Company Quick10K Filing
Quick10K
Ministry Partners Investment Company
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-11-07 Officers, Exhibits
8-K 2018-07-10 Other Events
8-K 2018-05-03 Other Events
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C130 2019-03-31
Part I - Financial Information
Item 1: Financial Statements
Note 1: Nature of Business and Summary of Significant Accounting Policies
Note 2: Pledge of Cash and Restricted Cash
Note 3: Related Party Transactions
Note 4: Loans Receivable and Allowance for Loan Losses
Note 5: Investment in Joint Venture
Note 6: Revenue Recognition
Note 7: Loan Sales
Note 8: Premises and Equipment
Note 9: Ncua Credit Facilities
Note 10: Notes Payable
Note 11: Commitments and Contingencies
Note 12: Preferred and Common Units Under Llc Structure
Note 13: Retirement Plans
Note 14: Fair Value Measurements
Note 15: Income Taxes and State Llc Fees
Note 16: Segment Information
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part II - Other Information
Item 1: Legal Proceedings
Item 1A. Risk Factors
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds: None
Item 3: Defaults Upon Senior Securities: None
Item 4: Mine Safety Disclosure: None
Item 5: Other Information: None
Item 6. Exhibits
EX-31.1 c130-20190331xex31_1.htm
EX-31.2 c130-20190331xex31_2.htm
EX-32.1 c130-20190331xex32_1.htm
EX-32.2 c130-20190331xex32_2.htm

Ministry Partners Investment Company Earnings 2019-03-31

C130 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 c130-20190331x10q.htm 10-Q 10-Q1_Taxonomy2019

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 March 31, 2019



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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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 March 31, 2019, 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, 2018.

 


 

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

F - 2



Consolidated Statements of Income

F - 3



Consolidated Statements of Cash Flows

F - 4



Notes to Consolidated Financial Statements

F - 5

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4:

Controls and Procedures

20



 

 



PART II —OTHER INFORMATION

 



 

 

Item 1:

Legal Proceedings

21

Item 1A:

Risk Factors

21

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

21

Item 3:

Defaults Upon Senior Securities

21

Item 4:

Mine Safety Disclosures

21

Item 5:

Other Information

21

Item 6:

Exhibits

22



 

 



SIGNATURES

23



 

 

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

 

F-1


 

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Balance Sheets

March 31, 2019 and December 31, 2018

(Dollars in thousands Except Unit Data)







 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018



 

(Unaudited)

 

(Audited) 

Assets:

 

 

 

 

 

 

Cash

 

$

27,779 

 

$

9,877 

Restricted cash

 

 

51 

 

 

51 

Loans receivable, net of allowance for loan losses of $1,971 and $2,480 as of March 31, 2019 and December 31, 2018, respectively

 

 

143,610 

 

 

143,380 

Accrued interest receivable

 

 

762 

 

 

711 

Investment in joint venture

 

 

887 

 

 

887 

Property and equipment, net

 

 

83 

 

 

87 

Servicing assets

 

 

174 

 

 

212 

Right-of-use assets

 

 

645 

 

 

 —

Other assets

 

 

427 

 

 

234 

Total assets

 

$

174,418 

 

$

155,439 

Liabilities and members’ equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

NCUA credit facilities

 

$

75,261 

 

$

76,515 

Notes payable, net of debt issuance costs of $93 and $92 as of March 31, 2019 and December 31, 2018, respectively

 

 

87,715 

 

 

68,300 

Accrued interest payable

 

 

260 

 

 

249 

Lease liabilities

 

 

647 

 

 

 —

Other liabilities

 

 

756 

 

 

844 

Total liabilities

 

 

164,639 

 

 

145,908 

Members' Equity:

 

 

 

 

 

 

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at March 31, 2019 and December 31, 2018 (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 March 31, 2019 and December 31, 2018; See Note 12

 

 

1,509 

 

 

1,509 

Accumulated deficit

 

 

(3,445)

 

 

(3,693)

Total members' equity

 

 

9,779 

 

 

9,531 

Total liabilities and members' equity

 

$

174,418 

 

$

155,439 

 

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

 

F-2


 

 Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Income (Unaudited)

For the three months ended March 31, 2019 and 2018

(Dollars in thousands)







