ministry10q093012.htm

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 

PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements	F-1

Consolidated Balance Sheets (unaudited) at September 30, 2012 and December 31, 2011 (audited)	F-1

Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2012 and 2011	F-2

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2012 and 2011	F-3

Notes to Consolidated Financial Statements	F-5

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk	16

Item 4. Controls and Procedures	17

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	17
Item 1A. Risk Factors	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Mine Safety Disclosures	17
Item 5. Other Information	17
Item 6. Exhibits	18

SIGNATURES	18

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

	2012			2011
	(Unaudited)			(Audited)
Assets:

Cash	$	11,711		$	11,167

Loans receivable, net of allowance for loan losses of $3,985 and $4,127 as of September 30, 2012 and December 31, 2011, respectively		153,649			165,355

Accrued interest receivable		633			725

Property and equipment, net		241			303

Debt issuance costs		79			104

Foreclosed assets		3,050			1,374

Other assets		332			253

Total assets	$	169,695		$	179,281

Liabilities and members’ equity
Liabilities:

Borrowings from financial institutions	$	104,650		$	110,280

Notes payable		54,680			59,030

Accrued interest payable		22			15

Other liabilities		487			478

Total liabilities		159,839			169,803

Members' Equity:

Series A preferred units, 1,000,000 units authorized, 117,100 units issued and outstanding at September 30, 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 September 30, 2012 and December 31, 20111,509		1,509			1,509

Accumulated deficit		(3,368	)		(3,746	)

Total members' equity		9,856			9,478

Total liabilities and members' equity	$	169,695		$	179,281

	Three months ended September 30,					Nine months ended September 30,
	2012		2011			2012			2011
Interest income:

Interest on loans	$	2,480	$	2,657		$	7,493		$	8,258

Interest on interest-bearing accounts		37		22			111			69

Total interest income		2,517		2,679			7,604			8,327

Interest expense:

Borrowings from financial institutions		676		1,150			2,050			3,601

Notes payable		601		641			1,843			1,962

Total interest expense		1,277		1,791			3,893			5,563

Net interest income		1,240		888			3,711			2,764

Provision (credit) for loan losses		87		822			(49	)		1,305

Net interest income after provision (credit) for loan losses		1,153		66			3,760			1,459

Non-interest income		30		28			90			166

Non-interest expenses:

Salaries and benefits		509		399			1,423			1,136

Marketing and promotion		43		37			112			98

Office operations		333		341			1,131			1,091

Legal and accounting		107		132			536			557

Total non-interest expenses		992		909			3,202			2,882

Income (loss) before provision for income taxes		191		(815	)		648			(1,257	)

Provision for income taxes		4		3			12			11

Net income (loss)	$	187	$	(818	)	$	636		$	(1,268	)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)	$	636		$	(1,268	)

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

Depreciation		94			90

Amortization of deferred loan fees		(105	)		(139	)

Amortization of debt issuance costs		126			172

Provision (credit) for loan losses		(49	)		1,305

Accretion of allowance for loan losses on restructured loans		(46	)		(67	)

Accretion of loan discount		(5	)		(56	)

Changes in:

Accrued interest receivable		91			(6	)

Other assets		(80	)		(145	)

Other liabilities and accrued interest payable		16			(89	)

Net cash provided (used) by operating activities		678			(203	)

CASH FLOWS FROM INVESTING ACTIVITIES:

Loan purchases		(10,894	)		--

Loan originations		(8,999	)		(4,307	)

Loan sales		2,425			5,390

Loan principal collections, net		27,703			12,539

Purchase of property and equipment		(32	)		(8	)

Net cash provided by investing activities		10,203			13,614

CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in borrowings from financial institutions		(5,629	)		(10,844	)

Net changes in notes payable		(4,350	)		(3,103	)

F-3

Debt issuance costs		(100	)		(109	)

Purchase of preferred units		--			(45	)

Dividends paid on preferred units		(258	)		(234	)

Net cash used by financing activities		(10,337	)		(14,335	)

Net increase (decrease) in cash	$	544		$	(924	)

Cash at beginning of period		11,167			7,078

Cash at end of period	$	11,711		$	6,154

Supplemental disclosures of cash flow information

Interest paid	$	3,886		$	5,446

Income taxes paid	$	14		$	--

Transfer of loans to foreclosed assets	$	1,676		$	1,374

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 September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 have been made.

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 credit unions, financial institutions, churches and ministries in connection with the Company’s mortgage financing activities and services it provides to federal and state chartered credit unions. 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. On September 24, 2012, MP Securities received a no objection letter from FINRA, thereby authorizing MP Securities 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 distribute debt securities issued by religious organizations, as well as by business members of credit unions it serves and act as a selling agent in placing mortgage backed business loans made by credit unions to institutional investors.

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.

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 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.

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.

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, or more frequently as necessary. By segregating the portfolio in this manner, our 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.

Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's original effective interest rate, the obtainable market price, or the fair value of the collateral if the loan is collateral dependent. 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.

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. 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 our borrowers 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.

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.

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.

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.

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.

From time to time, the Company 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.

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.

In December 2011, the FASB issued new guidance Accounting Standards Update (ASU) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This new guidance requires expanded information about financial instruments or derivatives that are either presented on a net basis in the balance sheet or subject to an enforceable master netting arrangement or similar arrangement. The new guidance does not change existing offsetting criteria in U.S. GAAP or the permitted balance sheet presentation for items meeting the criteria. The new disclosure requirements in the ASU are intended to enhance comparability between financial statements prepared using U.S. GAAP and those prepared using International Financial Reporting Standards (IFRS). The amendments in this guidance are effective during interim and annual periods beginning on or after January 1, 2013. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

We lease physical facilities and purchase other services from ECCU pursuant to a written lease and services agreement. Charges of $77.3 thousand and $85.7 thousand for the nine months ended September 30, 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.

From time to time, we purchase mortgage loans, including loan participation interests from ECCU, our largest equity owner. During the nine month period ended September 30, 2012, we purchased $5.8 million of loans from ECCU. We did not purchase any loans from ECCU during the nine months ended September 30, 2011. With regards to all loans purchased from ECCU, we recognized $3.8 million and $5.8 million of interest income during the nine months ended September 30, 2012 and 2011, respectively. ECCU currently acts as the servicer for 70 of the 126 loans in the Company’s loan portfolio. Under the terms of the loan servicing agreement we entered into 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 $5.4 million of loans at September 30, 2012, the pass-through rate is between 88 and 135 basis points lower than the contractual rate. The Company negotiates the pass-through interest rates with ECCU on a loan by loan basis. At September 30, 2012, the Company’s investment in wholly-owned loans serviced by ECCU totaled $43.3 million, while the Company’s investment in loan participations serviced by ECCU totaled $42.6 million. From time to time, the Company pays fees for additional services ECCU provides for servicing these loans. These fees amounted to $3.8 thousand during the nine months ended September 30, 2011. We paid fewer than one thousand dollars of these fees during the nine months ended September 30, 2012.

