10-Q 1 c130-20180630x10q.htm 10-Q 10-Q2_Taxonomy2018

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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

For the quarterly period ended June 30, 2018



OR



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

For the period from _____ to _____



333-4028la

(Commission file No.)

 

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

(Exact name of registrant as specified in its charter)

 

CALIFORNIA

(State or other jurisdiction of incorporation or organization

26-3959348

(I.R.S. employer identification no.)



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

(Address of principal executive offices)

 

(714) 671-5720

(Registrant's telephone number, including area code)



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



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No     



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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company filer 

Emerging growth company 

 



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



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



At June 30, 2018, registrant had issued and outstanding 146,522 units of its Class A common units.  The information contained in this Form 10-Q should be read in conjunction with the registrant’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

 


 

MINISTRY PARTNERS INVESTMENT COMPANY, LLC



FORM 10-Q



TABLE OF CONTENTS





 

PART I — FINANCIAL INFORMATION

 



 

Item 1. Consolidated Financial Statements

F - 1



 

Consolidated Balance Sheets at June 30, 2018 (unaudited) and December 31, 2017 (audited)

F - 1



 

Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2018 and 2017

F - 2



 

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2018 and 2017

F - 3



 

Notes to Consolidated Financial Statements

F - 4



 

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

3



 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

15



 

Item 4.  Controls and Procedures

15



 

PART II —OTHER INFORMATION

 



 

Item 1.  Legal Proceedings

16

Item 1A.  Risk Factors

16

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

16

Item 3.  Defaults Upon Senior Securities

16

Item 4.  Mine Safety Disclosures

16

Item 5.  Other Information

16

Item 6.  Exhibits

17



 

SIGNATURES

17



 

Exhibit 31.1 — Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 



 

Exhibit 31.2 — Certification of Principal Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)

 



 

Exhibit 32.1 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

 



 

Exhibit 32.2 — Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

 





 

2

 


 

PART I - FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Balance Sheets

June 30, 2018 and December 31, 2017

 (Dollars in thousands Except Unit Data)







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2018

 

2017



 

(Unaudited)

 

(Audited) 

Assets:

 

 

 

 

 

 

Cash

 

$

11,226 

 

$

9,907 

Restricted cash

 

 

52 

 

 

58 

Loans receivable, net of allowance for loan losses of $2,195 and $2,097 as of June 30, 2018 and December 31, 2017, respectively

 

 

142,848 

 

 

148,835 

Accrued interest receivable

 

 

713 

 

 

742 

Investments in joint venture

 

 

896 

 

 

896 

Property and equipment, net

 

 

98 

 

 

103 

Servicing assets

 

 

233 

 

 

270 

Other assets

 

 

298 

 

 

211 

Total assets

 

$

156,364 

 

$

161,022 

Liabilities and members’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

NCUA credit facilities

 

$

79,030 

 

$

81,492 

Notes payable, net of debt issuance costs of $107 and $85 as of June 30, 2018 and December 31, 2017, respectively

 

 

66,913 

 

 

69,003 

Accrued interest payable

 

 

202 

 

 

208 

Other liabilities

 

 

764 

 

 

890 

Total liabilities

 

 

146,909 

 

 

151,593 

Members' Equity:

 

 

 

 

 

 

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at June 30, 2018 and December 31, 2017 (liquidation preference of $100 per unit); See Note 12

 

 

11,715 

 

 

11,715 

Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at June 30, 2018 and December 31, 2017; See Note 12

 

 

1,509 

 

 

1,509 

Accumulated deficit

 

 

(3,769)

 

 

(3,795)

Total members' equity

 

 

9,455 

 

 

9,429 

Total liabilities and members' equity

 

$

156,364 

 

$

161,022 

 

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

 

F-1

 


 

 Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Income (unaudited)

For the three and six month periods ended June 30, 2018 and 2017

(Dollars in thousands)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended

 

Six months ended



 

June 30,

 

June 30,



 

2018

 

2017

 

2018

 

2017

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on loans

 

$

2,308 

 

$

2,293 

 

$

4,636 

 

$

4,620 

Interest on interest-bearing accounts

 

 

16 

 

 

13 

 

 

29 

 

 

26 

Total interest income

 

 

2,324 

 

 

2,306 

 

 

4,665 

 

 

4,646 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

NCUA Credit Facilities

 

 

508 

 

 

533 

 

 

1,007 

 

 

1,068 

Notes payable

 

 

701 

 

 

611 

 

 

1,388 

 

 

1,174 

Total interest expense

 

 

1,209 

 

 

1,144 

 

 

2,395 

 

 

2,242 

Net interest income

 

 

1,115 

 

 

1,162 

 

 

2,270 

 

 

2,404 

Provision for loan losses

 

 

75 

 

 

142 

 

 

138 

 

 

147 

Net interest income after provision for loan losses

 

 

1,040 

 

 

1,020 

 

 

2,132 

 

 

2,257 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Broker-dealer commissions and fees

 

 

103 

 

 

86 

 

 

259 

 

 

232 

Other lending income

 

 

70 

 

 

84 

 

 

139 

 

 

232 

Total non-interest income

 

 