 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

March 31,



 

2019

 

2018

Interest income:

 

 

 

 

 

 

Interest on loans

 

$

2,401 

 

$

2,328 

Interest on interest-bearing accounts

 

 

58 

 

 

13 

Total interest income

 

 

2,459 

 

 

2,341 

Interest expense:

 

 

 

 

 

 

NCUA Credit Facilities

 

 

474 

 

 

499 

Notes payable

 

 

765 

 

 

687 

Total interest expense

 

 

1,239 

 

 

1,186 

Net interest income

 

 

1,220 

 

 

1,155 

Provision (credit) for loan losses

 

 

(152)

 

 

63 

Net interest income after provision for loan losses

 

 

1,372 

 

 

1,092 

Non-interest income:

 

 

 

 

 

 

Broker-dealer commissions and fees

 

 

128 

 

 

156 

Other lending income

 

 

49 

 

 

69 

Total non-interest income

 

 

177 

 

 

225 

Non-interest expenses:

 

 

 

 

 

 

Salaries and benefits

 

 

671 

 

 

714 

Marketing and promotion

 

 

61 

 

 

38 

Office occupancy

 

 

44 

 

 

37 

Office operations and other expenses

 

 

308 

 

 

302 

Legal and accounting

 

 

101 

 

 

161 

Total non-interest expenses

 

 

1,185 

 

 

1,252 

Income before provision for income taxes

 

 

364 

 

 

65 

Provision for income taxes and state LLC fees

 

 

 

 

Net income

 

$

361 

 

$

59 



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

 

F-3


 

Ministry Partners Investment Company, LLC and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the three months ended March 31, 2019 and 2018

(Dollars in thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three months ended



 

March 31,



 

2019

 

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

361 

 

$

59 

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

 

 

 

 

 

 

Depreciation

 

 

 

 

Amortization of deferred loan fees

 

 

(56)

 

 

(50)

Amortization of debt issuance costs

 

 

22 

 

 

27 

Provision for loan losses

 

 

(152)

 

 

63 

Accretion of loan discount

 

 

(44)

 

 

(5)

Changes in:

 

 

 

 

 

 

Accrued interest receivable

 

 

(51)

 

 

16 

Other assets

 

 

(153)

 

 

(115)

Accrued interest payable

 

 

11 

 

 

(2)

Other liabilities

 

 

(93)

 

 

(198)

Net cash (used) by operating activities

 

 

(147)

 

 

(197)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Loan purchases

 

 

(2,255)

 

 

 —

Loan originations

 

 

(2,185)

 

 

(426)

Loan principal collections

 

 

4,462 

 

 

4,761 

Purchase of property and equipment

 

 

(4)

 

 

 —

Net cash provided by investing activities

 

 

18 

 

 

4,335 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Change in NCUA borrowings

 

 

(1,254)

 

 

(1,227)

Net change in notes payable

 

 

19,416 

 

 

(788)

Debt issuance costs

 

 

(23)

 

 

(14)

Dividends paid on preferred units

 

 

(108)

 

 

(139)

Net cash provided (used) by financing activities

 

 

18,031 

 

 

(2,168)

Net increase in cash and restricted cash

 

 

17,902 

 

 

1,970 

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

 

 

9,928 

 

 

9,965 

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

 

$

27,830 

 

$

11,935 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

Interest paid

 

$

1,228 

 

$

1,188 

Income taxes paid

 

 

 —

 

 

Leased assets obtained in exchange of new operating lease liabilities

 

 

680 

 

 

 —

Lease liabilities recorded

 

 

647 

 

 

 —

Dividends declared to preferred unit holders

 

 

113 

 

 

84 



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

 

F-4


 

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting and financial reporting policies of MINISTRY PARTNERS INVESTMENT COMPANY, LLC (the “Company”) and its wholly-owned subsidiaries, Ministry Partners Funding, LLC, MP Realty Services, Inc., 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 2018 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 March 31, 2019 and for the three months ended March 31, 2019 and 2018 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 March 31, 2019 and 2018 are not necessarily indicative of the results for the full year.

Note 1: Nature of Business and Summary of Significant Accounting Policies

Nature of Business

The Company was formed in California in 1991. The Company’s primary operations are financing commercial real property secured loans and providing investment services for the benefit of evangelical churches, ministries, and individuals. The Company funds its operations primarily through the sale of debt securities.