ECCU has also repurchased mortgage loans from us as part of our liquidity management practices. In addition, 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 nine months ended September 30, 2012 and 2011, respectively.

On December 28, 2011, we entered into a Loan Purchase Agreement with ECCU, pursuant to which ECCU agreed to repurchase two of our impaired mortgage loan interests in exchange for a cash purchase price of $4.5 million. In addition to the delivery of the cash purchase price, ECCU also transferred to us a 1% participation interest and second deed of trust in a loan which resulted in us holding a 100% interest in such loan. While the 1% loan participation interest and second deed of trust we acquired had a principal balance of $25 thousand and $500 thousand, respectively, we received no value for these loan interests since the acquired loans were in default and the value of the real property was estimated to be approximately $1.2 million less than the outstanding principal balance of the mortgage loan interest we owned prior to entering into the Loan Purchase Agreement.

Prior to entering into negotiations with ECCU, we notified ECCU that we believed that ECCU had breached certain representations and warranties set forth in mortgage loan purchase agreements we had entered into with ECCU to purchase three (3) mortgage loan interests for an aggregate sum of $6.6 million. In exchange for the delivery of the $4.5 million purchase price and mortgage loan interests acquired from ECCU, we agreed to grant a release, waiver and discharge of certain claims we had made for an alleged breach of representations and warranties made by ECCU in connection with three (3) loans we had acquired from ECCU. We also agreed to grant a complete release and discharge for any claims arising out of the purchase, servicing and any actions undertaken by ECCU as the lead lender for an additional nine (9) loans we previously acquired from ECCU which no cause for claims had been identified, or which were reasonably expected to be, subject to any claims arising in connection with the purchase of such loans. This loan sale enabled us to recover $914 thousand of allowance for loan losses that had been previously recorded on two of the loans we sold to ECCU.

While no independent valuation was made in determining the value of the claims we released in favor of ECCU, we believe that litigation risks and uncertainties in pursuing such claims resulted in an arms-length purchase price mutually agreed upon with ECCU in exchange for granting a release of such claims. Prior to entering into the Loan Purchase Agreement, we requested and received independent market valuations for the impaired loan interests that were transferred to and received from ECCU pursuant to the terms of the Loan Purchase Agreement. In addition, we relied upon the advice of independent legal counsel in evaluating litigation risks we faced in pursuing an action against ECCU arising from our purchase of these mortgage loan interests. None of our managers that serve as an officer, director or employee of ECCU participated in any of the discussions, review and approval of the Loan Purchase Agreement. As a result, the terms, conditions and provisions of the Loan Purchase Agreement were negotiated and approved by our independent managers in accordance with our Related Party Transaction Policy.

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 September 30, 2012.

We have also entered into a selling agreement with our wholly-owned subsidiary, MP Securities, pursuant to which MP Securities will assist us in distributing our 2012 Secured Investment Certificates, which are notes we sell under a private placement memorandum and which are secured by loans or cash. The sales commissions and cost reimbursements paid to any broker-dealer firms that are engaged to assist in the distribution of such certificates will not exceed 3% of the amount of certificates sold. MP Securities will also act as a selling agent for our Class A Notes offering pursuant to a Registration Statement which was declared effective by the SEC on October 11, 2012. Our affiliate, MP Securities, will sell most of the Class A Notes being registered. Each participating broker in the Class A Notes offering, including MP Securities, will be entitled to receive commissions ranging from .5%, plus an amount equal to .25% per annum on the average note balance for a Variable Series Note to 5% for a Flex Series or 60 month Fixed Series Note depending on whether it sells a Fixed Series, Variable Series or Flex Series note and the term of the respective note sold (12 months to 84 months). For repeat purchasers of our Class A Notes, the gross commissions payable to the managing broker for the Offering and share of commissions payable to MP Securities will be reduced by 0.25% of the total amount of Class A Notes sold in the offering to a repeat investor who is then, or has been within the immediately preceding thirty (30) days, a noteholder.

To assist in evaluating any related transactions we may enter into with a related party, our Board has adopted a Related Party Transaction Policy. Under this policy, a majority of the members of our Board and majority of our independent Board members must approve a material transaction that we enter into with a related party. As a result, we anticipate that all future transactions that we undertake with an affiliate or related party will be on terms believed by our management to be no less favorable than are available from unaffiliated third parties and will be approved by a majority of our independent Board members.

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 2022. Loans yielded a weighted average of 6.43% as of September 30, 2012, compared to a weighted average yield of 6.40% as of September 30, 2011.

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 received $2.425 million in cash and was relieved of any further obligations regarding the mortgage loan interests sold. Both loans were considered impaired. The recorded investment in these loans was $2.460 million after discounts. The loans also carried a total of $300 thousand in specific reserves that had been recorded in prior periods and set aside an an allowance for loan losses. $35 thousand of these specific reserves were charged off against our allowance for loan losses. The Company reversed the remaining $265 thousand of specific reserves related to these two loans, reducing the Company’s provision and allowance for loan losses and improving the Company’s balance sheet and statement of operations as of and for the nine month period ended September 30, 2012.

In addition, on September 18, 2012, the Company entered into a Deed in Lieu of Foreclosure Agreement with one of its borrowers. As a result of this agreement, the Company received the property securing one of its impaired mortgage loan interests. The Company has recorded the entire outstanding amount of the loan, $958.8 thousand, as a real estate owned asset on its financial statements. As the value of the collateral less estimated costs to sell is greater than the the Company’s investment, no valuation allowance has been recorded on this property.

An allowance for loan losses of $4.0 million as of September 30, 2012 and $4.1 million as of December 31, 2011 has been established for loans receivable. For the nine month period ended September 30, 2012, we reported total charge-offs of $47 thousand on three of our mortgage loan investments. Pursuant to the Trinity Loan Purchase Agreement we entered into on May 15, 2012, we also reversed $265 thousand of provisions for loan losses related to two impaired loans that we sold. Management believes that the allowance for loan losses as of September 30, 2012 and December 31, 2011 is appropriate. Changes in the allowance for loan losses for the three and nine months ended September 30, 2012 and the year ended December 31, 2011 are as follows:

	Three Months Ended September 30, 2012			Nine months ended September 30, 2012			Year Ended December 31, 2011

Balance, beginning of period	$	3,921		$	4,127		$	3,997
Provisions for loan loss		87			(49	)		1,487
Chargeoffs		--			(47	)		(1,279	)
Accretion of allowance related to restrusctured loans	$	(23	)		(46	)		(78	)

Balance, end of period	$	3,985		$	3,985		$	4,127

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:

	September 30		December 31		September 30
	2012		2011		2011

Impaired loans with an allowance for loan loss	$	11,617	$	18,168	$	22,337
Impaired loans without an allowance for loan loss		7,054		4,774		4,369
Total impaired loans	$	18,671	$	22,942	$	26,706

Allowance for loan losses related to impaired loans	$	2,967	$	3,064	$	2,860

Total non-accrual loans	$	18,449	$	22,942	$	26,706

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

We had eleven nonaccrual loans as of September 30, 2012 and fifteen at December 31, 2011. As of September 30, 2012, we have completed foreclosure proceedings on two loan participation interests we acquired from ECCU. We also acquired a property under the provisions of a Deed in Lieu of Foreclosure Agreement we entered into with one borrower. In addition, we have two loans totaling $3.4 million that are currently in foreclosure proceedings. There is a reserve of $275.6 thousand that has been recorded as an allowance for loan losses on these loans. In April 2012, we completely wrote off one nonaccrual loan as uncollectible. However, as this loan carried a discount for the entire principal balance, our recorded investment in the loan was zero and the write-off had no impact on our net loans receivable balance. As of September 30, 2011, we had one loan with a balance of $614 thousand that was past due 90 days and still accruing. This loan matured on July 1, 2011, but was in the process of being extended as of September 30, 2011. In October, 2011, the extension was completed and payment received to bring the loan current. The loan has remained current since the extension was completed.

