COMMUNITY INVESTMENT CORPORATION AND AFFILIATE. ANNUAL REPORT September 30, 2015 and 2014

Transcription

1 COMMUNITY INVESTMENT CORPORATION AND AFFILIATE ANNUAL REPORT

2 Chicago, Illinois CONSOLIDATED FINANCIAL STATEMENTS CONTENTS INDEPENDENT AUDITOR S REPORT... 1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION... 3 CONSOLIDATED STATEMENTS OF ACTIVITIES... 4 CONSOLIDATED STATEMENTS OF CASH FLOWS

3 Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board of Directors Community Investment Corporation and Affiliate Chicago, Illinois Report on the Financial Statements We have audited the accompanying consolidated financial statements of Community Investment Corporation and Affiliate ( Corporation ), which comprise the consolidated statement of financial position as of September 30, 2015, and the related consolidated statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. (Continued) 1.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Community Investment Corporation and Affiliate as of September 30, 2015, and the changes in their net assets and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters The financial statements of Community Investment Corporation and Affiliate as of September 30, 2014, were audited by other auditors whose report dated February 11, 2015, expressed an unmodified opinion on those statements. Our audit was conducted for the purpose of forming an opinion on the 2015 consolidated financial statements as a whole. The consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, changes in net assets, and cash flows of the individual corporations, and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the 2015 consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the 2015 consolidating information is fairly stated in all material respects in relation to the 2015 consolidated financial statements as a whole. Chicago, Illinois January 29, 2016 Crowe Horwath LLP 2.

5 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Supplementary Consolidating Information Community Investment Community Corporation Initiatives, Inc. Eliminations Consolidated Consolidated ASSETS Cash and cash equivalents $ 13,700,114 $ 2,691,718 $ - $ 16,391,832 $ 7,937,664 Restricted cash 16,759, ,759,921 19,674,946 Certificates of deposit 10,001, ,001,302 - Investments 4,844, ,844,648 - Loans, net of allowance of $5,427,637 in 2015 and $4,434,652 in ,995, ,995, ,629,385 Defaulted mortgages purchased - 234, , ,408 Program and other receivables - 13,031,213 (200,000) 12,831,213 10,795,957 Neighborhood Stabilization Program receivables ,926,275 Furniture and equipment, net 134, , ,461 Real estate held for sale 5,416, ,416,260 2,548,800 Other assets 1,536, (78,328) 1,458,093 89,075 $ 299,389,112 $ 15,957,416 $ (278,328) $ 315,068,200 $ 322,958,971 LIABILITIES AND NET ASSETS Notes payable $ 259,954,532 $ 14,466,670 $ (200,000) $ 274,221,202 $ 282,982,927 Advance payments by borrowers 5,372, ,372,286 5,535,781 Accounts and fees payable 6,140, ,376 (78,328) 6,375,446 5,958, ,467,216 14,780,046 (278,328) 285,968, ,477,499 NET ASSETS Unrestricted Undesignated 9,815,788 1,177,370-10,993,158 9,191,515 Designated 15,155, ,155,780 14,949,227 24,971,568 1,177,370-26,148,938 24,140,742 Temporarily restricted 2,950, ,950,328 4,340,730 27,921,896 1,177,370-29,099,266 28,481,472 $ 299,389,112 $ 15,957,416 $ (278,328) $ 315,068,200 $ 322,958,971 See accompanying notes to consolidated financial statements and independent auditor s report. 3.