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”).

The Company formed MPF in 2007 and then deactivated the subsidiary on November 30, 2009. In December 2014, the Company reactivated MPF to enable it to serve as collateral agent for certain loans held as collateral for its Secured Investment Certificates. The Company formed MP Realty in November 2009, and obtained a license to operate as a corporate real estate broker through the California Department of Real Estate on February 23, 2010. MP Realty has conducted limited operations to date. The Company formed MP

 

F-5


 

Securities on April 26, 2010 to provide investment and financing solutions for individuals, churches, charitable institutions, and faith-based organizations. MP Securities acts as the selling agent for the Company’s public and private placement investor notes.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Management eliminates all significant inter‑company balances and transactions in consolidation.

Conversion to LLC

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

Since the conversion became effective, a group of managers provides oversight of the Company’s affairs. Operating like a Board of Directors, the managers carry out their duties similar to the role and function that the previous Board of Directors performed. The managers have full, exclusive, and complete discretion, power, and authority to oversee the management of Company affairs. As an LLC, the Company’s managers and members have entered into an Operating Agreement that governs the Company’s management structure and governance procedures. The Company’s managers and members have entered into this Operating Agreement.

Cash, Cash Equivalents, and Restricted Cash

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 March 31, 2019 and December 31, 2018.

The National Credit Union Insurance Fund insures a portion of the Company’s cash held at credit unions and the Federal Deposit Insurance Corporation insures a portion of cash held by the Company at other financial institutions. The Company maintains cash that may exceed insured limits. Management does not expect to incur losses in these cash accounts.

Reclassifications

The Company has made certain reclassifications to the 2018 financial statements to conform to the 2019 presentation. These reclassifications do not affect members’ equity or consolidated balance sheets for the three months ended March 31, 2019.

 

F-6


 

Use of Estimates

The Company’s creation of consolidated financial statements that conform to United States Generally Accepted Accounting Principles (“U.S. GAAP”) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements. The estimates and assumptions made by the Company’s management also affect the reported amounts of revenues and expenses during the reporting period. These estimates govern areas such as the allowance for credit losses and the fair value of our financial instruments. Actual results could differ from these estimates.

Investment in Joint Venture

On a periodic basis, management analyzes the Company’s investment in a joint venture for impairment. In this analysis, management compares the carrying value of the investment to the estimated value of the underlying real property. The Company records any impairment charges 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 in the joint venture. Management records these valuation changes as realized gains or losses on investment on the Company’s consolidated income statements.  

Loans Receivable

The Company reports loans that management has the intent and ability to hold for the foreseeable future at their outstanding unpaid principal balance adjusted for an allowance for loan losses, deferred loan fees and costs, and loan discounts.

Interest Accrual on Loans Receivable

The Company accrues loan interest income on a daily basis using the interest method. Management defers loan origination fees and costs generated in the process of making a loan. The Company amortizes these fees and costs 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. The Company does not accrete discounts to income on impaired loans. However, when management determines that a previously impaired loan is no longer impaired, the Company begins accreting loan discounts to interest income over the term of the restructured loan. For loans purchased from third parties, loan discounts also represent the differences between the purchase price and the recorded principal balance of the loan. The Company accretes these discounts to interest income over the term of the loan using the interest method.

 

F-7


 

Management considers a loan impaired if it concludes the collection of principal or interest according to the terms of the loan agreement doubtful. The Company discontinues the accrual of interest when management determines the loan is impaired.

For loans that the Company places on nonaccrual status, management reverses all uncollected accrued interest against interest income. Management accounts for the interest on these loans on the cash basis or cost-recovery method until the loan qualifies for return to accrual status. It is not until all the principal and interest amounts contractually due are brought current and future payments are reasonably assured that the Company returns a loan to accrual status.

Allowance for Loan Losses

The Company sets aside an allowance for loan losses by charging the provision for loan losses account on the Company’s consolidated statements of income. This charge decreases the Company’s earnings. Management charges off the portion of loan balances it believes it will not collect against the allowance. The Company credits subsequent recoveries, if any, to the allowance.

