MINISTRY PARTNERS INVESTMENT COMPANY, LLC - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. ?1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex32-1.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) OR RULE 15(D)-14(A) - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	Financial_Report.xls
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. ?1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex32-2.htm
EX-31.2 - CERTIFICATION OF ACTING PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO RULE 13A-14(A) OR RULE 15(D)-14(A) - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2011

o 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 þ No o.

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

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company filer þ

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

As of November 14, 2011, 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, 2010.

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	F-1

Item 1. Consolidated Financial Statements	F-1

Consolidated Balance Sheets at September 30, 2011 and December 31, 2010	F-1

Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010	F-2

Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010	F-3

Notes to Consolidated Financial Statements	F-4 -- F-27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4

Item 3. Quantitative and Qualitative Disclosures About Market Risk	15

Item 4. Controls and Procedures	15

PART II — OTHER INFORMATION	16

Item 1. Legal Proceedings	16
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders	16
Item 5. Other Information
Item 6. Exhibits	16

SIGNATURES	17

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

Exhibit 31.2 — Certification of Principal Financial and 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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2011 AND DECEMBER 31, 2010

(Dollars in Thousands Except Unit Data)

	2011(Unaudited)			2010 (Audited)
Assets:
Cash	$	6,154		$	7,078

Loans receivable, net of allowance for loan losses of $3,956 and $3,997 as of September 30, 2011 and December 31, 2010, respectively		170,958			187,005

Accrued interest receivable		748			742

Property and equipment, net		318			400

Debt issuance costs		216			279

Other assets		296			114

Foreclosed assets		1,374			--

Total assets	$	180,064		$	195,618

Liabilities and members’ equity

Liabilities:

Borrowings from financial institutions	$	110,965		$	121,809

Notes payable		59,000			62,103

Accrued interest payable		472			355

Other liabilities		283			489

Total liabilities		170,720			184,756

Members' Equity:

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at September 30, 2011 and 117,600 units issued and outstanding at December 31, 2010 (liquidation preference of $100 per unit)		11,715			11,760

Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at September 30, 2011 and December 31, 2010		1,509			1,509

Accumulated deficit		(3,880	)		(2,327	)

Accumulated other comprehensive loss		--			(80	)

Total members' equity		9,344			10,862

Total liabilities and members' equity	$	180,064		$	195,618

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

F-1

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in Thousands)

	Three months ended September 30,					Nine months ended September 30,
	2011			2010		2011			2010
Interest income:
Interest on loans	$	2,657		$	3,095	$	8,258		$	9,031

Interest on interest-bearing accounts		22			21		69			91

Total interest income		2,679			3,116		8,327			9,122

Interest expense:

Borrowings from financial institutions		1,150			1,345		3,601			4,005

Notes payable		641			701		1,962			2,152

Total interest expense		1,791			2,046		5,563			6,157

Net interest income		888			1,070		2,764			2,965

Provision for loan losses		822			87		1,305			1,065

Net interest income after provision for loan losses		66			983		1,459			1,900

Non-interest income		28			1		166			59

Non-interest expenses:

Salaries and benefits		399			270		1,136			996

Marketing and promotion		37			13		98			31

Office operations		341			302		1,091			775

Legal and accounting		132			130		557			461

Total non-interest expenses		909			715		2,882			2,263

Income (loss) before provision for income taxes		(815	)		269		(1,257	)		(304	)

Provision for income taxes		3			46		11			46

Net income (loss)	$	(818	)	$	223	$	(1,268	)	$	(350	)

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

F-2

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Dollars in Thousands)

	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(1,268	)	$	(350	)

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

Depreciation		90			45

Amortization of deferred loan fees		(139	)		(72	)

Amortization of debt issuance costs		172			154

Provision for loan losses		1,305			1,065

Accretion of allowance for loan losses on restructured loans		(67	)		(67	)

Accretion of loan discount		(56	)		(23	)

Changes in:

Accrued interest receivable		(6	)		23

Other assets		(145	)		55

Other liabilities and accrued interest payable		(89	)		(304	)

Net cash provided (used) by operating activities		(203	)		526

CASH FLOWS FROM INVESTING ACTIVITIES:

Loan purchases		--			(335	)

Loan originations		(4,307	)		(4,629	)

Loan sales		5,390			375

Loan principal collections, net		12,539			9,529

Purchase of property and equipment		(8	)		(202	)

Net cash provided by investing activities		13,614			4,738

CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in borrowings from financial institutions		(10,844	)		(1,450	)

Net changes in notes payable		(3,103	)		(5,574	)

Debt issuance costs		(109	)		(57	)

Purchase of preferred units		(45	)		--

Dividends paid on preferred units		(234	)		(267	)

Net cash used by financing activities		(14,335	)		(7,348	)

Net decrease in cash	$	(924	)	$	(2,084	)

Cash at beginning of period		7,078			9,980

Cash at end of period	$	6,154		$	7,896

Supplemental disclosures of cash flow information

Interest paid	$	5,446		$	6,246

Change in value of market cap	$	--		$	(73	)

Transfer of loan to foreclosed assets	$	1,374		$	--

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

F-3

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting and financial reporting policies of MINISTRY PARTNERS INVESTMENT COMPANY, LLC (the “Company”, “we”, or “our”) and our 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 our accounting policies is included in our 2010 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 September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 have been made.

Certain information and footnote 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 September 30, 2011 and 2010 are not necessarily indicative of the results for the full year.

1. Summary of Significant Accounting Policies

Nature of Business

Ministry Partners Investment Company, LLC (the “Company”) was incorporated in California in 1991 as a C corporation and converted to a limited liability company on December 31, 2008. The Company is owned by a group of 12 federal and state chartered credit unions, none of which owns a majority of the voting equity units of the Company. One of the credit unions owns only preferred units while the others own both common and preferred units. The Company’s offices are located in Brea, California. The Company invests in mortgage loans that benefit evangelical churches and church organizations. The Company funds its operations primarily through the sale of debt and equity securities and through other borrowings. Most of the Company’s loans are purchased from its largest equity investor, the Evangelical Christian Credit Union (“ECCU”), of Brea, California. The Company also originates church and ministry loans independently. Although the Company’s operations currently are conducted from its offices located in Brea, California, its mortgage loan investments cover approximately 33 states, with the largest number of loans made to California borrowers.

In 2007, the Company created a wholly-owned special purpose subsidiary, Ministry Partners Funding, LLC (“MPF”), for the purpose of warehousing church and ministry mortgages purchased from ECCU or originated by the Company for later securitization. MPF’s loan purchasing activity continued through early 2009, after which its operations ceased and its assets, including loans, were transferred to the Company. The Company closed down active operations of MPF effective as of December 31, 2009 but intends to maintain MPF’s existence as a Delaware limited liability company for possible future use as a financing vehicle to effect securitized debt transactions. MPF did not securitize any of its loans and has no liabilities.

On November 13, 2009, the Company formed a wholly-owned subsidiary, MP Realty Services, Inc., a California corporation (“MP Realty”). MP Realty provides loan brokerage and other real estate services to churches and ministries in connection with the Company’s mortgage financing activities. On February 23, 2010, the California Department of Real Estate issued MP Realty a license to operate as a corporate real estate broker.

On April 26, 2010, the Company formed Ministry Partners Securities, LLC, a Delaware limited liability company (“MP Securities”). On July 6, 2010, MP Securities became a registered broker dealer firm under Section 15 of the Securities Exchange Act of 1934. Effective as of February 14, 2011, MP Securities’ application for membership in the Financial Industry Regulatory Authority (“FINRA”) was approved. MP Securities has been formed to provide financing solutions for churches, charitable institutions and faith-based organizations and act as a selling agent for securities offered by such entities. MP Securities has requested that FINRA approve its request to act as a selling agent for the Company’s Class A Notes offering that will be sold under a registration statement filed with the U.S. Securities and Exchange Commission. MP Securities will act as a selling agent for our debt securities and provide securities brokerage services to other credit unions and credit union service organizations and the customers and institutions they serve.

F-4

Conversion to LLC

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

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

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The allowance for loan losses represents a significant estimate by management.

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future are reported at their outstanding unpaid principal balance adjusted for an allowance for loan losses, deferred loan fees and costs, and loan discounts. Interest income on loans is accrued on a daily basis using the interest method. Loan origination fees and costs are deferred and recognized as an adjustment to the related loan yield using the interest method or the straight-line method. Accrued and unpaid interest associated with a restructured loan is added to the loan balance and accounted for as a discount offsetting the loan balance. Loan discounts are accreted to interest income over the restructured term of the loans using the straight-line method, which approximates the interest method.

The accrual of interest is discontinued at the time the loan is 90 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual at an earlier date if collection of principal or interest is considered doubtful.

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

Allowance for Loan Losses

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

F-5

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

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

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

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

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

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

The effect of credit concentrations.

These factors are adjusted on an on-going basis and have been increased in recent years in light of the economic recession and credit crisis. The specific component of our allowance for loan losses relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting future scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the obtainable market price, or the fair value of the collateral if the loan is collateral dependent. When the Company modifies the terms of a loan for a borrower that is experiencing financial difficulties, a troubled debt restructuring is deemed to have occurred and the loan is classified as impaired. Loans or portions thereof are charged off when they are determined by management to be uncollectible. Uncollectability is evaluated periodically on all loans classified as “Loans of Lesser Quality.” Among other variables, management will consider factors such as the financial condition of the borrower, and the value of the underlying collateral in assessing uncollectability.

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

Our loan portfolio consists of the following classes:

Wholly-Owned First Collateral Position. This portfolio class consists of the wholly-owned loans for which the Company possesses a senior lien on the collateral underlying the loan.

F-6

Wholly-Owned Junior Collateral Position. This portfolio class consists of the wholly-owned loans for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. This segment also contains any loans that are not secured by any collateral. These loans present more credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan enter foreclosure.

Participations First Collateral Position. This portfolio class consists of the participated loans for which the Company possesses a senior lien on the collateral underlying the loan. Loan participations present more credit risk than wholly-owned loans because the Company does not maintain full control over the disposition and direction of actions regarding the management and collection of the loans. The lead lender directs most servicing and collection activities, and major actions 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. This portfolio class consists of the participated loans for which the Company possesses a lien on the underlying collateral that is superseded by another lien on the same collateral. Loan participations in the junior collateral position loans have more credit risk than wholly-owned loans and participated loans where the Company possesses a senior lien on the collateral. The increased risk is the result of the factors presented above relating to both junior lien positions and participations.

