MINISTRY PARTNERS INVESTMENT COMPANY, LLC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	Financial_Report.xls
EX-31.2 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex31-2.htm
EX-31.1 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex31-1.htm
EX-32.1 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex32-1.htm
EX-32.2 - MINISTRY PARTNERS INVESTMENT COMPANY, LLC	ex32-2.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 March 31, 2012

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

26-395934

(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 

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.

At March 31, 2012, 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, 2011.

MINISTRY PARTNERS INVESTMENT COMPANY, LLC

FORM 10-Q

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements	Page

Consolidated Balance Sheets (unaudited) at March 31, 2012 and December 31, 2011 (audited)	F-1

Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2012 and 2011	F-2

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2012 and 2011	F-3

Notes to Consolidated Financial Statements	F-4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3

Item 3. Quantitative and Qualitative Disclosures About Market Risk	11

Item 4. Controls and Procedures	11

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	11
Item 1A. Risk Factors	12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	12
Item 3. Defaults Upon Senior Securities	12
Item 4. Mine Safety Disclosures	12
Item 5. Other Information	12
Item 6. Exhibits	12

SIGNATURES	13

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

MARCH 31, 2012 AND DECEMBER 31, 2011

(Dollars in Thousands Except Unit Data)

	2012			2011
		(Unaudited)			(Audited)

Cash	$	12,602		$	11,167
Loans receivable, net of allowance for loan losses of $4,206 and $4,127 as of March 31, 2012 and December 31, 2011, respectively		162,197			165,355
Accrued interest receivable		710			725
Property and equipment, net		299			303
Debt issuance costs		55			104
Foreclosed assets		2,091			1,374
Other assets		415			253
Total assets	$	178,369		$	179,281
Liabilities and members’ equity
Liabilities:
Borrowings from financial institutions	$	108,790		$	110,280
Notes payable		59,576			59,030
Accrued interest payable		15			15
Other liabilities		510			478
Total liabilities		168,891			169,803
Members' Equity:
Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at March 31, 2012 and December 31, 2011 (liquidation preference of $100 per unit)		11,715			11,715
Class A common units, 1,000,000 units authorized, 146,522 units issued and outstanding at March 31, 2012 and December 31, 2011		1,509			1,509
Accumulated deficit		(3,746	)		(3,746	)
Total members' equity		9,478			9,478
Total liabilities and members' equity	$	178,369		$	179,281

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 March 31,
	2012		2011
Interest income:
Interest on loans	$	2,515	$	2,795
Interest on interest-bearing accounts		35		20
Total interest income		2,550		2,815
Interest expense:
Borrowings from financial institutions		691		1,274
Notes payable		624		660
Total interest expense		1,315		1,934
Net interest income		1,235		881
Provision for loan losses		104		100
Net interest income after provision for loan losses		1,131		781
Non-interest income		35		2
Non-interest expenses:
Salaries and benefits		458		367
Marketing and promotion		36		35
Office operations		372		360
Legal and accounting		209		218
Total non-interest expenses		1,075		980
Income (loss) before provision for income taxes		91		(197	)
Provision for income taxes		4		4
Net income (loss)	$	87	$	(201	)

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 THREE MONTHS ENDED MARCH 31, 2012 AND 2011

(Dollars in Thousands)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	87		$	(201	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation		30			30
Amortization of deferred loan fees		(22	)		(43	)
Amortization of debt issuance costs		51			44
Provision for loan losses		104			100
Accretion of allowance for loan losses on restructured loans		(13	)		(18	)
Accretion of loan discount		(2	)		(4	)
Changes in:
Accrued interest receivable		15			(39	)
Other assets		(162	)		(115	)
Other liabilities and accrued interest payable		32			38
Net cash provided (used) by operating activities		120			(208	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan purchases		(5,289	)		--
Loan originations		(71	)		(23	)
Loan sales		--			1,610
Loan principal collections, net		7,736			2,375
Purchase of property and equipment		(26	)		(3	)
Net cash provided by investing activities		2,350			3,959
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings from financial institutions		(1,490	)		(3,344	)
Net changes in notes payable		546			1,360
Debt issuance costs		(2	)		--
Dividends paid on preferred units		(89	)		(79	)
Net cash used by financing activities		(1,035	)		(2,063	)
Net increase in cash	$	1,435		$	1,688
Cash at beginning of period		11,167			7,078
Cash at end of period	$	12,602		$	8,766
Supplemental disclosures of cash flow information
Interest paid	$	1,315		$	1,942
Income taxes paid	$	--		$	--
Transfer of loans to foreclosed assets	$	717		$	--

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 2011 annual report filed on Form 10-K. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2012 and for the three months ended March 31, 2012 and 2011 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 March 31, 2012 and 2011 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 credit union owns only preferred units while the others own both common and preferred units. Offices of the Company are located in Brea, California. The Company provides funds for real property secured loans for the benefit of 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. Nearly all of the Company’s business and operations currently are conducted in California and 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 2010, after which its operations ceased and its assets, including loans, were transferred to the Company. MPF has no liabilities and is currently inactive. 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 debt financing transactions. MPF did not securitize any of its loans.

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, we 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 March 2, 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 offered under a registration statement filed with the U.S. Securities and Exchange Commission (“SEC”). In addition to serving as a selling agent for the Company’s Class A Notes and other debt securities, MP Securities will also 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 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.

By operation of law, the converted entity continued with all of the rights, privileges and powers of the corporate entity and is managed by a group of managers that previously served as the Board of Directors. The executive officers and key management team remained intact. The converted entity by operation of law possessed all of the properties and assets of the converted corporation and remains responsible for all of the notes, debts, contract claims and obligations of the converted corporation.

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

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. Material estimates that are particularly susceptible to significant change in the near term relate to, but are not limited to, the determination of the allowance for loan losses and the valuation of foreclosed real estate.

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 straight-line method, which results in an amortization that is materially the same as the interest method. Loan discounts represent an offset against interest accrued and unpaid which has been added to loans that have been restructured. Loan discounts are accreted to interest income over the term of the loan using the interest method once the loan is no longer considered impaired and is no longer in its restructure period. Loan discounts may also represent the difference between the purchase price of a loan and the outstanding principal balance of the loan. These discounts are accreted to interest income over the term of the loan using 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 or charged off at an earlier date if collection of principal or interest is considered doubtful.

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

F-5

Allowance for Loan Losses

The Company sets aside an allowance or reserve for loan losses through charges to earnings, which are shown in the Company’s Consolidated Statements of 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.

In evaluating the level of the allowance for loan losses, we consider the type of loan, amount of loans in our portfolio, adverse situations that may affect our borrowers’ ability to pay and estimated value of underlying collateral and credit quality trends (including trends in non-performing loans expected to result from existing conditions). Until 2011, we had never recorded a charge-off on our mortgage loan investments. As a result, we have a limited historical loss experience to assist us in assessing estimated future losses.

The allowance for loan loss is monitored by our senior management on an ongoing basis. The allowance consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. In establishing the allowance for loan losses, management considers significant factors that affect the collectability of our loan portfolio. While historical loss experience provides a reasonable starting point for the analysis, such experience by itself does not form a sufficient basis to determine the appropriate level of the allowance for loan losses.