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 Company segments the loan portfolio based on loan types and the underlying risk factors present in each loan type. Management periodically reviews and revises such risk factors, as it deems appropriate.

 

F-8


 

The Company’s loan portfolio consists of one segment – church loans. Management has segregated the loan portfolio 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 thereafter 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 thereafter sold for which the Company possesses a lien on the underlying collateral that is subordinate to another lien on the same collateral. This class also contains any loans that are not secured. These loans present higher credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan default.

Participations First Collateral Position

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

Participations Junior Collateral Position

Participated loans purchased from another financial entity for which the Company possesses a lien on the underlying collateral that is subordinate to 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.

Allowance for Loan Loss Evaluation

Management evaluates the allowance for loan losses on a regular basis. The Company establishes the allowance for loan losses based upon its periodic review of several factors management believes influences the collectability of the loans, including:

·

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. Management bases the general reserve on the Company’s historical loss experience adjusted for qualitative factors. These qualitative factors are significant factors management considers likely to cause estimated credit losses associated with the

 

F-9


 

Company’s existing portfolio to differ from its historical loss experience. Management adjusts these factors on an on-going basis, some of which include:

·

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

·

changes in national, regional, and local economic and 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.

Loans that management has classified as impaired receive a specific reserve. For such loans, an allowance is established when the carrying value of that loan is higher than the amount management ultimately expects to receive. Management uses several methodologies to determine the amount the Company expects to receive. These include the discounted cash flow method, the loan’s collateral value, or the observable market price of the impaired loan.

Impairment Analysis

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 value of the real property that serves as collateral for its loans. Through this process, the Company identifies potential impaired loans. Management generally deems a loan is impaired when current facts and circumstances indicate that it is probable that a borrower will be unable to make payments in accordance with the loan agreement. If management has not already deemed a loan to be impaired, it will classify the loan as non-accrual when it becomes 90 days or more past due.

Factors considered by management in determining impairment include payment status, value of the collateral securing the loan, and the probability of collecting future scheduled payments when due. Management generally does not classify loans that experience insignificant payment delays and payment shortfalls 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.

 

F-10


 

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.

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, payment reduction, or reduction of accrued interest owed on the loan on a contingent or absolute basis.

Management considers loans that it renews at below-market terms to be troubled debt restructurings if the below-market terms represent a concession due to the borrower’s troubled financial condition. The Company classifies troubled debt restructurings as impaired loans. Management measures troubled debt restructurings at the present value of estimated future cash flows using the loan's effective rate at inception of the loan. The Company reports the change in the present value of cash flows attributable to the passage of time as interest income. If the loan is considered to be collateral-dependent, impairment is measured based on the fair value of the collateral.

Loan Charge-offs

Management charges off loans or portions thereof when it determines the loans are uncollectible. The Company evaluates collectability periodically on all loans classified as “Loans of Lesser Quality.” Among other variables, when assessing if a loan is uncollectable, management will consider factors such as the financial condition of the borrower and the value of the underlying collateral.

Historically, the Company has not charged off a loan until the borrower had exhausted all reasonable means of making loan payments from cash flows, at which point the underlying collateral becomes subject to foreclosure. However, starting in 2018 the Company has begun to charge off loans in workout situations. In these situations, the Company charges off the amount deemed uncollectible due to the terms of the workout, the inability of the borrower to make agreed upon payments, and the value of the collateral securing the loan.

Credit Quality Indicators

The Company has established a standard loan grading system to assist its management, loan officers, and credit analysts in analyzing and monitoring the loan portfolio. The Company classifies loans it considers lesser quality (“classified loans”) as watch, special mention, substandard, doubtful, or loss assets. The loan grading system is as follows:

 

F-11


 

Pass:

The borrower has sufficient cash to fund its debt obligations and should be able to obtain similar financing from other lenders with comparable terms. The risk of default is considered low.

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 Company’s Board of Managers. Potential for loss under adverse circumstances is elevated for loans in this category, but is 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 prospects for repayment of the loan under the terms of the loan agreement 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 the estimated market value of the collateral, 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 value of the collateral. 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, the possibility of the borrower obtaining additional capital, the borrower’s ability to refinance the loan, or the ability of the borrower to pledge additional collateral.