Credit Quality Indicators

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

Foreclosed Assets

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

Interest Rate Swaps and Caps

For asset/liability management purposes, the Company uses interest rate swaps and caps to hedge various exposures or to modify interest rate characteristics of various balance sheet accounts. Interest rate swaps are contracts in which a series of interest rate flows are exchanged over a prescribed period. Interest rate caps are option contracts that protect the Company from increases in short-term interest rates by entitling the Company to receive a payment when an underlying interest rate exceeds a specified strike rate. The notional amount on which the interest payments are based is not exchanged. These agreements are derivative instruments that convert a portion of the Company’s variable rate debt and variable rate preferred units to a fixed rate (cash flow hedges).

The effective portion of the gain or loss on a derivative designated and qualifying as a cash flow hedging instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is recognized currently in earnings.

F-7

For cash flow hedges, the net settlement (upon close-out or termination) that offsets changes in the value of the hedged debt is deferred and amortized into net interest income over the life of the hedged debt. The portion, if any, of the net settlement amount that did not offset changes in the value of the hedged asset or liability is recognized immediately in non-interest income.

Interest rate derivative financial instruments receive hedge accounting treatment only if they are designated as a hedge and are expected to be, and are, effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk. Those derivative financial instruments that do not meet specified hedging criteria would be recorded at fair value with changes in fair value recorded in income. If periodic assessment indicates derivatives no longer provide an effective hedge, the derivative contracts would be closed out and settled, or classified as a trading activity.

Cash flows resulting from the derivative financial instruments that are accounted for as hedges of assets and liabilities are classified in the cash flow statement in the same category as the cash flows of the items being hedged.

Transfers of Financial Assets

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

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

Property and Equipment

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

Debt Issuance Costs

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

Income Taxes

Effective December 31, 2008, the Company converted from a C corporation to a California limited liability company (LLC). As a result, the stockholders of the Company became members of the LLC on the conversion date. The LLC is treated as a partnership for income tax purposes; therefore, the Company is no longer a tax-paying entity for federal or state income tax purposes, and thus no federal or state income tax is recorded in its financial statements after the date of conversion. Income and expenses of the Company are passed through to the members of the LLC for tax reporting purposes. The Company is subject to a California gross receipts fee of approximately $12,000 per year. Each of the Company’s subsidiaries is organized as an LLC except for MP Realty, which is organized and operated as a California corporation. MP Realty incurred a tax loss for the year ended December 31, 2010 and recorded no provision for income taxes.

F-8

Although the Company is no longer a federal or state income tax-paying entity resulting from its conversion from a C corporation to an LLC form of organization, it is nonetheless subject to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 740, Income Taxes, for all “open” tax periods for which the statute of limitations has not yet run. The Company uses a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken in a tax return. Benefits from tax positions are recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

Comprehensive Income (Loss)

Accounting principles generally accepted in the United States of America require that recognized revenue, expenses, gains and losses be included in net income (loss). Although certain changes in assets and liabilities, such as derivatives classified as cash flow hedges, are reported as a separate component of the equity section of the balance sheet, such items, along with net income (loss), are components of comprehensive income (loss). Changes in the value of derivatives classified as cash flow hedges are included in interest expense as a yield adjustment in the same period in which the related interest on the hedged item affects earnings.

Employee Benefit Plan

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

Recent Accounting Pronouncements

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring (“TDR”). The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments should be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. Management has not determined the impact, if any, upon the adoption of the standard will have on the Company’s financial statements.

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and international accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact of this FASB amendment on the Company’s consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in members’ equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in a two separate consecutive statement approach. The adoption of this amendment will change the presentation of the components of comprehensive income as part of the consolidated statement of member’s equity. This amendment is effective for fiscal and interim periods beginning after December 15, 2011.

F-9

2. Related Party Transactions

We maintain most of our cash funds at ECCU, our largest equity investor. Total funds held with ECCU were $6.2 million and $5.6 million at September 30, 2011 and December 31, 2010, respectively. Interest earned on funds held with ECCU totaled $68.2 thousand and $85.5 thousand for the nine months ended September 30, 2011 and 2010, respectively.

We lease physical facilities and purchase other services from ECCU pursuant to a written lease and services agreement. Charges of $85.7 thousand and $163.1 thousand for the nine months ended September 30, 2011 and 2010, respectively, were incurred for these services and are included in office operations expense. The method used to arrive at the periodic charge is based on the fair market value of services provided. We believe that this method is reasonable.

In accordance with a mortgage loan purchase agreement entered into by and between us and ECCU, we purchased $335.2 thousand of loans from ECCU during the nine months ended September 30, 2010. With regards to loans purchased from ECCU, we recognized $5.8 million and $7.9 million of interest income on loans purchased from ECCU during the nine months ended September 30, 2011 and 2010, respectively. ECCU currently acts as the servicer for 104 of our 132 loans. Per our loan servicing agreement with ECCU, a servicing fee of 50 to 65 basis points is deducted from the interest payments we receive on the wholly-owned loans that ECCU services for us. In lieu of a servicing fee, loan participations we purchase from ECCU generally have pass-through rates which are 50 to 75 basis points lower than the loan contractual rate. On a limited number of loan participation interests we purchased from ECCU, representing $19.5 million of loans at September 30, 2011, the pass-through rate is between 88 and 238 basis points lower than the contractual rate. We negotiate the pass-through interest rates with ECCU on a loan by loan basis. At September 30, 2011, our investment in wholly-owned loans serviced by ECCU totaled $83.0 million, while our investment in loan participations serviced by ECCU totaled $52.8 million. From time to time, we pay fees for additional services ECCU provides for servicing our loans. These fees amounted to $3.8 thousand and $22.6 thousand during the nine months ended September 30, 2011 and September 30, 2010, respectively. There were no loans held by MPF as of September 30, 2011 and December 31, 2010.

On December 14, 2007, the Board of Directors appointed R. Michael Lee to serve as a Company director. Mr. Lee formerly served as President, Midwest Region, of Members United Corporate Federal Credit Union (“Members United”), which was one of our credit facility lenders. On September 24, 2010, the National Credit Union Administration placed Members United into conservatorship and the credit facilities are now managed by the National Credit Union Administration Board as Liquidating Agent of Members United Corporate Federal Credit Union. For more detailed information regarding our borrowings from Members United, please see Note 5 below. In addition, Mark G. Holbrook, the Chairman of our Board of Managers, is a full time employee of ECCU.

3. Loans Receivable and Allowance for Loan Losses

We originate church mortgage loans, participate in church mortgage loans made by ECCU, and also purchase entire church mortgage loans from ECCU. The loans fall into four classes: whole loans for which the Company possesses the first collateral position, whole loans that are either unsecured or for which the Company possesses a junior collateral position, participated loans for which the Company possesses the first collateral position, and participated loans for which the Company possesses a junior collateral position. All of the loans in our loan portfolio are made to various evangelical churches and related organizations, primarily to purchase, construct or improve facilities. Loan maturities extend through 2021. Loans we held as investments had a weighted average interest rate of 6.40% as of September 30, 2011 and as of September 30, 2010.

Allowance for Loan Losses

An allowance for loan losses of $4.0 million as of September 30, 2011 and as of December 31, 2010 has been established for loans receivable. We recorded a partial charge-off on one of our mortgage loan investments in June, 2011. Management believes that the allowance for loan losses as of September 30, 2011 and December 31, 2010 is appropriate. Changes in the allowance for loan losses for the three and nine months ended September 30, 2011 and the year ended December 31 are as follows (dollars in thousands):

F-10

	Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011			Year Ended December 31, 2010

Balance, beginning of period	$	3,153		$	3,997		$	1,701
Provisions for loan loss		822			1,305			2,377
Chargeoffs		--			(1,279	)		--
Accretion of allowance related to
restructured loans	$	(19	)		(67	)		(81	)

Balance, end of period	$	3,956		$	3,956		$	3,997

Non-Performing Loans

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

	September 30		December 31		September 30
	2011		2010		2010

Impaired loans with an allowance for loan loss	$	22,337	$	22,563	$	18,980
Impaired loans without an allowance for loan loss		4,369		4,444		10,448
Total impaired loans	$	26,706	$	27,007	$	29,428

Allowance for loan losses related to impaired loans	$	2,860	$	3,274	$	2,053

Total non-accrual loans	$	26,706	$	27,007	$	23,412

Total loans past due 90 days or more and still accruing		614		--		--

We had sixteen nonaccrual loans as of September 30, 2011, up from fourteen nonaccrual loans at December 31, 2010. In June 2011, the Company completed foreclosure proceedings on a loan participation interest it acquired from ECCU. Prior to this foreclosure sale, the Company had never foreclosed on or taken a charge-off on a mortgage loan investment it had acquired. Additionally, we have three loans totaling $6.5 million that are the subject of foreclosure proceedings. We have established a reserve totaling $919 thousand for these three loans. As of September 30, 2011, we had one loan with a balance of $614 thousand that was past due 90 days and still accruing. This loan matured on July 1, 2011, but was in the process of being extended as of September 30, 2011. In October, 2011, the extension was completed and payment received to bring the loan current.

Our portfolio consists of one segment – church loans. Loans by portfolio segment, and the related allowance for loan loss for each segment, are presented below as of September 30, 2011 and December 31, 2010. Loans and the allowance for loan losses are further segregated by impairment methodology (dollars in thousands).

F-11



	Loans and Allowance for Loan Losses (by segment) As of
	September 30, 2011		December 31, 2010

Loans:

Balance	$	175,819	$	191,777

Individually evaluated
for impairment	$	26,706	$	27,007

Collectively
evaluated for impairment	$	149,113	$	167,770

Allowance for loan losses:

Balance	$	3,956	$	3,997

Individually evaluated
for impairment	$	2,354	$	3,274

Collectively
evaluated for impairment	$	1,602	$	723

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

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

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 specially reported to executive management and the Board of Managers. Potential for loss under adverse circumstances is elevated, but not foreseeable.

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

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

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.

