HOPE ENTERPRISE CORPORATION. Consolidated Financial Statements with Supplementary Information Years Ended December31, 2012 and 2011

Transcription

1 HOPE ENTERPRISE CORPORATION Consolidated Financial Statements with Supplementary Information Years Ended December31, 2012 and 2011

2 Independent Auditors Report 1 2 December 31, 2012 and 2011 Table of Contents Statement of Activities and Changes in Net Assets 27 Schedule 4 Details of New Markets Tax Credit Companies Schedule 3 Schedule 2 Notes to Consolidated Financial Statements 7 23 Consolidating Details Combining Statement of Financial Position 26 of New Markets Tax Credit Companies Combining Statement of Activities and Changes in Net Assets 25 Schedule 1 Consolidating Statement of Financial Position 24 Supplementary Information Consolidated Statements of Cash Flows 6 Consolidated Statements of Activities and Changes in Net Assets : 4 5 Consolidated Statements of Financial Position 3 Consolidated Financial Statements

3 CPAs and Advisors C A R R Cerr Riggs & Ingram. LIC RIGGS & 282 Commerce Park Drive INGRAM Ridgeland, M ss,sspp, Mailing Address PD. Box 2418 Ridge ana, Mss sswp 39SB24S 931: : ifax vnav.crcpa.com INDEPENDENT AUDITORS REPORT To the Board of Directors of Jackson, Mississippi We have audited the accompanying consolidated financial statements of Hope Enterprise Corporation and entities under its control ( the Company ), which comprise the consolidated statements of financial position as of December 31, and 2011, and the related consolidated statements of activities and changes in net assets and of cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated 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. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 of 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 auditors 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. 1

4 In our opinion, the consolidated financial statements referred to above present fairly, in all Opinion 2 April 15, Ridgeland, Mississippi financial statements as a whole. The supplementary information included in Schedules 1 financial statements. Such information is the responsibility of management and was derived financial statements as a whole. procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying supplementary information is fairly stated in all material respects in relation to the consolidated with auditing standards generally accepted in the United States of America. In our opinion, the consolidated financial statements. The information has been subjected to the auditing consolidated financial statements themselves, and other additional procedures in accordance accounting and other records used to prepare the consolidated financial statements or to the from and relates directly to the underlying accounting and other records used to prepare the presented for purposes of additional analysis and is not a required part of the consolidated 4 is Our 2012 audit was conducted for the purpose of forming an opinion on the consolidated Report on Supplementary Information and the changes in their consolidated net assets and their consolidated cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of material respects, the financial position of the Company as of December 31, 2012 and 2011, America. basis for our audit opinion. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

5 1,342,512 December 31, $ 12,788,105 $ 10,440,827 Assets. Consolidated Statements of Financial Position 3 See notes to consoiidated financial statements. 193,125 3,215,000 3,000,990 50,999, , ,415 10,650,000 2,743,380 16,311,549 2,022, , ,315 3,207,381 53,536,751 2,742, ,571 Contract revenue receivable Other loans net of allowance for loan losses of approximately 482, ,367, 965,953 3,215, ,438 1,045,742 12,448,430 2,188,308 2,004,803 Debt securities held as investments Loan guarantees receivable from Small Business Administration Consumer mortgage loans held for sale Loan receivable from affiliate Total liabilities 38,348,364 29,545,119 Noncontrolling interest in ECDI 1,637,433 1,846,267 Noncontrolling interest in ECDA 5,231,877 6,237,941 Noncontrolling interest in ECD Plus 7,687,202 7,989,662 Noncontrolling interest in ECD First 2,370,662 2,372,462 Noncontrolling interest in ECD Central 4,850,000 4,850,000 Noncontrolling interest in ECDNM3 8,708,466 8,777,015 Noncontrolling interest in ECDNM4 10,550,532 10,530,021 Noncontrolling interest in. ECDNM5 10,650,000 Total noncontrolling interests 51,686,172 42,603,368 Total net assets 67,14.8,737 63,888,283 Temporarily restricted Liabilities: 3,619,245 Net assets: Total unrestricted 62,186,980 Liabilities and net assets Property and equipment, net Other assets Cash and cash equivalents Grants receivable $1,706,000 (2012) and $1,671,000 (2011) Investment in affiliated company Cash restricted for collateral on subsidiary s note payable Investment in secondary capital of Hope Federal Credit Union Foreclosed property Total assets $ 105,497,101 $ 93,433,402 Accounts payable and accrued expenses $ 551,801 $ 910,701 Payable to Hope Federal Credit Union 2,388,871 1,259,902 Securities sold under agreements to repurchase 213,000 Notes payable 32,219,902 23,973,726 Commitments and contingencies (Note 5) Unrestricted 10,500,808 13,883,066 Funds held in escrow 3,187, ,790 Permanently restricted 56,486,434 6,259,337 1,142,512 Total liabilities and net assets $ 105,497,101 $ 93,433,402

6 Consolidated Statement of Activities and Changes in Net Assets Year ended December 31, 2012 Revenues and gains Grants and contributions Inkind contributions Interest, dividends and related fees: Loans and other investments Debt securities and cash equivalents Net realized and unrealized losses on debt securifies held as investments Gain on sale of assets Contract services revenue Other income Unrestricted $ 964,467 $1,535,824 99,900 2,699,388 65,452 (20,295) 27, ,835 16,293 4,109,277 Temporarily Permanently Restricted Restricted Total $ 200,000 $ 2,700,291 99,900 2,699,388 65,452 (20,295) 27, ,835 16,293 5,845,101 1,535, ,000 Net assets released from restrictions: Satisfaction of program restrictions 4,175,916 (4,175,916) Total revenues and gains 8,285,193 (2,640,092) 200,000 5,845,101 Expenses Program expenses: Development finance 5,806,735 5,806,735 Housing initiative 530, ,858 Hope Federal Credit Union 1,448,000 1,448,000 Policy and advocacy 678, ,256 Other programs 1,191, ,291 General administration: 9,655,140 9,655,140 General and administration expense 1,735,348 1,735,348 Fundraising and communicaon 262, ,353 Total expenses 11,652,841 11,652,841 Change in net assets before noncontrolling interest (3,367,648) (2,640,092) 200,000 (5,807,740) Noncontrolling interests in subsidiaries income (805,168) (805,168) Change in net assets attributable to controlling interest (4,172,816) (2,640,092) 200,000 (6,612,908) Acquisition of noncontrolling interest 790, ,558 Net assets attributable to controlling interests: At beginning of year 13,883,066 6,259, ,512 21,284,915 At end of year 10,500,808 3,619,245 1,342,512 15,462,565 Net assets of noncontrolling interests (Note 12) 51,686,172 51,686,172 Total net assets at end of year $ 62,186,980 $ 3,619,245 $ 1,342,512 $ See notes to consolidated financial statements. 4