 

F-12


 

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

Management records assets acquired through foreclosure or other proceedings at fair market value at the date of foreclosure less estimated costs of disposal, which establishes a new cost. After foreclosure, management performs periodic valuations on the asset and carries the asset at the lower of cost or fair value, less estimated costs of disposal. The Company evaluates its real estate assets acquired through foreclosure or other proceedings regularly to ensure that the recorded amount is supported by current fair value and, if necessary, ensuring that valuation allowances reduce the varying amount to fair value less estimated costs of disposal. 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 Company sells the foreclosed property, it recognizes a gain or loss on the sale equal to the difference between the sales proceeds received and the carrying amount of the property.

Transfers of Financial Assets

The Company accounts for transfers of financial assets as sales when control over the asset has been surrendered. Control over transferred assets is deemed to have been surrendered when:

·

the assets have been isolated from the Company;

·

the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred asset; and

·

the Company does not maintain effective control over the transferred asset through an agreement to repurchase it before its maturity.

The Company, from time to time, sells participation interests in mortgage loans it has originated or acquired. In order to recognize the transfer of a portion of a financial asset as a sale, the transferred portion and any portion that 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:

·

each portion of a financial asset must represent a proportionate ownership interest in an entire financial asset;

 

F-13


 

·

from the date of transfer, all cash flows received from the entire financial asset must be divided proportionately among the participating interest holders in an amount equal to their respective share of ownership;

·

the transfer must be made on a non-recourse basis (other than standard representations and warranties made under the loan participation sale agreement);

·

the transfer may not be subordinate to any other participating interest holder; and

·

no party has the right to pledge or exchange the entire financial asset. If either 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 a  participation in a wholly-owned loan receivable that it services, it retains loan servicing rights, and records a servicing asset that is initially measured at fair value. As quoted market prices are generally not available for these assets, the Company estimates fair value based on the present value of future expected cash flows associated with the loan receivable. The Company amortizes servicing assets over the life of the associated receivable using the interest method. Any gain or loss recognized on the sale of a loan receivable depends in part on both the previous carrying amount of the financial asset involved in the sale, allocated between the asset sold and the interest that continues to be held by the Company based on its relative fair value at the date of transfer, and the proceeds received.

Property and Equipment

The Company states its furniture, fixtures, and equipment at cost, less accumulated depreciation. Management computes depreciation on a straight-line basis over the estimated useful lives of the assets. The useful lives of the Company’s assets range from three to seven years.

Debt Issuance Costs

Debt issuance costs consist of costs related to the acquisition of debt. The Company’s debt consists of borrowings from financial institutions and obligations to investors incurred through the sale of investor notes. Management amortizes these costs into interest expense over the contractual terms of the debt using the straight-line method.

Employee Benefit Plan

The Company records contributions to the qualified employee retirement plan as compensation cost in the period incurred.

 

F-14


 

Income Taxes

The Company has elected to be treated as a partnership for income tax purposes. Therefore, the Company passes through its income and expenses to its members for tax reporting purposes.

Tesoro Hills, LLC, is a joint venture in which the Company has an investment. Tesoro Hills, according to its operating agreement, has elected to be treated as a partnership for income tax purposes.

The Company and MP Securities are subject to a California LLC fee.

The Company uses a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken in a tax return. The Company recognizes benefits from tax positions in the consolidated financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. 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

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which supersedes previous leasing guidance in Topic 840. Under the new guidance, lessees are required to recognize lease right-of use assets and lease liabilities on the balance sheet 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. The FASB has since issued additional related ASU amendments to clarify and improve certain aspects of the guidance and implementation of Topic 842. In accordance with the guidance as amended, the Company has elected to apply the new standard effective as of January 1, 2019. After implementing this ASU, the balance sheet reflects both lease liabilities and right-of-use assets. In addition, the Company recognizes lease expense on a straight-line basis within the non-interest expense section of the consolidated income statements.  See Note 11: Commitments and Contingencies” for additional disclosure regarding the Company’s leases.

 

F-15


 

Accounting Standards Pending Adoption

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. The Company’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to affect the Company’s consolidated financial statements, notably the level of the allowance for loan losses. The Company is continuing to evaluate the extent of the potential impact of the adoption of ASU 2016-13.  

