ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion on our financial statements should be read in conjunction with the consolidated financial statements and notes thereto in this Report beginning at page F-1.
OVERVIEW
We generate our revenue through our lending portfolio and through fees generated from our investment and insurance products and services. While we generate most of our revenue through interest income, our strategic aim is to diversify our revenue sources so that non-interest income becomes a larger percentage of total income. Producing revenue from multiple sources reduces risk to the Company in the event of a decrease in interest income. We also strive to improve operating efficiency by increasing the revenue generated for each dollar of expense incurred to run the business, which helps us improve our capital position. Increased capital helps mitigate risk in economic down cycles. In addition, we seek to grow our loan portfolio in order to grow our operating revenue.
To continue to achieve our goals, protect the investment made by our debt certificate holders, and maximize the value of our equity holders’ investments, we will continue to focus on:
expanding the distribution channels for the Company’s debt securities offerings with strategic partners that share the Company’s desire to enhance Christian stewardship through Biblically responsible investments;
growing non-interest income generated by our broker-dealer services and loan servicing and products;
investing in technology to enhance our customer experience while creating operating efficiencies;
growing our client base of borrowers, investors, and faith-based strategic partners;
expanding our broker-dealer sales staff;
serving the needs of credit union and CUSO clients through revenue producing strategic partnerships;
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finding new strategic partnership opportunities with like-minded organizations that can help grow our client base, expand our balance sheet, and generate revenue;
expanding revenue through the sale of loan participation interests;
managing the size and cost structure of our business to match our operating environment and capital funding efforts;
strengthening our capital through growth in earnings;
growing the size of our balance sheet by originating profitable new ministry and commercial loans as we seek to increase revenue from our loan investments;
strengthening our loan portfolio through aggressive and proactive efforts to resolve problems in our non-performing assets;
expanding the sale of our investor debt certificates to diversify our funding sources; and
maintaining adequate liquidity levels.
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion compares the results of operations for the twelve months ended December 31, 2025 and 2024, along with other financial information and statistical data we believe are important to understand our financial condition, cash flows and other changes in financial condition and results of operations. This analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.
Summary of our December 31, 2025, Financial Results
For this period, Company management has identified the following key trends and strategic objectives that have been reported in its financial statements:
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Return to Profitability. After incurring losses in the previous two years, the Company returned to profitability in 2025. For the year ended December 31, 2025, the Company earned $30 thousand, as compared to a net loss of $607 thousand in 2024. With the successful implementation of expense reductions, investments in our technology platforms, and focus on reducing risk in our mortgage loan investments, the Company is focused on improving its net interest margin, growing its balance sheet and aligning with new faith-based investors in our debt securities.
Improve Net Interest Income on Loan Investments. During the period from 2020 through 2023, the Company pursued a strategy of reducing its balance sheet, including the repayment and elimination of borrowings under its credit facility. This strategy contributed to a decline in interest income from the Company’s commercial loan portfolio. Additionally, incremental repayments of the Company’s term debt facility during this period reduced total assets and contributed to lower net interest income.
For the year ended December 31, 2025, net interest income increased 27% as compared to the previous year. After adjusting for loan losses, net interest income increased 22% in 2025. In addition, the Company also received $895 thousand of interest payments from delinquent borrowers that reduced the principal balance of the loan rather than being reported as interest income. The primary driver behind this figure relates to a borrower that has a pattern of being late on its loan payments but consistently continues to meet its debt obligation. See "Non accrual, Past Due, Nonperforming Modified Loan and Foreclosed Assets table on page 48 of this Report."
As we incrementally paid off our term debt facility, total assets declined, and our net interest income was subsequently reduced.
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Although rising interest rates contributed to increases in net interest income in 2024 and 2025, the primary driver of the increase from the past two years was interest income recovered from a borrower whose loan had been previously modified. In March 2025, the Company received a $670 thousand payment from the proceeds of the sale of 77.9 acres of investment property by a joint venture real estate project held by one of our borrowers. We hold a loan that was the subject of a plan of reorganization under a U.S. Bankruptcy proceeding. $648 thousand of this payment was treated as the recovery of accrued interest, which had previously been written off due to their uncertain collectability. The Company recognized an additional $147 thousand in other lending income that represented the recovery of fees and costs related to this loan.