6 CONSOLIDATED STATEMENTS OF ACTIVITIES Years Ended Supplementary Consolidating Information Community Investment Community Corporation Initiatives, Inc. Eliminations Consolidated Consolidated Revenue Interest $ 11,294,272 $ - $ - $ 11,294,272 $ 12,023,885 Loan servicing income and other fees 3,411,589 - (1,395,348) 2,016,241 2,000,186 Loan origination fees 555, , ,656 Corporate grant income 180,610 1,223,676-1,404,286 1,277,437 Program income - 459, , ,131 Gain on sale of defaulted mortgages ,225 15,442,278 1,683,477 (1,395,348) 15,730,407 16,384,520 Expenses Interest 8,840, ,840,479 9,323,225 Compensation and benefits 5,166, ,166,355 4,908,875 Contractual and consulting fees 156,030 1,286,352 (1,286,352) 156, ,913 Depreciation 33,444 11,985-45,429 53,227 Rent 413, ,996 (108,996) 413, ,549 Utilities 34, ,523 39,995 Equipment rental and maintenance 81, ,546 83,477 Travel 47, ,469 44,324 Supplies 89,033 35, , ,807 Advertising and program support 413, , , ,269 15,275,887 1,573,873 (1,395,348) 15,454,412 15,663,661 Operating surplus from operating activities before government grant income for loan losses, provision for loan losses, and loan servicing income restricted for loan loss reimbursement 166, , , ,859 Loan servicing income restricted for loan loss reimbursement 2,434, ,434,337 2,244,678 Investor Restricted Reserve provision for loan losses (2,234,336) - - (2,234,336) (2,844,678) Provision for corporation loan losses (1,164,202) - - (1,164,202) (677,500) (964,201) - - (964,201) (1,277,500) Operating (deficit) surplus from operating activities (797,810) 109,604 - (688,206) (556,641) Grants released from restriction 1,946, ,946,402 - Government grant income - 2,248,711-2,248,711 2,566,340 Government grant disbursements - (2,248,711) - (2,248,711) (2,566,340) Other grant income 750, ,000 1,347,000 2,696, ,696,402 1,347,000 Increase in unrestricted net assets 1,898, ,604-2,008, ,359 Change in temporarily restricted net assets Grant income - temporarily restricted 556, ,000 1,950,000 Grants released from restriction (1,946,402) - - (1,946,402) - Increase (decrease) in temporarily restricted net assets (1,390,402) - - (1,390,402) 1,950,000 Increase in net assets 508, , ,794 2,740,359 Net assets at beginning of year 27,413,706 1,067,766-28,481,472 25,741,113 Net assets at end of year $ 27,921,896 $ 1,177,370 $ - $ 29,099,266 $ 28,481,472 See accompanying notes to consolidated financial statements and independent auditor s report. 4.

7 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended Supplementary Consolidating Information Community Investment Community Corporation Initiatives, Inc. Eliminations Consolidated Consolidated Cash flows from operating activities Increase in net assets $ 508,190 $ 109,604 $ - $ 617,794 $ 2,740,359 Depreciation 33,444 11,985-45,429 53,227 Investor Restricted Reserve provision for loan losses 2,234, ,234,336 2,844,678 Provision for corporation loan losses 1,164, ,164, ,500 Gain on sale of foreclosed mortgages - (246) - (246) (17,225) Changes in Restricted cash 2,915, ,915,025 (2,009,766) Program and other receivables - (2,035,256) - (2,035,256) (2,141,073) Neighborhood Stabilization Program receivables 11,926, ,926,275 - Other assets (1,664,452) (15) 295,449 (1,369,018) (1,947) Accounts and fees payable 786,538 (74,434) (295,449) 416,655 1,135,971 Advance payments by borrowers (163,495) - - (163,495) (1,884,867) Net cash provided by (used in) operating activities 17,740,063 (1,988,362) - 15,751,701 1,396,857 Cash flows from investing activities Loans issued (26,979,692) - - (26,979,692) (11,627,000) Principal collected on loans 44,795, ,795,064 12,284,858 Purchase of investments (4,844,648) - - (4,844,648) - Purchase of certificates of deposit (10,001,302) - - (10,001,302) - Additions to furniture and equipment (55,621) - - (55,621) (103,624) Purchase of real estate (2,385,905) - - (2,385,905) (2,044,486) Sale of real estate - 936, ,296 1,917,827 Net cash provided by investing activities 527, ,296-1,464, ,575 Cash flows from financing activities Payment on notes payable (14,862,810) (3,893,700) - (18,756,510) (7,049,767) Proceeds from notes payable 4,628,591 5,366,194-9,994,785 7,338,634 Net cash provided by (used in) financing activities (10,234,219) 1,472,494 - (8,761,725) 288,867 Increase (decrease) in cash 8,033, ,428-8,454,168 2,113,299 Cash at beginning of year 5,666,374 2,271,290-7,937,664 5,824,365 Cash at end of year $ 13,700,114 $ 2,691,718 $ - $ 16,391,832 $ 7,937,664 Supplemental cash flow information Cash paid for interest $ 8,652,100 $ - $ - $ 8,652,100 $ 9,402,905 Supplemental schedule of non-cash investing and financing activities Transfer of mortgage loans to real estate held for sale after loan foreclosure $ 2,867,460 $ - $ - $ 2,867,460 $ 2,829,237 See accompanying notes to consolidated financial statements and independent auditor s report. 5.