In determining the general component of the allowance, we examine the performance characteristics of our loan portfolio, including charge-offs, delinquency ratios, loan restructurings and modifications and other significant factors that, in management’s judgment, may affect our ability to collect loans in the portfolio as of the evaluation date. In 2009, we also added a factor relating to the portion of our loan portfolio that is held in a loan participation interest. The net effect of adding this factor in our analysis resulted in an increase in the allowance for loan losses that reflects the greater risk of loss associated with holding a loan participation interest in which we do not serve as the lead lender for the loan. While we have not added any new qualitative factors in the analysis of our loan portfolio since 2009, in March 2012 we refined our analysis by segregating our loans into pools based on the position of the underlying collateral and the risk rating of the loan. Risk ratings are determined by grading a borrower on certain metrics, which include financial performance, strength of management, credit history, and condition of the local economy. These ratings are updated on an annual basis. By segregating the portfolio in this manner, the senior management team is better able to assess the potential impact of various risk factors depending on the quality of the loans in a particular pool. The potential impact of factors such as the risk of charge-offs, impairment, delinquency, restructuring, decreases in borrower financial condition, and continued low commercial real estate values throughout the country fluctuates depending on the quality of the loan. As a result, management has increased the weight of these factors for loans with a higher risk rating. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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

F-6

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

Troubled Debt Restructurings

A troubled debt restructuring is a loan for which the Company, for reasons related to a borrower’s financial difficulties, grants a concession to a borrower that the Company would not otherwise consider. From time to time, we have restructured a mortgage loan in light of the borrower's circumstances and capabilities. We review each of these cases on an individual basis, and approve any restructure based on the guidance stipulated in our collections policy. If we decide to accept a loan restructure, we generally will not forgive or reduce the principal amount owed on the loan; in addition, the typical maturity term for a restructured loan does not exceed five years. We classify a loan as a restructured loan when we make concessions we would not otherwise consider if offering a loan to a borrower. A restructuring of a loan usually involves an interest rate modification, extension of the maturity date, or reduction of accrued interest owed on the loan on a contingent or absolute basis.

When we receive a request for a modification or restructure, we evaluate the strength of the borrower’s financial condition, leadership of the pastoral team and board, developments that have impacted the church and its leadership team, local economic conditions, the value of the underlying collateral, the borrower’s commitment to sound budgeting and financial controls, whether there is a denominational guaranty of any portion of the indebtedness, debt service coverage for the borrower, availability of other collateral and any other relevant factors unique to the borrower. While we have no written policy that establishes criteria for when a request for restructuring a loan will be approved, our Credit Review Committee reviews each request, solicits written reports and recommendations from management and summaries of the requests and actions taken by the Credit Review Committee are presented to the Company’s managers for their review at quarterly meetings throughout the year.

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

In the current economic market, loan restructures often produce a better outcome for our loan portfolio than a foreclosure action. Given our specialized knowledge and experience working with churches and ministries, entering into a loan modification often enables the borrower to keep their ministries intact and avoid foreclosure. With a successful loan restructure, we avoid a loan charge-off and protect the interests of the investors and borrowers we serve.

Loan Portfolio Segments and Classes

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

F-7

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

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 class also contains any loans that are not secured. These loans present higher credit risk than loans for which the Company possesses a senior lien due to the increased risk of loss should the loan default.

Participations First Collateral Position. 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 higher 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 higher 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 foreclosure is charged to the allowance for loan losses. If the fair value, less costs to sell, of the foreclosed property decreases during the holding period, a valuation allowance is established with a charge to operating expenses taken. The Company’s real estate assets acquired through foreclosure or other proceedings are evaluated regularly to ensure that the recorded amount is supported by its current fair value and that valuation allowances to reduce the varying amount to fair value less estimated costs of disposal are recorded as necessary. Revenue and expense from the operation of the Company’s foreclosed assets and changes in the valuation allowance are included in net expenses from foreclosed assets. When the foreclosed property is sold, a gain or loss is recognized on the sale for the difference between the sales proceeds and the carrying amount of the property.

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).

F-8

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.

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 is not met, the transaction is accounted for as a secured borrowing arrangement.

Under some circumstances, when the Company sells participations in a wholly-owned loan receivable that it services, it retains a servicing asset that is initially measured at fair value. As quoted market prices are generally not available for these assets, the Company estimates fair value based on the present value of future expected cash flows associated with the loan receivable. The Company amortizes servicing assets over the life of the associated receivable using the interest method. Any gain or loss recognized on the sale of loans receivable depends in part on both the previous carrying amount of the financial assets involved in the sale, allocated between the assets sold and the interests that continue to be held by the Company based on their relative fair value at the date of transfer, and the proceeds received.

Property and Equipment

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

F-9

Debt Issuance Costs

Debt issuance costs are related to borrowings from financial institutions as well as offerings of debt securities, and are amortized into interest 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 no federal or state income tax will be recorded in its financial statements after the date of conversion. Income and losses 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 for years ending on and after December 31, 2009. The Company’s subsidiaries are LLCs except for MP Realty, which was organized as a California corporation. MP Realty incurred a tax loss for the year ended December 31, 2011 and recorded a provision of $800 for the state minimum franchise tax.

Although the Company is not a federal or state income tax-paying entity, it is nonetheless subject to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for 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, 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 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. The Company has included the required disclosures in its consolidated financial statements.

F-10

2. Related Party Transactions

We maintain most of our cash funds at ECCU, our largest equity investor. Total funds held with ECCU were $12.4 million and $10.9 million at March 31, 2012 and December 31, 2011, respectively. Interest earned on funds held with ECCU totaled $35.1 thousand and $19.7 thousand for the three months ended March 31, 2012 and 2011, respectively.

We lease physical facilities and purchase other services from ECCU pursuant to a written lease and services agreement. Charges of $28.9 thousand and $27.3 thousand for the three months ended March 31, 2012 and 2011, 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 $1.8 million and $12.0 thousand of loans from ECCU during the three months ended March 31, 2012 and 2011, respectively. With regards to all loans purchased from ECCU, we recognized $1.6 million and $2.0 million of interest income on loans purchased from ECCU during the three months ended March 31, 2012 and 2011, respectively. ECCU currently acts as the servicer for 85 of the 130 loans in the Company’s loan portfolio. Per the loan servicing agreement with ECCU, a servicing fee of 50 to 65 basis points is deducted from the interest payments the Company receives on the wholly-owned loans ECCU services for the Company. In lieu of a servicing fee, loan participations the Company purchases from ECCU generally have pass-through rates which are 50 to 75 basis points lower than the loan’s contractual rate. On a limited number of loan participation interests purchased from ECCU, representing $9.8 million of loans at March 31, 2012, the pass-through rate is between 88 and 238 basis points lower than the contractual rate. The Company negotiates the pass-through interest rates with ECCU on a loan by loan basis. At March 31, 2012, the Company’s investment in wholly-owned loans serviced by ECCU totaled $64.7 million, while the Company’s investment in loan participations serviced by ECCU totaled $43.5 million. From time to time, the Company pays fees for additional services ECCU provides for servicing these loans. However, we did not pay any of these fees during the three months ended March 31, 2012 and 2011, respectively.