Management anticipated that the Company’s debt reduction strategy would result in a short-term decline in net interest income, due both to a reduction in interest-earning assets and to the repayment of borrowings under the Company’s term debt facility, which represented the Company’s lowest cost source of funds. However, management believed that the long-term benefits of strengthening the Company’s capital position, increasing stockholders’ equity, and eliminating debt at a discount outweighed the near-term reduction in net interest income.
In 2026, the Company intends to continue to expand its loan investment portfolio. Management expects that the yield on the Company’s portfolio may increase in future periods as loans originated in 2021 and 2022 at interest rates of approximately 5% to 6% reach their five-year rate reset dates and adjust to rates currently estimated to be in the 7% to 8% range. Management also intends to seek to improve net interest income from its loan investments by adjusting, as appropriate, the interest rates offered on new loan originations and by closely monitoring the rates offered on the Company’s debt certificates.
In addition, the Company anticipates that continued management and resolution of impaired assets within its loan portfolio may contribute to increased interest income.
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Reducing the Company’s Operating Expenses. As a result of the Company’s debt reduction strategy and the related decline in interest-earning assets, net operating income was insufficient to cover operating expenses in 2023 and 2024, resulting in net losses during those periods. In response, the Company implemented a series of initiatives intended to reduce operating expenses and improve operating efficiency.
Operating expenses totaled approximately $5.7 million in 2022. Through various cost reduction measures, including changes to the Company’s loan servicing strategy, relocation to new office space, active management of office-related expenses, streamlining of information technology services, and adjustments to staffing levels, operating expenses were reduced to approximately $4.2 million in 2024 and $3.9 million in 2025.
Management believes that these reductions in operating expenses position the Company to focus on expanding its loan investment portfolio, increasing the issuance of investor notes, and growing its advisory business.
Improving Core Business Profitability. From 2020 to 2022, the Company’s net income from operations primarily relied upon income generated through gains reported from principal paydowns made on our term debt facility at a discount. The Company’s intentional strategy of using available cash resources to incrementally reduce our term debt resulted in having less cash resources available to make loan investments. As noted above, we began to rebuild our loan portfolio in 2023, and our loan interest income has grown over the last two years due both to the increase in loans receivable and to an increase in the interest rates of existing adjustable-rate loans. Non-interest income in 2024 included $215 thousand related to our application for and expected receipt of an Employee Retention Credit (“ ERC ”) provided by the Coronavirus Aid, Relief, and Economic Security Act (the " CARES Act "). Non-interest income in 2025 included $182 thousand in gains on the sale of foreclosed assets. After accounting for these non-recurring sources of other income, our non-interest income generated by our lending and broker-dealer services increased by $74 thousand over 2024, and we expect to grow those sources of revenue further in 2026.
Strategic Objectives. Now that the Company has paid off our term debt credit facility, we are focusing on improving the profitability of our core business operations through making profitable commercial loans and growing our non-interest generating sources of income from our faith-based investment advisory services. In 2026, the Company intends to focus on the following objectives:
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Investing in and growing our commercial loan investments through loan originations, purchase of loan participation interests, and cooperative efforts with our strategic partners to increase the commercial loans we make to non-profit organizations and faith-based businesses;
Develop and launch one or more new investment products to serve as a cash management investment to be offered to faith-based organizations, ministries, institutions, and Christian businesses;
(iii)
Continuing our efforts to reduce non-interest expenses;
Increasing the sale of our debt certificates to finance the growth in the Company’s balance sheet;
Effectively managing pressures on the Company’s net interest margin on its loan investments in response to an inverted yield curve in financial markets that results in higher short-term costs on our debt certificates while the Company makes longer term investments with the commercial loans it originates; and
Expanding the revenues earned by the investment advisory, broker-dealer, and insurance operations at Ministry Partners Securities, LLC.
(vii)
With improving net interest margins on its loan investments, the elimination of the Company's REO property, completion of its core processing system, and its operating expense reduction program, the Company plans to restructure its investor notes program in 2026 to provide new incentives to attract interest from faith-based strategic partners and investors. By expanding investor note sales, the Company can once again increase its mortgage loan investments and total assets, and improve its core operating net income.