8 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Community Investment Corporation (CIC) is a nonprofit organization whose investors include certain financial institutions in Chicago, Illinois, as well as other corporations and foundations. ClC's purpose is to conserve and revitalize older neighborhoods and low- and moderate-income housing in the six-county Chicago metropolitan area through private and public investment. CIC generates income primarily through the origination, placement (on a limited recourse basis) and servicing of loans through its Resource Apartment Lending Program (RAL). Community Initiatives, Inc. (Cll) was incorporated in July 2002 as a nonprofit affiliate to hold and service loans for troubled properties. The Board of Directors of Cll is controlled by CIC. CIC and Cll are exempt from income taxes under the provisions of Section 501(c)(3) of the Internal Revenue Code and applicable state law. Principles of Consolidation: The consolidated financial statements include the accounts of CIC and its affiliate, Cll (collectively, the Corporation). All significant intercompany accounts and transactions are eliminated in consolidation. Presentation: For financial reporting purposes, the Corporation's activities are primarily unrestricted. Unrestricted net assets are not subject to donor-imposed restrictions. The Corporation separately classifies in its consolidated financial statements temporarily restricted net assets and changes therein. Certain grants and any other contributions received with donor stipulations limiting the use of the donated assets are included in temporarily restricted activities. When a restriction is satisfied, which in the case of the Corporation generally occurs when amounts are expended for restricted purposes, temporarily restricted net assets are reduced by the expended amounts. The Corporation does not report any permanently restricted net assets. Reclassification: Certain amounts in the 2014 consolidated financial statements have been reclassified to conform to the 2015 presentation. These reclassifications did not result in any changes to previously reported increases or decreases to net assets. Use of Estimates: In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial position and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate held for sale. Cash and Cash Equivalents: Cash and cash equivalents consists of cash on hand and bank deposits which, at times, may exceed federally insured limits. Investments are made in insured certificates of deposit and in government secured bonds, notes and Agency Securities. The Corporation has not experienced any losses in these accounts and management believes the Corporation is not exposed to any significant credit risks on its cash accounts. The Corporation considers all liquid investments with original maturities of three months or less to be cash equivalents. 6.

9 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments: Investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their estimated fair values in the statement of financial position. Estimated fair values are determined primarily from quoted market prices where available, or quoted market prices of comparable instruments, where prices are not available. Earnings on investments, including interest, dividends and realized and unrealized gains and losses, are reported as operating changes in net assets on the statements of activities. Investments are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with investments, it is at least reasonably possible that changes in risk in the near term would materially affect the amounts reported in the statement of financial position. Restricted Cash: Restricted cash is invested in an overnight investment account. It consists of advance payments by borrowers for taxes and insurance and remittances of borrowers' principal and interest payments which are then paid to the Corporation's investors, whose investments are reflected in notes payable. Restricted cash also includes loan servicing income and other payments received by the Corporation that are intended to fund potential loan losses in accordance with the Investor Note Purchase Agreement. Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees charged to borrowers approximate the Corporation's cost to originate the loans and are recognized as income when received. The accrual of interest on mortgage loans owned by CIC is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Allowance for Loan Losses for CIC owned loans: The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. 7.

10 NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) The allowance for loan losses consists of specific allocations on certain loans and a general reserve component. The specific allocations relate to loans that are classified as impaired. For those loans that are classified as impaired, an allocation is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general reserve component covers nonclassified loans and is based on historical charge-off experience. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss data. The Corporation originates loans through the Multifamily Loan Program. Under this program, financial institutions invest in the Multifamily Loan Program, under collateral pass-through notes issued in accordance with the Investors Note Purchase Agreement (INPA). The Investor Restricted Reserve, which is a component of the total allowance for loan losses, is limited by a contractual amount included in the INPA as described in Note 2. A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or 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 scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Troubled Debt Restructurings: A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that lead to a restructuring of the loan, and the Corporation grants concessions to the borrower in the restructuring that it would not otherwise consider. These concessions may include rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. A loan that is modified at a market rate of interest may no longer be classified as troubled debt restructuring in the calendar year subsequent to the restructuring if it is in compliance with the modified terms. Performance prior to the restructuring is considered when assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of the restructuring or after a shorter performance period. Depreciation: Depreciation of furniture and equipment is being computed under the straight-line method over the estimated useful lives of the assets. Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Program and Other Receivables: Under the Troubled Buildings Initiative with the City of Chicago Department of Housing and/or as a court appointed receiver for identified troubled buildings, Community Initiatives, Inc. funds repairs of the buildings. Reimbursements are received through the program and as buildings are sold. Other receivables of $200,000 and $950,000 as of, respectively, are from Community Investment Corporation and are eliminated upon consolidation. 8.