7 Revenues and gains Unrestricted Restricted Restricted Total Temporarily Permanently Year ended December31, 2911 Consolidated Statement of Activities and Changes in Net Assets 5 See notes to consolidated financial statements. securities held as investments Contract services revenue Net realized and unrealized losses on debt Debt securities and cash equivalents Interest, dividends and related fees: Loss on sale of foreclosed property Other income 96,982 Inkind contributions Grants and contributions Loans and other investments 2,619,365 49,875 2,401,188 5,684,837 49,875 12,013,426 Satisfaction of program restrictions 1,262,361 (1,262,361) Program expenses: Development finance 3,381,245 Other programs 2728,431 9,734,440 Hope Federal Credit Union 2,499,176 2,499,176 Fundraising and communication 179,357 General administration: General and administration expense 1,333,073 Expenses Total revenues and gains 7,791,394 3,772, ,000 12,013,426 Net assets released from restrictions: Expiration of time restrictions 844,196 (844,196) 5,878, ,000 Total net assets at end of year $ 56,486,434 $ 6,259,337 $ 1,142,512 $ 63,888,283 Net assets attributable to controlling interests: Net assets of noncontrolling interests (Note 12) 42,603,368 42,603,368 Atend of year 13,883,066 6,259,337 1,142,512 21,284,915 At beginning of year ,642 2,487, ,512 20,640,459 Change in net assets attributable to controlling interest (3,577,576) 3,772, , ,456 Noncontrolling interests in subsidiaries income (122,100) Change in net assets before Policy and advocacy 511,809 Total expenses 11,246,870 Katrina recovery 235, ,031 $ 592,099 $ 5,878,589 $ 450,000 $ 6,920,688 9,500 9,500 (10,127) (74,045) Housing initiative 378, ,748 noncontrolling interest (3,455,476) 3,772, , ,556 2,619,365 96,982 (10,127) (74,045) 2,401,188 3,381, , ,431 9,734,440 1,333, ,357 11,246,870 (122,100)

8 Operating activities Adjustments to reconcile change in net assets to net Change in net assets attributable to controlling interest Years ended December 31, $ (6,612,908) $ 644,456 Consolidated Statements of Cash Flows 6 Transfers to loan guarantees receivable $ $ 284,533 See notes to consolidated financial statements. Property received upon foreclosure on loans $ 293,760 $ 135,900 Supplemental disclosure of noncash investing and financing activities: (791) 206,391 (27,237) 29, , , ,159 20, , ,586 1,439, ,068 10,127 (1,848) 450, , ,268 Provision for loan losses Gain on sale of assets 122,100 92,319 (222,882) Depreciation and amortization Impairment losses and loss on sale of foreclosed property Accretion of discounts on investments (347,770) (466,557) (302,841) Realized and unrealized loss on investments Contract revenue receivable Grants receivable Other receivables and prepaid expenses Accounts payable and other liabilities Investment in affiliated company (10,660,000) investment in secondary capital of Hope Federal Credit Union (3,949,500) Financing activities Investing activities Cash and cash equivalents, end of year $ 12,788,105 $ 10,440,827 Increase in restricted cash held in escrow (1,089) (1,091) Cash dividends paid to noncontrolling interests (1,381,804) (575,605) Payments on borrowings under agreements to repurchase (213,000) (632,000) Cash and cash equivalents, beginning of year 10, ,461,383 Net increase (decrease) in cash and cash equivalents 2,347,278 (2,020,556) Noncontrolling interests in subsidiaries income Net decrease (increase) in loans held for investment 1,982,313 (16,903,579) Net cash used in investing activities (12,565,655) (14,170,292) Net cash provided by (used in) operating activities (2,188,438) 1,034,736 Capital contributions by noncontrolling interests 10,650,000 11,000,000 Acquisition of noncontrolling interest in subsidiary (200,000) Net cash provided by financing activities 17,101,371 11,115,000 Payments on longterm borrowings (3,153,825) (2,375,999) Longterm borrowings 11,400,000 3,698,604 cash provided by (used in) operating activities: Proceeds from sales of mortgage loans held for sale Changes in operating assets and liabilities: Proceeds from settlements of loan guarantees 177,906 Purchases of investments (939,023) Proceeds from maturities and sales of investments 251,823 3,1 99,778 Proceeds from repayment of secondary capital loans 86, ,000 Proceeds from sales of foreclosed property 10, ,268 Purchase of property and equipment (296,292) (575,551)

9 (the Company ) is a not4orprofit development financial Description of the Company POLICIES NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 7 to reimburse HFCU for certain operating expenses and losses incurred on loans considered to sponsor of HFCU. Under the terms of its contractual arrangements, the Company has agreed Although not included in the consolidated financial statements, the Company is also the primary and contributions to Hope Federal Credit Union (HFCU). ECDA, ECDNM, ECD Plus, ECD First, dissolve after the loans provided by the CDE5 mature, in accordance with the terms of the CDE entities. Debt and equity funding into ECDA and ECDNM is used for secondary capital loans operating agreements. LLC (ECDNMS). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of such consolidated financial statements requires in turn used to provide available investment capital to lowincome communities. The CDEs will ECD Central, ECDNM3, ECDNM4 and ECDNMS are Community Development Entities (CDE5) U.S. Department of the Treasury. Substantially all of the qualified equity investments must be created for investors to benefit from the New Markets Tax Credit program administered by the ECDNM3, ECDNM4 and ECDNM5. The Company serves as the Managing Member of all eight statements of the Company which include ECDA, ECDNM, ECD First, ECD Plus,. ECD Central, There are also eight additional limited liability companies included in the consolidated financial small businesses in a six county service area in the delta region of Mississippi. Katrina. MDCIIC is a Mississippi corporation that provides loans and technical assistance to services to eligible people in the coastal region of Mississippi in the aftermath of Hurricane the Board of Directors. Home Again provides mortgage financing and recovery consultation BIDCQ. The purpose of ECDI and BIDCO is the same as that of the Company. Home Again is ECDI is a limited liability company subsidiary of the Company and owns the corporate stock of a nonprofit organization in which the Company serves as the primary.sponsor and also controls and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated that are particularly susceptible to change in the near term. management to make estimates and assumptions that affect the reported amounts of assets ECD Associates, LLC (ECDA), ECD New Markets, LLC (ECDNM), ECD First Commercial, LLC Again, Inc. (Home Again), MidDelta Community arid Individual Investment Company (MDCIIC), (ECD First), ECD Plus, LLC (ECD Plus), ECD Central City, LLC (ECD Central), ECD New Company, ECD Investments, LLC (ECDI), ECD Investments BIDCO, Inc. (BIDCO), Home The consolidated financial statements have been prepared in conformity with accounting Markets 3, LLC (ECDNM3) ECD New Markets 4, LLC (ECDNM4) and ECD New Markets 5, periods. Actual results could differ from those estimates. The allowance for loan losses and the valuation of foreclosed property and investments are determined utilizing material estimates principles generally accepted in the United States of America and include the accounts of the financial statements and the reported amounts of revenues and expenses during the reporting Basis of Presentation development and are designed to support business creation and expansion, homeownership Company include financing, management assistance, financial counseling and market to improve the regional economy through investment, jobs and growth; The services of the corporation primarily serving Arkansas, Louisiana and Mississippi. The goal of the Company is and community development.