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Two Year Comparison of Financial Condition as of December 31,:
Comparison
$ Difference
% Difference
(dollars in thousands)
Assets:
Cash
Restricted cash
Certificates of deposit
Loans receivable, net of allowance for loan losses of $1,122 and $1,156 as of December 31, 2025 and 2024, respectively
Accrued interest receivable
Investments in joint venture
Other investments
Property and equipment, net
Foreclosed assets, net
Servicing assets
Other assets
Total assets
Liabilities and members’ equity
Liabilities:
Other secured borrowings
Debt certificates payable, net of debt issuance costs of $72 and $88 as of December 31, 2025 and 2024, respectively
Accrued interest payable
Other liabilities
Total liabilities
Members' Equity:
Series A preferred units
Class A common units
Accumulated earnings
Total members' equity
Total liabilities and members' equity
Total assets decreased by 1% due to the net payoff or sale of $2.3 million in loans receivable. Part of these funds were used to increase our liquidity and to invest in certificates of deposit. $635 thousand was used to pay for maturing debt certificates that were not renewed.
Loan Portfolio
Our loan portfolio provides the majority of our revenue; however, it also presents the most risk to future earnings through both interest rate risk and credit risk. Additional information regarding risk to our loans is included in “ Part I, Item 1A, Risk Factors ”. Our portfolio consists mostly of loans made to evangelical churches and ministries with approximately 99.6% real estate secured loans.
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Loan Types
Year Ended December 31, (dollars in thousands)
Amount
Portfolio
Amount
Portfolio
Non-profit commercial loans:
Real estate secured
Construction
Unsecured
Total non-profit commercial loans:
For-profit commercial loans:
Real estate secured
Construction
Total for-profit commercial loans
Total loans
Maturities and Sensitivities of Loans to Changes in Interest Rates
Dollar Amount of Loans Receivable Maturing (in thousands)
Due 1 Yr or Less
Due 1yr to 5 Yrs
Due After 5 Yrs
Total
December 31, 2025
Included in the table above are 78 adjustable-rate loans totaling 56% of the total balance. Adjustable-rate loans reduce the interest rate risk compared to fixed rate loans with similar cash flow characteristics.
Nonaccrual, Past Due, Non-performing Modified Loans, and Foreclosed Assets
Non-accrual loans: loans on which management has discontinued interest accruals. In most circumstances, loans 90 days past due are placed on non-accrual status. In addition, management may place a loan on a non-accrual status at its discretion if other circumstances surrounding the loan and the borrower indicate it is prudent to do so.
Past due loans: loans 90 days or more past due and still accruing.
Non-performing modified loans: loans in which the Company has granted the borrower a concession due to financial distress. Concessions are usually a reduction of the interest rate or a change in the original repayment terms.
Loans where the borrowers have defaulted on contractual terms of their loan agreement: this could include loans where the borrower has failed to provide required financial information, has violated a covenant, or has otherwise failed to comply with the terms of the loan agreement.
Foreclosed assets: real properties for which we have taken title and possession upon the completion of foreclosure proceedings.
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We closely watch these non-performing assets on an ongoing basis. Management evaluates the potential risk of loss on these loans and foreclosed assets in one of three ways:
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.
The following table presents our non-performing assets:
Nonaccrual, Past Due, Non-performing Modified Loans, and Foreclosed Assets
($ in thousands)
December 31,
December 31,
December 31,
Total Recorded Balance
Total Recorded Balance
Interest Earned
Interest that should have been Earned*
Non-accrual loans**
Accruing loans which are contractually past due 90 days or more as to principal or interest payments***
Loans not included above which are non-performing modified loans
Foreclosed Assets, net of valuation allowance
Total
*the gross interest income that would have been recorded in the period if the loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination
** $6.1 million is included in total non-accrual loans as of December 31, 2025 related to a loan that has been put on non-accrual due to prior delinquency but is making regular principal and interest payments.
*** This balance is related to a borrower whose loan was in the process of being refinanced. It paid off in January 2026.
Allowance for Loan Losses
For information on our allowance for loan losses and how it is calculated please see the header “Allowance for Loan Losses” in Note 2 as well as “Allowance for Loan Losses” in Note 4 in the consolidated financial statements and notes thereto in this Report beginning at page F1.