173 

 

 

170 

 

 

398 

 

 

464 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and benefits

 

 

614 

 

 

631 

 

 

1,328 

 

 

1,358 

Marketing and promotion

 

 

49 

 

 

23 

 

 

86 

 

 

42 

Office occupancy

 

 

38 

 

 

38 

 

 

76 

 

 

76 

Office operations and other expenses

 

 

284 

 

 

321 

 

 

586 

 

 

641 

Legal and accounting

 

 

83 

 

 

99 

 

 

244 

 

 

275 

Total non-interest expenses

 

 

1,068 

 

 

1,112 

 

 

2,320 

 

 

2,392 

Income before provision for income taxes

 

 

145 

 

 

78 

 

 

210 

 

 

329 

Provision for income taxes and state LLC fees

 

 

 

 

 

 

11 

 

 

12 

Net income

 

$

140 

 

$

72 

 

$

199 

 

$

317 



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

 

F-2

 


 

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30, 2018 and 2017

(Dollars in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Six months ended



 

June 30,



 

2018

 

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

199 

 

$

317 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

 

Depreciation

 

 

15 

 

 

15 

Amortization of deferred loan fees

 

 

(120)

 

 

(209)

Amortization of debt issuance costs

 

 

46 

 

 

54 

Provision for loan losses

 

 

138 

 

 

147 

Accretion of loan discount

 

 

(12)

 

 

(20)

Gain on sale of loans

 

 

 —

 

 

(111)

Changes in:

 

 

 

 

 

 

Accrued interest receivable

 

 

29 

 

 

(77)

Other assets

 

 

(10)

 

 

(158)

Other liabilities and accrued interest payable

 

 

(82)

 

 

(105)

Net cash provided (used) by operating activities

 

 

203 

 

 

(147)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Loan originations

 

 

(5,316)

 

 

(10,681)

Loan sales

 

 

800 

 

 

6,562 

Loan principal collections

 

 

10,457 

 

 

5,424 

Purchase of property and equipment

 

 

(10)

 

 

(11)

Net cash provided by investing activities

 

 

5,931 

 

 

1,294 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net change in NCUA borrowings

 

 

(2,462)

 

 

(2,402)

Net change in notes payable

 

 

(2,068)

 

 

5,536 

Debt issuance costs

 

 

(68)

 

 

(56)

Dividends paid on preferred units

 

 

(223)

 

 

(292)

Net cash provided (used) by financing activities

 

 

(4,821)

 

 

2,786 

Net increase in cash and restricted cash

 

 

1,313 

 

 

3,933 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

9,965 

 

 

10,336 

Cash, cash equivalents, and restricted cash at end of period

 

$

11,278 

 

$

14,269 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Interest paid

 

$

2,401 

 

$

2,225 

Income taxes paid

 

$

27 

 

$

20 



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

 

F-3

 


 

MINISTRY PARTNERS INVESTMENT COMPANY, LLC



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The accounting and financial reporting policies of MINISTRY PARTNERS INVESTMENT COMPANY, LLC (the “Company”, “we”, or “our”) and its wholly-owned subsidiaries, Ministry Partners Funding, LLC, MP Realty Services, Inc., and Ministry Partners Securities, LLC, conform to accounting principles generally accepted in the United States and general financial industry practices.  The accompanying interim consolidated financial statements have not been audited.  A more detailed description of the Company’s accounting policies is included in its 2017 annual report filed on Form 10-K.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at June 30, 2018 and for the six months ended June 30, 2018 and 2017 have been made.



Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The results of operations for the periods ended June 30, 2018 and 2017 are not necessarily indicative of the results for the full year.

 

1.  Summary of Significant Accounting Policies

 

Nature of Business

 

Ministry Partners Investment Company, LLC (the “Company”) was incorporated in California in 1991 as a C corporation and converted to a limited liability company on December 31, 2008.  The Company is owned by a group of 11 federal and state chartered credit unions, none of which owns a majority of the voting equity units of the Company.  Equity holders own both our Class A Common Units and Series A Preferred Units.  Offices of the Company are located in Brea, California.  The Company provides funds for real property secured loans as well as unsecured loans for the benefit of evangelical churches and church organizations.  The Company funds its operations primarily through the sale of debt securities, as well as through other borrowings.  Nearly all of the Company’s business and operations currently are conducted in California and its mortgage loan investments cover approximately 32 states, with the largest number of loans made to California borrowers.



The Company’s wholly owned subsidiaries are, Ministry Partners Funding, LLC (“MPF”), MP Realty Services, Inc., a California corporation (“MP Realty”), and Ministry Partners Securities, LLC, a Delaware limited liability company (“MP Securities”). MPF was formed in 2007 and was inactive from November 30, 2009 through November 2014.  In December 2014, the Company reactivated MPF to hold loans used as collateral for our new Secured Investment Certificates.  MP Realty was formed in November 2009, and obtained a license to operate as a corporate real estate broker through the California Department of Real Estate on February 23, 2010. MP Realty has conducted limited operations to date. 