11 NOTE 1 - NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Real Estate Held for Sale: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other operating expenses. Losses on foreclosed real estate are limited to contractual amounts included in the Multifamily Loan Program INPA. Operating Activities: Operating activities are considered to be the recurring, budgetary revenue and expenses of the Corporation. Items such as government grant income and disbursements and other grant disbursements are separate, project-specific activities which are not considered to be the Corporation's core operating activities and are therefore classified separately. Income Taxes: The Corporation adopted the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Corporation may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Corporation and various positions related to the potential sources of unrelated business taxable income. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. At, there were no unrecognized tax benefits identified or recorded as liabilities. No provision for income taxes has been made in the financial statements. There were no income tax related interest or penalties recognized by the Corporation during the years ended. The Corporation has not been examined by any tax jurisdiction. CIC and CII file Forms 990, AG 990-IL, and 990-T in the U.S. federal jurisdiction and the state of Illinois. Subsequent Events: The Corporation has evaluated subsequent events for potential recognition and/or disclosure through January 29, 2016, the date the consolidated financial statements were available to be issued. 9.

12 NOTE 2 - LOANS Loans receivable at, consisted of the following: Multifamily Loan Program $ 229,304,854 $ 246,435,252 Construction commitments 13,176,498 22,117,720 Undisbursed portions of construction loans (1,713,133) (4,140,695) Total construction loans 11,463,365 17,977, program loans 1,275,945 - Community develpment loans 1,564,954 1,787,064 General Board of Pension loans 198, ,641 Energy loans 8,220,036 7,235,836 University of Chicago loans 395, ,219 Total other loans 10,379,377 9,651,760 Total loans 252,423, ,064,037 Less: Allowance for loan loss 5,427,637 4,434,652 $ 246,995,904 $ 269,629,385 Mortgage loan commitments outstanding at, were approximately $8,407,878 and $7,539,708, respectively. Through the Multifamily Loan Program, the Corporation originates mortgage loans collateralized by multifamily rental properties in the Chicago metropolitan area. Financial institutions invest in the loans under collateral pass-through notes issued in accordance with the 2010 Investors Note Purchase Agreement. Loans under the INPA are originated through March 15, All Multifamily Loan Program mortgage loans are pledged as collateral for the nonrecourse collateral pass-through notes (Note 6). The Corporation is not obligated to remit delinquent principal and interest payments. Any loss realized on the Multifamily Loan Program mortgage loans is recognized through the Investor Restricted Reserve as established by the INPA. In FY 2015, CIC renewed the INPA for another five years. The renewed agreement allows for the continuation of the sale of pass-through notes to participating investors through March 15, Under the terms of the 2015 INPA, the holders of the nonrecourse collateral pass-through notes issued through the Multifamily Loan Program are required to purchase all loans eligible for sale. Loans approved under the Multifamily Loan Program become eligible to sell when construction is complete, a loan is not in default, and the project has achieved a 1.1 debt service coverage ratio. All loans in the Multifamily Loan Program were at one time in the Construction portfolio. Loans in this portfolio are made to approved developers of multi-family rental properties. The term of the loan covers the development period and time needed until certain economic conditions have been met to allow the property to be sold to the Multifamily Loan Program. 10.

13 NOTE 2 - LOANS (Continued) Community development loans are funded by the Corporation through operations and are not intended to be sold. These loans are collateralized by multifamily rental properties, typically have a term of 5-10 years and have interest rates that float in accordance with a published index. In September 2005, the General Board of Pensions and Health Benefits of the United Methodist Church (GBPHB) agreed to purchase from the Corporation $25,000,000 of fixed rate loans originated over the following three years. The Corporation retains a 1 percent ownership and provides an additional guarantee of 9 percent of losses of principal on the pool. Pursuant to an amended agreement in July 2007, GBPHB agreed to purchase $75,000,000 in fixed rate loans which extended through As of September 30, 2015 and 2014, loans sold to GBPHB were approximately $19,064,500 and $20,519,500, respectively. Energy loans are funded through MacArthur Foundation Notes, Grand Victoria Foundation grants, matching grant funds provided by the City of Chicago, and Bank of America Community Development Corporation to provide low interest loans for borrowers wishing to increase the energy efficiency of their real estate. Energy loans may also be funded by the Corporation through operations. University of Chicago loans are funded through a loan from the University to be used for the improvement of neighborhood housing. The Corporation is not liable for losses on these loans as risk of loss is passed on to the University as noted within the University of Chicago loan agreement. The Corporation serviced approximately $14,276,922 and $5,311,400 of loans for others at September 30, 2015 and 2014, respectively. The following table presents the contractual aging of the recorded investment in past due loans by loan segment as of : Days Days 90+ Days Nonaccruing September 30, 2015 Current Past Due Past Due Past Due Total Loans Multifamily loan program $ 215,234,595 $ 5,136,051 $ 160,352 $ 8,773,856 $229,304,854 $ 8,773,856 Construction loans 11,463, ,463, Program Loans 1,275, ,275,945 - Other loans: Community development 415, , ,800 1,564, ,800 General Board of Pension 198, ,917 - Energy 7,999,703 36, ,999 8,220, ,999 University of Chicago 284,188 39,611-71, ,470 71,671 $ 236,872,074 $ 5,687,789 $ 160,352 $ 9,703,326 $ 252,423,541 $ 9,703,326 Nonaccruing loans $ - $ - $ - $ 9,703,326 $ 9,703,

