Note 3: Related Party Transactions

Transactions with Equity Owners

Transactions with Evangelical Christian Credit Union (“ECCU”)

The tables below summarize transactions the Company conducts with ECCU, the Company’s largest equity owner.

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


	September 30,		December 31,
	2020		2019
Total funds held on deposit at ECCU	$	3,482	$	365
Loan participations purchased from and serviced by ECCU		259		1,495

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


	Three months ended
	September 30,
	2020		2019
Interest earned on funds held with ECCU	$	8	$	—
Interest income earned on loans purchased from ECCU		4		38
Fees paid to ECCU from MP Securities Networking Agreement		5		5
Income from Successor Servicing Agreement with ECCU		2		2
Rent expense on lease agreement with ECCU		37		37


	Nine months ended
	September 30,
	2020		2019
Interest earned on funds held with ECCU	$	13	$	—
Interest income earned on loans purchased from ECCU		11		113
Loans sold to ECCU		1,164		—
Fees paid to ECCU from MP Securities Networking Agreement		7		9
Income from Master Services Agreement with ECCU		—		14
Income from Successor Servicing Agreement with ECCU		7		8
Rent expense on lease agreement with ECCU		110		73

Loan participation interests purchased:

In the past, the Company purchased loan participation interests from ECCU. Management negotiated the pass-through interest rates on these loans on a loan-by-loan basis. Management believes these negotiated terms were equivalent to those that would prevail in an arm's length transaction. The Company did not purchase any loans from ECCU during the nine months ended September 30, 2020 and 2019.

Loans sold:

From time to time, the Company will sell loans to ECCU. On January 23, 2020, the Company sold an impaired loan to ECCU in order to recoup its recorded investment in the loan. The Company had previously purchased this loan from ECCU and ECCU was servicing the loan. The Company did not sell any loans to ECCU during the nine months ended September 30, 2019.

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 in October 2014 pursuant to which MP Securities agreed to offer investment and insurance products and services to ECCU’s members that:

(1) ECCU or its Board of Directors has approved;

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

(3) are offered in accordance with National Credit Union Administration (“NCUA”) rules and regulations; and

(4) comply with its membership agreement with Financial Industry Regulation Authority (“FINRA”).

The agreement entitles ECCU to be paid 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.

Successor Servicing Agreement with ECCU:

On October 5, 2016, the Company entered into a Successor Servicing Agreement with ECCU. This agreement obligates the Company to serve as the successor loan-servicing agent for mortgage loans that ECCU has designated. The Company will service these loans in the event ECCU requests that the Company assume its obligation to act as the servicing agent for those loans. In October 2019, the agreement was converted to a month-to-month agreement.

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

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

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



	September 30,		December 31,
	2020		2019
Total funds held on deposit at ACCU	$	6,720	$	10,343
Loan participations purchased from and serviced by ACCU		1,126		1,603

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



	Three months ended
	September 30,
	2020		2019
Interest earned on funds held with ACCU	$	12	$	43
Loans sold to ACCU		441		—
Interest income earned on loans purchased from ACCU		14		21
Fees paid based on MP Securities Networking Agreement with ACCU		23		7



	Nine months ended
	September 30,
	2020		2019
Dollar amount of loan participation interests purchased from ACCU	$	—	$	1,435
Interest earned on funds held with ACCU		69		115
Loans sold to ACCU		441		—
Interest income earned on loans purchased from ACCU		42		63
Fees paid based on MP Securities Networking Agreement with ACCU		50		31

Loan participation interests:

From time to time, the Company may purchase a loan participation interest from a related party. The Company and its related party will negotiate in good faith the terms and conditions of such a purchase and in accordance with the Company’s related party procedures and governance practices. Each party must approve such a purchase after full disclosure of the related party transaction and must include terms and conditions that would normally be included in arm’s length transactions conducted by independent parties.

Occasionally, the Company sells or purchases loan 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. On April 29, 2020, the Company sold back to ACCU a $441 thousand loan participation interest that it had previously purchased from ACCU.

MP Securities Networking Agreement with ACCU:

MP Securities entered into a Networking Agreement with ACCU in July 2014 pursuant to which MP Securities has agreed to offer investment and insurance products and services to ACCU’s members that:

(1) ACCU or its Board of Directors has approved;

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

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

(4) comply with its membership agreement with FINRA.

The agreement 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.

Transactions with Other Equity Owners

The Company has entered into 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 a fee for servicing the loan. Management believes the terms of the agreement are equivalent to those that prevail in arm's length transactions.

The Company has also entered into a Loan Participation Agreement with Navy Federal Credit Union (“NFCU”), an owner of both the Company’s Class A Common Units and Series A Preferred Units. Under this agreement, the Company sold NFCU a $5.0 million loan participation interest in one of its construction loans on March 20, 2020. As 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. Management believes the terms of the agreement are equivalent to those that prevail in arm's length transactions.

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.

The Company’s subsidiary, MPF, serves as the collateral agent for the Company’s Secured Notes. The Company’s Prospectus for its Class 1A Notes and the private placement memorandum for the Company’s Secured Notes Offering describe the terms of these agreements. See, “Note 11. Investor Notes Payable” to Part I, Item I “Financial Information” of this Report.

Line of Credit with KCT Credit Union

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 line of credit will automatically renew for a one-year term unless either party furnishes written notice at least thirty (30) days prior to the maturity date that it does not intend to renew the agreement. The KCT line of credit is secured by certain mortgage loans held as collateral and the Company is required to maintain a minimum collateralization ratio of 120% measured by the outstanding balance of mortgage notes pledged as compared to the total amount owed on the line of credit. As of September 30, 2020, the Company did not have an outstanding balance on the line. The KCT line of credit is evidenced by a promissory note, is payable one hundred twenty (120) days after each advance made or earlier in the event that collateral loan becomes more than sixty (60) days delinquent and the Company fails to cure such delinquency. The interest rate on the Note is set at prime plus 0.50%. At September 30, 2020, the prime rate was 3.25%. Our Board Chairperson, R. Michael Lee, serves as the Chief Executive Officer and President of KCT. The Company approved the KCT line of credit in accordance with its Related Party Transaction Policy, 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.

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 and $368 thousand at September 30, 2020 and December 31, 2019, respectively.