10 Such obligations are limited so as to not provide HFCU monthly net income of more than be higher risk than typically underwritten by regulated financial institutions such as HFCU. POLICIES (Continued) NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 8 participants would use to determine a transaction price at the reporting date. markets accessible at the measurement date. observable or can be corroborated by market data. values using various valuation techniques and models based on a range of observable market When quoted market prices in active markets are unavailable, the Company determines fair Company produces an estimate of fair value based on internally developed valuation other quotes and to recent trading activity in the same or similar instruments. To the extent the Level I Valuations based on unadjusted quoted prices for identical assets in active Level 2 Valuations derived for similar assets in active markets, or other inputs that are Level 3 Valuations derived from unobservable (supported by little or no market activity) duration and yield, time value, yield curve, prepayment speeds, default rates and discounted The Company generally obtains one quoted market price or dealer quote per instrument. When dealer quotations are used, the Company uses the midmark as fair value. As part of the Company determines a price or quote is inconsistent with actual trading activity observed in that investment or similar investments, or if the Company does not believe the quote is reflective inputs that reflect an entity s best estimate of what hypothetical market inputs including pricing models, quoted market price of publicly traded securities with similar price verification process, valuations based on quotes are corroborated by comparison both to cash flow. In most cases, these estimates are determined based on independent third party techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3. If quoted market prices and independent third party valuation information ae unavailable, the valuation information, and the amounts are disclosed in the Level 2 of the fair value hierarchy. measure fair value: inputs and minimizes the use of unobservable inputs. Three levels of inputs are used to Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company utilizes a fair value hierarchy for measuring fair value that maximizes the use of observable Fair Value Measurements Company evaluated subsequent events through April 15, 2013, which was the date the consolidated financial statements were available to be issued. In connection with the preparation of the consolidated financial statements, management of the grants donated as permanent revolving loan funds. of future operations and/or specific programs. Permanently restricted net assets are their use. All other net assets are legally unrestricted and are therefore reported as unrestricted permanently restricted. Restricted net assets are created by donorimposed restrictions on The net assets of the Company are reported as unrestricted, temporarily restricted or net assets. Temporarily restricted net assets are grants restricted to and intended for support HFCU members are also borrowers from the Company and its affiliates. $20,000. HFCU and the Company share the same members of management and certain

11 this observable market information. of the market value br the investment, the Company would internally develop a fair value using POLICIES (Continued) NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING Other loans are stated at the amount of unpaid principal less the allowance for loan losses and accrual of interest and recognizes income only as received. A loan may also be placed in non accrual status when, in management s judgment, the collection of interest is doubtful. All consist of commercial loans, consumer mortgage loans not held for sale and forgivable mortgage loans. The commercial loans are typically collateralized by property, equipment, are due. For all loans 90 days or more past due, the Company generally discontinues the generally guaranteed by the principals of the borrower. Interest income is computed on the required principal and interest payments have not been received as of the date such payments loan balance outstanding and is accrued as earned. Loans are considered past due if the inventories, and/or receivables with loantovalue ratios from 50 percent to 100 percent and are Other Loans and mortgage servicing rights are released at point of sale. Although investors have limited loans are collateralized by the related residence of the borrower. Net unrealized losses, if any, recourse to return a purchased loan, no such returns occurred in 2012 or All mortgage are recognized through a valuation allowance by a charge to expense. in the secondary market to a permanent investor. Such loans are generally sold within 30 days primarily fixedrate singlefamily residential loans originated and held under contract to be sold Mortgage loans heldforsale are carried at the lower of aggregate cost or market value and are Consumer Mortgage Loans HeldforSale necessary for this loan. operations in The loan matures in 2027 with quarterly principal payments of $250,000 The Company entered into a loan with ECD Chase, LLC (Chase), a company that began The Company serves as the nonmember manager of Chase. Chase does not have a board of directors and has only one investor member. No allowance for loan loss was deemed Loan Receivable from Affiliate scheduled to begin in January Interest at a fixed rate of 6.25 percent is due quarterly. previously written off are recorded when received. determines the allowance by reviewing all outstanding amounts on a monthly basis, identifying Contract services revenue is recognized in the period services are rendered. For related troubled accounts and using historical experience applied to an aging of accounts, Contract receivables, no allowance for doubtful accounts has been deemed necessary. Management receivables are written off when deemed uncollectible. Recoveries of contract receivables Contract Services Revenue and Related Receivables Unconditional grants are recognized as revenue in the period the commitment is received. fair value at the date of the grant based upon the present value of payments to be received. Unconditional grants to be received over a period of time in excess of one year are recorded at Grants Receivable when purchased to be cash equivalents. The Company considers all highly liquid investments with a maturity of three months or less Cash Equivalents

12 is reversed through interest income unless management believes the accrued interest is interest accrued but not collected for loans that are placed in nonaccrual status or charged off POLICIES (Continued) NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 10 property funded until the occupancy period is met. At such time, the interest in the property is remaining loan balance scheduled to be forgiven in Again recorded approximately $224,000 in debt forgiveness in both 2012 and 2011 related to forgive approximately $225,000 under the program each year for the next four years, with the needs of Home Again s customers. The terms of these loans differ significantly fromtraditional these mortgage loans. As of December 31, 2012, Home Again has a conditional promise to mortgage loans since they are forgivable over a stated period of time, typically ten years, and therefore received for loans made under the Home Again program. Persons receiving loans become due only on the sale or transfer of the residence, No principal or interest payments are transferred to the borrower. No allowance for credit losses has been deemed necessary based Other loans also include forgivable mortgage loans that are made.to accommodate the financial under the program offered by Home Again must meet certain eligibility requirements and agree the collateral securing the loans over the unforgiven portion of the mortgage loans. Home to occupy the residence for a stated period of time. Home Again holds a secured interest in the on the forgivable nature of the loans and management s evaluation of the excess of the value of there were no TDR loan contracts that subsequently defaulted. cost to sell estimate, which would approximate net realizable value. During 2012 and 2011, dependent loans that are TDRs are charged down to the most likely fair value estimate less a There were no specific chargeoffs related to TDRs during 2012 or 2Q11. Collateral Company had a related loan loss allowance of approximately $31,000 at December 31, 31, 2011, loans of the Company classified as TDRs approximated $46,000. For TDRs, the underlying collateral. Loans retain their interest accrual status at the time of modification. on either the present value of estimated future cash flows or the estimated fair value of the for an allowance for loan losses on a loanbyloan basis. An allowance for loan losses is based debt restructurings (TDRs) including rate reductions, payment extensions, and forbearance. The Company classifies troubled debt restructured loans as impaired and evaluates the need circumstances. The Company makes various types of concessions when structuring troubled dependent. The amount of impairment, if any, and any subsequent changes are included in the rate, the loan s obtainable market price, or the fair value of the collateral if the bàn is collateral with the contractual terms of the loan agreement. Impaired commercial loans are measured by that the Company will be unable to collect all principal and interest payments due in accordance either the present value of expected future cash flows discounted at the loan s effective interest loans do not meet the criteria for nonacerual status. allowance for loan losses. Interest on accruing impaired loans is recognized as long as such A loan is considered impaired when it is probable, based on current information and events, A loan is considered a troubled debt restructured loan based on individual facts and At December 31, 2012, there were no loans of the Company classified as TDRs. At December origination fees and direct costs associated with the lending process is deferred and accreted to regarding the recovery of principal. When material, the net amount of nonrefundable loan method. applied against principal or reported as interest income, based on management s assessment recoverable through the liquidation of collateral. Interest received on nonaccrual loans is either interest income over the lives of the loans using a method that approximates the interest