14 NOTE 2 - LOANS (Continued) Days Days 90+ Days Nonaccruing September 30, 2014 Current Past Due Past Due Past Due Total Loans Multifamily loan program $ 228,028,945 $ 5,727,951 $ 2,425,675 $ 10,252,681 $246,435,252 $ 10,252,681 Construction loans 14,515, ,461,073 17,977,025 3,461,073 Other loans: Community development 1,367, ,055 1,787, ,055 General Board of Pension 224, ,641 - Energy 6,957,409 14, ,775 7,235, ,775 University of Chicago 291, , ,219 - $ 251,385,087 $ 5,855,691 $ 2,425,675 $ 14,397,584 $ 274,064,037 $ 14,397,584 Nonaccruing loans $ - $ - $ - $ 14,397,584 $ 14,397,584 As part of the on-going monitoring of the credit quality of the Corporation's loan portfolio, management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt and comply with various terms of their loan agreements. The Corporation considers current financial information, historical payment experience, credit documentation, public information and current economic trends. Generally, all sizeable credits receive a financial review no less than annually to monitor and adjust, if necessary, the credit's risk profile. Credits classified other than Pass generally receive a review more frequently than annually. For the years ended, the Corporation categorized loans into the following risk categories based on relevant information about the ability of borrowers to service their debt: Pass - A pass asset is a project that is progressing and is performing as originally structured in the expected time frame. Acceptable - An acceptable asset has a minor issue that has been identified by management that may affect the repayment of the loan by the primary source and/or within the loan term. Special Mention - A special mention asset is not performing as agreed and initial attempts to correct identified problems have not remedied the situation. Substandard - A substandard asset is experiencing a substantial impairment and attempts to correct the problem have failed and/or guarantor cash infusions are required to sustain the project. Doubtful - A doubtful asset has the same weaknesses exhibited by Substandard loans, one or more of which will make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Loss - A loss asset is considered uncollectable and of such little value that the continuance as a bankable asset is not warranted. The amount of projected loss and how it will be shared between the Corporation and Investors is reported monthly to the Loan Committee and to Investors with remittances. For all loans sold to the Multifamily Loan Program investors, losses are recognized by the Corporation at the time the property sale closes. Losses are taken by the Corporation in the period in which they are designated as uncollectable for loans that have not met conditions for sale to the investors. 12.

15 NOTE 2 - LOANS (Continued) The following table presents the risk category of loans evaluated by type of loan based on the most recent analysis performed as of : Special September 30, 2015 Pass Acceptable Mention Substandard Doubtful Loss Total Multifamily loan program $ 124,964,822 $ 54,226,659 $ 33,626,683 $ 8,010,858 $ 1,300,947 $ 7,174,885 $ 229,304,854 Construction loans 7,686,534 2,881, ,996 11,463, Program Loans 1,275, ,275,945 Other loans: Community development 36, ,072 85,645 27, , ,800 1,564,954 General Board of Pension 198, ,917 Energy - 7,740, ,806 33, ,271-8,220,036 University of Chicago 284, , ,470 $ 134,446,870 $ 65,180,823 $ 34,040,134 $ 8,183,441 $ 1,828,592 $ 8,743,681 $ 252,423,541 Special September 30, 2014 Pass Acceptable Mention Substandard Doubtful Loss Total Multifamily loan program $ 112,167,660 $ 69,146,386 $ 30,632,996 $ 23,813,603 $ 4,764,793 $ 5,909,814 $ 246,435,252 Construction loans 10,518,840 1,038,937 2,291,490 2,366,048-1,761,710 17,977,025 Other loans: Community development 109,381 53, ,146-1,186,372-1,787,064 General Board of Pension 224, ,641 Energy - 6,013,486 1,080, ,284-7,235,836 University of Chicago 233,439 72,654 56,538 41, ,219 $ 123,253,961 $ 76,324,628 $ 34,499,236 $ 26,221,239 $ 6,093,449 $ 7,671,524 $ 274,064,037 An allowance for loan loss account under the INPA, called the Investor Restricted Reserve account, has been established by the Corporation to reimburse note holders for losses of principal on notes sold to the investors. The Investor Restricted Reserve account was in initially funded by the Corporation in March of $1,000,000 was deposited by the Corporation into restricted cash accounts, and $200,000 is held by the Corporation in an unrestricted account. These initial funds will reimburse note holders for the first $1,200,000 in losses of loan principal. From the Corporation's monthly collection of the loan servicing fee, the Corporation deposits monthly the sum equal to one-half of one percent (0.5%) into the Investor Restricted Reserve. The Corporation will reimburse note holders for losses of loan principal up to the balance of funds available in the Investor Restricted Reserve. The Corporation informs investors of any loans that are delinquent on a monthly basis, and recommends them for nonaccrual status. The Corporation is not obligated to reimburse for losses incurred which exceed the balance of the Investor Restricted Reserve. No losses were passed through to the investors participating in the Investor Restricted Loss Reserve Program during the years ended, in excess of the Investor Restricted Reserve. In November of 2013, the Corporation's Board of Directors and the note holders agreed to amend the Note Purchase Agreement to increase the funding of the reserve for three years. The note holders are funding the reserve with an additional 50 basis points from their return and the Corporation is contributing 25 additional basis points from their gross profit. The additional funding began with the December 15, 2013 remittance by increasing the servicing fee 50 basis points to percent for the month of November. Management believes that with the increased funding the reserve will cover the projected losses through the end of At that time, the CIC Board will decide whether this increase should be continued, reduced or discontinued. 13.