The following table is a summary of the loan portfolio credit quality indicators by loan class at September 30, 2011, which is the date on which the information was updated for each credit quality indicator (dollars in thousands):

Credit Quality Indicators (by class)

As of September 30, 2011

	Wholly-Owned First		Wholly-Owned Junior		Participation First		Participation Junior		Total
Grade:
Pass	$	93,480	$	11,828	$	38,108	$	-	$	143,416
Watch		6,187		3,837		7,184		1,006		18,214
Substandard		6,143		721		-		-		6,864
Doubtful		814		-		6,511		-		7,325
Loss		-		-		-		-		-
Total	$	106,624	$	16,386	$	51,803	$	1,006	$	175,819

The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount at September 30, 2011 (dollars in thousands):

Age Analysis of Past Due Loans (by class)

As of September 30, 2011


													Recorded
					Greater								Investment
	30-59 Days		60-89 Days		Than		Total				Total		90 Days or more
	Past Due		Past Due		90 Days		Past Due		Current		Loans		and Accruing

Church loans:
Wholly-Owned First	$	4,483	$	2,142	$	4,810	$	11,435	$	95,189	$	106,624	$	614
Wholly-Owned Junior		3,448		439		721		4,608		11,778		16,386		-
Participation First		-		-		9,005		9,005		42,798		51,803		-
Participation Junior		-		-		-		-		1,006		1,006		-

Total	$	7,931	$	2,581	$	14,536	$	25,048	$	150,771	$	175,819	$	614

F-13

The following tables present the recorded investment in impaired loans by loan class at September 30, 2011 and December 31, 2010 (dollars in thousands):

Impaired Loans (by class)
September 30, 2011

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,682	$	1,689	$	-
Wholly-Owned Junior		-		-		-
Participation First		2,681		2,744		-
Participation Junior		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,801		11,628		874
Wholly-Owned Junior		4,510		4,562		813
Participation First		6,325		6,411		1,169
Participation Junior		-		-		-

Total:
Church loans	$	25,999	$	27,034	$	2,856

Impaired Loans (by class)
December 31, 2010

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,694	$	1,701	$	-
Wholly-Owned Junior		-		-		-
Participation First		2,744		2,744		-
Participation Junior		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,957		11,502		925
Wholly-Owned Junior		4,534		4,569		383
Participation First		6,492		6,491		1,966
Participation Junior		-		-		-

Total:
Church loans	$	26,421	$	27,007	$	3,274

F-14

The following tables present the average recorded investment in impaired loans and the related interest income for the three and nine months ended September 30, 2011, as well as the year ended December 31, 2010 (dollars in thousands):

Impaired Loans (by class)
For the Nine Months Ended September 30, 2011

	Average		Interest
	Recorded		Income
	Investment		Recognized

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,686	$	74
Wholly-Owned Junior		-		-
Participation First		2,712		-
Participation Junior		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,950		245
Wholly-Owned Junior		4,523		145
Participation First		6,334		-
Participation Junior		-		-

Total:
Church loans	$	26,205	$	464

Impaired Loans (by class)
For the Three Months Ended September 30, 2011

	Average		Interest
	Recorded		Income
	Investment		Recognized

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,683	$	23
Wholly-Owned Junior		-		-
Participation First		2,744		-
Participation Junior		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,959		105
Wholly-Owned Junior		4,518		45
Participation First		6,411		-
Participation Junior		-		-

Total:
Church loans	$	26,315	$	173

F-15

Impaired Loans (by class)
For the Year Ended December 31, 2010

	Average		Interest
	Recorded		Income
	Investment		Recognized

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,694	$	137
Wholly-Owned Junior		-		-
Participation First		2,744		-
Participation Junior		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,947		532
Wholly-Owned Junior		4,465		267
Participation First		6,496		37
Participation Junior		-		-

Total:
Church loans	$	26,346	$	973

A summary of nonaccrual loans by loan class at September 30, 2011 is as follows (dollars in thousands):

Loans on Nonaccrual Status (by class)
As of September 30, 2011

Church loans:
Wholly-Owned First	$	13,144
Wholly-Owned Junior		4,557
Participation First		9,005
Participation Junior		-

Total	$	26,706

F-16

A summary of troubled debt restructurings by loan class at September 30, 2011 is as follows (dollars in thousands):

Troubled Debt Restructurings (by class)
As of September 30, 2011

	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Recorded Investment At Period End

Church loans:
Wholly-Owned First		9	$	15,246	$	15,323	$	15,214
Wholly-Owned Junior		4		4,467		4,561		4,510
Participation First		-		-		-		-
Participation Junior		-		-		-		-

Total		13	$	19,713	$	19,884	$	19,724

A summary of troubled debt restructurings that defaulted during the nine months ended September 30, 2011 is as follows (dollars in thousands):

Troubled Debt Restructurings (by class)
For the nine months ended September 30, 2011


	Number of		Recorded
	Loans		Investment

Troubled debt restructurings that subsequently defaulted:
Church loans:
Wholly-Owned First		5	$	8,552
Wholly-Owned Junior		3		4,291
Participation First		-		-
Participation Junior		-		-
Total:
Church loans		8	$	12,843

No additional funds were committed to be advanced in connection with impaired loans as of September 30, 2011.

4. Foreclosed Assets

Foreclosed assets consist of one property acquired in satisfaction of a secured loan. The property had a carrying value of $1,374 at September 30, 2011, and no valuation allowance. No expenses or charge-offs were recorded against the foreclosed property. There were no foreclosed assets held at December 31, 2010.

F-17

5. Line of Credit and Other Borrowings

Members United Facilities

On October 12, 2007, the Company entered into two note and security agreements with Members United Corporate Federal Credit Union, a federally chartered credit union located in Warrenville, Illinois, which provides financial services to member credit unions (“Members United”). One note and security agreement is for a secured $10 million revolving line of credit, which is referred to as the “$10 Million LOC,” and the other is for a secured $50 million revolving line of credit. The latter was amended on May 8, 2009 to allow the Company to borrow up to $100 million through the revolving line of credit. The Company refers to this as the “$100 Million CUSO Line.” Both credit facilities are secured by certain mortgage loans. The Company has used the $10 Million LOC for short-term liquidity purposes and the $100 Million CUSO Line for mortgage loan investments.

On August 27, 2008, the Company borrowed the entire $10 million available on the $10 Million LOC at a rate of 3.47%. As a result of this financing, the $10 Million LOC was converted to a term loan with a maturity date of August 26, 2011. The remaining outstanding balance of this $10 million LOC was paid off on the maturity date. As of September 30, 2011, there was no outstanding balance on the $10 million LOC and the facility was terminated.

Under the $100 Million CUSO Line, the Company was authorized to request advances under a “demand loan” or “term loan”. A demand loan is a loan with a maximum term of one year and a variable rate based upon the prime rate quoted by the Wall Street Journal, as adjusted by a spread as determined by Members United. A term loan is a fixed or variable loan that has a set maturity date not to exceed twelve years. As of September 30, 2011 and December 31, 2010, the balance on the $100 Million CUSO Line was $87.3 million, and the weighted average interest rate on the Company’s borrowings under this facility was 3.94% and 4.32%, respectively.

In September 2008, Members United decided that it would not advance any additional funds on the $100 Million CUSO Line and the Company entered into negotiations with Members United to convert the line of credit facility to a term loan arrangement with a mutually acceptable interest rate. On March 31, 2011, the interest rates on three tranches of these term loans in the amounts of $3.0 million, $5.4 million, and $67.0 million were adjusted to the six month LIBOR rate plus 350 basis points. The interest rates on these tranches were re-adjusted on September 30, 2011. On May 20, 2011, the interest rate on the remaining $11.9 million tranche was also adjusted to the six month LIBOR rate plus 350 basis points.

Both credit facilities are recourse obligations secured by designated mortgage loans. The Company must maintain collateral in the form of eligible mortgage loans, as defined in Member United line of credit agreements, of at least 111% of the outstanding balance on the lines, after the initial pledge of $5 million of mortgage loans. As of September 30, 2011 and December 31, 2010, approximately $96.4 million and $106.6 million of loans, respectively, were pledged as collateral for the $100 Million CUSO Line and the $10 Million Members United term loan. The Company has the right to substitute or replace one or more of the mortgage loans serving as collateral for these credit facilities.On September 24, 2010, National Credit Union Association (“NCUA”) placed Members United into conservatorship and our Members United credit facility was transferred to the Asset Management Assistance Center (“AMAC”) established by NCUA to administer the Members United conservatorship.

F-18

On November 4, 2011, the Company and the National Credit Union Administration Board As Liquidating Agent of Members United Corporate Federal Credit Union (“Lender”) entered into a $87.3 million credit facility refinancing transaction (the “MU Credit Facility”). The MU Credit Facility replaces the original $100 million CUSO Line entered into by and between the Company and Members United Corporate Federal Credit Union on May 7, 2008. Unless the principal amount of the indebtedness due is accelerated under the terms of the MU Credit Facility loan documents, the principal balance and any interest due on the MU Credit Facility will mature on October 31, 2018. Accrued interest is due and payable monthly in arrears on the MU Credit Facility commencing on December 1, 2011 and on the first day of each succeeding month thereafter at the lesser of the maximum interest rate permitted by applicable law under the loan documents or 2.525%. The term loan may be repaid or retired without penalty, but any amounts repaid or prepaid under the MU Credit Facility may not be re-borrowed.

The MU Credit Facility includes a number of borrower covenants, including affirmative covenants to maintain the collateral free of liens, to timely pay the amounts due on the facility, to provide the Lender with interim or annual financial statements and annual and periodic reports filed with the U.S. Securities and Exchange Commission and maintain a minimum collateralization ratio of at least 128%. If at any time the Company fails to maintain its required minimum collateralization ratio, it will be required to deliver cash or qualifying mortgage loans in an amount sufficient to enable it to meet its obligation to maintain a minimum collateralization ratio. As of November 4, 2011, the collateral securing the MU Credit Facility had an aggregate principal balance of $118.4 million, which satisfies the minimum collateralization ratio for this facility.

The MU Credit Facility also includes covenants which prevent the Company from renewing or extending a loan pledged as collateral under this facility unless certain conditions have been met and requiring the borrower to deliver current financial statements to the Company. Under the terms of the MU Credit Facility, the Company has established a lockbox maintained for the benefit of Lender that will receive all payments made by collateral obligors. The Company’s obligation to repay the outstanding balance on this facility may be accelerated upon the occurrence of an “Event of Default” as defined in the MU Credit Facility. Such Events of Default include, among others, failure to make timely payments due under the MU Credit Facility, or the Company's breach of any of its covenants.