ECCU has from time to time repurchased from the Company fractional participations in the loan investments which ECCU already services, usually around 1% of the loan balance, to facilitate compliance with National Credit Union Association (“NCUA”) rules when participations in those loans were sold to federal credit unions. Each sale or purchase of a mortgage loan investment or participation interest with ECCU was consummated under a Related Party Transaction Policy adopted by the Company’s Board. No gain or loss was incurred on these sales. No whole loans or loan participations were sold to ECCU during the three months ended March 31, 2012 and 2011, respectively.

On December 14, 2007, the Board of Directors appointed R. Michael Lee to serve as a Company director. Mr. Lee serves as Vice President Member Relations, Midwest Region, of Alloya Corporate Federal Credit Union (“Alloya”), formerly Members United Corporate Federal Credit Union (“Members United”). See Note 6 for information regarding the Company’s borrowings from Members United. The Company has $92.0 thousand on deposit with Alloya as of March 31, 2012.

3. Loans Receivable and Allowance for Loan Losses

We originate church mortgage loans, participate in church mortgage loans, and also purchase entire church mortgage loans. 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 are made to various evangelical churches and related organizations, primarily to purchase, construct or improve facilities. Loan maturities extend through 2021. Loans yielded a weighted average of 6.44% as of March 31, 2012, compared to a weighted average yield of 6.39% as of March 31, 2011.

F-11

Allowance for Loan Losses

An allowance for loan losses of $4.2 million as of March 31, 2012 and $4.1 million as of December 31, 2011 has been established for loans receivable. For the three month period ended March 31, 2012, we reported a charge-off of $12 thousand on one of our mortgage loan investments. Management believes that the allowance for loan losses as of March 31, 2012 and December 31, 2011 is appropriate. Changes in the allowance for loan losses are as follows for the three months ended March 31, 2012 and the year ended December 31, 2011:

	2012			2011

Balance, beginning of period	$	4,127		$	3,997
Provisions for loan losses		104			1,487
Chargeoffs		(12	)		(1,279	)
Change in allowance related to
restructured loans		(13	)		(78	)

Balance, end of period	$	4,206		$	4,127

Non-Performing Loans

Non-performing loans include non-accrual loans, loans 90 days or more past due and still accruing, restructured loans, and other impaired loans where the net present value of estimated future cash flows is lower than the outstanding principal balance.. 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:

	March 31		December 31		March 31
	2012		2011		2011

Impaired loans with an allowance for loan loss	$	15,873	$	18,169	$	22,707
Impaired loans without an allowance for loan loss		7,233		4,773		4,438
Total impaired loans	$	23,106	$	22,942	$	27,145

Allowance for loan losses related to impaired loans	$	3,206	$	3,064	$	3,259

Total non-accrual loans	$	22,147	$	22,942	$	27,145

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

We had fifteen nonaccrual loans as of March 31, 2012 and at December 31, 2011. As of March 31, 2012, we have completed foreclosure proceedings on two loan participation interests we acquired from ECCU. In addition, we have four loans totaling $6.2 million that are in foreclosure proceedings. There is a reserve of $575.6 thousand on these loans.

The Company’s loan portfolio is comprised of one segment – church loans. 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.

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

F-12

Loans and Allowance for Loan Losses (by segment)
As of

	March 31, 2012		December 31, 2011

Loans:

Balance	$	167,828	$	170,920

Individually evaluated
for impairment	$	23,106	$	22,942

Collectively
evaluated for impairment	$	144,722	$	147,978

Allowance for loan losses:

Balance	$	4,206	$	4,127

Individually evaluated
for impairment	$	3,206	$	3,064

Collectively
evaluated for impairment	$	1,000	$	1,063

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 its debt service obligations. 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-13

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 March 31, 2012 and 2011, which is the date on which the information was updated for each credit quality indicator:

Credit Quality Indicators (by class)
As of March 31, 2012
		Wholly-Owned First	Wholly-Owned Junior	Participation First	Participation Junior	Total

Grade:
Pass	$87,426		$7,528	$35,542	$1,006	$131,502
Watch	4,625		3,839	4,576	-	13,040
Substandard	4,033		3,878	4,074	-	11,985
Doubtful	7,242		1,155	2,904	-	11,301
Loss	-		-	-	-	-
Total	$103,326		$16,400	$47,096	$1,006	$167,828

Credit Quality Indicators (by class)
As of March 31, 2011
		Wholly-Owned First	Wholly-Owned Junior	Participation First	Participation Junior	Total

Grade:
Pass	$96,799		$14,078	$43,475	$1,619	$155,971
Watch	4,057		3,404	2,294	-	9,755
Substandard	9,234		1,162	2,648	-	13,044
Doubtful	-		-	9,235	-	9,235
Loss	-		-	-	-	-
Total	$110,090		$18,644	$57,652	$1,619	$188,005

F-14

The following table sets forth certain information with respect to the Company’s loan portfolio delinquencies by loan class and amount at March 31, 2012 and 2011:

Age Analysis of Past Due Loans (by class)
As of March 31, 2012

													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	$	2,618	$	2,730	$	10,180	$	15,528	$	87,798	$	103,326	$	-
Wholly-Owned Junior		3,408		-		1,590		4,998		11,402		16,400		-
Participation First		-		-		2,904		2,904		44,192		47,096		-
Participation Junior		-		-		-		-		1,006		1,006		-

Total	$	6,026	$	2,730	$	14,674	$	23,430	$	144,398	$	167,828	$	-

Age Analysis of Past Due Loans (by class)
As of March 31, 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	$	6,550	$	815	$	1,367	$	8,732	$	101,358	$	110,090	$	-
Wholly-Owned Junior		4,324		723		216		5,263		13,381		18,644		-
Participation First		-		-		9,235		9,235		48,417		57,652		-
Participation Junior		-		-		-		-		1,619		1,619		-

Total	$	10,874	$	1,538	$	10,818	$	23,230	$	164,775	$	188,005	$	-

The following table is a summary of impaired loans by loan class at March 31, 2012 and December 31, 2011. The recorded investment in impaired loans reflects the balances in the financials statements, whereas the unpaid principal balance reflects the balances before partial chargeoffs:

Impaired Loans (by class)
For the Three Months Ended March 31, 2012

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	4,196	$	4,354	$	-	$	4,216	$	29
Wholly-Owned Junior		217		224		-		218		3
Participation First		2,655		2,655		-		2,655		-
Participation Junior		-		-		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		10,272		10,814		2,825		10,282		59
Wholly-Owned Junior		4,289		4,810		361		4,291		26
Participation First		249		249		20		978		-
Participation Junior		-		-		-		-		-

