over 23 states. Mr. Turner also serves as Chairman of the Board for Christian Care Ministries, Inc., a Melbourne, Florida based public charity (“CCM”), a ministry that encourages and enables Christians to connect with, share their lives, faith, talents, and financial resources with one another through its Medi-Share health care

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sharing ministry. CCM has current investments in the Company’s publicly and privately offered debt securities as well as other products offered by the Company’s wholly-owned subsidiary, MP Securities.

MICHAEL R. BOBLIT

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

BRIAN S. BARBRE

Mr. Barbre has served as the Company’s Senior Vice President, Chief Financial Officer and Principal Accounting Officer since September 25, 2017. Mr. Barbre has previously served as Vice President Finance and Treasurer of ECCU, the Company’s largest equity owner. Over the course of Mr. Barbre’s seventeen years working with ECCU, he has served as Vice President Finance / Treasurer, Director of Finance, Finance Manager and Sr. Financial Analyst. Mr. Barbre is a Certified Public Accountant and has served as an Adjunct professor at Biola University where he has taught cost accounting and accounting information systems courses. Mr. Barbre holds a Bachelor of Science in Business Administration, Magna Cum Laude, from Biola University and a Master of Business Administration degree from California State University Fullerton.

MENDELL THOMPSON

Mr. Thompson joined the Board when Arthur Black, whom served on the Board from 1997 through April 2016, retired from the Board. In May of 2020, Mr. Thompson was re-elected for a three term ending May of 2023. Mr. Thompson previously served as President/CEO of America’s Christian Credit Union in Glendora, California, a position he held since 1986. In early 2020, Mr. Thompson retired as President/CEO of ACCU. Prior to his promotion to President/CEO at age 32 in 1986, Mr. Thompson held a variety of other positions at ACCU between 1977 and 1986. Among his many accomplishments, Mr. Thompson was influential in taking ACCU through a charter change in 1993 that opened the door to making church loans. Currently, America's Christian Credit Union serves more than 135,000 members, has over $460 million in assets, and manages assets of over $505 million. Mr. Thompson was elected to the Glendora City Council in 2015 and served one term as Mayor from April 2018-2019. He now serves as Councilman having just been re-elected to another 4-year term. He is a trustee on the Point Loma Nazarene University (PLNU) Board and a director on the

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PLNU Foundation Board. Mr. Thompson has served as a director of the National Association of State Credit Union Supervisors (NASCUS) Executive Council, as a director on the Board of WesCorp FCU, Chairman of WesCorp’s Supervisory Committee, and on the Glendora Church of the Nazarene Board. He has been a director of the CU Deposit Network, the Financial Marketing Association, and the Southern California CU Executives Society Council. Mr. Thompson graduated cum laude in 1976 with a bachelor’s degree in History/Business from Point Loma Nazarene University, and is also a graduate of the Western CUNA Management School and Stanford University’s Executive Development Program. Mr. Thompson is the Chairman of the Company’s Board Credit Committee.

JULI ANNE LAWRENCE

Ms. Lawrence has served as a member of our Board since 2007. She is currently the Chief Strategy Officer of Raoust + Partners, a Hampton, Virginia based strategic planning and marketing firm for credit unions. Prior to her current engagement, Ms. Lawrence served as Senior Vice President of Research and Development for Western Bancorp in San Jose, California. Prior to that engagement, she served as President and Chief Executive Officer of the National Institute of Health Federal Credit Union, a Rockville, Maryland credit union. Prior to that, she was Executive Vice President and Chief Operating Officer of KeyPoint Credit Union, a Silicon Valley California credit union and the President of its subsidiary, KeyPoint Financial Services. Before joining KeyPoint Credit Union, Mrs. Lawrence served as Vice President for Business Development, Marketing and Legislative Affairs from 1988-1995 at Langley Federal Credit Union, a Hampton Roads, Virginia credit union. Prior to joining the credit union industry, Ms. Lawrence served as the Director of Sales for the US Navy Mid-Atlantic Region, which included the direct responsibility for public relations and sales for all Navy Exchange and Commissary Operations in the Mid-Atlantic States, Europe, Iceland, and Bermuda. Mrs. Lawrence received her Bachelor of Science degree in Community Health and Education from East Carolina University and received a Master’s degree in Organizational Development from the University of San Francisco, where she is pursuing a Ph.D. Mrs. Lawrence currently serves on the Board of Directors for the George Washington Institute of Health and Women in BIO. She also previously served as Chair for the Executive Committee of the Open Solutions Client Association and serves currently as a Trustee of the International Mission Board of the Southern Baptist Convention. Mrs. Lawrence provides our Board with the benefit of her extensive experience in financial institution operations and technology and especially, her asset-liability management expertise. Mrs. Lawrence serves on the Company’s Executive Committee, as our Chair of the Asset-Liability Management Committee, and as a member of the MP Securities Board of Managers.

JERROD FORESMAN

Mr. Foresman has served as a Company Board Member since May 2012 and MP Securities since November 2018. He is Co-Owner and President of Virtue Financial Advisors, LLC and the Office of Supervisory Jurisdiction (OSJ) Principal for Infinex Investments, Inc., managing bank and credit union investment programs for over 70 branch locations in the mid-west. Formerly serving as President, Chief Compliance Officer and FINOP of Bankers & Investors Company Inc., a Registered Broker/Dealer, Investment Advisor and Insurance Agency in Kansas City, Mr. Foresman ran the compliance and operations for 11 years. Bankers & Investors Co. provided investment services for seven banks and four credit unions in

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Missouri and Kansas. Mr. Foresman had been serving as a financial advisor since 1990 and has managed and owned financial advisory/marketing firms specializing in working with credit unions and community banks since 1993. Mr. Foresman attended Missouri State University and is currently studying for additional financial designations from the American College in Bryn Mawr, PA. He also serves as a board member for Angel Flight Air Support, OASIS Refuge and is a contributing member of the Wealth Management RIA Board of Advisors, Advisor Confidence Index (ACI) from Rydex. Mr. Foresman holds the FINRA Series 7, 24, 27, 63, 65 and 66 licenses as well as life, health, property & casualty insurance licenses.

JEFFREY T. LAURIDSEN

Mr. Lauridsen has served as a member of our Board since October 2007. He is an attorney in private practice with the Law Offices of Jeffrey T. Lauridsen in Garden Grove, California. Before establishing his current practice, Mr. Lauridsen served with several other law firms in the Orange County area, as partner and senior associate. Mr. Lauridsen’s 29 years of law practice have focused on corporate law and encompassed both trial and appellate work in diverse areas of law, including business litigation, construction defects, general liability, premises liability, products, medical malpractice, ERISA, insurance coverage, automobile liability, insurance bad faith, employment and labor law, sexual harassment, sexual molestation and others. Prior to entering into the practice of law, Mr. Lauridsen worked as a claim representative in the insurance industry for 19 years. Mr. Lauridsen received his Associate of Arts degree in Political Science from Fullerton College. He received his Bachelor of Science in Law and Juris Doctorate degrees from California Southern Law School. He has served as Elder at Grace Church in Orange, California for 18 years. Mr. Lauridsen brings to our Board the perspective of an experienced attorney, as well as intimate knowledge of ministry governance. In addition to being a member of the Board’s Executive Committee, Mr. Lauridsen serves on our Board Credit Committee and serves as Chairman of our Audit Committee.

GUY MESSICK

Mr. Messick joined the Board in May 2020 and has been elected to serve a one-year term.  Mr. Messick is an attorney with the law firm of Messick Lauer & Smith P.C., a Media, Pennsylvania law firm, and has provided legal and strategic planning services to credit unions and credit union service organizations throughout the U.S. for over 30 years.  Since 1987, Mr. Messick has served as General Counsel to the National Association of Credit Union Service Organizations and has served as NACUSO’s liaison with the National Credit Union Administration.  Mr. Messick is a nationally known speaker on a wide range of credit union and credit union service organization topics.  Mr. Messick served on the Credit Union National Association (“CUNA”) Task Force on Investment Services which was the industry’s liaison with the Securities and Exchange Commission.  He is the author of the Guide for Credit Unions Providing Investment and Insurance Services and Credit Union Collaborations – Lessons Learned.  Mr. Messick is a graduate of Bucknell University and the University of Miami School of Law.  He served as a law clerk to U.S. District Court Judge Morell E. Sharp (Seattle, Washington) from 1977-78 and was also an assistant district attorney in the appellate division.