13 POLICIES (Continued) The allowance for loan losses is determined based on various components for individually Allowance for Loan Losses NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 11 Property and equipment are stated at cost, if purchased, and estimated fair value at the date received, if donated to the Company. Depreciation on property and equipment is calculated generally range from three to 39 years. principally by the straightline method over the estimated useful lives of the assets which Property and Equipment interest does not control the operations of Hickory, and does not control the election or personal property. Hickory s operations were minimal through December 31, of Hickory is the acquisition, ownership, financing and holding for lease equipment and other The Company purchased a 98.91% equity interest in Hickory Holdings, LLC (Hickory) on method of accounting. Hickory is not consolidated since the Company has a preferred unit termination of Hickory s managing members or it management. The principal business activity January 1, The investment in affiliated company is accounted for using the equity December 24, 2012, and began receiving its allocation of the operating results of Hickory on Investment in Affiliated Company these assets. Security purchases and sales are accounted for on the trade date. income by the interest method over the period to maturity and adjusted for prepayments as applicable. The specific identification method is used to compute gains or losses on the sale of Premiums and discounts on investment securities are recognized as adjustments to interest Debt Securities Held as Investments losses are included in the change in net assets. The primary components that determine a losses on sales are computed based on the cost of specific securities sold. in interest rate risk, prepayment risk or other similar economic factors. Realized gains and these securities as part of its asset/liability strategy and they may be sold as a result of changes security s fair value are its coupon rate, maturity and credit characteristics. The Company holds Debt securities are carried at fair value based on quoted market prices. Unrealized gains and original effective market interest rate. As a practical expedient, impairment may be measured measured based on the present value of expected future cash flows discounted at each loan s based on the loan s observable market price or the fair value of the collateral if the loan is portfolio. The amount of the allowance is based on management s evaluation of the for loan losses. Though management believes the allowance for loan losses to be adequate, consistently applied to each segment. The allowance for loan losses is maintained at a level investment in the loan, the impairment is recorded through the provision added to the allowance periods in which they become known. offs, net of recoveries by portfolio segment. The methodology for determining chargeoffs is profile, credit concentrations, historical trends and economic conditions. This evaluation also increased by a provision for loan losses, which is charged to expense and reduced by charge considers the balance of impaired loans. Losses on individually identified impaired loans are impaired loans and for homogeneous pools of loans. The allowance for loan losses is that, in management s judgment, is adequate to absorb credit losses inherent in the loan collateral dependent. When the measure of the impaired loan is less than the recorded and, as adjustments become necessary, they are reported in the change in net assets during collectability of the loan portfolio, including the nature of the portfolio, and changes in its risk ultimate losses may vary from their estimates. However, estimates are reviewed periodically,

14 The carrying value of longlived assets is reviewed if facts and circumstances indicate a POLICIES (Continued) potential impairment of carrying value may have occurred utilizing relevant cash flow and NOTE I NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING 12 Potential exposures involving tax positions taken that may be challenged by taxing authorities contain assumptions based upon past experiences and judgments about potential actions by ECDNM3, ECDNM4 and ECDNM5 are limited liability companies, no income taxes are BIDCO and MDCIIC that are recognized differently for financial reporting purposes arid income of approximately $7,109,000 that will begin to expire in limitations. At December 31, 2012, BIDCO and MDCIIC have net operating loss carryforwards 501(c)(3) and 509 (a)(2). Since ECDI, ECDA, ECDNM, ECD Plus, ECD Central, ECD First, provided. The results of operations are reportable by the LLC members on their individual provide for amounts that management considers may not be realized as a result of income The Company and Home Again have received rulings from the Internal Revenue Service for exemption from income taxes as public charities under internal Revenue Code Sections income tax returns. BIDCO and MDCIIC are subject to income taxes at the corporate level. As such, deferred income taxes relate to temporary differences between assets and liabilities of tax purposes. Deferred tax assets and liabilities pertain to net operating loss carryforwards, the allowance for loan losses and unrealized gains on securities. A valuation allowance of and 2011, to offset all of the net deferred tax assets. The valuation allowance is established to approximately $2,661,000 and $2,255,000, respeôtively, was recorded at December 31, 2012 Income Taxes the Federal Department of Housing and Urban Development. note. Any funds received but not loaned to eligible borrowers are subject to being returned to Funds held in escrow are required to be held in accordance with provisions of the MIDCIIC Funds Held in Escrow collateral under the agreement. December 31, 2011, the Company had pledged securities with a fair value of $255,000 as agreement may have required the Company to provide additional collateral if the fair value of Securities sold under agreements to repurchase matured on January 31, 2012 and was not renewed. Prior to maturity, the borrowings were collateralized primarily by securities of the U.S. government or its agencies. Securities sold under agreements to repurchase were reflected at the amount of cash received in connection with the borrowing. The terms of the repurchase the securities underlying the borrowing declines during the term of the agreement. As of Securities Sold Under Agreements to Repurchase additional charge to expenses is made to reflect declines in value resulting from subsequent from the acquisition of such property are charged against the allowance for loan losses. An interest, if any) or fair value at the date acquired less estimated costs to sell. Losses arising valuations of the property. Gains and losses resulting from disposition of such property are These assets are stated at the lower of the outstanding loan amount (including accrued Foreclosed property consists of properties repossessed by the Company on foreclosed loans. recognized currently in the change in net assets. Foreclosed Property estimated to be generated by those assets are less than the assets carrying amounts. profitability information. Impairment losses are recorded when the undiscounted cash flows

15 income tax examinations prior to will result in a material amount. With minimum exceptions, the Company is no longer subject to POLICIES (Continued). taxing jurisdictions. Management does not believe that the ultimate settlement of these items NOTE I NATURE OF BUSINESS AND. SUMMARY OF SIGNIFICANT ACCOUNTING arrangement or similar agreement. In addition, ASU No , Balance Sheet (Topic 210) 13 a nonrecurring basis and are written down to fair value only upon initial recognition or collateral valuations. total reported fair value of $1,861,741. Fair value amounts are based on internally developed of $2, 151,773 were reduced by specific valuation allowance allocations totaling $290,032 to a balance sheets were debt securities held as investments, certain collateraldependent impaired $1,263,973 were reduced by specific valuation allowance allocations totaling $121,449 to a total reported fair value of $1,142,524. At December 31, 2011, impaired loans with a carrying value whereas impaired loans and foreclosed property are carried at the lower of cost or fair value on subsequent impairment. At December 31, 2012, impaired loans with a carrying value of loans and certain foreclosed property. Debt securities held as investments are measured at fair value on a recurring basis with changes in fair value recognized as a change in net assets, At December 31, 2012 and 2011, the only items carried at fair value in the accompanying NOTE 2 FAIR VALUE MEASUREMENTS Update (ASU) , Balance Sheet (Topic 210) ASU is effective beginning on January 1, The Company is in the have on its financial statements. agreements, securities borrowing/lending arrangements, and derivative instruments that are January 2013, and clarifies that ordinary trade receivables are not within the scope of ASU process of evaluating the impact, if any, the adoption of this accounting standard update will eligible for offset in the statement of financial position and/or subject to a master netting Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities was issued in both gross and net information about financial instruments, such as sales and repurchase Liabilities. ASU amends Topic 210, Balance Sheet, to require an entity to disclose Disclosures about Offsetting Assets and In December 2011, the Financial Accounting Standards Board issued Accounting Standards Effects of Recent Accounting Guidance Accordingly, such information should be read in conjunction with the Company s consolidated in conformity with accounting principles generally accepted in the United States of America. Certain reclassifications have been made in the 2011 consolidated financial statements to and changes in net assets includes certain prioryear comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation conform to the method of presentation used in The consolidated statement of activities financial statements for the year ended December 31, 2011, from which the summarized information was derived. Reclassifications and Summarized Financial Information