Total:
Church loans	$	21,878	$	23,106	$	3,206	$	22,640	$	117

F-15

Impaired Loans (by class)
For the Year Ended December 31, 2011

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	1,678	$	1,685	$	-	$	1,691	$	98
Wholly-Owned Junior		-		434		-		-		-
Participation First		2,655		2,655		-		2,699		-
Participation Junior		-		-		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		11,893		12,587		1,773		12,053		254
Wholly-Owned Junior		4,511		4,603		1,111		4,520		146
Participation First		978		978		180		983		-
Participation Junior		-		-		-		-		-

Total:
Church loans	$	21,715	$	22,942	$	3,064	$	21,946	$	498

A summary of nonaccrual loans by loan class at March 31, 2012 and December 31, 2011 is as follows:

Loans on Nonaccrual Status (by class)
As of March 31, 2012

Church loans:
Wholly-Owned First	$	14,210
Wholly-Owned Junior		5,033
Participation First		2,904
Participation Junior		-

Total	$	22,147

F-16

Loans on Nonaccrual Status (by class)
As of December 31, 2011

Church loans:
Wholly-Owned First	$	14,272
Wholly-Owned Junior		5,037
Participation First		3,633
Participation Junior		-

Total	$	22,942

The following are summaries of troubled debt restructurings by loan class that were modified during the period ended March 31:

Troubled Debt Restructurings (by class)
As of March 31, 2012



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

Church loans:
Wholly-Owned First		1	$	2,494	$	2,494	$	2,494
Wholly-Owned Junior		1		-		-		-
Participation First		1		271		249		249
Participation Junior		-		-		-		-

Total		3	$	2,765	$	2,743	$	2,743

Troubled Debt Restructurings (by class)
As of March 31, 2011



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

Church loans:
Wholly-Owned First		2	$	4,849	$	4,849	$	4,809
Wholly-Owned Junior		1		433		433		433
Participation First		-		-		-		-
Participation Junior		-		-		-		-

Total		3	$	5,282	$	5,282	$	5,242

F-17

For 11 of the 14 restructured loans in our portfolio, unpaid accrued interest at the time of the loan restructure was added to the principal balance. The amount of interest added was also recorded as a loan discount, and so did not increase our net loan balance. Another restructured loan represents the modified loan balance upon foreclosure on two of three underlying properties. In addition, for each of the 14 restructured loans, the interest rate was lowered. Each borrower involved in a troubled debt restructuring was experiencing financial difficulties at the time the loan was restructured.

A summary of troubled debt restructurings that defaulted during the three months ended March 31, 2012 and 2011 is as follows:

Troubled Debt Restructurings Defaulted (by class)
During the three months ended March 31, 2012

	Number of		Recorded
	Loans		Investment

Troubled debt restructurings that subsequently defaulted:
Church loans:
Wholly-Owned First		-	$	-
Wholly-Owned Junior		-		-
Participation First		1		249
Participation Junior		-		-
Total:
Church loans		1	$	249

Troubled Debt Restructurings Defaulted (by class)
During the three months ended March 31, 2011

	Number of		Recorded
	Loans		Investment

Troubled debt restructurings that subsequently defaulted:
Church loans:
Wholly-Owned First		3	$	4,654
Wholly-Owned Junior		2		1,121
Participation First		-		-
Participation Junior		-		-
Total:
Church loans		5	$	5,775

Loans modified in a troubled debt restructuring are closely monitored for delinquency as an early indicator for future default. If loans modified in a troubled debt restructuring subsequently default, the Company evaluates the loan for potential further impairment. As a result of this evaluation, specific reserves may be increased or adjustments may be made in the allocation of reserves.

No additional funds were committed to be advanced in connection with impaired loans as of March 31, 2012.

F-18

4. 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 foreclosure 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.

Foreclosed assets consist of three properties. One property was acquired during 2011 in satisfaction of a secured loan. The property had a carrying value of $1.4 million at March 31, 2012, and no valuation allowance has been established for this property. The other two properties were acquired in February 2012 in partial satisfaction of a secured loan. The properties had a carrying value of $717.2 thousand at March 31, 2012, and no valuation allowance has been established for these properties. The Company held no foreclosed assets held at March 31, 2011.

5. Loan Participation Sales

During the year ended December 31, 2011, the Company sold participations in two church loans totaling $5.4 million but retained servicing responsibilities for these loans. As a result, we recorded servicing assets totaling $146.9 thousand, which are being amortized using the interest method. The amortization of servicing assets is recorded as an adjustment to interest income and totaled $7.6 thousand and $9.4 thousand for the the three months ended March 31, 2012 and the year ended December 31, 2011, respectively. We did not sell participations in any loans during the three months ended March 31, 2012.

A summary of servicing assets for the three months ended March 31, 2012 and the year ended December 31, 2011 is as follows:

	2012		2011
Balance, beginning of period	$	138	$	--
Additions:
Servicing obligations from sale of loan participations		--		147
Subtractions:
Amortization		8		9
Balance, end of period	$	130	$	138

F-19

6. 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, a federally chartered credit union located in Warrenville, Illinois, which provides financial services to member credit unions. One note and security agreement was for a secured $10 million revolving line of credit, which is referred to as the “$10 Million LOC,” and the other was 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 were secured by certain mortgage loans. The Company utilized 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 and we paid off this facility in 2011.

Pursuant to the terms of the Company’s promissory note with Members United, once the loan was fully drawn, the total outstanding balance was termed out over a five year period with a 30 year amortization payment schedule. In addition, the term loan interest rate was specified by Members United and was re-priced to a market fixed or variable rate determined at the time the loan is restructured. We also have used our $100 million Members United credit facility to assist us in financing our business. For 2011, the weighted average interest rate we paid on the Members United facility was 3.98%.

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 an $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 on the first day of each month 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 balance of the MU Credit Facility was $85.7 million and $86.9 million at March 31, 2012 and December 31, 2011, respectively.

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 March 31, 2012 and December 31, 2011, the collateral securing the MU Credit Facility had an aggregate principal balance of $110.0 million and $111.4 million, respectively, 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. As of March 31, 2012 and December 31, 2011, the Company was in compliance with its covenants under the MU Credit Facility.

WesCorp Facility

On November 30, 2009, the Company entered into a Loan and Security agreement with WesCorp, a federally chartered credit union located in San Dimas, California. The agreement provided for a secured $28 million term loan, referred to as the “WesCorp Facility.” We used $24.6 million of the proceeds from the WesCorp credit facility to pay-off our Bank of Montreal credit facility. The WesCorp credit facility had a fixed interest rate of 3.95% and was initially secured by approximately $59.2 million of mortgage loans we previously pledged to secure a credit facility we had established with the Bank of Montreal but has been subsequently paid off. Thus, the loan was initially secured by excess collateral of approximately $30.8 million.

F-20

On March 20, 2009, the NCUA assumed control of WesCorp under a conservatorship proceeding initiated by the 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, we were advised that our WesCorp credit facility had been transferred to the Asset Management Assistance Center (“AMAC”), a facility established by the NCUA.

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 on the first day of each month 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. As of March 31, 2012 and December 31, 2011, $23.1 and $23.4 million, respectively, was outstanding on the WesCorp Credit Facility Extension.