16 NOTE 2 - LOANS (Continued) Activity in the allowance for loan losses for the years ended, was as follows: Multifamily Loan Construction 1-4 Program Other September 30, 2015 Program Loans Loans Loans Total Beginning balance $ 2,671,121 $ 1,163,531 $ - $ 600,000 $ 4,434,652 Provision for loan losses 2,583, ,000-3,398,538 Charge-offs (2,156,904) (555,440) - - (2,712,344) Recoveries 95, , ,791 Ending balance $ 3,193,188 $ 819,449 $ 815,000 $ 600,000 $ 5,427,637 Allowance for loan losses Individually evaluated for impairment $ 3,193,188 $ 563,103 $ 815,000 $ - $ 4,571,291 Collectively evaluated for impairment - 256, , ,346 $ 3,193,188 $ 819,449 $ 815,000 $ 600,000 $ 5,427,637 Loans Individually evaluated for impairment $ 8,773,856 $ 910,284 $ 815,000 $ 929,470 $ 11,428,610 Collectively evaluated for impairment 220,530,998 10,553, ,945 9,449, ,994,931 $ 229,304,854 $ 11,463,365 $ 1,275,945 $ 10,379,377 $ 252,423,541 Multifamily Loan Construction Other September 30, 2014 Program Loans Loans Total Beginning balance $ 2,471,367 $ 1,183,608 $ 213,032 $ 3,868,007 Provision for loan losses 2,844,678 77, ,000 3,522,178 Charge-offs (2,644,924) (97,577) (213,032) (2,955,533) Ending balance $ 2,671,121 $ 1,163,531 $ 600,000 $ 4,434,652 Allowance for loan losses Individually evaluated for impairment $ 2,671,121 $ 875,000 $ - $ 3,546,121 Collectively evaluated for impairment - 288, , ,531 $ 2,671,121 $ 1,163,531 $ 600,000 $ 4,434,652 Loans Individually evaluated for impairment $ 11,585,318 $ 3,829,218 $ 315,685 $ 15,730,221 Collectively evaluated for impairment 234,849,934 14,147,807 9,336, ,333,816 $ 246,435,252 $ 17,977,025 $ 9,651,760 $ 274,064,

17 NOTE 2 - LOANS (Continued) Under the Multifamily Loan Program (INPA), certain expenses incurred by the Corporation are eligible for reimbursement through the Investor Restricted Reserve and are included within charge-offs. In addition to the above Corporation loans reserve, the Board of Directors has designated $3,820,648 and $3,731,094 of Unrestricted Net Assets as a reserve for Corporation loans as of both September 30, 2015 and 2014, respectively. Impaired loan information as of, is as follows: Unpaid Average Additional Interest Principal Recorded Recorded Projected Income September 30, 2015 Balance Investment Investment Allowance Loss Recognized With no related projected loss Multifamily Loan Program $ 5,408,594 $ 5,408,594 $ 4,790,863 $ - $ - $ 132,977 Construction loans program loans Other loans: Community development 673, , , General Board of Pension Energy 183, , , University of Chicago 71,671 71,671 35, ,338,064 6,338,064 5,321, ,977 With a projected loss Multifamily Loan Program $ 3,365,262 $ 3,365,262 $ 5,562,978 $ 3,193,188 $ 2,487,953 $ 32,620 Construction loans 910, , , , program loans 815, , , , Other loans: Community development General Board of Pension Energy University of Chicago ,090,546 5,090,546 6,748,123 4,571,291 2,487,953 32,620 $ 11,428,610 $ 11,428,610 $ 12,069,565 $ 4,571,291 $ 2,487,953 $ 165,