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The following chart details our allowance for loan losses:
Allowance for Loan Losses
Twelve months ended
December 31,
($ in thousands)
Balances:
Average total loans outstanding during period
Total non-performing loans outstanding at end of the period
Total loans outstanding at end of the period
Allowance for loan losses:
Balance at the beginning of period
Provision credit to expense
Charge-offs
Non-profit, Wholly-Owned First Amortizing
Total
Recoveries
Non-profit, Wholly-Owned First Amortizing
Total
Net loan charge-offs
Accretion of allowance related to restructured loans
Balance
Ratios:
Net loan (charge-offs) / recoveries to average total loans
Provision credit for loan losses to average total loans
Allowance for loan losses to non-performing loans at the end of the period
Allowance for loan losses to total loans at the end of the period
Net loan recoveries to credit for allowance for loan losses at the end of the period
Net loan (charge-off) / recoveries to credit for loan losses
See the header “ Provision ” further on in the Management’s Discussion and Analysis in the section titled “Results of Operations” for information on factors which influenced the amount of the allowance credited to operating expense.
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The following table shows the Company’s allocation of allowance for loan losses by loan categories as of December 31, 2025 (dollars in thousands):
Percent of loans
in each category
Loan Categories
Amount
to total loans
Non-profit commercial loans:
Real estate secured
Construction
Other secured
Unsecured
Total non-profit commercial loans:
For-profit commercial loans:
Real estate secured
Construction
Total for-profit commercial loans
Total loans
At this time management is not able to approximate an anticipated amount of charge-offs in 2026.
Debt Certificates Payable
Our debt certificates are sold under both publicly registered and private placement security offerings. Over the last several years, we have expanded the number of investors in our debt certificates, and we have broadened the type of investors we serve by building relationships with other faith-based organizations which has allowed us to offer our debt certificates to these organizations and their clients. Concurrently, MP Securities and its staff of financial advisors have increased our customer base through marketing efforts made to individual investors.
Our 2021 Class A Offering expired December 31, 2023. We began selling our new offering, the 2024 Class A Debt Certificates, on February 6, 2024. This offering will expire on December 31, 2026 and will need to be renewed for 2027.
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The balances of our outstanding debt certificates are as follows (dollars in thousands):
December 31, 2025
December 31, 2024
SEC Registered Public Offerings
Offering Type
Amount
Weighted
Average
Interest
Rate
Amount
Weighted
Average
Interest
Rate
Class 1A Offering
Unsecured
2021 Class A Offering
Unsecured
2024 Class A Offering
Unsecured
Public offering total
Private Offerings
Subordinated Notes
Unsecured
Private offering total
Total debt certificates payable
Members’ Equity
During the year ended December 31, 2025, total members’ equity decreased by $437 thousand attributable to income of $30 thousand and dividend distributions of $467 thousand. We did not repurchase or sell any membership equity units during the year ended December 31, 2025.
Liquidity and Capital Resources
Holding adequate liquidity requires that sufficient resources be always available to meet our cash flow needs. We use cash to obtain new mortgage loans, repay term-debt, make interest payments to our note investors, and pay general operating expenses. Our primary sources of liquidity are:
cash;
sales of debt certificates;
cash flows from operations;
maturing loans;
payments of principal and interest on loans; and
loan sales.
Our management team regularly prepares cash flow forecasts that we rely upon to ensure that we have sufficient liquidity to conduct our business. While we believe that these expected cash inflows and outflows are reasonable, we can give no assurances that our
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forecasts or assumptions will prove to be correct. Management believes that we hold adequate sources of liquidity to meet our liquidity needs and have the means to generate more liquidity if necessary.
While our liquidity sources that include cash, reserves, and cash flows from operations are generally available on an immediate basis, our ability to sell mortgage loan assets and raise additional debt or equity capital is less certain and less immediate. Material liquidity events that would adversely affect our business include, but are not limited to, the following:
we become unable to continue offering our debt certificates in public and private offerings for any reason;
we incur sudden withdrawals by multiple investors in our debt certificates;
a substantial portion of our debt certificates that mature during the next twelve months is not renewed; or
we are unable to obtain capital from sales of our mortgage loan assets or other sources.
Withdrawal requests made by holders of high dollar securities can also adversely affect our liquidity. We believe that our available cash, cash flows from operations, net interest income, and other fee income will be sufficient to meet our cash needs. Should our liquidity needs exceed our available sources of liquidity, we believe we could sell a part of our mortgage-loan investments at par as well as sell debt certificates to raise more cash. However, we also must keep adequate collateral, consisting of loans receivable and cash, to secure our lines of credit. We have substantially reduced this risk in the last two years by retiring our term-debt as the Company now has more unencumbered loans available to sell.