MP Securities was formed on April 26, 2010 to provide investment and financing solutions for churches, charitable institutions and faith-based organizations.  MP Securities acts as the selling agent for the Company’s public and private placement notes.  MP Securities offers a broad scope of investment services including registered investment advisory services and the ability to sell various investment products including mutual funds and insurance products.  Due to its broad offering of products and services, MP Securities is directly regulated by the following federal and state entities: the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the California Department of Business Oversight, and the California Department of Insurance.  In addition, MP Securities is licensed with the state insurance or securities divisions in every state in which business is conducted.  As of June 30, 2018, MP Securities was licensed to sell insurance products in 14 states and as a broker dealer firm in 24 states.



Principles of Consolidation



The consolidated financial statements include the accounts of Ministry Partners Investment Company, LLC and its wholly-owned subsidiaries, MPF, MP Realty and MP Securities.  All significant inter‑company balances and transactions have been eliminated in consolidation.

 

Conversion to LLC



Effective as of December 31, 2008, the Company converted its form of organization from a corporation organized under California law to a limited liability company organized under the laws of the State of California.  With the filing of Articles of Organization-Conversion with the California Secretary of State, the separate existence of Ministry Partners Investment Corporation ceased and the entity continued by operation of law under the name Ministry Partners Investment Company, LLC.



 

F-4

 


 

Since the conversion became effective, the Company is managed by a group of managers that provides oversight of the affairs and carries out their duties similar to the role and function that the Board of Directors performed under the previous bylaws.  Operating like a Board of Directors, the managers have full, exclusive and complete discretion, power and authority to oversee the management of Company affairs.  Instead of Articles of Incorporation and Bylaws, management structure and governance procedures are now governed by the provisions of an Operating Agreement that has been entered into by and between the Company’s managers and members.

 

Cash and Cash Equivalents



For purposes of the statement of cash flows, cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less.  The Company had no cash positions other than demand deposits as of June 30, 2018 and December 31, 2017



A portion of the Company’s cash held at credit unions is insured by the National Credit Union Insurance Fund, while a portion of cash held at other financial institutions is insured by the Federal Deposit Insurance Corporation (“FDIC”).  The Company maintains cash that may exceed insured limits.  The Company does not expect to incur losses in its cash accounts.



Reclassifications



Certain reclassifications have been made to the 2017 financial statements to conform to the 2018 presentation.  Neither member’s equity nor net income for the six months ended June 30, 2017 was impacted by the reclassifications.



Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to, but are not limited to, the determination of the allowance for loan losses and the valuation of foreclosed real estate.



Investments in Joint Venture



The Company’s investment in a joint venture is analyzed for impairment by management on a periodic basis by comparing the carrying value to the estimated value of the underlying real property.  Any impairment charges will be recorded as a valuation allowance against the value of the asset.  The Company’s share of income and expenses of the joint venture will increase or decrease the Company’s investment and will be recorded on the income statement as realized gains or losses on investment. 



Loans Receivable



Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding unpaid principal balance adjusted for an allowance for loan losses, deferred loan fees and costs, and loan discounts. Interest income on loans is accrued on a daily basis using the interest method. Loan origination fees and costs are deferred and recognized as an adjustment to the related loan yield using the interest method.  Loan discounts represent interest accrued and unpaid which has been added to loan principal balances at the time the loan was restructured.  Loan discounts are accreted to interest income over the term of the restructured loan once the loan is deemed fully collectible and is no longer considered impaired.  Loan discounts also represent the differences between the purchase price on loans we purchased from third parties and the recorded principal balance of the loan.  These discounts are accreted to interest income over the term of the loan using the interest method.  Discounts are not accreted to income on impaired loans.



The accrual of interest is discontinued at the time a loan is 90 days past due. Accrual of interest can be discontinued prior to the loan becoming 90 days past due if management determines the loan is impaired.  Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.



All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.



 

F-5

 


 

Allowance for Loan Losses



The Company sets aside an allowance or reserve for loan losses through charges to earnings, which are shown in the Company’s Consolidated Statements of Income as a provision for loan losses.  Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.



The allowance consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.  In establishing the allowance for loan losses, management considers significant factors that affect the collectability of the Company’s loan portfolio. While historical loss experience provides a reasonable starting point for the analysis, such experience by itself does not form a sufficient basis to determine the appropriate level of the allowance for loan losses. Management also considers qualitative (or environmental) factors that are likely to cause estimated credit losses associated with our existing portfolio to differ from historical loss experience, including:



-

Changes in lending policies and procedures, including changes in underwriting standards and collection;

-

Changes in national, regional and local economic and business conditions and developments that affect the collectability of the portfolio;

-

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans;

-

Changes in the value of underlying collateral for collateral-dependent loans; and

-

The effect of credit concentrations.



These factors are adjusted on an on-going basis. The specific component of the Company’s allowance for loan losses relates to loans that are classified as impaired.  For such loans, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan.



All loans in the loan portfolio are subject to impairment analysis.  The Company reviews its loan portfolio monthly by examining delinquency reports and information related to the financial condition of its borrowers and collateral value of its loans.  Through this process, the Company identifies potential impaired loans.  A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting future scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  A loan is generally deemed to be impaired when it is 90 days or more past due, or earlier when facts and circumstances indicate that it is probable that a borrower will be unable to make payments in accordance with the loan contract.



Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.  When the Company modifies the terms of a loan for a borrower that is experiencing financial difficulties, a troubled debt restructuring is deemed to have occurred and the loan is classified as impaired.  Loans or portions thereof are charged off when they are determined by management to be uncollectible.  Uncollectability is evaluated periodically on all loans classified as “Loans of Lesser Quality.”  As the Company has an established practice of working to explore every possible means of repayment with its borrowers, it has historically not charged off a loan until the borrower has exhausted all reasonable means of making loan payments from cash flows, at which point the underlying collateral becomes subject to foreclosure.  Among other variables, management will consider factors such as the financial condition of the borrower, and the value of the underlying collateral in assessing uncollectability.



Troubled Debt Restructurings



A troubled debt restructuring is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to a borrower that the Company would not otherwise consider.  A restructuring of a loan usually involves an interest rate modification, extension of the maturity date, or reduction of accrued interest owed on the loan on a contingent or absolute basis.

 

F-6

 


 



Loans that are renewed at below-market terms are considered to be troubled debt restructurings if the below-market terms represent a concession due to the borrower’s troubled financial condition. Troubled debt restructurings are classified as impaired loans and are measured at the present value of estimated future cash flows using the loan's effective rate at inception of the loan. The change in the present value of cash flows attributable to the passage of time is reported as interest income.  If the loan is considered to be collateral-dependent, impairment is measured based on the fair value of the collateral.



Loan Portfolio Segments and Classes



Management segregates the loan portfolio into portfolio segments for purposes of evaluating the allowance for loan losses.  A portfolio segment is defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses.  The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type.  Such risk factors are periodically reviewed by management and revised as deemed appropriate. 



Company’s loan portfolio consists of one segment – church loans. The loan portfolio is segregated into the following portfolio classes:







 

Loan Class

Class Description

Wholly-Owned First Collateral Position

Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a senior lien on the collateral underlying the loan.

Wholly-Owned Junior Collateral Position

Wholly-owned loans and the retained portion of loans originated by the Company and sold for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral.  This class also contains any loans that are not secured.  These loans present higher credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan default.

Participations First Collateral Position

Participated loans purchased from another financial entity for which the Company possesses a senior lien on the collateral underlying the loan. Loan participations purchased present higher credit risk than wholly owned loans because disposition and direction of actions regarding the management and collection of the loans must be coordinated and negotiated with the other participants, whose best interests regarding the loan may not align with those of the Company.

Participations Junior Collateral Position

Participated loans purchased from another financial entity for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral.  Loan participations in the junior collateral position loans have higher credit risk than wholly owned loans and participated loans purchased where the Company possesses a senior lien on the collateral.  The increased risk is the result of the factors presented above relating to both junior lien positions and participations.







Credit Quality Indicators



The Company’s policies provide for the classification of loans that are considered to be of lesser quality as watch, special mention, substandard, doubtful, or loss assets. Special mention assets exhibit potential or actual weaknesses that present a higher potential for loss under certain conditions.  An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently existing facts, conditions and values. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose the Company to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve close attention, are designated as watch.  Loans designated as watch are considered pass loans.



The Company has established a standard loan grading system to assist management and review personnel in their analysis and supervision of the loan portfolio.  The loan grading system is as follows:



Pass: The borrower has sufficient cash to fund debt services.  The borrower may be able to obtain similar financing from other lenders with comparable terms.  The risk of default is considered low.



 

F-7

 


 

Watch: These loans exhibit potential or developing weaknesses that deserve extra attention from credit management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the debt in the future.  Loans graded Watch must be reported to executive management and the Board of Managers.  Potential for loss under adverse circumstances is elevated, but not foreseeable.  Watch loans are considered pass loans.



Special mention: These credit facilities exhibit potential or actual weaknesses that present a higher potential for loss under adverse circumstances, and deserve management’s close attention. If uncorrected, these weaknesses may result in deterioration of the repayment prospects for the loan at some future date.



Substandard: Loans and other credit extensions bearing this grade are considered to be inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These obligations, even if apparently protected by collateral value, have well-defined weaknesses related to adverse financial, managerial, economic, ministry, or environmental conditions which have clearly jeopardized repayment of principal and interest as originally intended. Furthermore, there is the possibility that some future loss will be sustained if such weaknesses are not corrected.



Doubtful: This classification consists of loans that display the properties of substandard loans with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.  The probability of some loss is very high, but because of certain important and reasonably specific factors, the amount of loss cannot be exactly determined.  Such pending factors could include merger or liquidation, additional capital injection, refinancing plans, or perfection of liens on additional collateral.



Loss: Loans in this classification are considered uncollectible and cannot be justified as a viable asset.  This classification does not mean the loan has absolutely no recovery value, but that it is neither practical nor desirable to defer writing off this loan even though partial recovery may be obtained in the future.