18 NOTE 2 - LOANS (Continued) Unpaid Average Additional Interest Principal Recorded Recorded Projected Income September 30, 2014 Balance Investment Investment Allowance Loss Recognized With no related projected loss Resource Apartment Lending $ 3,961,454 $ 3,961,454 $ 6,200,874 $ - $ - $ 78,701 Construction loans 641, ,560 1,106, ,445 Other loans: Community development 51,910 51, , General Board of Pension Energy 263, ,775 97, ,800 University of Chicago , ,918,699 4,918,699 7,551, ,946 With a projected loss Resource Apartment Lending 7,623,864 7,623,864 8,288,068 2,671,121 1,337, ,210 Construction loans 3,187,658 3,187, , , Other loans: Community development General Board of Pension Energy University of Chicago , ,811,522 10,811,522 9,270,451 3,546,121 1,337, ,117 $ 15,730,221 $ 15,730,221 $ 16,822,330 $ 3,546,121 $ 1,337,079 $ 190,063 Projected losses are an estimate made by management of additional potential loss of principal in excess of the investor restricted reserve if the collateral is moved into the Corporation's real estate held for sale portfolio. Projected losses related to the Multifamily Loan Program portfolio loans may be recognized upon disposition of the collateral. The Allowance (Investor Restricted Reserve) is increased monthly by agreement between the Corporation and the Investors. The Corporation anticipates the Investor Restricted Reserve will have adequate funds at the time of the dispositions of the collateral to cover the principal losses. During the year ended, September 30, 2015 and the year ended September 30, 2014 no loans were modified, which would qualify as TDRs through either an interest rate concession, maturity extension, or both, which would qualify as troubled debt restructurings (TDR). No additional funds are committed to be advanced in connection with impaired loans. 16.

19 NOTE 3 - DEFAULTED MORTGAGES AND REO PURCHASES Defaulted loans purchased by Community Initiatives, Inc. are multi-family projects that failed at other lending institutions. These mortgages were purchased at a discount and under the assumption that they are not interest-bearing assets, and are therefore not considered impaired. The Corporation appoints a receiver, completes foreclosure to obtain title, and resells the property. Total purchased loans were $1,328,557 and $232,408 as of, respectively. The ongoing costs of preserving and converting the assets to owned real estate were capitalized as part of the balance of the purchased loan. Interest costs on the line of credit used to purchase the mortgages are expensed. Property values indicate that all costs and fees will be recovered on the sale of the properties to new owners. In the years ended, the Corporation recognized project fee income of $403,626 and $379,874, respectively, on the sales of these properties. In FY 2015 the Corporation (CII), under the 1-4 Program, began purchasing 1-4 unit properties for the 1-4 Program in order to in turn sell the properties to borrowers to rehab and maintain as rental properties. At FY 2015 year end the Corporation currently has $710,959 invested in these properties. The Corporation maintains a reserve of $400,000 funded with a grant from the JPMorgan Chase Foundation to cover program losses. No losses have occurred. NOTE 4 - NEIGHBORHOOD STABILIZATION PROGRAM RECEIVABLES Neighborhood Stabilization Program (NSP) loans are funded through Mercy Portfolio Services in connection with the Neighborhood Stabilization Program. The funds are to be used to acquire, rehabilitate and reoccupy foreclosed multi-family and single-family residences to help revitalize Chicago neighborhoods devastated by the housing market crisis. The Corporation advances the funds to developers of the properties on behalf of Mercy Portfolio Services. The Corporation is reimbursed for all NSP funds at completion of the project. The program was ended as of September 30, 2015 and all funds advanced were received. As of September 30, 2014, funds advanced under this program were $11,926,275. NOTE 5 - REAL ESTATE HELD FOR SALE Real estate held for sale represents the net realizable value of the outstanding mortgage loan balance at the date of foreclosure and deferred expenses incurred in connection with the subsequent foreclosure. The carrying value approximates the fair value of the collateral less estimated costs to hold and sell. Prior to the renewal of the INPA as described in Note 2, the holders of the nonrecourse collateral pass-through notes issued through the Multifamily Loan Program are liable for expenses incurred by the Corporation in connection with the foreclosures. Under the terms of the new INPA, the Corporation is now liable for these expenses up to the amount in the Investor Restricted Reserve, as described in Note