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 and Allowance for Loan Losses (by segment) As of
	September 30, 2012		December 31, 2011

Loans:

Balance	$	158,536	$	170,920

Individually evaluated
for impairment	$	18,671	$	22,942

Collectively
evaluated for impairment	$	139,865	$	147,978

Allowance for loan losses:

Balance	$	3,985	$	4,127

Individually evaluated
for impairment	$	2,967	$	3,064

Collectively
evaluated for impairment	$	1,018	$	1,063

Watch: These loans exhibit potential or developing weaknesses that deserve extra attention from credit management personnel. If the developing weakness is not corrected or mitigated, there may be deterioration in the ability of the borrower to repay the debt in the future. Loans graded Watch must be reported to executive management and the 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.

Credit Quality Indicators (by class) As of September 30, 2012

	Wholly-Owned First		Wholly-Owned Junior		Participation First		Participation Junior		Total
Grade:
Pass	$	82,777	$	2,272	$	38,231	$	981	$	124,261
Watch		10,284		3,710		4,534		-		18,528
Substandard		4,070		3,880		-		-		7,950
Doubtful		4,956		-		2,841		-		7,797
Loss		-		-		-		-		-
Total	$	102,087	$	9,862	$	45,606	$	981	$	158,536


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

Grade:
Pass	$	89,597	$	8,173	$	32,782	$	-	$	130,552
Watch		4,616		3,448		7,210		-		15,274
Substandard		3,237		3,883		4,089		1,006		12,215
Doubtful		8,091		1,155		3,633		-		12,879
Loss		-		-		-		-		-
Total	$	105,541	$	16,659	$	47,714	$	1,006	$	170,920

Age Analysis of Past Due Loans (by class)
As of September 30, 2012


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

Church loans:
Wholly-Owned First	$	8,697	$	-	$	814	$	9,511	$	92,576	$	102,087	$	-
Wholly-Owned Junior		3,719		-		-		3,719		6,143		9,862		-
Participation First		-		1,453		2,611		4,064		41,542		45,606		-
Participation Junior		-		-		-		-		981		981		-

Total	$	12,416	$	1,453	$	3,425	$	17,294	$	141,242	$	158,536	$	-

Age Analysis of Past Due Loans (by class)
As of December 31, 2011

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

Church loans:
Wholly-Owned First	$	6,537	$	613	$	7,522	$	14,672	$	90,869	$	105,541	$	-
Wholly-Owned Junior		3,448		-		1,159		4,607		12,052		16,659		-
Participation First		-		-		3,633		3,633		44,081		47,714		-
Participation Junior		-		-		-		-		1,006		1,006		-

Total	$	9,985	$	613	$	12,314	$	22,912	$	148,008	$	170,920	$	-

Impaired Loans (by class)
As of and for the three months ended September 30, 2012

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

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	4,063	$	4,478	$	-	$	4,073	$	28
Wholly-Owned Junior		216		222		-		216		3
Participation First		2,611		2,744		-		2,611		-
Participation Junior		-		-		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		7,384		7,854		2,620		7,597		44
Wholly-Owned Junior		3,595		3,671		328		3,595		40
Participation First		230		252		19		231		-
Participation Junior		-		-		-		-		-

Total:
Church loans	$	18,099	$	19,221	$	2,967	$	18,323	$	115

Impaired Loans (by class)
As of and for the nine months ended September 30, 2012

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

With no related allowance recorded:
Church loans:
Wholly-Owned First	$	4,063	$	4,478	$	-	$	4,153	$	85
Wholly-Owned Junior		216		222		-		217		9
Participation First		2,611		2,744		-		2,633		-
Participation Junior		-		-		-		-		-

With an allowance recorded:
Church loans:
Wholly-Owned First		7,384		7,854		2,620		8,144		141
Wholly-Owned Junior		3,595		3,671		328		3,597		107
Participation First		230		252		19		565		-
Participation Junior		-		-		-		-		-

Total:
Church loans	$	18,099	$	19,221	$	2,967	$	19,309	$	342

Impaired Loans (by class)
As of and 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

Troubled Debt Restructurings (by class)
For the three months ended September 30, 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	$	981	$	995	$	995
Wholly-Owned Junior		-		-		-		-
Participation First		-		-		-		-
Participation Junior		-		-		-		-

Total		1	$	981	$	995	$	995

Troubled Debt Restructurings (by class)
For the nine months ended September 30, 2012



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

Church loans:
Wholly-Owned First		3	$	5,571	$	5,585	$	5,427
Wholly-Owned Junior		2		430		430		420
Participation First		1		271		249		230
Participation Junior		-		-		-		-

Total		6	$	6,272	$	6,264	$	6,077

Troubled Debt Restructurings (by class)

For the three months ended September 30, 2011

Pre-Modification Outstanding

Post-Modification Outstanding

Recorded

Number of Loans

Recorded Investment

Investment At Period End

Church loans:

Wholly-Owned First

Wholly-Owned Junior

Participation First

Participation Junior

Total

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



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

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

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

For 9 of the 11 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 thus 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 13 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.

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 such loans 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.

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 four properties. One property was acquired during 2011 in satisfaction of a secured loan. The property had a carrying value of $1.4 million at September 30, 2012 and no valuation allowance has been required for this property. An additional 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 September 30, 2012 and no valuation allowance has been required for these properties. Finally, one property was acquired in September 2012 as a result of a Deed in Lieu of Foreclosure Agreement the Company entered into with a borrower. The property had a carrying value of $958.8 thousand at September 30, 2012 and no valuation allowance has been required for this property. The Company held $3.1 million and $1.4 million of foreclosed assets at September 30, 2012 and September 30, 2011, respectively.

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 $13.6 thousand for the nine months ended September 30, 2012. We did not sell participations in any loans during the nine months ended September 30, 2012.

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.

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 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 $81.9 million and $86.9 million at September 30, 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 December 31, 2011, the collateral securing the MU Credit Facility had an aggregate principal balance of $111.4 million which satisfied the minimum collateralization ratio for this facility. As of September 30, 2012, the collateral securing the MU Credit Facility had an aggregate principal balance of $105.8 million, which satisfies the minimum collateralization ratio.