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 March 31, 2012 and December 31, 2011, the collateral securing the WesCorp Credit Facility Extension had an aggregate principal balance of $34.6 million and $35.3 million, respectively, which satisfies the minimum collateralization ratio for this facility. As of March 31, 2012 and December 31, 2011, the Company was in compliance with its covenants under the Wescorp Credit Facility Extension.

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. Future estimated principal pay downs of our bank borrowings during the twelve month periods ending March 31 are as follows:

2013	$	3,267
2014		3,358
2015		3,444
2016		3,525
2017		3,622
Thereafter		91,574
	$	108,790

F-21

In addition to regular principal payments, we also made $685 thousand in principal payments during the quarter ended March 31, 2012 in order to remain in compliance with the collateralization requirements of our borrowings.

7. Notes Payable

We also rely on our investor notes to make investments in mortgage loan assets and fund our general operations. The notes are unsecured and are payable to investors who have purchased the securities, including individuals, churches, and Christian ministries, many of whom are members of ECCU. Notes pay interest at stated spreads over an index rate that is adjusted every month. Interest can be reinvested or paid at the investor's option. The Company may repurchase all or a portion of these notes at any time at its sole discretion, and may allow investors to redeem their notes prior to maturity at its sole discretion. We have offered our investor notes under registered offerings with the SEC and in private placements that are exempt under the provisions of the Securities Act of 1933, as amended. Our Alpha Class Notes were initially registered with the SEC in July 2001 and an additional $75.0 million of new Alpha Notes were registered with the SEC in May 2007.

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 the Company to maintain a minimum tangible adjusted net worth, as defined in the Loan and Standby Trust Agreement, of not less than $4.0 million. The Company is 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. The Company’s other indebtedness, as defined in the Loan and Standby Trust Agreement, and subject to certain exceptions enumerated therein, may not exceed $10.0 million outstanding at any time while any Alpha Class Note is outstanding. The Company is in compliance with these covenants as of March 31, 2012. With the registration of its Class A Notes, the Company has discontinued the sale of the Alpha Class Notes effective as of April 18, 2008. At March 31, 2012 and December 31, 2011, $3.9 million and $4.4 million of Alpha Class Notes were outstanding, respectively.

In April 2008, the Company registered with the SEC $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 continued through April 30, 2010. The Company registered an additional $100.0 million of Class A notes on both June 3, 2010 and May 4, 2011. 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 the Company pays 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 the Company pays 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 Class A Notes also contain restrictive covenants pertaining to paying dividends, making redemptions, acquiring, purchasing or making certain payments, requiring the maintenance of minimum tangible net worth, limitations on the issuance of additional notes and incurring of indebtedness. The Class A Notes require the Company to maintain a minimum tangible adjusted net worth, as defined in the Class A Notes Trust Indenture Agreement, of not less than $4.0 million. The Company is not permitted to issue any Class A Notes if, after giving effect to such issuance, the Alpha Class Notes then outstanding would have an aggregate unpaid balance exceeding $100.0 million. The Company’s other indebtedness, as defined in the Class A Notes Trust Indenture Agreement, and subject to certain exceptions enumerated therein, may not exceed $20.0 million outstanding at any time while any Class A Notes are outstanding. The Company was in compliance with these covenants as of March 31, 2012.

The Class A Notes were issued under a Trust Indenture between the Company and U.S. Bank National Association (US Bank). The Class A Notes are part of up to $200 million of Class A Notes the Company may issue pursuant to the US Bank Indenture. At March 31, 2012 and December 31, 2011, $47.8 million and $46.5 million of these notes were outstanding, respectively.

F-22

Historically, most of the Company’s unsecured notes have been renewed by investors upon maturity. Because the Company has discontinued its 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 Class A Notes that have been registered with the Securities and Exchange Commission. For matured notes that are not renewed, the Company funds the redemption in part through proceeds from the repayment of loans, and issuing new notes payable.

We have the following unsecured notes payable at March 31, 2012 (dollars in thousands):

			Weighted Average Interest Rate
Class A Offering	$	47,836		4.01	%
Special Offering		7,631		4.48	%
Special Subordinated Note		6		5.45	%
International Offering		201		4.43	%
National Alpha Offering		3,902		5.66	%
Total	$	59,576		4.18	%

Future maturities during the twelve month periods ending March 31 are as follows (dollars in thousands):

2013	$	26,803
2014		10,107
2015		8,569
2016		7,628
2017		5,238
Thereafter		1,231
	$	59,576

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.

F-23

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

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.

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.

The Company had stand-alone derivative financial instruments in the form of interest rate cap agreements, which derived their value from underlying interest rates. These transactions involved 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 was limited to the net difference between the calculated amounts to be received and paid, if any. Such differences, which represented the fair value of the derivative instruments, were reflected on the Company’s consolidated balance sheet as other assets and other liabilities.

The Company was exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. The Company controlled the credit risk of its financial contracts through credit approvals, limits and monitoring procedures. No counterparties failed their obligations. The Company dealt only with primary dealers.

Interest Rate Risk Management – Cash Flow Hedging Instruments

The Company has used long-term variable rate debt and variable rate preferred units as sources of funds for use in its lending and investment activities and other general business purposes. These debt obligations expose the Company 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. To limit the variability of a portion of the Company’s interest payments, management hedged a portion of the Company’s variable rate interest payments.

One way to hedge 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.

These agreements provided for the Company to receive payments at a variable rate determined by a specified index (one month London Inter-Bank Offered Rate (“LIBOR”)) when the index interest rate exceeds 1.50.

F-24

The fair value of interest rate caps was recorded in other assets. Changes in the fair value of interest rate caps and preferred units designed as hedging instruments of the variability of cash flows associated with long-term debt and preferred units are reported in other comprehensive income (loss). These amounts subsequently are reclassified against income available to common unit holders in the same period in which the related interest on the long-term debt affects earnings. The interest rate caps matured in June 2011. There are no interest rate caps outstanding at March 31, 2012.

The Company reclassified $44.6 thousand of comprehensive income related to interest rate caps against retained earnings during the three months ended March 31, 2011. There was no comprehensive income related to interest rate caps reclassified during the three months ended March 31, 2012.

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 year ended December 31. No tax effect is recognized since the Company is not a tax-paying entity.

	Year ended December 31,
	2011

Change in fair value of derivatives used for cash flow hedges
Interest rate caps	$	--
Reclassification of comprehensive income related to interest rate caps	$	80

Net amount	$	80

The Company did not have any components of comprehensive income or loss during the period ended March 31, 2012 and at December 31, 2011.

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 three months ended March 31, 2012 and the year ended March 31, 2011 were $12.6 thousand and $10.6 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 managers, and is calculated as a percentage of the eligible employee's annual earnings. Plan forfeitures are used to reduce the our annual contribution. We did not make any contributions for the plan during the year ended December 31, 2011. No profit sharing contribution has been made or approved for the three months ended March 31, 2012.