WesCorp Facility

On November 30, 2009, the Company entered into a Loan and Security agreement with Western Corporate Federal Credit Union, a federally chartered credit union located in San Dimas, California (“WesCorp”). The agreement provides for a secured $28 million term loan, referred to as the “WesCorp Facility.” Loan proceeds totaling $24.6 million of the proceeds were used to payoff the remaining principal and interest on a credit facility we previously had with the Bank of Montreal. The remainder of the proceeds were advanced in cash and have been used to make monthly payments on the WesCorp Facility, as well as for other cash needs of the Company as they arise.

Prior to the WesCorp Facility being amended and restated on November 4, 2011, the WesCorp Facility carried a fixed interest rate of 3.95% per year. At September 30, 2011, the loan is secured by eligible loans totaling $53.7 million. As of September 30, 2011, there was $23.6 million outstanding on the WesCorp Facility. The agreement contains a number of standard borrower covenants, including affirmative covenants that require the Company to refrain from making certain guarantees or endorsements, refrain from making material changes to other credit facilities, and maintain a debt to tangible net worth ratio of less than 15 to one. The agreement also contains negative covenants requiring the Company to obtain consent for certain transactions related to pledged loans. The Company was in compliance with these covenants as of September 30, 2011.

On March 20, 2009, NCUA assumed control of WesCorp under a conservatorship proceeding initiated by NCUA under regulations adopted under the Federal Credit Union Act. Effective as of October 1, 2010, WesCorp was placed into liquidation by the NCUA. Pursuant to a letter dated October 25, 2010, the Company was advised that the WesCorp facility had been transferred to the AMAC.

On November 4, 2011, the Company and the National Credit Union Administration Board As Liquidating Agent of Western Corporate Federal Credit Union (previously herein defined as “Lender”) entered into a $23.5 million credit facility refinancing transaction (the “WesCorp Credit Facility Extension”). The WesCorp Credit Facility Extension amends, restates and replaces the WesCorp Facility entered into by and between the Company and Western Corporate Federal Credit Union on November 30, 2009. Unless the principal amount due on the WesCorp Credit Facility Extension is accelerated under the terms of the loan documents evidencing such credit facility, the principal balance and any interest due on the facility will be payable in full on October 31, 2018. Accrued interest on the WesCorp Credit Facility Extension is due monthly in arrears commencing on December 1, 2011 and on the first day of each succeeding month thereafter at the lesser of the maximum rate permitted by applicable law under the loan documents or 2.525%. The term loan may be repaid or retired without penalty, but any amounts repaid or prepaid under the WesCorp Credit Facility Extension may not be re-borrowed.

F-19

The WesCorp Credit Facility Extension includes a number of borrower covenants, including affirmative covenants to maintain the collateral free of liens, to timely pay the amounts due on the facility, to provide the Lender with interim or annual financial statements and annual and periodic reports filed with the U.S. Securities and Exchange Commission and maintain a minimum collateralization ratio of at least 150%. If at any time the Company fails to maintain its required minimum collateralization ratio, it will be required to deliver cash or qualifying mortgage loans in an amount sufficient to enable it to meet its obligation to maintain a minimum collateralization ratio. As of November 4, 2011, the collateral securing the WesCorp Credit Facility Extension had an aggregate principal balance of $35.2 million, which satisfies the minimum collateralization ratio for this facility.

Both the MU Credit Facility and WesCorp Credit Facility Extension are secured by certain of the Company’s mortgage loans previously held as collateral under the $100 Million CUSO Line and the WesCorp Facility.

6. Notes Payable

We have the following unsecured notes payable at September 30, 2011 (dollars in thousands):

		Amount	Weighted Average Interest Rate
Class A Offering (Note 7)	$	46,189	4.08	%
Special Offering		8,034	4.48	%
Special Subordinated Note		6	5.45	%
International Offering		154	4.93	%
National Alpha Offering		4,617	5.72	%
Total	$	59,000	4.27	%

Future maturities due on our unsecured notes during the twelve month periods ending September 30 are as follows (dollars in thousands):

2012	$	22,225
2013		11,001
2014		8,686
2015		7,674
2016		7,000
Thereafter		2,414
	$	59,000

F-20

The National Alpha Offering notes referenced in the table above have been registered in public offerings pursuant to registration statements filed with the U.S. Securities and Exchange Commission (the “Alpha Class Notes”). All Alpha Class Notes are our unsecured obligations and pay interest at stated spreads over a blended index rate (the “BIR”) which index rate is adjusted every month. The BIR is the average of the National Index Rate and the Los Angeles Index Rate for financial institutions reported in the applicable edition of the Bank Rate Monitor (TM) in effect on the first day of each month. We reserve the right to change the rates of the Notes we offer more often than monthly. Interest can be reinvested or paid at the investor’s option.

The Alpha Class Notes contain covenants pertaining to limitations on restricted payment, maintenance of tangible net worth, limitation on issuance of additional notes and incurrence of indebtedness. The Alpha Class Notes require us to maintain a minimum tangible adjusted net worth, as defined in the Alpha Class Loan and Trust Agreement (the “Alpha Class Trust Indenture”), of not less than $4.0 million. We are not permitted to issue any Alpha Class Notes if, after giving effect to such issuance, the Alpha Class Notes then outstanding would have an aggregate unpaid balance exceeding $100.0 million. Our other indebtedness, defined in the Alpha Class Trust Indenture as indebtedness incurred outside of the issuance of Alpha Class Notes or Class A Notes, and subject to certain exceptions enumerated therein, may not exceed $10.0 million outstanding at any time while any Alpha Class Note is outstanding. We were in compliance with these covenants as of September 30, 2011 and December 31, 2010. Effective April 18, 2008, we discontinued the sale of our Alpha Class Notes. On October 7, 2008, U.S. Bank National Association succeeded King Trust Company, N.A., as trustee of the Alpha Class Notes under the terms of a trust indenture agreement. At September 30, 2011 and December 31, 2010, $4.6 million and $5.6 million of these Alpha Class notes were outstanding, respectively.

Historically, most of our unsecured notes have been renewed by investors upon maturity. Because we have discontinued our sale of Alpha Class Notes effective as of April 18, 2008, all holders of such notes that mature in the future may reinvest such sums by purchasing our Class A Notes that have been registered with the Securities and Exchange Commission (see Note 7 below). For matured notes that are not renewed, we fund the redemption through proceeds we receive from the repayment of mortgage loans we hold.

7. Class A Notes Offering

In April 2008, we registered with the U.S. Securities and Exchange Commission $80.0 million of new Class A Notes in three series, including a Fixed Series, Flex Series and Variable Series. This is a "best efforts" offering and was offered through April 30, 2010. On June 3, 2010, we registered an additional $100.0 million of Class A Notes. The offering includes three categories of notes, including a fixed interest note, a variable interest note, and a flex note, which allows borrowers to increase their interest rate once a year with certain limitations.

The interest rates we pay on the Fixed Series Notes and the Flex Series Notes are determined by reference to the Swap Index, an index that is based upon a weekly average Swap rate reported by the Federal Reserve Board, and is in effect on the date they are issued, or in the case of the Flex Series Notes, on the date the interest rate is reset. These notes bear interest at the Swap Index plus a rate spread of 1.7% to 2.5% and have maturities ranging from 12 to 84 months. The interest rates we pay on the Variable Series Notes are determined by reference to the Variable Index in effect on the date the interest rate is set and bear interest at a rate of the Swap Index plus a rate spread of 1.50% to 1.80%. Effective as of January 5, 2009, the Variable Index is defined under the Class A Notes as the three month LIBOR rate.

The notes were issued under a Supplemental Agreement with Consent of Holders to Loan and Trust Agreement (the “US Bank Indenture”) between us and U.S. Bank National Association (“US Bank”). The Class A Notes are part of up to $200 million of Class A Notes we may issue pursuant to the US Bank Indenture. The US Bank Indenture covering the Class A Notes contains covenants pertaining to a minimum fixed charge coverage ratio, maintenance of tangible net worth, limitation on issuance of additional notes and incurrence of indebtedness. We were in compliance with these covenants at September 30, 2011. At September 30, 2011, $46.2 million of these Class A Notes were outstanding.

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8. Preferred and Common Units Under LLC Structure

On December 31, 2008, both our Class I Preferred Stock and Class II Preferred Stock were converted into Series A Preferred Units pursuant to a Plan of Conversion adopted by our shareholders. The Series A Preferred Units are entitled to a cumulative preferred return, payable quarterly in arrears, equal to the liquidation preference times a dividend rate of 190 basis points over the 1-year LIBOR rate in effect on the last day of the calendar month in which the preferred return is paid (“Preferred Return”). In addition, the Series A Preferred Units are entitled to an annual preferred distribution, payable in arrears, equal to 10% of our profits less the Preferred Return (“Preferred Distribution”).

The Series A Preferred Units have a liquidation preference of $100 per unit; have no voting rights; and are subject to redemption in whole or in part at our election on December 31 of any year, for an amount equal to the liquidation preference of each unit, plus any accrued and unpaid Preferred Return and Preferred Distribution on such units. The Series A Preferred Units have priority as to earnings and distributions over our Class A Common Units. We have a right of first refusal in the event that one of our Class A Common Unit or Series A Preferred Unit holders proposes to sell or transfer such units. If we fail to pay a Preferred Return for four consecutive quarters, the holders of the Series A Preferred Units have the right to appoint two managers.

On June 3, 2011, we repurchased 500 units of our Series A Preferred Units from one of our members for $45 thousand, which did not have a significant effect on members’ equity.

On December 31, 2008, upon conversion from a corporation to an limited liability company, our common stock was converted into Class A Common Units under the Plan of Conversion that was adopted by our shareholders. In accordance with the terms of the Plan of Conversion and Operating Agreement approved by our shareholders and managers, all voting rights are held by the holders of our Class A Common Units.

9. Interest Rate Swaps and Caps

We have utilized stand-alone derivative financial instruments in the form of interest rate swap and interest rate cap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amounts are amounts on which calculations, payments, and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Such differences, which represent the fair value of the derivative instruments, are reflected on our consolidated balance sheets as other assets and other liabilities.

We are exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. We control the credit risk of our financial contracts through credit approvals, limits and monitoring procedures, and do not expect any counterparties to fail their obligations. We deal only with primary dealers.

Derivative instruments are generally either negotiated over-the-counter (“OTC”) contracts or standardized contracts executed on a recognized exchange. Negotiated OTC derivative contracts are generally entered into between two counterparties that negotiate specific agreement terms, including the underlying instrument, amount, exercise prices and maturity. Although we have used interest rate swap agreements from time to time in the past, we currently have no interest rate swap contracts in place.