In addition to the minimum collateralization requirement, 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 requires 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 and the Company's breach of any of its covenants. As of September 30, 2012 and December 31, 2011, the Company was in compliance with its covenants under the MU Credit Facility.

On November 30, 2009, the Company entered into a Loan and Security agreement with Western Corporate Federal Credit Union (“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.

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 September 30, 2012 and December 31, 2011, $22.7 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 September 30, 2012 and December 31, 2011, the collateral securing the WesCorp Credit Facility Extension had an aggregate principal balance of $34.5 million and $35.3 million, respectively, which satisfies the minimum collateralization ratio for this facility. As of September 30, 2012 and December 31, 2011, the Company was in compliance with its covenants under the Wescorp Credit Facility Extension.

We also rely on our investor notes to make investments in mortgage loan assets and fund our general operations. Except for our private offering of secured notes, 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 sale of our Alpha Class Notes was discontinued in April 2008.

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’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 September 30, 2012. At September 30, 2012 and December 31, 2011, $3.3 million and $4.4 million of Alpha Class Notes were outstanding, respectively.

In addition to the Alpha Class Notes, the Company has also offered its Class A Notes in three series, including a Fixed Series, Flex Series and Variable Series pursuant to registration statements filed with the SEC. On June 24, 2011, we filed a Registration Statement with the SEC seeking to register an additional $75 million of the Company’s Class A Notes. All of the Class A Notes are unsecured. 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 September 30, 2012.

Effective as of May 15, 2012, the Company temporarily discontinued the sale of the Class A Notes and deregistered the securities remaining unsold under the Company’s Registration Statement on Form S-1, initally filed with the SEC on December 23, 2009 and declared effective on June 3, 2010. The Company has subsequently filed a Registration Statement seeking to register $75 million of its Class A Notes with the SEC. This Registration Statement was declared effective as of October 11, 2012, and the Company has resumed the sale of its Class A Notes.

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.

From time to time, we have also sold unsecured general obligation notes having various terms to ministries and ministry related organizations in private offerings under the Securities Act of 1933, as amended. Except for a small number of investors (in total not exceeding 35 persons), the holders of these notes are accredited investors within the meaning of Regulation D under the Securities Act.

During the quarter ended June 30, 2012, the Company launched the sale of its 2012 Secured Investment Certificates pursuant to a limited offering to qualified investors that meet the requirements of Rule 506 of Regulation D. The secured investment certificates have been offered with maturity terms of 36, 60 and 84 months at an interest rate fixed on the date of issuance, as determined by the then current seven-day average rate reported by the U.S. Federal Reserve Board for interest rate swaps. Wilmington Savings Fund Society, FSB, serves as the trustee for the secured investment certificates. Under the terms of the Trust Indenture entered into with Wilmington Savings Fund Society, FSB, the Company has established a mortgage loan investment fund for the benefit of investors and is required to maintain a minimum collateralization ratio equal to at least 105% of the principal amount of secured investment certificates that are issued and outstanding.

The Trust Indenture entered into with Wilimington Savings Fund Society , FSB, also contains standard covenants which require the Company to refrain from permitting any other senior lien to be created or maintained on the collateral securing the certificates, refrain from paying any dividends on the Company’s equity units if there is an uncured event of default with respect to the certificates, make timely payments of interest and principal due on the certificates and secure the assets of the fund. The Company is in compliance with these covenants as of September 30, 2012. At September 30, 2012, $55.3 thousand of these secured certificates were outstanding. $67.8 thousand in cash was pledged as collateral on these notes. There were no secured certificates outstanding as of December 31, 2011.

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

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

On 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.

Employees who are at least 21 years of age are eligible to participate in the Insperity 401(k) plan upon the hire date. No minimum service is required and the minimum age is 21. Each employee may elect voluntary contributions not to exceed 60% of salary, subject to certain limits based on Federal tax law. The plan has a matching program, the amount and percentage of which is annually determined by the managers. Matching contributions for the nine months ended September 30, 2012 and September 30, 2011 were $41.9 thousand and $32.2 thousand, respectively.

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 nine months ended September 30, 2012.

·	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 Measurements at September 30, 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	$	11,711	$	11,711	$	-	$	-	$	11,711
Loans, net		153,649		-		-		157,349		157,349
Accrued interest receivable		633		-		-		633		633
FINANCIAL LIABILITIES:
Notes payables	$	54,680	$	-	$		$	56,448	$	56,448
Bank borrowings		104,650		-				108,229		108,229
Other financial liabilities		107		-				107		107

Management uses judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at September 30, 2012 and December 31, 2011.

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		Significant Other Observable Inputs		Significant Unobservable Inputs
		(Level 1)		(Level 2)		(Level 3)		Total

Assets at September 30, 2012:
Impaired loans (net of allowance and discount)	$	-	$	-	$	8,384	$	8,384
Foreclosed assets		-		-		3,050		3,050
	$	-	$	-	$	11,434	$	11,434


Assets at December 31, 2011:
Impaired loans (net of allowance and discount)	$	-	$	-	$	11,887	$	11,887
Foreclosed assets		-		-		1,374		1,374
	$	-	$	-	$	13,261	$	13,261

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.

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.

Assets	Fair Value	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Impaired Loans	8,384	Discounted appraised value	Selling cost	10% (10%)
Impaired Loans	8,384	Internal evaluations	Discount due to age of appraisal	0% - 5% (0.12%)

Foreclosed assets	3,050	Discounted appraised value	Selling cost	10% (10%)
Foreclosed assets	3,050	Internal evaluations	Discount due to age of appraisal	0% - 5% (1.18%)

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 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 evangelical churches, schools, colleges and ministries. We converted to a limited liability company form of organization on December 31, 2008.

	Three months ended September 30,					Comparison
	2012		2011			$ Difference			% Difference
Interest income:
Interest on loans	$	2,480	$	2,657		$	(177	)		(7	%)
Interest on interest-bearing accounts		37		22			15			68	%
Total interest income		2,517		2,679			(162	)		(6	%)
Interest expense:
Borrowings from financial institutions		676		1,150			(474	)		(41	%)
Notes payable		601		641			(40	)		(6	%)
Total interest expense*		1,277		1,791			(514	)		(29	%)
Net interest income		1,240		888			352			40	%
Provision (credit) for loan losses*		87		822			(735	)		(89	%)
Net interest income after provision (credit) for loan losses		1,153		66			1,087			1647	%
Non-interest income		30		28			2			7	%
Non-interest expenses:
Salaries and benefits		509		399			110			28	%
Marketing and promotion		43		37			6			16	%
Office operations		333		341			(8	)		(2	%)
Legal and accounting		107		132			(25	)		(19	%)
Total non-interest expenses		992		909			83			9	%
Income (loss) before provision for income taxes		191		(815	)		1,006			123	%
Provision for income taxes		4		3			1			33	%
Net income (loss)	$	187	$	(818	)	$	1,005			123	%

During the three months ended September 30, 2012, we reported net income of $187 thousand. Our continued profitability in the third quarter of 2012 is primarily attributable to reduced borrowing rates on our borrowings from financial institutions from a weighted average of 4.08% during the three months ended September 30, 2011 as compared to 2.53% for the three months ended September 30, 2012 and a reduction in our provisions for loan losses. The reduction in financing costs for our primary credit facilities occurred after we completed a refinancing transaction with the NCUA in November 2011 that lowered the interest rates on $110 million of borrowings on our two credit facilities. This refinancing transaction, as well as paydowns of $4.3 million on our borrowings since September 2011, decreased interest expense on borrowings from financial institutions by $474 thousand. While we took $87 thousand of provisions for loan losses in the third quarter of 2012, this represented a $735 thousand decrease from provisions taken in September 2011 related to the declining value of collateral on our collateral dependent loans. These positive contributions to net income were partially offset by a $177 thousand decrease in interest income we received on our mortgage loans, as well as a $110 thousand increase in salary and benefits expense.