F-25

12. Loan Commitments

Unfunded Commitments

Unfunded commitments are commitments for possible future extensions of credit to existing customers of ECCU. Unfunded commitments totaled $192.2 thousand at March 31, 2012 and $181.8 thousand at December 31, 2011.

13. Fair Value Measurements

Fair Value Measurements Using Fair Value Hierarchy

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. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of our financial instruments at March 31, 2012 and December 31, 2011, are as follows:

	Fair Value Measurements at March 31, 2012 using

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Value		Level 1		Level 2		Level 3		Fair Value
FINANCIAL ASSETS:
Cash	$	12,602	$	12,602	$	-	$	-	$	12,602
Loans, net		162,197		-		1,548		162,039		163,587
Accrued interest receivable		710		-		-		710		710
FINANCIAL LIABILITIES:
Notes payables	$	59,576	$	-	$		$	61,291	$	61,291
Bank borrowings		108,790		-				109,506		109,506
Other financial liabilities		101		-				101		101

	December 31, 2011
	Carrying Amount		Estimated Fair Value

Financial assets:
Cash	$	11,167	$	11,167
Loans receivable		165,355		168,383
Accrued interest receivable		863		863
Financial liabilities:
Notes payable		59,030		60,833
Bank borrowings		110,280		111,371
Other financial liabilities		104		104

F-26

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 March 31, 2012 and December 31, 2011.

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.

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 March 31, 2012 and December 31, 2011.

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 March 31, 2012:
Impaired loans (net of allowance and discount)	$	-	$	1,548	$	17,126	$	18,674
Foreclosed assets		-		-		2,091		2,091
	$	-	$	1,548	$	19,217	$	20,765


Assets at December 31, 2011:
Impaired loans (net of allowance and discount)	$	-	$	-	$	18,652	$	18,652
Foreclosed assets		-		-		1,374		1,374
	$	-	$	-	$	20,026	$	20,026

F-27

Impaired Loans

Collateral-dependent impaired loans 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.

Foreclosed Assets

Real estate acquired through foreclosure or other proceedings (foreclosed assets) is 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 of cost or fair value, less estimated costs of disposal. The fair values of real properties initially are 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 or in the collateral. Subsequent valuations of the real properties are based on management estimates or on 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.

The valuation methodologies used to measure the fair value adjustments for Level 3 assets recorded at fair value on a nonrecurring basis at March 31, 2012 are summarized below:

Assets	Fair Value	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired Loans	17,126	Discounted appraised value	Selling cost	10% (10%)
		Discounted cash flows	Discounted cash flows
		Internal evaluations	Discount due to age of appraisal	0% - 5% (0.12%)

Foreclosed assets	2,091	Discounted appraised value	Selling cost	10% (10%)
Foreclosed assets	2,091	Internal evaluations	Discount due to age of appraisal	0% - 5% (1.72%)

14. Subsequent Event

On May 15, 2012, the Company entered into a Loan Purchase Agreement with Trinity Pacific Investments and Trinity Pacific OC involving two mortgage loan interests it had acquired from ECCU, which were the subject of foreclosure proceedings. In exchange for transferring all rights, title and interest in these two mortgage loan interests, the Company will receive $2.425 million in cash and will be relieved of any further obligations regarding the mortgage loan interests being sold. This transaction will result in a chargeoff of $35 thousand in allowance for loan losses. The Company will also reverse $265 thousand of specific reserves related to these two loans that were recorded in prior periods which will reduce the Company’s provisions for loan losses.

F-28

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, 2011, 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 that we have set aside prove to be insufficient to cover actual losses on our loan portfolio;

·	we rely upon our largest equity holder to originate profitable church and ministry related mortgage loans;

·	because we rely on credit facilities to finance our investments in church mortgage loans, 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 primary credit 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.

-3-

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 month periods ended March 31, 2012 and March 31, 2011 and should be read in conjunction with the accompanying financial statements and Notes thereto.

Results of Operations

Three Months Ended March 31, 2012 vs. Three Months Ended March 31, 2011

During the three months ended March 31, 2012, we reported net income of $87 thousand as compared to a net loss of $201 thousand for the three months ended March 31, 2011. Our return to profitability in the first quarter of 2012 is primarily attributable to reduced borrowing rates on our borrowings from financial institutions from a weighted average of 4.32% during the three months ended March 31, 2011 as compared to 2.53% for the three months ended March 31, 2012. This decrease occurred when we completed a refinancing transaction with the NCUA for our primary credit facilities in November 2011 that lowered the interest rates on $110 million of borrowings in our two credit facilities. This refinancing transaction, as well as paydowns of $9.7 million since March 2011, decreased interest expense on borrowings from financial institutions by $583 thousand. This reduction in borrowing costs was partially offset by a $281 thousand decrease in interest income we received on our mortgage loans as well as a $91 thousand increase in salary and benefits expense.

Total interest income decreased by $266 thousand, or 9%, during the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011. Despite the slight increase in the average yield on our performing loans as well as the slight decrease in the balance of non-interest-earning assets, the $20.2 million decrease on the balance of our gross loans receivable has led to a $281 thousand, or 10%, decrease in interest income on our mortgage loan investments. Total interest expense decreased from $1.9 million for the three months ended March 31, 2011 to $1.3 million for the three months ended March 31, 2012. This decrease is related partially to a $36 thousand decrease in interest expense on notes payable, as our notes payable balance has declined by $3.9 million from March 2011 to March 2012. However, the decrease in interest expense is primarily due to a savings of $583 thousand, or 46%, in interest expense on borrowings from financial institutions related to the refinancing transaction we completed with the NCUA in late 2011. This transaction led to an increase in net interest income for the quarter ended March 31, 2012 to $1.2 million as compared to $881 thousand for the previous year’s quarter. This difference of $353 thousand in higher net interest income represents a 40% increase from the first quarter of 2011. Net interest income after provision for loan losses increased to $1.1 million for the quarter ended March 31, 2012, an increase of $350 thousand, or 45%, from $781 thousand for the three months ended March 31, 2011. As provisions for loan losses were approximately equal during the quarter ended March 31, 2012 as compared to the quarter ended March 31, 2011, this increase in net interest income is due almost entirely to the decrease in interest expense on borrowings on our primary credit facilities.

We also had other income of $35 thousand in the first quarter of 2012 primarily due to rental income on our REO property and servicing fee income we earned on two loans participations we sold but retained servicing rights. This is an increase of $33 thousand from $2 thousand in other income for the quarter ended March 31, 2011 and is due to rental income we recorded on our REO property and servicing income generated from the sale of two loan participation interests.

-4-

Our non-interest operating expenses for the three months ended March 31, 2012 increased to $1.1 million from $980 thousand for the same period ended March 31, 2011, an increase of 10%. This increase is due mainly to a $91 thousand, or 25%, increase in salaries and benefits expense. Since the end of March 2011, we have hired four additional employees to assist in the growth of our finance, lending and note sales departments, increasing our total employees from 15 to 19, an increase of 27%. We incurred $42 thousand in additional legal and accounting fees during the first quarter of 2012 compared to 2011 in connection with the launch of our broker dealer subsidiary, MP Securities, and request for approval from FINRA to permit MP Securities to act as a selling agent for our Class A Notes. This increase in legal, accounting and consulting fees was offset by a decrease of $56 thousand in consulting fees, which we incurred in the first quarter of 2011, in connection with our efforts to refinance our primary credit facilities.