In August 2018, the FASB issued ASU No. 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The ASU removes, modifies, and adds certain disclosure requirements for fair value measurements. For example, public entities will no longer be required to disclose the valuation processes for Level 3 fair value measurements, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. In addition, entities may early adopt the modified or eliminated disclosure requirements and delay adoption of the additional disclosure requirements until the effective date. The Company does not believe the adoption of ASU No. 2018-13 will have a material impact on its consolidated financial statements, as the update only revises disclosure requirements.



Note 2: Pledge of Cash and Restricted Cash

Under the terms of its debt agreements, the Company has the ability to pledge cash as collateral for its borrowings. This cash is restricted cash. At March 31, 2019 and December 31, 2018, 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):

 

F-16


 







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

 



March 31,

 

December 31,



2019

 

2018

 

2018

Cash and cash equivalents

$

27,779 

 

$

11,879 

 

$

9,877 

Restricted cash

 

51 

 

 

56 

 

 

51 

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

$

27,830 

 

$

11,935 

 

$

9,928 

Amounts included in restricted cash represent funds the Company is required to set aside with the Central Registration Depository ("CRD") account with FINRA. Also included are funds the Company has deposited with RBC Dain as clearing deposits. The Company may only use the CRD funds for certain fees charged by FINRA. These fees are to maintain the membership status of the Company or for fees related to registered and associated persons of the Company.

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.

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





 

ECCU Role

MPIC Role

Chairman of the Board

Member of Board of Managers

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





 

 

 

 

 



March 31,

 

December 31,



2019

 

2018

Total funds held on deposit at ECCU

$

952 

 

$

457 

Loan participations purchased from and serviced by ECCU

 

3,847 

 

 

9,190 



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



 

 

 

 

 



Three months ended



March 31,



2019

 

2018

Interest earned on funds held with ECCU

$

18 

 

$

Interest income earned on loans purchased from ECCU

 

37 

 

 

99 

Fees paid to ECCU from MP Securities Networking Agreement

 

 

 

Income from Master Services Agreement with ECCU

 

 —

 

 

14 

Income from Successor Servicing Agreement with ECCU

 

 

 

Rent expense on lease agreement with ECCU

 

37 

 

 

29 



 

F-17


 

Loan participation interests purchased:

Occasionally, the Company purchases loan participation interests from ECCU. Management negotiates the 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. The Company did not purchase any loans from ECCU for the quarters ended March 31, 2019 and 2018.

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, has entered into a Networking Agreement with ECCU pursuant to which MP Securities 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. Either ECCU or MP Securities may terminate the Networking Agreement 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. The agreement renews annually unless either party provides at least thirty (30) days written notice of non-renewal. In addition, either party may terminate the Services Agreement for any reason by providing thirty (30) days written notice. On March 1, 2018, the Company and ECCU amended the agreement to include referral fees to be paid by either party on the successful closing of a referred loan. On April 4, 2019, the Company received written notice from ECCU requesting termination of the agreement. 

 

F-18


 

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 certain mortgage loans designated by ECCU. The Company will service these loans in the event ECCU requests that the Company assume its obligation to act as the servicing agent for those loans. Unless extended, the Agreement is set to terminate in October 2019.

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.

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





 



 

ACCU Role

MPIC Role

President, Chief Executive Officer

Member of Board of Managers



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





 

 

 

 

 



 

 

 

 

 



March 31,

 

December 31,



2019

 

2018

Total funds held on deposit at ACCU

$

16,209 

 

$

5,675 

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

 

1,730 

 

 

3,184 

Loan participations purchased from and serviced by ACCU

 

1,648 

 

 

1,662 



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





 

 

 

 

 



 

 

 

 

 



Three months ended



March 31,



2019

 

2018

Dollar amount of loan participation interests purchased from ACCU

$

1,435 

 

$

 —

Interest earned on funds held with ACCU

 

25 

 

 

10 

Interest income earned on loans purchased from ACCU

 

21 

 

 

22 

Fees paid based on MP Securities Networking Agreement with ACCU

 

 

 

29 



Loan participation interests purchased:

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.

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

 

F-19


 

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.

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 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.

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 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.