Our Board of Managers approves our liquidity policy. The policy sets a minimum liquidity ratio and has a contingency protocol if our liquidity falls below the minimum. Our liquidity ratio was 14% at December 31, 2025, which is above the minimum set by our policy.
Liquidity Sources
In response to the economic uncertainty created from the COVID-19 pandemic, management began to generate liquidity by selling participation interests in its loans receivable during 2020 and throughout 2021. After selling fewer loans in 2022 and 2023, the Company began selling loan participations in 2024 in order to rely less on high interest rate lines of credit. During the period ended December 31, 2025, we generated $1.1 million
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in cash from the sale of loan participation interests after generating $8.4 million during the period ended December 31, 2024.
The Company has one revolving lines of credit. The Company has a revolving $5.0 million short-term demand credit facility (“ ACCU LOC ”) with America’s Christian Credit Union. The ACCU LOC has a one-year term with a maturity date of November 28, 2026. The ACCU LOC will automatically renew for a one-year term unless either party furnishes written notice at least thirty (30) days prior to the termination date that it does not intend to renew the agreement. As of December 31, 2025, we had no outstanding balance due on this facility and did not draw on it at any point during the year. The Company does not have any restrictions on how the funds may be used for this facility.
Management believes, if necessary, we will be able to raise additional cash through loan and debt certificate sales to keep sufficient levels of cash available to meet our debt obligations to investors. Because the Company was successful in raising cash from loan repayments, sales of loan participations, and its use of short-term credit facilities, we were able to take advantage of the opportunity to pay down our term debt facility at a discount, as described above. Despite this paydown, the Company is still operating with cash levels above its Board-approved policy. Cash, restricted cash, and certificates of deposit were $13.1 million as of December 31, 2025.
Debt Certificates
The sale of our debt certificates contributes significantly to funding our mortgage loan investments. Through sales of our publicly offered debt certificates and privately placed debt certificates, we expect to fund new loans. We also use the cash we receive from our debt certificates sales to fund general operating activities.
As of December 31, 2025, our investor debt certificates had future maturities during the following twelve-month periods ending December 31, (dollars in thousands):
Less: debt issuance costs
Debt certificates payable, net of debt issuance costs
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Historically, we have been successful in generating reinvestments by our debt certificate holders when the securities they hold mature. The table below shows the renewal rates of our maturing securities over the last three years.
Credit Facilities and Other Borrowings
The table below is a summary of the Company’s debt instruments as of December 31, 2025 (dollars in thousands):
Nature of
Borrowing
Interest
Rate
Interest Rate
Type
Amount
Outstanding
Monthly
Payment
Maturity
Date
Loan Collateral
Pledged
Cash
Pledged
ACCU LOC
Variable
ACCU Secured
Various
Fixed
Various
Note: Disclosed cash pledged and collateral balances will get pledged once and if the LOC is drawn on.
The ACCU secured borrowing is a loan participation sold with recourse that is classified as a secured borrowing.
Debt Covenants
Under our line of credit agreements and our debt certificate documents, we are bound to follow certain affirmative and negative covenants. Failure to follow our covenants could require all interest and principal to become due. As of December 31, 2025, we are in compliance with the covenants on our securities payable and lines of credit.
For more information regarding our debt certificates payable, refer to “Note 11. Debt Certificates Payable of Part II, Item 8. of this Report.
For more information on our credit facilities, refer to “Note 10. Credit Facilities and Other Debt”, to Part II, Item 8. of this Report.
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Results of Operations:
For the year ended December 31, 2025
Net Interest Income and Net Interest Margin
Historically, our earnings have primarily depended upon our net interest income.
Net interest income is the difference between the interest income we receive from our loans and cash on deposit and the interest paid on our debt certificates and term debt.
Net interest margin is net interest income expressed as a percentage of average total interest-earning assets.
The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest-bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:
Average Balances and Rates/Yields
For the Twelve Months Ended December 31,
(Dollars in Thousands)
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Assets:
Interest-earning accounts with other financial institutions
Interest-earning loans [1][2]
Total interest-earning assets
Non-interest-earning assets
Total Assets
Liabilities:
Debt certificates payable gross of debt issuance costs
Other debt
Total interest-bearing liabilities
Debt issuance cost
Total interest-bearing liabilities net of debt issuance cost
Net interest income
Net interest margin
[1] Loans are net of deferred fees and before the allowance for loan losses. Non-accrual loans are considered non-interest earning assets for this analysis.