Net Interest Income and Net Interest Margin

Our earnings depend largely upon the difference between the income we receive from interest-earning assets, which consist principally of mortgage loan investments and interest-earning accounts with other financial institutions, and the interest paid on our debt securities and credit facility borrowings. 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 table provides 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 March 31,
	(Dollars in Thousands)

	2012							2011
	Average Balance		Interest Income/ Expense		Average Yield/ Rate			Average Balance		Interest Income/ Expense		Average Yield/ Rate

Assets:
Interest-earning accounts with other financial institutions	$	12,894	$	35		1.09	%	$	7,485	$	20		1.10	%
Interest-earning loans [1]		153,143		2,515		6.60	%		173,861		2,795		6.52	%
Total interest-earning assets		166,037		2,550		6.18	%		181,346		2,815		6.31	%

Non-interest-earning assets		12,904		--		--			13,285		--		--
Total Assets		178,941		2,550		5.83	%		194,631		2,815		5.87	%

Liabilities:
Public offering notes – Class A		46,771		474		4.07	%		45,902		467		4.13	%
Public offering notes – Alpha Class		4,323		61		5.68	%		5,338		76		5.73	%
Special offering notes		7,721		87		4.53	%		9,579		87		3.69	%
International notes		191		2		4.57	%		202		2		4.50	%
Subordinated notes		6		--		5.45	%		1,655		28		6.87	%
Borrowings from financial institutions		109,811		691		2.53	%		120,012		1,274		4.31	%

Total interest-bearing liabilities	$	168,823	$	1,315		3.13	%	$	182,688	$	1,934		4.29	%

Net interest income			$	1,235						$	881
Net interest margin [2]						2.77	%						1.84	%

[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.

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Average interest-earning assets decreased to $166.0 million during the three months ended March 31, 2012, from $181.3 million during the same period in 2011, a decrease of $15.3 million or 8%. The average yield on these assets decreased to 6.18% for the three months ended March 31, 2012 from 6.31% for the three months ended March 31, 2011. This average yield decrease is related to the higher average balance in interest-earning accounts with other financial institutions, as those assets are earning only 1% and increased to $12.8 million at March 31, 2012 as compared to $7.4 million at March 31, 2011, or 44%, from March 31, 2011. The average yield on total assets decreased slightly to 5.83% from 5.87% due to the higher proportion of assets represented by lower yield interest-earning accounts we held. Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased to $168.8 million during the three months ended March 31, 2012, from $182.7 million during the same period in 2011. The average rate paid on these notes decreased to 3.13% for the three months ended March 31, 2012, from 4.29% for the same period in 2011. This decrease is due almost entirely to the refinancing transaction completed with the NCUA in November 2011, which lowered the interest rates on our two credit facilities to 2.53% from 4.31%.

Net interest income for the three months ended March 31, 2012, was $1.2 million, which was an increase of $353 thousand, or 40% for the same period in 2011. Net interest margin increased 93 basis points to 2.77% for the quarter ended March 31, 2012, compared to 1.84% for the quarter ended March 31, 2011.

The following table sets forth, for the periods indicated, the dollar amount of changes in interest earned and paid for our interest-earning assets and interest-bearing liabilities, the amount of change attributable to changes in average daily balances (volume), and changes in interest rates (rate).

Rate/Volume Analysis of Net Interest Income

	Three months Ended March 31, 2012 vs. 2011
	Increase (Decrease) Due to Change in
	Volume			Rate			Total
	(Dollars in Thousands)

Increase (Decrease) in Interest Income:
Interest-earning account with other financial institutions	$	15		$	--		$	15
Total loans		(319	)		39			(280	)
		(304	)		39			(265	)

Increase (Decrease) in Interest Expense:
Public offering notes – Class A		9			(3	)		6
Public offering notes – Alpha Class		(14	)		--			(14	)
Special offering notes		(19	)		19			--
International notes		--			--			--
Subordinated notes		(23	)		(5	)		(28	)
Other		(101	)		(482	)		(583	)
		(148	)		(471	)		(619	)
Change in net interest income	$	(156	)	$	510		$	354

Financial Condition

Comparison of Financial Condition at March 31, 2012 and December 31, 2011

General. Total assets decreased by $911 thousand, or 1%, between December 31, 2011 and March 31, 2012. This decrease was due to the payoff of several loans and large principal paydowns made by borrowers from several other loans we held. Some of these proceeds were retained as cash or used to purchase additional loans and a portion of these proceeds were used to pay down our borrowings from financial institutions. Our loans receivable, net of allowance for loan losses, decreased by $3.2 million, or 2%, over this period, while our borrowings from financial institutions decreased by $1.5 million, or 1%.

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During the three month period ended March 31, 2012, gross loans receivable decreased by $3.1 millon, or 2%, to $167.8 million from $170.9 million at December 31, 2011. This decrease is due to the paydown of $7.8 million of loan principal of our mortgage loan investments, as well as a $12 thousand partial loan charge-off and transfer of $717 thousand to foreclosed assets. We purchased or originated $5.3 million of loans to offset these paydowns. We did not sell any of our mortgage loan investments during the three months ended March 31, 2012.

Our portfolio consists entirely of loans made to evangelical churches and ministries. 99.8% of these loans are secured by real estate, while one loan that represents 0.2% of our portfolio is unsecured. Our performing portfolio yielded a weighted average interest rate of 6.44% at March 31, 2012, as compared to 6.43% at December 31, 2011.

Non-performing Assets. Non-performing assets consist of non-accrual loans and three foreclosed assets, which are real estate properties. 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 to their modified payment terms without exception for at least six months.

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 fifteen nonaccrual loans as of March 31, 2012 and December 31, 2011. In June 2011, the Company completed foreclosure proceedings on a loan participation interest it acquired from ECCU. Prior to this foreclosure sale, we had never foreclosed on or taken a charge-off on a mortgage loan investment we acquired. Since that time, we have completed one additional foreclosure proceeding in February 2012.

The following table presents our non-performing assets:

Non-performing Assets
($ in thousands)

	March 31, 2012		December 31, 2011

Non-Accrual Loans:1

Collateral Dependent:

Delinquencies over 90-Days	$	2,655	$	6,586
Troubled Debt Restructurings2		12,019		8,873

Total Collateral Dependent Loans		14,674		15,459

Non-Collateral Dependent:

Delinquencies over 90-Days		--		--
Troubled Debt Restructurings		7,473		7,483

Total Non-Collateral Dependent Loans		7,473		7,483

Loans 90 Days past due and still accruing		--		--

Total Non-Accrual Loans		22,147		22,942
Foreclosed Assets		2,091		1,374

Total Non-performing Assets	$	24,238	$	24,316

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

2 Includes $12.0 million and $6.2 million of restructured loans that were over 90 days delinquent as of March 31, 2012 and December 31, 2011, respectively.

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At March 31, 2012, we had fourteen restructured loans that were on non-accrual status. Nine of these loans were over 90 days delinquent. We had one non-restructured loan that was over 90 days past due. As of March 31, 2012, we had two foreclosed assets in the amount of $2.1 million total.

At December 31, 2011, we had eleven restructured loans that were on non-accrual status. Five of these loans were over 90 days delinquent. We had four non-restructured loans that were over 90 days past due. One of these loans was acquired in the transaction we entered into with ECCU in December, 2011 in which ECCU repurchased two impaired loans from us in exchange for a cash purchase price of $4.5 million and two non-performing loans. One of the acquired non-performing loans is carried on our financial statements at a net investment of zero. As of December 31, 2011, we held one foreclosed asset in the amount of $1.4 million.

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;

-	The effect of credit concentrations; and

-	The rate of defaults on loans modified as troubled debt restructurings within the previous twelve months.

In addition, we include additional general reserves for our loans that are collateralized by a junior lien or that are unsecured. In order to more accurately determine the potential impact these factors have on our portfolio, we segregate our loans into pools based on risk rating when we perform our analysis. Risk factors are weighted differently depending upon the quality of the loans in the pool. In general, risk factors are given a higher weighting for lower quality loans, which results in greater general reserves related to these loans. We evaluate these factors on a quarterly basis to ensure that we have adequately addressed the risk inherent in our loan portfolio.

We also examine our entire loan portfolio regularly to 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 performing a periodic review of borrower financial statements. For loans that are collateral dependent, management first determines 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. This entire value at risk is reserved. For impaired loans that are not collateral dependent, management will record an impairment based on the present value of expected future cash flows. 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.

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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. The change in the present value of cash flows attributable to the passage of time is reported as interest income.

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 March 31, 2012 and December 31, 2011, the allowance for loan losses was $4.2 million and $4.1 million, respectively. This represented 2.5% and 2.4% of our gross loans receivable at those respective dates.

	Allowance for Loan Losses
	as of and for the
	Three months Ended				Year Ended
	March 31,				December 31,
	2012		2011		2011
Balances:	($ in thousands)
Average total loans
outstanding during period	$	169,057	$	190,381	$	181,855
Total loans outstanding
at end of the period	$	167,829	$	188,005	$	170,920
Allowance for loan losses:
Balance at the beginning of period	$	4,127	$	3,997	$	3,997
Provision charged to expense		104		100		1,487
Charge-offs
Wholly-Owned First		--		--		--
Wholly-Owned Junior		--		--		--
Participation First		12		--		1,279
Participation Junior		--		--		--
Total		12		--		1,279
Recoveries
Wholly-Owned First		--		--		--
Wholly-Owned Junior		--		--		--
Participation First		--		--		--
Participation Junior		--		--		--
Total		--		--		--
Net loan charge-offs
(recoveries)		12		--		1,279
Accretion of allowance related to restructured loans		13		18		78

Balance	$	4,206	$	4,079	$	4,127

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Ratios:
Net loan charge-offs to average total loans	0.00	%	0.00	%	0.70	%
Provision for loan losses to average total loans	0.06	%	0.05	%	0.82	%
Allowance for loan losses to total loans at the end of the period	2.51	%	2.17	%	2.41	%
Allowance for loan losses to non-performing loans	18.99	%	15.03	%	18.00	%
Net loan charge-offs to allowance for
loan losses at the end of the period	0.29	%	0.00	%	30.99	%
Net loan charge-offs to Provision for loan losses	11.54	%	0.00	%	86.01	%

Borrowings from Financial Institutions. At March 31, 2012, we had $108.8 million in borrowings from financial institutions. This is a decrease of $1.5 million, or 1%, from December 31, 2011. This decrease is the result of regular monthly payments made on both the MU Credit Facility and the Wescorp Credit Facility Extension, as well as $685 thousand of additional paydowns made to ensure compliance with the minimum collateralization ratio on these borrowings.

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 $59.6 million at March 31, 2012, which was an increase of $545 thousand, or 1%, from $59.0 million at December 31, 2011. The increase is related to additional investment in our Class A Notes by several investors.

Members’ Equity. Total members’ equity was $9.5 million at March 31, 2012, which represents no change from $9.5 million at December 31, 2011. While we earned $87 thousand in net income during the quarter, we accrued $87 thousand of expenses related to our Series A Preferred Units, which generate quarterly dividends. We did not repurchase or sell any ownership units during the quarter ended March 31, 2012.

Liquidity and Capital Resources

March 31, 2012 vs. March 31, 2011

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 receives approval from FINRA to sell our Class A Notes, 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 three months ended March 31, 2012, our investors renewed their debt securities investments at a 80% rate. During the three months ended March 31, 2011, 81% of our investors renewed their investments or reinvested in new debt securities that have been offered by us.

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The net increase in cash during the three months ended March 31, 2012 was $1.4 million, as compared to a net increase of $1.7 million for the three months ended March 31, 2011, a decrease of $253 thousand. Net cash provided by operating activities totaled $120 thousand for the three months ended March 31, 2012, as compared to net cash used by operating activities of $208 thousand for the same period in 2011. This decrease in net cash used by operating activities is attributable primarily to the increase in net income over the same period in 2011.

Net cash provided by investing activities totaled $2.3 million during the three months ended March 31, 2012, as compared to $4.0 million provided during the three months ended March 31, 2011, a decrease in cash of $1.6 million. This decrease is primarily related to the sale of $1.6 million of loan participations during the three months ended March 31, 2011. No loans were sold during the three months ended March 31, 2012.

Net cash used by financing activities totaled $1.0 million for the three month period ended March 31, 2012, a decrease in cash used of $1.1 million from $2.1 million used in financing activities during the three months ended March 31, 2011. This difference is attributable to the decrease in the amount of paydowns on our borrowings from financial institutions.

At March 31, 2012, our cash, which includes cash reserves and cash available for investment in mortgage loans, was $12.6 million, an increase of $1.4 million from $11.2 million at December 31, 2011.

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 Chief Executive Officer and Chief Financial Officer, supervised and participated in an evaluation of our disclosure controls and procedures as of March 31, 2012. 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 Chief Executive Officer and Chief Financial 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 changes in our internal controls over financial reporting that occurred in the first quarter of 2012 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

As of the date of this Report, there is no material litigation, threatened or pending, against us. Our management is not aware of any disagreements, disputes or other matters which may lead to the filing of legal proceedings involving us.

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Item 1A. Risk Factors

As of the date of this filing, there have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K filed for the year ended December 31, 2011.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosure

None

Item 5. Other Information

None.

Item 6. Exhibits

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
101*	The following information from Ministry Partners Investment Company, LLC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011; (ii) Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011; (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011; and (iv) Notes to Consolidated Financial Statements.
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

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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: May 15, 2012

MINISTRY PARTNERS INVESTMENT

COMPANY, LLC

(Registrant)

By: /s/ Susan B. Reilly

Susan B. Reilly,

Chief Financial Officer

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MINISTRY PARTNERS INVESTMENT COMPANY, LLC Reports

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