16 : December31, 2012 Total Level I Level 2 Level 3 The fair value measurements by input level follow: NOTE 2 FAIR VALUE MEASUREMENTS (Continued) 14 of risk. The Company makes loans to small businesses located in rural, economically disadvantaged unable to obtain credit from conventional financing sources, have a higher than typical degree provide working capital and equipment financing to undercapitalized businesses that may be areas of Mississippi, Louisiana and Arkansas. Such loans, the proceeds of which normally NOTE 5 LOANS AND COMMITMENTS S 765,493 $ 774,415 $ 1,016,396 $ 1,045,742 U.S. Government and federal agencies $ Municipal bonds 749, , , ,170 Asset and mortgagebacked securities 15,750 15,619 17,886 15,963 $ $ 249,266 $ 254,609 December31, Cost Fair Value Cost Fair Value Debt securities, presented in the financial statements at fair value, are categorized as follows: NOTE 4 DEBT SECURITIES HELD AS INVESTMENTS S 805,367 $ %5,953 of grant, based on 1.25% (2012) and 1.2% (2011) discount rates (19,633) (12,092) Less adjustment to refie grants receivable at fair value at the date Receivable in less than one year $ 525,000 $ 953,045 Receivable in one to five years 300,000 25, , ,045 December31, support of the Company s programs as follows: The Company s management anticipates grants receivable will be received and available for NOTE 3 GRANTS RECEIVABLE Foreclosed property $ 378,571 $ 378,571 Impairedloans $1,861,741 $1,861,741 Debt securities $ 1,045,742 $ 1,045,742 December31, 2011 Foreclosed property $ 365,865 $ 365,865 Debt securities $ 774,415 $ 774,415 Impaired loans $ 1,142,524 $ 1,142,524

17 Notes to Financial. Statements NOTE 5 LOANS AND COMMITMENTS (Continued) Loans other than consumer mortgage loans held for sale and the loan receivable from affiliate consisted of the following: December31, Commercial loans $ 51,719,369 $ 53,972,646 Forgivable mortgage loans held by Home Again 975,914 1,199,657 Other consumer mortgage loans not held for sale 9,904 35,107. Ailowance for loan losses 2 (1,705,668) (1,670,659). $ 50,999,519 $ 53,536,751 Included in commercial loans are New Market Tax Credit Program loans originated by community development entities which aggregated approximately $33,350,000 and $33,829,000 at December 31, 2012 and 2011, respectively. These loans typically have seven year repayment terms but include interestonly loans of approximately $28,791,000 at December 31, 2012 and 2011, respectively, which will begin to mature in A summary of the commercial loans and related allowance for loan losses evaluated for impairment both individually and collectively is as follows: Loans Allowance December 31, 2012 Individually Collectively Individually Collectively Net Commercial loans secured by: Commercial real estate $ 939,850 $ 18,434,449 $ 45,026 $ 299,927 $ 19,029,346 Single family real estate 13,1 17 5,787, ,729 5, Multifamily real estate 6,854, ,998 6, Other business assets 559,346 14,936,090 34, ,831 14,891,973 Construction 1,482,959 96,392 1,386,567 Unsecured commercial loans 95,042 2,616,275 42, ,196 2,543,184 Totals $ $ $ $ $ December31, 2011 Commercial loans secured by: Commercial real estate $ $ 19,544,060 $ 44,435 $ 253,140 $ 20,163,160 Single family real estate 14,160 5,292, ,050 5,103,698 Multifamily real estate 733,101 7,983,849 53, ,116 8,399,741 Other business assets 706,416 15,010,197 23, ,530 15,140,700 Unsecured commercial loans 183,672 3,587, , ,791 3,494,688 Totals S S $ S S Transactions in the allowance for loan losses are summarized as follows: December31, Balanceatbeginningofyear $ 1,670,659 $ 1,605,492 Provisions charged to program expense 261, ,225 Loans charged off and foreclosed (281,125) (800,651) Loan recoveries 54,975,593 Balance at end of year $ 1,705,668 $ 1,670,659 15

18 Year ended Beginning of Provision for Balance at NOTE 5 LOANS AND COMMITMENTS (Continued) Balance at Changes in the allowance for loans losses by portfolio class were as follows: 16 The Company had impaired loans of approximately $1,607,000 and $2,554,000 as of 2012 and 2011, respectively. Impaired loans approximating $343,000 and $402,000 at approximately $21,000 in 2012 and $173,000 in allocated to these loans. The average balance of impaired loans was approximately $2,081,000 in 2012 and $3,466,000 in Income recognized on impaired loans was December 31, 2012 and 2011, respectively. There was approximately $121,000 and $290,000 December 31, 2012 and 2011, respectively, have no allowance for loan losses specifically Single family real estate 10,931 Other business assets 85,884 December 31, 2011 Commercial loans secured by: Commercial real estate $ 858,913 $ (551,120) $ 90,228 $ (100,446) $ 297,575 Other business assets , ,463 Multifamily real estate 317,209 (25,211) Year ended Multifamily real estate 385,679 S 1,670,659 $ (281,125) $ 54,975 $ 261,159 $ 1,705, ,119 (68,470) 490,029 $ 1,605,492 $ (800,651) $ 96,593 $ 769,225 $ 1,670,659 7 customers totaling approximately $903,000 at December 31, 2012, and nonaccrual loans with 13 customers totaling approximately $2,149,000 at December 31, Loans which were in the allowance for loan losses specifically allocated to these impaired loans at December 31, December31, 2012 and 2011, respectively. past due 90 days or more and still accruing interest approximated $87,000 and $158,000 at loans at December 31, 2012 and 2011, respectively. The Company had nonaccrual loans with Approximately $56,000 and $184,000 of the allowance for loan losses relates to nonaccrual Impaired Loans credit practices. The Company uses the same credit policies in making these commitments extending loans to customers of commercial banks and are subject to the Company s normal commitments (including unused lines of credit) was $1,629,000 and $11,460,000 at December and conditional obligations as it does for onbalance sheet instruments. The Company s maximum exposure to credit loss in the event of nonperformance by the other party for loan customers. These arrangements have credit risk essentially the same as that involved in Loan commitments are made to accommodate the financial needs of the Company s 31, 2012 and 2011, respectively. 575, , ,209 Unsecured commercial loans 264,085 (249,531) 6, , ,912 Single family real estate 203,050 (64,825) 62, ,729 Construction 96,392 96, ,998 Unsecured commercial loans 276,912 (190,553) 2, ,133 December 31, 2012 Year Chargeoffs Recoveries Loan Losses End of Year Commercial loans secured by: Commercial real estate $ 297,575 $ (25,747) $ 52,965 $ $ 344,953

19 NOTE 5 LOANS AND COMMITMENTS (Continued) Information relative to impaired loans is as follows: Total Loans Total Loans Unpaid with No with a Principal Specific Specific Specific December 31, 2012 Balance Allowance Allowance Allowance Commercial loans secured by: Commercial real estate $ $ 330,265 $ 609,585 $ 43,880 Single family real estate 13,117 13,117 Other business 559, ,346 34,632 Unsecured commercial loans 95,042 95,042 42,937 assets Total impaired loans $1,607,355 $ $1,263,973 $ 121,449 December31, 2011 Commercial loans secured by: Commercial real estate $ 916,675 $ 370,238 $ 546,437 $ 44,435 Single family real estate 14,160 14,160 Multi4amily real estate 733, ,101 53,093 Other business 706,416 17, ,563 23,383 Unsecured commercial loans 183, , ,121 assets Total impaired loans $2,554,024 $ 402;251 $2,151,773 $ 290,032 The Company determines delinquency status based on recent payment history. analysis of past due and nonaccrual commercial loans by class is as follows: An aging Past Due Past Due Greater Than December31, 2012 current 3089 Days 90 Days Nonaccrual Total Commercial loans secured by: Commercial real estate $ 18,605,206 $ 212,352 $ 87,456 $ 469,285 $ 19,374,299 Single family real estate 5,787,438 13,117 5,800,555 Multifamily real estate 6,131, ,415 6,854,803 Other business assets 14,891, , ,330 15,495,436 Construction 1,482, ,959 Unsecured commercial loans 2,542, ,476 11,445 2,711,317 Commercial loans $ 49, $ 1288,448 $ 87,456 $ 903,060 $ December31, 2011 Commercial loans secured by: Commercial real estate $ 19,569,259 $ 66,155 $ $ 825,321 $ 20,460,735 Single family real estate 5,292,588 14,160 5,306,748 Multifamily real estate 7,983, ,101 8,716,950 Other business assets 15,063, , ,767 15,716,613 Unsecured commercial loans 3,660,857 28,642 82,101 3,771,600 Commercial loans $51,570,105 $ 94,797 $ $ ,646 17