[2] Interest income on loans includes deferred fee amortization of $30 thousand and $111 thousand for the years ended years ended December 31, 2025 and 2024, respectively.
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Rate/Volume Analysis of Net Interest Income
Twelve Months Ended
December 31, 2025 vs. 2024
Increase (Decrease) Due to Change in:
Volume
Rate
Total
(Dollars in Thousands)
Increase (Decrease) in Interest Income:
Interest-earning accounts with other financial institutions
Interest-earning loans
Total interest-earning assets
Increase (Decrease) in Interest Expense:
Debt certificates payable gross of debt issuance costs
Other debt
Debt issuance cost
Total interest-bearing liabilities
Change in net interest income
Net interest income increased 27% during the year ended December 31, 2025. This was due to a $670 thousand payment received on a loan during March 2025. $648 thousand of this payment was recognized as interest income that had previously been written off.
The yield on interest-earning accounts with other financial institutions decreased as rates offered by financial institutions declined during 2025 along with federal interest rates. Interest on our interest-earning loans increased by $387 thousand due to the one-time interest payment referenced above. While the weighted average rate of our loan portfolio increased from 6.88% to 6.97%, the increase in interest income from loans was offset by a decrease in average interest-earning loans of $4.9 million.
Total interest expense decreased primarily due to a decrease in the interest paid on other debt, as we were able to avoid borrowing on lines of credit for the entirety of 2025. Average rates and average balances on our debt certificates stayed relatively stable from the prior year.
The Company’s net interest margin increased due to the changes described above. The Company intends to grow its loan portfolio in 2026 and beyond in order to increase net interest income.
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Provision and non-interest income and expense
Twelve months ended
December 31,
Comparison
(dollars in thousands)
$ Change
% Change
Net interest income
Provision (credit) for loan losses
Net interest income after provision (credit) for loan losses
Non-interest income
Broker-dealer commissions and fees
Other lending income
Gain on debt extinguishment
Total non-interest income
Total non-interest expenses
Income (loss) before provision for income taxes
Provision for income taxes and state LLC fees
Net income (loss)
Provision
In 2025, the Company recorded a credit to provision for loan losses due to paydowns in the loan portfolio.
Non-interest income
Non-interest income was higher in 2025 due to the recognition of $182 thousand in gains on the sale of foreclosed assets. The Company sold its investment in a foreclosed asset in October of 2025. As compared to 2024, non-interest income from other sources varied. Broker-dealer fees and commissions increased by $13 thousand, gains on loan sales decreased by $85 thousand as the Company sold fewer loans, and the Company also recorded $147 thousand in fee income related to a borrower who made a $670 thousand payment from a sale of real property under a confirmed bankruptcy plan. The sale of the foreclosed asset and the fee income is non-recurring, but the Company anticipates continuing to supplement its interest income with increased revenue from lending activities and broker-dealer services.
Non-interest expenses
Non-interest expense was lower in 2025 due to lower office operations expenses, as some of the measures the Company has taken in the prior two years to reduce technology costs has taken effect. In addition, consulting fees decreased by $70 thousand as we terminated our consulting agreement with our former Chief Executive Officer in the last half of 2024.
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For the year ended December 31, 2024
Net Interest Income and Net Interest Margin
The following table provides information, for average outstanding balances for each major category of interest earnings assets and interest-bearing liabilities, the interest income or interest expense, and the average yield or rate for the periods indicated:
Average Balances and Rates/Yields
For the Twelve Months Ended December 31,
(Dollars in Thousands)
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Assets:
Interest-earning accounts with other financial institutions
Interest-earning loans [1][2]
Total interest-earning assets
Non-interest-earning assets
Total Assets
Liabilities:
Debt certificates payable gross of debt issuance costs
Other debt
Total interest-bearing liabilities
Debt issuance cost
Total interest-bearing liabilities net of debt issuance cost
Net interest income
Net interest margin
[1] Loans are net of deferred fees and before the allowance for loan losses. Non-accrual loans are considered non-interest earning assets for this analysis.
[2] Interest income on loans includes deferred fee amortization of $111 thousand and $231 thousand for the years ended December 31, 2024 and 2023, respectively.