20 NOTE 5 - REAL ESTATE HELD FOR SALE (Continued) The following is a summary of the changes for the Corporation real estate held for sale for the years ended : Balance at beginning of year $ 2,548,800 $ 1,764,049 Additions 6,651,662 2,829,237 Disposals (3,784,202) (2,044,486) Balance at end of year $ 5,416,260 $ 2,548,800 The RAL real estate is held at book value as losses are not recognized through the Investor Restricted Reserve until disposition, according to the agreement. Estimated losses on the Multifamily Loan Program properties based on internal valuations are $4,085,700 and $1,135,500 as of September 30, 2015 and 2014, respectively. NOTE 6 - NOTES PAYABLE Notes payable consisted of the following: Resource Apartment Lending Program nonrecourse collateral pass-through notes $ 226,281,256 $ 234,803,011 DOH TBI grants payable 11,669,726 10,775,479 Distressed Condo Fund ARRA Program 2,018,696 2,018,696 MacArthur Foundation notes 18,000,000 18,340,000 FHLB program related investment 4,000,000 - University of Chicago loan 407, ,708 Energy loan funds 7,999,821 7,999,821 CMAP Loan Guarantee Fund 2,883,817 2,816,640 JP Morgan Chase Resource Apartment Lending program line-of-credit demand notes - 5,000, ,261, ,211,355 Accrued interest payable 959, ,572 $ 274,221,202 $ 282,982,

21 NOTE 6 - NOTES PAYABLE (Continued) Under the Multifamily Loan Program, mortgage loans are funded from the proceeds of nonrecourse collateral pass-through notes to the Corporation's investors. The notes are collateralized by specific groups of mortgage loans originated through the Multifamily Loan Program. The Multifamily Loan Program mortgage loans bear interest rates, including the Corporation's subsidies, ranging from 1.88 percent to 5.63 percent. Monthly repayments of principal and interest on the nonrecourse collateral pass-through notes are made from collections of principal and interest payments received on the underlying mortgage loans. The Multifamily Loan Program was renewed March 2015 for five years. At September 30, 2015, the Corporation had commitments from investors to purchase nonrecourse collateral pass-through notes totaling $265,700,000. The current nonrecourse collateral trust note purchase agreement expires September 15, Under the Department of Housing (DOH) grant and Distressed Condo Fund ARRA Program agreements, Cll is provided funds for reimbursable costs incurred under their troubled building initiative program. These funds are required to be returned to the DOH under conditions specified in the agreement. Under the Chicago Metropolitan Agency for Planning (CMAP) Loan Guarantee Fund program, the Corporation acts as a loan and program administrator for the Multifamily Retrofit Loan Loss Reserve Fund Program of the Chicago Region Retrofit Ramp-Up Program. This program is in partnership with the City of Chicago and the City of Rockford to transform the market for carrying out energy-efficient retrofits to commercial and residential buildings in northeastern Illinois. The Corporation has four separate Program Related Investments (PRI s) from the MacArthur Foundation. The first MacArthur Foundation note with an original balance of $2,000,000 was entered into in the year ended September 30, 2008, matures in 2018 and bears interest at 2 percent. The Second note for $1,000,000 was also entered into in the year ended September 30, 2008, matures in 2021 and bears interest at 1 percent. The third note for $5,000,000 was entered into in the year ended September 30, 2010, ($3,000,000 received in 2010, $1,000,000 received in 2011 and $1,000,000 received in 2012), matures in 2020 and bears interest at 1 percent. The fourth note for $5,000,000 was entered into in the year ended September 30, 2012, matures in 2021 and bears interest at 1 percent. The sixth note for $5,000,000 was entered into in the year ended September 30, 2014, matures in 2027 and bears interest at 1 percent. The Corporation entered into an agreement to receive a PRI from the Federal Home Loan Bank in the amount of $4,000,000 during the year ended September 30, 2015, maturing February 2025 and bearing interest at 2.01%. The agreement agrees to two separate disbursements in an aggregate principal amount of $9,000,000. The second disbursement is to occur no earlier than the Corporation s achievement of the CFF Deployment Ratio. The Energy Loan Funds program is a PRI from Bank of America in the amount of $8,000,000 maturing January 2022 and bearing interest at 1 percent. Under the terms of the JP Morgan Chase line-of-credit demand notes, the Corporation may borrow up to $5,000,000. Borrowings under the agreement bear interest at the prime rate plus 25 bps or 30 day LIBOR plus 2.50 percent as of both, and are collateralized by certain mortgage loans issued through the RAL. The line-of-credit demand note was renewed on May 21, 2014, and matures on March 15,