20 $ NOTE 5 LOANS AND COMMITMENTS (Continued) Credit Quality Indicators The credit quality indicator utilized by the Company to internally analyze the loan portfolio is the internal risk rating. At the time of loan origination, a risk rating based on an eight point grading system is assigned to each commercialrelated loan based on loan officer and management assessments of the risk associated with each particular loan. The first four loan ratings are pass rated credits. Loans classified as pass credits have no material weaknesses and are performing as agreed. Loans classified as special mention have a potential weakness that deserves management s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company s credit position at some future date. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a welldefined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Loans classified as loss are considered uncollectible and their continuance as a loan is not warranted. A summary of the carrying amount of commercial loans by credit quality indicator is as follows: Special Pass Mention Substandard Doubtful December 31, 2012 Categories Category Category Category Total Commercial loans secured by: Commercial real estate $ 18,434,449 $383,109 $ 556,741 Single family real estate 5,787,438 13,117 $ 19,374,299 5,800,555 Multifamily real estate 6,854,803 6,854,803 Other business assets 14,936, , ,096 15,495,436 Construction 1,482,959 1,482,959 Unsecured commercial loans 2,616,275 46,863 36,734 11,445 2,711,317 Totals $ 50,112,014 $806,222 $ 49,851 $ 751,282 $ 51,719,369 December31, 2011 Commercial loans secured by: Commercial real estate $ 19,544,060 $ $ 69,417 $ 847,258 $ 20,460,735 Single family real estate 5,292,588 14,160 5,306,748 Multifamily real estate 7,983, ,101 8,716,950 Other business assets 15,010,197 53, ,061 15,716,613 Unsecured commercial loans 3,587,928 16, ,505 3,771,600 Totals $ 51,418,622 $ 69,522 $ 69,417 $2,415,085 $ 53,972,646 18

21 NOTE 6 INVESTMENT December31, $ follows: Unaudited balance sheet information of Hickory Holdings, LLC as of December 31, 2012, is as IN AFFILIATED COMPANY 19 the accompanying consolidated statement of activities. No grants were passed through to approximately $2,389,000 and $1,260,000 at December 31, 2012 and 2011, respectively. HFCU during Accounts payable to HFCU for grants and contractual services aggregated $2,817,000 in 2012 for grants to HFCU which are included in development finance expense in to its obligation to reimburse certain operating expenses of HFCU and incurred approximately 2013 $ 1,105, : 2,378, : Maturities of secondary capital loans at December 31, 2012 are scheduled as follows: fixed rate of 3% totaling approximately $55,000 matures in Interest income received from the account. If such loans are not required to be repaid, they will be recognized as expense in the period the losses are incurred. The advances include a fixed rate loan at 5.45% for operating expenses, or (iii) does not have available cash flows for the withdrawals of funds for $4,050,000 with quarterly principal payments of $250,000 beginning in 2015 and three variable rate loans aggregating $8,925,000 with interest floors and caps from 5% , with principal payments required each year until maturity. An additional loan with a HFCU (i) is unable to fully service existing senior indebtedness, (ii) is unable to satisfy its HFCU relative to the secondary capital loans approximated $630,000 and $678,000 for the years Secondary capital of HFCU are loans that require principal repayments beginning in 2012, unless ended December31, 2012 and 2011, respectively. NOTE 7 SECONDARY CAPITAL OF HOPE FEDERAL CREDIT UNION $ 10,746,865 Equity of common unitholders 96,865 10,746, %, 2,852,500. 1,000,000 1,000,000 $ 16,311,549 In addition, the Company incurred expenses approximating $1,448,000 and $2,499,000 relative Thereafter 7,975,000 maturing in Cash and cash equivalents $ 50,107 lnvestrrent in Hickory Lea&r, LLC 10, Liabilities and Menters Equity Equityofpreferredunitholciers $ 10,650,000 Assets

22 Decanter 31, Property and equipment consist of the following: NOTE 8 PROPERTY AND EQUIPMENT 20 * that agreement. The proceeds of both facilities are to be used for small business lending and 2011, respectively. During 2011, the Company entered into two loan facilities with a bank and a nonbank lender to 31, 2012, were $4,094,000 and $3,000,000, respectively. The outstanding balances under on the note payable to MDCIIC. Interest paid approximated $1,010,000 and $987,000 in 2012 provide funding in amounts up to $10,000,000 and $3,000,000, respectively. The bank facility facilities relative to the note payable to HFCU and restricted cash of approximately $2,743,000 unsecured except for collateral consisting of a first real estate mortgage on the corporate office delinquent loan ratios, a current ratio, a liquidity reserve and restrictions on the amount of support which may be provided to its affiliates. All notes payable of the Company are these loan facilities at December 31, 2011, were $1,550,000 and $1,300,000, respectively. The agreements contain certain financial covenants, including but not limited to, net assets ratios, may be increased and extended at the discretion of the lender and subject to certain terms of activities of the Company. The outstanding balances under these loan facilities at December NOTE 11 NOTES PAYABLE Plan were approximately $64,000 in 2012 and $60,000 in Company contributes 100% of the first 4% contributed by each employee. Expenses of the The Company sponsors a defined contribution 401(k) plan (the Plan ) for all employees. The NOTE 10 EMPLOYEE BENEFIT PLAN Impairments regnized (29,686) (18,274) Transfer from loans 293, ,900 Transfer to loan guarantees receivab e (284,533) Balance at beginning of year $ 378,571 $ 822,791 Balance at end of year $ $ 378,571 An analysis of foreclosed property follows: December31, Carrying value of foreclosed property sold (10,709) (277,313) NOTE 9 FORECLOSED PROPERTY 4,731,916 4,428,940 Accumulated depreciation (2,709,823) (2,240,632) Building and improvements 1,671,447 1,632,107 Office equipment arid other 576, ,820 Coirçuter equipn ent $ 2,484,292 $ 2,240,013 $ $ 2,188,308