The decrease in our total interest income as compared to the prior year is due entirely to the decrease in our loan portfolio. Our average interest-earning loans decreased from $163.2 million during the third quarter of 2011 to $148.7 million during the third quarter of 2012, a decrease of $14.5 million. Due to a higher average cash balance from prior year, we have received $15 thousand in additional interest income from our money market accounts held with other institutions as compared to the three month period ended September 30, 2011. However, as these accounts only produce an average yield of just over 1%, these gains were not sufficient to completely offset the decrease in interest income on loans.

Total interest expense decreased by $514 thousand from the third quarter of 2011 primarily because of the refinancing transaction we completed with the NCUA in late 2011. This transaction lowered our average interest rates on borrowings from financial institutions to 2.53% from 4.08%. This decrease is also related partially to a $40 thousand decrease in interest expense on notes payable, as our average notes payable balance has declined by $4.1 million from September 2011 to September 2012.

The lower interest rates on our borrowings and decrease in the aggregate principal balance due on our investor notes led to an increase in net interest income for the quarter ended September 30, 2012 of $352 thousand over the previous year’s third quarter. Despite the decrease in interest income we received on our mortgage loan investments, the large decrease in interest expense on borrowings from financial institutions led to higher net interest income.

Net interest income after provision for loan losses increased by $1.1 million for the quarter ended September 30, 2012 over the three months ended September 30, 2011. During the third quarter of 2012, we restructured the terms on several of our existing troubled debt restructures which led to new estimates of future cash flows and ultimately resulted in additional provisions for loan losses of $87 thousand. In September of 2011, we recorded provisions for loan losses of $822 thousand as a result of additional impairment on our collateral dependent loans. There was no such impairment in the current year. The large provisions taken in the prior year combined with the higher net interest income in the current year led to the substantial increase in net interest income after provision for loan losses.

Our non-interest operating expenses for the three months ended September 30, 2012 increased by $83 thousand over the same period ended September 30, 2011, an increase of 9%. This increase is due almost entirely to a 28% increase in salaries and benefits expense. Since the end of September 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 16 to 20, an increase of 25%. Our marketing expenses were similar to the prior year, which is expected as we did not engage in any significant marketing activities during the third quarter of 2012 while we awaited approval to sell our Class A Notes. Despite opening a new office in Fresno for our wholly-owned subsidiary, MP Securities, in the current year, our office operations expenses decreased for the three month period ended September 30, 2012. This is primarily related to a large decrease in expenses associated with the management of our loan portfolio. These expenses have declined mainly due to the decrease in impaired loans from the prior year, from $26.7 million to $18.7 million. These loans often require additional appraisals, insurance and other fees that we pay on the borrower’s behalf. We also incurred a $25 thousand decrease in legal and accounting expenses, as a significant portion of the legal expenses we incurred during the third quarter of 2012 were related to the preparation of our new Class A Notes prospectus and were capitalized as debt issuance costs.

	Nine months ended September 30,						Comparison
	2012			2011			$ Difference			% Difference
Interest income:
Interest on loans	$	7,493		$	8,258		$	(765	)		(9	%)
Interest on interest-bearing accounts		111			69			42			61	%
Total interest income		7,604			8,327			(723	)		(9	%)
Interest expense:
Borrowings from financial institutions		2,050			3,601			(1,551	)		(43	%)
Notes payable		1,843			1,962			(119	)		(6	%)
Total interest expense		3,893			5,563			(1,670	)		(30	%)
Net interest income		3,711			2,764			947			34	%
Provision (credit) for loan losses		(49	)		1,305			(1,354	)		(104	%)
Net interest income after provision (credit) for loan losses		3,760			1,459			2,301			158	%
Non-interest income		90			166			(76	)		(46	%)
Non-interest expenses:
Salaries and benefits		1,423			1,136			287			25	%
Marketing and promotion		112			98			14			14	%
Office operations		1,131			1,091			40			4	%
Legal and accounting		536			557			(21	)		(4	%)
Total non-interest expenses		3,202			2,882			320			11	%
Income (loss) before provision for income taxes		648			(1,257	)		1,905			(152	%)
Provision for income taxes		12			11			1			9	%
Net income (loss)	$	636		$	(1,268	)	$	1,904			(150	%)

During the nine months ended September 30, 2012, we reported net income of $636 thousand as compared to a net loss of $1.3 million for the nine months ended September 30, 2011. As noted above, our year to date profits in 2012 are primarily attributable to a net credit of $49 thousand to our provisions for loan losses as a result of the sale of two impaired loans and to reduced borrowing rates on our borrowings from financial institutions from a weighted average of 4.13% during the nine months ended September 30, 2011, to 2.53% for the nine months ended September 30, 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 $6.3 million since September 2011, decreased interest expense on borrowings from financial institutions by $1.6 million. For the nine month period ended September 30, 2012, we also reported a significant decrease in our provision for loan losses. In the second quarter 2012, we recorded a $265 thousand reversal of previously recorded provisions for loan losses when we sold two impaired loans at a price greater than our estimated fair value. After recording $87 thousand of provisions in the third quarter, the total credit to loan losses for the nine months ended September 30, 2012 was $49 thousand. Conversely, during the nine months ended September 30, 2011, we took $1.3 million of provisions related to increases in impairment on our non-performing loans and an increase in general reserves. The decreases in interest expense and provisions over the prior year were partially offset by decreases in interest income we received on our mortgage loans as well as by an increase in salary and benefits expense.

Total interest income decreased by $723 thousand for the year to date ended September 30, 2012 as compared to the nine month period ended September 30, 2011. The $17.5 million decrease on the year to date average balance of our loans receivable since September 2011 has been the primary driver of this decrease. In addition, we have recognized $33 thousand less income from the amortization of deferred loan fees, as several participation sales in the first nine months of 2011 led to the immediate recognition of a portion of those loan fees. We have not sold any loan participations during the first nine months of 2012. The decrease in interest income related to the paydowns in our loan portfolio has been offset somewhat by an increase in income from interest-earning accounts we hold with other financial institutions as we have increased our average cash balance by $6.1 million over the prior year.