Foreclosed Assets



Assets acquired through foreclosure or other proceedings are initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost.  After foreclosure, valuations are periodically performed by management, and foreclosed assets held for sale are carried at the lower of cost or fair value, less estimated costs of disposal.  Any write-down to fair value just prior to the transfer to foreclosed assets is charged to the allowance for loan losses.  The Company’s real estate assets acquired through foreclosure or other proceedings are evaluated regularly to ensure that the recorded amount is supported by its current fair value and that valuation allowances to reduce the varying amount to fair value less estimated costs of disposal are recorded as necessary.  Revenue and expense from the operation of the Company’s foreclosed assets and changes in the valuation allowance are included in net expenses from foreclosed assets.  When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.



Transfers of Financial Assets



Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to have been surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.



The Company, from time to time, sells participation interests in mortgage loans it has originated or acquired.  In order to recognize the transfer of a portion of a financial asset as a sale, the transferred portion and any portion that continues to be held by the transferor must represent a participating interest, and the transfer of the participating interest must meet the conditions for surrender of control. To qualify as a participating interest (i) each portion of a financial asset must represent a proportionate ownership interest in an entire financial asset, (ii) from the date of transfer, all cash flows received from the entire financial asset must be divided proportionately among the participating interest holders in an amount equal to their share of ownership, (iii) the transfer must be made on a non-recourse basis (other than standard representations and warranties made under the loan participation sale agreement) to, or subordination by, any participating interest holder, and (iv) no party has the right to pledge or exchange the entire financial asset. If the participating interest or surrender of control criteria is not met, the transaction is accounted for as a secured borrowing arrangement.



Under some circumstances, when the Company sells participations in wholly owned loans receivable that it services, it retains a servicing asset that is initially measured at fair value.  As quoted market prices are generally not available for these assets, the Company estimates fair value based on the present value of future expected cash flows associated with the loan receivable.  The

 

F-8

 


 

Company amortizes servicing assets over the life of the associated receivable using the interest method.  Any gain or loss recognized on the sale of loans receivable depends in part on both the previous carrying amount of the financial assets involved in the sale, allocated between the assets sold and the interests that continue to be held by the Company based on their relative fair value at the date of transfer, and the proceeds received.



Property and Equipment



Furniture, fixtures, and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets, which range from three to seven years.



Debt Issuance Costs



Debt issuance costs are related to borrowings from financial institutions as well as public offerings of unsecured notes, and are amortized into interest expense over the contractual terms of the debt using the effective rate of interest method.



Employee Benefit Plan



Contributions to the qualified employee retirement plan are recorded as compensation cost in the period incurred.



Income Taxes



The Company has elected to be treated as a partnership for income tax purposes. Therefore, income and expenses of the Company are passed through to its members for tax reporting purposes.  According to its operating agreement, Tesoro Hills, LLC, a joint venture in which the Company has an investment, has also elected to be treated as a partnership for income tax purposes.  The Company and MP Securities are subject to a California LLC fee.



The Company uses a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken in a tax return. Benefits from tax positions are recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.



New accounting guidance

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which supersedes existing accounting standards for revenue recognition and creates a single framework.  ASU 2014-09 and all subsequent amendments to the ASU (collectively "ASC 606") requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and revises when it is appropriate to recognize a gain or loss from the transfer of nonfinancial assets such as other real estate owned.  This standard also specifies the accounting for certain costs to obtain or fulfill a contract with a customer.  The Company’s implementation efforts included a detailed review of revenue contracts within the scope of guidance and an evaluation of the impact on the Company’s revenue recognition policies.  No transition-related practical expedients were applied.



The majority of Company's revenues come from interest income, which is outside the scope of ASC 606. The Company's revenues that are within the scope of ASC 606 are presented as Non-Interest Income and are recognized as revenue when the Company satisfies its obligation to the customer.  Revenues within the scope of ASC 606 include wealth advisory fees, investment brokerage fees, and other service and miscellaneous income. 

 

The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy generally accepted accounting principles ("GAAP"). The adoption of ASC 606 did not result in a material change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.



 

F-9

 


 

Recent Accounting Pronouncements



In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. Management is assessing the impact of ASU 2016-02 on its accounting and disclosures and expects this pronouncement will not have a material impact on the Company’s consolidated financial position or results of operation.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The guidance requires companies to apply the requirements in the year of adoption through cumulative adjustment with some aspects of the update requiring a prospective transition approach. Management is currently evaluating the potential impact of the pending adoption of ASU 2016-13 on the consolidated financial statements.

  

2.  Pledge of Cash and Restricted Cash



Some of the Company’s cash may be pledged as collateral for its borrowings and is considered restricted cash.  At June 30, 2018 and December 31, 2017, the Company held no pledged cash.



The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows (dollars in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 



December 31,

 

June 30,



2017

 

2018

 

2017

Cash and cash equivalents

$

9,907 

 

$

11,226 

 

$

14,217 

Restricted cash

 

58 

 

 

52 

 

 

52 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

$

9,965 

 

$

11,278 

 

$

14,269 



Amounts included in restricted cash represent those required to be set aside with the Central Registration Depository ("CRD") account with FINRA as well as funds the Company has deposited with RBC Dain as clearing deposits.  The CRD funds may only be used for fees charged by FINRA to maintain the membership status of the Company, as well as fees related to registered and associated persons of the Company.