23 . $ NOTE 11 NOTES PAYABLE (Continued) Notes payable consisted of the following December31, 1% notes payable: interest due annually and maturing 2020 through 2024 interest due quarterly and maturing from 2012 through 2017 Notes payable to banks with interest due quarterly: interest payable at %, maturing in interest payable at 5.2%, maturing in September 2014 interest payable at 6.875%, maturing in December 2017 Note payable beaing interest at 44.30% with interest due ntnthy maturing in Decanter 2016 maturing in January 2018 Note payable to Local Iritiative Support Corp. bearing interest at6% with interest due quarterly, mattring % mortgage payable to FIFCU with rmntny installments of $7,773, inciuding interest at prime plus 1.5%, payable until final ballon in December % note payable to HFCU, payable in monthly installments of $5,849 through May 2016 MDCIIC note payable to Leflore County bearing interest at a blended fixed rate of 5.48%, $250,000 principal paid annually, maturing August 2023 Note payable bearing interest at 4.25%, maturing March % notes payable: interest due quarterly and matuing 2014 tpwough 2017 interest due annually and maturing in Decanter 2015 Note payable to nonprofit foundation bearing interest at 2.5% with interest due quarterly, maturing August 2016 Interest free note payable aid maturing in May2013 Cthernotes payable, with interest at 1% to 3% $ 6,500,000 $ 1,500,000 2,500,000 3,000,000 2,516,000 3,083, , ,250 3,000,000 3,000, ,00O 1,300,000 1,550,000 40% ,000 1,000,000 1,127,219 1,165, , ,520 4,000,000 4,250, , ,000 1,000, Z000, , , ,0% 500, , , ,000 1,050,( Total notes payable $ 32,219,902 $ 23,973,726 Notes payable maturities at December31, 2012 are as follows: ,925, : 3,545, ,.. 3,913, ,764, ,439,460 Thereafter 15,631,649 $ 32,219,902 NOTE 12 NONCONTROLLING INTEREST AND NET ASSETS ECDI has issued 220 Class A units at $25,000 per unit. The owners of the Class A units may elect three of the seven members of the management committee of ECDI. The other four 21

24 ECDA is the primary investing member of ECDNM. The Company is the sole managing sole managing member of ECDA and elects three of the five board of directors of ECDNM. members are appointed by the Company, the sole Class B unit holder. The Company is the NOTE 12 NONCONTROLLING INTEREST AND NET ASSETS (Continued) 22 accompanying financial statements as an equity transaction. Therefore, no gain or loss Was holding period, to the Company for $200,000. The transaction has been reflected in the noncontrolling interest members of a put option allowing the noncontrolling member to put noncontrolling member to liquidate their interest, subsequent to the required sevenyear their interest to the managing member (). Such option allowed the January 1, Investor Dividends Earnings by Controlling Unrealized December 31! 2012 Contributions Paid (Loss) Interest Gains 2012 ECDI $ 1,846,267 $ $ $(210,128) $ $ 1,294 $ 1,637,433 ECDA 6,237,941 (256,329) 240,825 (990,560) 5,231,877 ECD Plus 7,989,662 (655,098) 352,638 7,687,202 ECD First 2,372,462 (1,800) 2,370,662 ECD Central 4,850,000 (29,050) 29,050 4,850,000 ECDNM3 8,777,015 (355,428) 286,879 8,708,466 ECDNM4 10,530,021 (85,899) 106,410 10,550,532 ECDNMS 10,650,000 10,650,000 $ 42,603,368 $ 10,650,000 $ (1,381,804) $ 803,874 $ (990,560) $ 1,294 $ 51,686,172 Balance Net Acquisition Net Balance January 1, Investor Dividends Earnings by Controlling Unrealized December 31, 2011 Contributions Paid (Loss) Interest Losses 2011 ECDI $ 1,969,842 $ $ $(123,146) $ $ (429) $ 1, ECDA 6,290,143 (290,721) 238,519 6,237,941 ECD Plus 7,645, ,883 7,989,662 ECD First 2,374,262 (1,800) 2,372,462 ECD Central 5,000,000 (29,466) (120,534) 4,850,000 ECDNM3 8,776,847 (220,104) 220,272. 8,777,015 ECDNM4 11,000,000 (35,314) (434,665) 10,530,021 $ 32,056,873 $ 11,000,00O $ (575,605) $ 122,529 $ $ (429) $ 42,603,368 In June 2012, HEC acquired a 28.57% interest in ECDA as a result of the exercise by one of its Baance Net Acquisition Net GaLance The changes in noncontrolling interest are as follows: $5,839,000 (2011) for financial assistance programs offered by the Company. Permanently and Temporarily restricted net assets include approximately $420,000 of net assets of restricted net assets include approximately $1,343,000 and $1,143,000 at December 31, 2012 and 2011, respectively, of revolving loan funds available to customers of the Company. Dividends in arrears relative to the ECDI Class A units totaled $114,775 at December 31, 2012 Home Again at December 31, 2012 and 2011 and approximately $3,199,000 (2012) and distributions from these entities during 2012 and of directors of these entities, the Company has only a minor investment in these entities and two of the three board of directors of each company. Although the Company controls the board member of ECD Plus, ECD First, ECD Central, ECDNM3, ECDNM4 and ECDNM5 and elects thus receives minimal allocations of earnings or losses. Further, the Company received no

25 subsidiary and the difference between the consideration received ($200,000) and the amount recognized in the consolidated statement of activities. The carrying amount of the noncontrolling interest was adjusted to reflect the liquidation of its ownership interest in the NOTE 12 NONCONTROLLING INTEREST AND NET ASSETS (Continued) 23 Totals $ 11,652,841 $ 11,246,870 Equipment, furniture and fixtures maintenance 192, ,895 Bank and payroll fees 298, ,726 Dues, fees and memberships 28,198 27,816 Staff recruitment and relocation 6,283 23,672 Impairment loss on foreclosed assets 29,686 18,274 Years ended December31, Contractual services 3,134,060 1,602,686 Salaries, employee taxes and benefits $ 3,021,475 $ 2,642,120 Miscellaneous 19,922 6,772 Rent and employee parking 85, ,542 Interest 1,028,214 1,023,522 Depreciation and amortization 469, ,139 Travel 157, ,616 Provision for loan losses 261, ,225 HFCLJ operational support 1,448,000 2,499,176 Foreclosed property expense 48,993 11,682 Forgiveness of mortgage loan debt 223, ,743 Conferences and employee training 50,713 59,954 Insurance 180, ,089 Telephone and utilities 563, ,479 Taxes and licenses 8,087 7,784 Servicefees 38,929 51,841 Repairs and maintenance 114,940 94,889 Office supplies 243, ,368 A summary of expenses presented by natural classification follows: NOTE 14 NATURAL CLASSIFICATION OF EXPENSES institutions and believes that the risk of any loss is minimal. December 31, The Company periodically assesses the financial condition of the balances at a security brokerage firm where no amounts were in excess of insured limits at The Company maintains cash balances at a financial institution in excess of insured limits by approximately $12,733,000 at December 31, The Company also maintains cash NOTE 13 CONCENTRATION OF CREDIT RISK Company. by which the noncontrolling interest was adjusted was recognized in equity attributable to the