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Our Board of Managers

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

Board Committees

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

Our Board Chairman

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

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Code of Ethics

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

The Company’s Board of Managers were advised of the potential CCM Board appointment of Mr. Turner during its February 2018 meeting, and after discussion, concluded that Mr. Turner’s appointment to the CCM Board of Directors fully complied with the Company’s Code of Ethics and Related Party Policy. In addition, the Company has taken precautions to formally mitigate any potential conflicts of risk between the Company, CCM, and Mr. Turner, including, but not limited to the following:

Indemnification of Our Managers and Officers 

We may indemnify any of our Managers, officers, Members, employees or agents, provided the agent seeking indemnification acted in good faith and in a manner that the person reasonably believed to be in our best interests and provided that the acts do not constitute gross negligence, intentional misconduct or a knowing violation of law. To the extent we are successful on the merits in defense of our agent’s actions, the agent will be indemnified for all reasonable expenses incurred. In all other instances, a majority of the Members must approve indemnification.We can advance our agent’s defense costs if approved by Managers who are not seeking indemnification or, if there are none, by a majority of our Members. Our Managers who

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are not otherwise involved in the action can approve the advancement of our agent’s defense costs if they receive an undertaking from the person to repay such amount in the event that it is ultimately determined that the person is not entitled to indemnification.

It is the position of some federal and state agencies, including the Pennsylvania Department of Banking and Securities that indemnification with violations of Securities Law is against public policy and void.

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EXECUTIVE COMPENSATION

The following table sets forth certain information regarding compensation we paid for services rendered to us during the years ended December 31, 2019 and 2018 by our senior executive officers.

















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

(2) On January 3, 2020, Mr. Boblit was appointed as Vice-President, Corporate Lending Services. Prior to accepting that appointment, he served as an independent consultant to the Company.

(3) Mr. Crammer serves as an officer of the Company, but not as an executive officer.

There have been no options, warrants or other rights to purchase our equity securities issued to our officers.

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BOARD OF MANAGERS COMPENSATION

The following table provides a summary of the compensation paid to our Managers for the year ended December 31, 2019:

Summary Compensation Table

Annual Compensation





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

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

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DESCRIPTION OF OUR MEMBERSHIP INTERESTS AND CHARTER DOCUMENTS

Our Authorized Membership Interests

Authorized Capital

Our operating agreement creates two classes of membership interests, common membership interests and deferred membership interests. Our Managers are authorized to issue two classes of common membership interests, the Class A Units and the Class B Units. The Class B Units are identical to the Class A Units, except the Class B Units are non-voting, except to the extent required by the California Revised Limited Liability Act (the “LLC Act”). The Class A Units have the same rights, preferences and privileges as our previous common stock.

The operating agreement establishes one class of preferred membership interests, the Series A Units. The Series A Units have the identical, rights, preferences and privileges as our previous Class I Preferred Stock and our Class II Preferred Stock, except the Series A Units are entitled to receive distributions at the same rate as our previous Class I Preferred Stock, which is a higher rate than was payable on the Class II Preferred Stock.

Our Class A Units

We currently have 146,522 Class A Units outstanding. Our Class A Units are entitled to one vote per Unit on all matters to be voted upon by the Class A Units. Approval of proposals submitted to Members at a duly held meeting, other than the election of Managers, requires a vote of a majority of the Class A Units eligible to vote in person or by proxy. Our Class A Members have the right to cumulate their votes in the election of Managers.

Among the matters on which the Class A Units may vote are the following: (1) the election or removal of Managers; (2) an increase or decrease in the number of Managers; and (3) amendments to our operating agreement. A majority of the Class A Units voting on a matter at a meeting at which a quorum is present will constitute the approval of the Class A Units unless a greater number of votes is specifically required by statute or by our operating agreement.

Our operating agreement may be amended by the vote of a majority of the Class A Units, except that the amendment of the provisions regarding the removal and liability of Managers, the meetings of Members and any provision requiring a greater than majority vote must be approved by each class of membership interests as is required to approve any amendments which would change any rights of that class by reducing the amount payable thereon upon our liquidation, or by diminishing or eliminating any voting rights of that class. For the purposes of the foregoing, the authorization by our Board and/or Members of a new class or Series of preferred membership interests would not constitute such an amendment.

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The rights of our Members will be subject to, and may be adversely affected by, the rights of owners of any preferred membership interests we may issue in the future. In addition, the issuance of preferred membership interests could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us.

Members are entitled to receive distributions when and if declared by the Board out of funds legally available therefor, and in the event of our liquidation, dissolution or winding-up, to share ratably in all assets remaining after payment of liabilities. Our Members have no preemptive, conversion, subscription or cumulative voting rights.

Our Series A Units

We currently have 117,100 Series A Units outstanding. Following is a summary of the rights, preferences and privileges of our Series A Units.

Rank

The Series A Units rank prior to our Class A Units as to distributions of assets. The Board may increase the amount of the Series A Units or designate one or more Series of preferred membership interests which ranks junior to the Series A Units without the approval of the Series A Units. However, the Board may not designate a Series of preferred membership interests ranking senior to the Series A Units without the approval of the owners of at least two-thirds (2/3rds) of the Series A Units.

Distributions

Owners of the Series A Units are entitled to receive distributions payable quarterly at the rate of 25 basis points over the one year LIBOR rate in effect on the last banking day of the calendar month in which the distribution is declared. Distributions are payable when declared payable by our Board. Our Board intends to declare and pay distributions quarterly. Owners of the Series A Units are also entitled to receive distributions payable annually of 10% of our net income less other distributions. However, our payment of distributions is subject to certain LLC Act restrictions. Distributions are cumulative. That is, any distribution which is declared but not paid will cumulate and be payable as soon as practicable.

Liquidation Preference

$100.00 per Unit, plus an amount equal to any declared and unpaid distributions.

Redemption

We may call the Series A Units for redemption at the liquidation preference of $100.00 per unit, in whole or in part, upon 90 days’ prior written notice delivered prior to each December 31 for any calendar year.

Rights Upon Liquidation

Upon a change in control, liquidation, dissolution, or winding up of our affairs, the Series A Units will be entitled to receive the liquidation preference per unit of $100.00 plus the amount of any declared but unpaid distributions before any distributions with respect to our Class A Units or other junior membership interests.

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Rights in the Event We Fail to Pay Distributions

In the event we fail to pay four (4) consecutive quarterly distributions, the Series A Units will have the right to elect two (2) Members to our Board, who will serve until distributions on the Series A Units are brought current.

Voting Rights

Except as stated above, the Series A Units have the right to vote only on matters on which preferred membership interests are entitled to vote under the LLC Act, including the right to vote as a class on certain amendments to our charter documents, and certain mergers and reorganizations.

Our Charter Documents 

As an LLC, we are governed by our charter documents, which are comprised of our articles of organization and our operating agreement, which replace our former corporate articles of incorporation and bylaws. A copy of our articles of organization, the plan, and the operating agreement were filed as exhibits to our current report on Form 8-K filed with the Securities and Exchange Commission (SEC) on December 22, 2008.

As an LLC, our business and affairs are under the direction of our Managers and officers. Our Managers and officers are the same persons who served as our directors and officers prior to the conversion. Each serves in a comparable, if not exact, capacity after the conversion as they did prior to the conversion. Thus, there is no change in the persons responsible for our management and operations or their duties with respect to such capacities.

Our operating agreement provides for not less than six nor more than eleven Managers and sets the number at ten. Our Managers are elected by our Class A Unit owners at an annual meeting, subject to certain limited voting rights of our Series A Unit owners.

Our Members have no liability for our LLC level liabilities or debts. Their liability is limited to their investment in their membership interest. No further capital contributions are required, with limited exceptions for wrongful distributions.

Our operating agreement authorizes the offices of President, Secretary and Treasurer and other officers as they deem appropriate, including a Chief Executive Officer, Chief Financial Officer and one or more Vice Presidents. Our officers serve at the pleasure of our Managers.

Our Managers can amend the operating agreement to create one or more classes of preferred units and establish the rights, privileges and preferences of such units. Other changes, including an increase in the authorized number of membership units must be approved by a majority of our Class A Units. Our articles of organization may not be amended without the approval of a majority of our member interests.

Our Board determines when and if distributions are paid to our Members, subject to certain restrictions under the LLC Act.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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







Notes to Table

(1)  Based on 146,522 Class A Units outstanding.



(2)  Navy Federal Credit Union is a non-voting equity member but holds 11,905 Class A Common Units which were acquired pursuant to a merger completed with USA Federal Credit Union. As the holder of an economic interest in the Company, Navy Federal Credit Union holds a beneficial interest in the Company.



(3) UNIFY Financial Credit Union was formerly Western Federal Credit Union.

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Management Discussion and analysis of financial condition and results of operations

SAFE HARBOR CAUTIONARY STATEMENT

This Prospectus contains forward-looking statements regarding Ministry Partners Investment Company, LLC and our wholly-owned subsidiaries, Ministry Partners Funding, LLC, MP Realty, and MP Securities, LLC, 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 this Prospectus. See “RISK FACTORS” on page 19 of this Prospectus.

As used in this Prospectus, 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.

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OVERVIEW

We generate our revenue primarily through our church lending portfolio and secondarily through fees generated from our investment and insurance products and services. While we generate the majority of our revenue through interest income, our strategy is to increase the diversification of our revenue sources. A diversified revenue stream may reduce the risk to the Company if economic factors, such as changes in interest rates, decrease our interest income. We also focus on improving our operating efficiency and capital position by increasing the revenue generated for each dollar of expense incurred to run the business. Increased capital helps mitigate risk in economic down cycles. In addition, we are focusing on reducing risk to our lending revenue by improving the quality of our loan portfolio, assessing the financial strength of our borrowers, and working with our impaired loans to restructure, refinance, and/or liquidate these investments when necessary.

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

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Recent Developments:

Nine-Month Period ended September 30, 2020

We generated $2.0 million in net income for the nine-month period ended September 30, 2020. The significant factor was a $2.4 million gain on debt extinguishment recognized during the quarter ended September 30, 2020. This was the result of an agreement to pay off one of our term loan borrowings. This transaction affected several other areas of our financial performance as described in more detail below.

COVID-19 Impact on the Company’s Business as of September 30, 2020

Our borrowers are primarily churches, Christian schools, educational institutions, and faith-based ministries. Beginning in March 2020, many state governments issued stay at home orders that resulted in many of our borrowers being unable to conduct services with members in attendance. In response to these orders, the majority of our church and ministry borrowers changed their worship services to include an online experience. These churches began depending upon online giving and contributions made by mail to support their ministries. To support our borrowers during the initial shutdown we granted various payment relief options to the borrowers impacted by the pandemic. Interest will continue to accrue under the loans. During the quarter ended June 30, 2020, we granted 35 borrowers deferral requests of various terms. However, during the quarter ended September 30, 2020 we saw a significant decrease in the requests for pandemic related help. In the third quarter of 2020, we had three borrowers request an extension of deferral that had been granted in prior quarters, but there were no new borrowers who requested a payment deferral.

Many of the state governments eased the initial shutdown orders that began in March 2020 during the quarter ended September 30, 2020. With the restrictions gradually lifted, churches began holding worship services in their facilities. However, if COVID-19 cases begin increasing in the fall of 2020, some state governments may reinstate restrictions on church meetings. As of the date of this Prospectus, the impact these new restrictions may have on our borrowers’ revenue and thus their ability to make their loan payments remains unknown.

The Company will continue to monitor the impact of Covid-19 on the borrowers it serves, taking into account regional differences in the adverse effects and impact of the pandemic throughout the U.S. As a result, the Company may need to work with churches that have been substantially impacted by the economic effects of the pandemic and may need to grant additional deferrals through the remainder of 2020.

In management’s view, the payment deferrals we made during the three and nine-month periods ended September 30, 2020 did not have a material impact on the Company’s cash position or its revenue. For payment deferral requests the Company granted, the maturity date of the mortgage note was not extended. While deferred payments increased the principal amount due at maturity on these loans, the Company’s net income and liquidity have not been adversely affected.

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





Summary of Financial Performance

For the year ended December 31, 2019, we recognized net income of $2.0 million and increased owners’ equity by $1.5 million. 2019 was the Company’s most profitable year since inception due to a significant increase in revenue generated by broker-dealer commissions and fees and recoveries from previous nonperforming loans that paid off. Total assets remained relatively flat with a slight increase of $2.6 million.

For the year ended December 31, 2019, the primary items affecting our operating performance were the following:

Progress on Strategic Objectives

In 2019, we made continued progress towards our strategic objectives of diversifying our revenue streams, improving the quality of our loan portfolio, maintaining our balance sheet size, and improving operating efficiency. The following discussion focuses on each of these strategic objectives.

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Diversified revenue streams

Like most finance companies and banks, our primary source of revenue has come from the net interest margin we earn on our mortgage loan investments. We continue to develop sources of revenue outside our net interest income to make us less dependent on a favorable net interest rate margin from our mortgage loan investments. We believe this will make the Company less susceptible to unfavorable changes in interest rates. The Company’s management team believes that it will be able to use its capabilities in lending, servicing, and investment advisory services to supplement its net interest income with fee income.

Our primary sources of recurring non-interest income are:

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 loan paid off, the Company disposed of the collateral properties, or when the Company sold the promissory note and loan. Therefore, the resolution of non-performing loans may contribute either positively or negatively to the Company’s performance. In 2018, we recorded $640 thousand in gains on sale of a mortgage note and loan. In 2019, two previously non-performing loans paid off resulting in a collection of interest income of $511 thousand.

We continue to monitor our loan portfolio very closely and work with borrowers to minimize losses on 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. As we did in 2018, in 2019, we had several positive results due to our efforts to be more aggressive in resolving our non-performing loans. We collected interest on two non-performing loans that paid off during the year. Additionally, another loan that was an

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impaired collateral dependent loan paid off. Three additional loans that were impaired collateral dependent loans became performing troubled debt restructurings (“TDRs”) and taken off non-accrual status. Additionally, we transferred one loan into foreclosed assets. Through these efforts, we saw our classified loans decrease by $4.8 million to $8.8 million at the end of December 31, 2019.

As part of our strategic decision to reposition our loan portfolio, we have continued to focus on originating lower balance loans made to ministries where we can achieve yields that are more favorable and 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 purchase a participation interest in the loan. This generates servicing fee income while allowing us to minimize 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 $921 thousand at December 31, 2019. In addition, over the past few years, we have substantially expanded our relationships with credit unions throughout the United States. We believe these relationships will enable us to increase the amount of loan participation interests we sell and service for others.

Maintaining balance sheet size

Our strategy in 2018 and 2019 was to maintain our balance sheet size rather than increase it as we focused more resources on improving the quality of our existing loan portfolio. For the year ended December 31, 2019, we funded originations of $8.0 million in new loans compared to $15.5 million for the year ended December 31, 2018. This resulted in a decrease in loans receivable of $14.5 million due to contractual payments and prepayments on loans receivable in excess of loan originations.

As discussed further below in the Financial Condition Recent Developments section on page 104, in September 2020 we took advantage of an opportunity down to pay off a term-debt credit facility with a $15.0 million outstanding principal balance. While this credit facility payoff reduced our balance sheet size, this opportunity benefited the Company by increasing capital, improving net interest margin, and eliminating the ongoing cash flow requirements to service the debt. While we intend to continue our general strategy of maintaining our balance sheet size, we will take advantage of available opportunities to improve our overall financial position.

Improved operating efficiency

In the last several years, we have worked on improving our operating efficiency. In 2018, we decreased our loan origination staff and reduced the number of full –time employees from 19 to 15. This was down from our high watermark of 26 full-time employees in 2015. In 2019, we added 4 additional full-time employees bringing the number back up to 19. We hired two employees to work on loan portfolios, with the objective of improving loan quality and increasing loan originations. In 2019, we had non-interest expense of $5.2 million, an increase of $532 thousand from $4.7 million in 2018. The increase in 2019 was variable expense directly related to the additional revenue earned in 2019.

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Financial Condition

Recent Developments:

Comparison of Financial Condition at September 30, 2020 and December 31, 2019

On November 4, 2011, we entered into a credit facility refinancing transaction with the National Credit Union Administration Board As Liquidating Agent of Western Corporate Federal Credit Union (“NCUA”) for a $23.5 million credit facility refinancing transaction (the “Wescorp loan”). On June 28, 2019, the NCUA assigned all of its rights, title and interest under the Wescorp loan to OSK VII, LLC. Effective as of September 25, 2020, the Company paid off the entire unpaid principal balance of $15.0 million, plus accrued interest due on the Wescorp loan.

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This transaction was the cause of the 10% decrease in our total assets and extinguished $15.0 million in term-debt. We funded the debt payoff through existing cash we set aside for this type of investment opportunity as well as raising cash through investor note sales and from our loans receivable portfolio.