3.  Related Party Transactions

 

Transactions with Equity Owners



Transactions with Evangelical Christian Credit Union (“ECCU”)



ECCU is the Company’s founder and largest equity owner and as such the Company has several related party dealings.  The following describes the nature and dollar amounts of the material related party transactions with ECCU.



 

F-10

 


 

ECCU related parties who serve on the Company’s Board of Managers:





 

ECCU Role

MPIC Role

President, Chief Executive Officer

Board of Managers

Chairman of the Board

Board of Managers



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





 

 

 

 

 



June 30,

 

December 31,



2018

 

2017

Total funds held on deposit at ECCU

$

577 

 

$

1,065 

Loan participations purchased from and serviced by ECCU

 

7,575 

 

 

9,190 



Related Party transactions of the Company (in thousands except unit data):



 

 

 

 

 



Six months ended



June 30,



2018

 

2017

Number of Loans purchased from ECCU

 

 —

 

 

 —

Interest earned on funds held with ECCU

$

 

$

Interest income earned on loans purchased from ECCU

 

198 

 

 

229 

Fees paid to ECCU from MP Securities Networking Agreement

 

11 

 

 

19 

Income from Master Services Agreement with ECCU

 

27 

 

 

27 

Income from Successor Servicing Agreement with ECCU

 

 

 

Rent expense on lease agreement with ECCU

 

52 

 

 

63 



Loan participation interests purchased:



Occasionally, the Company purchases loan participation interests from ECCU.  The Company negotiates pass-through interest rates on loan participation interests purchased from ECCU on a loan by loan basis. Management believes these terms are equivalent to those that prevail in arm's length transactions.



Lease and Services Agreement:



The Company leases its corporate offices and purchases other facility related services from ECCU pursuant to a written lease and services agreement.  Management believes these terms are equivalent to those that prevail in arm's length transactions.



MP Securities Networking Agreement with ECCU:



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

(1) have been approved by ECCU or its Board of Directors, 

(2) comply with applicable investor suitability standards required by federal and state securities laws and regulations,  

(3) are offered in accordance with NCUA rules and regulations, and

(4) are in compliance with its membership agreement with FINRA.



The agreement entitles ECCU to be paid a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ECCU members.  The Networking Agreement may be terminated by either ECCU or MP Securities without cause upon thirty days prior written notice.



Master Services Agreement (the “Services Agreement”) with ECCU:



The Company and ECCU have entered into the Services Agreement, pursuant to which the Company provides relationship management services to ECCU’s members and business development services to new leads in the southeast region of the United States.  Either party may terminate the Services Agreement for any reason by providing thirty (30) days written notice.  On March 1, 2018, the agreement was amended to include referral fees to be paid by either party on the successful closing of a referred loan.  The current agreement expires on September 1, 2018.

 

F-11

 


 



Successor Servicing Agreement with ECCU:



On October 5, 2016, the Company entered into a Successor Servicing Agreement with ECCU pursuant to which the Company has agreed to serve as the successor loan servicing agent for certain mortgage loans designated by ECCU in the event ECCU requests that the Company assume its obligation to act as the servicing agent for those loans.  The term of the Agreement is for a period of three years.



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



ACCU is one of the equity owners of the Company and has several related party agreements with the Company. The following describes the nature and dollar amounts of the material related party transactions with ACCU.



Ownership transfer:



On May 4, 2017, ACCU acquired 12,000 Class A Units and 12,000 Series A Preferred Units of the Company’s Class A Common Units and Series A Preferred Units, respectively,  which represents 8.19% of the Company’s issued and outstanding Class A Units and 10.25% of the Company’s issued and outstanding Series A Preferred Units from Financial Partners Credit Union, a California state chartered credit union (“FPCU”).  The Company’s Board of Managers approved ACCU’s purchase of the Class A and Series A Preferred Units from FPCU and has consented to ACCU’s request to be admitted as a new member of the Company.  ACCU’s purchase of the Class A Units and Series A Preferred Units was consummated pursuant to a privately negotiated transaction.



On June 29, 2018, ACCU, acquired 2,000 of the Company’s Series A Preferred Units, which represents 1.71% of the Company’s issued and outstanding Series A Preferred Units from The National Credit Union Administration Board as Liquidating Agent of Telesis Community Credit Union, a federally chartered credit union (“NCUAB”).  The Company’s Board of Managers has approved ACCU’s purchase of the Membership Units from NCUAB and has consented to ACCU’s acquisition of additional membership interests of the Company.