Total interest expense decreased by $1.7 million from the nine months ended September 30, 2012. This decrease is related partially to a $119 thousand decrease in interest expense on notes payable, as our investor notes payable balance has declined by $4.3 million from September 2011 to September 2012. The decrease in interest expense is primarily due, however, to savings of $1.6 million on borrowings from financial institutions related to the refinancing transaction we completed with the NCUA in late 2011. This transaction has helped lead to an increase of $947 thousand in net interest income for the nine month period ended September 30, 2012 as compared to the previous year.

Provisions for loan losses decreased by $1.4 million from the prior year. Approximately $265 thousand of this decrease was related to the sale of two impaired loans to a third party in May 2012. These loans were collateral dependent and were sold at a price greater than our estimate of the collateral value, resulting in a reversal of a portion of the specific reserves previously recorded on these loans. Despite taking some additional general reserves and specific reserves throughout the year, we have a net credit of $49 thousand in provision for loan losses at September 30, 2012. Conversely, during the first nine months of 2011, we took additional specific reserves due to a decrease in collateral value on several of our collateral dependent loans. We also increased our general reserves during the first three quarters of 2011. As collateral values have stabilized and performance of our loan portfolio has improved, it has not been necessary to record large provisions for loan losses throughout 2012. With the improvement in underlying collateral values on our loan portfolio, the Company has reported net interest income after provisions for loan losses of $3.8 million for the nine month period ended September 30, 2012, as compared to $1.5 million for the nine month period ended September 30, 2011.

We have experienced a decrease in the amount of non-interest income we have received in the current year over the prior year. We have recorded $90 thousand of other income during the first nine months of 2012 primarily due to rental income on our REO property and servicing fee income we earned on two loans participations we sold but on which we retained servicing rights. This is an increase over the rental income and servicing income we received during the first nine months of 2011. In the prior year, however, our non-interest income was bolstered by gains of $127 thousand related to loan participations sold in the first half of 2011. There have been no loan participation sales during the first three quarters of 2012.

Our non-interest operating expenses for the nine months ended September 30, 2012 have increased primarily due to increased salary and benefits expense stemming from an increase in our staff. Since the end of September 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 16 to 20, an increase of 25% in our personnel, which corresponds to the 25% increase in salaries and benefits expenses. We also incurred $48 thousand in additional office operations expenses during the first three quarters of 2012 compared to 2011 due to an increase in human resources expenses related to additional employees, an increase in insurance costs, and expenses related to opening an office for MP Securities in May 2012.

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.

	Average Balances and Rates/Yields
	For the Three Months Ended September 30,
	(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	$	13,890	$	37		1.04	%	$	7,258	$	22		1.21	%
Interest-earning loans [1]		148,712		2,480		6.64	%		163,245		2,657		6.46	%
Total interest-earning assets		162,602		2,517		6.16	%		170,503		2,679		6.23	%

Non-interest-earning assets		10,095		--		--			11,744		--		--
Total Assets		172,697		2,517		5.80	%		182,247		2,679		5.83	%

Liabilities:
Public offering notes – Class A		43,323		445		4.09	%		45,942		469		4.05	%
Public offering notes – Alpha Class		3,485		49		5.57	%		4,990		72		5.75	%
Special offering notes		9,001		104		4.59	%		8,984		98		4.30	%
International notes		228		2		4.11	%		154		2		4.98	%
Subordinated notes		6		*		5.45	%		147		*		0.22	%
Secured notes		55		*		2.49	%		--		--		--
Borrowings from financial institutions		106,179		676		2.53	%		111,923		1,150		4.08	%

Total interest-bearing liabilities	$	162,277	$	1,277		3.13	%	$	172,140	$	1,791		4.13	%

Net interest income			$	1,240						$	888
Net interest margin [2]						3.03	%						2.07	%

[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. * Represents amounts less than $0.5 thousand.

Average interest-earning assets decreased to $162.6 million during the three months ended September 30, 2012, from $170.5 million during the same period in 2011, a decrease of $7.9 million or 5%. The average yield on these assets decreased to 6.16% for the three months ended September 30, 2012 from 6.23% for the three months ended September 30, 2011. This average yield decrease is related to the higher average balance in interest-earning accounts with other financial institutions. These assets earn only 1% and they comprise a larger portion of interest-earning assets compared to the prior year. Interest earning accounts held with other financial institutions increased to $13.9 million at September 30, 2012 as compared to $7.3 million at September 30, 2011, an increase of 90%. The yield on interest-earning loans for the three months ended September 30, 2012 increased to 6.64% from 6.46%. This is partially the result of an increase in the weighted average interest rate of the loan portfolio from 6.40% to 6.43%, as well as additional deferred loan fee amortization included in interest income in the third quarter of 2012 related to early paydowns of several loans. The larger balance of interest earning accounts with other financial institutions relative to the rest of our assets was mitigated by the increase in loan yield and the decrease in non-interest-earning assets, but still resulted in a decrease in the average yield on total assets decreased to 5.80% from 5.83%.

Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased to $162.3 million during the three months ended September 30, 2012, from $172.9 million during the same period in 2011. The average rate paid on these liabilities decreased to 3.13% for the three months ended September 30, 2012, from 4.13% for the same period in 2011. This decrease is due primarily 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 4.08%.

	Average Balances and Rates/Yields
	For the Nine months ended September 30,
	(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	$	14,008	$	111		1.06	%	$	7,856	$	69		1.17	%
Interest-earning loans [1]		152,715		7,493		6.55	%		170,219		8,258		6.47	%
Total interest-earning assets		166,723		7,604		6.09	%		178,075		8,327		6.24	%

Non-interest-earning assets		9,892		--		--			11,197		--		--
Total Assets		176,615		7,604		5.73	%		189,272		8,327		5.87	%

Liabilities:
Public offering notes – Class A		45,826		1,391		4.05	%		46,202		1,415		4.08	%
Public offering notes – Alpha Class		3,882		164		5.63	%		5,156		221		5.73	%
Special offering notes		8,252		280		4.54	%		9,461		288		3.92	%
International notes		209		7		4.31	%		174		6		4.53	%
Subordinated notes		6		*		5.45	%		675		32		6.37	%
Secured notes		23		*		2.55	%		--		--		--
Borrowings from financial institutions		108,162		2,050		2.53	%		116,154		3,601		4.13	%

Total interest-bearing liabilities	$	166,360	$	3,893		3.13	%	$	177,822		5,563		4.17	%

Net interest income			$	3,711						$	2,764
Net interest margin [2]						2.97	%						2.08	%

[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.
* Represents amounts less than $0.5 thousand.

Average interest-earning assets decreased to $166.7 million during the nine months ended September 30, 2012, from $178.1 million during the same period in 2011, a decrease of $11.4 million or 6%. The average yield on these assets decreased to 6.09% for the nine months ended September 30, 2012 from 6.24% for the nine months ended September 30, 2011. As described above, this average yield decrease is related to the higher average balance in interest-earning accounts we held with other financial institutions. Interest earning accounts held with other financial institutions increased to $14.0 million at September 30, 2012 as compared to $7.9 million at September 30, 2011, an increase of 77%. In contrast, the yield on interest-earning loans for the nine months ended September 30, 2012 increased to 6.55% from 6.47%. This is mainly the result of an increase in the weighted average interest rate of the loan portfolio. Despite the increase in interest rates in the portfolio and the decrease in non-interest earning assets, the higher relative balance of interest earning accounts with other financial has caused the average yield on total assets to decrease from 5.87% to 5.73%.