In order to conserve our cash and to increase our non-interest income we intend to sell participation interests in the majority of our loans acquisitions. For the nine months ended September 30, 2020, we originated $16.2 mllion in loans and sold loan receivable of $16.5 million during the same period. We also received $8.6 million in loan principal collections during that time, mostly due to early loan payoffs from borrowers who took advantage of low interest rates. Therefore, our loan portfolio provided $9.0 million of the cash used to pay off the Wescorp loan. In addition, we opened a $7.0 million warehouse line of credit with KCT Credit Union, an Elgin, Illinois credit union, for the specific purpose of funding investments in mortgage loans and offering participation interests in these loans through a short-term credit facility. This facility allows us to maintain cash balances by borrowing to fund loan origination. We are required to repay each advance within one hundred twenty (120) days after receiving the advance. Prior to closing the originated loan, it is our policy and practice to seek participants that will purchase a participation interest in the originated loan. After we sell these loan participation interests, we intend to pay off the advance made on the line of credit subsequent to closing and funding the originated loan.

We increased cash by $2.2 million through net investor note sales. Our investor notes payable consist of debt securities sold under publicly registered security offerings as well as notes sold in private placement offerings. 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 organization and the ministries they serve. Concurrently, MP Securities and its staff of financial advisors have increased our customer base through marketing efforts made to individual investors.

The net result of these items was a reduction of $8.1 million in cash, restricted cash, and certificates of deposit during the nine months ended September 30, 2020. Due to the gain on debt extinguishment of $2.4 million, our total members’ equity increased 16% or $1.8 million for the nine months ended September 30, 2020.

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Financial Condition for the Twelve Months ended December 31, 2019 and 2018 

As we are a financial institution, the balance sheet is the primary driver of our net income. The following discussion and analysis compares the results of operations for the twelve months ended December 31, 2019 and 2018 and should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

Comparison of Financial Condition at December 31:





General

Total assets remained relatively stable with a slight increase of 2%. Loans receivable decreased 10% due to loan payoffs and low origination volumes. The decrease in loans receivable created an inverse increase in cash, which positioned the Company with strong levels of liquidity as it entered 2020. Cash increased $16.1 million to $26.0 million.

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Our loan funding comes from our members’ equity, our notes payable, and our term-debt. Since 2008, the Company has relied solely on the sale of investor notes to fund its mortgage loan investments and maintain the total size of its balance sheet assets. In 2019 our term-debt decreased by $5.1 million and net notes payable increased by $4.7 million.

Loan Portfolio

Our loan portfolio provides the majority of our revenue, however, it also presents the most risk to future earnings through both interest rate risk and credit risk. Additional information regarding risk to our loans is included in “Risk Factors” beginning on page 19. 

Our portfolio consists entirely of loans made to evangelical churches and ministries with approximately 99% of these loans secured by real estate. The loans in our portfolio carried a weighted average interest rate of 6.59% at December 31, 2019 and 6.44% at December 31, 2018. The following discussion on our loan portfolio revolves around the credit risk to our loans and on how we account for and address that risk.

Non-performing Assets

Non-performing assets include:

Non-accrual loans are loans on which we have stopped accruing interest. Restructured loans are loans in which we have granted the borrower a concession on the interest rate or the original repayment terms due to financial distress. Foreclosed assets are real properties for which we have taken title and possession upon the completion of foreclosure proceedings.

We closely monitor these non-performing assets on an ongoing basis. Management evaluates the potential risk of loss on these loans and foreclosed assets by comparing the book balance to the fair value of any underlying collateral or the present value of projected future cash flows, as applicable.

From time to time, we determine that certain non-accrual loans are collateral-dependent. When a loan is deemed to be collateral-dependent, the repayment of principal will involve the sale or operation of collateral securing the loan. For these loans, we record any interest payment we receive in one of two methods. If the Company deems that the recorded investment of the loan is fully collectable, we will recognize income on

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the interest payment received on the cash basis. If we deem that the recorded investment is not fully collectable, we will record any interest payment we receive against principal. For non-collateral-dependent loans that are on non-accrual status, we recognize income on a cash basis.

We had six non-accrual loans as of December 31, 2019 and eleven as of December 31, 2018. Two of our non-performing loans paid off and one was on non-accrual status. Management transferred one non-accrual loan to foreclosed assets after judicial foreclosure proceedings were completed. Three of the non-accrual loans became performing TDRs and were moved to accrual status. One of the non-accrual loans as of December 31, 2018 was charged-off as part of a loan modification restructure. We added one additional loan to non-accrual status for the year ended December 31, 2019. As detailed in the table below, these activities decreased the balance of our non-performing loans at December 31, 2019 as compared to December 31, 2018.

At December 31, 2019 and December 31, 2018, we had three and nine restructured loans, respectively, that were on non-accrual status. One of these loans was over 90 days delinquent at December 31, 2019. In addition, we have six performing restructured loans on accrual status as of December 31, 2019.

The following table presents our non-performing assets:



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

2 Includes $290 thousand of restructured loans that were over 90 days delinquent as of December 31, 2019.

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

Allowance for Loan Losses

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

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General reserves are allowances taken to address the inherent risk of loss in the loan portfolio. We include several factors in our analysis. We weigh these factors for the level of risk represented and for the potential loss in our portfolio. These factors include:

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

We also examine our entire loan portfolio regularly to identify individual loans that we believe have a greater risk of loss than is addressed by the general reserves. These are identified by examining delinquency reports, both current and historic, monitoring collateral value, and performing a periodic review of borrower financial statements. For loans that are collateral-dependent, management first determines the amount of the loan investment at risk, defined as the unpaid principal balance, net of discounts, less the collateral value net of estimated costs associated with selling a foreclosed property. The total amount of the loan investment at risk is reserved. For impaired loans that are not collateral-dependent, management will record an impairment based on the present value of expected future cash flows. At a minimum, we review loans that carry a specific reserve quarterly. However, we will adjust our reserves more frequently if we receive additional information regarding the loan’s status or its underlying collateral.

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

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The process of providing an adequate allowance for loan losses involves discretion on the part of management. We strive to maintain the allowance at a level that compensates for losses that may arise from unknown conditions. As a result, losses may differ from current estimates made by management.

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The following chart details our allowance for loan losses:



The following table shows the Company’s allocation of loan loss by loan categories as of December 31, 2019:



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Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash increased by $16.1 million during the year ended December 31, 2019. The increase in cash was primarily due to $25.3 million in proceeds received from contractual loan payments and loan prepayments offset by cash used for loan purchased and loan originations totaling $10.2 million.

Investments in Joint Venture

In December 2015, the Company finalized a joint venture agreement to develop and market raw land located in Tesoro Hills, California. As part of the joint venture, the Company transferred ownership in the foreclosed asset to the joint venture and in exchange received an ownership interest in the project. The purpose of the joint venture is to develop and sell property we acquired as part of a deed in lieu of foreclosure agreement reached with one of our borrowers in 2014.

Term-debt

Term-debt decreased by $5.1 million during the year ended December 31, 2019. This decrease is the result of scheduled contractual payments on our credit facilities.

Investor Notes Payable

Our investor notes payable consist of debt securities sold under publicly registered security offerings as well as notes sold in private placement offerings. 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 organization and the ministries they serve. Concurrently, MP Securities and its staff of financial advisors have increased our customer base through marketing efforts made to individual investors. These efforts helped increase our investor notes payable by $4.7 million during the year ended December 31, 2019. The balance sheet presents our investor notes payable net of debt issuance costs, which have decreased from $92 thousand at December 31, 2018 to $55 thousand at December 31, 2019.

Other liabilities

Our other liabilities include accounts payable to third parties and salaries, bonuses, and commissions payable to our employees. At December 31, 2019, our other liabilities increased by $1.4 million as compared to the year ended December 31, 2018 due to both an increase in funds the Company held on behalf of borrowers for future lending transactions and the addition of a lease liability. Due to the implementation of ASU No. 2016-02, we added a lease liability of $680 thousand at January 1, 2019, which has amortized to $545 thousand at December 31, 2019.

Members’ Equity

During the year ended December 31, 2019, total members’ equity increased by $1.5 million due to net income of $2.0 million earned by the Company as offset by dividend expense of $461 thousand. We did not repurchase or sell any membership equity units during the year ended December 31, 2019.

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Liquidity and Capital Resources

Maintenance of adequate liquidity requires that sufficient resources are always available to meet our cash flow needs. We need cash to obtain new mortgage loans, repay term-debt, make interest payments to our note investors, and pay general operating expenses. Our primary sources of liquidity are:

Our management team regularly prepares cash flow forecasts that we rely upon to ensure that we have adequate liquidity to conduct our business. While we believe that these expected cash inflows and outflows are reasonable, we can give no assurances that our forecasts or assumptions will prove to be accurate. While our liquidity sources that include cash, reserves and net cash from operations are generally available on an immediate basis, our ability to sell mortgage loan assets and raise additional debt or equity capital is less certain and less immediate.

We are also susceptible to withdrawal requests made by our note holders that have made large investments in our notes that can adversely affect our liquidity. We believe that our available cash, cash flow from operations, net interest income, and other fee income will be sufficient to meet our cash needs. Should our liquidity needs exceed our available sources of liquidity, we believe we could sell a portion of our mortgage loan investments at par to raise additional cash; however, we also must maintain adequate collateral consisting of loans receivable and cash to secure our term-debt and secured notes.

Our Board of Managers approves our liquidity policy. The policy sets a minimum liquidity ratio and contains contingency protocol if our liquidity falls below the minimum. Our liquidity ratio was 32% at December 31, 2019, which is above the minimum set by our policy. This was an increase from 13% at December 31, 2018 primarily due to the increase in cash described above.

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

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COVID-19 Impact on the Company’s Liquidity

In response to the uncertainty created from the COVID-19 pandemic, management began to generate liquidity from its loans receivable portfolio by selling participation interests in its loans receivable. During the nine months ended September 30, 2020, the Company generated cash from loan sales of $16.5 million. We plan to raise more cash through loan and investor note sales, if necessary, to keep sufficient levels of cash available to meet our debt obligations to investors as well as obligations under our term-debt credit facilities.

Cash, restricted cash, and certificates of deposit were $19.7 million as of September 30, 2020 and our liquidity ratio was 22%. These liquidity levels are significantly higher than the cash amounts the Company has historically carried.

Due to management’s desire to provide liquidity and safety for our investors amid the general uncertainty during the initial stage of the pandemic, we applied for and received a Paycheck Protection Program Loan (“PPP Loan”) for $111 thousand. The maturity date of the loan is April 27, 2022. This loan or a portion of this loan may be forgiven if the Company qualifies for forgiveness of the loan under the CARES Act, as amended by the Paycheck Protection Program Flexibility Act and Small Business Administration (“SBA”) regulations promulgated thereunder. On June 22, 2020, the SBA issued an Interim Final Rule. The amount of the PPP Loan forgiveness will depend, in part, on the total amount spent by the Company over the twenty four (24) week period commencing on the date the PPP Loan funds were disbursed on payroll costs and rental payments. The Company is continuing to monitor the SBA revisions, when issued, on loan forgiveness guidelines to determine whether it qualifies for any loan forgiveness under the SBA’s final rule.

Recent Developments

Our liquidity policy, set by our Board of Managers, sets a minimum liquidity ratio and contains contingency protocol if our liquidity falls below the minimum. Our liquidity ratio was 22% at September 30, 2020, which is above the minimum set by our policy.

As described above in our analysis on the Company’s financial condition, we intend to sell participations in a significant portion of the loans we originate in order to conserve cash and increase our non-interest income. This model will allow 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. We implemented this participation model in 2020 and as a result, the Company sold $16.5 million in loans during the nine months ended September 30, 2020 compared to no loan sales in the nine months ended September 30, 2019. Of this total, $9.9 million of the loan sales were from new loans funded in 2020 while the remainder was from loans funded in previous years.

On September 30, 2020, we opened a warehouse line of credit with KCT Credit Union, an Elgin Illinois credit union, to help facilitate this business model. The warehouse line is restricted to use for holding new

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loan originations while the Company finds buyers to participate in the origination. We believe using this process will reduce the time it takes to fund a new loan. Reliance on a loan participation model requires that these loans meet rigorous underwriting guidelines that will be acceptable to the financial institutions we intend to target as potential participants in these loans. We believe this strategy will improve the liquidity of our loan portfolio going forward.

The payoff of the Wescorp credit facility debt had significant impact of our net income for the quarter ended September 30, 2020, thereby enabling the Company to be able to report a $2.4 million gain on the extinguishment of this debt. The payoff of the Wescorp loan also offers several additional benefits to the Company’s cash flow and liquidity going forward. The monthly payment of $129 thousand will no longer be required reducing the monthly cash flow needed. In addition, the loan had a balloon payment required on November 1, 2026 of approximately $7.5 million. Paying the debt early eliminated the future requirement to make the large balloon payment. Also, paying off the debt released approximately $22.0 million of loans pledged as collateral on the Wescorp loan. These loans are now available to secure other credit facilities or to be sold if additional liquidity is needed.

Debt Securities

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

Historically, we have been successful in generating reinvestments by our debt security holders when the notes they hold mature. Our note renewal rate has been stable over the last several years. MP Securities has also hired additional financial advisors that have enabled us to increase our client base, which has in turn positioned us to increase notes sales.

The renewal rate for the quarter ended September 30, 2020 as compared to September 30, 2019 is as follows:

The table below shows the renewal rates of our maturing notes over the last three years as of December 30:



Term-debt Credit Facilities

Other than the PPP loan, we have funded a significant portion of our balance sheet through term-debt. Because these non-PPP term loans have a fixed rate until maturity in 2026, they provide a stable cost of funds.

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The table below is a summary of the Company’s remaining $52.5 million in term-debt after the Wescorp loan payoff as of September 30, 2020 (dollars in thousands):



The table below is a summary of the Company’s credit facilities as of December 31, 2019 (dollars in thousands):





We cannot borrow additional funds on these facilities; therefore, we will need to replace any principal paid on the facilities through another source. If we cannot find an alternative source of funding, we will have to shrink our balance sheet, which may reduce our net interest income. As of the date of this Prospectus, our only source of funds to pay down our term-debt credit facilities are our earnings, the debt securities we sell, and net cash flow from our loans receivable portfolio. Our warehouse line of credit from KCT Credit Union cannot be used to pay down our term-debt, as it is only available to warehouse new loan originations. 

The following table shows the maturity schedule on our credit facilities for the next five years and thereafter as of September 30, 2020:

Debt Covenants

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 December 31, 2019 and September 30, 2020, we are in compliance with our covenants on our notes payable and term debt.

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Results of Operations:

Recent Developments: Nine Months Ended September 30, 2020

The analysis below describes the Company’s results of operations for the nine-month period ended September 30, 2020 compared to the nine-month period ended September 30, 2019.

Net Interest Income and Net Interest Margin

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

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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[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.



Total interest income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 decreased due to both a volume and rate variance on interest-earning loans and a rate variance on interest-earning accounts with other financial institutions. The volume variance on loans was due

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to the loan sales and early payoffs as described above. The reason for the rate variance on interest-earning loans was due to a $511 thousand recovery of interest income in the nine months ended September 30, 2019. The recovery was due to the payoff of two loans that had been classified as non-accrual loans. The Company recovered interest income that we had previously written off against the loan’s recorded balance when the loan paid off. The rate variance on interest-earning accounts with other financial institutions was due to banks lowering their deposit rates in response to a decrease in the federal funds rate.

Total interest expense decreased by $399 thousand for the nine months ended September 30, 2020 compared to September 30, 2019 due to both a volume and rate variance. The rate variance on investor notes payable was due to the decrease in market rates related to the Federal Reserve’s response to the COVID-19 pandemic. The decrease in interest expense on investor notes payable due to the volume variance was due to a decrease in average investor notes payable. Average investor notes outstanding have decreased from 2019 due to the maturity and non-renewal of several large notes early in the year. New notes sales, primarily in the third quarter, have increased the outstanding balance of notes receivable from $73.0 million at December 31, 2019 to $75.3 million at September 30, 2020. Interest expense on term-debt decreased due to a decrease in the average balance due to contractual monthly principal payments made. The Wescorp loan payoff did not materially affect these results since the payoff occurred late in the quarter on September 25, 2020.

Overall, we believe that our net interest income will be lower overall going forward compared to past years as our balance sheet is smaller due to the payoff of the Wescorp loan. However, we estimate the Wescorp loan payoff will improve the net interest margin in the quarter ending December 31, 2020 and going forward due to low yielding investments paying off higher cost of funds. In addition, we expect our non-interest income related to servicing and selling loans to increase due to the changes in our loan participation business model described above.

Provision and non-interest income and expense





Net interest income after provision for loan losses decreased by $1.7 million for the nine months ended September 30, 2020 over the nine months ended September 30, 2019. This decrease was primarily due to a credit in provision expense related to loan loss recoveries on loan payoffs that occurred in the nine months ended September 30, 2019.

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The increase in non-interest income for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was the result the gain on debt extinguishment of $2.4 million due to the payoff of the Wescorp loan offset by a decrease in broker-dealer commissions and fees. The decrease in broker-dealer commissions and fees was due to a few large institutional commission generating income investments the Company sold in the nine months ending September 30,2019 that did not occur in the nine months ending September 30, 2020.

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For the year ended December 31, 2019

Net Interest Income and Net Interest Margin

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





[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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Net interest income increased 16% during the year ended December 31, 2019. Net interest margin increased 36 basis points to 3.29% for the year ended December 31, 2019. These improvements were mainly due to an increase in income on interest-earning assets.

The increase on total interest-earning assets was due to mainly to an increase in yield on interest-earning loans. The majority of this increase was due to the payoff of two previously non-performing loans. On payoff, the Company was able to collect $511 thousand of interest income previously allocated to principal when the loans were on non-accrual basis. The weighted average rate on the loan portfolio increased from 6.43% to 6.59% during the year ended December 31, 2019. The rate variance increase on interest-earning accounts with other financial was due to an increase in average yield on these accounts of 96 basis points. The increase was due to two factors. First, overall market interest rates have increased over the last twelve months. Second, we have allocated a higher percentage of our funds to higher interest-earning accounts.

Offsetting the increase in interest income somewhat, total interest expense increased by $227 thousand for the year ended December 31, 2019. This was mostly due to an increase in average balance on investor notes payable offset slightly by a decrease in average balance on term-debt. The average balance of our investor notes payable increased by $6.6 million due to the expanded efforts to market our investor notes to faith-based organizations, institutions, and ministries. The decrease in average balance on term-debt was due to contractual monthly principal payments made on the term-debt.

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Provision and non-interest income and expense







Provision

Net interest income after provision for loan losses increased by $1.9 million for the year ended December 31, 2019. This increase was primarily due to a credit in provision expense related to loan loss recoveries on loan payoffs.

Non-interest income

The increase in non-interest income shown above was the result of a robust increase in broker-dealer commissions and fees offset by a decrease in other lending income. Revenue from broker-dealer commissions and fees increase by $892 thousand during the year ended December 31, 2019 compared to the year ended December 31, 2018. This increase was the result of an increase in institutional business during the year ended December 31, 2019 compared to the year ended December 31, 2018. Offsetting the increase in broker-dealer commissions and fees, other lending income decreased by $767 thousand during the year ended December 31, 2019 This was mostly due to recording a gain on loan sale the year ended December 31, 2018 while we did not record any gains on loan sales during 2019.

Non-interest expenses

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

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For the year ended December 31, 2018

Net Interest Income and Net Interest Margin

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

 [1] Loans are net of deferred fees and before the allowance for loan losses. This analysis considers non-accrual loans a non-interest earning asset.



Net interest income decreased 10%, or $512 thousand, to $4.4 million for the year ended December 31, 2018. Net interest margin decreased 35 basis points to 2.92% for the year ended December 31, 2018, compared to 3.27% for the year ended December 31, 2017. These decreases were due to the following factors.

Interest income on interest-earning assets decreased by $264 thousand for the year ended December 31, 2018 compared to the year ended December 31, 2017. A rate variance accounted for $396 thousand of this decrease due to a decrease in average yield on interest-earning loans of 33 basis points. The decrease in yield is primarily due to additional net deferred fees recorded for the year ended December 31, 2017 compared to the year ended December 31, 2018. However, the actual weighted average rate on the loan portfolio increased from 6.31% to 6.43% from December 31, 2017 to December 31, 2018. A positive volume variance of $132 thousand, which was due to an increase in average interest-earning loans of $2.0 million, partially offset the rate variance. Slightly higher rates on interest-earning accounts with other financial institutions partially offset the decrease in interest income.

Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased $2.7 million to $148.1 million during the year ended December 31, 2018, as compared to $150.8 million during the same period in 2017. The decrease is attributable to a $4.9 million decrease in average term-debt offset by an increase in average notes payable of $2.2 million. The average rate paid on these liabilities, including debt issuance cost amortization, increased 23 basis points from 3.04% for the year ended December 31, 2017 to 3.27% for the year ended December 31, 2018 as the underlying base index rates on notes payable have increased over the previous twelve months.

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Provision and non-interest income and expense

Twelve months ended December 31, 2018 as compared to twelve months period ended December 31, 2017:

Provision

Net interest income after provision for loan losses decreased by $916 thousand for year ended December 31, 2018 over the year ended December 31, 2017 due to an increase in provision for loan losses of $404 thousand and a decrease in net interest income as discussed above. Provision for loan losses increased due to specific reserves taken for impaired loans that we expect to restructure or dispose of through foreclosure or sale.

Non-interest income

Non-interest income increased by 22% for year ended December 31, 2018 over the year ended December 31, 2017 due to several factors. Other lending income increased by $592 thousand related to the gain recognized on the sale of a note. This gain was offset by a $331 thousand decrease in broker-dealer commissions and fees due to fewer large institutional investment transactions consummated during the year ended December 31, 2018, as compared to the year ended December 31, 2017. The results for the year ended December 31, 2018 are typical for us in periods without large institutional investment transactions.

Non-interest expenses

Non-interest expenses for the year ended December 31, 2018 decreased by 4%, or $191 thousand, over the year ended December 31, 2017. This decrease is partially due to lower office operations and other expenses of $63 thousand due to lower referral fees paid to strategic partners in conjunction with a decrease in security transactions referred to our broker-dealer. In addition, salaries and benefits decreased by $59 thousand primarily due to a reduction in accrued bonuses. Legal and accounting expense decreased by $44 thousand due to a decrease in legal fees expensed related to our note sales.



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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Related Party Transactions Exceeding $120,000

The following table lists our transactions with related persons that exceed $120,000, and in which any related person had, or will have, a direct material interest (dollars in thousands). 









Related Party Loan Participation Transactions

From time to time, the Company may purchase or sell a loan participation interest from or to a related party. The Company and its related party will negotiate in good faith the terms and conditions of such a purchase or sell 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. Management believes these terms are equivalent to those that prevail in arm's length transactions.

Transactions with Equity Owners

Transactions with Evangelical Christian Credit Union (“ECCU”)

ECCU is the largest equity owner with a 42.31% ownership interest in the Company. ECCU also founded the Company in 1991. ECCU is an owner of both the Company’s Class A Common Units and Series A Preferred Units.

Loan participation interests purchased:

Occasionally, the Company sells or purchases loans or loan participation interests from ECCU. The Company earns interest income on the loan purchased from ECCU as disclosed in the table above.

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Lease agreement with ECCU:

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. As of September 30, 2020, the Company has total contractual lease payments remaining of $486 thousand through the lease termination date of December 31, 2023.

MP Securities Networking Agreement with ECCU:

MP Securities, the Company’s wholly-owned subsidiary, 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:

The agreement entitles MP Securities to 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. Total networking agreement fees with ECCU for the nine months ended September 30, 2020 and for the twelve months ended December 31, 2019 were immaterial.

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

ACCU is an equity owner with an 8.19% ownership interest in the Company. ACCU is an owner of both the Company’s Class A Common Units and Series A Preferred Units.

Loan participation interests purchased:

Occasionally, the Company sells or purchases loan participation interests from ACCU. The Company earns interest income on the loan purchased from ECCU as disclosed in the table above.

MP Securities networking agreement with ACCU:

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

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The agreement entitles MP Securities to pay ACCU a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ACCU members. Either ACCU or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice. Total networking agreement fees with ECCU for the nine months ended September 30, 2020 and for the twelve months ended December 31, 2019 were immaterial.

Loan Participation Agreement with UNIFY Financial Credit Union (“UFCU”)

The Company has a Loan Participation Agreement with UFCU, an owner of both the Company’s Class A Common Units and Series A Preferred Units. UFCU has an 8.13% ownership interest in the Company. Under this agreement, the Company sold UFCU a $5.0 million loan participation interest in one of its mortgage loan interests on August 14, 2013. As part of this agreement, the Company retained the right to service the loan, and it charges UFCU a fee for servicing the loan.

Loan Participation Agreement with Navy Federal Credit Union (“NFCU”)

The Company has entered into a Loan Participation Agreement with NFCU, an owner of both the Company’s Class A Common Units and Series A Preferred Units. NFCU has an 8.13% ownership interest in the Company. Under this agreement, the Company sold NFCU a $5.0 million loan participation interest in one of its construction loans on March 20, 2020. As of September 30, 2020, NFCU’s outstanding balance of the drawn portion of the loan was $1.9 million. As part of this agreement, the Company retained the right to service the loan, and it charges NFCU a fee for servicing the loan.