ACCU related parties who serve on the Company’s Board of Managers:







 

ACCU Role

MPIC Role

President, Chief Executive Officer

Board of Managers



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





 

 

 

 

 



June 30,

 

December 31,



2018

 

2017

Total funds held on deposit at ACCU

$

6,526 

 

$

6,103 

Dollar outstanding loan participations sold to ACCU and serviced by the Company

 

2,664 

 

 

2,696 

Loan participations purchased from and serviced by ACCU

 

1,691 

 

 

1,719 



Related Party transactions of the Company (in thousands except unit data):





 

 

 

 

 



Six months ended



June 30,



2018

 

2017

Dollar amount of loans sold to ACCU

 

 —

 

 

Interest earned on funds held with ACCU

$

23 

 

$

14 

Interest income earned on loans purchased from ACCU

 

43 

 

 

45 

Income from MP Securities Networking Agreement with ACCU

 

36 

 

 

95 

Income from Master Services Agreement with ACCU

 

15 

 

 

 —



Loan participation interests purchased:



Occasionally, the Company sells or purchases participation interests from ACCU.  The Company negotiates pass-through interest rates on loan participation interests purchased or sold from and to ACCU on a loan by loan basis. Management believes these terms are equivalent to those that prevail in arm's length transactions.

 

F-12

 


 



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 products and services to ACCU’s members that:

(1) have been approved by ACCU or its Board of Directors,

(2) comply with applicable investor suitability standards required by federal and state securities laws and regulations,

(3) are offered in accordance with NCUA rules and regulations, and

(4) are in compliance with its membership agreement with FINRA.



The agreement entitles ACCU to be paid a percentage of total revenue received by MP Securities from transactions conducted for or on behalf of ACCU members.  The Networking Agreement may be terminated by either ACCU or MP Securities without cause upon thirty days prior written notice.



Transactions with Other Equity Owners



The Company has a Loan Participation Agreement with UNIFY Financial Credit Union (“UFCU”), an owner of both the Company’s Class A Common Units and Series A Preferred Units.  Under this agreement, the Company sold UFCU a $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 50 basis points for servicing the loan.



Transactions with Subsidiaries



The Company has several agreements with its subsidiary MP Securities.  The income and expense related to these agreements are eliminated in the consolidated financials.  MP Securities serves as the managing broker for the Company’s public and private placement notes.  The Company receives a range of compensation related to these services ranging from 0.25% to 5.50% over the life of a note depending on the specific offering and length of the note.  In addition, the Company’s subsidiary, MPF serves as the collateral agent for the Company’s Secured Notes. The terms of these agreements are described in the Company’s S-1 prospectus offering circulars and the private placement agreements related to the offerings.  Additional details regarding the Company’s Notes are described in section “10. Notes Payable” of this report.



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



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 to related parties totaled $256 thousand $250 thousand at June 30, 2018 and December 31, 2017.



Related Party Transaction Policy



To assist in evaluating any related transactions the Company may enter into with a related party, the Board has adopted a Related Party Transaction Policy. 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 on terms believed by its management to be no less favorable than are available from unaffiliated third parties and are approved by a majority of its independent Board members.

 

4.  Loans Receivable and Allowance for Loan Losses

 

The Company’s loan portfolio is comprised of one segment – church loans.  The loans fall into four classes, which include wholly-owned loans for which the Company possesses the first collateral position, wholly-owned loans that are either unsecured or for which the Company possesses a junior collateral position, participated loans purchased for which the Company possesses the first collateral position, and participated loans purchased for which the Company possesses a junior collateral position.  See “Note 1 – Loan Portfolio Segments and Classes” to Part I “Financial Information” of this Report.



 

F-13

 


 

All of our loans are made to various evangelical churches and related organizations, primarily to purchase, construct or improve facilities. Loan maturities extend through 2027. The loan portfolio had a weighted average rate of 6.32% and 6.31% as of June 30, 2018 and December 31, 2017, respectively. A summary of the Company’s mortgage loans owned as of June 30, 2018 and December 31, 2017 is as follows (dollars in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2018

 

2017

Loans to evangelical churches and related organizations:

 

 

 

 

 

 

Real estate secured

 

$

146,412 

 

$

151,214 

Unsecured

 

 

369 

 

 

1,500 

Total loans

 

 

146,781 

 

 

152,714 

Deferred loan fees, net

 

 

(879)

 

 

(911)

Loan discount

 

 

(859)

 

 

(871)

Allowance for loan losses

 

 

(2,195)

 

 

(2,097)

Loans, net

 

$

142,848 

 

$

148,835 



Allowance for Loan Losses



Management believes that the allowance for loan losses, as shown in the following table, as of June 30, 2018 and December 31, 2017 is appropriate.  In addition, the following table shows the changes in the allowance for loan losses for the six months ended June 30, 2018 and the year ended December 31, 2017 (dollars in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

Six months

ended

 

Year
ended



 

June 30,

2018

 

December 31,

2017

Balance, beginning of period

 

$

2,097 

 

$

1,875 

Provision for loan loss

 

 

138 

 

 

262 

Chargeoffs

 

 

(40)

 

 

(40)

Balance, end of period

 

$

2,195 

 

$

2,097 



Loans by portfolio segment (church loans) and the related allowance for loan losses are presented below. Loans and the allowance for loan losses are further segregated by impairment methodology (dollars in thousands).