 

F-20


 

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 regarding 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 terms of these agreements are described in the Company’s Prospectus for its Class 1A Notes and the private placement memorandum for the Secured Notes Offering that has been conducted by the Company. Additional details regarding the Company’s Notes are described in section “10. Notes Payable” of these Consolidated Financial Statements.

Related Party Transaction Policy

The Board has adopted a Related Party Transaction Policy to assist in evaluating any 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 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 $340 thousand and $394 thousand at March 31, 2019 and December 31, 2018.

Note 4: Loans Receivable and Allowance for Loan Losses

The Company’s loan portfolio is comprised of one segment – church loans. See “Note 1 – Loan Portfolio Segments and Classes” to Part I “Financial Information” of this Report. The loans fall into four classes:

·

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

 

F-21


 

·

participated loans purchased for which the Company possesses a junior collateral position.

The Company makes all of its loans to various evangelical churches and related organizations, primarily to purchase, construct, or improve facilities. Loan maturities extend through 2033. The loan portfolio had a weighted average rate of 6.51% and 6.44% as of March 31, 2019 and December 31, 2018, respectively.

The table below is a summary of the Company’s mortgage loans owned (dollars in thousands):





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018

Loans to evangelical churches and related organizations:

 

 

 

 

 

 

Real estate secured

 

$

146,743 

 

$

147,060 

Unsecured

 

 

237 

 

 

275 

Total loans

 

 

146,980 

 

 

147,335 

Deferred loan fees, net

 

 

(816)

 

 

(848)

Loan discount

 

 

(583)

 

 

(627)

Allowance for loan losses

 

 

(1,971)

 

 

(2,480)

Loans, net

 

$

143,610 

 

$

143,380 

Allowance for Loan Losses

Management believes it has appropriately calculated the allowance for loan losses as of March 31, 2019 and December 31, 2018. The following table shows the changes in the allowance for loan losses for the three months ended March 31, 2019 and the year ended December 31, 2018 (dollars in thousands):







 

 

 

 

 

 



 

 

 

 

 

 



 

Three months
ended

 

Year
ended



 

March 31,
2019

 

December 31,
2018

Balance, beginning of period

 

$

2,480 

 

$

2,097 

Provision for loan loss

 

 

(152)

 

 

666 

Charge-offs

 

 

(499)

 

 

(283)

Recoveries

 

 

142 

 

 

 —

Balance, end of period

 

$

1,971 

 

$

2,480 



The table below presents loans by portfolio segment (church loans) and the related allowance for loan losses. In addition, the table segregates loans and the allowance for loan losses by impairment methodology (dollars in thousands).

 

F-22


 





 

 

 

 

 

 



 

 

 

 

 

 



 

Loans and Allowance
for Loan Losses (by segment)



 

As of



 

March 31,
2019

 

December 31,
2018

Loans:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

12,053 

 

$

13,601 

Collectively evaluated for impairment

 

 

134,927 

 

 

133,734 

Balance

 

$

146,980 

 

$

147,335 



 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

Individually evaluated for impairment

 

$

892 

 

$

1,463 

Collectively evaluated for impairment

 

 

1,079 

 

 

1,017 

Balance

 

$

1,971 

 

$

2,480 

The Company has established a standard loan grading system to assist management and its credit and loan analysts in their analysis and supervision of the loan portfolio. The following tables summarize the credit quality indicators by loan class (dollars in thousands):











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

As of March 31, 2019



 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

105,519 

 

$

4,036 

 

$

1,932 

 

$

 —

 

$

111,487 

Watch

 

 

23,241 

 

 

 —

 

 

199 

 

 

 —

 

 

23,440 

Special mention

 

 

1,209 

 

 

 —

 

 

 —

 

 

 —

 

 

1,209 

Substandard

 

 

5,459 

 

 

184 

 

 

3,572 

 

 

 —

 

 

9,215 

Doubtful

 

 

1,629 

 

 

 —

 

 

 —

 

 

 —

 

 

1,629 

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

137,057 

 

$

4,220 

 

$

5,703 

 

$

 —

 

$

146,980 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Quality Indicators (by class)

As of December 31, 2018



 

Wholly-Owned First

 

Wholly-Owned Junior

 

Participation First

 

Participation Junior

 

Total

Grade:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

100,140 

 

$

4,067 

 

$

2,004 

 

$

 —

 