Transactions with Subsidiaries

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

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

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The Company’s subsidiary, MPF, serves as the collateral agent for the Company’s Secured Notes. The Company’s private placement memorandum for the Company’s Secured Notes Offering describes the terms of this agreement.

Transactions with KCT Credit Union, an Illinois state chartered financial institution (“KCT”)

Our Board Chairperson, R. Michael Lee, serves as the Chief Executive Officer and President of KCT.

Revolving Line of Credit

On September 30, 2020, the Company entered into a Loan and Security Agreement with KCT Credit Union, an Illinois state chartered financial institution (“KCT”). The KCT line of credit is a $7.0 million short-term demand facility with a maturity date ending September 30, 2021. The interest rate on the Note is set at prime plus 0.50%. The Company approved the KCT line of credit in accordance with its Related Party Transaction Policy and concluded that the terms of the KCT line of credit were in the best interests of the Company and entered into on terms no less favorable to the Company than could be obtained from an independent third party. As of September 30, 2020, there have been no draws on the line of credit and therefore no interest or principal payments. To guarantee the loan commitment, the Company paid a customary annual loan commitment fee $17,500.

MP Securities Networking Agreement

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

The agreement entitles MP Securities to pay KCT a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of KCT members. Either KCT or MP Securities may terminate the Networking Agreement without cause upon thirty days prior written notice. Total networking agreement fees earned with KCT under the Networking Agreement for the nine months ended September 30, 2020 and for the twelve months ended December 31, 2019 were immaterial.

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Loan Participation Interest Sold

Occasionally the Company the Company sells loan participation interests to KCT in the normal course of business.  The Company retains the right to service these participation loans sold to KCT, and it charges KCT a customary fee for servicing the loan.

Related Party Transaction Policy

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

From time to time, the Company’s Board and members 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 $213 thousand, $368 thousand, and $394 thousand at September 30, 2020,  December 31, 2019, and December 31, 2018.

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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes the material U.S. federal income tax consequences to a U.S. holder (as defined below) with respect to the purchase, ownership and disposition of the Notes. This summary is generally limited to U.S. holders who will hold the Notes as “capital assets” within the meaning of Section 1221 of the Internal Revenue Code of 1986 as amended, which we refer to as the “Code”, and who acquire the Notes in this Offering at their “issue price.” This summary does not address special situations including those that may apply to particular holders such as exempt organizations, U.S. holders subject to the U.S. federal alternative minimum tax, non-U.S. citizens and foreign corporations or other foreign entities, dealers in securities, traders in securities that elect to mark-to-market, commodities or foreign currencies, financial institutions, insurance companies, regulated investment companies, U.S. holders whose “functional currency” is not the U.S. dollar, partnerships or other pass-through entities, and persons who hold the Notes in connection with a “straddle,” “hedging,” “conversion” or other risk reduction transaction.

This summary is based upon the Code, its legislative history, existing and proposed Treasury Regulations promulgated thereunder by the Internal Revenue Service, to whom we refer to as the “IRS”, court decisions, and rulings now in effect, all of which are subject to change. Prospective investors should particularly note that any such change could have retroactive application so as to result in federal income tax consequences different from those discussed below.

INVESTORS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.

A “U.S. holder” is a beneficial owner of the Notes, who is (1) a citizen or resident of the United States, (2) a domestic corporation, (3) an estate the income of which is subject to U.S. federal income tax without regard to its source, or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

Taxation of Interest

It is expected that the Notes will be issued without original issue discount for federal income tax purposes. U.S. holders will be required to recognize as ordinary income any interest paid or accrued on the Notes, in accordance with their regular method of tax accounting. If, however, the principal amount of the Notes exceeded their issue price by more than a de minimus amount, a U.S. holder will be required to include such excess income as original issue discount, as it accrues, in accordance with a constant yield method based on a compounding of interest before the receipt of cash payments attributable to this income.

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Disposition, Redemption or Repurchase for Cash

U.S. holders generally will recognize capital gain or loss upon the sale, redemption (including any repurchase or prepayment by us for cash) or other taxable disposition of the Notes in an amount equal to the difference between:

A U.S. holder’s adjusted tax basis in a Note generally will equal the cost of the Note to such U.S. holder. Gain or loss from the taxable disposition of the Notes generally will be long-term capital gain or loss if the Note was held for more than one year at the time of the disposition. The deductibility of capital losses is subject to limitations.

We or our designated paying agent will, where required, report to U.S. holders of Notes or our membership interests and the IRS the amount of any interest paid on the Notes (or other reportable payments) in each calendar year and the amount of tax, if any, withheld with respect to such payments. Under the backup withholding provisions of the Code and the applicable Treasury Regulations, a U.S. holder of Notes may be subject to backup withholding at the rate provided in Code section 3406(a)(1), which is currently 28 percent, with respect to dividends or other distributions, or interest paid on or the proceeds of a sale, exchange or redemption of, the Notes, unless such U.S. holder is a corporation or comes within certain other exempt categories and when required demonstrates this fact; or provides correct taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder’s federal income tax liability and may entitle such U.S. holder to a refund, provided that the required information is furnished to the IRS. THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR OWN TAX ADVISER AS TO PARTICULAR TAX CONSEQUENCES TO YOU OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.

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LEGAL PROCEEDINGS

Given the nature of business and our investments made in mortgage loans, we may from time to time have an interest in, or be involved in, various litigation, including 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 the date of this Prospectus, 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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PLAN OF DISTRIBUTION

General

We are offering the Notes on a “best efforts” basis pursuant to the Managing Broker Agreement (the “MB Agreement”) by and between ourselves and MP Securities as the managing participating broker.   In general, the term “best efforts” means that MP Securities does not guarantee that any of the Notes will be sold, but that it will use its best efforts to sell the Notes as described in this Prospectus.

As the managing broker, MP Securities has responsibilities for maintaining Note sales records, receiving, processing and assuring we receive completed investor Purchase Applications, and approving supplemental sales materials for the Offering. However, MP Securities will not act as a lead underwriter, distribution manager, or syndicate manager of a selling group.

It is expected that MP Securities will conduct all retail and wholesale marketing and sales of the Notes. Because MP Securities is our affiliate, it is not in a position to make an independent review of our Company or this Offering. Accordingly, you will not be able to rely on a review of the terms and conditions of this Offering by a non-affiliated managing broker-dealer or underwriter. MP Securities has certain conflicts of interest between our interests and the interests of its customers in connection with the sale of the Notes.

FINRA Rule 5110 prohibits unfair underwriting arrangements to be paid in connection with a public offering of securities. Under Rule 5110, a FINRA registered broker dealer firm that participates in a public offering is required to file information about the underwriting terms and arrangements with FINRA’s Corporate Financing Department. Under the terms of the Managing Broker Dealer Agreement entered into by and between MP Securities and the Company, MP Securities will act as the primary selling agent for the Offering. As a consequence, MP Securities will be required to obtain a no objections letter from FINRA in order to participate in the Offering. Because FINRA views the Notes as interests in a direct participation program, an offer or sale of the Notes under the registration statement of which this Prospectus forms a part will be made in compliance with FINRA Rule 2310.

Unless sooner completed or we decide to terminate it sooner, the Offering will terminate on December 31, 2023. We may, without prior notice, in our sole discretion, suspend or discontinue the sale of one or more Note categories or Note category Series at any time or from time to time and we may terminate the Offering at any time. 

Underwriting Compensation We Will Pay

Selling Commissions

We will pay a fixed 1.50% commission on the principal amount of a 2021 Class A Note purchased to our wholly-owned subsidiary, MP Securities. The 1.50% sales commission will be a fixed amount and will apply to our Fixed Series Notes with a term ranging from 12 to 60 months and our Variable Series Notes with a

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term of 60 months. By establishing a fixed 1.50% sales commission on the purchase of a Note, there will be no incentive for our selling agent, MP Securities, to favor investments made in our longer term investor notes.