Risk Management Policies – Hedging Instruments

The primary focus of the asset/liability management program is to monitor the sensitivity of the Company’s net portfolio value and net income under varying interest rate scenarios to take steps to control the Company’s risks. The Company evaluates the effectiveness of entering into any derivative instrument agreement by measuring the cost of such an agreement in relation to the reduction in net portfolio value and net income volatility within an assumed range of interest rates.

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Interest Rate Risk Management – Cash Flow Hedging Instruments

We use long-term variable rate debt as a source of funds for use in our lending and investment activities and other general business purposes. These debt obligations expose us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. We believe it is prudent to limit the variability of a portion of our interest payment obligations and, therefore, generally hedge a portion of our variable-rate interest payments. To meet this objective, in the past, we have entered into interest rate swap agreements whereby we receive variable interest rate payments and agree to make fixed interest rate payments during the contract period.

Another way to hedge our exposure to variable interest rates is through the purchase of interest rate caps. An interest rate cap is an option contract that protects the holder from increases in short-term interest rates by making a payment to such holder when an underlying interest rate (the "index" or "reference" interest rate) exceeds a specified strike rate (the "cap rate"). Similar to an interest rate swap, the notional amount on which the payment is made is never exchanged. Interest rate caps are purchased for a premium and typically have expirations between 1 and 7 years. With the purchase of an interest rate cap, payments are made to the holder on a monthly, quarterly or semiannual basis, with the period generally set equal to the maturity of the index interest rate. In essence, the financial exposure to the holder of an interest rate cap is limited to the initial purchase price. The objective of this type of instrument is to mitigate the exposure to rising interest rates by “capping” the rate ( the strike price) for a specific period of time.

At September 30, 2011, we had no outstanding interest rate cap agreements. Although we have used interest rate cap agreements in the past to hedge our exposure to variable interest rates, these agreements matured in June 2011. We had no unrealized loss or other comprehensive income (loss) related to interest rate cap agreements we had previously entered into. Other comprehensive loss as of December 31, 2010 was reclassified into interest expense during the nine months ended September 30, 2011 as a yield adjustment in the same period in which the related interest on the long-term debt affects earnings. A portion of the other comprehensive loss was reclassified against retained earnings.

We reclassified $31.5 thousand into interest expense and $48.7 thousand against retained earnings during the nine months ended September 30, 2011.

Risk management results for the three and nine month period ended September 30, 2011 related to the balance sheet hedging of our long-term debt indicate that the hedges were highly effective and that there was no component of the derivative instruments’ gain or loss which was excluded from the assessment of hedge effectiveness.

10. Comprehensive Income

Comprehensive income (loss) consists of net income (loss) and other comprehensive income or loss. The components of other comprehensive income (loss) are shown below for the nine months ended September 30 and the year ended December 31. No tax effect is recognized since the Company is not a tax-paying entity.

	2011			2010
	($ in thousands)
Change in fair value of derivatives used for cash flow hedges
Interest rate caps	$	--		$	(73	)
Reclassification of comprehensive income related to interest rate caps		(80	)		65

Net amount	$	(80	)	$	(8	)

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11. Retirement Plans

401(k)

Employees who are at least 21 years of age are eligible to participate in the Insperity 401(k) plan upon the hire date. No minimum service is required and the minimum age is 21. Each employee may elect voluntary contributions not to exceed 60% of salary, subject to certain limits based on Federal tax law. The plan has a matching program, the amount and percentage of which is annually determined by the managers. Matching contributions for the nine months ended September 30, 2011 and September 30, 2010 were $32.2 thousand and $26.3 thousand, respectively.

Profit Sharing

The profit sharing plan is for all employees who, at the end of the calendar year, are at least 21 years old, still employed, and have at least 900 hours of service during the plan year. The amount annually contributed on behalf of each qualified employee is determined by the Company’s managers, and is calculated as a percentage of the eligible employee's annual earnings. Plan forfeitures are used to reduce our annual contribution. We did not make any contributions for the plan year ended December 31, 2010. No profit sharing contribution has been made or approved for the nine months ended September 30, 2011.

12. Loan Commitments

Unfunded Commitments

Unfunded commitments are commitments for possible future extensions of credit to existing customers of ECCU. Unfunded commitments totaled $171.5 thousand at September 30, 2011 and $142.8 thousand at December 31, 2010.

13. Fair Value Measurements

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of our financial instruments at September 30, 2011 and December 31, 2010, are as follows:

	September 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Financial assets:
Cash		6,154		6,154	$	7,078	$	7,078
Loans receivable		170,958		173,944		187,005		189,072
Accrued interest receivable		748		748		742		742
Financial liabilities:
Notes payable		59,000		60,928		62,103		63,580
Bank borrowings		110,965		110,963		121,809		121,054
Accrued interest payable		472		472		355		355
Dividends payable		82		82		80		80

Management uses judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2011 and December 31, 2010.

The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash – The carrying amounts reported in the balance sheets approximate fair value for cash.

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Loans – Fair value is estimated by discounting the future cash flows using the current average rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Notes Payable – The fair value of fixed maturity notes is estimated by discounting the future cash flows using the rates currently offered for notes payable of similar remaining maturities. The discount rate is estimated by Company management by using market rates which reflect the interest rate risk inherent in the notes.

Borrowings from Financial Institutions – The fair value of borrowings from financial institutions are estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. The discount rate is estimated Company management by using market rates which reflect the interest rate risk inherent in the notes.

Derivative Financial Instruments – The fair values for interest rate swap agreements and interest rate caps are based upon the amounts required to settle the contracts.

Off-Balance Sheet Instruments – The fair value of loan commitments is based on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements and the counterparties' credit standing. The fair value of loan commitments is insignificant at September 30, 2011 and December 31, 2010.

Fair Value Measurements Using Fair Value Hierarchy

Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or paramters. Where observable prices or inputs are not available, valuation techniques that utilize management’s estimates and judgments are applied.

Measurements of fair value are classified within a hierarchy based upon inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in inactive markets, inputs that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.), or inputs that are derived principally from or corroborated by observable market data by correlation or by other means.

Level 3 inputs are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Fair Value Measured on a Recurring Basis

Fair value of interest rate caps and interest rate swaps are estimated by the counterparties using market expectations of future interest rates, which constitute Level 2 inputs.

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Fair Value Measured on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the valuation hierarchy:

	Fair Value Measurements Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Assets at September 30, 2011:
Impaired loans (net of allowance and discount)	$	-	$	3,506	$	19,633	$	23,139
Foreclosed assets		-		1,374		-		1,374
	$	-	$	4,880	$	19,633	$	24,513


Assets at December 31, 2010:
Impaired loans (net of allowance and discount)	$	-	$	10,569	$	12,577	$	23,146
Foreclosed assets		-		-		-		-
	$	-	$	10,569	$	12,577	$	23,146

Collateral-dependent impaired loans and real estate owned property are carried at the fair value of the collateral less estimated costs to sell, incorporating assumptions that experienced parties might use in estimating the value of such collateral. The fair value of collateral is determined based on appraisals. In some cases, adjustments were made to the appraised values for various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. Otherwise, collateral-dependent impaired loans are categorized under Level 2.

Impaired loans that are not collateral dependent are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate. Troubled debt restructurings are also carried at the present value of expected future cash flows. However, expected cash flows for troubled debt restructurings are discounted using the loan’s original effective interest rate rather than the modified interest rate. Since fair value of these loans is based on management’s own projection of future cash flows, the fair value measurements are categorized as Level 3 measurements.

The following is a reconciliation of the assets in which significant unobservable inputs (Level 3) were used in determining fair value:

	Impaired loans
	(net of allowance and discount)

Balance, December 31, 2010	$	12,577
Re-classifications of loans
from Level 3 into Level 2		(724	)
Allowance and discount, net of
discount amortization		(1,221	)
Additions		9,005
Deletions		(49	)
Loan advances		45
Balance, September 30, 2011	$	19,633

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Foreclosed Assets

Assets acquired through foreclosure or other proceedings are initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost. After foreclosure, valuations are periodically performed, and foreclosed assets held for sale are carried at the lower or cost of fair value, less estimated costs of disposal. All foreclosed assets are real estate owned assets. The fair values of real estate owned assets are initially determined based on appraisals. In some cases, adjustments are made to the appraised values for various factors including age of the appraisal, age of the comparables included in the appraisal, and known changes in the market or in the collateral. Subsequent valuations of the real estate owned assets are based on management estimates or updated appraisals. Foreclosed assets are categorized under Level 3 when significant adjustments are made by management to appraised values based on unobservable inputs. Otherwise, foreclosed assets are categorized under Level 2 if their values are based solely on appraisals.

14. Subsequent Event

As discussed in Footnote 5, on November 4, 2011, the Company completed two refinancing transactions with the NCUA regarding the $100 CUSO Line with Members United as well as the Wescorp Facility. These transactions will have a material effect on future earnings and cash flows. As a result of refinancing the $100 CUSO Line, the remaining $87.3 million on that facility is now a term loan payable in monthly principal payments with the final payment occurring on October 31, 2018. Interest is payable monthly at a rate of 2.525%, as compared to a weighted average rate of 3.94% under the previous facility. As a result of refinancing the Wescorp Facility, the remaining $23.5 million on that facility is now a term loan payable in monthly principal payments with the final payment occurring on October 31, 2018. Interest is payable monthly at a rate of 2.525%, as compared to a rate of 3.95% under the previous facility.

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

SAFE HARBOR CAUTIONARY STATEMENT

This Form 10-Q contains forward-looking statements regarding Ministry Partners Investment Company, LLC and our wholly-owned subsidiaries, Ministry Partners Funding, LLC, MP Realty, and MP Securities, LLC, including, without limitation, statements regarding our expectations with respect to revenue, credit losses, levels of non-performing assets, expenses, earnings and other measures of financial performance. Statements that are not statements of historical facts may be deemed to be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “intend,” “should,” “seek,” “will,” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management.

These forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties that are subject to change based upon various factors (many of which are beyond our control). Such risks, uncertainties and other factors that could cause our financial performance to differ materially from the expectations expressed in such forward-looking statements include, but are not limited to, the risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2010, as well as the following:

We are a highly leveraged company and our indebtedness could adversely affect our financial condition and business;

we depend on the sale of our debt securities to finance our business and have relied on the renewals or reinvestments made by our holders of debt securities when their debt securities mature to fund our business;

we need to raise additional capital to fund and implement our business plan;

our ability to return to profitability and increase our total assets;

our ability to maintain liquidity or access to other sources of funding;

changes in the cost and availability of funding facilities;

the allowance for loan losses we have set aside prove to be insufficient to cover actual losses on our loan portfolio;

because we rely on credit facilities collateralized by church mortgage loans that we acquire, disruptions in the credit markets, financial markets and economic conditions that adversely impact the value of church mortgage loans can negatively affect our financial condition and performance;

we are required to comply with certain covenants and restrictions in our lines of credit and our financing facilities that, if not met, could trigger repayment obligations of the outstanding principal balance on short notice; and

we have entered into several loan modification agreements and arrangements to restructure certain mortgage loans that we hold of borrowers that have been negatively impacted by adverse economic conditions in the U.S.

As used in this quarterly report, the terms “we”, “us”, “our” or the “Company” means Ministry Partners Investment Company, LLC and our wholly-owned subsidiaries, Ministry Partners Funding, LLC, MP Realty, and MP Securities, LLC.

OVERVIEW

We were incorporated in 1991 as a credit union service organization and we invest in and originate mortgage loans made to evangelical churches, ministries, schools and colleges. Our loan investments are generally secured by a first mortgage lien on properties owned and occupied by churches, schools, colleges and ministries. We converted to a limited liability company form of organization on December 31, 2008.

The following discussion and analysis compares the results of operations for the three- and nine-month periods ended September 30, 2011 and September 30, 2010 and should be read in conjunction with the accompanying financial statements and Notes thereto.

Results of Operations

Three Months Ended September 30, 2011 vs. Three Months Ended September 30, 2010

During the three months ended September 30, 2011, we had a net loss of $818 thousand as compared to net income of $223 thousand for the three months ended September 30, 2010. Our net loss for the three month period ended September 30, 2011 was related to several factors. First, we have had $18.4 million in gross loans receivable pay off since September 2010, and primarily used those proceeds to pay down the Members United facility and maturing notes payable of our debt security holders. If these funds had instead been invested in income earning investments, the Company could have generated additional interest income. Net interest income for the quarter ended September 30, 2011 was $888 thousand, as compared to $1.1 million for the previous year’s quarter. As detailed below, this decrease in net interest income was related to several factors, including additional loans being placed on non-accrual status, loan modifications that lower interest rates for our borrowers, and interest payments being recorded against principal on collateral dependent loans. In addition, during the three months ended September 30, 2011, we recorded $822 thousand of provision for loan losses. This provision was almost entirely related to the deterioration of collateral values on three of our impaired loans. A small portion of the provision was due to an increase in general reserves, as management has determined that there is more risk inherent in our portfolio. Since the quarter ended September 30, 2010, we have increased our staff by hiring four new employees, we have increased our marketing efforts related to the sale of our debt securities, and we have increased office operations expenses due to investments made in a new core data processing system, accounting system, customer relationship management system and launch of our broker dealer subsidiary. In addition, during the three months ended September 30, 2011, we have incurred legal and consulting expenses related to the refinancing of our line of credit facilties and approval of our broker dealer subsidiary to act as a selling agent for our debt securities and launch its operations. We expect that the increase in legal, accounting and office related expenses to be non-recurring in nature as they relate to the implementation of our core strategic objectives in generating increased non-interest related income, refinancing of our primary credit facilities and launch of our broker dealer subsidiary.

Net interest income for the quarter ended September 30, 2011 was $888 thousand, as compared to $1.1 million for the previous year’s quarter. This difference of $182 thousand in net interest income represents a 17% decrease. Despite the decrease in the interest rates paid on our Members United facility, the decrease in our loan receivables, coupled with additional loans on non-accrual and lower interest rates on modified loans, has contributed to the decrease in net interest income. In addition, during 2011 we have begun recording interest payments made on collateral-dependent loans against principal rather than recognizing interest income. This has resulted in a decrease of $90 thousand in interest income for the quarter ended September 30, 2011. Net interest income after provision for loan losses decreased to $66 thousand for the quarter ended September 30, 2011, a decrease of $917 thousand from $983 thousand for the three months ended September 30, 2010. This decrease is primarily attributable to the increase in provision for loan losses by $735 thousand as compared to the previous year’s quarter ended September 30, 2010.

We also had other income of $28 thousand in the third quarter of 2011 primarily due to servicing fees and rental income from foreclosed property received, as compared to $1 thousand in other income for the quarter ended September 30, 2010. Our cost of funds (i.e., interest expense) decreased to $1.8 million, a decrease of $255 thousand or 12%, for the three months ended September 30, 2011, as compared to $2.0 million for the three months ended September 30, 2010. This is due primarily to the paydown of the WesCorp Facility and the Members United credit facilities, as well as a $5.0 million decrease in our outstanding notes payable since September 30, 2010.

Our non-interest operating expenses for the three months ended September 30, 2011 increased to $909 thousand from $715 thousand for the same period ended September 30, 2010, an increase of 27%. Salaries and benefits expense increased by $129 thousand, or 48%, as we have hired four additional employees since September 30, 2010, mainly to service loans and to assist in the selling of notes once MP Securities begins operations. Office operations expenses increased due to additional costs related to the implementation of our new core processing system. Office operations expenses also included $33 thousand in additional expenses related to the servicing of our loan portfolio and to the management of one foreclosed asset and three other loans in foreclosure. Additionally, marketing costs increased by $24 thousand as we have expanded our efforts to increase note sales.

Nine months ended September 30, 2011 vs. Nine months ended September 30, 2010

During the nine months ended September 30, 2011, we had a net loss of $1.3 million as compared to a net loss of $350 thousand for the nine months ended September 30, 2010. The increase in losses from prior year is attributable to the decrease of $201 thousand in net interest income, an increase in provision for loan losses of by $240 thousand, and an increase in non-interest expenses of $619 thousand for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010.

Interest income decreased to $8.3 million for the nine months ended September 30, 2011 from $9.1 million for the nine months ended September 30, 2010, a decrease of $795 thousand. This is partially related to the decrease in gross loans receivable of $18.4 million since the third quarter 2010. During 2011, we have begun recording interest payments made on collateral-dependent loans against principal rather than recognizing interest income. This method for recognizing interest income on collateral dependent loans accounts for $249 thousand of the decrease in interest income for the nine months ended September 30, 2011. Interest expense decreased to $5.6 million, a decrease of $594 thousand or 10%, for the nine months ended September 30, 2011, as compared to $6.2 million for the nine months ended September 30, 2010. The decrease in interest expense is due primarily to the paydowns on our WesCorp Facility and Members United credit facilities during 2010 and 2011, as well as a decrease the interest rates paid on the Members United facility. Net interest income decreased by $201 thousand during the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010.

Net interest income after provision for loan losses decreased to $1.5 million, a decrease of $441 thousand, or 23%, from $1.9 million for the nine months ended September 30, 2010. This reduction in net interest income is primarily related to the increase in our provision for loan losses. In September 2011, we received new information on the collateral value of several of our impaired loans, which caused us to record additional provisions.

Our non-interest operating expenses for the nine months ended September 30, 2011 increased to $2.9 million from $2.3 million for the same period ended September 30, 2010, an increase of 27%. Salaries and benefits expenses increased by $140 thousand as a result of hiring four new employees since September 30, 2010. Marketing and promotion expenses increased by $67 thousand as our marketing staff attended several conferences, developed new promotional materials related to the sale of our debt securities, and implemented new marketing initiatives on behalf of the Company. Office operations expenses increased by $316 thousand to $1.1 million for the nine months ended September 30, 2011 as compared to $775 thousand for the nine months ended September 30, 2010. The most significant increases in office operations expenses were attributable to an increase of $168 thousand related to the depreciation and maintenance of our new core data processing system and accounting system, as well as by $117 thousand related to the management of our loan portfolio, particularly our loans in foreclosure. Legal expenses also increased $96 during 2011 as we have incurred increased legal and consulting expenses related to the launch of MP Securities, regulatory review of MP Securities’ request to act as a selling agent for the Company’s Class A Notes Offering and the refinancing of our debt.

Net Interest Income and Net Interest Margin

Our earnings depend largely upon the difference between the income we receive from interest-earning assets, which are principally mortgage loan investments and interest-earning accounts with other financial institutions, and the interest paid on notes payable. This difference is net interest income. Net interest margin is net interest income expressed as a percentage of average total interest-earning assets.

The following tables provide information, for the periods indicated, on the average amounts outstanding for the major categories of interest-earning assets and interest-bearing liabilities, the amount of interest earned or paid, the yields and rates on major categories of interest-earning assets and interest-bearing liabilities, and the net interest margin:

	Average Balances and Rates/Yields
	For the Three Months Ended September 30,
	(Dollars in Thousands)

	2011							2010
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate

Assets:
Interest-earning accounts with other financial institutions	$	7,258	$	22		1.21	%	$	7,953	$	22		1.08	%
Interest-earning loans [1]		163,245		2,657		6.46	%		187,863		3,094		6.54	%
Total interest-earning assets		170,503		2,679		6.23	%		195,816		3,116		6.31	%

Non-interest-earning assets		11,744		--		--			6,945		--		--
Total Assets		182,247		2,679		5.83	%		202,761		3,116		6.10	%

Liabilities:
Public offering notes – Class A		45,942		469		4.05	%		47,321		474		4.01	%
Public offering notes – Alpha Class		4,990		72		5.75	%		6,777		95		5.57	%
Special offering notes		8,984		98		4.30	%		8,380		81		3.85	%
International notes		154		2		4.98	%		288		3		4.61	%
Subordinated notes		147		--		0.22	%		2,792		49		7.02	%
Borrowings from financial institutions		111,923		1,150		4.08	%		124,538		1,344		4.32	%

Total interest-bearing liabilities	$	172,924	$	1,791		4.13	%	$	190,096		2,046		4.30	%

Net interest income			$	888						$	1,070
Net interest margin [2]						1.93	%						2.09	%

[1] Loans are net of deferred fees but gross of the allowance for loan losses
[2] Net interest margin is equal to net interest income as a percentage of average total assets.

Average interest-earning assets decreased to $170.5 million during the three months ended September 30, 2011, from $195.8 million during the same period in 2010, a decrease of $25.3 million or 13%. The average yield on these assets decreased to 6.23% for the three months ended September 30, 2011 from 6.31% for the three months ended September 30, 2010. This average yield decrease is related to placing two additional loans on non-accrual, as well as performing troubled debt restructurings on several loans at the end of 2010 and beginning of 2011 that decreased the interest rates on those loans. The average yield on total assets decreased from 6.10% for the three months ended September 30, 2010 to 5.83% for the three months ended September 30, 2011. This is primarily related to the increase in non-interest-earning loans. In addition to several loans in foreclosure, we began recording interest payments as a reduction of principal on four other collateral-dependent loans, causing them to be reclassified into this asset category.

Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased to $172.9 million during the three months ended September 30, 2011, from $190.1 million during the same period in 2010. The average rate paid on these notes and borrowings decreased to 4.13% for the three months ended September 30, 2011, from 4.30% for the same period in 2010. The decrease on the average interest rate paid on these liabilities was primarily related to decrease of the interest paid on our Members United facility, which repriced to 3.96% from 4.39% in April, 2011.

Net interest income for the three months ended September 30, 2011, was $888 thousand, which is a decrease of $182 thousand, or 17%, for the same period in 2010. Net interest margin decreased 19 basis points to 1.93% for the quarter ended September 30, 2011, compared to 2.09% for the quarter ended September 30, 2010.

	Average Balances and Rates/Yields
	For the nine months ended September 30,
	(Dollars in Thousands)

	2011							2010
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate

Assets:
Interest-earning accounts with other financial institutions	$	7,856	$	69		1.17	%	$	9,611	$	91		1.26	%
Interest-earning loans [1]		170,219		8,258		6.47	%		188,856		9,031		6.38	%
Total interest-earning assets		178,075		8,327		6.24	%		198,467		9,122		6.13	%

Non-interest-earning assets		11,197		--		--			7,143		--		--
Total Assets		189,272		8,327		5.87	%		205,610		9,122		5.92	%

Liabilities:
Public offering notes – Class A		46,202		1,414		4.08	%		47,643		1,385		3.88	%
Public offering notes – Alpha Class		5,156		221		5.73	%		8,817		361		5.45	%
Special offering notes		9,461		288		3.92	%		8,063		251		4.15	%
International notes		174		6		4.53	%		355		12		4.35	%
Subordinated notes		675		32		6.37	%		2,754		144		6.96	%
Borrowings from financial institutions		116,154		3,602		4.13	%		125,014		4,004		4.27	%

Total interest-bearing liabilities	$	177,822		5,563		4.17	%	$	192,646		6,157		4.26	%

Net interest income			$	2,764						$	2,965
Net interest margin [2]						1.95	%						1.92	%

[1] Loans are net of deferred fees and loan discounts

[2] Net interest margin is equal to net interest income as a percentage of average total assets.

Average interest-earning assets decreased to $178.1 million during the nine months ended September 30, 2011, from $198.5 million during the same period in 2010, a decrease of $20.4 million or 10%. The average yield on these assets increased to 6.24% for the nine months ended September 30, 2011 from 6.13% for the nine months ended September 30, 2010. The average yield increase on interest-earning assets was related to an improvement in interest payment collections on our restructured loans. As we expanded our loan management department and took over servicing on many of these loans, we were able to better monitor and successfully modify payment plans for some of the loans in our portfolio. The average yield on total assets decreased to 5.87% for the nine months ended September 30, 2011 from 5.92% for the nine months ended September 30, 2010. This average yield decrease was related mostly to the increase in non-interest-earning loans. In addition to several loans in foreclosure, we began recording interest payments as a reduction of principal on four other collateral-dependent loans, causing them to be reclassified into this asset category. $249 thousand of interest payments on these collateral-dependent impaired loans was recorded against the principal balance of loans receivable rather than to interest income.

Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased to $177.8 million during the nine months ended September 30, 2011, from $192.6 million during the same period in 2010. The average rate paid on these notes decreased to 4.17% for the nine months ended September 30, 2011, from 4.26% for the same period in 2010. The average rate paid decreased due to the repricing of several of the tranches on our Members United facility in the second quarter of 2011. This offset an increase in the average rate paid on our Class A notes and our Alpha class notes. The rates on our Class A notes increased as the rates on which these notes are indexed have increased from the prior year. The rates on Alpha class notes have increased as these notes are no longer being offered, and the only notes remaining have longer terms and therefore larger interest rates. The average rate paid on our special and subordinated notes decreased, as notes with higher than average rates have matured and been replaced with lower yield notes.

Net interest income for the nine months ended September 30, 2011, was $2.8 million, which was a decrease of $201 thousand, or 6% for the same period in 2010. Net interest margin increased 3 basis point to 1.95% for the nine months ended September 30, 2011, compared to 1.92% for the nine months ended September 30, 2010. This remained relatively stable, as the decrease in yield on total assets roughly equaled the decrease in rates paid on interest-bearing liabilities.

Rate/Volume Analysis of Net Interest Income

	Three months Ended September 30, 2011 vs. 2010
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in Thousands)

Increase (Decrease) in Interest Income:
Interest-earning account with other financial institutions	$	(2	)	$	2		$	--
Total loans		(305	)		(132	)		(437	)
		(307	)		(130	)		(437	)

Increase (Decrease) in Interest Expense:
Public offering notes – Class A		(14	)		9			(5	)
Public offering notes – Alpha Class		(27	)		4			(23	)
Special offering notes		6			11			17
International notes		(1	)		--			(1	)
Subordinated notes		(24	)		(25	)		(49	)
Other		(132	)		(62	)		(194	)
		(192	)		(63	)		(255	)
Change in net interest income	$	(115	)	$	(67	)	$	(182	)

Rate/Volume Analysis of Net Interest Income

	Nine months ended September 30, 2011 vs. 2010
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in Thousands)

Increase (Decrease) in Interest Income:
Interest-earning account with other financial institutions	$	(16	)	$	(6	)	$	(22	)
Total loans		(681	)		(108	)		(773	)
		(681	)		(114	)		(795	)

Increase (Decrease) in Interest Expense:
Public offering notes – Class A		(42	)		71			29
Public offering notes – Alpha Class		(158	)		18			(140	)
Special offering notes		43			(6	)		37
International notes		(6	)		--			(6	)
Subordinated notes		(100	)		(12	)		(112	)
Other		(278	)		(124	)		(402	)
		(541	)		(53	)		(594	)
Change in net interest income	$	(140	)	$	(61	)	$	(201	)

Financial Condition

Comparison of Financial Condition at September 30, 2011 and December 31, 2010

General. Total assets decreased by $15.6 million, or 8%, between December 31, 2010 and September 30, 2011. This decrease was due to the payoff of several loans. Our loans receivable, net of allowance for loan losses, decreased by $16.0 million, or 9%, over this period. The proceeds of these loan payoffs were used to pay down our borrowings from financial institutions and redeem certain debt securities that matured during this period.

During the nine month period ended September 30, 2011, gross loans receivable decreased by $16.0 millon, or 8%, to $175.8 million from $191.8 million at December 31, 2010. This decrease is due to the payoff of nine loans that were not renewed at maturity, the sale of one of our mortgage loan investments, and one loan that was partially charged-off, with the balance of $1.4 million transferred to foreclosed assets. We originated one large loan for $4.2 million during this period and subsequently sold $3.8 million of that loan as a participation interest. We are not holding any of the loans currently in our portfolio for sale.

Our portfolio consists entirely of loans made to evangelical churches and ministries. 99.7% of these loans are secured by real estate, while one loan that represents 0.3% of our portfolio is unsecured. Our portfolio yielded a weighted average interest rate of 6.40% at September 30, 2011, as compared to 6.39% at December 31, 2010.

Non-performing Assets. Non-performing assets consist of non-accrual loans and one foreclosed asset, which is a real estate property. Non-accrual loans include any loan that becomes 90 days or more past due, loans where terms have been modified in a favorable manner to the borrower due to financial difficulty (referred to herein also as “troubled debt restructurings”), and any other loan where management assesses full collectability of principal and interest to be in question. Once a loan is put on non-accrual status, the balance of any accrued interest is immediately reversed. Loans past due 90 days or more will not return to accrual status until they become current. Troubled debt restructurings will not return to accrual status until they perform according their modified payment terms without exception for at least six months. At September 30, 2011, we had one loan with a balance of $614 thousand that was more than 90 days past due, however we did not put this loan on non-accrual since its delinquency was related to a delay in extending the loan’s maturity date rather than an inability or unwillingness to pay. The extension on this loan was completed in October and we have received loan payments to bring the loan current.

Some non-accrual loans are considered collateral dependent. These are defined as loans where there is a significant possibility that repayment of principal will involve the sale of collateral securing the loan. For collateral dependent loans, any payment of interest we receive is recorded against principal. As a result, interest income is not recognized until the loan is no longer considered impaired. On non-accrual loans that are not considered collateral dependent, we do not accrue interest income, but we recognize income on a cash basis. We had sixteen nonaccrual loans as of September 30, 2011, up from fourteen nonaccrual loans at December 31, 2010. In June 2011, the Company completed foreclosure proceedings on a loan participation interest it acquired from ECCU. Prior to this foreclosure sale, the Company had never foreclosed on or taken a charge-off on a mortgage loan investment it had acquired.

The following table presents our non-performing assets:

Non-performing Assets
($ in thousands)

	September 30, 2011		December 31, 2010
Non-Accrual Loans:1

Collateral Dependent:

Delinquencies over 90-Days	$	6,511	$	9,235
Troubled Debt Restructurings2		7,678		4,167

Total Collateral Dependent Loans		14,189		13,402

Non-Collateral Dependent:

Delinquencies over 90-Days		2,494		216
Troubled Debt Restructurings3		10,023		13,389

Total Non-Collateral Dependent Loans		12,517		13,605

Loans 90 Days past due and still accruing		614		--

Total Non-Accrual Loans		26,706		27,007
Foreclosed Assets		1,374		--

Total Non-performing Assets	$	28,080	$	27,007

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

2 Includes $4.9 million and $1.4 million of restructured loans that were over 90 days delinquent as of September 30, 2011 and December 31, 2010, respectively.

3 Includes $2.8 million of restructured loans that were over 90 days delinquent as of December 31, 2010.

At September 30, 2011, we had twelve restructured loans that were on non-accrual status. Four of these loans were over 90 days delinquent. We had five non-restructured loans that were over 90 days past due. As noted above, one of these five loans is not considered impaired or non-performing and remained on accrual status. As of September 30, 2011, we had one foreclosed asset in the amount of $1.4 million.

At December 31, 2010, we had eleven restructured loans that were on non-accrual status. Two of these loans were over 90 days delinquent. We had five non-restructured loans that were over 90 days past due. We had no foreclosed property as of December 31, 2010.

Allowance for Loan Losses. We maintain an allowance for loan losses that we consider adequate to cover both the inherent risk of loss associated with the loan portfolio as well as the risk associated with specific loans that we have identified as having a significant chance of resulting in loss.

Allowances taken to address the inherent risk of loss in the loan portfolio are considered general reserves. We include various factors in our analysis. These are weighted based on the level of risk represented and for the potential impact on our portfolio. These factors 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.

In addition, we include additional general reserves for our loans that are collateralized by a junior lien or that are unsecured. We evaluate these factors on a quarterly basis to ensure that we have adequately addressed these risk factors.

We also identify individual loans which we believe have a greater risk of loss than is addressed by the general reserves. These are identified by examining delinquency reports, both current and historic, monitoring collateral value, and periodic review of borrower financial statements. For loans that we determine require a specific reserve, management will first determine the value at risk on the investment, defined as the unpaid principal balance less the collateral value net of estimated costs associated with selling a foreclosed property. Management will then make an estimate of the likelihood of loss and apply that to the value at risk in order to determine an adequate specific reserve. For loans that are collateral dependent, the entirety of the value at risk will be reserved. Loans that carry a specific reserve are formally reviewed quarterly, although reserves will be adjusted more frequently if additional information regarding the loan’s status or its underlying collateral is received.

Finally, our allowance for loan losses includes reserves related to troubled debt restructurings. These reserves are calculated as the difference in the net present value of payment streams between a troubled debt restructuring at its modified terms as compared to its original terms, discounted at the original interest rate on the loan. These reserves are recorded at the time of the restructuring and amortized into interest income over the life of the loan as payments are made.

The process of providing adequate allowance for loan losses involves discretion on the part of management, and as such, losses may differ from current estimates. We have attempted to maintain the allowance at a level which compensates for losses that may arise from unknown conditions. At both September 30, 2011 and December 31, 2010, the allowance for loan losses was $4.0 million. This represented 2.3% and 2.1% of our gross loans receivable at those respective dates.

	Allowance for Loan Losses
	as of and for the
	Nine months Ended				Year Ended
	September 30,				December 31,
	2011		2010		2010
Balances:	($ in thousands)
Average total loans
outstanding during period	$	183,924	$	197,122	$	195,967
Total loans outstanding
at end of the period	$	175,819	$	194,258	$	191,777
Allowance for loan losses:
Balance at the beginning of period	$	3,997	$	1,701	$	1,701
Provision charged to expense		1,305		1,065		2,377
Charge-offs
Wholly-Owned First		--		--		--
Wholly-Owned Junior		--		--		--
Participation First		1,279		--		--
Participation Junior		--		--		--
Total		1,279		--		--
Recoveries
Wholly-Owned First		--		--		--
Wholly-Owned Junior		--		--		--
Participation First		--		--		--
Participation Junior		--		--		--
Total		--		--		--
Net loan charge-offs
(recoveries)		1,279		--		--
Accretion of allowance related to restructured loans		67		84		81

Balance	$	3,956	$	2,682	$	3,997

Ratios:
Net loan charge-offs to average total loans	0.70	%	0.00	%	0.00	%
Provision for loan losses to average total loans	0.71	%	0.54	%	1.21	%
Allowance for loan losses to total loans at the end of the period	2.25	%	1.38	%	2.08	%
Allowance for loan losses to non-performing loans	14.81	%	11.46	%	14.80	%
Net loan charge-offs to allowance for
loan losses at the end of the period	32.33	%	0.00	%	0.00	%
Net loan charge-offs to Provision for loan losses	98.01	%	0.00	%	0.00	%

Borrowings from Financial Institutions. At September 30, 2011, we had $111.0 million in borrowings from financial institutions. This is a decrease of $10.8 million, or 9%, from December 31, 2010. This decrease is the result of paydowns on both the Members United $10 Million LOC as well as regular monthly payments of $116.7 thousand on the WesCorp Facility. On August 26, 2011, we fully paid down the remaining balance on the $10 Million LOC. On November 4, 2011, we completed an agreement with the NCUA to refinance the remaining principal balance on the existing Members United $100 Million CUSO Line and the Wescorp Facility. The remaining balance on these facilities, $87.3 million and $23.5 million, respectively, as of November 4, 2011, are term facilities that bear interest at a rate of 2.525%. The final principal and interest payment on both facilities is due on October 31, 2018. See Note 5, “Line of Credit and Other Borrowings” under Item 1, Notes to Consolidated Financial Statements.

Notes Payable. Our notes payable consist of debt securities sold under several registered national offerings as well as notes sold to accredited investors. These notes had a balance of $59.0 million at September 30, 2011, which was a decrease of $3.1 million, or 5%, from $62.1 million at December 31, 2010. The decrease is related to the non-renewal of Class A Notes (Fixed Series) and the withdrawal of funds from Class A Notes (Variable Series) by several investors.

Members’ Equity. Total members’ equity was $9.3 million at September 30, 2011, a decrease of $619 thousand or 5.7%, from $10.9 million at December 31, 2010. This decrease is due mainly to our net loss of $1.3 million for the nine months ended September 30, 2011, as well as $285 thousand of expenses related to our Series A Preferred Units, which generate quarterly dividends. In addition, we repurchased 500 Series A Preferred Units for $45 thousand during the nine months ended September 30, 2011. We did not repurchase any Series A Preferred Units during the year ended December 31, 2010.

Liquidity and Capital Resources

September 30, 2011 vs. September 30, 2010

Maintenance of adequate liquidity requires that sufficient resources be available at all times to meet cash flow requirements of the Company. Desired liquidity may be achieved from both assets and liabilities. Cash, investments in interest-bearing time deposits in other financial institutions, maturing loans, payments of principal and interest on loans, and potential loan sales are sources of asset liquidity. Sales of investor notes, and access to credit lines are sources of liability liquidity. The Company reviews its liquidity position on a regular basis based upon its current position and expected trends of loans and investor notes. Management believes that the Company maintains adequate sources of liquidity to meet its liquidity needs.

Historically, we have relied on the sale of our debt securities to finance our mortgage loan investments. We anticipate an increase in note sales once MP Securities commences operations, as this will remove many of the restrictions on our ability to sell debt securities. Note sales will allow us to finance additional mortgage loan investments. Some of these will be retained to generate interest income. However, we also plan on selling participations in a portion of those investments. The cash gained from these sales will be used to originate additional loan investments or to fund operating activities.

We also have been successful in generating reinvestments by our debt security holders when the notes that they hold mature. During the nine months ended September 30, 2011, our investors renewed their debt securities investments at a 78% rate. During the nine months ended September 30, 2010, 66% of our investors renewed their investments or reinvested in new debt securities that have been offered by us.

The net decrease in cash during the nine months ended September 30, 2011 was $924 thousand, as compared to a net decrease of $2.1 million for the nine months ended September 30, 2010, an improvement of $1.2 million. Net cash used by operating activities totaled $203 thousand for the nine months ended September 30, 2011, as compared to net cash provided by operating activities of $526 thousand for the same period in 2010. This decrease is attributable primarily to a larger net loss over the same period in 2010.

Net cash provided by investing activities totaled $13.6 million during the nine months ended September 30, 2011, as compared to $4.7 million used during the nine months ended September 30, 2010, an increase in cash of $8.9 million. This increase is primarily related to the sale of $5.4 million of loan participations during the nine months ended September 30, 2011, as well as the pay off of nine loans during this period.

Net cash used by financing activities totaled $14.3 million for the nine month period ended September 30, 2011, a decrease in cash of $7.0 million from $7.3 million used in financing activities during the nine months ended September 30, 2010. This difference is attributable to the increase in paydowns of our line of credit borrowings.

At September 30, 2011, our cash, which includes cash reserves and cash available for investment in mortgage loans, was $6.2 million, a decrease of $924 thousand from $7.1 million at December 31, 2010.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our President and Principal Accounting Officer, supervised and participated in an evaluation of our disclosure controls and procedures as of September 30, 2011. After evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) as of the end of the period covered by this quarterly report, our President and Principal Accounting Officer have concluded that as of the evaluation date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this quarterly report was being prepared.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Exchange Act is accumulated and communicated to our management, including the President and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no significant changes in the our internal controls over financial reporting that occurred in the third quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On February 15, 2011, Alief Independent School District, a taxing authority located in Houston, Texas, filed a suit for the recovery of delinquent ad valorem taxes against Steve Ams Ministries d/b/a Chapel of Praise (“SA Ministries”). We hold a mortgage in the amount of $1,237,500 on a worship facility and property owned by SA Ministries. The suit for unpaid property taxes names our wholly-owned subsidiary, MPF, as a defendant in the proceeding. Alief Independent School District is seeking recovery of $87,187 plus costs in this litigation.

We have filed an answer to this court action and believe we have adequate defenses to the actions brought by the plaintiff in this proceeding. In this instance, the property owned by SA Ministries has been continually used for ministry and worship related activities and, as a consequence, should qualify for an appropriate exemption from ad valorem taxes under Texas law. SA Ministries has filed for and requested an exemption from such taxes on a retroactive basis. According to the Harris County Appraisal District records, the Steve Ams Worship Center and real property located on 7414 Cook Road in Houston, Texas is listed as exempt religious property. As a result, we expect that this suit will be successfully resolved without liability to us or MPF. Should the SA Ministries request for a retroactive exemption be denied after all appeals or requests for relief exhausted, we may be required to pay all unpaid ad valorem taxes in the amount of $87,187 requested in the Alief Independent Schools District action, plus costs, penalties and interest or other relief awarded by the court.

Except for the Alief Independent School District suit, our management is not aware of any disagreements, disputes or other matters which may lead to the filing of legal proceedings involving us.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Reserved and Removed

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description of Exhibit

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
31.2	Certification of Acting Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) or Rule 15(d)-14(a)
32.1	Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification pursuant to 18 U.S.C. §1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 14, 2011

MINISTRY PARTNERS INVESTMENT

COMPANY, LLC

(Registrant) By: /s/ Susan B. Reilly______________________

Susan B. Reilly,

Chief Financial Officer

MINISTRY PARTNERS INVESTMENT COMPANY, LLC - FORM 10-Q - November 14, 2011

Attached files

MINISTRY PARTNERS INVESTMENT COMPANY, LLC Reports