$

106,211 

Watch

 

 

27,321 

 

 

 —

 

 

202 

 

 

 —

 

 

27,523 

Special mention

 

 

1,208 

 

 

 —

 

 

 —

 

 

 —

 

 

1,208 

Substandard

 

 

6,497 

 

 

187 

 

 

3,586 

 

 

 —

 

 

10,270 

Doubtful

 

 

2,123 

 

 

 —

 

 

 —

 

 

 —

 

 

2,123 

Loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

137,289 

 

$

4,254 

 

$

5,792 

 

$

 —

 

$

147,335 

The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount (dollars in thousands):

 

F-23


 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

As of March 31, 2019



 

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

 

$

5,170 

 

$

 —

 

$

6,097 

 

$

11,267 

 

$

125,790 

 

$

137,057 

 

$

 —

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

184 

 

 

184 

 

 

4,036 

 

 

4,220 

 

 

 —

Participation First

 

 

75 

 

 

 —

 

 

 —

 

 

75 

 

 

5,628 

 

 

5,703 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

5,245 

 

$

 —

 

$

6,281 

 

$

11,526 

 

$

135,454 

 

$

146,980 

 

$

 —







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Age Analysis of Past Due Loans (by class)

As of December 31, 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

 

$

3,259 

 

$

 —

 

$

5,804 

 

$

9,063 

 

$

128,226 

 

$

137,289 

 

$

 —

Wholly-Owned Junior

 

 

187 

 

 

 —

 

 

 —

 

 

187 

 

 

4,067 

 

 

4,254 

 

 

 —

Participation First

 

 

2,293 

 

 

 —

 

 

1,292 

 

 

3,585 

 

 

2,207 

 

 

5,792 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

5,739 

 

$

 —

 

$

7,096 

 

$

12,835 

 

$

134,500 

 

$

147,335 

 

$

 —



Impaired Loans

Impaired 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 management has discontinued interest accruals. Restructured loans are loans in which the Company has granted the borrower a concession due to financial distress. Concessions are generally a reduction of the interest rate or a change in the original repayment terms.

The Company monitors impaired loans on an ongoing basis as part of management’s loan review and work out process. Management evaluates the potential risk of loss on these loans 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 three months ended March 31, 2019 and 2018, and the year ended December 31, 2018, 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 management has 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):

 

F-24


 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)
As of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

For the three months ended
March 31, 2019



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

5,732 

 

$

5,676 

 

$

5,684 

 

$

 —

 

$

5,681 

 

$

66 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

2,280 

 

 

2,280 

 

 

2,290 

 

 

 —

 

 

2,283 

 

 

33 

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

3,180 

 

 

2,621 

 

 

2,135 

 

 

597 

 

 

2,637 

 

 

 —

Wholly-Owned Junior

 

 

215 

 

 

184 

 

 

173 

 

 

173 

 

 

175 

 

 

 —

Participation First

 

 

1,302 

 

 

1,292 

 

 

1,292 

 

 

122 

 

 

1,292 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

12,709 

 

$

12,053 

 

$

11,574 

 

$

892 

 

$

12,068 

 

$

99 



 

F-25


 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

For the year ended

December 31, 2018



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

With no allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

$

5,734 

 

$

5,687 

 

$

5,694 

 

$

 —

 

$

5,915 

 

$

123 

Wholly-Owned Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Participation First

 

 

2,293 

 

 

2,293 

 

 

2,316 

 

 

 —

 

 

2,312 

 

 

 —

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wholly-Owned First

 

 

4,818 

 

 

4,142 

 

 

3,632 

 

 

1,165 

 

 

3,714 

 

 

 —

Wholly-Owned Junior

 

 

215 

 

 

187 

 

 

176 

 

 

176 

 

 

181 

 

 

 —

Participation First

 

 

1,302 

 

 

1,292 

 

 

1,292 

 

 

122 

 

 

1,299 

 

 

10 

Participation Junior

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Church loans

 

$

14,362 

 

$

13,601 

 

$

13,110 

 

$

1,463 

 

$

13,421 

 

$

133 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans (by class)
As of March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

For the three months ended
March 31, 2018



 

Unpaid Principal Balance

 

Recorded Balance

 

Recorded Investment

 

Related Allowance