Average interest-bearing liabilities, consisting of notes payable and borrowings from financial institutions, decreased to $166.4 million during the nine months ended September 30, 2012, from $177.8 million during the same period in 2011. The average rate paid on these liabilities decreased to 3.13% for the nine months ended September 30, 2012, as compared to 4.17% for the same period in 2011. This decrease is due primarily 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 4.13%.

Rate/Volume Analysis of Net Interest Income

	Three months Ended September 30, 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	$	18		$	(4	)	$	14
Total loans		(251	)		75			(176	)
		(233	)		71			(162	)

Increase (Decrease) in Interest Expense:
Public offering notes – Class A		(26	)		3			(23	)
Public offering notes – Alpha Class		(21	)		(2	)		(23	)
Special offering notes		--			6			6
International notes		--			--			--
Subordinated notes		--			--			--
Secured notes		--			--			--
Other		(56	)		(418	)		(474	)
		(103	)		(411	)		(514	)
Change in net interest income	$	(130	)	$	482		$	352

Rate/Volume Analysis of Net Interest Income

	Nine months ended September 30, 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	$	50		$	(8	)	$	42
Total loans		(865	)		100			(765	)
		(815	)		92			(723	)

Increase (Decrease) in Interest Expense:
Public offering notes – Class A		(11	)		(12	)		(23	)
Public offering notes – Alpha Class		(54	)		(4	)		(58	)
Special offering notes		(39	)		32			(7	)
International notes		1			--			1
Subordinated notes		(28	)		(4	)		(32	)
Secured notes		--			--			--
Other		(233	)		(1,318	)		(1,551	)
		(364	)		(1,306	)		(1,670	)
Change in net interest income	$	(451	)	$	1,398		$	947

							Comparison
Assets:	2012 (Unaudited)			2011 (Audited)			$ Difference			% Difference
Cash	$	11,711		$	11,167		$	544			5	%
Loans receivable, net of allowance for loan losses of $3,895 and $4,127 as of September 30, 2012 and December 31, 2011, respectively		153,649			165,355			(11,706	)		(7	%)
Accrued interest receivable		633			725			(92	)		(13	%)
Property and equipment, net		241			303			(62	)		(20	%)
Debt issuance costs		79			104			(25	)		(24	%)
Foreclosed assets		3,050			1,374			1,676			122	%
Other assets		332			253			79			31	%
Total assets	$	169,695		$	179,281		$	( 9,586	)		(5	%)
Liabilities and members’ equity
Liabilities:
Borrowings from financial institutions	$	104,650		$	110,280		$	(5,630	)		(5	%)
Notes payable		54,680			59,030			(4,350	)		(7	%)
Accrued interest payable		22			15			7			47	%
Other liabilities		487			478			9			2	%
Total liabilities		159,839			169,803			(9,964	)		(6	%)
Members' Equity:
Series A preferred units		11,715			11,715			--			--
Class A common units1,509		1,509			1,509			--			--
Accumulated deficit		(3,368	)		(3,746	)		378			10	%
Total members' equity		9,856			9,478			378			4	%
Total liabilities and members' equity	$	169,695		$	179,281		$	( 9,586	)		(5	%)

General. Total assets decreased by $9.6 million, or 5%, between December 31, 2011 and September 30, 2012. This decrease was due to the payoff and sale of several loans, as well as large principal paydowns made by borrowers on other loans we held. A small portion of these proceeds were retained as cash, but most of these proceeds were used to pay down our borrowings from financial institutions and several of our Class A Notes that matured during the period between May 15, 2012 and through the quarter ended September 30, 2012, as we could not sell our Class A Notes during this period. Our loans receivable, net of allowance for loan losses, decreased by $11.7 million, or 7%, over this period. Approximately $4.3 million of this decrease was due to decreases in impaired loan balances. Our borrowings from financial institutions decreased by $5.6 million, or 5%.

During the nine month period ended September 30, 2012, gross loans receivable decreased by $12.4 millon, or 7%. This decrease is due to the net paydown of $7.8 million of loan principal on our mortgage loan investments, which is a result of $27.7 million of loan principal paydowns offset by $10.9 million of loan purchases and $9.0 million of loan originations. The net paydown of loan principal is mainly a result of early pay-offs of existing loans and non-renewals of maturing loans. In many cases, these non-renewals occur because a loan has fallen outside of our lending policy and cannot be refinanced by us. Additionally, our loan balance has decreased as we have recorded $47 thousand in partial loan charge-offs, transferred $1.7 million to foreclosed assets, and sold two impaired loans for $2.4 million.

Non-performing Assets. Non-performing assets consist of non-accrual loans, troubled debt restructurings, and three foreclosed assets, which are real estate properties. Non-accrual loans include any loan that becomes 90 days or more past due 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 or operation 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. For 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 eleven nonaccrual loans as of September 30, 2012, down from fifteen at 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 acquired two properties in February 2012 in partial satisfaction of one of our mortgage loan investments and we acquired one other property in September 2012 pursuant to a Deed in Lieu of Foreclosure Agreement we entered into with a borrower.

Non-performing Assets
($ in thousands)

	September 30, 2012		December 31, 2011
Non-Performing Loans:1

Collateral Dependent:

Delinquencies over 90-Days	$	2,611	$	6,586
Troubled Debt Restructurings2		8,583		8,873

Total Collateral Dependent Loans		11,194		15,459

Non-Collateral Dependent:

Delinquencies over 90-Days		--		--
Other Impaired loans		--		--
Troubled Debt Restructurings		7,477		7,483

Total Non-Collateral Dependent Loans		7,477		7,483

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

Total Non-Performing Loans		18,671		22,942
Foreclosed Assets		3,050		1,374

Total Non-performing Assets	$	21,721	$	24,316

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

2 Includes $814 thousand and $6.2 million of restructured loans that were over 90 days delinquent as of September 30, 2012 and December 31, 2011, respectively.

At September 30, 2012, we had ten restructured loans that were on non-accrual status. One of these loans was over 90 days delinquent. In addition, we had one non-restructured loan that was over 90 days past due. We also had one restructured loan that has performed according to terms for twelve months and has been put on accrual status; however, it is still considered non-performing. As discussed in Note 3 of the financial statements, in May 2012 we sold two non-performing loans to a third party for $2.4 million. Both loans were considered collateral dependent. In September 2012, we executed a Deed in Lieu of Foreclosure Agreement with a borrower related to the collateral underlying an impaired loan and transferred the loan balance of $959 thousand into foreclosed assets. As of September 30, 2012, we had four foreclosed properties valued at $3.1 million.

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 was written off during the second quarter of 2012, however, as it was carried on our financial statements at a net investment of zero, the write-off had no impact on our net loans receivable balance. As of December 31, 2011, we held one foreclosed asset in the amount of $1.4 million.