Account Servicing Fee

Under the terms of the MB Agreement, MP Securities will receive an Account Servicing Fee equal to 1% per annum of the principal amount of our 2021 Class A Notes. The Account Servicing Fee is determined on a monthly basis commencing one year after the purchase of a 2021 Class A Note. In addition, the Account Servicing Fee is subject to a maximum gross dealer compensation of 5.5% assessed on any 2021 Class A Note sold. With the adoption of the Account Servicing Fee and reduction of the sales commissions previously paid to MP Securities on the sale of our publicly offered notes, there will be no incentive to favor investments made in our longer term investor notes. The Account Servicing Fee will not be assessed against or accrued on deferred interest earned but not paid on a Note.

The Company reserves the right, under the terms of the MB Agreement, to waive, reduce, or suspend payment of the Account Servicing Fee that will be assessed on any 2021 Class A Note during the term of the Offering. Under the terms of the MB Agreement, the Account Servicing Fee paid to MP Securities will never exceed 5.5% of aggregate purchase amount paid for a Note, including any accrued interest deferred and added to the Note’s principal balance. Except for the Networking Agreements entered into with Kane County Teachers Credit Union ACCU, and ECCU, no referral or similar fees will be paid to any accountants, attorneys, or other persons in connection with the distribution of the Notes. No Account Servicing Fee will be paid to MP Securities on the Company’s outstanding Class 1 Notes. See, “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE – Transactions with Subsidiaries” on page 129 of this Prospectus.

We will not pay or reimburse MP Securities for its training or education expenses in connection with marketing the Notes.

We and/or MP Securities will pay up to an additional estimated maximum expenses of $2,173,023 which are considered underwriting compensation under the FINRA Rules. These include the following estimated expenses:

The $439,367 of non-transaction based compensation will be paid to registered representatives of MP Securities as salary draws. The Company’s Chief Executive Officer and President also serves as President of MP Securities, and a portion of his salary has been included in the $1,085,197 of dual employee non-

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transaction based compensation. These allocated costs for salaries paid to dual employees of the Company and MP Securities is deemed to be underwriting compensation under the FINRA Rules.

Thus, we estimate that when these expenses are added to the maximum compensation of $6,875,000 (inclusive of selling commissions and Account Servicing Fees assessed) and maximum due diligence fees of $9,000, we may pay a total of up to approximately $9,057,023 as determined under the FINRA Rules (or 7.25% of the Maximum Offering Proceeds) over the anticipated life of the Offering.

Processing Fee

For each sale of a 2021 Class A Note, we will pay 0.50% on the aggregate amount of a Note purchased commencing on the date of this Prospectus.

Other Organization and Offering Costs We May Incur for the Offering

In addition to the estimated issuance and distribution expenses of $290,000 we expect to pay, we may pay up to an estimated $202,401 which may be considered additional issuer expenses under the FINRA Rules. We intend to pay these expenses from funds other than the net proceeds of the Offering. The Company and MP Securities employ personnel that assist in administering the Note program, including processing applications and Notes investments on MP Securities’ information systems, updating sales blotters, maintaining books and records, and assisting in ministerial and clerical duties related to the Notes. The payment of these non-transaction-based salaries and expenses of dual employees will comply with applicable FINRA Rules governing participation of a member broker dealer firm in the offering of debt securities by an affiliated entity and will be deemed to be issuer expenses that will be paid by the Company. The estimated $290,000 of issuance and distribution expenses and $202,401 of additional expenses incurred for overhead and salaries of dual employees will not be treated as underwriting compensation under FINRA Rules, but rather as additional organization and offering costs incurred by the Company in connection with the Offering. Thus, we may pay total issuer expenses under the FINRA Rules of up to a maximum of $492,401 (0.39% of the maximum offering proceeds).

Commitment Regarding Organization and Offering Expenses

We undertake that the total organization and offering expenses will not exceed 15% of the maximum offering proceeds.    We also undertake that the underwriting compensation will not exceed 10% of the maximum offering proceeds.

As described above, we currently estimate that we and MP Securities will incur up to $9,549,424 in total organization and offering expenses (7.64% of the maximum offering proceeds) and we and MP Securities currently estimate that we may pay up to a total of $9,057,023 of underwriting compensation (7.25% of the maximum offering proceeds). 

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Indemnification

Under the MB Agreement, we have agreed to indemnify MP Securities against certain liabilities arising under federal and state securities laws. In doing so, we understand that the U.S. Securities and Exchange Commission and certain states take the position that indemnification against liabilities arising under the federal securities and state laws is against public policy and is unenforceable.

Conflict of Interest

Because we own all of the equity securities of MP Securities, MP Securities will face a conflict of interest in its placement of the Notes between our interests and the interests of its customers. No independent broker will be involved in the sale of Notes and no independent broker will participate in the Offering to ameliorate this conflict of interest by reviewing the circumstances underlying sales of Notes, or to conduct ongoing due diligence review of our Company and the Offering. Thus, if you purchase a Note through MP Securities, you will not have the benefit of an independent review of the terms and conditions of this Offering by an independent participating broker.

Sales to IRAs

We may sell Notes under agreements with individual retirement accounts specifically permitting investment in the Notes. The minimum purchase for an IRA is $1,000 for a Fixed Series Note of 12 months or longer. Interest will be accumulated in the IRA purchaser’s account and posted on the last day of each calendar month and statements will be mailed to the custodian monthly. Under the terms of sale to an IRA, Notes may be redeemed upon 30 days’ advance written notice, although we may waive all or part of the 30-day notice requirement. This right to redeem will, however, be contingent upon sufficient funds being available at the time of the request. If sufficient funds are not available, we will inform the custodian requesting funds, and will schedule payment as soon as is practicable. Such inability to repay upon request will not be an event of default, providing payment can be made within a period not to exceed 30 days from date of request.

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HOW TO PURCHASE A NOTE

Persons who meet the applicable minimum suitability standards described in the “Suitability Standards” of this Prospectus and suitability standards determined by such person’s Participating Broker or financial advisor, may purchase our Notes. After you have read the entire Prospectus and the current supplement(s), if any, accompanying this Prospectus, if you want to purchase a Note, you must proceed as follows:

An approved trustee must process through us and forward us subscriptions made through IRAs, 401(k) plans or other tax-deferred plans.

Your Purchase Application will be effective only upon our acceptance. We reserve the right to reject any Purchase Application in whole or in part. We may not accept a Purchase Application for Notes until at least five (5) business days after the date you receive the final Prospectus. Subject to compliance with the prompt delivery requirement of Rule 15c2-4 of the 1934 Act, our selling agent, MP Securities, through whom you are purchasing your Notes will promptly submit your check on the business day following receipt of your Purchase Application and check.

We accept or reject Purchase Applications and checks within six (6) business days after we receive them. In certain circumstances where the suitability review procedures are more lengthy than customary, or your Purchase Application and check are not in good order, our bank will hold your check in accordance with applicable legal requirements pending our acceptance of your subscription. If your Purchase Application is rejected, your funds, without interest or reduction, will be returned to you within ten (10) business days after the date of such rejection. If your Purchase Application is accepted, we will send you confirmation of your purchase of your Note as of the date of acceptance.

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LEGAL MATTERS

Bush Ross, P.A., of Tampa, Florida is acting as our counsel in connection with filing of the Company’s Registration Statement under the 1933 Act and as such, has passed on certain legal matters in connection with the Notes. As of September 30, 2020, Randy K. Sterns, a shareholder in Bush Ross, P.A., holds a $29 thousand Class A Note and is the beneficial owner of an Individual Retirement Account that holds $167 thousand of the Company’s Subordinated Capital Notes.

EXPERTS

The consolidated balance sheets as of December 31, 2019 and December 31, 2018 and the related consolidated statements of income, equity, and cash flows for the fiscal years then ended have been included in this Prospectus and reliance is made on the report of Hutchinson and Bloodgood LLP, a limited liability partnership, independent registered public accounting firm, given on the authority of that firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 under the Securities Act of 1933, which we refer to as the 1933 Act, relating to the Notes being offered by this Prospectus, and reference is made to such registration statement. This Prospectus constitutes our Prospectus filed as part of the registration statement, but it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

We are subject to the informational requirements of the Securities and Exchange Act of 1934, which we refer to as the 1934 Act. The 1934 Act requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC’s internet website at http://www.sec.gov.

We are also subject to the information and periodic reporting requirements of the 1934 Act, and, in accordance therewith, we file periodic reports, and other information with the SEC. We maintain a website at www.ministrypartners.org. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to the SEC. Information contained on our website is not a part of this Prospectus. You can access documents that will be incorporated by reference into this Prospectus at the website we maintain at www.ministrypartners.org. Although there is additional information about the Company at our website, unless specifically incorporated by reference herein, the contents of our website will not be incorporated by reference herein or intended as part of the Prospectus.