Rate/Volume Analysis of Net Interest Income
Twelve Months Ended
December 31, 2024 vs. 2023
Increase (Decrease) Due to Change in:
Volume
Rate
Total
(Dollars in Thousands)
Increase (Decrease) in Interest Income:
Interest-earning accounts with other financial institutions
Interest-earning loans
Total interest-earning assets
Increase (Decrease) in Interest Expense:
Debt certificates payable gross of debt issuance costs
Other debt
Debt issuance cost
Total interest-bearing liabilities
Change in net interest income
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Net interest income increased 16% during the year ended December 31, 2024. This was due both to an increase in interest-earning assets over 2023, as well as a larger increase in the average yield earned by assets as compared to the average rate paid on debt certificates and other debt.
The yield on interest-earning accounts with other financial institutions increased as we closely managed our funds to take advantage of the high interest rate environment driven by high rates on Federal Reserve Board funds. Interest on our interest-earning loans increased by $900 thousand due to an increase in both the volume of average loans receivable and in the interest rates we receive on new and renewed loans. The volume variance is a result of increased lending activity as the Company funded $8.7 million in loans during the year. While some of these loans paid off or were sold in the later part of the year, they were outstanding for long enough to drive up the average balance for the year. The rate variance is due to new and renewed loans receiving a higher interest rate in the current rate environment. The weighted average rate on the loan portfolio increased 25 basis points from 6.53% to 6.88% during the year ended December 31, 2024.
Total interest expense increased mostly due to a rate variance on debt certificates payable. The rate variances were due to higher offering rates on new note sales as well as our lines of credit as U.S. Treasury rates were higher than in 2023 for most of 2024.
The Company’s net interest margin increased due to the changes described above. The Company intends to grow its loan portfolio in 2025 and beyond in order to increase net interest income.
Provision and non-interest income and expense
Twelve months ended
December 31,
Comparison
(dollars in thousands)
$ Change
% Change
Net interest income
Provision (credit) for loan losses
Net interest income after provision (credit) for loan losses
Total non-interest income
Total non-interest expenses
Income (loss) before provision for income taxes
Provision for income taxes and state LLC fees
Net income (loss)
Provision
In 2024, the Company recorded a credit to provision for loan losses due to transfers from collectively reviewed loans to individually reviewed loans which were either fully covered by collateral or did not require additional provision for using a discounted cash flow analysis.
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Non-interest income
Non-interest income was lower in 2024 mostly due to a non-recurring charitable contribution made to MPC, our not-for-profit foundation that makes charitable grants to Christian organizations. MPC received a grant of $1.7 million in 2023, but the funds are restricted and must be used for charitable purposes. As compared to 2023, non-interest income from other sources mostly increased. Broker-dealer fees and commissions increased by $92 thousand, gains on loan sales increased by $87 thousand, and the Company also recorded a $215 thousand Employee Retention Credit. The latter is non-recurring, but the Company anticipates continuing to supplement its interest income with increased revenue from lending activities and broker-dealer services.
Non-interest expenses
Non-interest expense was lower in 2024 due to lower salaries and benefits of $1.2 million. In 2023, we paid retirement benefits to our former Chief Executive Officer under a Supplemental Executive Retirement Plan. See Item II. “Executive and Board of Manager Compensation of the Report.”
Summary of Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“ GAAP ”) requires management to make estimates and assumptions that influence amounts reported in the financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses generated during the reporting period. Various elements of our accounting policies are inherently subject to estimation techniques, valuation assumptions, and other subjective assessments.
Management has identified certain accounting policies that rely on judgments, estimates, and assumptions and are critical to an understanding of our financial statements. These policies govern such areas as the allowance for credit losses and the fair value of financial instruments and foreclosed assets. Management believes the judgments, estimates, and assumptions used in the accounting policies governing these areas are appropriate based on the factual circumstances at the time they were made. However, given the sensitivity of the financial statements to these critical accounting policies, changes in management’s judgments, estimates, and assumptions could result in material differences in our results of operations or financial condition. Further, subsequent changes in economic or market conditions could have a significant impact on these estimates as well as on our financial condition and operating results in future periods.
The determination of the allowance for loan losses involves critical estimates made in accordance with GAAP. Further on in Management’s Discussion and Analysis, we provide
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additional details regarding the factors involved in determining the allowance, the nature of the uncertainty involved in the calculation, and the impact of the allowance on the Company’s financial position and results of operations.