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, net of discounts, 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.

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 September 30, 2012 and December 31, 2011, the allowance for loan losses was $4.0 million and $4.1 million, respectively. This represented 2.5% of our gross loans receivable at both of those respective dates.

	Allowance for Loan Losses
	as of and for the
	Nine months ended						Year Ended
	September 30,						December 31,
	2012			2011			2011
Balances:	($ in thousands)
Average total loans
outstanding during period	$	164,696		$	183,924		$	181,855
Total loans outstanding
at end of the period	$	158,536		$	175,819		$	170,920
Allowance for loan losses:
Balance at the beginning of period	$	4,127		$	3,997		$	3,997
Provision charged to expense		(49	)		1,305			1,487
Charge-offs
Wholly-Owned First		35			--			--
Wholly-Owned Junior		--			--			--
Participation First		12			1,279			1,279
Participation Junior		--			--			--
Total		47			1,279			1,279
Recoveries
Wholly-Owned First		--			--			--
Wholly-Owned Junior		--			--			--
Participation First		--			--			--
Participation Junior		--			--			--
Total		--			--			--
Net loan charge-offs
(recoveries)		47			1,279			1,279
Accretion of allowance related to restructured loans		46			67			78

Balance	$	3,985		$	3,956		$	4,127

Ratios:
Net loan charge-offs to average total loans		0.03	%		0.70	%		0.70	%
Provision for loan losses to average total loans1		(0.03	%)		0.71	%		0.82	%
Allowance for loan losses to total loans at the end of the period		2.51	%		2.25	%		2.41	%
Allowance for loan losses to non-performing loans		21.34	%		14.81	%		18.00	%
Net loan charge-offs to allowance for
loan losses at the end of the period		1.18	%		32.33	%		30.99	%
Net loan charge-offs to Provision for loan losses1		(95.92	%)		98.01	%		86.01	%

Borrowings from Financial Institutions. At September 30, 2012, we had $104.7 million in borrowings from financial institutions. This is a decrease of $5.6 million 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 $3.2 million of additional paydowns made to ensure compliance with the minimum collateralization ratio on these borrowings.

Notes Payable. Our investor notes payable consist of debt securities sold under several registered national offerings as well as notes sold in private placements. These investor notes had a balance of $54.7 million at September 30, 2012, which was a decrease of $4.4 million. Due to the temporary discontinuation of the sale of our Class A Notes on May 15, 2012 and deregistration of the securities remaining unsold under the Company’s Registration Statement which was declared effective on June 3, 2010, we were not able to sell our Class A Notes during the third quarter of 2012. On October 11, 2012, our new Registration Statement to register $75 million of our Class A Notes was declared effective, which has allowed us to resume the sale of our Class A Notes.

Members’ Equity. Total members’ equity was $9.9 million at September 30, 2012, which represents an increase of $378 thousand from $9.5 million at December 31, 2011. Our $636 thousand in net income during the first nine months of the year is offset partially by $258 thousand of expenses related to our Series A Preferred Units, which require quarterly dividend payments. We did not repurchase or sell any ownership units during the nine months ended September 30, 2012.

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 also serve as sources of additional 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 have increased our marketing efforts related to the sale of privately placed special offering notes and our 2012 Secured Investment Certificates pursuant to a Rule 506 offering and we believe that the sale of these notes will enable the Company to meet its liquidity needs for the near future. The Company has filed a new Registration Statement with the SEC to register $75 million of its Class A Notes. This Registration Statement was deemed effective as of October 11, 2012 and the Company has resumed the sale of its Class A Notes through the assistance of its wholly-owned subsidiary, MP Securities. By offering the Class A Notes and privately placed Secured Investment Certificates under the Company’s Rule 506 offering, the Company expects to increase its investment in mortgage loans and thereby generate increased interest income. However, we also plan on selling participations in a portion of those mortgage loan investments. The cash gained from these sales will be used to originate additional loan investments or to fund operating activities.

We have been successful in generating reinvestments by our debt security holders when the notes that they hold mature. During the nine months ended September 30, 2012, our investors renewed their debt securities investments at a 43% rate. This rate was 80% during the first quarter of 2012 and has decreased primarily because the Company temporarily suspended the sale of its Class A Notes on May 15, 2012 and was unable to renew maturing notes. During the nine months ended September 30, 2011, 78% of our investors renewed their investments or reinvested in new debt securities offered by us.

The net increase in cash during the nine months ended September 30, 2012 was $544 thousand, as compared to a net decrease of $924 thousand for the nine months ended September 30, 2011, an increase of $1.5 million. Net cash provided by operating activities totaled $678 thousand for the nine months ended September 30, 2012, as compared to net cash used by operating activities of $203 thousand for the same period in 2011. This increase in net cash provided 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 $10.2 million during the nine months ended September 30, 2012, as compared to $13.6 million provided during the nine months ended September 30, 2011, a decrease in cash of $3.4 million. This decrease is primarily related to the sale of $5.4 million of loan participations during the nine months ended September 30, 2011. Two loans were sold for $2.4 million during the nine months ended September 30, 2012, a difference in loan sales of $3.0 million. While we have received $15.2 million in additional principal payments from the prior year, we have used those payments to purchase or originate $15.6 million more loans than during the first nine months of 2011.

Net cash used by financing activities totaled $10.3 million for the nine month period ended September 30, 2012, a decrease in cash used of $4.0 million from $14.3 million used in financing activities during the nine months ended September 30, 2011. This difference is primarily attributable to the decrease in the amount of paydowns on our borrowings from financial institutions.

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 September 30, 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.

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 September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011; (ii) Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011; (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 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.

2013	$	3,366
2014		3,467
2015		3,555
2016		3,639
2017		3,739
Thereafter		86,884
	$	104,650

SEC Registered Public Offerings	Amount		Weighted Average Interest Rate

Class A Offering	$	41,866		41.7	%

National Alpha Offering		3,341		5.58	%

Private Offerings

Special Offering		9,177		4.60	%

Special Subordinated Notes		6		5.45	%

Secured Notes		55		2.49	%

International Offering		235		4.05	%

Total	$	54,680		4.33	%

2013	$	24,862
2014		10,727
2015		7,698
2016		7,393
2017		2,899
Thereafter		1,101
	$	54,680

Loans on Nonaccrual Status (by class)
As of September 30, 2012

Church loans:
Wholly-Owned First	$	11,949
Wholly-Owned Junior		3,658
Participation First		2,842
Participation Junior		-

Total	$	18,449

Troubled Debt Restructurings Defaulted (by class)
During the nine months ended September 30, 2012


	Number of		Recorded
	Loans		Investment

Troubled debt restructurings that subsequently defaulted:
Church loans:
Wholly-Owned First		1	$	2,054
Wholly-Owned Junior		1		420
Participation First		1		230
Participation Junior		-		-
Total:
Church loans		3	$	2,704

	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

		MINISTRY PARTNERS INVESTMENT
		COMPANY, LLC


	(Registrant)	By: /s/ Susan B. Reilly
		Susan B. Reilly,
		Chief Financial Officer