26 Total liabilities and net assets $ 3,932,857 $ 5,212,370 $ 1,015,007 $ 45,114,114 $ 6.1,761,797 $ (17,539;044) $ 105,497,101 As of December31, 2012 Assets ECD Mid Delta Schedule I Consolidating Statement of Financial Position Investments, Community Home Hope New Markets LLC & Individual Again. Enterprise Tax Credit Consolidated Investment Corp. Inc. Corporation Companies Eliminations Consolidated Cash and cash equivalents $ 486,404 $ 1,789,649 $ 10,041 $ 8,565,674 $ 1,936,337 $ Grants receivable Contract revenue receivable Loan receivable from affiliate Consumer mortgage loans held for sale 5, ,124 1,481, ,307 11, ,223 8, ,531 2,743, , ,389 8,013,876 3,000,990 $ 12,788, , ,149 (9) 193,125 3,215,000 Other loans 975,914 14, ,811 Loan guarantees receivable Debt securities held as investments Investment in affiliate Cash restricted fqr collateral on note payable Investment in subsidiary Secondary capitalof Hope Federal Credit Union Property and equipment, net Foreclosed property ,505,000 11,256,500 10,650,000 1,505,873 5,055,049 2,022,093 (5,430,000) 3,000,990 50,999, , ,415 10,650,000 2,743,380 (12,010,873) 16,311,549 2,022, ,936 Other assets 585, ,713 10,369 68,705 29, ,351 (98,162) Total assets $ 3,932,857 $ 5,212,370 $ 1,015,007 $ 45,114,114 $ 67,761,797 $ (17,539,044) $ 105,497,101 Liabilities and net assets Liabilities: Accounts payable and accrued expenses $ 477,719 $ 172,337 $ 62,594 $ 864,250 $ 72,961 $ (1,098,060) $ 551,801 Payable to Hope Federal Cred Union 491 Funds held in escrow Due to affiliates 131,539 Notes payable 1,500,000 4,000,000 3,164,693 2,388,380 23,097 4,255,350 24,653,902 2,388,871 3,187,790 (4,386,889) 2,066,000 32,219,902 Total liabilities 2,109,749 7,337,030 85,691 27,906,532 6,394,311 (5,484,949) 38,348,364 Total noncontrolling interests 1,637,433 50,048,739 Other unrestricted net assets 185,675 (2,124,660) 509,531 12,665,610 11,318,747 (12,054,095) 10,500,808 Temporarily restricted Permanently restricted 1,342, ,785 3,199,460 51,686,172 3,619,245 1,342,512 Total net assets 1,823,108 (2,124,660) 929,316 17,207,582 61,367,486 (12,054,095) 67,148,737 24

27 controlling Total net assets at end of year $ 1,823,108 $ (2,124,660) $ 929,316 $ 17,207,582 $ 61,367,486 $ (12,054,095) $ 67,148,737 $ 4,737,823 1,448, ,256 1,191,291 $ Year ending_december31,_2012 Revenues and gains Grants and contributions Inkind contributions Interest, dividends and related fees: Loans and other investments Debt securities and cash equivalents Net realized and unrealized gains (losses) on debt securities available for sale Gain on sale of assets Contract services revenue Other income Total revenues and gains Expenses Program expenses: $ ECD Investments, LLC Consolidated 37,389 Schedule 2 Consolidating Statement of Activities and Changes in Net Assets 2, Mid Delta Community & Individual Investment Corp. $ 112,533 1,959 Development finance 275, ,383 Housing initiative Hope Federal Credit Union Policy and advocacy Other programs General and administration expense Fundraising and communication $ Home Hope New Markets Again, Enterprise Tax Credit Inc. corporation Companies Eliminations Consolidated ,900 2,700,291 $ 1202,146 60,266 (21,589) 27, ,203 1,556,482 1 $ 2,700,291 99,900 15,580 57, , ,531,167 1,556,483 (414,530) ,086 (209,162) (205,368) 2,699,368 65,452 (20,295) 27, ,835 16,293 5,845, ,332 (414,530) 5,806, , ,858 1,448, ,256 1,191, , , ,086 8,358, (414,530) 9,655,140 1,735, ,353 1,735, ,353 Total expenses 275, , ,086 10,355, ,332 (414,530) 11,652,841 Change in net assets before non controlling interests (218,529) (59Q,891) (227,795) (5,824,676) 1,054,151 Noncontrolling interests in subsidiaries income 208,834 Change in net assets attributable (1,014,002) to controlling interest (9,695) (590,891) (227,795) (5,824,676) 40,149 Capital contributions interest Acquisition of noncontrolling interest Net assets attributableto controlling interest: 1, ,556 (5,807,740) (805,168) (6,612,908) (1,065) ( ) 790,558 At beginning of year 195,370 (1,533769) 1,157,111 23,032,258 10,286,977 (11,853,032) 21,284,915 At end of year 185,675 (2,124,660) 929,316 17,207,582 11,318,747 (12,054,095) 15,462,565 Net assets of noncontrolling interests (Note 12) 1,637,433 50,048,739 51,686,172 25

28 Total assets $ 22,894,543 $ 7,687,302 $ 2,376,112 $ 4,850,004 $ 8,715,977 $ 10,586,794 $ 10,651,065 $ ,797 Total net assets 16,546,859 7,687,302 2,370, ,500 8,709,366 10,551,632 10,651, ,486 Total liabilities and net assets $ 22, $ 7,687,302 $ 2,376,112 $ 4,850,004 $ 8,715,977 $ 10,586,794 $ 10, ,761, As of December31, 2012 Schedule 3 Details of New Markets Tax Credit Companies Combining Statement of Financial Positon Assets ECDA and Subsidiary ECD Plus ECO First ECD Central ECDNM3 ECDNM4 ECDNM5 Combined Cash and cash equivalents $ 1,133,043 $ 744,262 $ 112 $ 4 $ 958 $ 56,893 $ 1,065 $ 1,936,337 Contract revenue receivable Other loans Investment in subsidiary 10,505,000 Investment in affiliate Secondary capital of HFCU 11,256,500 11,383 6,931,657 27,769 24,997 2,376,000 4,850,000 8,687,250 10,504,904 10,650,000 64,149 33,349,311 10,505,000 10,650,000 11, Liabilities and net assets Liabilities: Accounts payable and accrued expenses $ 31,684 $ $ Due to affiliates 4,250,000 5,350 $ (496) $ 6,611 $ 35,162 $ $ 72,961 Notes payable 2,066,000 2,066,000 Total liabilities 6,347,684 5,350 4,255,350 (496) 6,611 35, ,311 Total noncontrolling interests 5,231,877 7,687,202 2,370,662 4,850,000 8,708,466 10,550,532 10,650,000 50,048,739 Other unrestricted net assets 11,314, , ,318,747

29 Total net assets at end of year $ 16,546,859 S 7,687,302 $ 2,370,762 $ 4,850,500 $ 8,709,366 $ 10,551,632 $ 10,651,065 $ ,486 Year ending December 31, 2012 Schedule 4 Details of New Markets Combining Statement of Activities and Tax Credit Companies Changes in Net Assets Revenues and gains Interest, dividends and related fees: ECDA and Subsidiary ECD Plus ECD First ECD Central ECDNM3 ECDNM4 ECDNM5 Combined Loans and other investments $ 630,158 $ 367,437 $ Debt securities and cash equivalents 1 1 Total revenues and gains 630, ,437 Expenses $ 54,050 54,050 $ 386,429 $ 118,408 $ 386, ,408 Program expenses: Development finance 349,185 14, ,000 99,550 11,998 Total expenses ,799 1,800 25,000 99,550 11,998 Change in net assets before non controlling interests 280, ,638 (1,800) 29, , ,410 Noncontrolling interests in subsidiaries income (240,825) (352,638) 1,800 (29,050) (286,879) (106,410) Change in net assets attributable to controlling interest 40,149 Capital contributions controlling interest $ 1,556,482 1,556, , ,332 1,054,151 (1,014,002) 40,149 Acquisition of noncontrolling interest 990, ,556 Net assets attributable to controlling interest: 1,065 1,065 At beginning of year 10,284, ,100 10,286,977 At end of year 11,314, ,100 1,065 11,318,747 Net assets of noncontrolling interests (Note 12) 5,231,877 7,687,202 2,370,662 4,850,000 8,708,466 10,550,532 10,650,000 50,