 

 

 

 

 

 



 

 

 

 

 

 



 

Loans and Allowance
for Loan Losses (by segment)



 

As of



 

June 30,

2018

 

December 31,

2017

Loans:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

9,217 

 

$

9,255 

Collectively evaluated for impairment 

 

 

137,564 

 

 

143,459 

Balance

 

$

146,781 

 

$

152,714 



 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,357 

 

$

1,260 

Collectively evaluated for impairment 

 

 

838 

 

 

837 

Balance

 

$

2,195 

 

$

2,097 



 

F-14

 


 

The Company has established a standard loan grading system to assist management and loan review personnel in their analysis and supervision of the loan portfolio.  The following table is a summary of the loan portfolio credit quality indicators by loan class at June 30, 2018 and December 31, 2017, which is the date on which the information was updated for each credit quality indicator (dollars in thousands):











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

As of June 30, 2018



 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

102,705 

 

$

3,776 

 

$

7,853 

 

$

 —

 

$

114,334 

Watch

 

 

23,023 

 

 

 —

 

 

207 

 

 

 —

 

 

23,230 

Special mention

 

 

1,521 

 

 

 —

 

 

 —

 

 

 —

 

 

1,521 

Substandard

 

 

3,682 

 

 

193 

 

 

 —

 

 

 —

 

 

3,875 

Doubtful

 

 

3,821 

 

 

 —

 

 

 —

 

 

 —

 

 

3,821 

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

134,752 

 

$

3,969 

 

$

8,060 

 

$

 —

 

$

146,781 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

As of  December 31, 2017



 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

115,422 

 

$

5,269 

 

$

9,474 

 

$

 —

 

$

130,165 

Watch

 

 

13,082 

 

 

 —

 

 

212 

 

 

 —

 

 

13,294 

Special mention

 

 

3,152 

 

 

 —

 

 

 —

 

 

 —

 

 

3,152 

Substandard

 

 

5,907 

 

 

196 

 

 

 —

 

 

 —

 

 

6,103 

Doubtful

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

137,563 

 

$

5,465 

 

$

9,686 

 

$

 —

 

$

152,714 



The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount at June 30, 2018 and December 31, 2017 (dollars in thousands):









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

As of June 30, 2018



 

30-59 Days Past Due

 

60-89 Days Past Due

 

Greater Than 90 Days

 

Total Past Due

 

Current

 

Total Loans

 

Recorded Investment 90 Days or more and Accruing

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

1,213 

 

$

3,703 

 

$

3,717 

 

$

8,633 

 

$

126,119 

 

$

134,752 

 

$

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,969 

 

 

3,969 

 

 

 —

Participation First

 

 

1,302 

 

 

 —

 

 

 —

 

 

1,302 

 

 

6,758 

 

 

8,060 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

2,515 

 

$

3,703 

 

$

3,717 

 

$

9,935 

 

$

136,846 

 

$

146,781 

 

$

 —



 

F-15

 


 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

As of  December 31, 2017



 

30-59 Days Past Due

 

60-89 Days Past Due

 

Greater Than 90 Days

 

Total Past Due

 

Current

 

Total Loans

 

Recorded Investment 90 Days or more and Accruing

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

 —

 

$

3,521 

 

$

1,587 

 

$

5,108 

 

$

132,455 

 

$

137,563 

 

$

 —

Wholly-Owned Junior

 

 

 —

 

 

196 

 

 

 —

 

 

196 

 

 

5,269 

 

 

5,465 

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,686 

 

 

9,686 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

 —

 

$

3,717 

 

$

1,587 

 

$

5,304 

 

$

147,410 

 

$

152,714 

 

$

 —



Non-Performing Loans



Non-performing loans include non-accrual loans, loans 90 days or more past due and still accruing, and restructured loans.  Non-accrual loans represent loans on which interest accruals have been discontinued.  Restructured loans are loans in which the borrower has been granted a concession on the interest rate or the original repayment terms due to financial distress. Non-performing loans are closely monitored on an ongoing basis as part of management’s loan review and work-out process.  The potential risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows.



The following tables are summaries of impaired loans by loan class as of six months ended June 30, 2018 and 2017, and the year ended December 31, 2017, respectively.  The unpaid principal balance reflects the contractual principal outstanding on the loan. The recorded balance reflects the unpaid principal balance less any interest payments that have been recorded against principal. The recorded investment reflects the recorded balance less discounts taken.  The related allowance reflects specific reserves taken on the impaired loans (dollars in thousands):













 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

6,680 

 

$

5,204 

 

$

4,767 

 

$

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

5,212 

 

 

3,820 

 

 

3,526 

 

 

1,324 

Wholly-Owned Junior

 

 

216 

 

 

193 

 

 

182 

 

 

33 

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

12,108 

 

$

9,217 

 

$

8,475 

 

$

1,357 



 

F-16

 


 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the three months ended
June 30, 2018

 

For the six months ended
June 30, 2018



 

Average Recorded Investment

 

Interest Income Recognized

 

Average Recorded Investment

 

Interest Income Recognized

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

3,905 

 

$

 —

 

$

4,702 

 

$

 —

Wholly-Owned Junior

 

 

92 

 

 

 —

 

 

93 

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

4,337 

 

 

27 

 

 

3,616 

 

 

51 

Wholly-Owned Junior

 

 

91 

 

 

 —

 

 

91 

 

 

 —

Participation First

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

8,424 

 

$

27 

 

$

8,501 

 

$

51 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment